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[G.R. No. 122191.

October 8, 1998]

SAUDI ARABIAN AIRLINES, petitioner, vs. COURT OF APPEALS,


MILAGROS P. MORADA and HON. RODOLFO A. ORTIZ, in his
capacity as Presiding Judge of Branch 89, Regional Trial Court
of Quezon City, respondents.

DECISION
QUISUMBING, J.:

This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul
and set aside the Resolution dated September 27, 1995 and the Decision dated April
[1] [2]

10, 1996 of the Court of Appeals in CA-G.R. SP No. 36533, and the Orders dated
[3] [4] [5]

August 29, 1994 and February 2, 1995 that were issued by the trial court in Civil Case
[6] [7]

No. Q-93-18394. [8]

The pertinent antecedent facts which gave rise to the instant petition, as stated in
the questioned Decision , are as follows:
[9]

On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight


Attendant for its airlines based in Jeddah, Saudi Arabia. x x x
On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff
went to a disco dance with fellow crew members Thamer Al-Gazzawi
and Allah Al-Gazzawi, both Saudi nationals. Because it was almost
morning when they returned to their hotels, they agreed to have
breakfast together at the room of Thamer. When they were in te (sic)
room, Allah left on some pretext. Shortly after he did, Thamer
attempted to rape plaintiff. Fortunately, a roomboy and several security
personnel heard her cries for help and rescued her. Later, the
Indonesian police came and arrested Thamer and Allah Al-Gazzawi,
the latter as an accomplice.
When plaintiff returned to Jeddah a few days later, several SAUDIA
officials interrogated her about the Jakarta incident. They then
requested her to go back to Jakarta to help arrange the release of
Thamer and Allah. In Jakarta, SAUDIA Legal Officer Sirah Akkad and
base manager Baharini negotiated with the police for the immediate
release of the detained crew members but did not succeed because
plaintiff refused to cooperate. She was afraid that she might be tricked
into something she did not want because of her inability to understand
the local dialect. She also declined to sign a blank paper and a
document written in the local dialect. Eventually, SAUDIA allowed
plaintiff to return to Jeddah but barred her from the Jakarta flights.
Plaintiff learned that, through the intercession of the Saudi Arabian
government, the Indonesian authorities agreed to deport Thamer and
Allah after two weeks of detention. Eventually, they were again put in
service by defendant SAUDI (sic). In September 1990, defendant
SAUDIA transferred plaintiff to Manila.
On January 14, 1992, just when plaintiff thought that the Jakarta
incident was already behind her, her superiors requested her to see Mr.
Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi
Arabia. When she saw him, he brought her to the police station where
the police took her passport and questioned her about the Jakarta
incident. Miniewy simply stood by as the police put pressure on her to
make a statement dropping the case against Thamer and Allah. Not
until she agreed to do so did the police return her passport and allowed
her to catch the afternoon flight out of Jeddah.
One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia,
a few minutes before the departure of her flight to Manila, plaintiff was
not allowed to board the plane and instead ordered to take a later flight
to Jeddah to see Mr. Miniewy, the Chief Legal Officer of
SAUDIA. When she did, a certain Khalid of the SAUDIA office brought
her to a Saudi court where she was asked to sign a document written
in Arabic. They told her that this was necessary to close the case
against Thamer and Allah. As it turned out, plaintiff signed a notice to
her to appear before the court on June 27, 1993. Plaintiff then returned
to Manila.
Shortly afterwards, defendant SAUDIA summoned plaintiff to report to
Jeddah once again and see Miniewy on June 27, 1993 for further
investigation. Plaintiff did so after receiving assurance from SAUDIAs
Manila manager, Aslam Saleemi, that the investigation was routinary
and that it posed no danger to her.
In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi
court on June 27, 1993. Nothing happened then but on June 28, 1993,
a Saudi judge interrogated plaintiff through an interpreter about the
Jakarta incident. After one hour of interrogation, they let her go. At the
airport, however, just as her plane was about to take off, a SAUDIA
officer told her that the airline had forbidden her to take flight. At the
Inflight Service Office where she was told to go, the secretary of Mr.
Yahya Saddick took away her passport and told her to remain in
Jeddah, at the crew quarters, until further orders.
On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the
same court where the judge, to her astonishment and shock, rendered
a decision, translated to her in English, sentencing her to five months
imprisonment and to 286 lashes. Only then did she realize that the
Saudi court had tried her, together with Thamer and Allah, for what
happened in Jakarta. The court found plaintiff guilty of (1) adultery; (2)
going to a disco, dancing and listening to the music in violation of
Islamic laws; and (3) socializing with the male crew, in contravention of
Islamic tradition.
[10]

Facing conviction, private respondent sought the help of her employer, petitioner
SAUDIA. Unfortunately, she was denied any assistance. She then asked the Philippine
Embassy in Jeddah to help her while her case is on appeal. Meanwhile, to pay for her
upkeep, she worked on the domestic flight of SAUDIA, while Thamer and Allah
continued to serve in the international flights. [11]

Because she was wrongfully convicted, the Prince of Makkah dismissed the case
against her and allowed her to leave Saudi Arabia. Shortly before her return to Manila,
she was terminated from the service by SAUDIA, without her being informed of the
[12]

cause.
On November 23, 1993, Morada filed a Complaint for damages against SAUDIA,
[13]

and Khaled Al-Balawi (Al- Balawi), its country manager.


On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss which raised [14]

the following grounds, to wit: (1) that the Complaint states no cause of action against
Saudia; (2) that defendant Al-Balawi is not a real party in interest; (3) that the claim or
demand set forth in the Complaint has been waived, abandoned or otherwise
extinguished; and (4) that the trial court has no jurisdiction to try the case.
On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) Saudia [15]

filed a reply thereto on March 3, 1994.


[16]

On June 23, 1994, Morada filed an Amended Complaint wherein Al-Balawi was
[17]

dropped as party defendant. On August 11, 1994, Saudia filed its Manifestation and
Motion to Dismiss Amended Complaint . [18]

The trial court issued an Order dated August 29, 1994 denying the Motion to
[19]

Dismiss Amended Complaint filed by Saudia.


From the Order of respondent Judge denying the Motion to Dismiss, SAUDIA filed
[20]

on September 20, 1994, its Motion for Reconsideration of the Order dated August 29,
[21]

1994. It alleged that the trial court has no jurisdiction to hear and try the case on the
basis of Article 21 of the Civil Code, since the proper law applicable is the law of the
Kingdom of Saudi Arabia.On October 14, 1994, Morada filed her Opposition [22]
(To
Defendants Motion for Reconsideration).
In the Reply filed with the trial court on October 24, 1994, SAUDIA alleged that
[23]

since its Motion for Reconsideration raised lack of jurisdiction as its cause of action, the
Omnibus Motion Rule does not apply, even if that ground is raised for the first time on
appeal. Additionally, SAUDIA alleged that the Philippines does not have any substantial
interest in the prosecution of the instant case, and hence, without jurisdiction to
adjudicate the same.
Respondent Judge subsequently issued another Order dated February 2, 1995,
[24]

denying SAUDIAs Motion for Reconsideration. The pertinent portion of the assailed
Order reads as follows:
Acting on the Motion for Reconsideration of defendant Saudi Arabian
Airlines filed, thru counsel, on September 20, 1994, and the
Opposition thereto of the plaintiff filed, thru counsel, on October 14,
1994, as well as the Reply therewith of defendant Saudi Arabian
Airlines filed, thru counsel, on October 24, 1994, considering that a
perusal of the plaintiffs Amended Complaint, which is one for the
recovery of actual, moral and exemplary damages plus attorneys fees,
upon the basis of the applicable Philippine law, Article 21 of the New
Civil Code of the Philippines, is, clearly, within the jurisdiction of this
Court as regards the subject matter, and there being nothing new of
substance which might cause the reversal or modification of the order
sought to be reconsidered, the motion for reconsideration of the
defendant, is DENIED.
SO ORDERED. [25]

Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and
Prohibition with Prayer for Issuance of Writ of Preliminary Injunction and/or Temporary
Restraining Order with the Court of Appeals.
[26]

Respondent Court of Appeals promulgated a Resolution with Temporary Restraining


Order dated February 23, 1995, prohibiting the respondent Judge from further
[27]

conducting any proceeding, unless otherwise directed, in the interim.


In another Resolution promulgated on September 27, 1995, now assailed, the
[28]

appellate court denied SAUDIAs Petition for the Issuance of a Writ of Preliminary
Injunction dated February 18, 1995, to wit:
The Petition for the Issuance of a Writ of Preliminary Injunction is
hereby DENIED, after considering the Answer, with Prayer to Deny
Writ of Preliminary Injunction (Rollo, p. 135) the Reply and Rejoinder, it
appearing that herein petitioner is not clearly entitled thereto (Unciano
Paramedical College, et. Al., v. Court of Appeals, et. Al., 100335, April
7, 1993, Second Division).
SO ORDERED.
On October 20, 1995, SAUDIA filed with this Honorable Court the instant
Petition for Review with Prayer for Temporary Restraining Order dated October 13,
[29]

1995.
However, during the pendency of the instant Petition, respondent Court of Appeals
rendered the Decision dated April 10, 1996, now also assailed. It ruled that the
[30]

Philippines is an appropriate forum considering that the Amended Complaints basis for
recovery of damages is Article 21 of the Civil Code, and thus, clearly within the
jurisdiction of respondent Court. It further held that certiorari is not the proper remedy in
a denial of a Motion to Dismiss, inasmuch as the petitioner should have proceeded to
trial, and in case of an adverse ruling, find recourse in an appeal.
On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for
Temporary Restraining Order dated April 30, 1996, given due course by this
[31]

Court. After both parties submitted their Memoranda, the instant case is now deemed
[32]

submitted for decision.


Petitioner SAUDIA raised the following issues:
I

The trial court has no jurisdiction to hear and try Civil Case No. Q-93-18394
based on Article 21 of the New Civil Code since the proper law applicable is
the law of the Kingdom of Saudi Arabia inasmuch as this case involves what is
known in private international law as a conflicts problem. Otherwise, the
Republic of the Philippines will sit in judgment of the acts done by another
sovereign state which is abhorred.
II.

Leave of court before filing a supplemental pleading is not a jurisdictional


requirement. Besides, the matter as to absence of leave of court is now moot
and academic when this Honorable Court required the respondents to
comment on petitioners April 30, 1996 Supplemental Petition For Review With
Prayer For A Temporary Restraining Order Within Ten (10) Days From Notice
Thereof. Further, the Revised Rules of Court should be construed with
liberality pursuant to Section 2, Rule 1 thereof.
III.

Petitioner received on April 22, 1996 the April 10, 1996 decision in CA-G.R.
SP NO. 36533 entitled Saudi Arabian Airlines v. Hon. Rodolfo A. Ortiz, et al.
and filed its April 30, 1996 Supplemental Petition For Review With Prayer For
A Temporary Restraining Order on May 7, 1996 at 10:29 a.m. or within the 15-
day reglementary period as provided for under Section 1, Rule 45 of the
Revised Rules of Court. Therefore, the decision in CA-G.R. SP NO. 36533
has not yet become final and executory and this Honorable Court can take
cognizance of this case. [33]

From the foregoing factual and procedural antecedents, the following issues
emerge for our resolution:
I.

WHETHER RESPONDENT APPELLATE COURT ERRED IN


HOLDING THAT THE REGIONAL TRIAL COURT OF QUEZON CITY
HAS JURISDICTION TO HEAR AND TRY CIVIL CASE NO. Q-93-
18394 ENTITLED MILAGROS P. MORADA V. SAUDI ARABIAN
AIRLINES.
II.

WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING


THAT IN THE CASE PHILIPPINE LAW SHOULD GOVERN.
Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at
the outset. It maintains that private respondents claim for alleged abuse of rights
occurred in the Kingdom of Saudi Arabia. It alleges that the existence of a foreign
element qualifies the instant case for the application of the law of the Kingdom of Saudi
Arabia, by virtue of the lex loci delicti commissi rule.
[34]

On the other hand, private respondent contends that since her Amended Complaint
is based on Articles 19 and 21 of the Civil Code, then the instant case is properly a
[35] [36]

matter of domestic law.[37]

Under the factual antecedents obtaining in this case, there is no dispute that the
interplay of events occurred in two states, the Philippines and Saudi Arabia.
As stated by private respondent in her Amended Complaint dated June 23, 1994:
[38]

2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign


airlines corporation doing business in the Philippines. It may be served
with summons and other court processes at Travel Wide Associated
Sales (Phils.), Inc., 3rd Floor, Cougar Building, 114 Valero St., Salcedo
Village, Makati, Metro Manila.
xxxxxxxxx
6. Plaintiff learned that, through the intercession of the Saudi Arabian
government, the Indonesian authorities agreed to deport Thamer and
Allah after two weeks of detention. Eventually, they were again put in
service by defendant SAUDIA. In September 1990, defendant SAUDIA
transferred plaintiff to Manila.
7. On January 14, 1992, just when plaintiff thought that the Jakarta
incident was already behind her, her superiors requested her to see
MR. Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi
Arabia. When she saw him, he brought her to the police station where
the police took her passport and questioned her about the Jakarta
incident. Miniewy simply stood by as the police put pressure on her to
make a statement dropping the case against Thamer and Allah. Not
until she agreed to do so did the police return her passport and
allowed her to catch the afternoon flight out of Jeddah.
8. One year and a half later or on June 16, 1993, in Riyadh, Saudi
Arabia, a few minutes before the departure of her flight to Manila,
plaintiff was not allowed to board the plane and instead ordered to
take a later flight to Jeddah to see Mr. Meniewy, the Chief Legal
Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA
office brought her to a Saudi court where she was asked to sign a
document written in Arabic. They told her that this was necessary to
close the case against Thamer and Allah. As it turned out, plaintiff
signed a notice to her to appear before the court on June 27,
1993. Plaintiff then returned to Manila.
9. Shortly afterwards, defendant SAUDIA summoned plaintiff to report
to Jeddah once again and see Miniewy on June 27, 1993 for further
investigation. Plaintiff did so after receiving assurance from SAUDIAs
Manila manager, Aslam Saleemi, that the investigation was routinary
and that it posed no danger to her.
10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same
Saudi court on June 27, 1993. Nothing happened then but on June 28,
1993, a Saudi judge interrogated plaintiff through an interpreter about
the Jakarta incident. After one hour of interrogation, they let her go. At
the airport, however, just as her plane was about to take off, a SAUDIA
officer told her that the airline had forbidden her to take that flight. At
the Inflight Service Office where she was told to go, the secretary of
Mr. Yahya Saddick took away her passport and told her to remain in
Jeddah, at the crew quarters, until further orders.
11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to
the same court where the judge, to her astonishment and shock,
rendered a decision, translated to her in English, sentencing her to five
months imprisonment and to 286 lashes. Only then did she realize that
the Saudi court had tried her, together with Thamer and Allah, for what
happened in Jakarta. The court found plaintiff guilty of (1) adultery; (2)
going to a disco, dancing, and listening to the music in violation of
Islamic laws; (3) socializing with the male crew, in contravention of
Islamic tradition.
12. Because SAUDIA refused to lend her a hand in the case, plaintiff
sought the help of the Philippine Embassy in Jeddah. The latter
helped her pursue an appeal from the decision of the court. To pay for
her upkeep, she worked on the domestic flights of defendant SAUDIA
while, ironically, Thamer and Allah freely served the international
flights. [39]

Where the factual antecedents satisfactorily establish the existence of a foreign


element, we agree with petitioner that the problem herein could present a conflicts case.
A factual situation that cuts across territorial lines and is affected by the diverse laws
of two or more states is said to contain a foreign element. The presence of a foreign
element is inevitable since social and economic affairs of individuals and associations
are rarely confined to the geographic limits of their birth or conception.[40]

The forms in which this foreign element may appear are many. The foreign [41]

element may simply consist in the fact that one of the parties to a contract is an alien or
has a foreign domicile, or that a contract between nationals of one State involves
properties situated in another State. In other cases, the foreign element may assume a
complex form. [42]

In the instant case, the foreign element consisted in the fact that private respondent
Morada is a resident Philippine national, and that petitioner SAUDIA is a resident foreign
corporation. Also, by virtue of the employment of Morada with the petitioner Saudia as a
flight stewardess, events did transpire during her many occasions of travel across
national borders, particularly from Manila, Philippines to Jeddah, Saudi Arabia, and vice
versa, that caused a conflicts situation to arise.
We thus find private respondents assertion that the case is purely domestic,
imprecise. A conflicts problem presents itself here, and the question of
jurisdiction confronts the court a quo.
[43]

After a careful study of the private respondents Amended Complaint, and the [44]

Comment thereon, we note that she aptly predicated her cause of action on Articles 19
and 21 of the New Civil Code.
On one hand, Article 19 of the New Civil Code provides;
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due and
observe honesty and good faith.
On the other hand, Article 21 of the New Civil Code provides:
Art. 21. Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for damages.
Thus, in Philippine National Bank (PNB) vs. Court of Appeals, this Court held that:
[45]

The aforecited provisions on human relations were intended to expand


the concept of torts in this jurisdiction by granting adequate legal
remedy for the untold number of moral wrongs which is impossible for
human foresight to specifically provide in the statutes.
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its
provisions. Thus, we agree with private respondents assertion that violations of Articles
19 and 21 are actionable, with judicially enforceable remedies in the municipal forum.
Based on the allegations in the Amended Complaint, read in the light of the Rules
[46]

of Court on jurisdiction we find that the Regional Trial Court (RTC) of Quezon City
[47]

possesses jurisdiction over the subject matter of the suit. Its authority to try and hear
[48]

the case is provided for under Section 1 of Republic Act No. 7691, to wit:
Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known
as the Judiciary Reorganization Act of 1980, is hereby amended to
read as follows:

SEC. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exercise
exclusive jurisdiction:

xxxxxxxxx

(8) In all other cases in which demand, exclusive of interest, damages of


whatever kind, attorneys fees, litigation expenses, and costs or the value of
the property in controversy exceeds One hundred thousand pesos
(P100,000.00) or, in such other cases in Metro Manila, where the demand,
exclusive of the above-mentioned items exceeds Two hundred Thousand
pesos (P200,000.00). (Emphasis ours)

xxxxxxxxx
And following Section 2 (b), Rule 4 of the Revised Rules of Courtthe venue, Quezon
City, is appropriate:

SEC. 2 Venue in Courts of First Instance. [Now Regional Trial Court]

(a) x x x x x x x x x
(b) Personal actions. All other actions may be commenced and tried
where the defendant or any of the defendants resides or may be
found, or where the plaintiff or any of the plaintiff resides, at the
election of the plaintiff.
Pragmatic considerations, including the convenience of the parties, also weigh
heavily in favor of the RTC Quezon City assuming jurisdiction. Paramount is the private
interest of the litigant. Enforceability of a judgment if one is obtained is quite
obvious. Relative advantages and obstacles to a fair trial are equally important. Plaintiff
may not, by choice of an inconvenient forum, vex, harass, or oppress the defendant,
e.g. by inflicting upon him needless expense or disturbance. But unless the balance is
strongly in favor of the defendant, the plaintiffs choice of forum should rarely be
disturbed.[49]

Weighing the relative claims of the parties, the court a quo found it best to hear the
case in the Philippines. Had it refused to take cognizance of the case, it would be
forcing plaintiff (private respondent now) to seek remedial action elsewhere, i.e. in the
Kingdom of Saudi Arabia where she no longer maintains substantial connections. That
would have caused a fundamental unfairness to her.
Moreover, by hearing the case in the Philippines no unnecessary difficulties and
inconvenience have been shown by either of the parties. The choice of forum of the
plaintiff (now private respondent) should be upheld.
Similarly, the trial court also possesses jurisdiction over the persons of the parties
herein. By filing her Complaint and Amended Complaint with the trial court, private
respondent has voluntary submitted herself to the jurisdiction of the court.
The records show that petitioner SAUDIA has filed several motions praying for the
[50]

dismissal of Moradas Amended Complaint. SAUDIA also filed an Answer In Ex


Abundante Cautelam dated February 20, 1995. What is very patent and explicit from the
motions filed, is that SAUDIA prayed for other reliefs under the premises. Undeniably,
petitioner SAUDIA has effectively submitted to the trial courts jurisdiction by praying for
the dismissal of the Amended Complaint on grounds other than lack of jurisdiction.
As held by this Court in Republic vs. Ker and Company, Ltd.: [51]

We observe that the motion to dismiss filed on April 14, 1962, aside
from disputing the lower courts jurisdiction over defendants person,
prayed for dismissal of the complaint on the ground that plaintiffs
cause of action has prescribed. By interposing such second ground in
its motion to dismiss, Ker and Co., Ltd. availed of an affirmative
defense on the basis of which it prayed the court to resolve
controversy in its favor. For the court to validly decide the said plea of
defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction
upon the latters person, who, being the proponent of the affirmative
defense, should be deemed to have abandoned its special
appearance and voluntarily submitted itself to the jurisdiction of the
court.
Similarly, the case of De Midgely vs. Ferandos, held that:
When the appearance is by motion for the purpose of objecting to the
jurisdiction of the court over the 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.A special appearance by motion made for the purpose of
objecting to the jurisdiction of the court over the person will be held to
be a general appearance, if the party in said motion should, for
example, ask for a dismissal of the action upon the further ground that
the court had no jurisdiction over the subject matter. [52]

Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of
Quezon City. Thus, we find that the trial court has jurisdiction over the case and that its
exercise thereof, justified.
As to the choice of applicable law, we note that choice-of-law problems seek to
answer two important questions: (1) What legal system should control a given situation
where some of the significant facts occurred in two or more states; and (2) to what
extent should the chosen legal system regulate the situation. [53]

Several theories have been propounded in order to identify the legal system that
should ultimately control. Although ideally, all choice-of-law theories should intrinsically
advance both notions of justice and predictability, they do not always do so. The forum
is then faced with the problem of deciding which of these two important values should
be stressed.[54]

Before a choice can be made, it is necessary for us to determine under what


category a certain set of facts or rules fall. This process is known as characterization, or
the doctrine of qualification. It is the process of deciding whether or not the facts relate
to the kind of question specified in a conflicts rule. The purpose of characterization is
[55]

to enable the forum to select the proper law. [56]

Our starting point of analysis here is not a legal relation, but a factual situation,
event, or operative fact. An essential element of conflict rules is the indication of a test
[57]

or connecting factor or point of contact. Choice-of-law rules invariably consist of a


factual relationship (such as property right, contract claim) and a connecting factor or
point of contact, such as the situsof the res, the place of celebration, the place of
performance, or the place of wrongdoing. [58]

Note that one or more circumstances may be present to serve as the possible test
for the determination of the applicable law. These test factors or points of contact or
[59]

connecting factors could be any of the following:


(1) The nationality of a person, his domicile, his residence, his place of
sojourn, or his origin;
(2) the seat of a legal or juridical person, such as a corporation;
(3) the situs of a thing, that is, the place where a thing is, or is deemed
to be situated. In particular, the lex situs is decisive when real rights
are involved;
(4) the place where an act has been done, the locus actus, such
as the place where a contract has been made, a marriage
celebrated, a will signed or a tort committed.The lex loci actus is
particularly important in contracts and torts;
(5) the place where an act is intended to come into effect, e.g., the
place of performance of contractual duties, or the place where a power
of attorney is to be exercised;
(6) the intention of the contracting parties as to the law that should
govern their agreement, the lex loci intentionis;
(7) the place where judicial or administrative proceedings are instituted
or done. The lex forithe law of the forumis particularly important
because, as we have seen earlier, matters of procedure not going to
the substance of the claim involved are governed by it; and because
the lex fori applies whenever the content of the otherwise applicable
foreign law is excluded from application in a given case for the reason
that it falls under one of the exceptions to the applications of foreign
law; and
(8) the flag of a ship, which in many cases is decisive of practically all legal
relationships of the ship and of its master or owner as such. It also covers
contractual relationships particularly contracts of affreightment. (Underscoring
[60]

ours.)
After a careful study of the pleadings on record, including allegations in the
Amended Complaint deemed submitted for purposes of the motion to dismiss, we are
convinced that there is reasonable basis for private respondents assertion that although
she was already working in Manila, petitioner brought her to Jeddah on the pretense
that she would merely testify in an investigation of the charges she made against the
two SAUDIA crew members for the attack on her person while they were in Jakarta. As
it turned out, she was the one made to face trial for very serious charges, including
adultery and violation of Islamic laws and tradition.
There is likewise logical basis on record for the claim that the handing over or
turning over of the person of private respondent to Jeddah officials, petitioner may have
acted beyond its duties as employer. Petitioners purported act contributed to and
amplified or even proximately caused additional humiliation, misery and suffering of
private respondent. Petitioner thereby allegedly facilitated the arrest, detention and
prosecution of private respondent under the guise of petitioners authority as employer,
taking advantage of the trust, confidence and faith she reposed upon it. As purportedly
found by the Prince of Makkah, the alleged conviction and imprisonment of private
respondent was wrongful. But these capped the injury or harm allegedly inflicted upon
her person and reputation, for which petitioner could be liable as claimed, to provide
compensation or redress for the wrongs done, once duly proven.
Considering that the complaint in the court a quo is one involving torts, the
connecting factor or point of contact could be the place or places where the tortious
conduct or lex loci actus occurred. And applying the torts principle in a conflicts case,
we find that the Philippines could be said as a situs of the tort (the place where the
alleged tortious conduct took place). This is because it is in the Philippines where
petitioner allegedly deceived private respondent, a Filipina residing and working
here. According to her, she had honestly believed that petitioner would, in the exercise
of its rights and in the performance of its duties, act with justice, give her her due and
observe honesty and good faith. Instead, petitioner failed to protect her, she
claimed. That certain acts or parts of the injury allegedly occurred in another country is
of no moment. For in our view what is important here is the place where the over-all
harm or the fatality of the alleged injury to the person, reputation, social standing and
human rights of complainant, had lodged, according to the plaintiff below (herein private
respondent). All told, it is not without basis to identify the Philippines as the situs of the
alleged tort.
Moreover, with the widespread criticism of the traditional rule of lex loci delicti
commissi, modern theories and rules on tort liability have been advanced to offer fresh
[61]

judicial approaches to arrive at just results. In keeping abreast with the modern theories
on tort liability, we find here an occasion to apply the State of the most significant
relationship rule, which in our view should be appropriate to apply now, given the factual
context of this case.
In applying said principle to determine the State which has the most significant
relationship, the following contacts are to be taken into account and evaluated
according to their relative importance with respect to the particular issue: (a) the place
where the injury occurred; (b) the place where the conduct causing the injury occurred;
(c) the domicile, residence, nationality, place of incorporation and place of business of
the parties, and (d) the place where the relationship, if any, between the parties is
centered. [62]

As already discussed, there is basis for the claim that over-all injury occurred and
lodged in the Philippines. There is likewise no question that private respondent is a
resident Filipina national, working with petitioner, a resident foreign corporation engaged
here in the business of international air carriage. Thus, the relationship between the
parties was centered here, although it should be stressed that this suit is not based on
mere labor law violations. From the record, the claim that the Philippines has the most
significant contact with the matter in this dispute, raised by private respondent as
[63]

plaintiff below against defendant (herein petitioner), in our view, has been properly
established.
Prescinding from this premise that the Philippines is the situs of the tort complaint of
and the place having the most interest in the problem, we find, by way of recapitulation,
that the Philippine law on tort liability should have paramount application to and control
in the resolution of the legal issues arising out of this case. Further, we hold that the
respondent Regional Trial Court has jurisdiction over the parties and the subject matter
of the complaint; the appropriate venue is in Quezon City, which could properly apply
Philippine law. Moreover, we find untenable petitioners insistence that [s]ince private
respondent instituted this suit, she has the burden of pleading and proving the
applicable Saudi law on the matter. As aptly said by private respondent, she has no
[64]

obligation to plead and prove the law of the Kingdom of Saudi Arabia since her cause of
action is based on Articles 19 and 21 of the Civil Code of the Philippines. In her
Amended Complaint and subsequent pleadings she never alleged that Saudi law should
govern this case. And as correctly held by the respondent appellate court,
[65]

considering that it was the petitioner who was invoking the applicability of the law of
Saudi Arabia, thus the burden was on it [petitioner] to plead and to establish what the
law of Saudi Arabia is. [66]

Lastly, no error could be imputed to the respondent appellate court in upholding the
trial courts denial of defendants (herein petitioners) motion to dismiss the case. Not only
was jurisdiction in order and venue properly laid, but appeal after trial was obviously
available, and the expeditious trial itself indicated by the nature of the case at
hand. Indubitably, the Philippines is the state intimately concerned with the ultimate
outcome of the case below not just for the benefit of all the litigants, but also for the
vindication of the countrys system of law and justice in a transnational setting. With
these guidelines in mind, the trial court must proceed to try and adjudge the case in the
light of relevant Philippine law, with due consideration of the foreign element or
elements involved. Nothing said herein, of course, should be construed as prejudging
the results of the case in any manner whatsoever.
WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Civil Case
No. Q-93-18394 entitled Milagros P. Morada vs. Saudi Arabia Airlines is hereby
REMANDED to Regional Trial Court of Quezon City, Branch 89 for further proceedings.
SO ORDERED.
Davide, Jr., (Chairman), Bellosillo, Vitug, and Panganiban, JJ., concur.

G.R. No. 72494 August 11, 1989

HONGKONG AND SHANGHAI BANKING CORPORATION, petitioner,


vs.
JACK ROBERT SHERMAN, DEODATO RELOJ and THE INTERMEDIATE APPELLATE
COURT, respondents.

Quiason, Makalintal, Barot & Torres for petitioner.

Alejandro, Aranzaso & Associates for private respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Intermediate Appellate Court (now
Court of Appeals) dated August 2, 1985, which reversed the order of the Regional Trial Court dated
February 28,1985 denying the Motion to Dismiss filed by private respondents Jack Robert Sherman
and Deodato Reloj.
A complaint for collection of a sum of money (pp. 49-52, Rollo) was filed by petitioner Hongkong and
Shanghai Banking Corporation (hereinafter referred to as petitioner BANK) against private
respondents Jack Robert Sherman and Deodato Reloj, docketed as Civil Case No. Q-42850 before
the Regional Trial Court of Quezon City, Branch 84.

It appears that sometime in 1981, Eastern Book Supply Service PTE, Ltd. (hereinafter referred to as
COMPANY), a company incorporated in Singapore applied with, and was granted by, the Singapore
branch of petitioner BANK an overdraft facility in the maximum amount of Singapore dollars
200,000.00 (which amount was subsequently increased to Singapore dollars 375,000.00) with
interest at 3% over petitioner BANK prime rate, payable monthly, on amounts due under said
overdraft facility; as a security for the repayment by the COMPANY of sums advanced by petitioner
BANK to it through the aforesaid overdraft facility, on October 7, 1982, both private respondents and
a certain Robin de Clive Lowe, all of whom were directors of the COMPANY at such time, executed
a Joint and Several Guarantee (p. 53, Rollo) in favor of petitioner BANK whereby private
respondents and Lowe agreed to pay, jointly and severally, on demand all sums owed by the
COMPANY to petitioner BANK under the aforestated overdraft facility.

The Joint and Several Guarantee provides, inter alia, that:

This guarantee and all rights, obligations and liabilities arising hereunder shall be
construed and determined under and may be enforced in accordance with the laws
of the Republic of Singapore. We hereby agree that the Courts of Singapore shall
have jurisdiction over all disputes arising under this guarantee. ... (p. 33-A, Rollo).

The COMPANY failed to pay its obligation. Thus, petitioner BANK demanded payment of the
obligation from private respondents, conformably with the provisions of the Joint and Several
Guarantee. Inasmuch as the private respondents still failed to pay, petitioner BANK filed the above-
mentioned complaint.

On December 14,1984, private respondents filed a motion to dismiss (pp 54-56, Rollo) which was
opposed by petitioner BANK (pp. 58-62, Rollo). Acting on the motion, the trial court issued an order
dated February 28, 1985 (pp, 64-65, Rollo), which read as follows:

In a Motion to Dismiss filed on December 14, 1984, the defendants seek the
dismissal of the complaint on two grounds, namely:

1. That the court has no jurisdiction over the subject matter of the complaint; and

2. That the court has no jurisdiction over the persons of the defendants.

In the light of the Opposition thereto filed by plaintiff, the Court finds no merit in the
motion. "On the first ground, defendants claim that by virtue of the provision in the
Guarantee (the actionable document) which reads —

This guarantee and all rights, obligations and liabilities arising


hereunder shall be construed and determined under and may be
enforced in accordance with the laws of the Republic of Singapore.
We hereby agree that the courts in Singapore shall have jurisdiction
over all disputes arising under this guarantee,
the Court has no jurisdiction over the subject matter of the case. The Court finds and
concludes otherwise. There is nothing in the Guarantee which says that the courts of
Singapore shall have jurisdiction to the exclusion of the courts of other countries or
nations. Also, it has long been established in law and jurisprudence that jurisdiction
of courts is fixed by law; it cannot be conferred by the will, submission or consent of
the parties.

On the second ground, it is asserted that defendant Robert' , Sherman is not a


citizen nor a resident of the Philippines. This argument holds no water. Jurisdiction
over the persons of defendants is acquired by service of summons and copy of the
complaint on them. There has been a valid service of summons on both defendants
and in fact the same is admitted when said defendants filed a 'Motion for Extension
of Time to File Responsive Pleading on December 5, 1984.

WHEREFORE, the Motion to Dismiss is hereby DENIED.

SO ORDERED.

A motion for reconsideration of the said order was filed by private respondents which was, however,
denied (p. 66,Rollo).

Private respondents then filed before the respondent Intermediate Appellate Court (now Court of
Appeals) a petition for prohibition with preliminary injunction and/or prayer for a restraining order (pp.
39-48, Rollo). On August 2, 1985, the respondent Court rendered a decision (p. 37, Rollo), the
dispositive portion of which reads:

WHEREFORE, the petition for prohibition with preliminary injuction is hereby


GRANTED. The respondent Court is enjoined from taking further cognizance of the
case and to dismiss the same for filing with the proper court of Singapore which is
the proper forum. No costs.

SO ORDERED.

The motion for reconsideration was denied (p. 38, Rollo), hence, the present petition.

The main issue is whether or not Philippine courts have jurisdiction over the suit.

The controversy stems from the interpretation of a provision in the Joint and Several Guarantee, to
wit:

(14) This guarantee and all rights, obligations and liabilites arising hereunder shall be
construed and determined under and may be enforced in accordance with the laws
of the Republic of Singapore. We hereby agree that the Courts in Singapore shall
have jurisdiction over all disputes arising under this guarantee. ... (p. 53-A, Rollo)

In rendering the decision in favor of private respondents, the Court of Appeals made, the following
observations (pp. 35-36, Rollo):

There are significant aspects of the case to which our attention is invited. The loan
was obtained by Eastern Book Service PTE, Ltd., a company incorporated
in Singapore. The loan was granted by the Singapore Branch of Hongkong and
Shanghai Banking Corporation. The Joint and Several Guarantee was also
concluded in Singapore. The loan was in Singaporean dollars and the repayment
thereof also in the same currency. The transaction, to say the least, took place in
Singporean setting in which the law of that country is the measure by which that
relationship of the parties will be governed.

xxx xxx xxx

Contrary to the position taken by respondents, the guarantee agreement compliance


that any litigation will be before the courts of Singapore and that the rights and
obligations of the parties shall be construed and determined in accordance with the
laws of the Republic of Singapore. A closer examination of paragraph 14 of the
Guarantee Agreement upon which the motion to dismiss is based, employs in clear
and unmistakeable (sic) terms the word 'shall' which under statutory construction is
mandatory.

Thus it was ruled that:

... the word 'shall' is imperative, operating to impose a duty which may be enforced
(Dizon vs. Encarnacion, 9 SCRA 714). lâwphî1.ñèt

There is nothing more imperative and restrictive than what the agreement
categorically commands that 'all rights, obligations, and liabilities arising
hereunder shall be construed and determined under and may be enforced in
accordance with the laws of the Republic of Singapore.'

While it is true that "the transaction took place in Singaporean setting" and that the Joint and Several
Guarantee contains a choice-of-forum clause, the very essence of due process dictates that the
stipulation that "[t]his guarantee and all rights, obligations and liabilities arising hereunder shall be
construed and determined under and may be enforced in accordance with the laws of the Republic
of Singapore. We hereby agree that the Courts in Singapore shall have jurisdiction over all disputes
arising under this guarantee" be liberally construed. One basic principle underlies all rules of
jurisdiction in International Law: a State does not have jurisdiction in the absence of some
reasonable basis for exercising it, whether the proceedings are in rem quasi in rem or in personam.
To be reasonable, the jurisdiction must be based on some minimum contacts that will not offend
traditional notions of fair play and substantial justice (J. Salonga, Private International Law, 1981, p.
46). Indeed, as pointed-out by petitioner BANK at the outset, the instant case presents a very odd
situation. In the ordinary habits of life, anyone would be disinclined to litigate before a foreign
tribunal, with more reason as a defendant. However, in this case, private respondents are Philippine
residents (a fact which was not disputed by them) who would rather face a complaint against them
before a foreign court and in the process incur considerable expenses, not to mention
inconvenience, than to have a Philippine court try and resolve the case. Private respondents' stance
is hardly comprehensible, unless their ultimate intent is to evade, or at least delay, the payment of a
just obligation.

The defense of private respondents that the complaint should have been filed in Singapore is based
merely on technicality. They did not even claim, much less prove, that the filing of the action here will
cause them any unnecessary trouble, damage, or expense. On the other hand, there is no showing
that petitioner BANK filed the action here just to harass private respondents.

In the case of Polytrade Corporation vs. Blanco, G.R. No. L-27033, October 31, 1969, 30 SCRA 187,
it was ruled:
... An accurate reading, however, of the stipulation, 'The parties agree to sue and be
sued in the Courts of Manila,' does not preclude the filing of suits in the residence of
plaintiff or defendant. The plain meaning is that the parties merely consented to be
sued in Manila. Qualifying or restrictive words which would indicate that Manila and
Manila alone is the venue are totally absent therefrom. We cannot read into that
clause that plaintiff and defendant bound themselves to file suits with respect to the
last two transactions in question only or exclusively in Manila. For, that agreement
did not change or transfer venue. It simply is permissive. The parties solely agreed to
add the courts of Manila as tribunals to which they may resort. They did not waive
their right to pursue remedy in the courts specifically mentioned in Section 2(b) of
Rule 4. Renuntiatio non praesumitur.

This ruling was reiterated in the case of Neville Y. Lamis Ents., et al. v. Lagamon, etc., et al., G.R.
No. 57250, October 30, 1981, 108 SCRA 740, where the stipulation was "[i]n case of litigation,
jurisdiction shall be vested in the Court of Davao City." We held:

Anent the claim that Davao City had been stipulated as the venue, suffice it to say
that a stipulation as to venue does not preclude the filing of suits in the residence of
plaintiff or defendant under Section 2 (b), Rule 4, Rules of Court, in the absence of
qualifying or restrictive words in the agreement which would indicate that the place
named is the only venue agreed upon by the parties.

Applying the foregoing to the case at bar, the parties did not thereby stipulate that only the courts of
Singapore, to the exclusion of all the rest, has jurisdiction. Neither did the clause in question operate
to divest Philippine courts of jurisdiction. In International Law, jurisdiction is often defined as the light
of a State to exercise authority over persons and things within its boundaries subject to certain
exceptions. Thus, a State does not assume jurisdiction over travelling sovereigns, ambassadors and
diplomatic representatives of other States, and foreign military units stationed in or marching through
State territory with the permission of the latter's authorities. This authority, which finds its source in
the concept of sovereignty, is exclusive within and throughout the domain of the State. A State is
competent to take hold of any judicial matter it sees fit by making its courts and agencies assume
jurisdiction over all kinds of cases brought before them (J. Salonga, Private International Law, 1981,
pp. 37-38).lâwphî1.ñèt

As regards the issue on improper venue, petitioner BANK avers that the objection to improper venue
has been waived. However, We agree with the ruling of the respondent Court that:

While in the main, the motion to dismiss fails to categorically use with exactitude the
words 'improper venue' it can be perceived from the general thrust and context of the
motion that what is meant is improper venue, The use of the word 'jurisdiction' was
merely an attempt to copy-cat the same word employed in the guarantee agreement
but conveys the concept of venue. Brushing aside all technicalities, it would appear
that jurisdiction was used loosely as to be synonymous with venue. It is in this spirit
that this Court must view the motion to dismiss. ... (p. 35, Rollo).

At any rate, this issue is now of no moment because We hold that venue here was properly laid for
the same reasons discussed above.

The respondent Court likewise ruled that (pp. 36-37, Rollo):


... In a conflict problem, a court will simply refuse to entertain the case if it is not
authorized by law to exercise jurisdiction. And even if it is so authorized, it may still
refuse to entertain the case by applying the principle of forum non conveniens. ...

However, whether a suit should be entertained or dismissed on the basis of the principle of forum
non conveniens depends largely upon the facts of the particular case and is addressed to the sound
discretion of the trial court (J. Salonga, Private International Law, 1981, p. 49). Thus, the respondent
lâwphî1.ñèt

Court should not have relied on such principle.

Although the Joint and Several Guarantee prepared by petitioner BANK is a contract of adhesion
and that consequently, it cannot be permitted to take a stand contrary to the stipulations of the
contract, substantial bases exist for petitioner Bank's choice of forum, as discussed earlier.

Lastly, private respondents allege that neither the petitioner based at Hongkong nor its Philippine
branch is involved in the transaction sued upon. This is a vain attempt on their part to further thwart
the proceedings below inasmuch as well-known is the rule that a defendant cannot plead any
defense that has not been interposed in the court below.

ACCORDINGLY, the decision of the respondent Court is hereby REVERSED and the decision of the
Regional Trial Court is REINSTATED, with costs against private respondents. This decision is
immediately executory.

SO ORDERED.

Narvasa, Cruz, Gancayco and Griñ;o-Aquino, JJ., concur.

G.R. No. 18081 March 3, 1922

IN THE MATTER OF THE ESTATE OF CHEONG BOO, deceased.


MORA ADONG, petitioner-appellant,
vs.
CHEONG SENG GEE, opponent-appellant.

Kincaid, Perkins & Kincaid and P. J. Moore for petitioner-appellant.


Carlos A. Sobral for opponent-appellant.

MALCOLM, J.:

The two question presented for determination by these appeals may be framed as follows: Is a
marriage contracted in China and proven mainly by an alleged matrimonial letter, valid in the
Philippines? Are the marriage performed in the Philippines according to the rites of the
Mohammedan religion valid? As the decision of the Supreme Court on the last point will affect
marriages consummated by not less than one hundred and fifty thousand Moros who profess the
Mohammedan faith, the transcendental importance of the cause can be realized. We proposed to
give to the subject the serious consideration which it deserves.

Cheong Boo, a native of China, died intestate in Zamboanga, Philippine Islands, on August 5, 1919.
He left property worth nearly P100,000. The estate of the deceased was claimed, on the one hand,
by Cheong Seng Gee, who alleged that he was a legitimate child by a marriage contracted by
Cheong Boo with Tan Dit in China in 1895. The estate was claimed, on the other hand, by the Mora
Adong who alleged that she had been lawfully married to Cheong Boo in 1896 in Basilan, Philippine
Islands, and her daughters, Payang, married to Cheng Bian Chay, and Rosalia Cheong Boo,
unmarried.

The conflicting claims to the estate of Cheong Boo were ventilated in the Court of First Instance of
Zamboanga. The trial judge, the Honorable Quirico Abeto, after hearing the evidence presented by
both sides, reached the conclusion, with reference to the allegations of Cheong Seng Gee, that the
proof did not sufficiently establish the Chinese marriage, but that because Cheong Seng Gee had
been admitted to the Philippine Islands as the son of the deceased, he should share in the estate as
a natural child. With reference to the allegations of the Mora Adong and her daughters Payang and
Rosalia, the trial judge reached the conclusion that the marriage between the Mora Adong and the
deceased had been adequately proved but that under the laws of the Philippine Islands it could not
be held to be a lawful marriage; accordingly, the daughters Payang and Rosalia would inherit as
natural children. The order of the trial judge, following these conclusions, was that there should be a
partition of the property of the deceased Cheong Boo between the natural children, Cheong Seng
Gee, Payang, and Rosalia.

From the judgment of the Judge of First Instance both parties perfected appeals. As to the facts, we
can say that we agree in substance with the findings of the trial court. As to the legal issues
submitted for decision by the numerous assignments of error, these can best be resolved under two
heads, namely: (1) The validity of the Chinese marriage; and (2) the validity of the Mohammedan
marriage.

1. Validity of the Chinese Marriage

The theory advanced on behalf of the claimant Cheong Seng Gee was that Cheong Boo was
married in the city of Amoy, China, during the second moon of the twenty-first year of the Emperor
Quang Su, or, according to the modern count, on February 16, 1985, to a young lady named Tan Dit.
Witnesses were presented who testified to having been present at the marriage ceremony. There
was also introduced in evidence a document in Chinese which in translation reads as follows:

One hundred
years of life and Your nephew, Tan Chao, respecfully
health for both. answers the venerable Chiong Ing, father
of the bridegroom, accepting his offer of
marriage, and let this document serve as
proof of the acceptance of said marriage
which is to be celebrated during the
merry season of the flowers.

I take advantage of this occasion to wish


for your and the spouses much
happiness, a long life, and prolific issue,
as noble and great as that which you
brought forth. I consider the marriage of
your son Boo with my sister Lit Chia as a
mandate of God and I hope that they
treat each other with great love and
mutual courtesy and that both they and
their parents be very happy.
Given during the second moon of the
twenty-first year of the reign of the
Emperor Quang Su.

Cheong Boo is said to have remained in China for one year and four months after his marriage
during which time there was born to him and his wife a child named Cheong Seng Gee. Cheong Boo
then left China for the Philippine Islands and sometime thereafter took to himself a concubine Mora
by whom he had two children. In 1910, Cheong Boo was followed to the Philippines by Cheong
Seng Gee who, as appears from documents presented in evidence, was permitted to land in the
Philippine Islands as the son of Cheong Boo. The deceased, however, never returned to his native
hearth and seems never to have corresponded with his Chinese wife or to have had any further
relations with her except once when he sent her P10.

The trial judge found, as we have said, that the proof did not sustain the allegation of the claimant
Cheong Seng Gee, that Cheong Boo had married in China. His Honor noted a strong inclination on
the part of the Chinese witnesses, especially the brother of Cheong Boo, to protect the interests of
the alleged son, Cheong Seng Gee, by overstepping the limits of truthfulness. His Honor also noted
that reliable witnesses stated that in the year 1895, when Cheong Boo was supposed to have been
in China, he was in reality in Jolo, in the Philippine Islands. We are not disposed to disturb this
appreciation of fact by the trial court. The immigration documents only go to show the relation of
parent and child existing between the deceased Cheong Boo and his son Cheong Seng Gee and do
not establish the marriage between the deceased and the mother of Cheong Seng Gee.

Section IV of the Marriage Law (General Order No. 68) provides that "All marriages contracted
without these Islands, which would be valid by the laws of the country in which the same were
contracted, are valid in these Islands." To establish a valid foreign marriage pursuant to this comity
provision, it is first necessary to prove before the courts of the Islands the existence of the foreign
law as a question of fact, and it is then necessary to prove the alleged foreign marriage by
convincing evidence.

As a case directly in point is the leading one of Sy Joc Lieng vs. Encarnacion ([1910]), 16 Phil., 137;
[1913], 228 U.S., 335). Here, the courts of the Philippines and the Supreme Court of the United
States were called upon to decide, as to the conflicting claims to the estate of a Chinese merchant,
between the descendants of an alleged Chinese marriage and the descendants of an alleged
Philippine marriage. The Supreme Courts of the Philippine Islands and the United States united in
holding that the Chinese marriage was not adequately proved. The legal rule was stated by the
United States Supreme Court to be this: A Philippine marriage, followed by forty years of
uninterrupted marital life, should not be impugned and discredited, after the death of the husband
and administration of his estate, though an alleged prior Chinese marriage, "save upon proof so
clear, strong, and unequivocal as to produce a moral conviction of the existence of such
impediment." Another case in the same category is that of Son Cui vs. Guepangco ([1912], 22 Phil.,
216).

In the case at bar there is no competent testimony as to what the laws of China in the Province of
Amoy concerning marriage were in 1895. As in the Encarnacion case, there is lacking proof so clear,
strong, and unequivocal as to produce a moral conviction of the existence of the alleged prior
Chinese marriage. Substitute twenty-three years for forty years and the two cases are the same.
The lower court allowed the claimant, Cheong Seng Gee, the testamentary rights of an
acknowledged natural child. This finding finds some support in Exhibit 3, the affidavit of Cheong Boo
before the American Vice-Consul at Sandakan, British North Borneo. But we are not called upon to
make a pronouncement on the question, because the oppositor-appellant indicates silent
acquiescence by assigning no error.

2. Validity of the Mohammedan Marriage

The biographical data relating to the Philippine odyssey of the Chinaman Cheong Boo is fairly
complete. He appears to have first landed on Philippine soil sometime prior to the year 1896. At
least, in the year las mentioned, we find him in Basilan, Philippine Islands. There he was married to
the Mora Adong according to the ceremonies prescribed by the book on marriage of the Koran, by
the Mohammedan Iman (priest) Habubakar. That a marriage ceremony took place is established by
one of the parties to the marriage, the Mora Adong, by the Iman who solemnized the marriage, and
by other eyewitnesses, one of whom was the father of the bride, and another, the chief of the
rancheria, now a municipal councilor. The groom complied with Quranic law by giving to the bride a
dowry of P250 in money and P250 in goods.

The religious rites began with the bride and groom seating themselves in the house of the father of
the bride, Marahadja Sahibil. The Iman read from the Koran. Then the Iman asked the parents if they
had any objection to the marriage. The marital act was consummated by the groom entering the
woman's mosquito net.

From the marriage day until the death of Cheong Boo, twenty-three years later, the Chinaman and
the Mora Adong cohabited as husband and wife. To them were born five children, two of whom,
Payang and Rosalia, are living. Both in his relations with Mora Adong and with third persons during
his lifetime, Cheong Boo treated Adong as his lawful wife. He admitted this relationship in several
private and public documents. Thus, when different legal documents were executed, including
decrees of registration, Cheong Boo stated that he was married to the Mora Adong while as late as
1918, he gave written consent to the marriage of his minor daughter, Payang.

Notwithstanding the insinuation of counsel for the Chinese appellant that the custom is prevalent
among the Moros to favor in their testimony, a relative or friend, especially when they do not swear
on the Koran to tell the truth, it seems to us that proof could not be more convincing of the fact that a
marriage was contracted by the Chinaman Cheong Boo and the Mora Adong, according to the
ceremonies of the Mohammedan religion.

It is next incumbent upon us to approach the principal question which we announced in the very
beginning of this decision, namely, Are the marriages performed in the Philippines according to the
rites of the Mohammedan religion valid? Three sections of the Marriage Law (General Order No. 68)
must be taken into consideration.

Section V of the Marriage Law provides that "Marriage may be solemnized by either a judge of any
court inferior to the Supreme Court, justice of the peace, or priest or minister of the Gospel of any
denomination . . ." Counsel, failing to take account of the word "priest," and only considering the
phrase "minister of the Gospel of any denomination" would limit the meaning of this clause to
ministers of the Christian religion. We believe this is a strained interpretation. "Priest," according to
the lexicographers, means one especially consecrated to the service of a divinity and considered as
the medium through whom worship, prayer, sacrifice, or other service is to be offered to the being
worshipped, and pardon, blessing, deliverance, etc., obtained by the worshipper, as a priest of Baal
or of Jehovah; a Buddhist priest. "Minister of the Gospel" means all clergymen of every
denomination and faith. A "denomination" is a religious sect having a particular name.
(Haggin vs. Haggin [1892], 35 Neb., 375; In re Reinhart, 9 O. Dec., 441; Hale vs. Everett [1868], 53
N. H. 9.) A Mohammedan Iman is a "priest or minister of the Gospel," and Mohammedanism is a
"denomination," within the meaning of the Marriage Law.

The following section of the Marriage Law, No. VI, provides that "No particular form for the ceremony
of marriage is required, but the parties must declare, in the presence of the person solemnizing the
marriage, that they take each other as husband and wife." The law is quite correct in affirming that
no precise ceremonial is indispensable requisite for the creation of the marriage contract. The two
essentials of a valid marriage are capacity and consent. The latter element may be inferred from the
ceremony performed, the acts of the parties, and habit or repute. In this instance, there is no
question of capacity. Nor do we think there can exist any doubt as to consent. While it is true that
during the Mohammedan ceremony, the remarks of the priest were addressed more to the elders
than to the participants, it is likewise true that the Chinaman and the Mora woman did in fact take
each other to be husband and wife and did thereafter live together as husband and wife.
(Travers vs. Reinhardt [1907], 205 U.S., 423.

It would be possible to leave out of view altogether the two sections of the Marriage Law which have
just been quoted and discussed. The particular portion of the law which, in our opinion, is controlling,
is section IX, reading as follows: "No marriage heretofore solemnized before any person professing
to have authority therefor shall be invalid for want of such authority or on account of any informality,
irregularity, or omission, if it was celebrated with the belief of the parties, or either of them, that he
had authority and that they have been lawfully married."

The trial judge in construing this provision of law said that he did not believe that the legislative
intention in promulgating it was to validate marriages celebrated between Mohammedans. To quote
the judge:

This provisions relates to marriages contracted by virtue of the provisions of the Spanish law
before revolutionary authorized to solemnized marriages, and it is not to be presumed that
the legislator intended by this law to validate void marriages celebrated during the Spanish
sovereignty contrary to the laws which then governed.

What authority there is for this statement, we cannot conceive. To our mind, nothing could be clearer
than the language used in section IX. Note for a moment the all embracing words found in this
section:

"No marriage" — Could more inclusive words be found? "Heretofore solemnized" — Could any other
construction than that of retrospective force be given to this phrase? "Before any person professing
to have authority therefor shall be invalid for want of such authority" — Could stronger language than
this be invoked to announce legislative intention? "Or on account of any informality, irregularity, or
omission" — Could the legislative mind frame an idea which would more effectively guard the
marriage relation against technicality? "If it was celebrated with the belief of the parties, or either of
them, that he had authority and that they have been lawfully married" — What was the purpose of
the legislator here, if it was not to legalize the marriage, if it was celebrated by any person who
thought that he had authority to perform the same, and if either of the parties thought that they had
been married? Is there any word or hint of any word which would restrict the curative provisions of
section IX of the Marriage Law to Christian marriages? By what system of mental gymnastics would
it be possible to evolve from such precise language the curious idea that it was restricted to
marriages performed under the Spanish law before the revolutionary authorities?

In view of the importance of the question, we do not desire to stop here but would ascertain from
other sources the meaning and scope of Section IX of General Order No. 68.
The purpose of the government toward the Mohammedan population of the Philippines has, time
and again, been announced by treaty, organic law, statutory law, and executive proclamation. The
Treaty of Paris in its article X, provided that "The inhabitants of the territories over which Spain
relinquishes or cedes her sovereignty shall be secured Instructions to the Philippine Commission
imposed on every branch of the Government of the Philippine Islands the inviolable rule "that no law
shall be made respecting an establishment of religion or prohibiting the free exercise thereof, and
that the free exercise and enjoyment of religious profession and worship, without discrimination or
preference, shall forever be allowed ... That no form of religion and no minister of religion shall be
forced upon any community or upon any citizen of the Islands; that, upon the other hand, no minister
of religion shall be interfered with or molested in following his calling, and that the separation
between state and church shall be real, entire, and absolute." The notable state paper of President
McKinley also enjoined the Commission, "to bear in mind that the Government which they are
establishing is designed . . . for the happiness, peace, and prosperity of the people of the Philippine
Islands" and that, therefore, "the measures adopted should be made to conform to their customs,
their habits, and even their prejudices. . . . The Philippine Bill and the Jones Law reproduced the
main constitutional provisions establishing religious toleration and equality.

Executive and legislative policy both under Spain and the United States followed in the same path.
For instance, in the Treaty of April 30, 1851, entered into by the Captain General of the Philippines
and the Sultan of Sulu, the Spanish Government guaranteed "with all solemnity to the Sultan and
other inhabitants of Sulu the free exercise of their religion, with which it will not interfere in the
slightest way, and it will also respect their customs." (See further Decree of the Governor-General of
January 14, 1881.) For instance, Act No. 2520 of the Philippine Commission, section 3, provided that
"Judges of the Court of First Instance and justices of the peace deciding civil cases in which the
parties are Mohammedans or pagans, when such action is deemed wise, may modify the application
of the law of the Philippine Islands, except laws of the United States applicable to the Philippine
Islands, taking into account local laws and customs. . . ." (See further Act No. 787, sec. 13 [ j]; Act
No. 1283, sec. 6 [b]; Act No. 114 of the Legislative Council amended and approved by the Philippine
Commission; Cacho vs. Government of the United States [1914], 28 Phil., 616.) Various responsible
officials have so oft announced the purpose of the Government not to interfere with the customs of
the Moros, especially their religious customs, as to make quotation of the same superfluous.

The retrospective provisions of the Philippine Marriage Law undoubtedly were inspired by the
governmental policy in the United States, with regard to the marriages of the Indians, the Quakers,
and the Mormons. The rule as to Indians marriages is, that a marriage between two Indians entered
into according to the customs and laws of the people at a place where such customs and laws are in
force, must be recognized as a valid marriage. The rule as to the Society of Quakers is, that they will
be left to their own customs and that their marriages will be recognized although they use no
solemnization. The rule as to Mormon marriages is that the sealing ceremony entered into before a
proper official by members of that Church competent to contract marriage constitutes a valid
marriage.

The basis of human society throughout the civilized world is that of marriage. Marriage in this
jurisdiction is not only a civil contract, but, it is a new relation, an institution in the maintenance of
which the public is deeply interested. Consequently, every intendment of the law leans toward
legalizing matrimony. Persons dwelling together in apparent matrimony are presumed, in the
absence of any counter-presumption or evidence special to the case, to be in fact married. The
reason is that such is the common order of society, and if the parties were not what they thus hold
themselves out as being, they would be living in the constant violation of decency and of law. A
presumption established by our Code of Civil Procedure is "that a man and woman deporting
themselves as husband and wife have entered into a lawful contract of marriage.:" (Sec. 334, No.
28.) Semper praesumitur pro matrimonio — Always presume marriage. (U. S. vs. Villafuerte and
Rabano [1905], 4 Phil., 476; Son Cui vs. Guepangco, supra; U.S. vs.Memoracion and Uri [1916], 34
Phil., 633; Teter vs. Teter [1884], 101 Ind., 129.)

Section IX of the Marriage Law is in the nature of a curative provision intended to safeguard society
by legalizing prior marriages. We can see no substantial reason for denying to the legislative power
the right to remove impediments to an effectual marriage. If the legislative power can declare what
shall be valid marriages, it can render valid, marriages which, when they took place, were against
the law. Public policy should aid acts intended to validate marriages and should retard acts intended
to invalidate marriages. (Coghsen vs. Stonington [1822], 4 Conn, 209; Baity vs. Cranfill [1884], 91 N.
C., 273.)

The courts can properly incline the scales of their decisions in favors of that solution which will mot
effectively promote the public policy. That is the true construction which will best carry legislative
intention into effect. And here the consequences, entailed in holding that the marriage of the Mora
Adong and the deceased Cheong Boo, in conformity with the Mohammedan religion and Moro
customs, was void, would be far reaching in disastrous result. The last census shows that there are
at least one hundred fifty thousand Moros who have been married according to local custom. We
then have it within our power either to nullify or to validate all of these marriages; either to make all
of the children born of these unions bastards or to make them legitimate; either to proclaim
immorality or to sanction morality; either to block or to advance settled governmental policy. Our duty
is a obvious as the law is plain.

In moving toward our conclusion, we have not lost sight of the decisions of this court in the cases of
United States vs. Tubban ([1915]), 29 Phil., 434) and United States vs. Verzola ([1916, 33 Phil.,
285). We do not, however, believe these decisions to be controlling. In the first place, these were
criminal actions and two Justice dissented.. In the second place, in the Tubban case, the marriage in
question was a tribal marriage of the Kalingas, while in the Verzola case, the marriage had been
performed during the Spanish regime by a lieutenant of the Guardia Civil. In neither case, in deciding
as to whether or not the accused should be given the benefit of the so-called unwritten law, was any
consideration given to the provisions of section IX of General Order No. 68. We are free to admit
that, if necessary, we would unhesitatingly revoke the doctrine announced in the two cases above
mentioned.

We regard the evidence as producing a moral conviction of the existence of the Mohammedan
marriage. We regard the provisions of section IX of the Marriage law as validating marriages
performed according to the rites of the Mohammedan religion.

There are other questions presented in the various assignments of error which it is unnecessary to
decide. In resume, we find the Chinese marriage not to be proved and that the Chinaman Cheong
Seng Gee has only the rights of a natural child, and we find the Mohammedan marriage to be
proved and to be valid, thus giving to the widow and the legitimate children of this union the rights
accruing to them under the law.

Judgment is reversed in part, and the case shall be returned to the lower court for a partition of the
property in accordance with this decision, and for further proceedings in accordance with law.
Without special findings as to costs in this instance, it is so ordered.

Araullo, C.J., Johnson, Street, Avanceña, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

G.R. No. L-11759 March 16, 1917


CAYETANO LIM and MARCIANO LIM, petitioners-appellants,
vs.
THE INSULAR COLLECTOR OF CUSTOMS, respondent-appellee.

Williams, Ferrier and SyCip for appellants.


Attorney-General Avanceña for appellee.

CARSON, J.:

The real question raised on this appeal is whether the Insular Collector of Customs may lawfully
deny entry into the Philippine Islands to two children aged 8 and 14 years, respectively, under and
by authority of the Chinese Immigration, Laws, it appearing that the children arrived at the Port of
Manila accompanied by and in the custody of their mother, a Filipino woman; that they were born in
China, out of lawful wedlock; and that their father was a Chinese person.

It is contended, on behalf of the Insular Collector of Customs, that these children being Chinese
persons are denied the right of entrance into the Philippine Islands under the express terms of the
Chinese immigration laws. On the other hand, it is urged on behalf of the children that they are
entitled to enter, regardless of the provisions of the Chinese immigration laws, since the admitted
facts, as it is said, disclose that they are citizens of the Philippine Islands; and for the further reason,
that their mother, who is entitled to their custody and charged with their maintenance and education,
is clearly entitled to take up her residence in the Philippine Islands and should not be required, to
that end, to abandon her minor children.

Without discussing or deciding any of the contentions of the parties as to the rights of citizenship of
these children, actual or inchoate, we are of opinion that by analogous reasoning to that upon which
the Supreme Court of the United States held that the wives and minor children of Chinese
merchants domiciled in the United States may enter that country without certificates, these children
must be held to be entitled to enter the Philippine Islands with their mother, for the purpose of taking
up their residence here with her, it appearing that she is natural guardian, entitled to their custody
and charged with their maintenance and education. (U. S. vs. Gue Lim, 176 U. S. 459.)

In the case just cited the court said:

While the literal construction of the section would require a certificate, as therein stated, from
every Chinese person, other than a laborer, who should come into the country, yet such a
construction leads to what we think an absurd result, for it requires a certificate for a wife of a
merchant, among others, in regard to whom its would be impossible to give the particulars
which the statute requires shall be stated in such certificate.

"Nothing is better settled," says the present Chief Justice, in Lau Ow Bew vs. United States
(144 U. S., 59) "than that statutes should receive a sensible construction, such as will
effectuate the legislative intention, and, if possible, so as to avoid and unjust or an absurd
conclusion.

The purposes of the sixth section, requiring the certificate, was not to prevent the persons
named in the second article of the treaty from coming into the country, but to prevent
Chinese laborers from entering under the guise of being one of the classes permitted by the
treaty. It is the coming of Chinese laborers that the act is aimed against.
It was said in the opinion in the Lau Ow Bew case, in speaking of the provisions that the sole
evidence permissible should be the certificate: "This rule of evidence was evidently
prescribed by the amendment as a means of effectually preventing the violation or evasion of
the prohibition against the coming of Chinese laborers. It was designed as a safeguard to
prevent the unlawful entry of such laborers, under the pretense that they belong to the
merchant class or to some other of the admitted classes."

It was also held in that case that although the literal wording of the statute of 1884, section
six, would require a certificate in the case of a merchant already domiciled in the United
States and who had left the country for temporary purposes, animo revertendi, yet its true
and proper construction did not include his case, and the general terms used in the act were
limited to those persons to whom Congress manifestly intended to apply them, which would
be those who were about to come to the United States for the first time, and not to those
Chinese merchants already domiciled in the United States who had gone to China for
temporary purposes only, with the intention of returning. The case of Wan Shing vs. United
States (140 U. S., 24), was referred to, and attention called to the fact that the appellant
therein was not a merchant but a laborer, who had acquired no commercial domicile in this
county, and was clearly within the exception requiring him to procure and produce the
certificate specified in the act. The rule was approved, and the differences in the two cases
pointed out by the Chief Justice.

To hold that a certificate is required in this case is to decide that the woman cannot come into
this country at all, for it is not possible for her to comply with the act, because she cannot in
any event procure the certificate even by returning to China. She must come in as the wife of
her domiciled husband or not at all. The act was never meant to accomplish the result of
permanently excluding the wife under the circumstances of this case, and we think that,
properly and reasonably construed, it does not do so. If we hold that she is entitled to come
in as the wife, because the true construction of the treaty and the act permits it, there is no
provision which makes the certificate the only proof of the fact that she is such wife.

In the case of the minor children, the same result must follow as in that of the wife. All the
reasons which favor the construction of the statute as exempting the wife from the necessity
of procuring a certificate apply with equal force to the case of minor children of a member or
members of the admitted classes. They come in by reason of their relationship to the father,
and whether they accompany or follow him, a certificate is not necessary in either case.
When the fact is established to the satisfaction of the authorities that the person claiming to
enter, either as wife or minor child, is in fact the wife or minor child of one of the members of
the class mentioned in the treaty as entitled to enter, them that person in entitled to
admission without the certificate.

We are not advised of any provision of Chinese law which differentiates the status of infant children,
born out of lawful wedlock, from that of similar children under the laws in force in the Philippine
Islands. We assume, therefore, that in China as well as in the Philippine Islands such children have
the right to look to their mother for their maintenance and education, and that she is entitled to their
custody and control in fulfilling the obligations towards them which are imposed upon her, not only by
the natural impulses of love and affection, but also by the express mandate of the law. And it having
been held on the highest authority that the general terms of the Act were limited to those to whom
Congress manifestly intended to apply them as set forth in the foregoing opinion, and that "nothing is
better settled than that statutes should receive a sensible construction, such as will effectuate the
legislative intention, and, if possible, so as to avoid an unjust or an absurd conclusion," we are of
opinion that the Chinese Immigration Laws should not be construed so as to exclude infant children
of a Filipino mother, born out of lawful wedlock, seeking entrance to the Philippine Islands for the
purpose of taking up their residence with her in her native land.

It has been suggested that such a ruling opens the door to fraud and evasion, but we are not much
impressed with the force of this suggestion, knowing as we do that the immigration authorities have
been furnished by the law with peculiarly effective machinery for its enforcement, well calculated to
defeat any attempt to make an unauthorized or improper use of so manifestly reasonable an
exception from the literal construction and application of its general provisions.

Some confusion seems to have arisen in the court below as to the precise nature and effect of the
somewhat inartificial pleadings upon which these proceedings were submitted. The case appears to
have been submitted upon an answer to an order to show cause why a writ of habeas corpus should
not issue upon the petition filed on behalf of the infant children. In the form in which the answer is
couched, there is much in the contention of the appellee that the trial court should have treated the
answer as in substance and effect a demurrer to the petition, admitting the truth of the facts alleged
therein, but praying judgment as to whether it sets forth facts sufficient to constitute a cause of action
and to justify the issuance of the writ. We are inclined to think, however, that the understanding of
the parties and of the court below was that the answer should be treated rather as in the nature of a
return to a writ of habeas corpus, accepting as true the allegations of the petition but maintaining the
legality of the detention upon the facts thus submitted. Without considering at this time whether in
habeas corpus proceedings the respondent may, without consent of court, demur to, instead of
answering an order to show cause why the writ should not issue, and without considering or deciding
the course which should be pursued where a respondent attempts to file a demurrer to a petition for
a writ of habeas corpus in lieu of the return prescribed by the statute to the writ when actually issued;
we treat the answer to the order to show cause in the case at bar as we think the parties and the
court below understood it should be treated, that is to say, as in substance and effect the return
which the Insular Collector desired to make to the writ of habeas corpus issued or assumed to have
been issued in response to the petition on behalf of the children held in custody by him.

We conclude, therefore, that, it appearing that the respondent Collector of Customs is detaining the
petitioners under an erroneous construction of the immigration laws, and it appearing from the facts
disclosed by the administrative proceedings that these children are entitled to admission into the
Philippine Islands, the order entered in the court below should be reversed, and in lieu thereof an
order should be entered directing the discharge of these children from the custody of the Insular
Collector of Customs, with the costs in both instances, de officio. So ordered.

Torres, Moreland, Trent and Araullo, JJ., concur.

KAZUHIRO HASEGAWA AND NIPPON ENGINEERING CONSULTANTS CO., LTD. VS. MINORU KITAMURA, 538
SCRA 26, GR NO. 149177, NOVEMBER 23, 2007

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court assailing the April 18, 2001 Decision[1] of the Court of Appeals (CA) in
CA-G.R. SP No. 60827, and the July 25, 2001 Resolution[2] denying the motion for
reconsideration thereof.
On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd.
(Nippon), a Japanese consultancy firm providing technical and management
support in the infrastructure projects of foreign governments, [3] entered into an
Independent Contractor Agreement (ICA) with respondent Minoru Kitamura, a
Japanese national permanently residing in the Philippines.[4] The agreement
provides that respondent was to extend professional services to Nippon for a year
starting on April 1, 1999.[5] Nippon then assigned respondent to work as the project
manager of the Southern Tagalog Access Road (STAR) Project in the Philippines,
following the company's consultancy contract with the Philippine Government.[6]

When the STAR Project was near completion, the Department of Public Works and
Highways (DPWH) engaged the consultancy services of Nippon, on January 28,
2000, this time for the detailed engineering and construction supervision of the
Bongabon-Baler Road Improvement (BBRI) Project.[7] Respondent was named as
the project manager in the contract's Appendix 3.1.[8]

On February 28, 2000, petitioner Kazuhiro Hasegawa, Nippon's general manager


for its International Division, informed respondent that the company had no more
intention of automatically renewing his ICA. His services would be engaged by the
company only up to the substantial completion of the STAR Project on March 31,
2000, just in time for the ICA's expiry.[9]

Threatened with impending unemployment, respondent, through his lawyer,


requested a negotiation conference and demanded that he be assigned to the BBRI
project. Nippon insisted that respondents contract was for a fixed term that had
already expired, and refused to negotiate for the renewal of the ICA.[10]

As he was not able to generate a positive response from the petitioners, respondent
consequently initiated on June 1, 2000 Civil Case No. 00-0264 for specific
performance and damages with the Regional Trial Court of Lipa City.[11]

For their part, petitioners, contending that the ICA had been perfected in Japan and
executed by and between Japanese nationals, moved to dismiss the complaint for
lack of jurisdiction. They asserted that the claim for improper pre-termination of
respondent's ICA could only be heard and ventilated in the proper courts
of Japan following the principles of lex loci celebrationis and lex contractus.[12]

In the meantime, on June 20, 2000, the DPWH approved Nippon's request for the
replacement of Kitamura by a certain Y. Kotake as project manager of the BBRI
Project.[13]

On June 29, 2000, the RTC, invoking our ruling in Insular Government v.
Frank[14] that matters connected with the performance of contracts are regulated by
the law prevailing at the place of performance, [15] denied the motion to dismiss.
[16]
The trial court subsequently denied petitioners' motion for reconsideration,
[17]
prompting them to file with the appellate court, on August 14, 2000,
their first Petition for Certiorari under Rule 65 [docketed as CA-G.R. SP No.
60205].[18] On August 23, 2000, the CA resolved to dismiss the petition on
procedural grounds for lack of statement of material dates and for insufficient
verification and certification against forum shopping.[19] An Entry of Judgment was
later issued by the appellate court on September 20, 2000.[20]

Aggrieved by this development, petitioners filed with the CA, on September 19,
2000, still within the reglementary period, a second Petition for Certiorari under
Rule 65 already stating therein the material dates and attaching thereto the proper
verification and certification. This second petition, which substantially raised the
same issues as those in the first, was docketed as CA-G.R. SP No. 60827.[21]

Ruling on the merits of the second petition, the appellate court rendered the
assailed April 18, 2001 Decision[22] finding no grave abuse of discretion in the trial
court's denial of the motion to dismiss. The CA ruled, among others, that the
principle of lex loci celebrationis was not applicable to the case, because nowhere
in the pleadings was the validity of the written agreement put in issue. The CA thus
declared that the trial court was correct in applying instead the principle of lex loci
solutionis.[23]

Petitioners' motion for reconsideration was subsequently denied by the CA in the


assailed July 25, 2001 Resolution.[24]
Remaining steadfast in their stance despite the series of denials, petitioners
instituted the instant Petition for Review on Certiorari[25] imputing the following
errors to the appellate court:

A. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN


FINDING THAT THE TRIAL COURT VALIDLY EXERCISED
JURISDICTION OVER THE INSTANT CONTROVERSY, DESPITE
THE FACT THAT THE CONTRACT SUBJECT MATTER OF THE
PROCEEDINGS A QUO WAS ENTERED INTO BY AND BETWEEN
TWO JAPANESE NATIONALS, WRITTEN WHOLLY IN THE
JAPANESE LANGUAGE AND EXECUTED IN TOKYO, JAPAN.

B. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN


OVERLOOKING THE NEED TO REVIEW OUR ADHERENCE TO
THE PRINCIPLE OF LEX LOCI SOLUTIONISIN THE LIGHT OF
RECENT DEVELOPMENT[S] IN PRIVATE INTERNATIONAL
LAWS.[26]

The pivotal question that this Court is called upon to resolve is whether the subject
matter jurisdiction of Philippine courts in civil cases for specific performance and
damages involving contracts executed outside the country by foreign nationals may
be assailed on the principles of lex loci celebrationis, lex contractus, the state of
the most significant relationship rule, or forum non conveniens.

However, before ruling on this issue, we must first dispose of the procedural
matters raised by the respondent.

Kitamura contends that the finality of the appellate court's decision in CA-G.R. SP
No. 60205 has already barred the filing of the second petition docketed as CA-G.R.
SP No. 60827 (fundamentally raising the same issues as those in the first one) and
the instant petition for review thereof.

We do not agree. When the CA dismissed CA-G.R. SP No. 60205 on account of


the petition's defective certification of non-forum shopping, it was a dismissal
without prejudice.[27] The same holds true in the CA's dismissal of the said case due
to defects in the formal requirement of verification [28] and in the other requirement
in Rule 46 of the Rules of Court on the statement of the material dates. [29] The
dismissal being without prejudice, petitioners can re-file the petition, or file a
second petition attaching thereto the appropriate verification and certification as
they, in fact did and stating therein the material dates, within the prescribed
period[30] in Section 4, Rule 65 of the said Rules.[31]

The dismissal of a case without prejudice signifies the absence of a decision on the
merits and leaves the parties free to litigate the matter in a subsequent action as
though the dismissed action had not been commenced. In other words, the
termination of a case not on the merits does not bar another action involving the
same parties, on the same subject matter and theory.[32]

Necessarily, because the said dismissal is without prejudice and has no res
judicata effect, and even if petitioners still indicated in the verification and
certification of the second certiorari petition that the first had already been
dismissed on procedural grounds,[33] petitioners are no longer required by the Rules
to indicate in their certification of non-forum shopping in the instant petition for
review of the second certiorari petition, the status of the aforesaid first petition
before the CA. In any case, an omission in the certificate of non-forum shopping
about any event that will not constitute res judicata and litis pendentia, as in the
present case, is not a fatal defect. It will not warrant the dismissal and nullification
of the entire proceedings, considering that the evils sought to be prevented by the
said certificate are no longer present.[34]

The Court also finds no merit in respondent's contention that petitioner Hasegawa
is only authorized to verify and certify, on behalf of Nippon, the certiorari petition
filed with the CA and not the instant petition. True, the Authorization [35] dated
September 4, 2000, which is attached to the second certiorari petition and which is
also attached to the instant petition for review, is limited in scope its wordings
indicate that Hasegawa is given the authority to sign for and act on behalf of the
company only in the petition filed with the appellate court, and that authority
cannot extend to the instant petition for review.[36] In a plethora of cases, however,
this Court has liberally applied the Rules or even suspended its application
whenever a satisfactory explanation and a subsequent fulfillment of the
requirements have been made.[37] Given that petitioners herein sufficiently
explained their misgivings on this point and appended to their Reply [38] an updated
Authorization[39] for Hasegawa to act on behalf of the company in the instant
petition, the Court finds the same as sufficient compliance with the Rules.

However, the Court cannot extend the same liberal treatment to the defect in the
verification and certification. As respondent pointed out, and to which we agree,
Hasegawa is truly not authorized to act on behalf of Nippon in this case. The
aforesaid September 4, 2000 Authorization and even the subsequent August 17,
2001 Authorization were issued only by Nippon's president and chief executive
officer, not by the company's board of directors. In not a few cases, we have ruled
that corporate powers are exercised by the board of directors; thus, no person, not
even its officers, can bind the corporation, in the absence of authority from the
board.[40] Considering that Hasegawa verified and certified the petition only on his
behalf and not on behalf of the other petitioner, the petition has to be denied
pursuant to Loquias v. Office of the Ombudsman.[41] Substantial compliance will not
suffice in a matter that demands strict observance of the Rules. [42] While technical
rules of procedure are designed not to frustrate the ends of justice, nonetheless,
they are intended to effect the proper and orderly disposition of cases and
effectively prevent the clogging of court dockets.[43]

Further, the Court has observed that petitioners incorrectly filed a Rule 65
petition to question the trial court's denial of their motion to dismiss. It is a well-
established rule that an order denying a motion to dismiss is interlocutory,
and cannot be the subject of the extraordinary petition for certiorari or mandamus.
The appropriate recourse is to file an answer and to interpose as defenses the
objections raised in the motion, to proceed to trial, and, in case of an adverse
decision, to elevate the entire case by appeal in due course.[44] While there are
recognized exceptions to this rule,[45] petitioners' case does not fall among them.
This brings us to the discussion of the substantive issue of the case.

Asserting that the RTC of Lipa City is an inconvenient forum, petitioners question
its jurisdiction to hear and resolve the civil case for specific performance and
damages filed by the respondent. The ICA subject of the litigation was entered into
and perfected in Tokyo, Japan, by Japanese nationals, and written wholly in the
Japanese language. Thus, petitioners posit that local courts have no substantial
relationship to the parties[46] following the [state of the] most significant
relationship rule in Private International Law.[47]

The Court notes that petitioners adopted an additional but different theory when
they elevated the case to the appellate court. In the Motion to Dismiss[48] filed with
the trial court, petitioners never contended that the RTC is an inconvenient forum.
They merely argued that the applicable law which will determine the validity or
invalidity of respondent's claim is that of Japan, following the principles of lex loci
celebrationis and lex contractus.[49] While not abandoning this stance in their
petition before the appellate court, petitioners on certiorari significantly invoked
the defense of forum non conveniens.[50] On petition for review before this Court,
petitioners dropped their other arguments, maintained the forum non
conveniens defense, and introduced their new argument that the applicable
principle is the [state of the] most significant relationship rule.[51]

Be that as it may, this Court is not inclined to deny this petition merely on the basis
of the change in theory, as explained in Philippine Ports Authority v. City of Iloilo.
[52]
We only pointed out petitioners' inconstancy in their arguments to emphasize
their incorrect assertion of conflict of laws principles.

To elucidate, in the judicial resolution of conflicts problems, three consecutive


phases are involved: jurisdiction, choice of law, and recognition and enforcement
of judgments. Corresponding to these phases are the following questions: (1)
Where can or should litigation be initiated? (2) Which law will the court apply?
and (3) Where can the resulting judgment be enforced?[53]

Analytically, jurisdiction and choice of law are two distinct concepts.


[54]
Jurisdiction considers whether it is fair to cause a defendant to travel to this
state; choice of law asks the further question whether the application of a
substantive law which will determine the merits of the case is fair to both parties.
The power to exercise jurisdiction does not automatically give a state constitutional
authority to apply forum law. While jurisdiction and the choice of the lex fori will
often coincide, the minimum contacts for one do not always provide the necessary
significant contacts for the other.[55] The question of whether the law of a state can
be applied to a transaction is different from the question of whether the courts of
that state have jurisdiction to enter a judgment.[56]

In this case, only the first phase is at issue jurisdiction. Jurisdiction, however, has
various aspects. For a court to validly exercise its power to adjudicate a
controversy, it must have jurisdiction over the plaintiff or the petitioner, over the
defendant or the respondent, over the subject matter, over the issues of the case
and, in cases involving property, over the res or the thing which is the subject of
the litigation.[57] In assailing the trial court's jurisdiction herein, petitioners are
actually referring to subject matter jurisdiction.

Jurisdiction over the subject matter in a judicial proceeding is conferred by the


sovereign authority which establishes and organizes the court. It is given only by
law and in the manner prescribed by law.[58] It is further determined by the
allegations of the complaint irrespective of whether the plaintiff is entitled to all or
some of the claims asserted therein.[59] To succeed in its motion for the dismissal of
an action for lack of jurisdiction over the subject matter of the claim, [60] the movant
must show that the court or tribunal cannot act on the matter submitted to it
because no law grants it the power to adjudicate the claims.[61]

In the instant case, petitioners, in their motion to dismiss, do not claim that the trial
court is not properly vested by law with jurisdiction to hear the subject controversy
for, indeed, Civil Case No. 00-0264 for specific performance and damages is one
not capable of pecuniary estimation and is properly cognizable by the RTC of Lipa
City.[62] What they rather raise as grounds to question subject matter jurisdiction are
the principles of lex loci celebrationis and lex contractus, and the state of the most
significant relationship rule.

The Court finds the invocation of these grounds unsound.


Lex loci celebrationis relates to the law of the place of the ceremony [63] or the law
of the place where a contract is made.[64] The doctrine of lex contractus or lex loci
contractus means the law of the place where a contract is executed or to be
performed.[65] It controls the nature, construction, and validity of the contract [66] and
it may pertain to the law voluntarily agreed upon by the parties or the law intended
by them either expressly or implicitly.[67] Under the state of the most significant
relationship rule, to ascertain what state law to apply to a dispute, the court should
determine which state has the most substantial connection to the occurrence and
the parties. In a case involving a contract, the court should consider where the
contract was made, was negotiated, was to be performed, and the domicile, place
of business, or place of incorporation of the parties.[68] This rule takes into account
several contacts and evaluates them according to their relative importance with
respect to the particular issue to be resolved.[69]

Since these three principles in conflict of laws make reference to the law applicable
to a dispute, they are rules proper for the second phase, the choice of law. [70] They
determine which state's law is to be applied in resolving the substantive issues of a
conflicts problem.[71] Necessarily, as the only issue in this case is that of
jurisdiction, choice-of-law rules are not only inapplicable but also not yet called
for.

Further, petitioners' premature invocation of choice-of-law rules is exposed by the


fact that they have not yet pointed out any conflict between the laws of Japan and
ours. Before determining which law should apply, first there should exist a conflict
of laws situation requiring the application of the conflict of laws rules.[72] Also,
when the law of a foreign country is invoked to provide the proper rules for the
solution of a case, the existence of such law must be pleaded and proved.[73]

It should be noted that when a conflicts case, one involving a foreign element, is
brought before a court or administrative agency, there are three alternatives open to
the latter in disposing of it: (1) dismiss the case, either because of lack of
jurisdiction or refusal to assume jurisdiction over the case; (2) assume jurisdiction
over the case and apply the internal law of the forum; or (3) assume jurisdiction
over the case and take into account or apply the law of some other State or States.
[74]
The courts power to hear cases and controversies is derived from the
Constitution and the laws. While it may choose to recognize laws of foreign
nations, the court is not limited by foreign sovereign law short of treaties or other
formal agreements, even in matters regarding rights provided by foreign
sovereigns.[75]

Neither can the other ground raised, forum non conveniens,[76] be used to
deprive the trial court of its jurisdiction herein. First, it is not a proper basis for a
motion to dismiss because Section 1, Rule 16 of the Rules of Court does not
include it as a ground.[77] Second, whether a suit should be entertained or dismissed
on the basis of the said doctrine depends largely upon the facts of the particular
case and is addressed to the sound discretion of the trial court. [78] In this case, the
RTC decided to assume jurisdiction. Third, the propriety of dismissing a case
based on this principle requires a factual determination; hence, this conflicts
principle is more properly considered a matter of defense.[79]

Accordingly, since the RTC is vested by law with the power to entertain and hear
the civil case filed by respondent and the grounds raised by petitioners to assail
that jurisdiction are inappropriate, the trial and appellate courts correctly denied the
petitioners motion to dismiss.
WHEREFORE, premises considered, the petition for review
on certiorari is DENIED.

SO ORDERED.

[G.R. No. 103493. June 19, 1997]

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) and Philsec Investment Corporation (hereafter called
[1]

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 counter
defendants, 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 non-resident 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 granted the motion to dismiss filed
[3]

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 affirmed the dismissal of Civil
[4]

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 in the case before
[5]

it. The judgment, which was in favor of private respondents, was affirmed on
appeal by the Circuit Court of Appeals. Thus, the principal issue to be
[6]

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, it was after the parties
[7]

opposed to the judgment had been given ample opportunity to repel them on
grounds allowed under the law. It is not necessary for this purpose to initiate
[8]

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. Rule 39, 50 provides:
[9]

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., which private respondents invoke for
[10]

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 that the foreign court did
[11]

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, this Court held that the foreign judgment was valid and enforceable
[12]

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. After all, the two have been
[15]

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. The propriety of dismissing a case based on
[16]

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 non-resident 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. It is not disputed that the properties,
[18]

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, it appears from the pleadings that petitioners only belatedly
[20]

impleaded Guevarra as defendant in Civil Case No. 16563. Hence, the TRO
[21]

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. (IN PERSONAM)
SO ORDERED.
PIONEER CONCRETE G.R. NO. 154830
PHILIPPINES, INC., PIONEER
PHILIPPINES HOLDINGS, and
PHILIP J. KLEPZIG,
Petitioners,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.

ANTONIO D. TODARO, Promulgated:


Respondent. June 8, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari seeking to annul and
set aside the Decision[1] of the Court of Appeals (CA) dated October 31, 2000 in
CA-G.R. SP No. 54155 and its Resolution[2] of August 21, 2002 denying
petitioners Motion for Reconsideration.

The factual and procedural antecedents of the case are as follows:

On January 16, 1998, herein respondent Antonio D. Todaro (Todaro) filed


with the Regional Trial Court (RTC) of Makati City, a complaint for Sum of
Money and Damages with Preliminary Attachment against Pioneer International
Limited (PIL), Pioneer Concrete Philippines, Inc. (PCPI), Pioneer Philippines
Holdings, Inc. (PPHI), John G. McDonald (McDonald) and Philip
J. Klepzig (Klepzig).[3]

In his complaint, Todaro alleged that PIL is a corporation duly organized and
existing under the laws of Australia and is principally engaged in the ready-mix
concrete and concrete aggregates business; PPHI is the company established by
PIL to own and hold the stocks of its operating company in the Philippines; PCPI
is the company established by PIL to undertake its business of ready-mix concrete,
concrete aggregates and quarrying operations in the Philippines; McDonald is the
Chief Executive of the Hongkong office of PIL; and, Klepzig is the President and
Managing Director of PPHI and PCPI; Todaro has been the managing director
of Betonval Readyconcrete, Inc. (Betonval), a company engaged in pre-mixed
concrete and concrete aggregate production; he resigned from Betonval in
February 1996; in May 1996, PIL contacted Todaro and asked him if he was
available to join them in connection with their intention to establish a ready-mix
concrete plant and other related operations in the Philippines; Todaro informed PIL
of his availability and interest to join them; subsequently, PIL and Todaro came to
an agreement wherein the former consented to engage the services of the latter as a
consultant for two to three months, after which, he would be employed as the
manager of PIL's ready-mix concrete operations should the company decide to
invest in the Philippines; subsequently, PIL started its operations in the Philippines;
however, it refused to comply with its undertaking to employ Todaro on a
permanent basis.[4]

Instead of filing an Answer, PPHI, PCPI and Klepzig separately moved to


dismiss the complaint on the grounds that the complaint states no cause of action,
that the RTC has no jurisdiction over the subject matter of the complaint, as the
same is within the jurisdiction of the NLRC, and that the complaint should be
dismissed on the basis of the doctrine of forum non conveniens.[5]

In its Order dated January 4, 1999, the RTC of Makati, Branch 147, denied
herein petitioners' respective motions to dismiss.[6] Herein petitioners, as
defendants, filed an Urgent Omnibus Motion[7] for the reconsideration of the trial
court's Order of January 4, 1999 but the trial court denied it via its
Order[8] dated June 3, 1999.

On August 3, 1999, herein petitioners filed a Petition for Certiorari with the
[9]
CA. On October 31, 2000, the CA rendered its presently assailed Decision
denying herein petitioners' Petition for Certiorari. Petitioners filed a Motion for
Reconsideration but the CA denied it in its Resolution dated August 21, 2002.

Hence, herein Petition for Review on Certiorari based on the following


assignment of errors:
A.

THE COURT OF APPEALS' CONCLUSION THAT THE


COMPLAINT STATES A CAUSE OF ACTION AGAINST
PETITIONERS IS WITHOUT ANY LEGAL BASIS. THE ANNEXES
TO THE COMPLAINT CLEARLY BELIE THE ALLEGATION OF
EXISTENCE OF AN EMPLOYMENT CONTRACT BETWEEN
PRIVATE RESPONDENT AND PETITIONERS.

B.

THE COURT OF APPEALS DECIDED A QUESTION OF


SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND WITH
APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
UPHELD THE JURISDICTION OF THE TRIAL COURT DESPITE
THE FACT THAT THE COMPLAINT INDUBITABLY SHOWS THAT
IT IS AN ACTION FOR AN ALLEGED BREACH OF
EMPLOYMENT CONTRACT, AND HENCE, FALLS WITHIN THE
EXLCUSIVE JURISDICTION OF THE NATIONAL LABOR
RELATIONS COMMISSION.

C
THE COURT OF APPEALS DISREGARDED AND FAILED TO
CONSIDER THE PRINCIPLE OF FORUM NON CONVENIENS AS A
VALID GROUND FOR DISMISSING A COMPLAINT.[10]

In their first assigned error, petitioners contend that there was no perfected
employment contract between PIL and herein respondent. Petitioners assert that the
annexes to respondent's complaint show that PIL's offer was for respondent to be
employed as the manager only of its pre-mixed concrete operations and not as the
company's managing director or CEO. Petitioners argue that when respondent
reiterated his intention to become the manager of PIL's overall business venture in
the Philippines, he, in effect did not accept PIL's offer of employment and instead
made a counter-offer, which, however, was not accepted by PIL. Petitioners also
contend that under Article 1318 of the Civil Code, one of the requisites for a
contract to be perfected is the consent of the contracting parties; that under Article
1319 of the same Code, consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract; that
the offer must be certain and the acceptance absolute; that a qualified acceptance
constitutes a counter-offer. Petitioners assert that since PIL did not accept
respondent's counter-offer, there never was any employment contract that was
perfected between them.

Petitioners further argue that respondent's claim for damages based on the
provisions of Articles 19 and 21 of the Civil Code is baseless because it was shown
that there was no perfected employment contract.

Assuming, for the sake of argument, that PIL may be held liable for breach of
employment contract, petitioners contend that PCPI and PPHI, may not also be
held liable because they are juridical entities with personalities which are separate
and distinct from PIL, even if they are subsidiary corporations of the latter.
Petitioners also aver that the annexes to respondent's complaint show that the
negotiations on the alleged employment contract took place between respondent
and PIL through its office in Hongkong. In other words, PCPI and PPHI were not
privy to the negotiations between PIL and respondent for the possible employment
of the latter; and under Article 1311 of the Civil Code, a contract is not binding
upon and cannot be enforced against one who was not a party to it even if he be
aware of such contract and has acted with knowledge thereof.

Petitioners further assert that petitioner Klepzig may not be held liable because he
is simply acting in his capacity as president of PCPI and PPHI and settled is the
rule that an officer of a corporation is not personally liable for acts done in the
performance of his duties and within the bounds of the authority conferred on him.
Furthermore, petitioners argue that even if PCPI and PPHI are held liable,
respondent still has no cause of action against Klepzig because PCPI and PPHI
have personalities which are separate and distinct from those acting in their behalf,
such as Klepzig.

As to their second assigned error, petitioners contend that since herein respondent's
claims for actual, moral and exemplary damages are solely premised on the alleged
breach of employment contract, the present case should be considered as falling
within the exclusive jurisdiction of the NLRC.

With respect to the third assigned error, petitioners assert that the principle
of forum non conveniens dictates that even where exercise of jurisidiction is
authorized by law, courts may refuse to entertain a case involving a foreign
element where the matter can be better tried and decided elsewhere, either because
the main aspects of the case transpired in a foreign jurisdiction or the material
witnesses have their residence there and the plaintiff sought the forum merely to
secure procedural advantage or to annoy or harass the defendant. Petitioners also
argue that one of the factors in determining the most convenient forum for conflicts
problem is the power of the court to enforce its decision. Petitioners contend that
since the majority of the defendants in the present case are not residents of
the Philippines, they are not subject to compulsory processes of the Philippine
court handling the case for purposes of requiring their attendance during trial. Even
assuming that they can be summoned, their appearance would entail excessive
costs. Petitioners further assert that there is no allegation in the complaint from
which one can conclude that the evidence to be presented during the trial can be
better obtained in the Philippines. Moreover, the events which led to the present
controversy occurred outside the Philippines. Petitioners conclude that based on
the foregoing factual circumstances, the case should be dismissed under the
principle of forum non conveniens.

In his Comment, respondent extensively quoted the assailed CA Decision


maintaining that the factual allegations in the complaint determine whether or not
the complaint states a cause of action.

As to the question of jurisdiction, respondent contends that the complaint he filed


was not based on a contract of employment. Rather, it was based on petitioners'
unwarranted breach of their contractual obligation to employ respondent. This
breach, respondent argues, gave rise to an action for damages which is cognizable
by the regular courts.

Even assuming that there was an employment contract, respondent asserts that for
the NLRC to acquire jurisdiction, the claim for damages must have a reasonable
causal connection with the employer-employee relationship of petitioners and
respondent.

Respondent further argues that there is a perfected contract between him and
petitioners as they both agreed that the latter shall employ him to manage and
operate their ready-mix concrete operations in the Philippines. Even assuming that
there was no perfected contract, respondent contends that his complaint alleges an
alternative cause of action which is based on the provisions of Articles 19 and 21
of the Civil Code.

As to the applicability of the doctrine of forum non conveniens, respondent avers


that the question of whether a suit should be entertained or dismissed on the basis
of the principle of forum non conveniens depends largely upon the facts of the
particular case and is addressed to the sound discretion of the trial judge, who is in
the best position to determine whether special circumstances require that the court
desist from assuming jurisdiction over the suit.
The petition lacks merit.

Section 2, Rule 2 of the Rules of Court, as amended, defines a cause of action as


the act or omission by which a party violates a right of another. A cause of action
exists if the following elements are present: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2) an obligation on
the part of the named defendant to respect or not to violate such right; and, (3) an
act or omission on the part of such defendant violative of the right of the plaintiff
or constituting a breach of the obligation of the defendant to the plaintiff for which
the latter may maintain an action for recovery of damages.[11]

In Hongkong and Shanghai Banking Corporation Limited v. Catalan,[12] this Court


held:

The elementary test for failure to state a cause of action is whether the
complaint alleges facts which if true would justify the relief demanded.
Stated otherwise, may the court render a valid judgment upon the facts
alleged therein? The inquiry is into the sufficiency, not the veracity of
the material allegations. If the allegations in the complaint furnish
sufficient basis on which it can be maintained, it should not be
dismissed regardless of the defense that may be presented by the
defendants.[13]

Moreover, the complaint does not have to establish or allege facts proving the
existence of a cause of action at the outset; this will have to be done at the trial on
the merits of the case.[14] To sustain a motion to dismiss for lack of cause of action,
the complaint must show that the claim for relief does not exist, rather than that a
claim has been defectively stated, or is ambiguous, indefinite or uncertain.[15]

Hence, in resolving whether or not the Complaint in the present case states a cause
of action, the trial court correctly limited itself to examining the sufficiency of the
allegations in the Complaint as well as the annexes thereto. It is proscribed from
inquiring into the truth of the allegations in the Complaint or the authenticity of
any of the documents referred or attached to the Complaint, since these are deemed
hypothetically admitted by the respondent.
This Court has reviewed respondents allegations in its Complaint. In a nutshell,
respondent alleged that herein petitioners reneged on their contractual obligation to
employ him on a permanent basis. This allegation is sufficient to constitute a cause
of action for damages.
The issue as to whether or not there was a perfected contract between petitioners
and respondent is a matter which is not ripe for determination in the present case;
rather, this issue must be taken up during trial, considering that its resolution would
necessarily entail an examination of the veracity of the allegations not only of
herein respondent as plaintiff but also of petitioners as defendants.
The Court does not agree with petitioners' contention that they were not privy to
the negotiations for respondent's possible employment. It is evident from
paragraphs 24 to 28 of the Complaint [16] that, on various
occasions, Klepzig conducted negotiations with respondent regarding the latter's
possible employment. In fact, Annex H[17] of the complaint shows that it
was Klepzig who informed respondent that his company was no longer interested
in employing respondent. Hence, based on the allegations in the Complaint and the
annexes attached thereto, respondent has a cause of action against herein
petitioners.
As to the question of jurisdiction, this Court has consistently held that where no
employer-employee relationship exists between the parties and no issue is involved
which may be resolved by reference to the Labor Code, other labor statutes or any
collective bargaining agreement, it is the Regional Trial Court that has jurisdiction.
[18]
In the present case, no employer-employee relationship exists between
petitioners and respondent. In fact, in his complaint, private respondent is not
seeking any relief under the Labor Code, but seeks payment of damages on
account of petitioners' alleged breach of their obligation under their agreement to
employ him. It is settled that an action for breach of contractual obligation is
intrinsically a civil dispute.[19] In the alternative, respondent seeks redress on the
basis of the provisions of Articles 19 and 21 of the Civil Code. Hence, it is clear
that the present action is within the realm of civil law, and jurisdiction over it
belongs to the regular courts.[20]
With respect to the applicability of the principle of forum non conveniens in the
present case, this Court's ruling in Bank of America NT & SA v. Court of
Appeals[21] is instructive, to wit:

The doctrine of forum non conveniens, literally meaning the forum is


inconvenient, emerged in private international law to deter the practice of
global forum shopping, that is to prevent non-resident litigants from
choosing the forum or place wherein to bring their suit for malicious
reasons, such as to secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more friendly
venue. Under this doctrine, a court, in conflicts of law cases, may refuse
impositions on its jurisdiction where it is not the most convenient or
available forum and the parties are not precluded from seeking remedies
elsewhere.
Whether a suit should be entertained or dismissed on the basis of said
doctrine depends largely upon the facts of the particular case and is
addressed to the sound discretion of the trial court. In the case
of Communication Materials and Design, Inc. vs. Court of Appeals, this
Court held that xxx [a] Philippine Court may assume jurisdiction over
the case if it chooses to do so; provided, that the following requisites are
met: (1) that the Philippine Court is one to which the parties may
conveniently resort to; (2) that the Philippine Court is in a position to
make an intelligent decision as to the law and the facts; and, (3) that the
Philippine Court has or is likely to have power to enforce its decision.
Moreover, this Court enunciated in Philsec. Investment Corporation vs.
Court of Appeals, that the doctrine of forum non conveniens should
not be used as a ground for a motion to dismiss because Sec. 1, Rule
16 of the Rules of Court does not include said doctrine as a ground.
This Court further ruled that 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; and
that the propriety of dismissing a case based on this principle
of forum non conveniens requires a factual determination, hence it is
more properly considered a matter of defense.[22](emphasis supplied)

In the present case, the factual circumstances cited by petitioners which


would allegedly justify the application of the doctrine of forum non conveniens are
matters of defense, the merits of which should properly be threshed out during trial.
WHEREFORE, the instant petition is DENIED and the assailed Decision
and Resolution of the Court of Appeals are AFFIRMED.

Costs against petitioners.

SO ORDERED.

[G.R. No. 114776. February 2, 2000]

MENANDRO B. LAUREANO, petitioner, vs. COURT OF APPEALS AND


SINGAPORE AIRLINES LIMITED, respondents.

DECISION

QUISUMBING, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks
to reverse the Decision of the Court of Appeals, dated October 29, 1993, in
C.A. G.R. No. CV 34476, as well as its Resolution dated February 28, 1994,
which denied the motion for reconsideration.

The facts of the case as summarized by the respondent appellate court are as
follows:

"Sometime in 1978, plaintiff [Menandro B. Laureano, herein


petitioner], then Director of Flight Operations and Chief Pilot of Air
Manila, applied for employment with defendant company [herein
private respondent] through its Area Manager in Manila.

On September 30, 1978, after the usual personal interview,


defendant wrote to plaintiff, offering a contract of employment as
an expatriate B-707 captain for an original period of two (2) years
commencing on January 21, 1978, Plaintiff accepted the offer and
commenced working on January 20, 1979. After passing the six-
month probation period, plaintiff's appointment was confirmed
effective July 21, 1979. (Annex "B", p. 30, Rollo).
On July 21, 1979, defendant offered plaintiff an extension of his
two-year contract to five (5) years effective January 21, 1979 to
January 20, 1984 subject to the terms and conditions set forth in
the contract of employment, which the latter accepted (Annex "C",
p. 31, Rec.).

During his service as B-707 captain, plaintiff on August 24, 1980,


while in command of a flight, committed a noise violation offense
at the Zurich Airport, for which plaintiff apologized. (Exh. "3", p.
307, Rec.).

Sometime in 1980, plaintiff featured in a tail scraping incident


wherein the tail of the aircraft scraped or touched the runway
during landing. He was suspended for a few days until he was
investigated by a board headed by Capt. Choy. He was
reprimanded. Scjuris

On September 25, 1981, plaintiff was invited to take a course of A-


300 conversion training at Aeroformacion, Toulouse, France at
defendant's expense. Having successfully completed and passed
the training course, plaintiff was cleared on April 7, 1981 for solo
duty as captain of the Airbus A-300 and subsequently appointed
as captain of the A-300 fleet commanding an Airbus A-300 in
flights over Southeast Asia. (Annexes "D", "E" and "F", pp. 34-38,
Rec.).

Sometime in 1982, defendant, hit by a recession, initiated cost-


cutting measures. Seventeen (17) expatriate captains in the
Airbus fleet were found in excess of the defendant's requirement
(t.s.n., July 6, 1988. p. 11). Consequently, defendant informed its
expatriate pilots including plaintiff of the situation and advised
them to take advance leaves. (Exh. "15", p. 466, Rec.).

Realizing that the recession would not be for a short time,


defendant decided to terminate its excess personnel (t.s.n., July
6, 1988, p. 17). It did not, however, immediately terminate it's A-
300 pilots. It reviewed their qualifications for possible promotion to
the B-747 fleet. Among the 17 excess Airbus pilots reviewed,
twelve were found qualified. Unfortunately, plaintiff was not one of
the twelve. Jurissc
On October 5, 1982, defendant informed plaintiff of his termination
effective November 1, 1982 and that he will be paid three (3)
months salary in lieu of three months notice (Annex "I", pp. 41-42,
Rec.). Because he could not uproot his family on such short
notice, plaintiff requested a three-month notice to afford him time
to exhaust all possible avenues for reconsideration and retention.
Defendant gave only two (2) months notice and one (1) month
salary. (t.s.n., Nov. 12, 1987. p. 25).

Aggrieved, plaintiff on June 29, 1983, instituted a case for illegal


dismissal before the Labor Arbiter. Defendant moved to dismiss
on jurisdictional grounds. Before said motion was resolved, the
complaint was withdrawn. Thereafter, plaintiff filed the instant case
for damages due to illegal termination of contract of services
before the court a quo (Complaint, pp. 1-10, Rec.).

Again, defendant on February 11, 1987 filed a motion to dismiss


alleging inter alia: (1) that the court has no jurisdiction over the
subject matter of the case, and (2) that Philippine courts have no
jurisdiction over the instant case. Defendant contends that the
complaint is for illegal dismissal together with a money claim
arising out of and in the course of plaintiff's employment "thus it is
the Labor Arbiter and the NLRC who have the jurisdiction
pursuant to Article 217 of the Labor Code" and that, since plaintiff
was employed in Singapore, all other aspects of his employment
contract and/or documents executed in Singapore. Thus,
defendant postulates that Singapore laws should apply and courts
thereat shall have jurisdiction. (pp. 50-69, Rec.). Misjuris

In traversing defendant's arguments, plaintiff claimed that: (1)


where the items demanded in a complaint are the natural
consequences flowing from a breach of an obligation and not
labor benefits, the case is intrinsically a civil dispute; (2) the case
involves a question that is beyond the field of specialization of
labor arbiters; and (3) if the complaint is grounded not on the
employee's dismissal per se but on the manner of said dismissal
and the consequence thereof, the case falls under the jurisdiction
of the civil courts. (pp. 70-73, Rec.)

On March 23, 1987, the court a quo denied defendant's motion to


dismiss (pp. 82-84, Ibid). The motion for reconsideration was
likewise denied. (p. 95 ibid)
On September 16, 1987, defendant filed its answer reiterating the
grounds relied upon in its motion to dismiss and further arguing
that plaintiff is barred by laches, waiver, and estoppel from
instituting the complaint and that he has no cause of action. (pp.
102-115)" [1]

On April 10, 1991, the trial court handed down its decision in favor of plaintiff.
The dispositive portion of which reads:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff


Menandro Laureano and against defendant Singapore Airlines
Limited, ordering defendant to pay plaintiff the amounts of -

SIN$396,104.00, or its equivalent in Philippine currency at the


current rate of exchange at the time of payment, as and for
unearned compensation with legal interest from the filing of the
complaint until fully paid; Jjlex

SIN$154,742.00, or its equivalent in Philippine currency at the


current rate of exchange at the time of payment; and the further
amounts of P67,500.00 as consequential damages with legal
interest from the filing of the complaint until fully paid;

P1,000,000.00 as and for moral damages; P1,000,000.00 as and


for exemplary damages; and P100,000.00 as and for attorney's
fees.

Costs against defendant.

SO ORDERED." [2]

Singapore Airlines timely appealed before the respondent court and raised the
issues of jurisdiction, validity of termination, estoppel, and damages.

On October 29, 1993, the appellate court set aside the decision of the trial
court, thus,

"...In the instant case, the action for damages due to illegal
termination was filed by plaintiff-appellee only on January 8, 1987
or more than four (4) years after the effectivity date of his
dismissal on November 1, 1982. Clearly, plaintiff-appellee's action
has already prescribed.
WHEREFORE, the appealed decision is hereby REVERSED and
SET ASIDE. The complaint is hereby dismissed.

SO ORDERED." [3]
Newmiso

Petitioner's and Singapore Airlines' respective motions for reconsideration


were denied.

Now, before the Court, petitioner poses the following queries:

1. IS THE PRESENT ACTION ONE BASED ON CONTRACT


WHICH PRESCRIBES IN TEN YEARS UNDER ARTICLE 1144
OF THE NEW CIVIL CODE OR ONE FOR DAMAGES ARISING
FROM AN INJURY TO THE RIGHTS OF THE PLAINTIFF WHICH
PRESCRIBES IN FOUR YEARS UNDER ARTICLE 1146 OF THE
NEW CIVIL CODE?

2. CAN AN EMPLOYEE WITH A FIXED PERIOD OF


EMPLOYMENT BE RETRENCHED BY HIS EMPLOYER?

3. CAN THERE BE VALID RETRENCHMENT IF AN EMPLOYER


MERELY FAILS TO REALIZE THE EXPECTED PROFITS EVEN
IF IT WERE NOT, IN FACT, INCURRING LOSSES?

At the outset, we find it necessary to state our concurrence on the assumption


of jurisdiction by the Regional Trial Court of Manila, Branch 9. The trial court
rightly ruled on the application of Philippine law, thus: Acctmis

"Neither can the Court determine whether the termination of the


plaintiff is legal under the Singapore Laws because of the
defendant's failure to show which specific laws of Singapore Laws
apply to this case. As substantially discussed in the preceding
paragraphs, the Philippine Courts do not take judicial notice of the
laws of Singapore. The defendant that claims the applicability of
the Singapore Laws to this case has the burden of proof. The
defendant has failed to do so. Therefore, the Philippine law should
be applied."[4]

Respondent Court of Appeals acquired jurisdiction when defendant filed its


appeal before said court. On this matter, respondent court was correct when
[5]

it barred defendant-appellant below from raising further the issue of


jurisdiction.
[6]
Petitioner now raises the issue of whether his action is one based on Article
1144 or on Article 1146 of the Civil Code. According to him, his termination of
employment effective November 1, 1982, was based on an employment
contract which is under Article 1144, so his action should prescribe in 10 years
as provided for in said article. Thus he claims the ruling of the appellate court
based on Article 1146 where prescription is only four (4) years, is an error. The
appellate court concluded that the action for illegal dismissal originally filed
before the Labor Arbiter on June 29, 1983, but which was withdrawn, then
filed again in 1987 before the Regional Trial Court, had already prescribed.

In our view, neither Article 1144 nor Article 1146 of the Civil Code is here
[7] [8]

pertinent. What is applicable is Article 291 of the Labor Code, viz:

"Article 291. Money claims. - All money claims arising from


employee-employer relations accruing during the effectivity of this
Code shall be filed within three (3) years from the time the cause
of action accrued; otherwise they shall be forever barred.

x x x" Misact

What rules on prescription should apply in cases like this one has long been
decided by this Court. In illegal dismissal, it is settled, that the ten-year
prescriptive period fixed in Article 1144 of the Civil Code may not be invoked
by petitioners, for the Civil Code is a law of general application, while the
prescriptive period fixed in Article 292 of the Labor Code [now Article 291] is a
SPECIAL LAW applicable to claims arising from employee-employer relations.
[9]

More recently in De Guzman. vs. Court of Appeals, where the money claim
[10]

was based on a written contract, the Collective Bargaining Agreement, the


Court held:

"...The language of Art. 291 of the Labor Code does not limit its
application only to 'money claims specifically recoverable under
said Code' but covers all money claims arising from an employee-
employer relations" (Citing Cadalin v. POEA Administrator, 238
SCRA 721, 764 [1994]; and Uy v. National Labor Relations
Commission, 261 SCRA 505, 515 [1996]). ...

It should be noted further that Article 291 of the Labor Code is a


special law applicable to money claims arising from employer-
employee relations; thus, it necessarily prevails over Article 1144
of the Civil Code, a general law. Basic is the rule in statutory
construction that 'where two statutes are of equal theoretical
application to a particular case, the one designed therefore should
prevail.' (Citing Leveriza v. Intermediate Appellate Court, 157
SCRA 282, 294.) Generalia specialibus non derogant." [11]

In the light of Article 291, aforecited, we agree with the appellate court's
conclusion that petitioner's action for damages due to illegal termination filed
again on January 8, 1987 or more than four (4) years after the effective date
of his dismissal on November 1, 1982 has already prescribed.

"In the instant case, the action for damages due to illegal
termination was filed by plaintiff-appellee only on January 8, 1987
or more than four (4) years after the effectivity date of his
dismissal on November 1, 1982. Clearly, plaintiff-appellee's action
has already prescribed."

We base our conclusion not on Article 1144 of the Civil Code but on Article
291 of the Labor Code, which sets the prescription period at three (3) years
and which governs under this jurisdiction.

Petitioner claims that the running of the prescriptive period was tolled when he
filed his complaint for illegal dismissal before the Labor Arbiter of the National
Labor Relations Commission. However, this claim deserves scant
consideration; it has no legal leg to stand on. In Olympia International, Inc. vs.
Court of Appeals, we held that "although the commencement of a civil action
stops the running of the statute of prescription or limitations, its dismissal or
voluntary abandonment by plaintiff leaves the parties in exactly the same
position as though no action had been commenced at all." [12]

Now, as to whether petitioner's separation from the company due to


retrenchment was valid, the appellate court found that the employment
contract of petitioner allowed for pre-termination of employment. We agree
with the Court of Appeals when it said, Sdjad

"It is a settled rule that contracts have the force of law between
the parties. From the moment the same is perfected, the parties
are bound not only to the fulfillment of what has been expressly
stipulated but also to all consequences which, according to their
nature, may be in keeping with good faith, usage and law. Thus,
when plaintiff-appellee accepted the offer of employment, he was
bound by the terms and conditions set forth in the contract,
among others, the right of mutual termination by giving three
months written notice or by payment of three months salary. Such
provision is clear and readily understandable, hence, there is no
room for interpretation."

xxx

Further, plaintiff-appellee's contention that he is not bound by the


provisions of the Agreement, as he is not a signatory thereto,
deserves no merit. It must be noted that when plaintiff-appellee's
employment was confirmed, he applied for membership with the
Singapore Airlines Limited (Pilots) Association, the signatory to
the aforementioned Agreement. As such, plaintiff-appellee is
estopped from questioning the legality of the said agreement or
any proviso contained therein." [13]

Moreover, the records of the present case clearly show that respondent
court's decision is amply supported by evidence and it did not err in its
findings, including the reason for the retrenchment:

"When defendant-appellant was faced with the world-wide


recession of the airline industry resulting in a slow down in the
company's growth particularly in the regional operation (Asian
Area) where the Airbus 300 operates. It had no choice but to
adopt cost cutting measures, such as cutting down services,
number of frequencies of flights, and reduction of the number of
flying points for the A-300 fleet (t.s.n., July 6, 1988, pp. 17-18). As
a result, defendant-appellant had to layoff A-300 pilots, including
plaintiff-appellee, which it found to be in excess of what is
reasonably needed." [14]

All these considered, we find sufficient factual and legal basis to conclude that
petitioner's termination from employment was for an authorized cause, for
which he was given ample notice and opportunity to be heard, by respondent
company. No error nor grave abuse of discretion, therefore, could be
attributed to respondent appellate court. Sppedsc

ACCORDINGLY, the instant petition is DISMISSED. The decision of the Court


of Appeals in C.A. CV No. 34476 is AFFIRMED.

SO ORDERED.
[G.R. No. 119602. October 6, 2000]

WILDVALLEY SHIPPING CO., LTD. petitioner, vs. COURT OF APPEALS


and PHILIPPINE PRESIDENT LINES INC., respondents.

DECISION
BUENA, J.:

This is a petition for review on certiorari seeking to set aside the decision
of the Court of Appeals which reversed the decision of the lower court in CA-
G.R. CV No. 36821, entitled "Wildvalley Shipping Co., Ltd., plaintiff-appellant,
versus Philippine President Lines, Inc., defendant-appellant."
The antecedent facts of the case are as follows:
Sometime in February 1988, the Philippine Roxas, a vessel owned by
Philippine President Lines, Inc., private respondent herein, arrived in Puerto
Ordaz, Venezuela, to load iron ore. Upon the completion of the loading and
when the vessel was ready to leave port, Mr. Ezzar del Valle Solarzano
Vasquez, an official pilot of Venezuela, was designated by the harbour
authorities in Puerto Ordaz to navigate the Philippine Roxas through the
Orinoco River.[1] He was asked to pilot the said vessel on February 11,
1988[2] boarding it that night at 11:00 p.m.[3]
The master (captain) of the Philippine Roxas, Captain Nicandro Colon,
was at the bridge together with the pilot (Vasquez), the vessel's third mate
(then the officer on watch), and a helmsman when the vessel left the port [4] at
1:40 a.m. on February 12, 1988.[5] Captain Colon left the bridge when the
vessel was under way.[6]
The Philippine Roxas experienced some vibrations when it entered the
San Roque Channel at mile 172.[7] The vessel proceeded on its way, with the
pilot assuring the watch officer that the vibration was a result of the
shallowness of the channel.[8]
Between mile 158 and 157, the vessel again experienced some vibrations.
These occurred at 4:12 a.m.[10] It was then that the watch officer called the
[9]

master to the bridge.[11]


The master (captain) checked the position of the vessel[12] and verified that
it was in the centre of the channel. [13] He then went to confirm, or set down, the
position of the vessel on the chart.[14] He ordered Simplicio A. Monis, Chief
Officer of the President Roxas, to check all the double bottom tanks.[15]
At around 4:35 a.m., the Philippine Roxas ran aground in the Orinoco
River,[16] thus obstructing the ingress and egress of vessels.
As a result of the blockage, the Malandrinon, a vessel owned by herein
petitioner Wildvalley Shipping Company, Ltd., was unable to sail out of Puerto
Ordaz on that day.
Subsequently, Wildvalley Shipping Company, Ltd. filed a suit with the
Regional Trial Court of Manila, Branch III against Philippine President Lines,
Inc. and Pioneer Insurance Company (the underwriter/insurer of Philippine
Roxas) for damages in the form of unearned profits, and interest thereon
amounting to US $400,000.00 plus attorney's fees, costs, and expenses of
litigation. The complaint against Pioneer Insurance Company was dismissed
in an Order dated November 7, 1988.[17]
At the pre-trial conference, the parties agreed on the following facts:

"1. The jurisdictional facts, as specified in their respective pleadings;

"2. That defendant PPL was the owner of the vessel Philippine Roxas at the time of
the incident;

"3. That defendant Pioneer Insurance was the insurance underwriter for defendant
PPL;

"4. That plaintiff Wildvalley Shipping Co., Inc. is the owner of the vessel
Malandrinon, whose passage was obstructed by the vessel Philippine Roxas at Puerto
Ordaz, Venezuela, as specified in par. 4, page 2 of the complaint;

"5. That on February 12, 1988, while the Philippine Roxas was navigating the channel
at Puerto Ordaz, the said vessel grounded and as a result, obstructed navigation at the
channel;

"6. That the Orinoco River in Puerto Ordaz is a compulsory pilotage channel;

"7. That at the time of the incident, the vessel, Philippine Roxas, was under the
command of the pilot Ezzar Solarzano, assigned by the government thereat, but
plaintiff claims that it is under the command of the master;

"8. The plaintiff filed a case in Middleburg, Holland which is related to the present
case;

"9. The plaintiff caused the arrest of the Philippine Collier, a vessel owned by the
defendant PPL;
"10. The Orinoco River is 150 miles long and it takes approximately 12 hours to
navigate out of the said river;

"11. That no security for the plaintiff's claim was given until after the Philippine
Collier was arrested; and

"12. That a letter of guarantee, dated 12-May-88 was issued by the Steamship Mutual
Underwriters Ltd."[18]

The trial court rendered its decision on October 16, 1991 in favor of the
petitioner, Wildvalley Shipping Co., Ltd. The dispositive portion thereof reads
as follows:

"WHEREFORE, judgment is rendered for the plaintiff, ordering defendant Philippine


President Lines, Inc. to pay to the plaintiff the sum of U.S. $259,243.43, as actual and
compensatory damages, and U.S. $162,031.53, as expenses incurred abroad for its
foreign lawyers, plus additional sum of U.S. $22,000.00, as and for attorney's fees of
plaintiff's local lawyer, and to pay the cost of this suit.

"Defendant's counterclaim is dismissed for lack of merit.

"SO ORDERED."[19]

Both parties appealed: the petitioner appealing the non-award of interest


with the private respondent questioning the decision on the merits of the case.
After the requisite pleadings had been filed, the Court of Appeals came out
with its questioned decision dated June 14, 1994,[20] the dispositive portion of
which reads as follows:

"WHEREFORE, finding defendant-appellant's appeal to be meritorious, judgment is


hereby rendered reversing the Decision of the lower court. Plaintiff-appellant's
Complaint is dismissed and it is ordered to pay defendant-appellant the amount of
Three Hundred Twenty-three Thousand, Forty-two Pesos and Fifty-three Centavos
(P323,042.53) as and for attorney's fees plus cost of suit. Plaintiff-appellant's appeal is
DISMISSED.

"SO ORDERED."[21]

Petitioner filed a motion for reconsideration[22] but the same was denied for lack of
merit in the resolution dated March 29, 1995.[23]

Hence, this petition.


The petitioner assigns the following errors to the court a quo:
1. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT
UNDER PHILIPPINE LAW NO FAULT OR NEGLIGENCE CAN BE ATTRIBUTED
TO THE MASTER NOR THE OWNER OF THE "PHILIPPINE ROXAS" FOR THE
GROUNDING OF SAID VESSEL RESULTING IN THE BLOCKAGE OF THE RIO
ORINOCO;
2. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE
FINDINGS OF FACTS OF THE TRIAL COURT CONTRARY TO EVIDENCE;
3. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT
THE "PHILIPPINE ROXAS" IS SEAWORTHY;
4. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING
VENEZUELAN LAW DESPITE THE FACT THAT THE SAME HAS BEEN
SUBSTANTIALLY PROVED IN THE TRIAL COURT WITHOUT ANY OBJECTION
FROM PRIVATE RESPONDENT, AND WHOSE OBJECTION WAS INTERPOSED
BELATEDLY ON APPEAL;
5. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN AWARDING
ATTORNEY'S FEES AND COSTS TO PRIVATE RESPONDENT WITHOUT ANY
FAIR OR REASONABLE BASIS WHATSOEVER;
6. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING
THAT PETITIONER'S CAUSE IS MERITORIOUS HENCE, PETITIONER SHOULD
BE ENTITLED TO ATTORNEY'S FEES, COSTS AND INTEREST.

The petition is without merit.


The primary issue to be determined is whether or not Venezuelan law is
applicable to the case at bar.
It is well-settled that foreign laws do not prove themselves in our
jurisdiction and our courts are not authorized to take judicial notice of
them. Like any other fact, they must be alleged and proved.[24]
A distinction is to be made as to the manner of proving a written and an
unwritten law. The former falls under Section 24, Rule 132 of the Rules of
Court, as amended, the entire provision of which is quoted hereunder. Where
the foreign law sought to be proved is "unwritten," the oral testimony of expert
witnesses is admissible, as are printed and published books of reports of
decisions of the courts of the country concerned if proved to be commonly
admitted in such courts.[25]
Section 24 of Rule 132 of the Rules of Court, as amended, provides:

"Sec. 24. Proof of official record. -- The record of public documents referred to in
paragraph (a) of Section 19, when admissible for any purpose, may be evidenced by
an official publication thereof or by a copy attested by the officer having the legal
custody of the record, or by his deputy, and accompanied, if the record is not kept in
the Philippines, with a certificate that such officer has the custody. If the office in
which the record is kept is in a foreign country, the certificate may be made by a
secretary of the embassy or legation, consul general, consul, vice consul, or consular
agent or by any officer in the foreign service of the Philippines stationed in the foreign
country in which the record is kept, and authenticated by the seal of his office."
(Underscoring supplied)

The court has interpreted Section 25 (now Section 24) to include


competent evidence like the testimony of a witness to prove the existence of a
written foreign law.[26]
In the noted case of Willamette Iron & Steel Works vs. Muzzal, [27] it was
held that:

" Mr. Arthur W. Bolton, an attorney-at-law of San Francisco, California, since the year
1918 under oath, quoted verbatim section 322 of the California Civil Code and stated
that said section was in force at the time the obligations of defendant to the plaintiff
were incurred, i.e. on November 5, 1928 and December 22, 1928. This evidence
sufficiently established the fact that the section in question was the law of the State of
California on the above dates. A reading of sections 300 and 301 of our Code of Civil
Procedure will convince one that these sections do not exclude the presentation of
other competent evidence to prove the existence of a foreign law.

"`The foreign law is a matter of fact You ask the witness what the law is; he may, from
his recollection, or on producing and referring to books, say what it is.' (Lord
Campbell concurring in an opinion of Lord Chief Justice Denman in a well-known
English case where a witness was called upon to prove the Roman laws of marriage
and was permitted to testify, though he referred to a book containing the decrees of the
Council of Trent as controlling, Jones on Evidence, Second Edition, Volume 4, pages
3148-3152.) x x x.

We do not dispute the competency of Capt. Oscar Leon Monzon, the


Assistant Harbor Master and Chief of Pilots at Puerto Ordaz, Venezuela, [28] to
testify on the existence of the Reglamento General de la Ley de
Pilotaje (pilotage law of Venezuela)[29] and the Reglamento Para la Zona de
Pilotaje No 1 del Orinoco (rules governing the navigation of the Orinoco
River). Captain Monzon has held the aforementioned posts for eight years.
[30]
As such he is in charge of designating the pilots for maneuvering and
navigating the Orinoco River. He is also in charge of the documents that come
into the office of the harbour masters.[31]
Nevertheless, we take note that these written laws were not proven in the
manner provided by Section 24 of Rule 132 of the Rules of Court.
The Reglamento General de la Ley de Pilotaje was published in
the Gaceta Oficial[32]of the Republic of Venezuela. A photocopy of the Gaceta
Oficial was presented in evidence as an official publication of the Republic of
Venezuela.
The Reglamento Para la Zona de Pilotaje No 1 del Orinoco is published in
a book issued by the Ministerio de Comunicaciones of Venezuela.[33] Only a
photocopy of the said rules was likewise presented as evidence.
Both of these documents are considered in Philippine jurisprudence to be
public documents for they are the written official acts, or records of the official
acts of the sovereign authority, official bodies and tribunals, and public officers
of Venezuela.[34]
For a copy of a foreign public document to be admissible, the following
requisites are mandatory: (1) It must be attested by the officer having legal
custody of the records or by his deputy; and (2) It must be accompanied by a
certificate by a secretary of the embassy or legation, consul general, consul,
vice consular or consular agent or foreign service officer, and with the seal of
his office.[35] The latter requirement is not a mere technicality but is intended to
justify the giving of full faith and credit to the genuineness of a document in a
foreign country.[36]
It is not enough that the Gaceta Oficial, or a book published by
the Ministerio de Comunicaciones of Venezuela, was presented as evidence
with Captain Monzon attesting it. It is also required by Section 24 of Rule 132
of the Rules of Court that a certificate that Captain Monzon, who attested the
documents, is the officer who had legal custody of those records made by a
secretary of the embassy or legation, consul general, consul, vice consul or
consular agent or by any officer in the foreign service of the Philippines
stationed in Venezuela, and authenticated by the seal of his office
accompanying the copy of the public document. No such certificate could be
found in the records of the case.
With respect to proof of written laws, parol proof is objectionable, for the
written law itself is the best evidence. According to the weight of authority,
when a foreign statute is involved, the best evidence rule requires that it be
proved by a duly authenticated copy of the statute.[37]
At this juncture, we have to point out that the Venezuelan law was not
pleaded before the lower court.
A foreign law is considered to be pleaded if there is an allegation in the
pleading about the existence of the foreign law, its import and legal
consequence on the event or transaction in issue.[38]
A review of the Complaint[39] revealed that it was never alleged or invoked
despite the fact that the grounding of the M/V Philippine Roxas occurred
within the territorial jurisdiction of Venezuela.
We reiterate that under the rules of private international law, a foreign law
must be properly pleaded and proved as a fact. In the absence of pleading
and proof, the laws of a foreign country, or state, will be presumed to be the
same as our own local or domestic law and this is known as processual
presumption.[40]
Having cleared this point, we now proceed to a thorough study of the
errors assigned by the petitioner.
Petitioner alleges that there was negligence on the part of the private
respondent that would warrant the award of damages.
There being no contractual obligation, the private respondent is obliged to
give only the diligence required of a good father of a family in accordance with
the provisions of Article 1173 of the New Civil Code, thus:

Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.

The diligence of a good father of a family requires only that diligence


which an ordinary prudent man would exercise with regard to his own
property. This we have found private respondent to have exercised when the
vessel sailed only after the "main engine, machineries, and other auxiliaries"
were checked and found to be in good running condition;[41] when the master
left a competent officer, the officer on watch on the bridge with a pilot who is
experienced in navigating the Orinoco River; when the master ordered the
inspection of the vessel's double bottom tanks when the vibrations occurred
anew.[42]
The Philippine rules on pilotage, embodied in Philippine Ports Authority
Administrative Order No. 03-85, otherwise known as the Rules and
Regulations Governing Pilotage Services, the Conduct of Pilots and Pilotage
Fees in Philippine Ports enunciate the duties and responsibilities of a master
of a vessel and its pilot, among other things.
The pertinent provisions of the said administrative order governing these
persons are quoted hereunder:

Sec. 11. Control of Vessels and Liability for Damage. -- On compulsory pilotage
grounds, the Harbor Pilot providing the service to a vessel shall be responsible for the
damage caused to a vessel or to life and property at ports due to his negligence or
fault. He can be absolved from liability if the accident is caused by force majeure or
natural calamities provided he has exercised prudence and extra diligence to prevent
or minimize the damage.

The Master shall retain overall command of the vessel even on pilotage grounds
whereby he can countermand or overrule the order or command of the Harbor Pilot on
board. In such event, any damage caused to a vessel or to life and property at ports by
reason of the fault or negligence of the Master shall be the responsibility and liability
of the registered owner of the vessel concerned without prejudice to recourse against
said Master.

Such liability of the owner or Master of the vessel or its pilots shall be determined by
competent authority in appropriate proceedings in the light of the facts and
circumstances of each particular case.

xxx

Sec. 32. Duties and Responsibilities of the Pilots or Pilots Association. -- The duties
and responsibilities of the Harbor Pilot shall be as follows:

xxx

f) A pilot shall be held responsible for the direction of a vessel from the time he
assumes his work as a pilot thereof until he leaves it anchored or berthed safely;
Provided, however, that his responsibility shall cease at the moment the Master
neglects or refuses to carry out his order."

The Code of Commerce likewise provides for the obligations expected of a


captain of a vessel, to wit:

Art. 612. The following obligations shall be inherent in the office of captain:

xxx
"7. To be on deck on reaching land and to take command on entering and leaving
ports, canals, roadsteads, and rivers, unless there is a pilot on board discharging his
duties. x x x.

The law is very explicit. The master remains the overall commander of the
vessel even when there is a pilot on board. He remains in control of the ship
as he can still perform the duties conferred upon him by law [43] despite the
presence of a pilot who is temporarily in charge of the vessel. It is not required
of him to be on the bridge while the vessel is being navigated by a pilot.
However, Section 8 of PPA Administrative Order No. 03-85, provides:

Sec. 8. Compulsory Pilotage Service - For entering a harbor and anchoring thereat, or
passing through rivers or straits within a pilotage district, as well as docking and
undocking at any pier/wharf, or shifting from one berth or another, every vessel
engaged in coastwise and foreign trade shall be under compulsory pilotage.

xxx.
The Orinoco River being a compulsory pilotage channel necessitated the
engaging of a pilot who was presumed to be knowledgeable of every shoal,
bank, deep and shallow ends of the river. In his deposition, pilot Ezzar
Solarzano Vasquez testified that he is an official pilot in the Harbour at Port
Ordaz, Venezuela,[44] and that he had been a pilot for twelve (12) years. [45] He
also had experience in navigating the waters of the Orinoco River.[46]
The law does provide that the master can countermand or overrule the
order or command of the harbor pilot on board. The master of the Philippine
Roxas deemed it best not to order him (the pilot) to stop the vessel, [47] mayhap,
because the latter had assured him that they were navigating normally before
the grounding of the vessel.[48] Moreover, the pilot had admitted that on
account of his experience he was very familiar with the configuration of the
river as well as the course headings, and that he does not even refer to river
charts when navigating the Orinoco River.[49]
Based on these declarations, it comes as no surprise to us that the master
chose not to regain control of the ship. Admitting his limited knowledge of the
Orinoco River, Captain Colon relied on the knowledge and experience of pilot
Vasquez to guide the vessel safely.

Licensed pilots, enjoying the emoluments of compulsory pilotage, are in a different


class from ordinary employees, for they assume to have a skill and a knowledge of
navigation in the particular waters over which their licenses extend superior to that of
the master; pilots are bound to use due diligence and reasonable care and skill. A
pilot's ordinary skill is in proportion to the pilot's responsibilities, and implies a
knowledge and observance of the usual rules of navigation, acquaintance with the
waters piloted in their ordinary condition, and nautical skill in avoiding all known
obstructions. The character of the skill and knowledge required of a pilot in charge of
a vessel on the rivers of a country is very different from that which enables a
navigator to carry a vessel safely in the ocean. On the ocean, a knowledge of the rules
of navigation, with charts that disclose the places of hidden rocks, dangerous shores,
or other dangers of the way, are the main elements of a pilot's knowledge and
skill. But the pilot of a river vessel, like the harbor pilot, is selected for the individual's
personal knowledge of the topography through which the vessel is steered." [50]

We find that the grounding of the vessel is attributable to the pilot. When
the vibrations were first felt the watch officer asked him what was going on,
and pilot Vasquez replied that "(they) were in the middle of the channel and
that the vibration was as (sic) a result of the shallowness of the channel."[51]
Pilot Ezzar Solarzano Vasquez was assigned to pilot the vessel Philippine
Roxas as well as other vessels on the Orinoco River due to his knowledge of
the same. In his experience as a pilot, he should have been aware of the
portions which are shallow and which are not. His failure to determine the
depth of the said river and his decision to plod on his set course, in all
probability, caused damage to the vessel. Thus, we hold him as negligent and
liable for its grounding.
In the case of Homer Ramsdell Transportation Company vs. La
Compagnie Generale Transatlantique, 182 U.S. 406, it was held that:

x x x The master of a ship, and the owner also, is liable for any injury done by the
negligence of the crew employed in the ship. The same doctrine will apply to the case
of a pilot employed by the master or owner, by whose negligence any injury happens
to a third person or his property: as, for example, by a collision with another ship,
occasioned by his negligence. And it will make no difference in the case that the pilot,
if any is employed, is required to be a licensed pilot; provided the master is at liberty
to take a pilot, or not, at his pleasure, for in such a case the master acts voluntarily,
although he is necessarily required to select from a particular class. On the other
hand, if it is compulsive upon the master to take a pilot, and, a fortiori, if he is
bound to do so under penalty, then, and in such case, neither he nor the owner
will be liable for injuries occasioned by the negligence of the pilot; for in such a
case the pilot cannot be deemed properly the servant of the master or the owner, but is
forced upon them, and the maxim Qui facit per alium facit per se does not apply."
(Underscoring supplied)
Anent the river passage plan, we find that, while there was none,[52] the
voyage has been sufficiently planned and monitored as shown by the following actions undertaken by the
pilot, Ezzar Solarzano Vasquez, to wit: contacting the radio marina via VHF for information regarding the
channel, river traffic,[53] soundings of the river, depth of the river, bulletin on the buoys. [54] The officer on
watch also monitored the voyage.[55]

We, therefore, do not find the absence of a river passage plan to be the
cause for the grounding of the vessel.
The doctrine of res ipsa loquitur does not apply to the case at bar because
the circumstances surrounding the injury do not clearly indicate negligence on
the part of the private respondent. For the said doctrine to apply, the following
conditions must be met: (1) the accident was of such character as to warrant
an inference that it would not have happened except for defendant's
negligence; (2) the accident must have been caused by an agency or
instrumentality within the exclusive management or control of the person
charged with the negligence complained of; and (3) the accident must not
have been due to any voluntary action or contribution on the part of the
person injured.[56]
As has already been held above, there was a temporary shift of control
over the ship from the master of the vessel to the pilot on a compulsory
pilotage channel. Thus, two of the requisites necessary for the doctrine to
apply, i.e., negligence and control, to render the respondent liable, are absent.
As to the claim that the ship was unseaworthy, we hold that it is not.
The Lloyds Register of Shipping confirmed the vessels seaworthiness in a
Confirmation of Class issued on February 16, 1988 by finding that "the above
named ship (Philippine Roxas) maintained the class "+100A1 Strengthened
for Ore Cargoes, Nos. 2 and 8 Holds may be empty (CC) and +LMC" from
31/12/87 up until the time of casualty on or about 12/2/88." [57] The same would
not have been issued had not the vessel been built according to the standards
set by Lloyd's.
Samuel Lim, a marine surveyor, at Lloyd's Register of Shipping testified
thus:
"Q Now, in your opinion, as a surveyor, did top side tank have any bearing at all to the
seaworthiness of the vessel?
"A Well, judging on this particular vessel, and also basing on the class record of the vessel,
wherein recommendations were made on the top side tank, and it was given sufficient
time to be repaired, it means that the vessel is fit to travel even with those defects on the
ship.
"COURT
What do you mean by that? You explain. The vessel is fit to travel even with defects? Is that
what you mean? Explain.
"WITNESS
"A Yes, your Honor. Because the class society which register (sic) is the third party looking
into the condition of the vessel and as far as their record states, the vessel was class or
maintained, and she is fit to travel during that voyage."
xxx
"ATTY. MISA
Before we proceed to other matter, will you kindly tell us what is (sic) the 'class +100A1
Strengthened for Ore Cargoes', mean?
"WITNESS
"A Plus 100A1 means that the vessel was built according to Lloyd's rules and she is capable
of carrying ore bulk cargoes, but she is particularly capable of carrying Ore Cargoes with
No. 2 and No. 8 holds empty.
xxx
"COURT
The vessel is classed, meaning?
"A Meaning she is fit to travel, your Honor, or seaworthy."[58]

It is not required that the vessel must be perfect. To be seaworthy, a ship


must be reasonably fit to perform the services, and to encounter the ordinary
perils of the voyage, contemplated by the parties to the policy.[59]
As further evidence that the vessel was seaworthy, we quote the
deposition of pilot Vasquez:
"Q Was there any instance when your orders or directions were not complied with because of
the inability of the vessel to do so?
"A No.
"Q. Was the vessel able to respond to all your commands and orders?
"A. The vessel was navigating normally.[60]

Eduardo P. Mata, Second Engineer of the Philippine Roxas submitted an


accident report wherein he stated that on February 11, 1988, he checked and
prepared the main engine, machineries and all other auxiliaries and found
them all to be in good running condition and ready for maneuvering. That
same day the main engine, bridge and engine telegraph and steering gear
motor were also tested.[61] Engineer Mata also prepared the fuel for
consumption for maneuvering and checked the engine generators.[62]
Finally, we find the award of attorneys fee justified.
Article 2208 of the New Civil Code provides that:

"Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:

xxx

"(11) In any other case where the court deems it just and equitable that attorney's fees
and expenses of litigation should be recovered.

xxx
Due to the unfounded filing of this case, the private respondent was
unjustifiably forced to litigate, thus the award of attorneys fees was proper.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is
DENIED and the decision of the Court of Appeals in CA G.R. CV No. 36821 is
AFFIRMED.
SO ORDERED.

G.R. No. 101538 June 23, 1992

AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian,
Augusto Benedicto Santos, petitioner,
vs.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.

CRUZ, J.:

This case involves the Proper interpretation of Article 28(1) of the Warsaw Convention, reading
as follows: jurisdiction and constitutionality

Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in
the territory of one of the High Contracting Parties, either before the court of the
domicile of the carrier or of his principal place of business, or where he has a
place of business through which the contract has been made, or before the court
at the place of destination.

The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Orient
Airlines (NOA) is a foreign corporation with principal office in Minnesota, U.S.A. and licensed to
do business and maintain a branch office in the Philippines.

On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San Francisco.
U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The scheduled departure
date from Tokyo was December 20, 1986. No date was specified for his return to San
Francisco. 1
On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco
airport for his scheduled departure to Manila. Despite a previous confirmation and re-
confirmation, he was informed that he had no reservation for his flight from Tokyo to Manila. He
therefore had to be wait-listed.

On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of Makati.
On April 13, 1987, NOA moved to dismiss the complaint on the ground of lack of jurisdiction.
Citing the above-quoted article, it contended that the complaint could be instituted only in the
territory of one of the High Contracting Parties, before:

1. the court of the domicile of the carrier;

2. the court of its principal place of business;

3. the court where it has a place of business through which the contract had been
made;

4. the court of the place of destination.

The private respondent contended that the Philippines was not its domicile nor was this its
principal place of business. Neither was the petitioner's ticket issued in this country nor was his
destination Manila but San Francisco in the United States.

On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The
petitioner appealed to the Court of Appeals, which affirmed the decision of the lower court. 3 On
June 26, 1991, the petitioner filed a motion for reconsideration, but the same was denied. 4 The
petitioner then came to this Court, raising substantially the same issues it submitted in the Court
of Appeals.

The assignment of errors may be grouped into two major issues, viz:

(1) the constitutionality of Article 28(1) of the Warsaw Convention; and

(2) the jurisdiction of Philippine courts over the case.

The petitioner also invokes Article 24 of the Civil Code on the protection of minors.

THE ISSUE OF CONSTITUTIONALITY

A. The petitioner claims that the lower court erred in not ruling that Article 28(1)
of the Warsaw Convention violates the constitutional guarantees of due process
and equal protection.

The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules
Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It
took effect on February 13, 1933. The Convention was concurred in by the Senate, through its
Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by
President Elpidio Quirino on October 13, 1950, and was deposited with the Polish government
on November 9, 1950. The Convention became applicable to the Philippines on February 9,
1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201,
declaring our formal adherence thereto. "to the end that the same and every article and clause
thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the
citizens thereof." 5

The Convention is thus a treaty commitment voluntarily assumed by the Philippine government
and, as such, has the force and effect of law in this country.

The petitioner contends that Article 28(1) cannot be applied in the present case because it is
unconstitutional. He argues that there is no substantial distinction between a person who
purchases a ticket in Manila and a person who purchases his ticket in San Francisco. The
classification of the places in which actions for damages may be brought is arbitrary and
irrational and thus violates the due process and equal protection clauses.

It is well-settled that courts will assume jurisdiction over a constitutional question only if it is
shown that the essential requisites of a judicial inquiry into such a question are first satisfied.
Thus, there must be an actual case or controversy involving a conflict of legal rights susceptible
of judicial determination; the constitutional question must have been opportunely raised by the
proper party; and the resolution of the question is unavoidably necessary to the decision of the
case itself. 6

Courts generally avoid having to decide a constitutional question. This attitude is based on the
doctrine of separation of powers, which enjoins upon the departments of the government a
becoming respect for each other's acts.

The treaty which is the subject matter of this petition was a joint legislative-executive act. The
presumption is that it was first carefully studied and determined to be constitutional before it was
adopted and given the force of law in this country.

The petitioner's allegations are not convincing enough to overcome this presumption.
Apparently, the Convention considered the four places designated in Article 28 the most
convenient forums for the litigation of any claim that may arise between the airline and its
passenger, as distinguished from all other places. At any rate, we agree with the respondent
court that this case can be decided on other grounds without the necessity of resolving the
constitutional issue.

B. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of
the Warsaw Convention is inapplicable because of a fundamental change in the
circumstances that served as its basis.

The petitioner goes at great lengths to show that the provisions in the Convention were intended
to protect airline companies under "the conditions prevailing then and which have long ceased
to exist." He argues that in view of the significant developments in the airline industry through
the years, the treaty has become irrelevant. Hence, to the extent that it has lost its basis for
approval, it has become unconstitutional.

The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this doctrine
constitutes an attempt to formulate a legal principle which would justify non-performance of a
treaty obligation if the conditions with relation to which the parties contracted have changed so
materially and so unexpectedly as to create a situation in which the exaction of performance
would be unreasonable." 7 The key element of this doctrine is the vital change in the condition
of the contracting parties that they could not have foreseen at the time the treaty was
concluded.

The Court notes in this connection the following observation made in Day v. Trans World
Airlines, Inc.: 8

The Warsaw drafters wished to create a system of liability rules that would cover
all the hazards of air travel . . . The Warsaw delegates knew that, in the years to
come, civil aviation would change in ways that they could not foresee. They
wished to design a system of air law that would be both durable and flexible
enough to keep pace with these changes . . . The ever-changing needs of the
system of civil aviation can be served within the framework they created.

It is true that at the time the Warsaw Convention was drafted, the airline industry was still in its
infancy. However, that circumstance alone is not sufficient justification for the rejection of the
treaty at this time. The changes recited by the petitioner were, realistically, not entirely
unforeseen although they were expected in a general sense only. In fact, the Convention itself,
anticipating such developments, contains the following significant provision:

Article 41. Any High Contracting Party shall be entitled not earlier than two years
after the coming into force of this convention to call for the assembling of a new
international conference in order to consider any improvements which may be
made in this convention. To this end, it will communicate with the Government of
the French Republic which will take the necessary measures to make
preparations for such conference.

But the more important consideration is that the treaty has not been rejected by the Philippine
government. The doctrine of rebus sic stantibus does not operate automatically to render the
treaty inoperative. There is a necessity for a formal act of rejection, usually made by the head of
State, with a statement of the reasons why compliance with the treaty is no longer required.

In lieu thereof, the treaty may be denounced even without an expressed justification for this
action. Such denunciation is authorized under its Article 39, viz:

Article 39. (1) Any one of the High Contracting Parties may denounce this
convention by a notification addressed to the Government of the Republic of
Poland, which shall at once inform the Government of each of the High
Contracting Parties.

(2) Denunciation shall take effect six months after the notification of denunciation,
and shall operate only as regards the party which shall have proceeded to
denunciation.

Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or pursuant to
Article 39, is not a function of the courts but of the other branches of government. This is a
political act. The conclusion and renunciation of treaties is the prerogative of the political
departments and may not be usurped by the judiciary. The courts are concerned only with the
interpretation and application of laws and treaties in force and not with their wisdom or efficacy.

C. The petitioner claims that the lower court erred in ruling that the plaintiff must
sue in the United States, because this would deny him the right to access to our
courts.

The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the United
States would constitute a constructive denial of his right to access to our courts for the
protection of his rights. He would consequently be deprived of this vital guaranty as embodied in
the Bill of Rights.

Obviously, the constitutional guaranty of access to courts refers only to courts with appropriate
jurisdiction as defined by law. It does not mean that a person can go to any court for redress of
his grievances regardless of the nature or value of his claim. If the petitioner is barred from filing
his complaint before our courts, it is because they are not vested with the appropriate
jurisdiction under the Warsaw Convention, which is part of the law of our land.

II

THE ISSUE OF JURISDICTION.

A. The petitioner claims that the lower court erred in not ruling that Article 28(1)
of the Warsaw Convention is a rule merely of venue and was waived by
defendant when it did not move to dismiss on the ground of improper venue.

By its own terms, the Convention applies to all international transportation of persons performed
by aircraft for hire.

International transportation is defined in paragraph (2) of Article 1 as follows:

(2) For the purposes of this convention, the expression "international


transportation" shall mean any transportation in which, according to the contract
made by the parties, the place of departure and the place of destination, whether
or not there be a break in the transportation or a transshipment, are situated
[either] within the territories of two High Contracting Parties . . .

Whether the transportation is "international" is determined by the contract of the parties, which
in the case of passengers is the ticket. When the contract of carriage provides for the
transportation of the passenger between certain designated terminals "within the territories of
two High Contracting Parties," the provisions of the Convention automatically apply and
exclusively govern the rights and liabilities of the airline and its passenger.

Since the flight involved in the case at bar is international, the same being from the United
States to the Philippines and back to the United States, it is subject to the provisions of the
Warsaw Convention, including Article 28(1), which enumerates the four places where an action
for damages may be brought.
Whether Article 28(1) refers to jurisdiction or only to venue is a question over which authorities
are sharply divided. While the petitioner cites several cases holding that Article 28(1) refers to
venue rather than jurisdiction, 9 there are later cases cited by the private respondent supporting
the conclusion that the provision is jurisdictional. 10

Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent
or waiver upon d court which otherwise would have no jurisdiction over the subject-matter of an
action; but the venue of an action as fixed by statute may be changed by the consent of the
parties and an objection that the plaintiff brought his suit in the wrong county may be waived by
the failure of the defendant to make a timely objection. In either case, the court may render a
valid judgment. Rules as to jurisdiction can never be left to the consent or agreement of the
parties, whether or not a prohibition exists against their alteration. 11

A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and
not a venue provision. First, the wording of Article 32, which indicates the places where the
action for damages "must" be brought, underscores the mandatory nature of Article 28(1).
Second, this characterization is consistent with one of the objectives of the Convention, which is
to "regulate in a uniform manner the conditions of international transportation by air." Third, the
Convention does not contain any provision prescribing rules of jurisdiction other than Article
28(1), which means that the phrase "rules as to jurisdiction" used in Article 32 must refer only to
Article 28(1). In fact, the last sentence of Article 32 specifically deals with the exclusive
enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the will of the
parties regardless of the time when the damage occurred.

This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways,
Ltd., 12 where it was held:

. . . Of more, but still incomplete, assistance is the wording of Article 28(2),


especially when considered in the light of Article 32. Article 28(2) provides that
"questions of procedure shall be governed by the law of the court to which the
case is submitted" (Emphasis supplied). Section (2) thus may be read to leave
for domestic decision questions regarding the suitability and location of a
particular Warsaw Convention case.

In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a
dual concept. Jurisdiction in the international sense must be established in accordance with
Article 28(1) of the Warsaw Convention, following which the jurisdiction of a particular court
must be established pursuant to the applicable domestic law. Only after the question of which
court has jurisdiction is determined will the issue of venue be taken up. This second question
shall be governed by the law of the court to which the case is submitted.

The petitioner submits that since Article 32 states that the parties are precluded "before the
damages occurred" from amending the rules of Article 28(1) as to the place where the action
may be brought, it would follow that the Warsaw Convention was not intended to preclude them
from doing so "after the damages occurred."

Article 32 provides:

Art. 32. Any clause contained in the contract and all special agreements entered
into before the damage occurred by which the parties purport to infringe the rules
laid down by this convention, whether by deciding the law to be applied, or by
altering the rules as to jurisdiction, shall be null and void. Nevertheless for the
transportation of goods, arbitration clauses shall be allowed, subject to this
convention, if the arbitration is to take place within one of the jurisdictions
referred to in the first paragraph of Article 28.

His point is that since the requirements of Article 28(1) can be waived "after the damages (shall
have) occurred," the article should be regarded as possessing the character of a "venue" and
not of a "jurisdiction" provision. Hence, in moving to dismiss on the ground of lack of jurisdiction,
the private respondent has waived improper venue as a ground to dismiss.

The foregoing examination of Article 28(1) in relation to Article 32 does not support this
conclusion. In any event, we agree that even granting arguendo that Article 28(1) is a venue and
not a jurisdictional provision, dismissal of the case was still in order. The respondent court was
correct in affirming the ruling of the trial court on this matter, thus:

Santos' claim that NOA waived venue as a ground of its motion to dismiss is not
correct. True it is that NOA averred in its MOTION TO DISMISS that the ground
thereof is "the Court has no subject matter jurisdiction to entertain the Complaint"
which SANTOS considers as equivalent to "lack of jurisdiction over the subject
matter . . ." However, the gist of NOA's argument in its motion is that the
Philippines is not the proper place where SANTOS could file the action —
meaning that the venue of the action is improperly laid. Even assuming then that
the specified ground of the motion is erroneous, the fact is the proper ground of
the motion — improper venue — has been discussed therein.

Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-waiver if
there are special circumstances justifying this conclusion, as in the petition at bar. As we
observed in Javier vs. Intermediate Court of Appeals: 13

Legally, of course, the lack of proper venue was deemed waived by the
petitioners when they failed to invoke it in their original motion to dismiss. Even
so, the motivation of the private respondent should have been taken into account
by both the trial judge and the respondent court in arriving at their decisions.

The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of
Appeals, where it was held that Article 28(1) is a venue provision. However, the private
respondent avers that this was in effect reversed by the case of Aranas v. United
Airlines, 15 where the same court held that Article 28(1) is a jurisdictional provision. Neither of
these cases is binding on this Court, of course, nor was either of them appealed to us.
Nevertheless, we here express our own preference for the later case of Aranas insofar as its
pronouncements on jurisdiction conform to the judgment we now make in this petition.

B. The petitioner claims that the lower court erred in not ruling that under Article
28(1) of the Warsaw Convention, this case was properly filed in the Philippines,
because Manila was the destination of the plaintiff.

The Petitioner contends that the facts of this case are analogous to those in Aanestad v. Air
Canada. 16 In that case, Mrs. Silverberg purchased a round-trip ticket from Montreal to Los
Angeles and back to Montreal. The date and time of departure were specified but not of the
return flight. The plane crashed while on route from Montreal to Los Angeles, killing Mrs.
Silverberg. Her administratrix filed an action for damages against Air Canada in the U.S. District
Court of California. The defendant moved to dismiss for lack of jurisdiction but the motion was
denied thus:

. . . It is evident that the contract entered into between Air Canada and Mrs.
Silverberg as evidenced by the ticket booklets and the Flight Coupon No. 1, was
a contract for Air Canada to carry Mrs. Silverberg to Los Angeles on a certain
flight, a certain time and a certain class, but that the time for her to return
remained completely in her power. Coupon No. 2 was only a continuing offer by
Air Canada to give her a ticket to return to Montreal between certain dates. . . .

The only conclusion that can be reached then, is that "the place of destination"
as used in the Warsaw Convention is considered by both the Canadian C.T.C.
and the United States C.A.B. to describe at least two "places of destination," viz.,
the "place of destination" of a particularflight either an "outward destination" from
the "point of origin" or from the "outward point of destination" to any place in
Canada.

Thus the place of destination under Art. 28 and Art. 1 of the Warsaw Convention
of the flight on which Mrs. Silverberg was killed, was Los Angeles according to
the ticket, which was the contract between the parties and the suit is properly
filed in this Court which has jurisdiction.

The Petitioner avers that the present case falls squarely under the above ruling because the
date and time of his return flight to San Francisco were, as in the Aanestad case, also left open.
Consequently, Manila and not San Francisco should be considered the petitioner's destination.

The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where the
United States District Court (Eastern District of Pennsylvania) said:

. . . Although the authorities which addressed this precise issue are not
extensive, both the cases and the commentators are almost unanimous in
concluding that the "place of destination" referred to in the Warsaw Convention
"in a trip consisting of several parts . . . is the ultimate destination that is
accorded treaty jurisdiction." . . .

But apart from that distinguishing feature, I cannot agree with the Court's analysis
in Aanestad; whether the return portion of the ticket is characterized as an option
or a contract, the carrier was legally bound to transport the passenger back to the
place of origin within the prescribed time and. the passenger for her part agreed
to pay the fare and, in fact, did pay the fare. Thus there was mutuality of
obligation and a binding contract of carriage, The fact that the passenger could
forego her rights under the contract does not make it any less a binding contract.
Certainly, if the parties did not contemplate the return leg of the journey, the
passenger would not have paid for it and the carrier would not have issued a
round trip ticket.

We agree with the latter case. The place of destination, within the meaning of the Warsaw
Convention, is determined by the terms of the contract of carriage or, specifically in this case,
the ticket between the passenger and the carrier. Examination of the petitioner's ticket shows
that his ultimate destination is San Francisco. Although the date of the return flight was left
open, the contract of carriage between the parties indicates that NOA was bound to transport
the petitioner to San Francisco from Manila. Manila should therefore be considered merely an
agreed stopping place and not the destination.

The petitioner submits that the Butz case could not have overruled the Aanestad case because
these decisions are from different jurisdictions. But that is neither here nor there. In fact, neither
of these cases is controlling on this Court. If we have preferred the Butz case, it is because,
exercising our own freedom of choice, we have decided that it represents the better, and
correct, interpretation of Article 28(1).

Article 1(2) also draws a distinction between a "destination" and an "agreed stopping place." It is
the "destination" and not an "agreed stopping place" that controls for purposes of ascertaining
jurisdiction under the Convention.

The contract is a single undivided operation, beginning with the place of departure and ending
with the ultimate destination. The use of the singular in this expression indicates the
understanding of the parties to the Convention that every contract of carriage has one place of
departure and one place of destination. An intermediate place where the carriage may be
broken is not regarded as a "place of destination."

C. The petitioner claims that the lower court erred in not ruling that under Art.
28(1) of the Warsaw Convention, this case was properly filed in the Philippines
because the defendant has its domicile in the Philippines.

The petitioner argues that the Warsaw Convention was originally written in French and that in
interpreting its provisions, American courts have taken the broad view that the French legal
meaning must govern. 18 In French, he says, the "domicile" of the carrier means every place
where it has a branch office.

The private respondent notes, however, that in Compagnie Nationale Air France vs.
Giliberto, 19 it was held:

The plaintiffs' first contention is that Air France is domiciled in the United States.
They say that the domicile of a corporation includes any country where the airline
carries on its business on "a regular and substantial basis," and that the United
States qualifies under such definition. The meaning of domicile cannot, however,
be so extended. The domicile of a corporation is customarily regarded as the
place where it is incorporated, and the courts have given the meaning to the term
as it is used in article 28(1) of the Convention. (See Smith v. Canadian Pacific
Airways, Ltd. (2d Cir. 1971), 452 F2d 798, 802; Nudo v. Societe Anonyme Belge
d' Exploitation de la Navigation Aerienne Sabena Belgian World Airlines (E.D. pa.
1962). 207 F. Supp, 191; Karfunkel v. Compagnie Nationale Air France (S.D.N.Y.
1977), 427 F. Suppl. 971, 974). Moreover, the structure of article 28(1), viewed as
a whole, is also incompatible with the plaintiffs' claim. The article, in stating that
places of business are among the bases of the jurisdiction, sets out two places
where an action for damages may be brought; the country where the carrier's
principal place of business is located, and the country in which it has a place of
business through which the particular contract in question was made, that is,
where the ticket was bought, Adopting the plaintiffs' theory would at a minimum
blur these carefully drawn distinctions by creating a third intermediate category. It
would obviously introduce uncertainty into litigation under the article because of
the necessity of having to determine, and without standards or criteria, whether
the amount of business done by a carrier in a particular country was "regular"
and "substantial." The plaintiff's request to adopt this basis of jurisdiction is in
effect a request to create a new jurisdictional standard for the Convention.

Furthermore, it was argued in another case 20 that:

. . . In arriving at an interpretation of a treaty whose sole official language is


French, are we bound to apply French law? . . . We think this question and the
underlying choice of law issue warrant some discussion
. . . We do not think this statement can be regarded as a conclusion that internal
French law is to be "applied" in the choice of law sense, to determine the
meaning and scope of the Convention's terms. Of course, French legal usage
must be considered in arriving at an accurate English translation of the French.
But when an accurate English translation is made and agreed upon, as here, the
inquiry into meaning does not then revert to a quest for a past or present French
law to be "applied" for revelation of the proper scope of the terms. It does not
follow from the fact that the treaty is written in French that in interpreting it, we
are forever chained to French law, either as it existed when the treaty was written
or in its present state of development. There is no suggestion in the treaty that
French law was intended to govern the meaning of Warsaw's terms, nor have we
found any indication to this effect in its legislative history or from our study of its
application and interpretation by other courts. Indeed, analysis of the cases
indicates that the courts, in interpreting and applying the Warsaw Convention,
have, not considered themselves bound to apply French law simply because the
Convention is written in French. . . .

We agree with these rulings.

Notably, the domicile of the carrier is only one of the places where the complaint is allowed to be
filed under Article 28(1). By specifying the three other places, to wit, the principal place of
business of the carrier, its place of business where the contract was made, and the place of
destination, the article clearly meant that these three other places were not comprehended in
the term "domicile."

D. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of
the Warsaw Convention does not apply to actions based on tort.

The petitioner alleges that the gravamen of the complaint is that private respondent acted
arbitrarily and in bad faith, discriminated against the petitioner, and committed a willful
misconduct because it canceled his confirmed reservation and gave his reserved seat to
someone who had no better right to it. In short. the private respondent committed a tort.

Such allegation, he submits, removes the present case from the coverage of the Warsaw
Convention. He argues that in at least two American cases, 21 it was held that Article 28(1) of
the Warsaw Convention does not apply if the action is based on tort.
This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article in
question was interpreted thus:

. . . Assuming for the present that plaintiff's claim is "covered" by Article 17, Article
24 clearly excludes any relief not provided for in the Convention as modified by
the Montreal Agreement. It does not, however, limit the kind of cause of action on
which the relief may be founded; rather it provides that any action based on the
injuries specified in Article 17 "however founded," i.e., regardless of the type of
action on which relief is founded, can only be brought subject to the conditions
and limitations established by the Warsaw System. Presumably, the reason for
the use of the phrase "however founded," in two-fold: to accommodate all of the
multifarious bases on which a claim might be founded in different countries,
whether under code law or common law, whether under contract or tort, etc.; and
to include all bases on which a claim seeking relief for an injury might be founded
in any one country. In other words, if the injury occurs as described in Article 17,
any relief available is subject to the conditions and limitations established by the
Warsaw System, regardless of the particular cause of action which forms the
basis on which a plaintiff could seek
relief . . .

The private respondent correctly contends that the allegation of willful misconduct resulting in a
tort is insufficient to exclude the case from the comprehension of the Warsaw Convention. The
petitioner has apparently misconstrued the import of Article 25(l) of the Convention, which reads
as follows:

Art. 25 (1). The carrier shall not be entitled to avail himself of the provisions of
this Convention which exclude or limit his liability. if the damage is caused by his
willful misconduct or by such default on his part as, in accordance with the law of
the court to which the case is submitted, is considered to be equivalent to willful
misconduct.

It is understood under this article that the court called upon to determine the applicability of the
limitation provision must first be vested with the appropriate jurisdiction. Article 28(1) is the
provision in the Convention which defines that jurisdiction. Article 22 23 merely fixes the
monetary ceiling for the liability of the carrier in cases covered by the Convention. If the carrier
is indeed guilty of willful misconduct, it can avail itself of the limitations set forth in this article.
But this can be done only if the action has first been commenced properly under the rules on
jurisdiction set forth in Article 28(1).

III

THE ISSUE OF PROTECTION TO MINORS

The petitioner calls our attention to Article 24 of the Civil Code, which states:

Art. 24. In all contractual property or other relations, when one of the parties is at
a disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age or other handicap, the courts must be vigilant for
his protection.
Application of this article to the present case is misplaced. The above provision assumes that
the court is vested with jurisdiction to rule in favor of the disadvantaged minor, As already
explained, such jurisdiction is absent in the case at bar.

CONCLUSION

A number of countries have signified their concern over the problem of citizens being denied
access to their own courts because of the restrictive provision of Article 28(1) of the Warsaw
Convention. Among these is the United States, which has proposed an amendment that would
enable the passenger to sue in his own domicile if the carrier does business in that jurisdiction.
The reason for this proposal is explained thus:

In the event a US citizen temporarily residing abroad purchases a Rome to New


York to Rome ticket on a foreign air carrier which is generally subject to the
jurisdiction of the US, Article 28 would prevent that person from suing the carrier
in the US in a "Warsaw Case" even though such a suit could be brought in the
absence of the Convention.

The proposal was incorporated in the Guatemala Protocol amending the Warsaw Convention,
which was adopted at Guatemala City on March 8,
1971. 24 But it is still ineffective because it has not yet been ratified by the required minimum
number of contracting parties. Pending such ratification, the petitioner will still have to file his
complaint only in any of the four places designated by Article 28(1) of the Warsaw Convention.

The proposed amendment bolsters the ruling of this Court that a citizen does not necessarily
have the right to sue in his own courts simply because the defendant airline has a place of
business in his country.

The Court can only sympathize with the petitioner, who must prosecute his claims in the United
States rather than in his own country at least inconvenience. But we are unable to grant him the
relief he seeks because we are limited by the provisions of the Warsaw Convention which
continues to bind us. It may not be amiss to observe at this point that the mere fact that he will
have to litigate in the American courts does not necessarily mean he will litigate in vain. The
judicial system of that country in known for its sense of fairness and, generally, its strict
adherence to the rule of law.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.

Narvasa, C.J., Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea,
Regalado, Davide, Jr., Romero, Nocon and Bellosillo, JJ., concur.

International Shoe v. State of Washington, 326 U.S. 310 (1945)

International Shoe v. State of Washington

No. 107

Argued November 14, 1945


Decided December 3, 1945

326 U.S. 310

APPEAL FROM THE SUPREME COURT OF WASHINGTON

Syllabus

Activities within a State of salesmen in the employ of a foreign corporation, exhibiting


samples of merchandise and soliciting orders from prospective buyers to be accepted or
rejected by the corporation at a point outside the State, were systematic and
continuous, and resulted in a large volume of interstate business. A statute of the State
requires employers to pay into the state unemployment compensation fund a specified
percentage of the wages paid for the services of employees within the State.

Held:

1. In view of 26 U.S.C. § 1606(a) , providing that no person shall be relieved from


compliance with a state law requiring payments to an unemployment fund on the ground
that he is engaged in interstate commerce, the fact that the corporation is engaged in
interstate commerce does not relieve it from liability for payments to the state
unemployment compensation fund. P. 326 U. S. 315.

2. The activities in behalf of the corporation render it amenable to suit in courts of the
State to recover payments due to the state unemployment compensation fund. P. 326
U. S. 320.

(a) The activities in question established between the State and the corporation
sufficient contacts or ties to make it reasonable and just, and in conformity to the due
process requirements of the Fourteenth Amendment, for the State to enforce against
the corporation an obligation arising out of such activities. P. 326 U. S. 320.

(b) In such a suit to recover payments due to the unemployment compensation fund,
service of process upon one of the corporation's salesmen within the State, and notice
sent by registered mail to the corporation at its home office, satisfies the requirements
of due process. P. 326 U. S. 320.

Page 326 U. S. 311

3. The tax imposed by the state unemployment compensation statute -- construed by


the state court, in its application to the corporation, as a tax on the privilege of
employing salesmen within the State -- does not violate the due process clause of the
Fourteenth Amendment. P. 326 U. S. 321.

22 Wash.2d 146, 154 P.2d 801, affirmed.


APPEAL from a judgment upholding the constitutionality of a state unemployment
compensation statute as applied to the appellant corporation.

MR. CHIEF JUSTICE STONE delivered the opinion of the Court.

The questions for decision are (1) whether, within the limitations of the due process
clause of the Fourteenth Amendment, appellant, a Delaware corporation, has, by its
activities in the State of Washington, rendered itself amenable to proceedings in the
courts of that state to recover unpaid contributions to the state unemployment
compensation fund exacted by state statutes, Washington Unemployment
Compensation Act, Washington Revised Statutes, § 9998-103a through § 9998-123a,
1941 Supp., and (2) whether the state can exact those contributions consistently with
the due process clause of the Fourteenth Amendment.

The statutes in question set up a comprehensive scheme of unemployment


compensation, the costs of which are defrayed by contributions required to be made by
employers to a state unemployment compensation fund.

Page 326 U. S. 312

The contributions are a specified percentage of the wages payable annually by each
employer for his employees' services in the state. The assessment and collection of the
contributions and the fund are administered by appellees. Section 14(c) of the Act
(Wash.Rev.Stat., 1941 Supp., § 9998-114c) authorizes appellee Commissioner to issue
an order and notice of assessment of delinquent contributions upon prescribed personal
service of the notice upon the employer if found within the state, or, if not so found, by
mailing the notice to the employer by registered mail at his last known address. That
section also authorizes the Commissioner to collect the assessment by distraint if it is
not paid within ten days after service of the notice. By §§ 14e and 6b, the order of
assessment may be administratively reviewed by an appeal tribunal within the office of
unemployment upon petition of the employer, and this determination is, by § 6i, made
subject to judicial review on questions of law by the state Superior Court, with further
right of appeal in the state Supreme Court, as in other civil cases.

In this case, notice of assessment for the years in question was personally served upon
a sales solicitor employed by appellant in the State of Washington, and a copy of the
notice was mailed by registered mail to appellant at its address in St. Louis, Missouri.
Appellant appeared specially before the office of unemployment, and moved to set
aside the order and notice of assessment on the ground that the service upon
appellant's salesman was not proper service upon appellant; that appellant was not a
corporation of the State of Washington, and was not doing business within the state;
that it had no agent within the state upon whom service could be made; and that
appellant is not an employer, and does not furnish employment within the meaning of
the statute.
The motion was heard on evidence and a stipulation of facts by the appeal tribunal,
which denied the motion

Page 326 U. S. 313

and ruled that appellee Commissioner was entitled to recover the unpaid contributions.
That action was affirmed by the Commissioner; both the Superior Court and the
Supreme Court affirmed. 22 Wash.2d 146, 154 P.2d 801. Appellant in each of these
courts assailed the statute as applied, as a violation of the due process clause of the
Fourteenth Amendment, and as imposing a constitutionally prohibited burden on
interstate commerce. The cause comes here on appeal under § 237(a) of the Judicial
Code, 28 U.S.C. § 344(a), appellant assigning as error that the challenged statutes, as
applied, infringe the due process clause of the Fourteenth Amendment and the
commerce clause.

The facts, as found by the appeal tribunal and accepted by the state Superior Court and
Supreme Court, are not in dispute. Appellant is a Delaware corporation, having its
principal place of business in St. Louis, Missouri, and is engaged in the manufacture
and sale of shoes and other footwear. It maintains places of business in several states
other than Washington, at which its manufacturing is carried on and from which its
merchandise is distributed interstate through several sales units or branches located
outside the State of Washington.

Appellant has no office in Washington, and makes no contracts either for sale or
purchase of merchandise there. It maintains no stock of merchandise in that state, and
makes there no deliveries of goods in intrastate commerce. During the years from 1937
to 1940, now in question, appellant employed eleven to thirteen salesmen under direct
supervision and control of sales managers located in St. Louis. These salesmen resided
in Washington; their principal activities were confined to that state, and they were
compensated by commissions based upon the amount of their sales. The commissions
for each year totaled more than $31,000. Appellant supplies its salesmen with a line of
samples, each consisting of one shoe of a pair, which

Page 326 U. S. 314

they display to prospective purchasers. On occasion, they rent permanent sample


rooms, for exhibiting samples, in business buildings, or rent rooms in hotels or business
buildings temporarily for that purpose. The cost of such rentals is reimbursed by
appellant.

The authority of the salesmen is limited to exhibiting their samples and soliciting orders
from prospective buyers, at prices and on terms fixed by appellant. The salesmen
transmit the orders to appellant's office in St. Louis for acceptance or rejection, and,
when accepted, the merchandise for filling the orders is shipped f.o.b. from points
outside Washington to the purchasers within the state. All the merchandise shipped into
Washington is invoiced at the place of shipment, from which collections are made. No
salesman has authority to enter into contracts or to make collections.

The Supreme Court of Washington was of opinion that the regular and systematic
solicitation of orders in the state by appellant's salesmen, resulting in a continuous flow
of appellant's product into the state, was sufficient to constitute doing business in the
state so as to make appellant amenable to suit in its courts. But it was also of opinion
that there were sufficient additional activities shown to bring the case within the rule,
frequently stated, that solicitation within a state by the agents of a foreign corporation
plus some additional activities there are sufficient to render the corporation amenable to
suit brought in the courts of the state to enforce an obligation arising out of its activities
there. International Harvester Co. v. Kentucky, 234 U. S. 579, 234 U. S. 587; People's
Tobacco Co. v. American Tobacco Co., 246 U. S. 79, 246 U. S. 87; Frene v. Louisville
Cement Co., 77 U.S.App.D.C. 129, 134 F.2d 511, 516. The court found such additional
activities in the salesmen's display of samples sometimes in permanent display rooms,
and the salesmen's residence within the state, continued over a period of years, all
resulting in a

Page 326 U. S. 315

substantial volume of merchandise regularly shipped by appellant to purchasers within


the state. The court also held that the statute, as applied, did not invade the
constitutional power of Congress to regulate interstate commerce, and did not impose a
prohibited burden on such commerce.

Appellant's argument, renewed here, that the statute imposes an unconstitutional


burden on interstate commerce need not detain us. For 53 Stat. 1391, 26 U.S.C. §
1606(a) provides that

"No person required under a State law to make payments to an unemployment fund
shall be relieved from compliance therewith on the ground that he is engaged in
interstate or foreign commerce, or that the State law does not distinguish between
employees engaged in interstate or foreign commerce and those engaged in intrastate
commerce."

It is no longer debatable that Congress, in the exercise of the commerce power, may
authorize the states, in specified ways, to regulate interstate commerce or impose
burdens upon it. Kentucky Whip & Collar Co. v. Illinois Central R. Co., 299 U. S.
334; Perkins v. Pennsylvania, 314 U.S. 586; Standard Dredging Corp. v. Murphy, 319 U.
S. 306, 319 U. S. 308; Hooven & Allison Co. v. Evatt, 324 U. S. 652, 324 U. S.
679; Southern Pacific Co. v. Arizona, 325 U. S. 761, 325 U. S. 769.

Appellant also insists that its activities within the state were not sufficient to manifest its
"presence" there, and that, in its absence, the state courts were without jurisdiction,
that, consequently, it was a denial of due process for the state to subject appellant to
suit. It refers to those cases in which it was said that the mere solicitation of orders for
the purchase of goods within a state, to be accepted without the state and filled by
shipment of the purchased goods interstate, does not render the corporation seller
amenable to suit within the state. See Green v. Chicago, B. & Q. R. Co., 205 U. S.
530, 205 U. S. 533; International Harvester Co. v. Kentucky, supra, 234 U. S. 586-
587; Philadelphia

Page 326 U. S. 316

& Reading R. Co. v. McKibbin, 243 U. S. 264, 243 U. S. 268; People's Tobacco Co. v.
American Tobacco Co., supra, 246 U. S. 87. And appellant further argues that, since it
was not present within the state, it is a denial of due process to subject it to taxation or
other money exaction. It thus denies the power of the state to lay the tax or to subject
appellant to a suit for its collection.

Historically, the jurisdiction of courts to render judgment in personam is grounded on


their de facto power over the defendant's person. Hence, his presence within the
territorial jurisdiction of a court was prerequisite to its rendition of a judgment personally
binding him. Pennoyer v. Neff, 95 U. S. 714, 95 U. S. 733. But now that the capias ad
respondendum has given way to personal service of summons or other form of notice,
due process requires only that, in order to subject a defendant to a judgment in
personam, if he be not present within the territory of the forum, he have certain
minimum contacts with it such that the maintenance of the suit does not offend
"traditional notions of fair play and substantial justice." Milliken v. Meyer, 311 U. S.
457, 311 U. S. 463. See Holmes, J., in McDonald v. Mabee, 243 U. S. 90, 243 U. S.
91.Compare Hoopeston Canning Co. v. Cullen, 318 U. S. 313, 318 U. S. 316, 318 U. S.
319. See Blackmer v. United States, 284 U. S. 421; Hess v. Pawloski, 274 U. S.
352; Young v. Masci, 289 U. S. 253. ,

Since the corporate personality is a fiction, although a fiction intended to be acted upon
as though it were a fact, Klein v. Board of Supervisors, 282 U. S. 19, 282 U. S. 24, it is
clear that, unlike an individual, its "presence" without, as well as within, the state of its
origin can be manifested only by activities carried on in its behalf by those who are
authorized to act for it. To say that the corporation is so far "present" there as to satisfy
due process requirements, for purposes of taxation or the maintenance of suits against
it in the courts of the state, is to beg the question to be decided. For the terms "present"
or "presence" are

Page 326 U. S. 317

used merely to symbolize those activities of the corporation's agent within the state
which courts will deem to be sufficient to satisfy the demands of due process. L. Hand,
J., in Hutchinson v. Chase & Gilbert, 45 F.2d 139, 141. Those demands may be met by
such contacts of the corporation with the state of the forum as make it reasonable, in
the context of our federal system of government, to require the corporation to defend
the particular suit which is brought there. An "estimate of the inconveniences" which
would result to the corporation from a trial away from its "home" or principal place of
business is relevant in this connection. Hutchinson v. Chase & Gilbert, supra, 141.

"Presence" in the state in this sense has never been doubted when the activities of the
corporation there have not only been continuous and systematic, but also give rise to
the liabilities sued on, even though no consent to be sued or authorization to an agent
to accept service of process has been given. St. Clair v. Cox, 106 U. S. 350, 106 U. S.
355; Connecticut Mutual Co. v. Spratley, 172 U. S. 602, 172 U. S. 610-
611; Pennsylvania Lumbermen's Ins. Co. v. Meyer, 197 U. S. 407,197 U. S. 414-
415; Commercial Mutual Co. v. Davis, 213 U. S. 245, 213 U. S. 255-256; International
Harvester Co. v. Kentucky, supra; cf. St. Louis S.W. R. Co. v. Alexander, 227 U. S. 218.
Conversely, it has been generally recognized that the casual presence of the corporate
agent, or even his conduct of single or isolated items of activities in a state in the
corporation's behalf, are not enough to subject it to suit on causes of action
unconnected with the activities there. St. Clair v. Cox, supra,106 U. S. 359, 106 U. S.
360; Old Wayne Life Assn. v. McDonough, 204 U. S. 8, 204 U. S. 21; Frene v. Louisville
Cement Co., supra,515, and cases cited. To require the corporation in such
circumstances to defend the suit away from its home or other jurisdiction where it
carries on more substantial activities has been thought to lay too great and
unreasonable a burden on the corporation to comport with due process.

Page 326 U. S. 318

While it has been held, in cases on which appellant relies, that continuous activity of
some sorts within a state is not enough to support the demand that the corporation be
amenable to suits unrelated to that activity, Old Wayne Life Assn. v. McDonough, supra;
Green v. Chicago, B. & Q. R. Co., supra; Simon v. Southern R. Co., 236 U. S.
115; People's Tobacco Co. v. American Tobacco Co., supra; cf. Davis v. Farmers Co-
operative Co., 262 U. S. 312, 262 U. S. 317, there have been instances in which the
continuous corporate operations within a state were thought so substantial and of such
a nature as to justify suit against it on causes of action arising from dealings entirely
distinct from those activities. See Missouri, K. & T. R. Co. v. Reynolds, 255 U.S.
565; Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 115 N.E. 915; cf. St. Louis S.W. R.
Co. v. Alexander, supra.

Finally, although the commission of some single or occasional acts of the corporate
agent in a state sufficient to impose an obligation or liability on the corporation has not
been thought to confer upon the state authority to enforce it, Rosenberg Bros. & Co. v.
Curtis Brown Co., 260 U. S. 516, other such acts, because of their nature and quality
and the circumstances of their commission, may be deemed sufficient to render the
corporation liable to suit. Cf. Kane v. New Jersey, 242 U. S. 160; Hess v. Pawloski,
supra; Young v. Masci, supra. True, some of the decisions holding the corporation
amenable to suit have been supported by resort to the legal fiction that it has given its
consent to service and suit, consent being implied from its presence in the state through
the acts of its authorized agents. Lafayette Insurance Co. v. French, 18 How. 404, 59 U.
S. 407; St. Clair v. Cox, supra, 106 U. S. 356; Commercial Mutual Co. v. Davis,
supra, 213 U. S. 254; Washington v. Superior Court, 289 U. S. 361, 289 U. S. 364-365.
But, more realistically, it may be said that those authorized acts were of such a nature
as to justify the fiction. Smolik v. Philadelphia &

Page 326 U. S. 319

Reading Co., 222 F. 148, 151. Henderson, The Position of Foreign Corporations in
American Constitutional Law, 94-95.

It is evident that the criteria by which we mark the boundary line between those
activities which justify the subjection of a corporation to suit and those which do not
cannot be simply mechanical or quantitative. The test is not merely, as has sometimes
been suggested, whether the activity, which the corporation has seen fit to procure
through its agents in another state, is a little more or a little less. St. Louis S.W. R. Co.
v. Alexander, supra, 227 U. S. 228; International Harvester Co. v. Kentucky, supra, 234
U. S. 587. Whether due process is satisfied must depend, rather, upon the quality and
nature of the activity in relation to the fair and orderly administration of the laws which it
was the purpose of the due process clause to insure. That clause does not contemplate
that a state may make binding a judgment in personam against an individual or
corporate defendant with which the state has no contacts, ties, or relations. Cf.
Pennoyer v. Neff, supra; Minnesota Commercial Assn. v. Benn, 261 U. S. 140.

But, to the extent that a corporation exercises the privilege of conducting activities within
a state, it enjoys the benefits and protection of the laws of that state. The exercise of
that privilege may give rise to obligations, and, so far as those obligations arise out of or
are connected with the activities within the state, a procedure which requires the
corporation to respond to a suit brought to enforce them can, in most instances, hardly
be said to be undue. Compare International Harvester Co. v. Kentucky, supra, with
Green v. Chicago, B. & Q. R. Co., supra, and People's Tobacco Co. v. American
Tobacco Co., supra. Compare Connecticut Mutual Co. v. Spratley, supra, 172 U. S.
619, 172 U. S. 620, and Commercial Mutual Co. v. Davis, supra, with Old Wayne Life
Assn. v. McDonough, supra. See 29 Columbia Law Review, 187-195.

Page 326 U. S. 320

Applying these standards, the activities carried on in behalf of appellant in the State of
Washington were neither irregular nor casual. They were systematic and continuous
throughout the years in question. They resulted in a large volume of interstate business,
in the course of which appellant received the benefits and protection of the laws of the
state, including the right to resort to the courts for the enforcement of its rights. The
obligation which is here sued upon arose out of those very activities. It is evident that
these operations establish sufficient contacts or ties with the state of the forum to make
it reasonable and just, according to our traditional conception of fair play and substantial
justice, to permit the state to enforce the obligations which appellant has incurred there.
Hence, we cannot say that the maintenance of the present suit in the State of
Washington involves an unreasonable or undue procedure.
We are likewise unable to conclude that the service of the process within the state upon
an agent whose activities establish appellant's "presence" there was not sufficient notice
of the suit, or that the suit was so unrelated to those activities as to make the agent an
inappropriate vehicle for communicating the notice. It is enough that appellant has
established such contacts with the state that the particular form of substituted service
adopted there gives reasonable assurance that the notice will be actual. Connecticut
Mutual Co. v. Spratley, supra, 172 U. S. 618, 172 U. S. 619; Board of Trade v.
Hammond Elevator Co., 198 U. S. 424, 198 U. S. 437-438; Commercial Mutual Co. v.
Davis, supra, 213 U. S. 254-255. Cf. Riverside Mills v. Menefee, 237 U. S. 189, 237 U.
S. 194, 237 U. S. 195; See Knowles v. Gaslight & Coke Co., 19 Wall. 58, 86 U. S.
61; McDonald v. Mabee, supra; Milliken v. Meyer, supra. Nor can we say that the mailing
of the notice of suit to appellant by registered mail at its home office was not reasonably
calculated to apprise appellant of the suit. Compare Hess v. Pawloski, supra, with
McDonald v. Mabee, supra,

Page 326 U. S. 321

243 U. S. 92, and Wuchter v. Pizzutti, 276 U. S. 13, 276 U. S. 19, 276 U. S. 24; cf.
Becquet v. MacCarthy, 2 B. & Ad. 951; Maubourquet v. Wyse, 1 Ir.Rep.C.L. 471. See
Washington v. Superior Court, supra, 289 U. S. 365.

Only a word need be said of appellant's liability for the demanded contributions to the
state unemployment fund. The Supreme Court of Washington, construing and applying
the statute, has held that it imposes a tax on the privilege of employing appellant's
salesmen within the state measured by a percentage of the wages, here, the
commissions payable to the salesmen. This construction we accept for purposes of
determining the constitutional validity of the statute. The right to employ labor has been
deemed an appropriate subject of taxation in this country and England, both before and
since the adoption of the Constitution. Steward Machine Co. v. Davis, 301 U. S.
548, 301 U. S. 579, et seq. And such a tax imposed upon the employer for
unemployment benefits is within the constitutional power of the states. Carmichael v.
Southern Coal Co., 301 U. S. 495, 301 U. S. 508, et seq.

Appellant having rendered itself amenable to suit upon obligations arising out of the
activities of its salesmen in Washington, the state may maintain the present suit in
personam to collect the tax laid upon the exercise of the privilege of employing
appellant's salesmen within the state. For Washington has made one of those activities
which, taken together, establish appellant's "presence" there for purposes of suit the
taxable event by which the state brings appellant within the reach of its taxing power.
The state thus has constitutional power to lay the tax and to subject appellant to a suit
to recover it. The activities which establish its "presence" subject it alike to taxation by
the state and to suit to recover the tax. Equitable Life Society v. Pennsylvania, 238 U. S.
143, 238 U. S. 146; cf. International Harvester Co. v. Department of Taxation, 322 U. S.
435, 322 U. S. 442, et seq.; Hoopeston Canning Co. v. Cullen,

Page 326 U. S. 322


supra, 318 U. S. 316-319; see General Trading Co. v. Tax Comm'n, 322 U. S. 335.

Affirmed.

MR. JUSTICE JACKSON took no part in the consideration or decision of this case.

MR. JUSTICE BLACK delivered the following opinion.

Congress, pursuant to its constitutional power to regulate commerce, has expressly


provided that a State shall not be prohibited from levying the kind of unemployment
compensation tax here challenged. 26 U.S.C. 1600. We have twice decided that this
Congressional consent is an adequate answer to a claim that imposition of the tax
violates the Commerce Clause. Perkins v. Pennsylvania, 314 U.S. 586, affirming 342
Pa. 529; Standard Dredging Corp. v. Murphy, 319 U. S. 306, 319 U. S. 308. Two
determinations by this Court of an issue so palpably without merit are sufficient.
Consequently, that part of this appeal which again seeks to raise the question seems so
patently frivolous as to make the case a fit candidate for dismissal. Fay v. Crozer, 217
U. S. 455. Nor is the further ground advanced on this appeal, that the State of
Washington has denied appellant due process of law, any less devoid of substance. It is
my view, therefore, that we should dismiss the appeal as unsubstantial, [Footnote
1] Seaboard Air Line R. Co. v. Watson, 287 U. S. 86, 287 U. S. 90, 287 U. S. 92, and
decline the invitation to formulate broad rules as to the meaning of due process, which
here would amount to deciding a constitutional question "in advance of the necessity for
its decision." Federation of Labor v. McAdory, 325 U. S. 450, 325 U. S. 461.

Page 326 U. S. 323

Certainly appellant cannot, in the light of our past decisions, meritoriously claim that
notice by registered mail and by personal service on its sales solicitors in Washington
did not meet the requirements of procedural due process. And the due process clause is
not brought in issue any more by appellant's further conceptualistic contention that
Washington could not levy a tax or bring suit against the corporation because it did not
honor that State with its mystical "presence." For it is unthinkable that the vague due
process clause was ever intended to prohibit a State from regulating or taxing a
business carried on within its boundaries simply because this is done by agents of a
corporation organized and having its headquarters elsewhere. To read this into the due
process clause would, in fact, result in depriving a State's citizens of due process by
taking from the State the power to protect them in their business dealings within its
boundaries with representatives of a foreign corporation. Nothing could be more
irrational, or more designed to defeat the function of our federative system of
government. Certainly a State, at the very least, has power to tax and sue those dealing
with its citizens within its boundaries, as we have held before. Hoopeston Canning Co.
v. Cullen, 318 U. S. 313. Were the Court to follow this principle, it would provide a
workable standard for cases where, as here, no other questions are involved. The Court
has not chosen to do so, but instead has engaged in an unnecessary discussion, in the
course of which it has announced vague Constitutional criteria applied for the first time
to the issue before us. It has thus introduced uncertain elements confusing the simple
pattern and tending to curtail the exercise of State powers to an extent not justified by
the Constitution.

The criteria adopted, insofar as they can be identified, read as follows: Due Process
does permit State courts to "enforce the obligations which appellant has incurred" if

Page 326 U. S. 324

it be found "reasonable and just according to our traditional conception of fair play and
substantial justice." And this, in turn, means that we will "permit" the State to act if, upon

"an 'estimate of the inconveniences' which would result to the corporation from a trial
away from its 'home' or principal place of business,"

we conclude that it is "reasonable" to subject it to suit in a State where it is doing


business.

It is true that this Court did use the terms "fair play" and "substantial justice" in
explaining the philosophy underlying the holding that it could not be "due process of
law" to render a personal judgment against a defendant without notice and an
opportunity to be heard. Milliken v. Meyer, 311 U. S. 457. In McDonald v. Mabee, 243 U.
S. 90, 243 U. S. 91, cited in the Milliken, case, Mr. Justice Holmes, speaking for the
Court, warned against judicial curtailment of this opportunity to be heard, and referred to
such a curtailment as a denial of "fair play," which even the common law would have
deemed "contrary to natural justice." And previous cases had indicated that the ancient
rule against judgments without notice had stemmed from "natural justice" concepts.
These cases, while giving additional reasons why notice under particular circumstances
is inadequate, did not mean thereby that all legislative enactments which this Court
might deem to be contrary to natural justice ought to be held invalid under the due
process clause. None of the cases purport to support or could support a holding that a
State can tax and sue corporations only if its action comports with this Court's notions of
"natural justice." I should have thought the Tenth Amendment settled that.

I believe that the Federal Constitution leaves to each State, without any "ifs" or "buts," a
power to tax and to open the doors of its courts for its citizens to sue corporations
whose agents do business in those States. Believing that the Constitution gave the
States that power, I think it a judicial deprivation to condition its exercise upon this

Page 326 U. S. 325

Court's notion of "fair play," however appealing that term may be. Nor can I stretch the
meaning of due process so far as to authorize this Court to deprive a State of the right
to afford judicial protection to its citizens on the ground that it would be more
"convenient" for the corporation to be sued somewhere else.
There is a strong emotional appeal in the words "fair play," "justice," and
"reasonableness." But they were not chosen by those who wrote the original
Constitution or the Fourteenth Amendment as a measuring rod for this Court to use in
invalidating State or Federal laws passed by elected legislative representatives. No one,
not even those who most feared a democratic government, ever formally proposed that
courts should be given power to invalidate legislation under any such elastic standards.
Express prohibitions against certain types of legislation are found in the Constitution,
and, under the long-settled practice, courts invalidate laws found to conflict with them.
This requires interpretation, and interpretation, it is true, may result in extension of the
Constitution's purpose. But that is no reason for reading the due process clause so as to
restrict a State's power to tax and sue those whose activities affect persons and
businesses within the State, provided proper service can be had. Superimposing the
natural justice concept on the Constitution's specific prohibitions could operate as a
drastic abridgment of democratic safeguards they embody, such as freedom of speech,
press and religion, [Footnote 2] and the right to counsel. This

Page 326 U. S. 326

has already happened. Betts v. Brady, 316 U. S. 455. Compare Feldman v. United
States, 322 U. S. 487, 322 U. S. 494-503. For application of this natural law concept,
whether under the terms "reasonableness," "justice," or "fair play," makes judges the
supreme arbiters of the country's laws and practices. Polk Co. v. Glover, 305 U. S.
5, 305 U. S. 17-18; Federal Power Commission v. Natural Gas Pipeline Co., 315 U. S.
575, 315 U. S. 600, n. 4. This result, I believe, alters the form of government our
Constitution provides. I cannot agree.

True, the State's power is here upheld. But the rule announced means that tomorrow's
judgment may strike down a State or Federal enactment on the ground that it does not
conform to this Court's idea of natural justice. I therefore find myself moved by the same
fears that caused Mr. Justice Holmes to say in 1930:

"I have not yet adequately expressed the more than anxiety that I feel at the ever-
increasing scope given to the Fourteenth Amendment in cutting down what I believe to
be the constitutional rights of the States. As the decisions now stand, I see hardly any
limit but the sky to the invalidating of those rights if they happen to strike a majority of
this Court as for any reason undesirable."

Baldwin v. Missouri, 281 U. S. 586, 281 U. S. 595.

[Footnote 1]

This Court has, on several occasions, pointed out the undesirable consequences of a
failure to dismiss frivolous appeals.Salinger v. United States, 272 U. S. 542, 272 U. S.
544; United Surety Co. v. American Fruit Product Co., 238 U. S. 140; De Bearn v. Safe
Deposit & Trust Co., 233 U. S. 24, 233 U. S. 33-34.
[Footnote 2]

These First Amendment liberties -- freedom of speech, press and religion -- provide a
graphic illustration of the potential restrictive capacity of a rule under which they are
protected at a particular time only because the Court, as then constituted, believes them
to be a requirement of fundamental justice. Consequently, under the same rule, another
Court, with a different belief as to fundamental justice, could, at least as against State
action, completely or partially withdraw Constitutional protection from these basic
freedoms, just as though the First Amendment had never been written.

International shoe allowed to be sued.

G.R. No. L-11390 March 26, 1918

EL BANCO ESPAÑOL-FILIPINO, plaintiff-appellant,


vs.
VICENTE PALANCA, administrator of the estate of Engracio Palanca Tanquinyeng, defendant-
appellant.

Aitken and DeSelms for appellant.


Hartigan and Welch for appellee.

STREET, J.:

This action was instituted upon March 31, 1908, by "El Banco Espanol-Filipino" to foreclose a
mortgage upon various parcels of real property situated in the city of Manila. The mortgage in
question is dated June 16, 1906, and was executed by the original defendant herein, Engracio
Palanca Tanquinyeng y Limquingco, as security for a debt owing by him to the bank. Upon March
31, 1906, the debt amounted to P218,294.10 and was drawing interest at the rate of 8 per centum
per annum, payable at the end of each quarter. It appears that the parties to this mortgage at that
time estimated the value of the property in question at P292,558, which was about P75,000 in
excess of the indebtedness. After the execution of this instrument by the mortgagor, he returned to
China which appears to have been his native country; and he there died, upon January 29, 1810,
without again returning to the Philippine Islands.

As the defendant was a nonresident at the time of the institution of the present action, it was
necessary for the plaintiff in the foreclosure proceeding to give notice to the defendant by publication
pursuant to section 399 of the Code of Civil Procedure. An order for publication was accordingly
obtained from the court, and publication was made in due form in a newspaper of the city of Manila.
At the same time that the order of the court should deposit in the post office in a stamped envelope a
copy of the summons and complaint directed to the defendant at his last place of residence, to wit,
the city of Amoy, in the Empire of China. This order was made pursuant to the following provision
contained in section 399 of the Code of Civil Procedure:

In case of publication, where the residence of a nonresident or absent defendant is known,


the judge must direct a copy of the summons and complaint to be forthwith deposited by the
clerk in the post-office, postage prepaid, directed to the person to be served, at his place of
residence
Whether the clerk complied with this order does not affirmatively appear. There is, however, among
the papers pertaining to this case, an affidavit, dated April 4, 1908, signed by Bernardo Chan y
Garcia, an employee of the attorneys of the bank, showing that upon that date he had deposited in
the Manila post-office a registered letter, addressed to Engracio Palanca Tanquinyeng, at Manila,
containing copies of the complaint, the plaintiff's affidavit, the summons, and the order of the court
directing publication as aforesaid. It appears from the postmaster's receipt that Bernardo probably
used an envelope obtained from the clerk's office, as the receipt purports to show that the letter
emanated from the office.

The cause proceeded in usual course in the Court of First Instance; and the defendant not having
appeared, judgment was, upon July 2, 1908, taken against him by default. Upon July 3, 1908, a
decision was rendered in favor of the plaintiff. In this decision it was recited that publication had been
properly made in a periodical, but nothing was said about this notice having been given mail. The
court, upon this occasion, found that the indebtedness of the defendant amounted to P249,355. 32,
with interest from March 31, 1908. Accordingly it was ordered that the defendant should, on or
before July 6, 1908, deliver said amount to the clerk of the court to be applied to the satisfaction of
the judgment, and it was declared that in case of the failure of the defendant to satisfy the judgment
within such period, the mortgage property located in the city of Manila should be exposed to public
sale. The payment contemplated in said order was never made; and upon July 8, 1908, the court
ordered the sale of the property. The sale took place upon July 30, 1908, and the property was
bought in by the bank for the sum of P110,200. Upon August 7, 1908, this sale was confirmed by the
court.

About seven years after the confirmation of this sale, or to the precise, upon June 25, 1915, a motion
was made in this cause by Vicente Palanca, as administrator of the estate of the original defendant,
Engracio Palanca Tanquinyeng y Limquingco, wherein the applicant requested the court to set aside
the order of default of July 2, 1908, and the judgment rendered upon July 3, 1908, and to vacate all
the proceedings subsequent thereto. The basis of this application, as set forth in the motion itself,
was that the order of default and the judgment rendered thereon were void because the court had
never acquired jurisdiction over the defendant or over the subject of the action.

At the hearing in the court below the application to vacate the judgment was denied, and from this
action of the court Vicente Planca, as administrator of the estate of the original defendant, has
appealed. No other feature of the case is here under consideration than such as related to the action
of the court upon said motion.

The case presents several questions of importance, which will be discussed in what appears to be
the sequence of most convenient development. In the first part of this opinion we shall, for the
purpose of argument, assume that the clerk of the Court of First Instance did not obey the order of
the court in the matter of mailing the papers which he was directed to send to the defendant in
Amoy; and in this connection we shall consider, first, whether the court acquired the necessary
jurisdiction to enable it to proceed with the foreclosure of the mortgage and, secondly, whether those
proceedings were conducted in such manner as to constitute due process of law.

The word "jurisdiction," as applied to the faculty of exercising judicial power, is used in several
different, though related, senses since it may have reference (1) to the authority of the court to
entertain a particular kind of action or to administer a particular kind of relief, or it may refer to the
power of the court over the parties, or (2) over the property which is the subject to the litigation.

The sovereign authority which organizes a court determines the nature and extent of its powers in
general and thus fixes its competency or jurisdiction with reference to the actions which it may
entertain and the relief it may grant.
Jurisdiction over the person is acquired by the voluntary appearance of a party in court and his
submission to its authority, or it is acquired by the coercive power of legal process exerted over the
person.

Jurisdiction over the property which is the subject of the litigation may result either from a seizure of
the property under legal process, whereby it is brought into the actual custody of the law, or it may
result from the institution of legal proceedings wherein, under special provisions of law, the power of
the court over the property is recognized and made effective. In the latter case the property, though
at all times within the potential power of the court, may never be taken into actual custody at all. An
illustration of the jurisdiction acquired by actual seizure is found in attachment proceedings, where
the property is seized at the beginning of the action, or some subsequent stage of its progress, and
held to abide the final event of the litigation. An illustration of what we term potential jurisdiction over
the res, is found in the proceeding to register the title of land under our system for the registration of
land. Here the court, without taking actual physical control over the property assumes, at the
instance of some person claiming to be owner, to exercise a jurisdiction in rem over the property and
to adjudicate the title in favor of the petitioner against all the world.

In the terminology of American law the action to foreclose a mortgage is said to be a proceeding
quasi in rem, by which is expressed the idea that while it is not strictly speaking an action in rem yet
it partakes of that nature and is substantially such. The expression "action in rem" is, in its narrow
application, used only with reference to certain proceedings in courts of admiralty wherein the
property alone is treated as responsible for the claim or obligation upon which the proceedings are
based. The action quasi rem differs from the true action in rem in the circumstance that in the former
an individual is named as defendant, and the purpose of the proceeding is to subject his interest
therein to the obligation or lien burdening the property. All proceedings having for their sole object
the sale or other disposition of the property of the defendant, whether by attachment, foreclosure, or
other form of remedy, are in a general way thus designated. The judgment entered in these
proceedings is conclusive only between the parties.

In speaking of the proceeding to foreclose a mortgage the author of a well known treaties, has said:

Though nominally against person, such suits are to vindicate liens; they proceed upon
seizure; they treat property as primarily indebted; and, with the qualification above-
mentioned, they are substantially property actions. In the civil law, they are styled
hypothecary actions, and their sole object is the enforcement of the lien against the res; in
the common law, they would be different in chancery did not treat the conditional conveyance
as a mere hypothecation, and the creditor's right ass an equitable lien; so, in both, the suit is
real action so far as it is against property, and seeks the judicial recognition of a property
debt, and an order for the sale of the res. (Waples, Proceedings In Rem. sec. 607.)

It is true that in proceedings of this character, if the defendant for whom publication is made appears,
the action becomes as to him a personal action and is conducted as such. This, however, does not
affect the proposition that where the defendant fails to appear the action is quasi in rem; and it
should therefore be considered with reference to the principles governing actions in rem.

There is an instructive analogy between the foreclosure proceeding and an action of attachment,
concerning which the Supreme Court of the United States has used the following language:

If 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. But, if there is no appearance of the defendant, and no service of process on him, the
case becomes, in its essential nature, a proceeding in rem, the only effect of which is to
subject the property attached to the payment of the defendant which the court may find to be
due to the plaintiff. (Cooper vs. Reynolds, 10 Wall., 308.)

In an ordinary attachment proceeding, if the defendant is not personally served, the preliminary
seizure is to, be considered necessary in order to confer jurisdiction upon the court. In this case the
lien on the property is acquired by the seizure; and the purpose of the proceedings is to subject the
property to that lien. If a lien already exists, whether created by mortgage, contract, or statute, the
preliminary seizure is not necessary; and the court proceeds to enforce such lien in the manner
provided by law precisely as though the property had been seized upon attachment. (Roller vs. Holly,
176 U. S., 398, 405; 44 L. ed., 520.) It results that the mere circumstance that in an attachment the
property may be seized at the inception of the proceedings, while in the foreclosure suit it is not
taken into legal custody until the time comes for the sale, does not materially affect the fundamental
principle involved in both cases, which is that the court is here exercising a jurisdiction over the
property in a proceeding directed essentially in rem.

Passing now to a consideration of the jurisdiction of the Court of First Instance in a mortgage
foreclosure, it is evident that the court derives its authority to entertain the action primarily from the
statutes organizing the court. The jurisdiction of the court, in this most general sense, over the cause
of action is obvious and requires no comment. Jurisdiction over the person of the defendant, if
acquired at all in such an action, is obtained by the voluntary submission of the defendant or by the
personal service of process upon him within the territory where the process is valid. If, however, the
defendant is a nonresident and, remaining beyond the range of the personal process of the court,
refuses to come in voluntarily, the court never acquires jurisdiction over the person at all. Here the
property itself is in fact the sole thing which is impleaded and is the responsible object which is the
subject of the exercise of judicial power. It follows that the jurisdiction of the court in such case is
based exclusively on the power which, under the law, it possesses over the property; and any
discussion relative to the jurisdiction of the court over the person of the defendant is entirely apart
from the case. The jurisdiction of the court over the property, considered as the exclusive object of
such action, is evidently based upon the following conditions and considerations, namely: (1) that the
property is located within the district; (2) that the purpose of the litigation is to subject the property by
sale to an obligation fixed upon it by the mortgage; and (3) that the court at a proper stage of the
proceedings takes the property into custody, if necessary, and expose it to sale for the purpose of
satisfying the mortgage debt. An obvious corollary is that no other relief can be granted in this
proceeding than such as can be enforced against the property.

We may then, from what has been stated, formulated the following proposition relative to the
foreclosure proceeding against the property of a nonresident mortgagor who fails to come in and
submit himself personally to the jurisdiction of the court: (I) That the jurisdiction of the court is derived
from the power which it possesses over the property; (II) that jurisdiction over the person is not
acquired and is nonessential; (III) that the relief granted by the court must be limited to such as can
be enforced against the property itself.

It is important that the bearing of these propositions be clearly apprehended, for there are many
expressions in the American reports from which it might be inferred that the court acquires personal
jurisdiction over the person of the defendant by publication and notice; but such is not the case. In
truth the proposition that jurisdiction over the person of a nonresident cannot be acquired by
publication and notice was never clearly understood even in the American courts until after the
decision had been rendered by the Supreme Court of the United States in the leading case of
Pennoyer vs. Neff (95 U. S. 714; 24 L. ed., 565). In the light of that decision, and of other decisions
which have subsequently been rendered in that and other courts, the proposition that jurisdiction
over the person cannot be thus acquired by publication and notice is no longer open to question; and
it is now fully established that a personal judgment upon constructive or substituted service against a
nonresident who does not appear is wholly invalid. This doctrine applies to all kinds of constructive
or substituted process, including service by publication and personal service outside of the
jurisdiction in which the judgment is rendered; and the only exception seems to be found in the case
where the nonresident defendant has expressly or impliedly consented to the mode of service. (Note
to Raher vs. Raher, 35 L. R. A. [N. S. ], 292; see also 50 L .R. A., 585; 35 L. R. A. [N. S.], 312

The idea upon which the decision in Pennoyer vs. Neff (supra) proceeds is that the process from the
tribunals of one State cannot run into other States or countries and that due process of law requires
that the defendant shall be brought under the power of the court by service of process within the
State, or by his voluntary appearance, in order to authorize the court to pass upon the question of
his personal liability. The doctrine established by the Supreme Court of the United States on this
point, being based upon the constitutional conception of due process of law, is binding upon the
courts of the Philippine Islands. Involved in this decision is the principle that in proceedings in rem or
quasi in rem against a nonresident who is not served personally within the state, and who does not
appear, the relief must be confined to the res, and the court cannot lawfully render a personal
judgment against him. (Dewey vs. Des Moines, 173 U. S., 193; 43 L. ed., 665; Heidritter vs.
Elizabeth Oil Cloth Co., 112 U. S., 294; 28 L. ed., 729.) Therefore in an action to foreclose a
mortgage against a nonresident, upon whom service has been effected exclusively by publication,
no personal judgment for the deficiency can be entered. (Latta vs. Tutton, 122 Cal., 279; Blumberg
vs. Birch, 99 Cal., 416.)

It is suggested in the brief of the appellant that the judgment entered in the court below offends
against the principle just stated and that this judgment is void because the court in fact entered a
personal judgment against the absent debtor for the full amount of the indebtedness secured by the
mortgage. We do not so interpret the judgment.

In a foreclosure proceeding against a nonresident owner it is necessary for the court, as in all cases
of foreclosure, to ascertain the amount due, as prescribed in section 256 of the Code of Civil
Procedure, and to make an order requiring the defendant to pay the money into court. This step is a
necessary precursor of the order of sale. In the present case the judgment which was entered
contains the following words:

Because it is declared that the said defendant Engracio Palanca Tanquinyeng y Limquingco,
is indebted in the amount of P249,355.32, plus the interest, to the 'Banco Espanol-Filipino' . .
. therefore said appellant is ordered to deliver the above amount etc., etc.

This is not the language of a personal judgment. Instead it is clearly intended merely as a
compliance with the requirement that the amount due shall be ascertained and that the evidence of
this it may be observed that according to the Code of Civil Procedure a personal judgment against
the debtor for the deficiency is not to be rendered until after the property has been sold and the
proceeds applied to the mortgage debt. (sec. 260).

The conclusion upon this phase of the case is that whatever may be the effect in other respects of
the failure of the clerk of the Court of First Instance to mail the proper papers to the defendant in
Amoy, China, such irregularity could in no wise impair or defeat the jurisdiction of the court, for in our
opinion that jurisdiction rest upon a basis much more secure than would be supplied by any form of
notice that could be given to a resident of a foreign country.

Before leaving this branch of the case, we wish to observe that we are fully aware that many
reported cases can be cited in which it is assumed that the question of the sufficiency of publication
or notice in a case of this kind is a question affecting the jurisdiction of the court, and the court is
sometimes said to acquire jurisdiction by virtue of the publication. This phraseology was undoubtedly
originally adopted by the court because of the analogy between service by the publication and
personal service of process upon the defendant; and, as has already been suggested, prior to the
decision of Pennoyer vs. Neff (supra) the difference between the legal effects of the two forms of
service was obscure. It is accordingly not surprising that the modes of expression which had already
been molded into legal tradition before that case was decided have been brought down to the
present day. But it is clear that the legal principle here involved is not effected by the peculiar
language in which the courts have expounded their ideas.

We now proceed to a discussion of the question whether the supposed irregularity in the
proceedings was of such gravity as to amount to a denial of that "due process of law" which was
secured by the Act of Congress in force in these Islands at the time this mortgage was foreclosed.
(Act of July 1, 1902, sec. 5.) In dealing with questions involving the application of the constitutional
provisions relating to due process of law the Supreme Court of the United States has refrained from
attempting to define with precision the meaning of that expression, the reason being that the idea
expressed therein is applicable under so many diverse conditions as to make any attempt ay precise
definition hazardous and unprofitable. As applied to a judicial proceeding, however, it may be laid
down with certainty that the requirement of due process is satisfied if the following conditions are
present, namely; (1) There must be a court or tribunal clothed with judicial power to hear and
determine the matter before it; (2) jurisdiction must be lawfully acquired over the person of the
defendant or over the property which is the subject of the proceeding; (3) the defendant must be
given an opportunity to be heard; and (4) judgment must be rendered upon lawful hearing.

Passing at once to the requisite that the defendant shall have an opportunity to be heard, we
observe that in a foreclosure case some notification of the proceedings to the nonresident owner,
prescribing the time within which appearance must be made, is everywhere recognized as essential.
To answer this necessity the statutes generally provide for publication, and usually in addition
thereto, for the mailing of notice to the defendant, if his residence is known. Though commonly
called constructive, or substituted service of process in any true sense. It is merely a means
provided by law whereby the owner may be admonished that his property is the subject of judicial
proceedings and that it is incumbent upon him to take such steps as he sees fit to protect it. In
speaking of notice of this character a distinguish master of constitutional law has used the following
language:

. . . if the owners are named in the proceedings, and personal notice is provided for, it is
rather from tenderness to their interests, and in order to make sure that the opportunity for a
hearing shall not be lost to them, than from any necessity that the case shall assume that
form. (Cooley on Taxation [2d. ed.], 527, quoted in Leigh vs. Green, 193 U. S., 79, 80.)

It will be observed that this mode of notification does not involve any absolute assurance that the
absent owner shall thereby receive actual notice. The periodical containing the publication may
never in fact come to his hands, and the chances that he should discover the notice may often be
very slight. Even where notice is sent by mail the probability of his receiving it, though much
increased, is dependent upon the correctness of the address to which it is forwarded as well as upon
the regularity and security of the mail service. It will be noted, furthermore, that the provision of our
law relative to the mailing of notice does not absolutely require the mailing of notice unconditionally
and in every event, but only in the case where the defendant's residence is known. In the light of all
these facts, it is evident that actual notice to the defendant in cases of this kind is not, under the law,
to be considered absolutely necessary.

The idea upon which the law proceeds in recognizing the efficacy of a means of notification which
may fall short of actual notice is apparently this: Property is always assumed to be in the possession
of its owner, in person or by agent; and he may be safely held, under certain conditions, to be
affected with knowledge that proceedings have been instituted for its condemnation and sale.

It is the duty of the owner of real estate, who is a nonresident, to take measures that in some
way he shall be represented when his property is called into requisition, and if he fails to do
this, and fails to get notice by the ordinary publications which have usually been required in
such cases, it is his misfortune, and he must abide the consequences. (6 R. C. L., sec. 445
[p. 450]).

It has been well said by an American court:

If property of a nonresident cannot be reached by legal process upon the constructive notice,
then our statutes were passed in vain, and are mere empty legislative declarations, without
either force, or meaning; for if the person is not within the jurisdiction of the court, no
personal judgment can be rendered, and if the judgment cannot operate upon the property,
then no effective judgment at all can be rendered, so that the result would be that the courts
would be powerless to assist a citizen against a nonresident. Such a result would be a
deplorable one. (Quarl vs. Abbett, 102 Ind., 233; 52 Am. Rep., 662, 667.)

It is, of course universally recognized that the statutory provisions relative to publication or other
form of notice against a nonresident owner should be complied with; and in respect to the publication
of notice in the newspaper it may be stated that strict compliance with the requirements of the law
has been held to be essential. In Guaranty Trust etc. Co. vs. Green Cove etc., Railroad Co. (139 U.
S., 137, 138), it was held that where newspaper publication was made for 19 weeks, when the
statute required 20, the publication was insufficient.

With respect to the provisions of our own statute, relative to the sending of notice by mail, the
requirement is that the judge shall direct that the notice be deposited in the mail by the clerk of the
court, and it is not in terms declared that the notice must be deposited in the mail. We consider this
to be of some significance; and it seems to us that, having due regard to the principles upon which
the giving of such notice is required, the absent owner of the mortgaged property must, so far as the
due process of law is concerned, take the risk incident to the possible failure of the clerk to perform
his duty, somewhat as he takes the risk that the mail clerk or the mail carrier might possibly lose or
destroy the parcel or envelope containing the notice before it should reach its destination and be
delivered to him. This idea seems to be strengthened by the consideration that placing upon the
clerk the duty of sending notice by mail, the performance of that act is put effectually beyond the
control of the plaintiff in the litigation. At any rate it is obvious that so much of section 399 of the
Code of Civil Procedure as relates to the sending of notice by mail was complied with when the court
made the order. The question as to what may be the consequences of the failure of the record to
show the proof of compliance with that requirement will be discussed by us further on.

The observations which have just been made lead to the conclusion that the failure of the clerk to
mail the notice, if in fact he did so fail in his duty, is not such an irregularity, as amounts to a denial of
due process of law; and hence in our opinion that irregularity, if proved, would not avoid the
judgment in this case. Notice was given by publication in a newspaper and this is the only form of
notice which the law unconditionally requires. This in our opinion is all that was absolutely necessary
to sustain the proceedings.

It will be observed that in considering the effect of this irregularity, it makes a difference whether it be
viewed as a question involving jurisdiction or as a question involving due process of law. In the
matter of jurisdiction there can be no distinction between the much and the little. The court either has
jurisdiction or it has not; and if the requirement as to the mailing of notice should be considered as a
step antecedent to the acquiring of jurisdiction, there could be no escape from the conclusion that
the failure to take that step was fatal to the validity of the judgment. In the application of the idea of
due process of law, on the other hand, it is clearly unnecessary to be so rigorous. The jurisdiction
being once established, all that due process of law thereafter requires is an opportunity for the
defendant to be heard; and as publication was duly made in the newspaper, it would seem highly
unreasonable to hold that failure to mail the notice was fatal. We think that in applying the
requirement of due process of law, it is permissible to reflect upon the purposes of the provision
which is supposed to have been violated and the principle underlying the exercise of judicial power
in these proceedings. Judge in the light of these conceptions, we think that the provision of Act of
Congress declaring that no person shall be deprived of his property without due process of law has
not been infringed.

In the progress of this discussion we have stated the two conclusions; (1) that the failure of the clerk
to send the notice to the defendant by mail did not destroy the jurisdiction of the court and (2) that
such irregularity did not infringe the requirement of due process of law. As a consequence of these
conclusions the irregularity in question is in some measure shorn of its potency. It is still necessary,
however, to consider its effect considered as a simple irregularity of procedure; and it would be idle
to pretend that even in this aspect the irregularity is not grave enough. From this point of view,
however, it is obvious that any motion to vacate the judgment on the ground of the irregularity in
question must fail unless it shows that the defendant was prejudiced by that irregularity. The least,
therefore, that can be required of the proponent of such a motion is to show that he had a good
defense against the action to foreclose the mortgage. Nothing of the kind is, however, shown either
in the motion or in the affidavit which accompanies the motion.

An application to open or vacate a judgment because of an irregularity or defect in the proceedings


is usually required to be supported by an affidavit showing the grounds on which the relief is sought,
and in addition to this showing also a meritorious defense to the action. It is held that a general
statement that a party has a good defense to the action is insufficient. The necessary facts must be
averred. Of course if a judgment is void upon its face a showing of the existence of a meritorious
defense is not necessary. (10 R. C. L., 718.)

The lapse of time is also a circumstance deeply affecting this aspect of the case. In this connection
we quote the following passage from the encyclopedic treatise now in course of publication:

Where, however, the judgment is not void on its face, and may therefore be enforced if
permitted to stand on the record, courts in many instances refuse to exercise their quasi
equitable powers to vacate a judgement after the lapse of the term ay which it was entered,
except in clear cases, to promote the ends of justice, and where it appears that the party
making the application is himself without fault and has acted in good faith and with ordinary
diligence. Laches on the part of the applicant, if unexplained, is deemed sufficient ground for
refusing the relief to which he might otherwise be entitled. Something is due to the finality of
judgments, and acquiescence or unnecessary delay is fatal to motions of this character,
since courts are always reluctant to interfere with judgments, and especially where they have
been executed or satisfied. The moving party has the burden of showing diligence, and
unless it is shown affirmatively the court will not ordinarily exercise its discretion in his favor.
(15 R. C. L., 694, 695.)

It is stated in the affidavit that the defendant, Engracio Palanca Tanquinyeng y Limquingco, died
January 29, 1910. The mortgage under which the property was sold was executed far back in 1906;
and the proceedings in the foreclosure were closed by the order of court confirming the sale dated
August 7, 1908. It passes the rational bounds of human credulity to suppose that a man who had
placed a mortgage upon property worth nearly P300,000 and had then gone away from the scene of
his life activities to end his days in the city of Amoy, China, should have long remained in ignorance
of the fact that the mortgage had been foreclosed and the property sold, even supposing that he had
no knowledge of those proceedings while they were being conducted. It is more in keeping with the
ordinary course of things that he should have acquired information as to what was transpiring in his
affairs at Manila; and upon the basis of this rational assumption we are authorized, in the absence of
proof to the contrary, to presume that he did have, or soon acquired, information as to the sale of his
property.

The Code of Civil Procedure, indeed, expressly declares that there is a presumption that things have
happened according to the ordinary habits of life (sec. 334 [26]); and we cannot conceive of a
situation more appropriate than this for applying the presumption thus defined by the lawgiver. In
support of this presumption, as applied to the present case, it is permissible to consider the
probability that the defendant may have received actual notice of these proceedings from the
unofficial notice addressed to him in Manila which was mailed by an employee of the bank's
attorneys. Adopting almost the exact words used by the Supreme Court of the United States in
Grannis vs. Ordeans (234 U. S., 385; 58 L. ed., 1363), we may say that in view of the well-known
skill of postal officials and employees in making proper delivery of letters defectively addressed, we
think the presumption is clear and strong that this notice reached the defendant, there being no proof
that it was ever returned by the postal officials as undelivered. And if it was delivered in Manila,
instead of being forwarded to Amoy, China, there is a probability that the recipient was a person
sufficiently interested in his affairs to send it or communicate its contents to him.

Of course if the jurisdiction of the court or the sufficiency of the process of law depended upon the
mailing of the notice by the clerk, the reflections in which we are now indulging would be idle and
frivolous; but the considerations mentioned are introduced in order to show the propriety of applying
to this situation the legal presumption to which allusion has been made. Upon that presumption,
supported by the circumstances of this case, ,we do not hesitate to found the conclusion that the
defendant voluntarily abandoned all thought of saving his property from the obligation which he had
placed upon it; that knowledge of the proceedings should be imputed to him; and that he acquiesced
in the consequences of those proceedings after they had been accomplished. Under these
circumstances it is clear that the merit of this motion is, as we have already stated, adversely
affected in a high degree by the delay in asking for relief. Nor is it an adequate reply to say that the
proponent of this motion is an administrator who only qualified a few months before this motion was
made. No disability on the part of the defendant himself existed from the time when the foreclosure
was effected until his death; and we believe that the delay in the appointment of the administrator
and institution of this action is a circumstance which is imputable to the parties in interest whoever
they may have been. Of course if the minor heirs had instituted an action in their own right to recover
the property, it would have been different.

It is, however, argued that the defendant has suffered prejudice by reason of the fact that the bank
became the purchaser of the property at the foreclosure sale for a price greatly below that which had
been agreed upon in the mortgage as the upset price of the property. In this connection, it appears
that in article nine of the mortgage which was the subject of this foreclosure, as amended by the
notarial document of July 19, 1906, the parties to this mortgage made a stipulation to the effect that
the value therein placed upon the mortgaged properties should serve as a basis of sale in case the
debt should remain unpaid and the bank should proceed to a foreclosure. The upset price stated in
that stipulation for all the parcels involved in this foreclosure was P286,000. It is said in behalf of the
appellant that when the bank bought in the property for the sum of P110,200 it violated that
stipulation.

It has been held by this court that a clause in a mortgage providing for a tipo, or upset price, does
not prevent a foreclosure, nor affect the validity of a sale made in the foreclosure proceedings.
(Yangco vs. Cruz Herrera and Wy Piaco, 11 Phil. Rep., 402; Banco-Español Filipino vs. Donaldson,
Sim and Co., 5 Phil. Rep., 418.) In both the cases here cited the property was purchased at the
foreclosure sale, not by the creditor or mortgagee, but by a third party. Whether the same rule should
be applied in a case where the mortgagee himself becomes the purchaser has apparently not been
decided by this court in any reported decision, and this question need not here be considered, since
it is evident that if any liability was incurred by the bank by purchasing for a price below that fixed in
the stipulation, its liability was a personal liability derived from the contract of mortgage; and as we
have already demonstrated such a liability could not be the subject of adjudication in an action
where the court had no jurisdiction over the person of the defendant. If the plaintiff bank became
liable to account for the difference between the upset price and the price at which in bought in the
property, that liability remains unaffected by the disposition which the court made of this case; and
the fact that the bank may have violated such an obligation can in no wise affect the validity of the
judgment entered in the Court of First Instance.

In connection with the entire failure of the motion to show either a meritorious defense to the action
or that the defendant had suffered any prejudice of which the law can take notice, we may be
permitted to add that in our opinion a motion of this kind, which proposes to unsettle judicial
proceedings long ago closed, can not be considered with favor, unless based upon grounds which
appeal to the conscience of the court. Public policy requires that judicial proceedings be upheld. The
maximum here applicable is non quieta movere. As was once said by Judge Brewer, afterwards a
member of the Supreme Court of the United States:

Public policy requires that judicial proceedings be upheld, and that titles obtained in those
proceedings be safe from the ruthless hand of collateral attack. If technical defects are
adjudged potent to destroy such titles, a judicial sale will never realize that value of the
property, for no prudent man will risk his money in bidding for and buying that title which he
has reason to fear may years thereafter be swept away through some occult and not readily
discoverable defect. (Martin vs. Pond, 30 Fed., 15.)

In the case where that language was used an attempt was made to annul certain foreclosure
proceedings on the ground that the affidavit upon which the order of publication was based
erroneously stated that the State of Kansas, when he was in fact residing in another State. It was
held that this mistake did not affect the validity of the proceedings.

In the preceding discussion we have assumed that the clerk failed to send the notice by post as
required by the order of the court. We now proceed to consider whether this is a proper assumption;
and the proposition which we propose to establish is that there is a legal presumption that the clerk
performed his duty as the ministerial officer of the court, which presumption is not overcome by any
other facts appearing in the cause.

In subsection 14 of section 334 of the Code of Civil Procedure it is declared that there is a
presumption "that official duty has been regularly performed;" and in subsection 18 it is declared that
there is a presumption "that the ordinary course of business has been followed." These
presumptions are of course in no sense novelties, as they express ideas which have always been
recognized. Omnia presumuntur rite et solemniter esse acta donec probetur in contrarium. There is
therefore clearly a legal presumption that the clerk performed his duty about mailing this notice; and
we think that strong considerations of policy require that this presumption should be allowed to
operate with full force under the circumstances of this case. A party to an action has no control over
the clerk of the court; and has no right to meddle unduly with the business of the clerk in the
performance of his duties. Having no control over this officer, the litigant must depend upon the court
to see that the duties imposed on the clerk are performed.
Other considerations no less potent contribute to strengthen the conclusion just stated. There is no
principle of law better settled than that after jurisdiction has once been required, every act of a court
of general jurisdiction shall be presumed to have been rightly done. This rule is applied to every
judgment or decree rendered in the various stages of the proceedings from their initiation to their
completion (Voorhees vs. United States Bank, 10 Pet., 314; 35 U. S., 449); and if the record is silent
with respect to any fact which must have been established before the court could have rightly acted,
it will be presumed that such fact was properly brought to its knowledge. (The Lessee of Grignon vs.
Astor, 2 How., 319; 11 L. ed., 283.)

In making the order of sale [of the real state of a decedent] the court are presumed to have
adjudged every question necessary to justify such order or decree, viz: The death of the
owners; that the petitioners were his administrators; that the personal estate was insufficient
to pay the debts of the deceased; that the private acts of Assembly, as to the manner of sale,
were within the constitutional power of the Legislature, and that all the provisions of the law
as to notices which are directory to the administrators have been complied with. . . . The
court is not bound to enter upon the record the evidence on which any fact was decided.
(Florentine vs. Barton, 2 Wall., 210; 17 L. ed., 785.) Especially does all this apply after long
lapse of time.

Applegate vs. Lexington and Carter County Mining Co. (117 U. S., 255) contains an instructive
discussion in a case analogous to that which is now before us. It there appeared that in order to
foreclose a mortgage in the State of Kentucky against a nonresident debtor it was necessary that
publication should be made in a newspaper for a specified period of time, also be posted at the front
door of the court house and be published on some Sunday, immediately after divine service, in such
church as the court should direct. In a certain action judgment had been entered against a
nonresident, after publication in pursuance of these provisions. Many years later the validity of the
proceedings was called in question in another action. It was proved from the files of an ancient
periodical that publication had been made in its columns as required by law; but no proof was
offered to show the publication of the order at the church, or the posting of it at the front door of the
court-house. It was insisted by one of the parties that the judgment of the court was void for lack of
jurisdiction. But the Supreme Court of the United States said:

The court which made the decree . . . was a court of general jurisdiction. Therefore every
presumption not inconsistent with the record is to be indulged in favor of its jurisdiction. . . . It
is to be presumed that the court before making its decree took care of to see that its order for
constructive service, on which its right to make the decree depended, had been obeyed.

It is true that in this case the former judgment was the subject of collateral , or indirect attack, while
in the case at bar the motion to vacate the judgment is direct proceeding for relief against it. The
same general presumption, however, is indulged in favor of the judgment of a court of general
jurisdiction, whether it is the subject of direct or indirect attack the only difference being that in case
of indirect attack the judgment is conclusively presumed to be valid unless the record affirmatively
shows it to be void, while in case of direct attack the presumption in favor of its validity may in certain
cases be overcome by proof extrinsic to the record.

The presumption that the clerk performed his duty and that the court made its decree with the
knowledge that the requirements of law had been complied with appear to be amply sufficient to
support the conclusion that the notice was sent by the clerk as required by the order. It is true that
there ought to be found among the papers on file in this cause an affidavit, as required by section
400 of the Code of Civil Procedure, showing that the order was in fact so sent by the clerk; and no
such affidavit appears. The record is therefore silent where it ought to speak. But the very purpose of
the law in recognizing these presumptions is to enable the court to sustain a prior judgment in the
face of such an omission. If we were to hold that the judgment in this case is void because the
proper affidavit is not present in the file of papers which we call the record, the result would be that in
the future every title in the Islands resting upon a judgment like that now before us would depend, for
its continued security, upon the presence of such affidavit among the papers and would be liable at
any moment to be destroyed by the disappearance of that piece of paper. We think that no court,
with a proper regard for the security of judicial proceedings and for the interests which have by law
been confided to the courts, would incline to favor such a conclusion. In our opinion the proper
course in a case of this kind is to hold that the legal presumption that the clerk performed his duty
still maintains notwithstanding the absence from the record of the proper proof of that fact.

In this connection it is important to bear in mind that under the practice prevailing in the Philippine
Islands the word "record" is used in a loose and broad sense, as indicating the collective mass of
papers which contain the history of all the successive steps taken in a case and which are finally
deposited in the archives of the clerk's office as a memorial of the litigation. It is a matter of general
information that no judgment roll, or book of final record, is commonly kept in our courts for the
purpose of recording the pleadings and principal proceedings in actions which have been
terminated; and in particular, no such record is kept in the Court of First Instance of the city of
Manila. There is, indeed, a section of the Code of Civil Procedure which directs that such a book of
final record shall be kept; but this provision has, as a matter of common knowledge, been generally
ignored. The result is that in the present case we do not have the assistance of the recitals of such a
record to enable us to pass upon the validity of this judgment and as already stated the question
must be determined by examining the papers contained in the entire file.

But it is insisted by counsel for this motion that the affidavit of Bernardo Chan y Garcia showing that
upon April 4, 1908, he sent a notification through the mail addressed to the defendant at Manila,
Philippine Islands, should be accepted as affirmative proof that the clerk of the court failed in his duty
and that, instead of himself sending the requisite notice through the mail, he relied upon Bernardo to
send it for him. We do not think that this is by any means a necessary inference. Of course if it had
affirmatively appeared that the clerk himself had attempted to comply with this order and had
directed the notification to Manila when he should have directed it to Amoy, this would be conclusive
that he had failed to comply with the exact terms of the order; but such is not this case. That the
clerk of the attorneys for the plaintiff erroneously sent a notification to the defendant at a mistaken
address affords in our opinion very slight basis for supposing that the clerk may not have sent notice
to the right address.

There is undoubtedly good authority to support the position that when the record states the evidence
or makes an averment with reference to a jurisdictional fact, it will not be presumed that there was
other or different evidence respecting the fact, or that the fact was otherwise than stated. If, to give
an illustration, it appears from the return of the officer that the summons was served at a particular
place or in a particular manner, it will not be presumed that service was also made at another place
or in a different manner; or if it appears that service was made upon a person other than the
defendant, it will not be presumed, in the silence of the record, that it was made upon the defendant
also (Galpin vs. Page, 18 Wall., 350, 366; Settlemier vs. Sullivan, 97 U. S., 444, 449). While we
believe that these propositions are entirely correct as applied to the case where the person making
the return is the officer who is by law required to make the return, we do not think that it is properly
applicable where, as in the present case, the affidavit was made by a person who, so far as the
provisions of law are concerned, was a mere intermeddler.

The last question of importance which we propose to consider is whether a motion in the cause is
admissible as a proceeding to obtain relief in such a case as this. If the motion prevails the judgment
of July 2, 1908, and all subsequent proceedings will be set aside, and the litigation will be renewed,
proceeding again from the date mentioned as if the progress of the action had not been interrupted.
The proponent of the motion does not ask the favor of being permitted to interpose a defense. His
purpose is merely to annul the effective judgment of the court, to the end that the litigation may again
resume its regular course.

There is only one section of the Code of Civil Procedure which expressly recognizes the authority of
a Court of First Instance to set aside a final judgment and permit a renewal of the litigation in the
same cause. This is as follows:

SEC. 113. Upon such terms as may be just the court may relieve a party or legal
representative from the judgment, order, or other proceeding taken against him through his
mistake, inadvertence, surprise, or excusable neglect; Provided, That application thereof be
made within a reasonable time, but in no case exceeding six months after such judgment,
order, or proceeding was taken.

An additional remedy by petition to the Supreme Court is supplied by section 513 of the same Code.
The first paragraph of this section, in so far as pertinent to this discussion, provides as follows:

When a judgment is rendered by a Court of First Instance upon default, and a party thereto
is unjustly deprived of a hearing by fraud, accident, mistake or excusable negligence, and
the Court of First Instance which rendered the judgment has finally adjourned so that no
adequate remedy exists in that court, the party so deprived of a hearing may present his
petition to the Supreme Court within sixty days after he first learns of the rendition of such
judgment, and not thereafter, setting forth the facts and praying to have judgment set aside. .
..

It is evident that the proceeding contemplated in this section is intended to supplement the remedy
provided by section 113; and we believe the conclusion irresistible that there is no other means
recognized by law whereby a defeated party can, by a proceeding in the same cause, procure a
judgment to be set aside, with a view to the renewal of the litigation.

The Code of Civil Procedure purports to be a complete system of practice in civil causes, and it
contains provisions describing with much fullness the various steps to be taken in the conduct of
such proceedings. To this end it defines with precision the method of beginning, conducting, and
concluding the civil action of whatever species; and by section 795 of the same Code it is declared
that the procedure in all civil action shall be in accordance with the provisions of this Code. We are
therefore of the opinion that the remedies prescribed in sections 113 and 513 are exclusive of all
others, so far as relates to the opening and continuation of a litigation which has been once
concluded.

The motion in the present case does not conform to the requirements of either of these provisions;
and the consequence is that in our opinion the action of the Court of First Instance in dismissing the
motion was proper.

If the question were admittedly one relating merely to an irregularity of procedure, we cannot
suppose that this proceeding would have taken the form of a motion in the cause, since it is clear
that, if based on such an error, the came to late for relief in the Court of First Instance. But as we
have already seen, the motion attacks the judgment of the court as void for want of jurisdiction over
the defendant. The idea underlying the motion therefore is that inasmuch as the judgment is a nullity
it can be attacked in any way and at any time. If the judgment were in fact void upon its face, that is,
if it were shown to be a nullity by virtue of its own recitals, there might possibly be something in this.
Where a judgment or judicial order is void in this sense it may be said to be a lawless thing, which
can be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits its
head.

But the judgment in question is not void in any such sense. It is entirely regular in form, and the
alleged defect is one which is not apparent upon its face. It follows that even if the judgment could
be shown to be void for want of jurisdiction, or for lack of due process of law, the party aggrieved
thereby is bound to resort to some appropriate proceeding to obtain relief. Under accepted principles
of law and practice, long recognized in American courts, a proper remedy in such case, after the
time for appeal or review has passed, is for the aggrieved party to bring an action to enjoin the
judgment, if not already carried into effect; or if the property has already been disposed of he may
institute suit to recover it. In every situation of this character an appropriate remedy is at hand; and if
property has been taken without due process, the law concedes due process to recover it. We
accordingly old that, assuming the judgment to have been void as alleged by the proponent of this
motion, the proper remedy was by an original proceeding and not by motion in the cause. As we
have already seen our Code of Civil Procedure defines the conditions under which relief against a
judgment may be productive of conclusion for this court to recognize such a proceeding as proper
under conditions different from those defined by law. Upon the point of procedure here involved, we
refer to the case of People vs. Harrison (84 Cal., 607) wherein it was held that a motion will not lie to
vacate a judgment after the lapse of the time limited by statute if the judgment is not void on its face;
and in all cases, after the lapse of the time limited by statute if the judgment is not void on its face;
and all cases, after the lapse of such time, when an attempt is made to vacate the judgment by a
proceeding in court for that purpose an action regularly brought is preferable, and should be
required. It will be noted taken verbatim from the California Code (sec. 473).

The conclusions stated in this opinion indicate that the judgment appealed from is without error, and
the same is accordingly affirmed, with costs. So ordered.

Arellano, C.J., Torres, Carson, and Avanceña, JJ., concur.

Separate Opinions

MALCOLM, J., dissenting:

I dissent. It will not make me long to state my reasons. An immutable attribute — the fundamental
idea — of due process of law is that no man shall be condemned in his person or property without
notice and an opportunity of being heard in his defense. Protection of the parties demands a strict
and an exact compliance with this constitutional provision in our organic law and of the statutory
provisions in amplification. Literally hundreds of precedents could be cited in support of these
axiomatic principles. Where as in the instant case the defendant received no notice and had no
opportunity to be heard, certainly we cannot say that there is due process of law. Resultantly, "A
judgment which is void upon its face, and which requires only an inspection of the judgment roll to
demonstrate its want of vitality is a dead limb upon the judicial tree, which should be lopped off, if the
power so to do exists. It can bear no fruit to the plaintiff, but is a constant menace to the defendant."
(Mills vs. Dickons, 6 Rich [S. C.], 487.)

G.R. No. L-18164 January 23, 1967

WILLIAM F. GEMPERLE, plaintiff-appellant,


vs.
HELEN SCHENKER and PAUL SCHENKER as her husband, defendants-appellees.
Gamboa & Gamboa for plaintiff-appellant.
A. R. Narvasa for defendants-appellees.

CONCEPCION, C. J.:

Appeal, taken by plaintiff, William F. Gemperle, from a decision of the Court of First Instance of Rizal
dismissing this case for lack of jurisdiction over the person of defendant Paul Schenker and for want
of cause of action against his wife and co-defendant, Helen Schenker said Paul Schenker "being in
no position to be joined with her as party defendant, because he is beyond the reach of the
magistracy of the Philippine courts."

The record shows that sometime in 1952, Paul Schenker-hereinafter referred to as Schenker —
acting through his wife and attorney-in-fact, Helen Schenker — herein-after referred to as Mrs.
Schenker — filed with the Court of First Instance of Rizal, a complaint — which was docketed as
Civil Case No. Q-2796 thereof — against herein plaintiff William F. Gemperle, for the enforcement of
Schenker's allegedly initial subscription to the shares of stock of the Philippines-Swiss Trading Co.,
Inc. and the exercise of his alleged pre-emptive rights to the then unissued original capital stock of
said corporation and the increase thereof, as well as for an accounting and damages. Alleging that,
in connection with said complaint, Mrs. Schenker had caused to be published some allegations
thereof and other matters, which were impertinent, irrelevant and immaterial to said case No. Q-
2796, aside from being false and derogatory to the reputation, good name and credit of Gemperle,
"with the only purpose of attacking" his" honesty, integrity and reputation" and of bringing him "into
public hatred, discredit, disrepute and contempt as a man and a businessman", Gemperle
commenced the present action against the Schenkers for the recovery of P300,000 as damages,
P30,000 as attorney's fees, and costs, in addition to praying for a judgment ordering Mrs. Schenker
"to retract in writing the said defamatory expressions". In due course, thereafter, the lower court,
rendered the decision above referred to. A reconsiderating thereof having been denied, Gemperle
interposed the present appeal.

The first question for determination therein is whether or not the lower court had acquired jurisdiction
over the person of Schenker. Admittedly, he, a Swiss citizen, residing in Zurich, Switzerland, has not
been actually served with summons in the Philippines, although the summons address to him and
Mrs. Schenker had been served personally upon her in the Philippines. It is urged by plaintiff that
jurisdiction over the person of Schenker has been secured through voluntary appearance on his
part, he not having made a special appearance to assail the jurisdiction over his person, and an
answer having been filed in this case, stating that "the defendants, by counsel, answering the
plaintiff's complaint, respectfully aver", which is allegedly a general appearance amounting to a
submission to the jurisdiction of the court, confirmed, according to plaintiff, by a P225,000
counterclaim for damages set up in said answer; but this counterclaim was set up by Mrs. Schenker
alone, not including her husband. Moreover, said answer contained several affirmative defenses,
one of which was lack of jurisdiction over the person of Schenker, thus negating the alleged waiver
of this defense. Nevertheless, We hold that the lower court had acquired jurisdiction over said
defendant, through service of the summons addressed to him upon Mrs. Schenker, it appearing from
said answer that she is the representative and attorney-in-fact of her husband aforementioned civil
case No. Q-2796, which apparently was filed at her behest, in her aforementioned representative
capacity. In other words, Mrs. Schenker had authority to sue, and had actually sued on behalf of her
husband, so that she was, also, empowered to represent him in suits filed against him, particularly in
a case, like the of the one at bar, which is consequence of the action brought by her on his behalf.

Inasmuch as the alleged absence of a cause of action against Mrs. Schenker is premised upon the
alleged lack of jurisdiction over the person of Schenker, which cannot be sustained, it follows that the
conclusion drawn therefore from is, likewise, untenable.
Wherefore, the decision appealed from should be, is hereby, reversed, and the case remanded to
the lower court for proceedings, with the costs of this instance defendants-appellees. It is so
ordered.

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

VICTORIA REGNER, G.R. No. 168747

Petitioner, Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,

CHICO-NAZARIO, NACHURA,
and
- versus -
REYES, JJ.

Promulgated:

CYNTHIA R. LOGARTA, TERESA R.


October 19, 2007
TORMIS and CEBU COUNTRY
CLUB, Inc.,

Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
CHICO-NAZARIO, J.:

This Petition for Review on Certiorari seeks to reverse the Decision[1] dated 6 May
2005 of the Court of Appeals in CA-G.R. CV No. 71028 entitled, Victoria Regner v.
Cynthia Logarta, Teresa R. Tormis and Cebu Country Club, Inc., which affirmed the
Order dated 9 November 2000 of the Regional Trial Court (RTC) of Cebu, granting
herein respondents motion to dismiss Civil Case No. CEB 23927. The Order
dated 9 November 2000 of the RTC dismissed herein petitioners complaint for
declaration of nullity of a deed of donation, for failure to serve summons on
Cynthia Logarta, an indispensable party therein.

Civil Case No. CEB. 23927 arose from the following factual antecedents:

Luis Regner (Luis) had three daughters with his first wife, Anicita C. Regner,
namely, Cynthia Logarta (Cynthia) and Teresa Tormis (Teresa), the respondents
herein, and Melinda Regner-Borja (Melinda).

Herein petitioner Victoria Regner (Victoria) is the second wife of Luis.

During the lifetime of Luis, he acquired several properties, among which is a share
at Cebu Country Club Inc., evidenced by Proprietary Ownership Certificate No.
0272. On 15 May 1998, Luis executed a Deed[2] of Donation in favor of
respondents Cynthia and Teresa covering Proprietary Ownership Certificate No.
0272 of the Cebu Country Club, Inc.

Luis passed away on 11 February 1999.


On 15 June 1999, Victoria filed a Complaint[3] for Declaration of Nullity of
the Deed of Donation with Prayer for Issuance of a Writ of Preliminary Injunction
and Temporary Restraining Order against Cynthia and Teresa with the RTC,
docketed as Civil Case No. CEB. 23927. Victoria alleged in her complaint that: on
17 March 1997, Luis made a written declaration wherein he stated that due to his
illness and forgetfulness, he would not sign any document without the knowledge
of his lawyer, Atty. Francis Zosa; on 15 May 1998, when Luis was already very ill
and no longer of sound and disposing mind, Cynthia and Teresa , conspiring and
confederating with each other, fraudulently made or caused to be fraudulently
made a Deed of Donation whereby they made it appear that Luis donated to them
Proprietary Ownership Certificate No. 0272; since Luis no longer had the ability to
write or affix his signature, Melinda, acting under the influence of her sisters,
Cynthia and Teresa, fraudulently manipulated the hand of Luis so that he could
affix his thumbmark on the assailed Deed of Donation; on 8 February 1998, or
three days before the death of Luis, and when he was already in comatose
condition at the Cebu Doctors Hospital, Melinda, Teresa, and Cynthia caused the
preparation of an affidavit to the effect that Luis affirmed the Deed of Donation he
allegedly executed earlier by lifting his hand to affix his thumbmark on the said
affidavit.

Sheriff Melchor A. Solon served the summonses on Cynthia and Teresa at


the Borja Family Clinic in Tagbilaran City wherein Melinda worked as a doctor, but
Melinda refused to receive the summonses for her sisters and informed the sheriff
that their lawyer, Atty. Francis Zosa, would be the one to receive the same.

Upon her arrival in the Philippines, on 1 June 2000, Teresa was personally
served the summons at Room 304, Regency Crest Condominium,
Banilad, Cebu City. She filed her Answer[4] with counterclaim with the RTC on 6
June 2000.

Subsequently, on 12 September 2002, Teresa filed a motion to dismiss Civil


Case No. CEB 23927 because of petitioners failure to prosecute her action for an
unreasonable length of time.
Petitioner opposed[5] the motion and filed her own motion to set the case
for pre-trial, to which Teresa filed her rejoinder on the ground that their sister,
Cynthia, an indispensable party, had not yet been served a summons. Thus, Teresa
prayed for the dismissal of petitioners complaint, as the case would not proceed
without Cynthias presence.

On 9 November 2000, the RTC issued an Order [6] granting respondent


Teresas motion to dismiss, pertinent portions of which read:

Considering that the donees in the Deed of Donation are Cynthia R. Logarta and
Teresa R. Tormis, they are therefore an (sic) indispensable party (sic). In the case of
Quisumbing vs. Court of Appeals, 189 SCRA 325, indispensable parties are those with
such an interest in the controversy that a final decree would necessarily affect their
rights so that the court could not proceed without their presence

Wherefore, in view of the foregoing, the instant case is hereby dismissed


without prejudice.

A motion for reconsideration was filed by petitioner, but the same was denied in
an Order dated 14 February 2001.

Aggrieved, petitioner appealed to the Court of Appeals. On 6 May 2005, the Court
of Appeals rendered a Decision denying the appeal and affirming in toto the order
of dismissal of the complaint by the RTC and the denial of the motion for
reconsideration thereof. The Court of Appeals ratiocinated that petitioners failure
to move for an extraterritorial service of summons constitutes failure to prosecute
for an unreasonable length of time, thus:

[T]he plaintiff-appellant [Victoria Regner] should have moved for the extraterritorial
service of summons for both defendants-appellees Teresa R. Tormis and Cynthia R.
Logarta as they were not residing and were not found in the Philippines when plaintiff-
appellant [Victoria Regner] filed this case below. Although defendant-appellant Teresa
Tormis was personally served with summons on June 1, 2000 when she came to
the Philippines but the same was only effected after a long wait or after the lapse of
almost one year from the date the complaint was filed on June 15, 1999. To allow this
practice would be to make the continuation of like proceedings before the courts
dependent on when the defendants would be personally served with summons by the
time they would come to the Philippines, which would only unnecessarily delay the
proceedings and clog the court dockets as well. The afore-cited rule was precisely
crafted to meet situations similar to the present case to avoid unnecessary delays.

It has to be emphasized that it is incumbent upon the plaintiff [Victoria Regner] to move
with leave of court for the extraterritorial service of summons. Taking into account the
considerable time that had elapsed from the filing of the complaint on June 15, 1999
until defendant-appellee Teresa R. Tormis, through counsel, filed a motion to dismiss on
September 12, 2000, or approximately fifteen (15) months, without any act on the part
of plaintiff-appellant [Victoria Regner] to move for extraterritorial service of summons
upon the person of defendant-appellee Cynthia Logarta renders plaintiff-appellants
[Victoria Regner] complaint dismissible for failure to prosecute her action for
unreasonable length of time under Section 3, Rule 17, Revised Rules of Court, x x x. [7]

Hence, this appeal via petition[8] for review on certiorari filed by petitioner raising
the following assignment of errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DELAY IN SERVING SUMMONS
ON ONE OF THE DEFENDANTS CONSTITUTES A FAILURE TO PROSECUTE
NOTWITHSTANDING THAT THE REST OF THE CO-DEFENDANTS WERE DULY SERVED WITH
SUMMONSES

THE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT THE ANSWER FILED BY ONE
INDIVIDUAL DEFENDANT REDOUNDS TO THE BENEFIT OF THE OTHER DEFENDANT WHO
HAS NOT BEEN SERVED WITH SUMMONS, THE NATURE OF ACTION BEING ADMITTEDLY
COMMON AMONG ALL DEFENDANTS.[9]
From the foregoing, this Court identifies the issues to be resolved in this
petition as: (1) Whether a co-donee is an indispensable party in an action to
declare the nullity of the deed of donation, and (2) whether delay in the service of
summons upon one of the defendants constitutes failure to prosecute that would
warrant dismissal of the complaint.

A Court must acquire jurisdiction over the persons of indispensable


parties before it can validly pronounce judgments personal to the parties. Courts
acquire jurisdiction over a party plaintiff upon the filing of the complaint. On the
other hand, jurisdiction over the person of a party defendant is assured upon the
service of summons in the manner required by law or otherwise by his voluntary
appearance. As a rule, if a defendant has not been summoned, the court acquires
no jurisdiction over his person, and a personal judgment rendered against such
defendant is null and void.[10] A decision that is null and void for want of
jurisdiction on the part of the trial court is not a decision in the contemplation of
law and, hence, it can never become final and executory.[11]

Rule 3, Section 7 of the Rules of Court, defines indispensable parties as


parties-in-interest without whom there can be no final determination of an
action. As such, they must be joined either as plaintiffs or as defendants. The
general rule with reference to the making of parties in a civil action requires,
of course, the joinder of all necessary parties where possible, and the joinder of
all indispensable parties under any and all conditions, their presence being a sine
qua non for the exercise of judicial power.[12] It is precisely when an indispensable
party is not before the court [that] the action should be dismissed. [13] The absence
of an indispensable party renders all subsequent actions of the court null and void
for want of authority to act, not only as to the absent parties but even as to those
present.[14]

As we ruled in Alberto v. Mananghala[15]:

In an action for recovery of property against a person who purchased it from another
who in turn acquired it from others by the same means or by donation or otherwise,
the predecessors of defendants are indispensable parties if the transfers, if not voided,
may bind plaintiff. (Garcia vs. Reyes, 17 Phil. 127.) In the latter case, this Court held:
In order to bring this suit duly to a close, it is imperative to determine the only
question raised in connection with the pending appeal, to wit, whether all the persons
who intervened in the matter of the transfers and donation herein referred to, are or are
not necessary parties to this suit, since it is asked in the complaint that the said transfers
and donation be declared null and void an indispensable declaration for the purpose, in
a proper case, of concluding the plaintiff to be the sole owner of the house in dispute.

If such a declaration of annulment can directly affect the persons who made and
who were concerned in the said transfers, nothing could be more proper and just than
to hear them in the litigation, as parties interested in maintaining the validity of those
transactions, and therefore, whatever be the nature of the judgment rendered,
Francisco Reyes, Dolores Carvajal, Alfredo Chicote, Vicente Miranda, and Rafael Sierra,
besides the said minors, must be included in the case as defendants. (Garcia vs. Reyes,
17 Phil., 130-131.)

It takes no great degree of legal sophistication to realize that Cynthia and


Teresa are indispensable parties to Civil Case No. CEB 23927. Cynthia and Teresa
allegedly derived their rights to the subject property by way of donation from
their father Luis. The central thrust of the petitioners complaint in Civil Case No.
CEB 23927 was that Luiscould not have donated Proprietary Ownership Certificate
No. 0272 to his daughters Cynthia and Teresa, as Luis was already very ill and no
longer of sound and disposing mind at the time of donation on 15 May
1997. Accordingly, the prayer in petitioners complaint was for the trial court to
declare null and void the Deed of Donation and to restrain the Cebu Country Club,
Inc. from transferring title and ownership of Proprietary Ownership Certificate No.
0272 to Cynthia and Teresa.

Thus, based on the Deed of Donation, Teresa and Cynthia are co-owners of
Proprietary Membership Certificate No. 0272 of Cebu Country Club, Inc. The
country club membership certificate is undivided and it is impossible to pinpoint
which specific portion of the property belongs to either Teresa or Cynthia. Indeed,
both Teresa and Cynthia are indispensable parties in Civil Case No. CEB 23927.
An indispensable party has been defined as follows:

An indispensable party is a party who has such an interest in the controversy or subject
matter that a final adjudication cannot be made, in his absence, without injuring or
affecting that interest, a party who has not only an interest in the subject matter of the
controversy, but also has an interest of such nature that a final decree cannot be made
without affecting his interest or leaving the controversy in such a condition that its final
determination may be wholly inconsistent with equity and good conscience. It has also
been considered that an indispensable party is a person in whose absence there cannot
be a determination between the parties already before the court which is effective,
complete, or equitable. Further, an indispensable party is one who must be included in
an action before it may properly go forward.

A person is not an indispensable party, however, if his interest in the controversy


or subject matter is separable from the interest of the other parties, so that it will not
necessarily be directly or injuriously affected by a decree which does complete justice
between them. Also, a person is not an indispensable party if his presence would merely
permit complete relief between him and those already parties to the action, or if he has
no interest in the subject matter of the action. It is not a sufficient reason to declare a
[16]
person to be an indispensable party that his presence will avoid multiple litigation.

In Servicewide Specialists, Incorporated v. Court of Appeals,[17] this


Court held that no final determination of a case could be made if an indispensable
party is not legally present therein:

An indispensable party is one whose interest will be affected by the courts action in the
litigation, and without whom no final determination of the case can be had. The partys
interest in the subject matter of the suit and in the relief sought are so inextricably
intertwined with the other parties that his legal presence as a party to the proceeding is
an absolute necessity. In his absence there cannot be a resolution of the dispute of the
parties before the court which is effective, complete, or equitable.
The rationale for treating all the co-owners of a property as indispensable
parties in a suit involving the co-owned property is explained in Arcelona v. Court
of Appeals[18]:

As held by the Supreme Court, were the courts to permit an action in ejectment to be
maintained by a person having merely an undivided interest in any given tract of land, a
judgment in favor of the defendants would not be conclusive as against the other co-
owners not parties to the suit, and thus the defendant in possession of the property
might be harassed by as many succeeding actions of ejectment, as there might be co-
owners of the title asserted against him. The purpose of this provision was to prevent
multiplicity of suits by requiring the person asserting a right against the defendant to
include with him, either as co-plaintiffs or as co-defendants, all persons standing in the
same position, so that the whole matter in dispute may be determined once and for all
in one litigation.

Applying the foregoing definitions and principles to the present case, this
Court finds that any decision in Civil Case No. CEB 23927 cannot bind Cynthia, and
the Court cannot nullify the donation of the property she now co-owns with
Teresa, even if limited only to the portion belonging to Teresa, to whom summons
was properly served, since ownership of the property is still pro
indiviso. Obviously, Cynthia is an indispensable party in Civil Case No. CEB 23927
without whom the lower court is barred from making a final adjudication as to the
validity of the entire donation. Without the presence of indispensable parties to a
suit or proceeding, a judgment therein cannot attain finality. [19]

Being an indispensable party in Civil Case No. CEB 23927, the trial court must
also acquire jurisdiction over Cynthias person through the proper service of
summons.

Based on the foregoing disquisitions, the issue of whether the answer filed by
Teresa should benefit Cynthia who was not served summons need not be discussed.
As to determine whether Cynthia was properly served a summons, it will be
helpful to determine first the nature of the action filed against Cynthia and
Teresa by petitioner Victoria, whether it is an action in personam, in rem or quasi
in rem. This is because the rules on service of summons embodied in Rule 14
apply according to whether an action is one or the other of these actions.
In a personal action, the plaintiff seeks the recovery of personal property,
the enforcement of a contract or the recovery of damages.[20] In contrast, in a real
action, the plaintiff seeks the recovery of real property; or, as indicated in Section
2(a), Rule 4 of the then Rules of Court, a real action is an action affecting title to
real property or for the recovery of possession, or for partition or condemnation
of, or foreclosure of mortgage on, real property. An action in personam is an
action against a person on the basis of his personal liability, while an action in
rem is an action against the thing itself, instead of against the person.[21]

In an action in personam, personal service of summons or, if this is not


possible and he cannot be personally served, substituted service, as provided in
Section 7, Rule 14 of the Rules of Court, [22] is essential for the acquisition by
the court of jurisdiction over the person of a defendant who does not voluntarily
submit himself to the authority of the court.[23] If defendant cannot be served a
summons because he is temporarily abroad, but is otherwise a Philippine
resident, service of summons may, by leave of court, be made by publication.
[24]
Otherwise stated, a resident defendant in an action in personam, who cannot
be personally served a summons, may be summoned either by means of
substituted service in accordance with Section 7, Rule 14 of the Rules of Court, or
by publication as provided in Sections 15 and 16 of the same Rule.
In all of these cases, it should be noted, defendant must be a resident of
the Philippines; otherwise an action in personam cannot be brought because
jurisdiction over his person is essential to make a binding decision.
On the other hand, if the action is in rem or quasi in rem, jurisdiction over the
person of the defendant is not essential for giving the court jurisdiction so long as
the court acquires jurisdiction over the res. If the defendant is a nonresident and
he is not found in the country, summons may be served extraterritorially in
accordance with Section 15, Rule 14 of the Rules of Court, which provides:
Section 15. Extraterritorial service. - When the defendant does not reside and is
not found in the Philippines, and the action affects the personal status of the plaintiff or
relates to, or the subject of which is, property within the Philippines, in which the
defendant has or claims a lien or interest, actual or contingent, or in which the relief
demanded consists, wholly or in part, in excluding the defendant from any interest
therein, or the property of the defendant has been attached within the Philippines,
service may, by leave of court, be effected out of the Philippines by personal service as
under Section 6; or by publication in a newspaper of general circulation in such places
and for such time as the court may order, in which case a copy of the summons and
order of the court shall be sent by registered mail to the last known address of the
defendant, or in any other manner the court may deem sufficient. Any order granting
such leave shall specify a reasonable time, which shall not be less than sixty (60) days
after notice, within which the defendant must answer.

As stated above, there are only four instances wherein a defendant who is
a non-resident and is not found in the country may be served a summons by
extraterritorial service, to wit: (1) when the action affects the personal status of
the plaintiff; (2) when the action relates to, or the subject of which is property
within the Philippines, on which the defendant claims a lien or an interest, actual
or contingent; (3) when the relief demanded in such action consists, wholly or in
part, in excluding the defendant from any interest in property located in the
Philippines; and (4) when the defendant non-residents property has been
attached within the Philippines. In these instances, service of summons may be
effected by (a) personal service out of the country, with leave of court; (b)
publication, also with leave of court; or (c) any other manner the court may deem
sufficient.[25]

In such cases, what gives the court jurisdiction in an action in rem or quasi
in rem is that it has jurisdiction over the res, i.e., the personal status of the
plaintiff who is domiciled in the Philippines or the property litigated or attached.
Service of summons in the manner provided in Section 15, Rule 14 of the Rules of
Court is not for the purpose of vesting the court with jurisdiction, but for
complying with the requirements of fair play or due process, so that the
defendant will be informed of the pendency of the action against him; and the
possibility that property in the Philippines belonging to him, or in which he has an
interest, might be subjected to a judgment in favor of the plaintiff and he can
thereby take steps to protect his interest if he is so minded. [26]

In petitioners Complaint in Civil Case No. CEB No. 23427, she alleged that
Cynthia is residing at 462 West Vine No. 201, Glendale, California, 912041, U.S.A.;
while Teresa is residing at 2408 South Hacienda Boulevard, Hacienda Heights,
California, but they usually visit here in the Philippines and can be served
summonses and other processes at the Borja Family Clinic, Bohol. Pertinent
portions of the Complaint read:

2. Defendant Cynthia R. Logarta is a Filipino, of legal age, married to Ramon Logarta,


resident (sic) 463 West Vine No.201, Glendale, California, 912041, USA. She
however usually visits in the Philippines and can be served with summons and
other processes of this Honorable Court at Borja Family Clinic, Tagbilaran, Bohol;

3. Defendant Teresa R. Tormis is likewise a Filipino, of legal age, married to Antonio


Tormis, and a resident of 2408 South Hacienda Heights, California, 19745, U.S.A.
She however usually visits in the Philippines and can be served with summons
and other processes of this Honorable Court at Borja Family Clinic,
Tagbilaran, Bohol.[27]

Petitioner prayed for a declaration of nullity of the deed of donation, to


restrain Cebu Country Club, Inc. from transferring title and ownership of
Proprietary Ownership Certificate No. 0272 to Cynthia and Teresa, and for moral
and exemplary damages. Civil Case No. CEB 23927 is evidently an action against
Cynthia and Teresa on the basis of their personal liability for the alleged
fraudulent transfer of the subject Country Club membership from Luis to their
name. In this sense, petitioner questions the participation and shares of Cynthia
and Teresa in the transferred Country Club membership. Moreover, the
membership certificate from the Cebu Country Club, Inc. is a personal property.
Thus, the action instituted by petitioner before the RTC is in personam.

Being an action in personam, the general rule requires the personal service
of summons on Cynthia within the Philippines, but this is not possible in the
present case because Cynthia is a non-resident and is not found within
the Philippines.

As Cynthia is a nonresident who is not found in the Philippines, service of


summons on her must be in accordance with Section 15, Rule 14 of the Rules of
Court. Such service, to be effective outside the Philippines, must be made either
(1) by personal service; (2) by publication in a newspaper of general circulation in
such places and for such time as the court may order, in which case a copy of the
summons and order of the court should be sent by registered mail to the last
known address of the defendant; or (3) in any other manner which the court may
deem sufficient. The third mode, like the first two, must be made outside
the Philippines, such as through the Philippine Embassy in the foreign country
where Cynthia resides.

Since in the case at bar, the service of summons upon Cynthia was not done
by any of the authorized modes, the trial court was correct in dismissing
petitioners complaint.

Section 3, Rule 17 of the 1997 Rules of Civil Procedure, states

SEC. 3. Dismissal due to fault of plaintiff. If, for no justifiable cause, the plaintiff fails to
appear on the date of the presentation of his evidence in chief on the complaint, or to
prosecute his action for an unreasonable length of time, or to comply with these Rules
or any order of the court, the complaint may be dismissed upon motion of the
defendant or upon the court's own motion, without prejudice to the right of the
defendant to prosecute his counterclaim in the same or in a separate action. This
dismissal shall have the effect of an adjudication upon the merits, unless otherwise
declared by the court.
As can be gleaned from the rule, there are three instances when the
complaint may be dismissed due to the plaintiff's fault: (1) if he fails to appear
during a scheduled trial, especially on the date for the presentation of his
evidence in chief; (2) if he fails to prosecute his action for an unreasonable length
of time; and (3) if he fails to comply with the rules or any order of the court. [28]

Considering the circumstances of the case, it can be concluded that the


petitioner failed to prosecute the case for an unreasonable length of time. There
is failure to prosecute when the plaintiff, being present, is not ready or is unwilling
to proceed with the scheduled trial or when postponements in the past were due
to the plaintiff's own making, intended to be dilatory or caused substantial
prejudice on the part of the defendant.[29]

While a court can dismiss a case on the ground of failure to prosecute, the
true test for the exercise of such power is whether, under the prevailing
circumstances, the plaintiff is culpable for want of due diligence in failing to
proceed with reasonable promptitude.[30] As to what constitutes an unreasonable
length of time, within the purview of the above-quoted provision, the Court has
ruled that it depends upon the circumstances of each particular case, and that the
sound discretion of the court in the determination of said question will not be
disturbed, in the absence of patent abuse; and that the burden of showing abuse
of judicial discretion is upon the appellant since every presumption is in favor of
the correctness of the court's action.[31] Likewise, the concept of promptness is a
relative term and must not unnecessarily be an inflexible one. It connotes an
action without hesitation and loss of time. As to what constitutes the term is
addressed to the consideration of the trial court, bearing in mind that while
actions must be disposed of with dispatch, the essential ingredient is the
administration of justice and not mere speed.[32]

It is well to quote the doctrine laid in Padua v. Ericta,[33] as accentuated in


the subsequent case Marahay v. Melicor[34]:
Courts should not brook undue delays in the ventilation and determination of causes. It
should be their constant effort to assure that litigations are prosecuted and resolved
with dispatch. Postponements of trials and hearings should not be allowed except on
meritorious grounds; and the grant or refusal thereof rests entirely in the sound
discretion of the Judge. It goes without saying, however, that discretion must be
reasonably and wisely exercised, in the light of the attendant circumstances. Some
reasonable deferment of the proceedings may be allowed or tolerated to the end that
cases may be adjudged only after full and free presentation of evidence by all the
parties, especially where the deferment would cause no substantial prejudice to any
part. The desideratum of a speedy disposition of cases should not, if at all possible,
result in the precipitate loss of a partys right to present evidence and either in plaintiff's
being non-suited or the defendant's being pronounced liable under an ex parte
judgment.

[T]rial courts have x x x the duty to dispose of controversies after trial on the merits
whenever possible. It is deemed an abuse of discretion for them, on their own motion,
to enter a dismissal which is not warranted by the circumstances of the case
(Municipality of Dingras v. Bonoan, 85 Phil. 458-59 [1950]). While it is true that the
dismissal of an action on grounds specified under Section 3, Rule 17 of the Revised Rules
of Court is addressed to their discretion (Flores v. Phil. Alien Property Administrator, 107
Phil. 778 [1960]; Montelibano v. Benares, 103 Phil. 110 [1958]; Adorable v. Bonifacio,
105 Phil. 1269 [1959]; Inter-Island Gas Service, Inc. v. De la Gerna, L-17631, October 19,
1966, 18 SCRA 390), such discretion must be exercised soundly with a view to the
circumstances surrounding each particular case (Vernus-Sanciangco v. Sanciangco, L-
12619, April 28, 1962, 4 SCRA 1209). If facts obtain that serve as mitigating
circumstances for the delay, the same should be considered and dismissal denied or set
aside (Rudd v. Rogerson, 15 ALR 2d 672; Cervi v. Greenwood, 147 Colo. 190, 362 P.2d
1050 [1961]), especially where the suit appears to be meritorious and the plaintiff was
not culpably negligent and no injury results to defendant (27 C.J.S. 235-36; 15 ALR 3rd
680). (Abinales vs. Court of First Instance of Zamboanga City, Br. I, 70 SCRA 590, 595).

It is true that the allowance or denial of petitions for postponement and the setting
aside of orders previously issued, rest principally upon the sound discretion of the judge
to whom they are addressed, but always predicated on the consideration that more than
the mere convenience of the courts or of the parties of the case, the ends of justice and
fairness would be served thereby (Camara Vda. de Zubiri v. Zubiri, et al., L-16745,
December 17, 1966). When no substantial rights are affected and the intention to delay
is not manifest, the corresponding motion to transfer the hearing having been filed
accordingly, it is sound judicial discretion to allow them (Rexwell Corp. v. Canlas, L-
16746, December 30, 1961). x x x.

This Court recalls that the complaint herein was filed on 15 June 1999. The
summonses for Cynthia and Teresa were served on their sister Melinda at the
Borja Family Clinic in Tagbilaran City, but the latter refused to receive the same. It
was only on 1 June 2000 that summons was served on Teresa at Room 304,
Regency Crest Condominium, Banilad, Cebu City, when she was in
the Philippines for a visit. However, the summons for Cynthia was never served
upon her.

Although Section 1, Rule 14 of the Rules, imposes upon the clerk of court
the duty to serve summons, this does not relieve the petitioner of her own duty
as the plaintiff in a civil case to prosecute the case diligently. If the clerk had been
negligent, it was petitioners duty to call the courts attention to that fact. It must
be noted that it was not even petitioner who called the courts attention that
summons had not been served on Cynthia, but Teresa. This despite the fact that
petitioner was aware, as early as 15 June 1999, when she filed her complaint, that
the summonses could not be served on Teresa and Cynthia, as she admitted
therein that Teresa and Cynthia were residing abroad. Petitioner as plaintiff should
have asked that Cynthia and Teresa be summoned by publication at the earliest
possible time. She cannot idly sit by and wait till this is done. She cannot
afterwards wash her hands and say that the delay was not her fault. She cannot
simply "fold [her] hands" and say that it is the duty of the clerk of court to have
the summonses served on Cynthia and Teresa for the prompt disposition of her
case. If there were no means of summoning any of the defendants, petitioner
should have so informed the court within a reasonable period of time, so that the
case could be disposed of one way or another and the administration of justice
would not suffer delay. The non-performance of that duty by petitioner as plaintiff
is an express ground for dismissing an action. For, indeed, this duty imposed upon
her was precisely to spur on the slothful.
For failure to diligently pursue the complaint, petitioner trifled with the
right of the respondents to speedy trial. It also sorely tried the patience of the
court and wasted its precious time and attention. To allow petitioner to wait until
such time that summonses were served on respondents would frustrate the
protection against unreasonable delay in the prosecution of cases and violate the
constitutional mandate of speedy dispensation of justice which would in time
erode the peoples confidence in the judiciary. We take a dim view of petitioners
complacent attitude. Ex nihilo nihil fit.[35]

Likewise, petitioners counsel inexplicably failed to diligently pursue the


service of summonses on respondents. These were acts of negligence, laxity and
truancy which the court could have very easily avoided or timely
remedied. Petitioner and her counsel could not avail themselves of this Courts
sympathy, considering their apparent complacency, if not delinquency, in the
conduct of their litigation.

Considering the foregoing, we sustain the dismissal by the trial court of the
petitioners complaint for failure to prosecute for a period of more than one year
(from the time of filing thereof on 15 June 1997 until Teresas filing of a motion to
dismiss).

WHEREFORE, premises considered, the instant petition is DENIED for lack of


merit and the assailed Decision dated 6 May 2005 of the Court of Appeals in CA-
G.R. CV No. 71028 is hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

[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 Decision of the Court of Appeals dated May 15, 2003, which sustained
[1]

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 Services which embodies the terms and conditions
[2]

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. The CDC shall guarantee that nineteen thousand eighteen
[3]

hundred (19,800) tons per year of solid waste volume shall be collected from
inside and outside the CSEZ. The contract has a term of twenty-five (25)
[4]

years, during which time the German Consortium shall operate the waste
[5]

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 Understanding (MOU) signed by
[7]

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) whereby the German Consortium ceded
[9]

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.
Likewise, the parties agreed that should there be a disagreement between
[10]

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, stating that the German Consortiums contract with DMWAI,
[12]

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, stating that the
[13]

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. Petitioners filed a motion for reconsideration, which
[15]

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. On September
[16]

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. We have held that the act of participating in a bidding process
[19]

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, we [22]

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, a [23]

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. In other words,
[24]

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. In the case at
[25]

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. But there [27]

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. The onus probandi is on movant to show that there
[29]

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. At the time of its application for an injunctive writ,
[31]

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. Hence, a cloud of doubt exists over
[32]

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, 2001and 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.

Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938)

Erie Railroad Co. v. Tompkins

No. 367

Argued January 31, 1938

Decided April 25, 1938

304 U.S. 64

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

1. The liability of a railroad company for injury caused by negligent operation of its train
to a pedestrian on a much-used, beaten path on its right-of-way along and near the rails
depends, in the absence of a federal or state statute, upon the unwritten law of the
State where the accident occurred. Pp. 304 U. S. 71 et seq.

2. A federal court exercising jurisdiction over such a case on the ground of diversity of
citizenship, is not free to treat this question as one of so-called "general law," but must
apply the state law as declared by the highest state court. Swift v. Tyson, 16 Pet. 1,
overruled. Id.

3. There is no federal general common law. Congress has no power to declare


substantive rules of common law applicable in a State whether they be local in their
nature or "general," whether they be commercial law or a part of the law of torts. And no
clause in the Constitution purports to confer such a power upon the federal courts.
Except in matters governed by the Federal Constitution or by Acts of Congress, the law
to be applied in any case is the law of the State. And whether the law of the State shall
be declared by its legislature in a statute or by its highest court in a decision is not a
matter of federal concern. P. 304 U. S. 78.

4. In disapproving the doctrine of Swift v. Tyson, the Court does not hold
unconstitutional § 34 of the Federal Judiciary Act of 1789 or any other Act of Congress.
It merely declares that, by applying the doctrine of that case, rights which are reserved
by the Constitution to the several States have been invaded. P. 304 U. S. 79.

90 F.2d 603, reversed.

Page 304 U. S. 65

CERTIORARI, 302 U.S. 671, to review the affirmance of a judgment recovered against
the railroad company in an action for personal injuries. The accident was in
Pennsylvania. The action was in New York, jurisdiction being based on diversity of
citizenship

Page 304 U. S. 69

MR. JUSTICE BRANDEIS delivered the opinion of the Court.

The question for decision is whether the oft-challenged doctrine of Swift v.


Tyson [Footnote 1] shall now be disapproved.

Tompkins, a citizen of Pennsylvania, was injured on a dark night by a passing freight


train of the Erie Railroad Company while walking along its right of way at Hughestown in
that State. He claimed that the accident occurred through negligence in the operation,
or maintenance, of the train; that he was rightfully on the premises as licensee because
on a commonly used beaten footpath which ran for a short distance alongside the
tracks, and that he was struck by something which looked like a door projecting from
one of the moving cars. To enforce that claim, he brought an action in the federal court
for southern New York, which had jurisdiction because the company is a corporation of
that State. It denied liability, and the case was tried by a jury.

Page 304 U. S. 70

The Erie insisted that its duty to Tompkins was no greater than that owed to a
trespasser. It contended, among other things, that its duty to Tompkins, and hence its
liability, should be determined in accordance with the Pennsylvania law; that, under the
law of Pennsylvania, as declared by its highest court, persons who use pathways along
the railroad right of way -- that is, a longitudinal pathway, as distinguished from a
crossing -- are to be deemed trespassers, and that the railroad is not liable for injuries to
undiscovered trespassers resulting from its negligence unless it be wanton or willful.
Tompkins denied that any such rule had been established by the decisions of the
Pennsylvania courts, and contended that, since there was no statute of the State on the
subject, the railroad's duty and liability is to be determined in federal courts as a matter
of general law.

The trial judge refused to rule that the applicable law precluded recovery. The jury
brought in a verdict of $30,000, and the judgment entered thereon was affirmed by the
Circuit Court of Appeals, which held, 90 F.2d 603, 604, that it was unnecessary to
consider whether the law of Pennsylvania was as contended, because the question was
one not of local, but of general, law, and that,

"upon questions of general law, the federal courts are free, in the absence of a local
statute, to exercise their independent judgment as to what the law is, and it is well
settled that the question of the responsibility of a railroad for injuries caused by its
servants is one of general law. . . . Where the public has made open and notorious use
of a railroad right of way for a long period of time and without objection, the company
owes to persons on such permissive pathway a duty of care in the operation of its
trains. . . . It is likewise generally recognized law that a jury may find that negligence
exists toward a pedestrian using a permissive path on the railroad right of way if he is hit
by some object projecting from the side of the train. "

Page 304 U. S. 71

The Erie had contended that application of the Pennsylvania rule was required, among
other things, by § 34 of the Federal Judiciary Act of September 24, 1789, c. 20, 28
U.S.C. § 725, which provides:

"The laws of the several States, except where the Constitution, treaties, or statutes of
the United States otherwise require or provide, shall be regarded as rules of decision in
trials at common law, in the courts of the United States, in cases where they apply."

Because of the importance of the question whether the federal court was free to
disregard the alleged rule of the Pennsylvania common law, we granted certiorari.

First. Swift v. Tyson, 16 Pet. 1, 41 U. S. 18, held that federal courts exercising
jurisdiction on the ground of diversity of citizenship need not, in matters of general
jurisprudence, apply the unwritten law of the State as declared by its highest court; that
they are free to exercise an independent judgment as to what the common law of the
State is -- or should be, and that, as there stated by Mr. Justice Story:

"the true interpretation of the thirty-fourth section limited its application to state laws
strictly local, that is to say, to the positive statutes of the state, and the construction
thereof adopted by the local tribunals, and to rights and titles to things having a
permanent locality, such as the rights and titles to real estate, and other matters
immovable and intraterritorial in their nature and character. It never has been supposed
by us that the section did apply, or was intended to apply, to questions of a more
general nature, not at all dependent upon local statutes or local usages of a fixed and
permanent operation, as, for example, to the construction of ordinary contracts or other
written instruments, and especially to questions of general commercial law, where the
state tribunals are called upon to perform the like functions as ourselves, that is, to
ascertain upon general reasoning and legal analogies what is the true exposition of the
contract or

Page 304 U. S. 72

instrument, or what is the just rule furnished by the principles of commercial law to
govern the case."

The Court, in applying the rule of § 34 to equity cases, in Mason v. United States, 260
U. S. 545, 260 U. S. 559, said: "The statute, however, is merely declarative of the rule
which would exist in the absence of the statute." [Footnote 2] The federal courts
assumed, in the broad field of "general law," the power to declare rules of decision
which Congress was confessedly without power to enact as statutes. Doubt was
repeatedly expressed as to the correctness of the construction given § 34, [Footnote 3]
and as to the soundness of the rule which it introduced. [Footnote 4] But it was the more
recent research of a competent scholar, who examined the original document, which
established that the construction given to it by the Court was erroneous, and that the
purpose of the section was merely to make certain that, in all matters except those in
which some federal law is controlling,

Page 304 U. S. 73

the federal courts exercising jurisdiction in diversity of citizenship cases would apply as
their rules of decision the law of the State, unwritten as well as written. [Footnote 5]

Criticism of the doctrine became widespread after the decision of Black & White Taxicab
Co. v. Brown & Yellow Taxicab Co.,276 U. S. 518. [Footnote 6] There, Brown and
Yellow, a Kentucky corporation owned by Kentuckians, and the Louisville and Nashville
Railroad, also a Kentucky corporation, wished that the former should have the exclusive
privilege of soliciting passenger and baggage transportation at the Bowling Green,
Kentucky, railroad station, and that the Black and White, a competing Kentucky
corporation, should be prevented from interfering with that privilege. Knowing that such
a contract would be void under the common law of Kentucky, it was arranged that the
Brown and Yellow reincorporate under the law of Tennessee, and that the contract with
the railroad should be executed there. The suit was then brought by the Tennessee
corporation in the federal court for western Kentucky to enjoin competition by the Black
and White; an injunction issued by the District Court

Page 304 U. S. 74

was sustained by the Court of Appeals, and this Court, citing many decisions in which
the doctrine of Swift v. Tyson had been applied, affirmed the decree.
Second. Experience in applying the doctrine of Swift v. Tyson had revealed it defects,
political and social, and the benefits expected to flow from the rule did not accrue.
Persistence of state courts in their own opinions on questions of common law prevented
uniformity; [Footnote 7] and the impossibility of discovering a satisfactory line of
demarcation between the province of general law and that of local law developed a new
well of uncertainties. [Footnote 8]

On the other hand, the mischievous results of the doctrine had become apparent.
Diversity of citizenship jurisdiction was conferred in order to prevent apprehended
discrimination in state courts against those not citizens of the State. Swift v.
Tyson introduced grave discrimination by noncitizens against citizens. It made rights
enjoyed under the unwritten "general law" vary according to whether enforcement was
sought in the state

Page 304 U. S. 75

or in the federal court, and the privilege of selecting the court in which the right should
be determined was conferred upon the noncitizen. [Footnote 9] Thus, the doctrine
rendered impossible equal protection of the law. In attempting to promote uniformity of
law throughout the United States, the doctrine had prevented uniformity in the
administration of the law of the State.

The discrimination resulting became, in practice, far-reaching. This resulted in part from
the broad province accorded to the so-called "general law" as to which federal courts
exercised an independent judgment. [Footnote 10] In addition to questions of purely
commercial law, "general law" was held to include the obligations under contracts
entered into and to be performed within the State, [Footnote 11] the extent to which a
carrier operating within a State may stipulate for exemption from liability for his own
negligence or that of his employee; [Footnote 12] the liability for torts committed within
the State upon person resident or property located there, even where the question of
liability

Page 304 U. S. 76

depended upon the scope of a property right conferred by the State [Footnote 13] and
the right to exemplary or punitive damages. [Footnote 14] Furthermore, state decisions
construing local deeds, [Footnote 15] mineral conveyances, [Footnote 16] and even
devises of real estate [Footnote 17] were disregarded. [Footnote 18]

In part, the discrimination resulted from the wide range of persons held entitled to avail
themselves of the federal rule by resort to the diversity of citizenship jurisdiction.
Through this jurisdiction, individual citizens willing to remove from their own State and
become citizen of another might avail themselves of the federal rule. [Footnote 19] And,
without even change of residence, a corporate citizen of

Page 304 U. S. 77
the State could avail itself of the federal rule by reincorporating under the laws of
another State, as was done in the Taxicab case.

The injustice and confusion incident to the doctrine of Swift v. Tyson have been
repeatedly urged as reasons for abolishing or limiting diversity of citizenship jurisdiction.
[Footnote 20] Other legislative relief has been proposed. [Footnote 21] If only a question
of statutory construction were involved, we should not be prepared to abandon a
doctrine so widely applied throughout nearly a century. [Footnote 22] But the
unconstitutionality

Page 304 U. S. 78

of the course pursued has now been made clear, and compels us to do so.

Third. Except in matters governed by the Federal Constitution or by Acts of Congress,


the law to be applied in any case is the law of the State. And whether the law of the
State shall be declared by its Legislature in a statute or by its highest court in a decision
is not a matter of federal concern. There is no federal general common law. Congress
has no power to declare substantive rules of common law applicable in a State, whether
they be local in their nature or "general," be they commercial law or a part of the law of
torts. And no clause in the Constitution purports to confer such a power upon the federal
courts. As stated by Mr. Justice Field when protesting in Baltimore & Ohio R. Co. v.
Baugh, 149 U. S. 368, 149 U. S. 401, against ignoring the Ohio common law of fellow
servant liability:

"I am aware that what has been termed the general law of the country -- which is often
little less than what the judge advancing the doctrine thinks at the time should be the
general law on a particular subject -- has been often advanced in judicial opinions of this
court to control a conflicting law of a State. I admit that learned judges have fallen into
the habit of repeating this doctrine as a convenient mode of brushing aside the law of a
State in conflict with their views. And I confess that, moved and governed by the
authority of the great names of those judges, I have, myself, in many instances,
unhesitatingly and confidently, but I think now erroneously, repeated the same doctrine.
But, notwithstanding the great names which may be cited in favor of the doctrine, and
notwithstanding the frequency with which the doctrine has been reiterated, there stands,
as a perpetual protest against its repetition, the Constitution of the United States, which
recognizes and preserves the autonomy and independence of the States --
independence in their legislative and independence

Page 304 U. S. 79

in their judicial departments. Supervision over either the legislative or the judicial action
of the States is in no case permissible except as to matters by the Constitution
specifically authorized or delegated to the United States. Any interference with either,
except as thus permitted, is an invasion of the authority of the State and, to that extent,
a denial of its independence."
The fallacy underlying the rule declared in Swift v. Tyson is made clear by Mr. Justice
Holmes. [Footnote 23] The doctrine rests upon the assumption that there is "a
transcendental body of law outside of any particular State but obligatory within it unless
and until changed by statute," that federal courts have the power to use their judgment
as to what the rules of common law are, and that, in the federal courts, "the parties are
entitled to an independent judgment on matters of general law":

"but law in the sense in which courts speak of it today does not exist without some
definite authority behind it. The common law so far as it is enforced in a State, whether
called common law or not, is not the common law generally, but the law of that State
existing by the authority of that State without regard to what it may have been in
England or anywhere else. . . ."

"the authority and only authority is the State, and, if that be so, the voice adopted by the
State as its own [whether it be of its Legislature or of its Supreme Court] should utter the
last word."

Thus, the doctrine of Swift v. Tyson is, as Mr. Justice Holmes said,

"an unconstitutional assumption of powers by courts of the United States which no lapse
of time or respectable array of opinion should make us hesitate to correct."

In disapproving that doctrine, we do not hold

Page 304 U. S. 80

unconstitutional § 34 of the Federal Judiciary Act of 1789 or any other Act of Congress.
We merely declare that, in applying the doctrine, this Court and the lower courts have
invaded rights which, in our opinion, are reserved by the Constitution to the several
States.

Fourth. The defendant contended that, by the common law of Pennsylvania as declared
by its highest court in Falchetti v. Pennsylvania R. Co., 307 Pa. 203; 160 A. 859, the
only duty owed to the plaintiff was to refrain from willful or wanton injury. The plaintiff
denied that such is the Pennsylvania law. [Footnote 24] In support of their respective
contentions the parties discussed and cited many decisions of the Supreme Court of the
State. The Circuit Court of Appeals ruled that the question of liability is one of general
law, and on that ground declined to decide the issue of state law. As we hold this was
error, the judgment is reversed and the case remanded to it for further proceedings in
conformity with our opinion.

Reversed.

MR. JUSTICE CARDOZO took no part in the consideration or decision of this case.

[Footnote 1]
16 Pet. 1 (1842). Leading cases applying the doctrine are collected in Black & White
Taxicab Co. v. Brown & Yellow Taxicab Co.,276 U. S. 518, 276 U. S. 530, 276 U. S. 531.
Dissent from its application or extension was expressed as early as 1845 by Mr. Justice
McKinley (and Mr. Chief Justice Taney) in Lane v. Vick, 3 How. 464, 44 U. S. 477.
Dissenting opinions were also written by Mr. Justice Daniel in Rowan v. Runnels, 5 How.
134, 46 U. S. 140; by Mr. Justice Nelson in Williamson v. Berry, 8 How. 495,49 U. S.
550, 49 U. S. 558; by Mr. Justice Campbell in Pease v. Peck, 18 How. 595, 59 U. S.
599, 59 U. S. 600, and by Mr. Justice Miller in Gelpcke v. City of Dubuque, 1 Wall.
175, 68 U. S. 207, and Butz v. City of Muscatine, 8 Wall. 575, 75 U. S. 585. Vigorous
attack upon the entire doctrine was made by Mr. Justice Field in Baltimore & Ohio R.
Co. v. Baugh, 149 U. S. 368, 149 U. S. 390, and by Mr. Justice Holmes in Kuhn v.
Fairmont Coal Co., 215 U. S. 349, 215 U. S. 370, and in the Taxicab Case, 276 U.S.
at276 U. S. 532.

[Footnote 2]

In Hawkins v. Barney's Lessee, 5 Pet. 457, 30 U. S. 464, it was stated that § 34

"has been uniformly held to be no more than a declaration of what the law would have
been without it: to-wit, that the lex loci must be the governing rule of private right, under
whatever jurisdiction private right comes to be examined."

See also Bank of Hamilton v. Dudley's Lessee, 2 Pet. 492, 27 U. S. 525. Compare
Jackson v. Chew, 12 Wheat. 153, 25 U. S. 162,25 U. S. 168; Livingston v. Moore, 7 Pet.
469, 32 U. S. 542.

[Footnote 3]

Pepper, The Border Land of Federal and State Decisions (1889) 57; Gray, The Nature
and Sources of Law (1909 ed.) §§ 533-34; Trickett, Non-Federal Law Administered in
Federal Courts (1906) 40 Am.L.Rev. 819, 821-24.

[Footnote 4]

Street, Is There a General Commercial Law of the United States (1873) 21 Am.L.Reg.
473; Hornblower, Conflict between State and Federal Decisions (1880) 14 Am.L.Rev.
211; Meigs, Decisions of the Federal Courts on Questions of State Law (1882) 8
So.L.Rev. (n.s.) 452, (1911) 45 Am.L.Rev. 47; Heiskell, Conflict between Federal and
State Decisions (1882) 16 Am.L.Rev. 743; Rand, Swift v. Tyson versus Gelpcke v.
Dubuque (1895) 8 Harv.L.Rev. 328, 341-43; Mills, Should Federal Courts Ignore State
Laws (1900) 34 Am.L.Rev. 51; Carpenter, Court Decisions and the Common Law (1917)
17 Col.L.Rev. 593, 602-603.

[Footnote 5]
Charles Warren, New Light on the History of the Federal Judiciary Act of 1789 (1923) 37
Harv.L.Rev. 49, 51-52, 81-88, 108.

[Footnote 6]

Shelton, Concurrent Jurisdiction -- Its Necessity and its Dangers (1928) 15 Va.L.Rev.
137; Frankfurter, Distribution of Judicial Power Between Federal and State Courts
(1928) 13 Corn.L.Q. 499, 524-30; Johnson, State Law and the Federal Courts (1929) 17
Ky.L.J. 355; Fordham, The Federal Courts and the Construction of Uniform State Laws
(1929) 7 N.C.L.Rev. 423; Dobie, Seven Implications of Swift v. Tyson (1930) 16
Va.L.Rev. 225; Dawson, Conflict of Decisions between State and Federal Courts in
Kentucky, and the Remedy (1931) 20 Ky.L.J. 1; Campbell, Is Swift v. Tyson an
Argument for or against Abolishing Diversity of Citizenship Jurisdiction (1932) 18
A.B.A.J. 809; Ball, Revision of Federal Diversity Jurisdiction (1933) 28 Ill.L.Rev. 356,
362-64; Fordham, Swift v. Tyson and the Construction of State Statutes (1935) 41 W.Va.
L.Q. 131.

[Footnote 7]

Compare Mr. Justice Miller in Gelpcke v. City of Dubuque, 1 Wall. 175, 68 U. S. 209.
The conflicts listed in Holt, The Concurrent Jurisdiction of the Federal and State Courts
(1888) 160 et seq. cover twenty-eight pages. See also Frankfurter, supra, note 6 at 524-
530; Dawson, supra, note 6; Note Aftermath of the Supreme Court's Stop, Look and
Listen Rule (1930) 43 Harv.L.Rev. 926; cf. Yntema and Jaffin, Preliminary Analysis of
Concurrent Jurisdiction (1931) 79 U. of Pa.L.Rev. 869, 881-86. Moreover, as pointed out
by Judge Augustus N. Hand in Cole v. Pennsylvania R. Co., 43 F.2d 953, 956-57,
decisions of this Court on common law questions are less likely than formerly to
promote uniformity.

[Footnote 8]

Compare 2 Warren, The Supreme Court in United States History (rev. ed.1935) 89:

"Probably no decision of the Court has ever given rise to more uncertainty as to legal
rights, and though doubtless intended to promote uniformity in the operation of business
transactions, its chief effect has been to render it difficult for business men to know in
advance to what particular topic the Court would apply the doctrine. . . ."

The Federal Digest, through the 1937 volume, lists nearly 1000 decisions involving the
distinction between questions of general and of local law.

[Footnote 9]

It was even possible for a nonresident plaintiff defeated on a point of law in the highest
court of a State nevertheless to win out by taking a nonsuit and renewing the
controversy in the federal court. Compare Gardner v. Michigan Cent. R. Co.,150 U. S.
349; Harrison v. Foley, 206 Fed. 57 (C.C.A. 8); Interstate Realty & Inv. Co. v. Bibb
County, 293 Fed. 721 (C.C.A. 5); seeMills, supra, note 4 at 52.

[Footnote 10]

For a recent survey of the scope of the doctrine, see Sharp & Brennan, The Application
of the Doctrine of Swift v. Tysonsince 1900 (1929) 4 Ind.L.J. 367.

[Footnote 11]

Black & White Taxicab Co. v. Brown & Yellow Taxicab Co., 276 U. S. 518; Rowan v.
Runnels, 5 How. 134, 46 U. S. 139; Boyce v. Tabb, 18 Wall. 546, 85 U. S. 548; Johnson
v. Chas. D. Norton Co., 159 Fed. 361 (C.C.A. 6); Keene Five Cent Sav. Bank v.
Reid, 123 Fed. 221 (C.C.A. 8).

[Footnote 12]

Railroad Co. v. Lockwood, 17 Wall. 357, 84 U. S. 367-368; Liverpool & G. W. Stearn


Co. v. Phenix Ins. Co., 129 U. S. 397, 129 U. S. 443; Eels v. St. Louis, K. & N.W. Ry.
Co., 52 Fed. 903 (C.C.S.D. Iowa); Fowler v. Pennsylvania R. Co., 229 Fed. 373 (C.C.A.
2).

[Footnote 13]

Chicago v. Robbins, 2 Black 418, 67 U. S. 428. Compare 77 U. S. Milwaukee, 10 Wall.


497, 77 U. S. 506-507; Yeates v. Illinois Cent. R. Co., 137 Fed. 943 (C.C.N.D.Ill.); Curtis
v. Cleveland, C.C. & St. L. Ry. Co., 140 Fed. 777 (C. G. E.D.Ill.). See also Hough v.
Railway Co., 100 U. S. 213, 100 U. S. 226; Baltimore & Ohio R. Co. v. Baugh, 149 U. S.
368; Gardner v. Michigan Cent. R. Co., 150 U. S. 349, 150 U. S. 358; Beutler v. Grand
Trunk Junction Ry. Co., 224 U. S. 85; Baltimore & Ohio R. Co. v. Goodman, 275 U. S.
66; Pokora v. Wabash Ry. Co., 292 U. S. 98; Cole v. Pennsylvania R. Co., 43 F. (2d)
953 (C.C.A. 2).

[Footnote 14]

Lake Shore & M. S. Ry. Co. v. Prentice, 147 U. S. 101, 147 U. S. 106; Norfolk & P.
Traction Co. v. Miller, 174 Fed. 607 (C.C.A. 4); Greene v. Keithley, 86 F. (2d) 239
(C.C.A. 8).

[Footnote 15]

Foxcroft v. Mallet, 4 How. 353, 45 U. S. 379; Midland Valley R. Co. v. Sutter, 28 F. (2d)
163 (C.C.A. 8); Midland Valley R. Co. v. Jarvis, 29 F. (2d) 539 (C.C.A. 8).

[Footnote 16]
Kuhn v. Fairmont Coal Co., 215 U. S. 349; Mid-Continent Petroleum Corp. v. Sauder, 67
F. (2d) 9, 12 (G. C.A. 10), reversed on other grounds, 292 U. S. 272.

[Footnote 17]

Lane v. Vick, 3 How. 464, 44 U. S. 476; Barber v. Pittsburgh, F. W. & C. R. Co., 166 U.
S. 83, 166 U. S. 99-100; Messinger v. Anderson, 171 Fed. 785, 791-792 (C.C.A.
6), reversed on other grounds, 225 U. S. 225 U.S. 436; Knox & Lewis v. Alwood, 228
Fed. 753 (S.D.Ga.).

[Footnote 18]

Compare, also, 49 U. S. Berry, 8 How. 495; Watson v. Tarpley, 18 How. 517; Gelpcke v.
City of Dubuqe, 1 Wall. 175.

[Footnote 19]

See Cheever v. Wilson, 9 Wall. 108, 76 U. S. 123; Robertson v. Carson, 19 Wall. 94, 86
U. S. 106-107; Morris v. Gilmer, 129 U. S. 315, 129 U. S. 328; Dickerman v. Northern
Trust Co., 176 U. S. 181, 176 U. S. 192; Williamson v. Osenton, 232 U. S. 619, 232 U.
S. 625.

[Footnote 20]

See, e.g., Hearings Before a Subcommittee of the Senate Committee on the Judiciary
on S. 937, S. 939, and S. 3243, 72d Cong., 1st Sess. (1932) 6-8; Hearing Before the
House Committee on the Judiciary on H.R. 10594, H.R. 4526, and H.R. 11508, 72d
Cong., 1st Sess., ser. 12 (1932) 97-104; Sen.Rep. No. 530, 72d Cong., 1st Sess. (1932)
4-6; Collier, A Plea Against Jurisdiction Because of Diversity (1913) 76 Cent.L.J. 263,
264, 266; Frankfurter, supra, note 6; Ball supra, note 6; WarrenCorporations and
Diversity of Citizenship (1933) 19 Va.L.Rev. 661, 686.

[Footnote 21]

Thus, bills which would abrogate the doctrine of Swift v. Tyson have been introduced. S.
4333, 70th Cong., 1st Sess.; S. 96, 71st Cong., 1st Sess.; H.R. 8094, 72d Cong., 1st
Sess. See also Mills, supra, note 4 at 68-69; Dobie, supra, note 6 at 241;
Frankfurter, supra, note 6 at 530; Campbell, supra, note 6 at 811. State statutes on
conflicting questions of "general law" have also been
suggested. See Heiskell, supra, note 4 at 760; Dawson, supra, note 6;
Dobie supra, note 6 at 241.

[Footnote 22]

The doctrine has not been without defenders. See Eliot, The Common Law of the
Federal Courts (1902) 36 Am.L.Rev. 498, 523-25; A. B. Parker, The Common Law
Jurisdiction of the United States Courts (1907) 17 Yale L.J. 1; Schofield, Swift v.
Tyson:Uniformity of Judge-Made State Law in State and Federal Courts (1910) 4
Ill.L.Rev. 533; Brown, The Jurisdiction of the Federal Courts Based on Diversity of
Citizenship (1929) 78 U. of Pa.L.Rev. 179, 189-91; J. J. Parker, The Federal Jurisdiction
and Recent Attacks Upon It (1932) 18 A.B.A.J. 433, 438; Yntema, The Jurisdiction of the
Federal Courts in Controversies Between Citizens of Different States (1933) 19 A.B.A.J.
71, 74-75; Beutel, Common Law Judicial Technique and the Law of Negotiable
Instruments -- Two Unfortunate Decisions (1934) 9 Tulane L.Rev. 64.

[Footnote 23]

Kuhn v. Fairmont Coal Co., 215 U. S. 349, 215 U. S. 370-372; Black & White Taxicab
Co. v. Brown & Yellow Taxicab Co., 276 U. S. 518, 276 U. S. 532-536.

[Footnote 24]

Tompkins also contended that the alleged rule of the Falchetti case is not, in any event,
applicable here because he was struck at the intersection of the longitudinal pathway
and a transverse crossing. The court below found it unnecessary to consider this
contention, and we leave the question open.

MR. JUSTICE BUTLER.

The case presented by the evidence is a simple one. Plaintiff was severely injured in
Pennsylvania. While walking on defendant's right of way along a much-used path at the
end of the crossties of its main track, he came into collision with an open door swinging
from the side of a car in a train going in the opposite direction. Having been warned by
whistle and headlight, he saw the locomotive

Page 304 U. S. 81

approaching and had time and space enough to step aside and so avoid danger. To
justify his failure to get out of the way, he says that, upon many other occasions he had
safely walked there while trains passed.

Invoking jurisdiction on the ground of diversity of citizenship, plaintiff, a citizen and


resident of Pennsylvania, brought this suit to recover damages against defendant, a
New York corporation, in the federal court for the southern district of that State. The
issues were whether negligence of defendant was a proximate cause of his injuries and
whether negligence of plaintiff contributed. He claimed that, by hauling the car with the
open door, defendant violated a duty to him. The defendant insisted that it violated no
duty and that plaintiff's injuries were caused by his own negligence. The jury gave him a
verdict on which the trial court entered judgment; the circuit court of appeals affirmed.
90 F (2d) 603.
Defendant maintained, citing Falchetti v. Pennsylvania R. Co., 307 Pa. 203, 160 A. 859,
and Koontz v. B. & O. R. Co., 309 Pa. 122, 163 A. 212, that the only duty owed plaintiff
was to refrain from willfully or wantonly injuring him; it argued that the courts of
Pennsylvania had so ruled with respect to persons using a customary longitudinal path,
as distinguished from one crossing the track. The plaintiff insisted that the Pennsylvania
decisions did not establish the rule for which the defendant contended. Upon that issue,
the circuit court of appeals said (p. 604):

"We need not go into this matter since the defendant concedes that the great weight of
authority in other states is to the contrary. This concession is fatal to its contention, for
upon questions of general law the federal courts are free, in absence of a local statute,
to exercise their independent judgment as to what the law is, and it is well settled that
the question of the responsibility of a railroad for injuries caused by its servants is one of
general law.

Page 304 U. S. 82

Upon that basis the court held the evidence sufficient to sustain a finding that plaintiff's
injuries were caused by the negligence of defendant. It also held the question of
contributory negligence one for the jury."

Defendant's petition for writ of certiorari presented two questions: whether its duty
toward plaintiff should have been determined in accordance with the law as found by
the highest court of Pennsylvania, and whether the evidence conclusively showed
plaintiff guilty of contributory negligence. Plaintiff contends that, as always heretofore
held by this Court, the issues of negligence and contributory negligence are to be
determined by general law against which local decisions may not be held conclusive;
that defendant relies on a solitary Pennsylvania case of doubtful applicability and that,
even if the decisions of the courts of that State were deemed controlling, the same
result would have to be reached.

No constitutional question was suggested or argued below or here. And as a general


rule, this Court will not consider any question not raised below and presented by the
petition. Olson v. United States, 292 U. S. 246, 292 U. S. 262. Johnson v. Manhattan
Ry. Co., 289 U. S. 479, 289 U. S. 494. Gunning v. Cooley, 281 U. S. 90, 281 U. S. 98.
Here it does not decide either of the questions presented but, changing the rule of
decision in force since the foundation of the Government, remands the case to be
adjudged according to a standard never before deemed permissible.

The opinion just announced states that

"the question for decision is whether the oft-challenged doctrine of Swift v. Tyson [1842,
16 Pet. 1] shall now be disapproved."

That case involved the construction of the Judiciary Act of 1789, § 34:
"The laws of the several states, except where the Constitution, treaties, or statutes of
the United States otherwise require or provide, shall be regarded as rules of decision in
trials at common law in the courts of

Page 304 U. S. 83

the United States in cases where they apply."

Expressing the view of all the members of the Court, Mr. Justice Story said (p. 18):

"In the ordinary use of language it will hardly be contended that the decisions of Courts
constitute laws. They are, at most, only evidence of what the laws are, and not of
themselves laws. They are often reexamined, reversed, and qualified by the Courts
themselves, whenever they are found to be either defective, or ill-founded, or otherwise
incorrect. The laws of a state are more usually understood to mean the rules and
enactments promulgated by the legislative authority thereof, or long established local
customs having the force of laws. In all the various cases, which have hitherto come
before us for decision, this Court have uniformly supposed that the true interpretation of
the thirty-fourth section limited its application to state laws strictly local, that is to say, to
the positive statutes of the state, and the construction thereof adopted by the local
tribunals, and to rights and titles to things having a permanent locality, such as the rights
and titles to real estate, and other matters immovable and intraterritorial in their nature
and character. It never has been supposed by us that the section did apply, or was
designed to apply, to questions of a more general nature, not at all dependent upon
local statutes or local usages of a fixed and permanent operation, as, for example, to
the construction of ordinary contracts or other written instruments, and especially to
questions of general commercial law, where the state tribunals are called upon to
perform the like functions as ourselves, that is, to ascertain upon general reasoning and
legal analogies, what is the true exposition of the contract or instrument, or what is the
just rule furnished by the principles of commercial law to govern the case. And we have
not now the slightest difficulty in holding that this section, upon its true intendment and
construction, is strictly limited to local statutes and local usages of the character

Page 304 U. S. 84

before stated, and does not extend to contracts and other instruments of a commercial
nature, the true interpretation and effect whereof are to be sought not in the decisions of
the local tribunals, but in the general principles and doctrines of commercial
jurisprudence. Undoubtedly, the decisions of the local tribunals upon such subjects are
entitled to, and will receive, the most deliberate attention and respect of this Court; but
they cannot furnish positive rules, or conclusive authority, by which our own judgments
are to be bound up and governed."

(Italics added.)
The doctrine of that case has been followed by this Court in an unbroken line of
decisions. So far as appears, it was not questioned until more than 50 years later, and
then by a single judge. [Footnote 2/1] Baltimore & Ohio R. Co. v. Baugh, 149 U. S.
368, 149 U. S. 390. In that case, Mr. Justice Brewer, speaking for the Court, truly said
(p. 149 U. S. 373):

"Whatever differences of opinion may have been expressed have not been on the
question whether a matter of general law should be settled by the independent
judgment of this court, rather than through an adherence to the decisions of the state
courts, but upon the other question, whether a given matter is one of local or of general
law."

And since that decision, the division of opinion in this Court has been one of the same
character as it was before. In 1910, Mr. Justice Holmes, speaking for himself and two
other Justices, dissented from the holding that a

Page 304 U. S. 85

court of the United States was bound to exercise its own independent judgment in the
construction of a conveyance made before the state courts had rendered an
authoritative decision as to its meaning and effect. Kuhn v. Fairmont Coal Co., 215 U. S.
349. But that dissent accepted (p. 215 U. S. 371) as "settled" the doctrine of Swift v.
Tyson, and insisted (p. 215 U. S. 372) merely that the case under consideration was, by
nature and necessity, peculiarly local.

Thereafter, as before, the doctrine was constantly applied. [Footnote 2/2] In Black &
White Taxicab Co. v. Brown & Yellow Taxicab Co., 276 U. S. 518, three judges
dissented. The writer of the dissent, Mr. Justice Holmes, said, however (p. 276 U. S.
535):

"I should leave Swift v. Tyson undisturbed, as I indicated in Kuhn v. Fairmont Coal
Co., but I would not allow it to spread the assumed dominion into new fields."

No more unqualified application of the doctrine can be found than in decisions of this
Court speaking through Mr. Justice Holmes. United Zinc Co. v. Britt, 258 U. S.
268. Baltimore & Ohio R. Co. v. Goodman, 275 U. S. 66, 275 U. S. 70. Without in the
slightest departing from that doctrine, but implicitly applying it, the strictness of the rule
laid down in the Goodman case was somewhat ameliorated by Pokora v. Wabash Ry.
Co., 292 U. S. 98.

Whenever possible, consistently with standards sustained by reason and authority


constituting the general law, this Court has followed applicable decisions of state
courts. Mutual Life Ins. Co. v. Johnson, 293 U. S. 335, 293 U. S. 339. See Burgess v.
Seligman, 107 U. S. 20, 107 U. S. 34. Black & White Taxicab Co. v. Brown & Yellow
Taxicab Co., supra, 276 U. S. 530. Unquestionably the issues of negligence and
contributory negligence upon which decision of this case
Page 304 U. S. 86

depends are questions of general law. Hough v. Railway Co., 100 U. S. 213, 100 U. S.
226. Lake Shore & M. S. Ry. Co. v. Prentice, 147 U. S. 101. Baltimore & Ohio R. Co. v.
Baugh, supra. Gardner v. Michigan Central R. Co., 150 U. S. 349, 150 U. S.
358.Central Vermont Ry. Co. v. White, 238 U. S. 507, 238 U. S. 512. Baltimore & Ohio
R. Co. v. Goodman, supra. Pokora v. Wabash Ry. Co., supra.

While amendments to § 34 have from time to time been suggested, the section stands
as originally enacted. Evidently Congress has intended throughout the years that the
rule of decision as construed should continue to govern federal courts in trials at
common law. The opinion just announced suggests that Mr. Warren's research has
established that, from the beginning, this Court has erroneously construed § 34. But that
author's "New Light on the History of the Federal Judiciary Act of 1789" does not purport
to be authoritative, and was intended to be no more than suggestive. The weight to be
given to his discovery has never been discussed at this bar. Nor does the opinion
indicate the ground disclosed by the research. In his dissenting opinion in
the Taxicab case, Mr. Justice Holmes referred to Mr. Warren's work, but failed to
persuade the Court that "laws" as used in § 34 included varying and possibly ill-
considered rulings by the courts of a State on questions of common law. See, e.g., Swift
v. Tyson, supra, 117 [argument of counsel -- omitted]. It well may be that, if the Court
should now call for argument of counsel on the basis of Mr. Warren's research, it would
adhere to the construction it has always put upon § 34. Indeed, the opinion in this case
so indicates. For it declares:

"If only a question of statutory construction were involved, we should not be prepared to
abandon a doctrine so widely applied throughout a century. But the unconstitutionality of
the course pursued has now been made clear, and compels us to do so."

This means that, so far as concerns the rule of decision now condemned, the Judiciary
Act of 1789, passed to establish judicial

Page 304 U. S. 87

courts to exert the judicial power of the United States, and especially § 34 of that Act as
construed, is unconstitutional; that federal courts are now bound to follow decisions of
the courts of the State in which the controversies arise, and that Congress is powerless
otherwise to ordain. It is hard to foresee the consequences of the radical change so
made. Our opinion in the Taxicab case cites numerous decisions of this Court which
serve in part to indicate the field from which it is now intended forever to bar the federal
courts. It extends to all matters of contracts and torts not positively governed by state
enactments. Counsel searching for precedent and reasoning to disclose common law
principles on which to guide clients and conduct litigation are, by this decision, told that,
as to all of these questions, the decisions of this Court and other federal courts are no
longer anywhere authoritative.
This Court has often emphasized its reluctance to consider constitutional questions, and
that legislation will not be held invalid as repugnant to the fundamental law if the case
may be decided upon any other ground. In view of grave consequences liable to result
from erroneous exertion of its power to set aside legislation, the Court should move
cautiously, seek assistance of counsel, act only after ample deliberation, show that the
question is before the Court, that its decision cannot be avoided by construction of the
statute assailed or otherwise, indicate precisely the principle or provision of the
Constitution held to have been transgressed, and fully disclose the reasons and
authorities found to warrant the conclusion of invalidity. These safeguards against the
improvident use of the great power to invalidate legislation are so well grounded and
familiar that statement of reasons or citation of authority to support them is no longer
necessary. But see, e.g.: 36 U. S. Warren Bridge, 11 Pet. 420, 36 U. S. 553; Township
of Pine Grove v. Talcott, 19 Wall. 666,86 U. S. 673; Chicago & G. T. Ry. Co. v.
Wellman, 143 U. S. 339, 143 U. S. 345;

Page 304 U. S. 88

Baker v. Grice, 169 U. S. 284, 169 U. S. 292; Martin v. District of Columbia, 205 U. S.
135, 205 U. S. 140.

So far as appears, no litigant has ever challenged the power of Congress to establish
the rule as construed. It has so long endured that its destruction now without
appropriate deliberation cannot be justified. There is nothing in the opinion to suggest
that consideration of any constitutional question is necessary to a decision of the case.
By way of reasoning, it contains nothing that requires the conclusion reached.
Admittedly, there is no authority to support that conclusion. Against the protest of those
joining in this opinion, the Court declines to assign the case for reargument. It may not
justly be assumed that the labor and argument of counsel for the parties would not
disclose the right conclusion and aid the Court in the statement of reasons to support it.
Indeed, it would have been appropriate to give Congress opportunity to be heard before
divesting it of power to prescribe rules of decision to be followed in the courts of the
United States. See Myers v. United States, 272 U. S. 52, 272 U. S. 176.

The course pursued by the Court in this case is repugnant to the Act of Congress of
August 24, 1937, 50 Stat. 751. It declares:

"That whenever the constitutionality of any Act of Congress affecting the public interest
is drawn in question in any court of the United States in any suit or proceeding to which
the United States, or any agency thereof, or any officer or employee thereof, as such
officer or employee, is not a party, the court having jurisdiction of the suit or proceeding
shall certify such fact to the Attorney General. In any such case, the court shall permit
the United States to intervene and become a party for presentation of evidence (if
evidence is otherwise receivable in such suit or proceeding) and argument upon the
question of the constitutionality of such Act. In any such suit or proceeding, the United
States shall, subject to the applicable provisions of law, have all the rights of a
Page 304 U. S. 89

party and the liabilities of a party as to court costs to the extent necessary for a proper
presentation of the facts and law relating to the constitutionality of such Act."

That provision extends to this Court. § 5. If defendant had applied for and obtained the
writ of certiorari upon the claim that, as now held, Congress has no power to prescribe
the rule of decision, § 34 as construed, it would have been the duty of this Court to
issue the prescribed certificate to the Attorney General in order that the United States
might intervene and be heard on the constitutional question. Within the purpose of the
statute and its true intent and meaning, the constitutionality of that measure has been
"drawn in question." Congress intended to give the United States the right to be heard in
every case involving constitutionality of an Act affecting the public interest. In view of the
rule that, in the absence of challenge of constitutionality, statutes will not here be
invalidated on that ground, the Act of August 24, 1937, extends to cases where
constitutionality is first "drawn in question" by the Court. No extraordinary or unusual
action by the Court after submission of the cause should be permitted to frustrate the
wholesome purpose of that Act. The duty it imposes ought here to be willingly assumed.
If it were doubtful whether this case is within the scope of the Act, the Court should give
the United States opportunity to intervene and, if so advised, to present argument on
the constitutional question, for undoubtedly it is one of great public importance. That
would be to construe the Act according to its meaning.

The Court's opinion in its first sentence defines the question to be whether the doctrine
of Swift v. Tyson shall now be disapproved; it recites (p. 304 U. S. 72) that Congress is
without power to prescribe rules of decision that have been followed by federal courts
as a result of the construction of § 34 in Swift v. Tyson, and since; after discussion, it
declares (pp. 304 U. S. 77-78) that "the unconstitutionality of the course pursued
[meaning the rule of decision

Page 304 U. S. 90

resulting from that construction] compels" abandonment of the doctrine so long applied,
and then near the end of the last page the Court states that it does not hold § 34
unconstitutional, but merely that, in applying the doctrine of Swift v. Tyson construing it,
this Court and the lower courts have invaded rights which are reserved by the
Constitution to the several States. But, plainly through the form of words employed, the
substance of the decision appears; it strikes down as unconstitutional § 34 as construed
by our decisions; it divests the Congress of power to prescribe rules to be followed by
federal courts when deciding questions of general law. In that broad field it compels this
and the lower federal courts to follow decisions of the courts of a particular State.

I am of opinion that the constitutional validity of the rule need not be considered,
because under the law, as found by the courts of Pennsylvania and generally
throughout the country, it is plain that the evidence required a finding that plaintiff was
guilty of negligence that contributed to cause his injuries and that the judgment below
should be reversed upon that ground.

MR. JUSTICE McREYNOLDS concurs in this opinion.

[Footnote 2/1]

Mr. Justice Field filed a dissenting opinion, several sentences of which are quoted in the
decision just announced. The dissent failed to impress any of his associates. It assumes
that adherence to § 34 as construed involves a supervision over legislative or judicial
action of the states. There is no foundation for that suggestion. Clearly, the dissent of
the learned Justice rests upon misapprehension of the rule. He joined in applying the
doctrine for more than a quarter of a century before his dissent. The reports do not
disclose that he objected to it in any later case. Cf. Oakes v. Mase, 165 U. S. 363.

[Footnote 2/2]

In Salem Trust Co. v. Manufacturers' Finance Co., 264 U. S. 182, Mr. Justice Holmes
and Mr. Justice Brandeis concurred (p. 264 U. S. 200) in the judgment of the Court upon
a question of general law on the ground that the rights of the parties were governed by
state law.

MR. JUSTICE REED.

I concur in the conclusion reached in this case, in the disapproval of the doctrine
of Swift v. Tyson, and in the reasoning of the majority opinion except insofar as it relies
upon the unconstitutionality of the "course pursued" by the federal courts.

The "doctrine of Swift v. Tyson," as I understand it, is that the words "the laws," as used
in § 34, line one, of the Federal Judiciary Act of September 24, 1789, do not include in
their meaning "the decisions of the local tribunals." Mr. Justice Story, in deciding that
point, said (16 Pet. 41 U. S. 19):

Page 304 U. S. 91

"Undoubtedly, the decisions of the local tribunals upon such subjects are entitled to, and
will receive, the most deliberate attention and respect of this Court; but they cannot
furnish positive rules, or conclusive authority, by which our own judgments are to be
bound up and governed."

To decide the case now before us and to "disapprove" the doctrine of Swift v.
Tyson requires only that we say that the words "the laws" include in their meaning the
decisions of the local tribunals. As the majority opinion shows, by its reference to Mr.
Warren's researches and the first quotation from Mr. Justice Holmes, that this Court is
now of the view that "laws" includes "decisions," it is unnecessary to go further and
declare that the "course pursued" was "unconstitutional," instead of merely erroneous.
The "unconstitutional" course referred to in the majority opinion is apparently the ruling
in Swift v. Tyson that the supposed omission of Congress to legislate as to the effect of
decisions leaves federal courts free to interpret general law for themselves. I am not at
all sure whether, in the absence of federal statutory direction, federal courts would be
compelled to follow state decisions. There was sufficient doubt about the matter in 1789
to induce the first Congress to legislate. No former opinions of this Court have passed
upon it. Mr. Justice Holmes evidently saw nothing "unconstitutional" which required the
overruling of Swift v. Tyson, for he said in the very opinion quoted by the majority, "I
should leave Swift v. Tyson undisturbed, as I indicated in Kuhn v. Fairmont Coal Co., but
I would not allow it to spread the assumed dominion into new fields." Black & White
Taxicab Co. v. Brown & Yellow Taxicab Co., 276 U. S. 518, 276 U. S. 535. If the opinion
commits this Court to the position that the Congress is without power to declare what
rules of substantive law shall govern the federal courts, that conclusion also seems
questionable. The line between procedural and substantive law is hazy, but no one
doubts federal power over procedure. Wayman v. Southard, 10 Wheat. 1. The Judiciary
Article and the "necessary and proper" clause of Article One may fully authorize
legislation, such as this section of the Judiciary Act.

In this Court, stare decisis, in statutory construction, is a useful rule, not an inexorable
command. Burnett v. Coronado Oil & Gas Co., 285 U. S. 393, dissent, p. 285 U. S. 406,
note 1. Compare Read v. Bishop of Lincoln, [1892] A.C. 644, 655; London Street
Tramways Co. v. London County Council, [1898] A.C. 375, 379. It seems preferable to
overturn an established construction of an Act of Congress, rather than, in the
circumstances of this case, to interpret the Constitution. Cf. United States v. Delaware &
Hudson Co., 213 U. S. 366.

There is no occasion to discuss further the range or soundness of these few phrases of
the opinion. It is sufficient now to call attention to them and express my own
nonacquiescence.

G.R. Nos. 90306-07 July 30, 1990

K.K. SHELL SEKIYU OSAKA HATSUBAISHO and FU HING OIL CO., LTD., petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ATLANTIC VENUS CO., S.A., and THE VESSEL M/V
"ESTELLA", respondents.

Hernandez, Velicaria Vibar & Santiago for petitioners.

Cesar C. Cruz & Partners for private respondents

CORTES, J:

Ordinarily, the Court will not disturb the factual findings of the Court of Appeals, these being
considered final and conclusive. However, when its factual conclusions are manifestly mistaken, the
Court will step in to correct the misapprehension [De la Cruz v. Sosing, 94 Phil. 26 (1953); Castillo v.
Court of Appeals, G.R. No. L-48290, September 29, 1983, 124 SCRA 808.] This case is one such
instance calling for the Court's review of the facts.

On January 7,1987, Kumagai Kaiun Kaisha, Ltd. (hereinafter referred to as Kumagai), a corporation
formed and existing under the laws of Japan, filed a complaint for the collection of a sum of money
with preliminary attachment against Atlantic Venus Co., S.A. (hereinafter referred to as "Atlantic"), a
corporation registered in Panama, the vessel MV Estella and Crestamonte Shipping Corporation
(hereinafter referred to as "Crestamonte"), a Philippine corporation. Atlantic is the owner of the MV
Estella. The complaint, docketed as Civil Case No. 8738930 of the Regional Trial Court, Branch XIV,
Manila alleged that Crestamonte, as bareboat charterer and operator of the MV Estella, appointed
N.S. Shipping Corporation (hereinafter referred to as "NSS"), a Japanese corporation, as its general
agent in Japan. The appointment was formalized in an Agency Agreement. NSS in turn appointed
Kumagai as its local agent in Osaka, Japan. Kumagai supplied the MV Estella with supplies and
services but despite repeated demands Crestamonte failed to pay the amounts due.

NSS and Keihin Narasaki Corporation (hereinafter referred to a Keihin filed complaints-in-
intervention.

On May 19,1987, petitioner Fu Hing Oil Co., Ltd. (hereinafter referred to as Fu Hing"), a corporation
organized in Hong Kong and not doing business in the Philippines, filed a motion for leave to
intervene with an attached complaint-in-intervention, alleging that Fu Hing supplied marine diesel
oil/fuel to the MV Estella and incurred barge expenses for the total sum of One Hundred Fifty-two
Thousand Four Hundred Twelve Dollars and Fifty-Six Cents (US$152,412.56) but such has
remained unpaid despite demand and that the claim constitutes a maritime lien. The issuance of a
writ of attachment was also prayed for.

On July 16, 1987, petitioner K.K. Shell Sekiyu Osaka Hatsubaisho (hereinafter referred to as K.K.
Shell"), a corporation organized in Japan and not doing business in the Philippines, likewise filed a
motion to intervene with an attached complaint-in-intervention, alleging that upon request of NSS,
Crestamonte's general agent in Japan, K.K. Shell provided and supplied marine diesel oil/fuel to the
W Estella at the ports of Tokyo and Mutsure in Japan and that despite previous demands
Crestamonte has failed to pay the amounts of Sixteen Thousand Nine Hundred Ninety-Six Dollars
and Ninety- Six Cents (US$16,996.96) and One Million Yen (Y1,000,000.00) and that K.K. Shell's
claim constitutes a maritime lien on the MV Estella. The complaint-in-intervention sought the
issuance of a writ of preliminary attachment.

The trial court allowed the intervention of Fu Hing and K.K. Shell on June 19,1987 and August 11,
1987, respectively. Writs of preliminary attachment were issued on August 25, 1987 upon posting of
the appropriate bonds. Upon the posting of counterbonds, the writs of attachment were discharged
on September 3, 1987.

Atlantic and the MV Estella moved to dismiss the complaints-in- intervention filed by Fu Hing and
K.K. Shell.

In the meantime, Atlantic and the AWU Estella filed a petition in the Court of Appeals against the trial
court judge, Kumagai, NSS and Keihin, docketed as CA-G.R. SP No. 12999, which sought the
annulment of the orders of the trial court dated April 30, 1987 and August 11, 1987. Among others,
the omnibus order dated August 11, 1987 denied the motion to reconsider the order allowing Fu
Hing's intervention and granted K.K. Shell's motion to intervene. Again Fu Hing and K.K. Shell
intervened, CA-G.R. SP No. 12999 was consolidated with another case (CA-G.R. SP No. 12341). Fu
Hing and K.K. Shell intervened in CA-G.R. SP No. 12999.
In a decision dated June 14, 1989, the Court of Appeals annulled the orders of the trial court and
directed it to cease and desist from proceeding with the case.

According to the Court of Appeals, Fu Hing and K.K. Shell were not suppliers but sub-agents of
NSS, hence they were bound by the Agency Agreement between Crestamonte and NSS,
particularly, the choice of forum clause, which provides:

12.0-That this Agreement shall be governed by the Laws of Japan. Any matters,
disputes, and/or differences arising between the parties hereto concerned regarding
this Agreement shall be subject exclusively to the jurisdiction of the District Courts of
Japan.

Thus, concluded the Court of Appeals, the trial court should have disallowed their motions to
intervene.

A motion for reconsideration was filed by Fu Hing and K.K. Shell but this was denied by the Court of
Appeals. Hence this petition;

In this case, we shall review the decision of the Court of Appeals only insofar as it relate to the
intervention of K.K. Shell. Fu Hing Oil Co., Ltd. filed a motion to withdraw as co-petitioner on March
7, 1990, alleging that an amicable settlement had been reached with private respondents. The Court
granted the motion on March 19, 1990.

After considering the pleadings filed by the parties and the arguments raised therein, the Court finds
reversible error on the part of the Court of Appeals in so far; as it disallowed petitioners' intervention
in the case before the trial court and ordered the latter to cease and desist from proceeding with the
case.

1. A reading of the Agency Agreement fails to support the conclusion that K.K. Shell is a sub-agent of
NSS and is, therefore, bound by the agreement.

The body of the Agency Agreement entered into by and between Crestamonte (referred to in the
agreement as "Owner") and NSS ("Agent") provides:

WITNESSETH

That the OWNER has appointed and by these presents hereby appoints the AGENT as its General
Agents for all Japan in connection with the Owner's vessels and/or providing suitable vessels for
Japan Ports under the following terms and conditions:

1.0 - In general, the Agent will abide by the Owner's decisions regarding the mode of
operations of the vessels in Japan and that all cargo bookings, vessel's
fixtures/charters, etc. by the Agent, shall always be subject to the prior approval and
consent of the Owners.

2.0 - That the Agent shall provide for the necessary services required for the
husbanding of the Owner's vessels in all Japan Ports and issue Bill(s) of Lading to
Shippers in the form prescribed by the Owners.

3.0 - That the Agent shall be responsible for fixing south-bound cargoes with
revenues sufficient to cover ordinary liner operation expenses such as bunkers,
additives, lubricating oil, water, running repairs, drydocking expenses, usual port
disbursement accounts, cargo handling charges including stevedorage, provisions
and ship's stores and cash advance to crew (excluding crew provisions).

The Agent expressly agrees that the Owner's cash flow in Japan shall be essentially
the Agent's responsibility, and should the revenue for south-bound cargoes as above-
mentioned be insufficient to cover the aforesaid expenses, the Agent shall provide
credit to the extent of the vessels' requirements, provided however that said
obligation shall be secured by the Owner committing at least forty-eight (48) mailings
of Japan/Philippines liner service per year.

The Agent shall settle, in behalf of the Owner, all outstanding payments for the
operation costs on Owner's liner service carried forward from the present Owner's
agent, subject to approval of Owner's Representative in Japan in regard to amount
and nature thereof.

4.0- That the agent shall furnish office space of approximately thirty (30) square
meters for the exclusive use of the Owner and its representatives, within the
premises of the Agent's office, free of charge.

5.0 — That the responsibilities of the Agent in regard to the cargo shall begin, in the
case of imports into the territory of Japan, from the time such cargo has left the ship's
tackles, and shall cease, in case of export, upon completion of loading.

6.0 — That the remuneration of the Agent from the Owner shall be as follows:

xxx xxx xxx

7.0 — That the Agent shall exert best efforts to recommend to Owners stevedoring
and other expenses incurred in connection with work on board the Owner's vessels,
as well as customs house charges, pilotage, harbour dues, cables, etc. which are for
Owner's account, on the cheapest possible terms. Owners shall decide and may
appoint through the Agent the services described herein.

8.0 — That the Agent shall be responsible for the due collection of and due payment
to the Owner of all outward freight prepaid for cargo without delay upon the sailing of
each vessel from the port. The Agent shall be also responsible for the due collection
of all inward freight payable at the port against delivery unless otherwise instructed
by the Owner to the contrary.

9.0 — The account statements supported by vouchers in two copies itemized for
each service and/or supply for each vessel, shall be forwarded by the Agent to the
Owner promptly after the departure of each vessel but in no case later than 60 days
thereafter.

10.0 — That the freightage to be collected by the Agent in Japan shall be paid to the
Owner after deducting the total amount of disbursements incurred in Japan.

11.0 — That this Agreement takes effect as of April 15, 1983 and shall remain in
force unless terminated by either party upon 60 days notice.
12.0 — That this Agreement shall be governed by the Laws of Japan. Any matters,
disputes, and/or differences arising between the parties hereto concerned regarding
this reement shall be subject exclusively to the jurisdiction of the District Courts of
Japan. [Annex "G" of the Petition, Rollo, pp. 100-104.]

No express reference to the contracting of sub-agents or the applicability of the terms of the
agreement, particularly the choice-of-forum clause, to sub-agents is made in the text of the
agreement. What the contract clearly states are NSS' principal duties, i.e., that it shall provide for the
necessary services required for the husbanding of Crestamonte's vessels in Japanese ports (section
2.0) and shall be responsible for fixing southbound cargoes with revenues sufficient to cover
ordinary expenses (section 3.0). i•t•c-aüsl

Moreover, the complaint-in-intervention filed by K.K. Shell merely alleges that it provided and
supplied the MV Estella with marine diesel oil/fuel, upon request of NSS who was acting for and as
duly appointed agent of Crestamonte [Rollo, pp. 116117.] There is thus no basis for the Court of
Appeal's finding, as regards K.K Shell in relation to its intervention in Civil Case No. 87-38930, that
"the sub-agents admitted in their pleadings that they were appointed as local agent/sub-agent or
representatives by NSS by virtue of said Agency Agreement" [Decision, p. 7; Rollo, p. 33.] What the
Court of Appeals could have been referring to was K.K. Shell's Urgent Motion for Leave to Intervene
dated February 24, 1987 in another case (Civil Case No. 86-38704) in another court and involving
other vessels (NW Ofelia and MV Christina C), where it was alleged that K.K. Shell is "one of the
representatives of NS Shipping Corporation for the supply of bunker oil, fuel oil, provisions and other
necessaries to vessels of which NS Shipping Corporation was the general agent." [Comment, p. 17;
Rollo, p. 274.] However, this allegation does not conclusively establish a sub-agency between NSS
and K.K. Shell. It is therefore surprising how the Court of Appeals could have come to the
conclusion, just on the basis of the Agency Agreement and the pleadings filed in the trial court, that
"Crestamonte is the principal, NSS is the agent and ... Fu Hing and K.K Shell are the sub-agents."
[Decision, p. 6; Rollo, p. 32.]

In view of the inconclusiveness of the Agency Agreement and the pleadings filed in the trial court,
additional evidence, if there be any, would still have to be presented to establish the allegation that
K.K. Shell is a sub-agent of NSS.

In the same vein, as the choice-of-forum clause in the agreement (paragraph 12.0) has not been
conclusively shown to be binding upon K.K. Shell, additional evidence would also still have to be
presented to establish this defense, K.K. Shell cannot therefore, as of yet, be barred from instituting
an action in the Philippines.

2. Private respondents have anticipated the possibility that the courts will not find that K.K. Shell is
expressly bound by the Agency Agreement, and thus they fall back on the argument that even if this
were so, the doctrine of forum non conveniens would be a valid ground to cause the dismissal of
K.K. Shell's complaint-in-intervention.

K.K. Shell counters this argument by invoking its right as maritime lienholder. It cites Presidential
Decree No. 1521, the Ship Mortgage Decree of 1978, which provides:

SEC. 21. Maritime Lien for Necessaries; person entitled to such lien-Any person
furnishing repairs, supplies, to wage, use of dry dock or marine railway, or other
necessaries, to any vessel, whether foreign or domestic, upon the order of the owner
of such vessel, or of a person authorized by the owner, shall have a maritime lien on
the vessel, which may be enforced by suit in rem, and it shall be necessary to allege
or prove that credit was given to the vessel.
Private respondents on the other hand argue that even if P.D. No. 1521 is applicable, K.K. Shell
cannot rely on the maritime lien because the fuel was provided not exclusively for the benefit of the
MV Estella, but for the benefit of Crestamonte in general. Under the law it must be established that
the credit was extended to the vessel itself. Now, this is a defense that calls precisely for a factual
determination by the trial court of who benefitted from the delivery of the fuel. Hence, again, the
necessity for the reception of evidence before the trial court.

In other words, considering the dearth of evidence due to the fact that the private respondents have
yet to file their answer in the proceedings below and trial on the merits is still to be conducted,
whether or not petitioners are indeed maritime lienholders and as such may enforce the lien against
the MV Estella are matters that still have to be established.

Neither are we ready to rule on the private respondents' invocation of the doctrine of forum non
conveniens, as the exact nature of the relationship of the parties is still to be established. We leave
this matter to the sound discretion of the trial court judge who is in the best position, after some vital
facts are established, to determine whether special circumstances require that his court desist from
assuming jurisdiction over the suit.

It was clearly reversible error on the. part of the Court of Appeals to annul the trial court's orders,
insofar as K.K. Shell is concerned, and order the trial court to cease and desist from proceeding with
Civil Case No. 87-38930. There are still numerous material facts to be established in order to arrive
at a conclusion as to the true nature of the relationship between Crestamonte and K.K. Shell and
between NSS and K.K. Shell. The best recourse would have been to allow the trial court to proceed
with Civil Case No. 87-38930 and consider whatever defenses may be raised by private respondents
after they have filed their answer and evidence to support their conflicting claims has been
presented. The Court of Appeals, however, substituted its judgment for that of the trial court and
decided the merits of the case, even in the absence of evidence, on the pretext of reviewing an
interlocutory order.

WHEREFORE, the petition is GRANTED and the decision of the Court of Appeals is REVERSED in
CA-G.R. SP No. 12999, insofar as it annulled the order of the August 11, 1987 and directed the trial
court to cease and desist from proceeding with Civil Case No. 87-38930.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

HEINE
v.
NEW YORK LIFE INS. CO.
No. 10465.

District Court, D. Oregon.


December 1, 1930.

C. T. Haas and E. B. Seabrook, both of Portland, Or., for plaintiff.

Huntington, Wilson & Huntington and Clark & Clark, all of Portland, Or., for defendant.

BEAN, District Judge.


This is one of a series of cases pending in this court against the New York Life
Insurance Company and the Guardian Insurance Company, each of which is a New
York corporation, to recover on some two hundred and forty life insurance policies made
and issued by the defendants in Germany, in favor of German citizens and subjects,
and payable in German marks. The policies of the New York Life Insurance Company
were issued prior to August 1, 1914, and those of the Guardian prior to May 1, 1918. As
a condition to their right to do business in Germany, the insurance companies were
required to and did submit to the supervision and control of the German insurance
officials, to invest the reserves arising from German policies in German securities, and
to establish, and they do now maintain, an office in that country with a resident
representative or agent upon whom service of process can be made.

The actions now pending are brought and prosecuted in the name of, or as assignee of
the insured by, certain parties in the United States and Germany, under an irrevocable
power of attorney, by which they are authorized and empowered to sue for, collect,
receive, and receipt for all sums due or owing under the policies, or compromise the
same in consideration of an assignment and transfer to them of the undivided 25 per
cent. interest in the policies and all rights accruing thereunder.

None of the parties to the litigation are residents or inhabitants of this district. The
plaintiffs reside in, and are citizens of, the republic of Germany. The defendants are
corporations organized and existing under the laws of New York, with their principal
offices in that state, with statutory agents in Oregon, upon whom service can be made.
None of the causes of action arose here, nor do any of the material witnesses reside in
the district, nor are any of the records of the defendant companies pertaining to the
policies in suit in the district, but such records are either at the home office in New York
or at their offices in Germany. The courts of Germany and New York are open and
functioning and competent to take jurisdiction of the controversies, and service can be
made upon the defendants in either of such jurisdictions. To require the defendants to
defend the actions in this district would impose upon them great and unnecessary
inconvenience and expense, and probably compel them to produce here (three
thousand miles from their home office) numerous records, books, and papers, all of
which are in daily use by it in taking care of current business.

In addition, it would no doubt consume months of the time of this court to try and
dispose of these cases, thus necessarily disarranging the calendar, resulting in delay,
inconvenience, and expense to other litigants who are entitled to invoke its jurisdiction.

Under these circumstances, the defendants, while conceding that the court has
jurisdiction of the person and subject-matter, urges that it should refuse, in its discretion,
to exercise such jurisdiction.

I unhesitatingly concur in this view, for, as said by Mr. Justice Holmes in Cuba Railroad
Co. v. Crosby, 222 U.S. 473, 32 S. Ct. 132, 133, 56 L. Ed. 274, 38 L. R. A. (N. S.) 40: "It
should be remembered that parties do not enter into civil relations in foreign jurisdictions
in reliance upon our courts. They could not complain if our courts refused to meddle
with their affairs, and remitted them to the place that established and would enforce
their rights. * * * The only just ground for complaint would be if their rights and liabilities,
when enforced by our courts, should be measured by a different rule from that under
which the parties dealt."

*427 It is apparent that the plaintiffs are seeking by these actions to impose on the
defendants a liability under a different rule than "that under which the parties dealt."

The courts of Germany have ruled that any person seeking to recover on a civil contract
made in Germany prior to August, 1924, and payable in marks, can only recover on the
basis provided in the monetary law of 1924. Manifestly the plaintiffs are not proceeding
on any such theory.

It is argued by the plaintiffs that, because the court has jurisdiction of the subject-matter
and the parties, it has no discretion, but should proceed with the case, regardless of
where the cause of action arose, or the law by which it is controlled, or the residence or
convenience of the parties and witnesses, or the difficulty the court would encounter in
attempting to interpret and enforce a foreign contract, or the interference with the other
business of the court. But that is a matter resting in its discretion. It may retain
jurisdiction, or it may, in the exercise of a sound discretion, decline to do so, as the
circumstances suggest. The courts have repeatedly refused, in their discretion, to
entertain jurisdiction of causes of action arising in a foreign jurisdiction, where both
parties are nonresidents of the forum. Gregonis v. Philadelphia & R. Coal & Iron Co.,
235 N.Y. 152, 139 N.E. 223, 32 A. L. R. 1, and note; Pietraroia v. New Jersey & Hudson
River Ry. & Ferry Co., 197 N.Y. 434, 91 N.E. 120; Gregonis v. P. & R. Coal & Iron Co.,
235 N.Y. 152, 139 N.E. 223, 32 A. L. R. 1; Stewart v. Litchenberg, 148 La. 195, 86 So.
734; Smith v. Mutual Life Insurance Co., 14 Allen (96 Mass.) 336-343; National
Telephone Mfg. Co. v. Du Bois, 165 Mass. 117, 42 N.E. 510, 30 L. R. A. 628, 52 Am. St.
Rep. 503; Collard v. Beach, 81 App. Div. 582, 81 N.Y.S. 619; Great Western Railway
Co. v. Miller, 19 Mich. 305; Disconto Gesellschat v. Umbreit, 127 Wis. 651, 106 N.W.
821, 15 L. R. A. (N. S.) 1045, 115 Am. St. Rep. 1063.

As said by Mr. Justice Bradley in The Belgenland, 114 U.S. 355, 5 S. Ct. 860, 864, 29 L.
Ed. 152: "Circumstances often exist which render it inexpedient for the court to take
jurisdiction of controversies between foreigners in cases not arising in the country of the
forum; as, where they are governed by the laws of the country to which the parties
belong, and there is no difficulty in a resort to its courts; or where they have agreed to
resort to no other tribunals * * * not on the ground that it has not jurisdiction, but that,
from motives of convenience, or international comity, it will use its discretion whether to
exercise jurisdiction or not."

See, also, Charter Shipping Co. v. Bowring, 281 U.S. 515, 50 S. Ct. 400, 74 L. Ed.
1008.

These, in my judgment, are cases of that kind. They are actions brought on causes of
action arising in Germany. The contract of insurance was made and to be paid there
and in German currency. It is to be construed and given effect according to the laws of
the place where it was made. 22 Am. & Eng. Ency. of Law (2d Ed.) 1350. The courts of
this country are established and maintained primarily to determine controversies
between its own citizens and those having business there, and manifestly the court may
protect itself against a flood of litigation over contracts made and to be performed in a
foreign country, where the parties and witnesses are nonresidents of the forum, and no
reason exists why the liability, if any, cannot be enforced in the courts of the country
where the cause of action arose, or in the state where the defendant was organized and
has its principal offices. True, the courts of New York have declined to exercise
jurisdiction over actions brought on insurance policies similar to those in suit. Higgins v.
N. Y. Ins. Co., 220 App. Div. 760, 222 N.Y.S. 819, and Von Nessen-Stone v. N. Y. Life
Ins. Co.[1] But that affords no reason why this court should do so. It is to me unthinkable
that residents and citizens of Germany may import bodily into this court numerous
actions against a nonresident defendant, on contracts made and payable in Germany,
and insist as a matter of right that, because it has obtained jurisdiction of the defendant
by service of its statutory agent, the taxpayers, citizens, and residents of the district
having business in the court should stand aside and wait the conclusion of the case,
where, as here, the courts of Germany and of the home state of the defendant are open
and functioning.

Judge Tucker, in the state court of Multnomah county, in an able and well-considered
opinion in a case brought on one of the German policies (Kahn v. New York), reached
the same conclusion.

Motion allowed.

G.R. No. L-32636 March 17, 1930

In the matter Estate of Edward Randolph Hix, deceased.


A.W. FLUEMER, petitioner-appellant,
vs.
ANNIE COUSHING HIX, oppositor-appellee.

C.A. Sobral for appellant.


Harvey & O' Brien and Gibbs & McDonough for appellee.

MALCOLM, J.:

The special administrator of the estate of Edward Randolph Hix appeals from a decision of Judge of
First Instance Tuason denying the probate of the document alleged to by the last will and testament
of the deceased. Appellee is not authorized to carry on this appeal. We think, however, that the
appellant, who appears to have been the moving party in these proceedings, was a "person
interested in the allowance or disallowance of a will by a Court of First Instance," and so should be
permitted to appeal to the Supreme Court from the disallowance of the will (Code of Civil Procedure,
sec. 781, as amended; Villanueva vs. De Leon [1925], 42 Phil., 780).

It is theory of the petitioner that the alleged will was executed in Elkins, West Virginia, on November
3, 1925, by Hix who had his residence in that jurisdiction, and that the laws of West Verginia Code,
Annotated, by Hogg, Charles E., vol. 2, 1914, p. 1690, and as certified to by the Director of the
National Library. But this was far from a compliance with the law. The laws of a foreign jurisdiction do
not prove themselves in our courts. the courts of the Philippine Islands are not authorized to take
American Union. Such laws must be proved as facts. (In re Estate of Johnson [1918], 39 Phil., 156.)
Here the requirements of the law were not met. There was no was printed or published under the
authority of the State of West Virginia, as provided in section 300 of the Code of Civil Procedure. Nor
was the extract from the law attested by the certificate of the officer having charge of the original,
under the sale of the State of West Virginia, as provided in section 301 of the Code of Civil
Procedure. No evidence was introduced to show that the extract from the laws of West Virginia was
in force at the time the alleged will was executed.

In addition, the due execution of the will was not established. The only evidence on this point is to be
found in the testimony of the petitioner. Aside from this, there was nothing to indicate that the will
was acknowledged by the testator in the presence of two competent witnesses, of that these
witnesses subscribed the will in the presence of the testator and of each other as the law of West
Virginia seems to require. On the supposition that the witnesses to the will reside without the
Philippine Islands, it would then the duty of the petitioner to prove execution by some other means
(Code of Civil Procedure, sec. 633.)

It was also necessary for the petitioner to prove that the testator had his domicile in West Virginia
and not establish this fact consisted of the recitals in the CATHY will and the testimony of the
petitioner. Also in beginning administration proceedings orginally in the Philippine Islands, the
petitioner violated his own theory by attempting to have the principal administration in the Philippine
Islands.

While the appeal pending submission in this court, the attorney for the appellant presented an
unverified petition asking the court to accept as part of the evidence the documents attached to the
petition. One of these documents discloses that a paper writing purporting to be the was presented
for probate on June 8, 1929, to the clerk of Randolph Country, State of West Virginia, in vacation,
and was duly proven by the oaths of Dana Wamsley and Joseph L. MAdden, the subscribing
witnesses thereto , and ordered to be recorded and filed. It was shown by another document that, in
vacation, on June 8, 1929, the clerk of court of Randolph Country, West Virginia, appointed Claude
W. Maxwell as administrator, cum testamento annexo, of the estate of Edward Randolph Hix,
deceased. In this connection, it is to be noted that the application for the probate of the will in the
Philippines was filed on February 20, 1929, while the proceedings in West Virginia appear to have
been initiated on June 8, 1929. These facts are strongly indicative of an intention to make the
Philippines the principal administration and West Virginia the ancillary administration. However this
may be, no attempt has been made to comply with Civil Procedure, for no hearing on the question of
the allowance of a will said to have been proved and allowed in West Virginia has been requested.
There is no showing that the deceased left any property at any place other than the Philippine
Islands and no contention that he left any in West Virginia.

Reference has been made by the parties to a divorce purported to have been awarded Edward
Randolph Hix from Annie Cousins Hix on October 8, 1925, in the State of West specific
pronouncements on the validity or validity of this alleged divorce.

For all of the foregoing, the judgment appealed from will be affirmed, with the costs of this instance
against the appellant.

Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

G.R. No. L-12105 January 30, 1960


TESTATE ESTATE OF C. O. BOHANAN, deceased. PHILIPPINE TRUST CO., executor-appellee,
vs.
MAGDALENA C. BOHANAN, EDWARD C. BOHANAN, and MARY LYDIA BOHANAN, oppositors-
appellants.

Jose D. Cortes for appellants.


Ohnick, Velilla and Balonkita for appellee.

LABRADOR, J.:

Appeal against an order of the Court of First Instance of Manila, Hon. Ramon San Jose, presiding,
dismissing the objections filed by Magdalena C. Bohanan, Mary Bohanan and Edward Bohanan to
the project of partition submitted by the executor and approving the said project.

On April 24, 195 0, the Court of First Instance of Manila, Hon. Rafael Amparo, presiding, admitted to
probate a last will and testament of C. O. Bohanan, executed by him on April 23, 1944 in Manila. In
the said order, the court made the following findings:

According to the evidence of the opponents the testator was born in Nebraska and therefore
a citizen of that state, or at least a citizen of California where some of his properties are
located. This contention in untenable. Notwithstanding the long residence of the decedent in
the Philippines, his stay here was merely temporary, and he continued and remained to be a
citizen of the United States and of the state of his pertinent residence to spend the rest of his
days in that state. His permanent residence or domicile in the United States depended upon
his personal intent or desire, and he selected Nevada as his homicide and therefore at the
time of his death, he was a citizen of that state. Nobody can choose his domicile or
permanent residence for him. That is his exclusive personal right.

Wherefore, the court finds that the testator C. O. Bohanan was at the time of his death a
citizen of the United States and of the State of Nevada and declares that his will and
testament, Exhibit A, is fully in accordance with the laws of the state of Nevada and admits
the same to probate. Accordingly, the Philippine Trust Company, named as the executor of
the will, is hereby appointed to such executor and upon the filing of a bond in the sum of
P10,000.00, let letters testamentary be issued and after taking the prescribed oath, it may
enter upon the execution and performance of its trust. (pp. 26-27, R.O.A.).

It does not appear that the order granting probate was ever questions on appeal. The executor filed
a project of partition dated January 24, 1956, making, in accordance with the provisions of the will,
the following adjudications: (1) one-half of the residuary estate, to the Farmers and Merchants
National Bank of Los Angeles, California, U.S.A. in trust only for the benefit of testator's grandson
Edward George Bohanan, which consists of several mining companies; (2) the other half of the
residuary estate to the testator's brother, F.L. Bohanan, and his sister, Mrs. M. B. Galbraith, share
and share alike. This consist in the same amount of cash and of shares of mining stock similar to
those given to testator's grandson; (3) legacies of P6,000 each to his (testator) son, Edward Gilbert
Bohana, and his daughter, Mary Lydia Bohanan, to be paid in three yearly installments; (4) legacies
to Clara Daen, in the amount of P10,000.00; Katherine Woodward, P2,000; Beulah Fox, P4,000; and
Elizabeth Hastings, P2,000;

It will be seen from the above that out of the total estate (after deducting administration expenses) of
P211,639.33 in cash, the testator gave his grandson P90,819.67 and one-half of all shares of stock
of several mining companies and to his brother and sister the same amount. To his children he gave
a legacy of only P6,000 each, or a total of P12,000.
The wife Magadalena C. Bohanan and her two children question the validity of the testamentary
provisions disposing of the estate in the manner above indicated, claiming that they have been
deprived of the legitimate that the laws of the form concede to them.

The first question refers to the share that the wife of the testator, Magdalena C. Bohanan, should be
entitled to received. The will has not given her any share in the estate left by the testator. It is argued
that it was error for the trial court to have recognized the Reno divorce secured by the testator from
his Filipino wife Magdalena C. Bohanan, and that said divorce should be declared a nullity in this
jurisdiction, citing the case of Querubin vs.Querubin, 87 Phil., 124, 47 Off. Gaz., (Sup, 12) 315,
Cousins Hiz vs. Fluemer, 55 Phil., 852, Ramirez vs. Gmur, 42 Phil., 855 and Gorayeb vs. Hashim, 50
Phil., 22. The court below refused to recognize the claim of the widow on the ground that the laws of
Nevada, of which the deceased was a citizen, allow him to dispose of all of his properties without
requiring him to leave any portion of his estate to his wife. Section 9905 of Nevada Compiled Laws
of 1925 provides:

Every person over the age of eighteen years, of sound mind, may, by last will, dispose of all
his or her estate, real and personal, the same being chargeable with the payment of the
testator's debts.

Besides, the right of the former wife of the testator, Magdalena C. Bohanan, to a share in the
testator's estafa had already been passed upon adversely against her in an order dated June 19,
1955, (pp. 155-159, Vol II Records, Court of First Instance), which had become final, as Magdalena
C. Bohanan does not appear to have appealed therefrom to question its validity. On December 16,
1953, the said former wife filed a motion to withdraw the sum of P20,000 from the funds of the
estate, chargeable against her share in the conjugal property, (See pp. 294-297, Vol. I, Record,
Court of First Instance), and the court in its said error found that there exists no community property
owned by the decedent and his former wife at the time the decree of divorce was issued. As already
and Magdalena C. Bohanan may no longer question the fact contained therein, i.e. that there was no
community property acquired by the testator and Magdalena C. Bohanan during their converture.

Moreover, the court below had found that the testator and Magdalena C. Bohanan were married on
January 30, 1909, and that divorce was granted to him on May 20, 1922; that sometime in 1925,
Magdalena C. Bohanan married Carl Aaron and this marriage was subsisting at the time of the death
of the testator. Since no right to share in the inheritance in favor of a divorced wife exists in the State
of Nevada and since the court below had already found that there was no conjugal property between
the testator and Magdalena C. Bohanan, the latter can now have no longer claim to pay portion of
the estate left by the testator.

The most important issue is the claim of the testator's children, Edward and Mary Lydia, who had
received legacies in the amount of P6,000 each only, and, therefore, have not been given their
shares in the estate which, in accordance with the laws of the forum, should be two-thirds of the
estate left by the testator. Is the failure old the testator to give his children two-thirds of the estate left
by him at the time of his death, in accordance with the laws of the forum valid?

The old Civil Code, which is applicable to this case because the testator died in 1944, expressly
provides that successional rights to personal property are to be earned by the national law of the
person whose succession is in question. Says the law on this point:

Nevertheless, legal and testamentary successions, in respect to the order of succession as


well as to the extent of the successional rights and the intrinsic validity of their provisions,
shall be regulated by the national law of the person whose succession is in question,
whatever may be the nature of the property and the country in which it is found. (par. 2, Art.
10, old Civil Code, which is the same as par. 2 Art. 16, new Civil Code.)

In the proceedings for the probate of the will, it was found out and it was decided that the testator
was a citizen of the State of Nevada because he had selected this as his domicile and his
permanent residence. (See Decision dated April 24, 1950, supra). So the question at issue is
whether the estementary dispositions, especially hose for the children which are short of the legitime
given them by the Civil Code of the Philippines, are valid. It is not disputed that the laws of Nevada
allow a testator to dispose of all his properties by will (Sec. 9905, Complied Nevada Laws of
1925, supra). It does not appear that at time of the hearing of the project of partition, the above-
quoted provision was introduced in evidence, as it was the executor's duly to do. The law of Nevada,
being a foreign law can only be proved in our courts in the form and manner provided for by our
Rules, which are as follows:

SEC. 41. Proof of public or official record. — An official record or an entry therein, when
admissible for any purpose, may be evidenced by an official publication thereof or by a copy
tested by the officer having the legal custody of he record, or by his deputy, and
accompanied, if the record is not kept in the Philippines, with a certificate that such officer
has the custody. . . . (Rule 123).

We have, however, consulted the records of the case in the court below and we have found that
during the hearing on October 4, 1954 of the motion of Magdalena C. Bohanan for withdrawal of
P20,000 as her share, the foreign law, especially Section 9905, Compiled Nevada Laws. was
introduced in evidence by appellant's (herein) counsel as Exhibits "2" (See pp. 77-79, VOL. II, and
t.s.n. pp. 24-44, Records, Court of First Instance). Again said laws presented by the counsel for the
executor and admitted by the Court as Exhibit "B" during the hearing of the case on January 23,
1950 before Judge Rafael Amparo (se Records, Court of First Instance, Vol. 1).

In addition, the other appellants, children of the testator, do not dispute the above-quoted provision
of the laws of the State of Nevada. Under all the above circumstances, we are constrained to hold
that the pertinent law of Nevada, especially Section 9905 of the Compiled Nevada Laws of 1925,
can be taken judicial notice of by us, without proof of such law having been offered at the hearing of
the project of partition.

As in accordance with Article 10 of the old Civil Code, the validity of testamentary dispositions are to
be governed by the national law of the testator, and as it has been decided and it is not disputed that
the national law of the testator is that of the State of Nevada, already indicated above, which allows
a testator to dispose of all his property according to his will, as in the case at bar, the order of the
court approving the project of partition made in accordance with the testamentary provisions, must
be, as it is hereby affirmed, with costs against appellants.

Paras, Bengzon, C.J., Padilla, Bautista Angelo and Endencia, JJ., concur.
Barrera, J., concurs in the result.

[G.R. No. 139325. April 12, 2005]


PRISCILLA C. MIJARES, LORETTA ANN P. ROSALES, HILDA B.
NARCISO, SR. MARIANI DIMARANAN, SFIC, and JOEL C.
LAMANGAN in their behalf and on behalf of the Class Plaintiffs
in Class Action No. MDL 840, United States District Court of
Hawaii, petitioners, vs. HON. SANTIAGO JAVIER RANADA, in his
capacity as Presiding Judge of Branch 137, Regional Trial Court,
Makati City, and the ESTATE OF FERDINAND E. MARCOS,
through its court appointed legal representatives in Class Action
MDL 840, United States District Court of Hawaii, namely: Imelda
R. Marcos and Ferdinand Marcos, Jr., respondents.

DECISION
TINGA, J.:

Our martial law experience bore strange unwanted fruits, and we have yet
to finish weeding out its bitter crop. While the restoration of freedom and the
fundamental structures and processes of democracy have been much lauded,
according to a significant number, the changes, however, have not sufficiently
healed the colossal damage wrought under the oppressive conditions of the
martial law period. The cries of justice for the tortured, the murdered, and
the desaparecidos arouse outrage and sympathy in the hearts of the fair-
minded, yet the dispensation of the appropriate relief due them cannot be
extended through the same caprice or whim that characterized the ill-wind of
martial rule. The damage done was not merely personal but institutional, and
the proper rebuke to the iniquitous past has to involve the award of
reparations due within the confines of the restored rule of law.
The petitioners in this case are prominent victims of human rights
violations who, deprived of the opportunity to directly confront the man who
[1]

once held absolute rule over this country, have chosen to do battle instead
with the earthly representative, his estate. The clash has been for now
interrupted by a trial court ruling, seemingly comported to legal logic, that
required the petitioners to pay a whopping filing fee of over Four Hundred
Seventy-Two Million Pesos (P472,000,000.00) in order that they be able to
enforce a judgment awarded them by a foreign court. There is an
understandable temptation to cast the struggle within the simplistic confines of
a morality tale, and to employ short-cuts to arrive at what might seem the
desirable solution. But easy, reflexive resort to the equity principle all too often
leads to a result that may be morally correct, but legally wrong.
Nonetheless, the application of the legal principles involved in this case
will comfort those who maintain that our substantive and procedural laws, for
all their perceived ambiguity and susceptibility to myriad interpretations, are
inherently fair and just. The relief sought by the petitioners is expressly
mandated by our laws and conforms to established legal principles. The
granting of this petition for certiorari is warranted in order to correct the legally
infirm and unabashedly unjust ruling of the respondent judge.
The essential facts bear little elaboration. On 9 May 1991, a complaint was
filed with the United States District Court (US District Court), District of Hawaii,
against the Estate of former Philippine President Ferdinand E. Marcos
(Marcos Estate). The action was brought forth by ten Filipino citizens who [2]

each alleged having suffered human rights abuses such as arbitrary


detention, torture and rape in the hands of police or military forces during the
Marcos regime. The Alien Tort Act was invoked as basis for the US District
[3]

Courts jurisdiction over the complaint, as it involved a suit by aliens for tortious
violations of international law. These plaintiffs brought the action on their own
[4]

behalf and on behalf of a class of similarly situated individuals, particularly


consisting of all current civilian citizens of the Philippines, their heirs and
beneficiaries, who between 1972 and 1987 were tortured, summarily executed
or had disappeared while in the custody of military or paramilitary groups.
Plaintiffs alleged that the class consisted of approximately ten thousand
(10,000) members; hence, joinder of all these persons was impracticable.
The institution of a class action suit was warranted under Rule 23(a) and
(b)(1)(B) of the US Federal Rules of Civil Procedure, the provisions of which
were invoked by the plaintiffs. Subsequently, the US District Court certified the
case as a class action and created three (3) sub-classes of torture, summary
execution and disappearance victims. Trial ensued, and subsequently a jury
[5]

rendered a verdict and an award of compensatory and exemplary damages in


favor of the plaintiff class. Then, on 3 February 1995, the US District Court,
presided by Judge Manuel L. Real, rendered a Final Judgment (Final
Judgment) awarding the plaintiff class a total of One Billion Nine Hundred
Sixty Four Million Five Thousand Eight Hundred Fifty Nine Dollars and Ninety
Cents ($1,964,005,859.90). The Final Judgment was eventually affirmed by
the US Court of Appeals for the Ninth Circuit, in a decision rendered on 17
December 1996. [6]

On 20 May 1997, the present petitioners filed Complaint with the Regional
Trial Court, City of Makati (Makati RTC) for the enforcement of the Final
Judgment. They alleged that they are members of the plaintiff class in whose
favor the US District Court awarded damages. They argued that since the
[7]

Marcos Estate failed to file a petition for certiorari with the US Supreme Court
after the Ninth Circuit Court of Appeals had affirmed the Final Judgment, the
decision of the US District Court had become final and executory, and hence
should be recognized and enforced in the Philippines, pursuant to Section 50,
Rule 39 of the Rules of Court then in force.[8]

On 5 February 1998, the Marcos Estate filed a motion to dismiss, raising,


among others, the non-payment of the correct filing fees. It alleged that
petitioners had only paid Four Hundred Ten Pesos (P410.00) as docket and
filing fees, notwithstanding the fact that they sought to enforce a monetary
amount of damages in the amount of over Two and a Quarter Billion US
Dollars (US$2.25 Billion). The Marcos Estate cited Supreme Court Circular
No. 7, pertaining to the proper computation and payment of docket fees. In
response, the petitioners claimed that an action for the enforcement of a
foreign judgment is not capable of pecuniary estimation; hence, a filing fee of
only Four Hundred Ten Pesos (P410.00) was proper, pursuant to Section 7(c)
of Rule 141.[9]

On 9 September 1998, respondent Judge Santiago Javier Ranada of the [10]

Makati RTC issued the subject Order dismissing the complaint without
prejudice. Respondent judge opined that contrary to the petitioners
submission, the subject matter of the complaint was indeed capable of
pecuniary estimation, as it involved a judgment rendered by a foreign court
ordering the payment of definite sums of money, allowing for easy
determination of the value of the foreign judgment. On that score, Section 7(a)
of Rule 141 of the Rules of Civil Procedure would find application, and the
RTC estimated the proper amount of filing fees was approximately Four
Hundred Seventy Two Million Pesos, which obviously had not been paid.
Not surprisingly, petitioners filed a Motion for Reconsideration, which
Judge Ranada denied in an Order dated 28 July 1999. From this denial,
petitioners filed a Petition for Certiorariunder Rule 65 assailing the twin orders
of respondent judge. They prayed for the annulment of the questioned
[11]

orders, and an order directing the reinstatement of Civil Case No. 97-1052
and the conduct of appropriate proceedings thereon.
Petitioners submit that their action is incapable of pecuniary estimation as
the subject matter of the suit is the enforcement of a foreign judgment, and not
an action for the collection of a sum of money or recovery of damages. They
also point out that to require the class plaintiffs to pay Four Hundred Seventy
Two Million Pesos (P472,000,000.00) in filing fees would negate and render
inutile the liberal construction ordained by the Rules of Court, as required by
Section 6, Rule 1 of the Rules of Civil Procedure, particularly the inexpensive
disposition of every action.
Petitioners invoke Section 11, Article III of the Bill of Rights of the
Constitution, which provides that Free access to the courts and quasi-judicial
bodies and adequate legal assistance shall not be denied to any person by
reason of poverty, a mandate which is essentially defeated by the required
exorbitant filing fee. The adjudicated amount of the filing fee, as arrived at by
the RTC, was characterized as indisputably unfair, inequitable, and unjust.
The Commission on Human Rights (CHR) was permitted to intervene in
this case. It urged that the petition be granted and a judgment rendered,
[12]

ordering the enforcement and execution of the District Court judgment in


accordance with Section 48, Rule 39 of the 1997 Rules of Civil Procedure. For
the CHR, the Makati RTC erred in interpreting the action for the execution of a
foreign judgment as a new case, in violation of the principle that once a case
has been decided between the same parties in one country on the same issue
with finality, it can no longer be relitigated again in another country. The CHR
[13]

likewise invokes the principle of comity, and of vested rights.


The Courts disposition on the issue of filing fees will prove a useful
jurisprudential guidepost for courts confronted with actions enforcing foreign
judgments, particularly those lodged against an estate. There is no basis for
the issuance a limited pro hac vice ruling based on the special circumstances
of the petitioners as victims of martial law, or on the emotionally-charged
allegation of human rights abuses.
An examination of Rule 141 of the Rules of Court readily evinces that the
respondent judge ignored the clear letter of the law when he concluded that
the filing fee be computed based on the total sum claimed or the stated value
of the property in litigation.
In dismissing the complaint, the respondent judge relied on Section 7(a),
Rule 141 as basis for the computation of the filing fee of over P472 Million.
The provision states:

SEC. 7. Clerk of Regional Trial Court.-

(a) For filing an action or a permissive counterclaim or money claim


against an estate not based on judgment, or for filing with leave of court a
third-party, fourth-party, etc., complaint, or a complaint in intervention, and for
all clerical services in the same time, if the total sum claimed, exclusive of
interest, or the started value of the property in litigation, is:

1. Less than P 100,00.00 P 500.00


2. P 100,000.00 or more - P 800.00
but less than P 150,000.00
3. P 150,000.00 or more but - P 1,000.00
less than P 200,000.00
4. P 200,000.00 or more but
less than P 250,000.00 - P 1,500.00
5. P 250,000.00 or more but
less than P 300,00.00 - P 1,750.00
6. P 300,000.00 or more but
not more than P 400,000.00 - P 2,000.00
7. P 350,000.00 or more but not
more than P400,000.00 - P 2,250.00
8. For each P 1,000.00 in excess of
P 400,000.00 - P 10.00

...

(Emphasis supplied)

Obviously, the above-quoted provision covers, on one hand, ordinary


actions, permissive counterclaims, third-party, etc. complaints and complaints-
in-interventions, and on the other, money claims against estates which are not
based on judgment. Thus, the relevant question for purposes of the present
petition is whether the action filed with the lower court is a money claim
against an estate not based on judgment.
Petitioners complaint may have been lodged against an estate, but it is
clearly based on a judgment, the Final Judgment of the US District Court. The
provision does not make any distinction between a local judgment and a
foreign judgment, and where the law does not distinguish, we shall not
distinguish.
A reading of Section 7 in its entirety reveals several instances wherein the
filing fee is computed on the basis of the amount of the relief sought, or on the
value of the property in litigation. The filing fee for requests for extrajudicial
foreclosure of mortgage is based on the amount of indebtedness or the
mortgagees claim. In special proceedings involving properties such as for
[14]

the allowance of wills, the filing fee is again based on the value of the
property. The aforecited rules evidently have no application to petitioners
[15]

complaint.
Petitioners rely on Section 7(b), particularly the proviso on actions where
the value of the subject matter cannot be estimated. The provision reads in
full:

SEC. 7. Clerk of Regional Trial Court.-


(b) For filing

1. Actions where the value


of the subject matter
cannot be estimated --- P 600.00
2. Special civil actions except
judicial foreclosure which
shall be governed by
paragraph (a) above --- P 600.00
3. All other actions not
involving property --- P 600.00

In a real action, the assessed value of the property, or if there is none, the estimated
value, thereof shall be alleged by the claimant and shall be the basis in computing the
fees.

It is worth noting that the provision also provides that in real actions, the
assessed value or estimated value of the property shall be alleged by the
claimant and shall be the basis in computing the fees. Yet again, this provision
does not apply in the case at bar. A real action is one where the plaintiff seeks
the recovery of real property or an action affecting title to or recovery of
possession of real property. Neither the complaint nor the award of damages
[16]

adjudicated by the US District Court involves any real property of the Marcos
Estate.
Thus, respondent judge was in clear and serious error when he concluded
that the filing fees should be computed on the basis of the schematic table of
Section 7(a), as the action involved pertains to a claim against an estate
based on judgment. What provision, if any, then should apply in determining
the filing fees for an action to enforce a foreign judgment?
To resolve this question, a proper understanding is required on the nature
and effects of a foreign judgment in this jurisdiction.
The rules of comity, utility and convenience of nations have established a
usage among civilized states by which final judgments of foreign courts of
competent jurisdiction are reciprocally respected and rendered efficacious
under certain conditions that may vary in different countries. This principle
[17]

was prominently affirmed in the leading American case of Hilton v. Guyot and [18]

expressly recognized in our jurisprudence beginning with Ingenholl v. Walter


E. Olsen & Co. The conditions required by the Philippines for recognition and
[19]

enforcement of a foreign judgment were originally contained in Section 311 of


the Code of Civil Procedure, which was taken from the California Code of Civil
Procedure which, in turn, was derived from the California Act of March 11,
1872. Remarkably, the procedural rule now outlined in Section 48, Rule 39 of
[20]

the Rules of Civil Procedure has remained unchanged down to the last word
in nearly a century. Section 48 states:

SEC. 48. 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;

In either case, the judgment or final order 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.

There is an evident distinction between a foreign judgment in an action in


rem and one in personam. For an action in rem, the foreign judgment is
deemed conclusive upon the title to the thing, while in an
action in personam, the foreign judgment is presumptive, and not conclusive,
of a right as between the parties and their successors in interest by a
subsequent title. However, in both cases, the foreign judgment is susceptible
[21]

to impeachment in our local courts on the grounds of want of jurisdiction or


notice to the party, collusion, fraud, or clear mistake of law or fact. Thus,
[22] [23] [24]

the party aggrieved by the foreign judgment is entitled to defend against the
enforcement of such decision in the local forum. It is essential that there
should be an opportunity to challenge the foreign judgment, in order for the
court in this jurisdiction to properly determine its efficacy.[25]

It is clear then that it is usually necessary for an action to be filed in order


to enforce a foreign judgment , even if such judgment has conclusive effect
[26]

as in the case of in rem actions, if only for the purpose of allowing the losing
party an opportunity to challenge the foreign judgment, and in order for the
court to properly determine its efficacy. Consequently, the party attacking a
[27]

foreign judgment has the burden of overcoming the presumption of its validity.
[28]

The rules are silent as to what initiatory procedure must be undertaken in


order to enforce a foreign judgment in the Philippines. But there is no question
that the filing of a civil complaint is an appropriate measure for such purpose.
A civil action is one by which a party sues another for the enforcement or
protection of a right, and clearly an action to enforce a foreign judgment is in
[29]

essence a vindication of a right prescinding either from a conclusive judgment


upon title or the presumptive evidence of a right. Absent perhaps a statutory
[30]

grant of jurisdiction to a quasi-judicial body, the claim for enforcement of


judgment must be brought before the regular courts. [31]

There are distinctions, nuanced but discernible, between the cause of


action arising from the enforcement of a foreign judgment, and that arising
from the facts or allegations that occasioned the foreign judgment. They may
pertain to the same set of facts, but there is an essential difference in the
right-duty correlatives that are sought to be vindicated. For example, in a
complaint for damages against a tortfeasor, the cause of action emanates
from the violation of the right of the complainant through the act or omission of
the respondent. On the other hand, in a complaint for the enforcement of a
foreign judgment awarding damages from the same tortfeasor, for the violation
of the same right through the same manner of action, the cause of action
derives not from the tortious act but from the foreign judgment itself.
More importantly, the matters for proof are different. Using the above
example, the complainant will have to establish before the court the tortious
act or omission committed by the tortfeasor, who in turn is allowed to rebut
these factual allegations or prove extenuating circumstances. Extensive
litigation is thus conducted on the facts, and from there the right to and
amount of damages are assessed. On the other hand, in an action to enforce
a foreign judgment, the matter left for proof is the foreign judgment itself, and
not the facts from which it prescinds.
As stated in Section 48, Rule 39, the actionable issues are generally
restricted to a review of jurisdiction of the foreign court, the service of personal
notice, collusion, fraud, or mistake of fact or law. The limitations on review is in
consonance with a strong and pervasive policy in all legal systems to limit
repetitive litigation on claims and issues. Otherwise known as the policy of
[32]

preclusion, it seeks to protect party expectations resulting from previous


litigation, to safeguard against the harassment of defendants, to insure that
the task of courts not be increased by never-ending litigation of the same
disputes, and in a larger sense to promote what Lord Coke in the Ferrers
Case of 1599 stated to be the goal of all law: rest and quietness. If every
[33]

judgment of a foreign court were reviewable on the merits, the plaintiff would
be forced back on his/her original cause of action, rendering immaterial the
previously concluded litigation.[34]
Petitioners appreciate this distinction, and rely upon it to support the
proposition that the subject matter of the complaintthe enforcement of a
foreign judgmentis incapable of pecuniary estimation. Admittedly the
proposition, as it applies in this case, is counter-intuitive, and thus deserves
strict scrutiny. For in all practical intents and purposes, the matter at hand is
capable of pecuniary estimation, down to the last cent. In the
assailed Order, the respondent judge pounced upon this point without
equivocation:

The Rules use the term where the value of the subject matter cannot be estimated. The
subject matter of the present case is the judgment rendered by the foreign court
ordering defendant to pay plaintiffs definite sums of money, as and for compensatory
damages. The Court finds that the value of the foreign judgment can be estimated;
indeed, it can even be easily determined. The Court is not minded to distinguish
between the enforcement of a judgment and the amount of said judgment, and
separate the two, for purposes of determining the correct filing fees. Similarly, a
plaintiff suing on promissory note for P1 million cannot be allowed to pay only P400
filing fees (sic), on the reasoning that the subject matter of his suit is not the P1
million, but the enforcement of the promissory note, and that the value of such
enforcement cannot be estimated. [35]

The jurisprudential standard in gauging whether the subject matter of an


action is capable of pecuniary estimation is well-entrenched. The Marcos
Estate cites Singsong v. Isabela Sawmill and Raymundo v. Court of Appeals,
which ruled:

[I]n determining whether an action is one the subject matter of which is not capable of
pecuniary estimation this Court has adopted the criterion of first ascertaining the
nature of the principal action or remedy sought. If it is primarily for the recovery of a
sum of money, the claim is considered capable of pecuniary estimation, and whether
jurisdiction is in the municipal courts or in the courts of first instance would depend
on the amount of the claim. However, where the basic issue is something other than
the right to recover a sum of money, where the money claim is purely incidental to, or
a consequence of, the principal relief sought, this Court has considered such actions as
cases where the subject of the litigation may not be estimated in terms of money, and
are cognizable exclusively by courts of first instance (now Regional Trial Courts).

On the other hand, petitioners cite the ponencia of Justice JBL Reyes
in Lapitan v. Scandia, from [36]
which the rule
in Singsong and Raymundo actually derives, but which incorporates this
additional nuance omitted in the latter cases:
xxx However, where the basic issue is something other than the right to recover a sum
of money, where the money claim is purely incidental to, or a consequence of, the
principal relief sought, like in suits to have the defendant perform his part of the
contract (specific performance) and in actions for support, or for annulment of
judgment or to foreclose a mortgage, this Court has considered such actions as
cases where the subject of the litigation may not be estimated in terms of money, and
are cognizable exclusively by courts of first instance. [37]

Petitioners go on to add that among the actions the Court has recognized
as being incapable of pecuniary estimation include legality of conveyances
and money deposits, validity of a mortgage, the right to support, validity of
[38] [39] [40]

documents, rescission of contracts, specific performance, and validity or


[41] [42] [43]

annulment of judgments. It is urged that an action for enforcement of a


[44]

foreign judgment belongs to the same class.


This is an intriguing argument, but ultimately it is self-evident that while the
subject matter of the action is undoubtedly the enforcement of a foreign
judgment, the effect of a providential award would be the adjudication of a
sum of money. Perhaps in theory, such an action is primarily for the
enforcement of the foreign judgment, but there is a certain obtuseness to that
sort of argument since there is no denying that the enforcement of the foreign
judgment will necessarily result in the award of a definite sum of money.
But before we insist upon this conclusion past beyond the point of
reckoning, we must examine its possible ramifications. Petitioners raise the
point that a declaration that an action for enforcement of foreign judgment
may be capable of pecuniary estimation might lead to an instance wherein a
first level court such as the Municipal Trial Court would have jurisdiction to
enforce a foreign judgment. But under the statute defining the jurisdiction of
first level courts, B.P. 129, such courts are not vested with jurisdiction over
actions for the enforcement of foreign judgments.

Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in civil cases. Metropolitan Trial Courts, Municipal
Trial Courts, and Municipal Circuit Trial Courts shall exercise:

(1) Exclusive original jurisdiction over civil actions and probate proceedings, testate
and intestate, including the grant of provisional remedies in proper cases, where the
value of the personal property, estate, or amount of the demand does not exceed One
hundred thousand pesos (P100,000.00) or, in Metro Manila where such personal
property, estate, or amount of the demand does not exceed Two hundred thousand
pesos (P200,000.00) exclusive of interest damages of whatever kind, attorney's fees,
litigation expenses, and costs, the amount of which must be specifically alleged:
Provided, That where there are several claims or causes of action between the same or
different parties, embodied in the same complaint, the amount of the demand shall be
the totality of the claims in all the causes of action, irrespective of whether the causes
of action arose out of the same or different transactions;
(2) Exclusive original jurisdiction over cases of forcible entry and unlawful
detainer: Provided, That when, in such cases, the defendant raises the question of
ownership in his pleadings and the question of possession cannot be resolved without
deciding the issue of ownership, the issue of ownership shall be resolved only to
determine the issue of possession.
(3) Exclusive original jurisdiction in all civil actions which involve title to, or possession
of, real property, or any interest therein where the assessed value of the property or
interest therein does not exceed Twenty thousand pesos (P20,000.00) or, in civil
actions in Metro Manila, where such assessed value does not exceed Fifty thousand
pesos (P50,000.00) exclusive of interest, damages of whatever kind, attorney's fees,
litigation expenses and costs: Provided, That value of such property shall be
determined by the assessed value of the adjacent lots.[45]

Section 33 of B.P. 129 refers to instances wherein the cause of action or


subject matter pertains to an assertion of rights and interests over property or
a sum of money. But as earlier pointed out, the subject matter of an action to
enforce a foreign judgment is the foreign judgment itself, and the cause of
action arising from the adjudication of such judgment.
An examination of Section 19(6), B.P. 129 reveals that the instant
complaint for enforcement of a foreign judgment, even if capable of pecuniary
estimation, would fall under the jurisdiction of the Regional Trial Courts, thus
negating the fears of the petitioners. Indeed, an examination of the provision
indicates that it can be relied upon as jurisdictional basis with respect to
actions for enforcement of foreign judgments, provided that no other court or
office is vested jurisdiction over such complaint:

Sec. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive
original jurisdiction:

xxx

(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or
body exercising jurisdiction or any court, tribunal, person or body exercising judicial
or quasi-judicial functions.

Thus, we are comfortable in asserting the obvious, that the complaint to


enforce the US District Court judgment is one capable of pecuniary
estimation. But at the same time, it is also an action based on judgment
against an estate, thus placing it beyond the ambit of Section 7(a) of Rule
141. What provision then governs the proper computation of the filing fees
over the instant complaint? For this case and other similarly situated
instances, we find that it is covered by Section 7(b)(3), involving as it does,
other actions not involving property.
Notably, the amount paid as docket fees by the petitioners on the premise
that it was an action incapable of pecuniary estimation corresponds to the
same amount required for other actions not involving property. The petitioners
thus paid the correct amount of filing fees, and it was a grave abuse of
discretion for respondent judge to have applied instead a clearly inapplicable
rule and dismissed the complaint.
There is another consideration of supreme relevance in this case, one
which should disabuse the notion that the doctrine affirmed in this decision is
grounded solely on the letter of the procedural rule. We earlier adverted to the
the internationally recognized policy of preclusion, as well as the principles of
[46]

comity, utility and convenience of nations as the basis for the evolution of the
[47]

rule calling for the recognition and enforcement of foreign judgments. The US
Supreme Court in Hilton v. Guyot relied heavily on the concept of comity, as
[48]

especially derived from the landmark treatise of Justice Story in his


Commentaries on the Conflict of Laws of 1834. Yet the notion of comity has
[49]

since been criticized as one of dim contours or suffering from a number of


[50]

fallacies. Other conceptual bases for the recognition of foreign judgments


[51]

have evolved such as the vested rights theory or the modern doctrine of
obligation. [52]

There have been attempts to codify through treaties or multilateral


agreements the standards for the recognition and enforcement of foreign
judgments, but these have not borne fruition. The members of the European
Common Market accede to the Judgments Convention, signed in 1978, which
eliminates as to participating countries all of such obstacles to recognition
such as reciprocity and rvision au fond. The most ambitious of these
[53]

attempts is the Convention on the Recognition and Enforcement of Foreign


Judgments in Civil and Commercial Matters, prepared in 1966 by the Hague
Conference of International Law. While it has not received the ratifications
[54]

needed to have it take effect, it is recognized as representing current


[55]

scholarly thought on the topic. Neither the Philippines nor the United States
[56]

are signatories to the Convention.


Yet even if there is no unanimity as to the applicable theory behind the
recognition and enforcement of foreign judgments or a universal treaty
rendering it obligatory force, there is consensus that the viability of such
recognition and enforcement is essential. Steiner and Vagts note:
. . . The notion of unconnected bodies of national law on private international law,
each following a quite separate path, is not one conducive to the growth of a
transnational community encouraging travel and commerce among its members.
There is a contemporary resurgence of writing stressing the identity or similarity of
the values that systems of public and private international law seek to further a
community interest in common, or at least reasonable, rules on these matters in
national legal systems. And such generic principles as reciprocity play an important
role in both fields.
[57]

Salonga, whose treatise on private international law is of worldwide


renown, points out:

Whatever be the theory as to the basis for recognizing foreign judgments, there can be
little dispute that the end is to protect the reasonable expectations and demands of the
parties. Where the parties have submitted a matter for adjudication in the court of one
state, and proceedings there are not tainted with irregularity, they may fairly be
expected to submit, within the state or elsewhere, to the enforcement of the judgment
issued by the court. [58]

There is also consensus as to the requisites for recognition of a foreign


judgment and the defenses against the enforcement thereof. As earlier
discussed, the exceptions enumerated in Section 48, Rule 39 have remain
unchanged since the time they were adapted in this jurisdiction from long
standing American rules. The requisites and exceptions as delineated under
Section 48 are but a restatement of generally accepted principles of
international law. Section 98 of The Restatement, Second, Conflict of Laws,
states that a valid judgment rendered in a foreign nation after a fair trial in a
contested proceeding will be recognized in the United States, and on its face,
the term valid brings into play requirements such notions as valid jurisdiction
over the subject matter and parties. Similarly, the notion that fraud or
[59]

collusion may preclude the enforcement of a foreign judgment finds affirmation


with foreign jurisprudence and commentators, as well as the doctrine that the
[60]

foreign judgment must not constitute a clear mistake of law or fact. And [61]

finally, it has been recognized that public policy as a defense to the


recognition of judgments serves as an umbrella for a variety of concerns in
international practice which may lead to a denial of recognition. [62]

The viability of the public policy defense against the enforcement of a


foreign judgment has been recognized in this jurisdiction. This defense
[63]

allows for the application of local standards in reviewing the foreign judgment,
especially when such judgment creates only a presumptive right, as it does in
cases wherein the judgment is against a person. The defense is also
[64]
recognized within the international sphere, as many civil law nations adhere to
a broad public policy exception which may result in a denial of recognition
when the foreign court, in the light of the choice-of-law rules of the recognizing
court, applied the wrong law to the case. The public policy defense can
[65]

safeguard against possible abuses to the easy resort to offshore litigation if it


can be demonstrated that the original claim is noxious to our constitutional
values.
There is no obligatory rule derived from treaties or conventions that
requires the Philippines to recognize foreign judgments, or allow a procedure
for the enforcement thereof. However, generally accepted principles of
international law, by virtue of the incorporation clause of the Constitution, form
part of the laws of the land even if they do not derive from treaty obligations.
The classical formulation in international law sees those customary rules
[66]

accepted as binding result from the combination two elements: the


established, widespread, and consistent practice on the part of States; and a
psychological element known as the opinion juris sive necessitates (opinion
as to law or necessity). Implicit in the latter element is a belief that the practice
in question is rendered obligatory by the existence of a rule of law requiring it.
[67]

While the definite conceptual parameters of the recognition and


enforcement of foreign judgments have not been authoritatively established,
the Court can assert with certainty that such an undertaking is among those
generally accepted principles of international law. As earlier demonstrated,
[68]

there is a widespread practice among states accepting in principle the need


for such recognition and enforcement, albeit subject to limitations of varying
degrees. The fact that there is no binding universal treaty governing the
practice is not indicative of a widespread rejection of the principle, but only a
disagreement as to the imposable specific rules governing the procedure for
recognition and enforcement.
Aside from the widespread practice, it is indubitable that the procedure for
recognition and enforcement is embodied in the rules of law, whether statutory
or jurisprudential, adopted in various foreign jurisdictions. In the Philippines,
this is evidenced primarily by Section 48, Rule 39 of the Rules of Court which
has existed in its current form since the early 1900s. Certainly, the Philippine
legal system has long ago accepted into its jurisprudence and procedural
rules the viability of an action for enforcement of foreign judgment, as well as
the requisites for such valid enforcement, as derived from internationally
accepted doctrines. Again, there may be distinctions as to the rules adopted
by each particular state, but they all prescind from the premise that there is a
[69]

rule of law obliging states to allow for, however generally, the recognition and
enforcement of a foreign judgment. The bare principle, to our mind, has
attained the status of opinio juris in international practice.
This is a significant proposition, as it acknowledges that the procedure and
requisites outlined in Section 48, Rule 39 derive their efficacy not merely from
the procedural rule, but by virtue of the incorporation clause of the
Constitution. Rules of procedure are promulgated by the Supreme Court,
and could very well be abrogated or revised by the high court itself. Yet the
[70]

Supreme Court is obliged, as are all State components, to obey the laws of
the land, including generally accepted principles of international law which
form part thereof, such as those ensuring the qualified recognition and
enforcement of foreign judgments. [71]

Thus, relative to the enforcement of foreign judgments in the Philippines, it


emerges that there is a general right recognized within our body of laws, and
affirmed by the Constitution, to seek recognition and enforcement of foreign
judgments, as well as a right to defend against such enforcement on the
grounds of want of jurisdiction, want of notice to the party, collusion, fraud, or
clear mistake of law or fact.
The preclusion of an action for enforcement of a foreign judgment in this
country merely due to an exhorbitant assessment of docket fees is alien to
generally accepted practices and principles in international law. Indeed, there
are grave concerns in conditioning the amount of the filing fee on the
pecuniary award or the value of the property subject of the foreign decision.
Such pecuniary award will almost certainly be in foreign denomination,
computed in accordance with the applicable laws and standards of the forum.
[72]
The vagaries of inflation, as well as the relative low-income capacity of the
Filipino, to date may very well translate into an award virtually unenforceable
in this country, despite its integral validity, if the docket fees for the
enforcement thereof were predicated on the amount of the award sought to be
enforced. The theory adopted by respondent judge and the Marcos Estate
may even lead to absurdities, such as if applied to an award involving real
property situated in places such as the United States or Scandinavia where
real property values are inexorably high. We cannot very well require that the
filing fee be computed based on the value of the foreign property as
determined by the standards of the country where it is located.
As crafted, Rule 141 of the Rules of Civil Procedure avoids
unreasonableness, as it recognizes that the subject matter of an action for
enforcement of a foreign judgment is the foreign judgment itself, and not the
right-duty correlatives that resulted in the foreign judgment. In this particular
circumstance, given that the complaint is lodged against an estate and is
based on the US District Courts Final Judgment, this foreign judgment may,
for purposes of classification under the governing procedural rule, be deemed
as subsumed under Section 7(b)(3) of Rule 141, i.e., within the class of all
other actions not involving property. Thus, only the blanket filing fee of minimal
amount is required.
Finally, petitioners also invoke Section 11, Article III of the Constitution,
which states that [F]ree access to the courts and quasi-judicial bodies and
adequate legal assistance shall not be denied to any person by reason of
poverty. Since the provision is among the guarantees ensured by the Bill of
Rights, it certainly gives rise to a demandable right. However, now is not the
occasion to elaborate on the parameters of this constitutional right. Given our
preceding discussion, it is not necessary to utilize this provision in order to
grant the relief sought by the petitioners. It is axiomatic that the
constitutionality of an act will not be resolved by the courts if the controversy
can be settled on other grounds or unless the resolution thereof is
[73]

indispensable for the determination of the case. [74]

One more word. It bears noting that Section 48, Rule 39 acknowledges
that the Final Judgment is not conclusive yet, but presumptive evidence of a
right of the petitioners against the Marcos Estate. Moreover, the Marcos
Estate is not precluded to present evidence, if any, of want of jurisdiction, want
of notice to the party, collusion, fraud, or clear mistake of law or fact. This
ruling, decisive as it is on the question of filing fees and no other, does not
render verdict on the enforceability of the Final Judgment before the courts
under the jurisdiction of the Philippines, or for that matter any other issue
which may legitimately be presented before the trial court. Such issues are to
be litigated before the trial court, but within the confines of the matters for
proof as laid down in Section 48, Rule 39. On the other hand, the speedy
resolution of this claim by the trial court is encouraged, and contumacious
delay of the decision on the merits will not be brooked by this Court.
WHEREFORE, the petition is GRANTED. The assailed orders are
NULLIFIED and SET ASIDE, and a new order REINSTATING Civil Case No.
97-1052 is hereby issued. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario,
JJ., concur.

Pennoyer v. Neff, 95 U.S. 714 (1878)


Pennoyer v. Neff

95 U.S. 714

ERROR TO THE CIRCUIT COURT OF THE UNITED STATES

FOR THE DISTRICT OF OREGON

Syllabus

1. A statute of Oregon, after providing for service of summons upon parties or their
representatives, personally or at their residence, declares that, when service cannot be
thus made, and the defendant, after due diligence, cannot be found within the State,
and

"that fact appears, by affidavit, to the satisfaction of the court or judge thereof, and it, in
like manner, appears that a cause of action exists against the defendant, or that he is a
proper party to an action relating to real property in the State, such court or judge may
grant an order that the service be made by publication of summons . . . when the
defendant is not a resident of the State, but has property therein, and the court has
jurisdiction of the subject of the action,"

-- the order to designate a newspaper of the county where the action is commenced in
which the publication shall be made -- and that proof of such publication shall be "the
affidavit of the printer, or his foreman, or his principal clerk."

Held, that defects in the affidavit for the order can only be taken advantage of on
appeal, or by some other direct proceeding, and cannot be urged to impeach the
judgment collaterally, and that the provision as to proof of the publication is satisfied
when the affidavit is made by the editor of the paper.

2. A personal judgment is without any validity if it be rendered by a State court in an


action upon a money demand against a nonresident of the State who was served by a
publication of summons, but upon whom no personal service of process within the State
was made, and who did not appear; and no title to property passes by a sale under an
execution issued upon such a judgment.

3. The State, having within her territory property of a nonresident, may hold and
appropriate it to satisfy the claims of her citizens against him, and her tribunals may
inquire into his obligations to the extent necessary to control the disposition of that
property. If he has no property in the State, there is nothing upon which her tribunals
can adjudicate.

4. Substituted service by publication, or in any other authorized form, is sufficient to


inform a nonresident of the object of proceedings taken where
Page 95 U. S. 715

property is once brought under the control of the court by seizure or some equivalent
act, but where the suit is brought to determine his personal rights and obligations, that
is, where it is merely in personam, such service upon him is ineffectual for any purpose.

5. Process from the tribunals of one State cannot run into another State and summon a
party there domiciled to respond to proceedings against him, and publication of process
or of notice within the State in which the tribunal sits cannot create any greater
obligation upon him to appear. Process sent to him out of the State, and process
published within it, are equally unavailing in proceedings to establish his personal
liability.

6. Except in cases affecting the personal status of the plaintiff, and in those wherein that
mode of service may be considered to have been assented to in advance, the
substituted service of process by publication allowed by the law of Oregon and by
similar laws in other States where actions are brought against nonresidents is effectual
only where, in connection with process against the person for commencing the action,
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.

7. Whilst the courts of the United States are not foreign tribunals in their relations to the
State courts, they are tribunals of a different sovereignty, and are bound to give a
judgment of a State court only the same faith and credit to which it is entitled in the
courts of another State.

8. The term "due process of law," when applied to judicial proceedings, means a course
of legal proceedings according to those rules and principles which have been
established by our jurisprudence for the protection and enforcement of private rights. To
give such proceedings any validity, there must be a competent tribunal to pass upon
their subject matter, and if that involves merely a determination of the personal liability
of the defendant, he must be brought within its jurisdiction by service of process within
the State, or by his voluntary appearance.

This action was brought by Neff against Pennoyer for the recovery of a tract of land
situated in Multnomah County, Oregon. Pennoyer, in his answer, denied Neff's title and
right to possession, and set up a title in himself.

By consent of parties, and in pursuance of their written stipulation filed in the case, the
cause was tried by the court, and a special verdict given, upon which judgment was
rendered in favor of Neff; whereupon Pennoyer sued out this writ of error.

The parties respectively claimed title as follows: Neff under a patent issued to him by
the United States, March 19,
Page 95 U. S. 716

1866; and Pennoyer by virtue of a sale made by the sheriff of said county, under an
execution sued out upon a judgment against Neff, rendered Feb. 19, 1866, by the
Circuit Court for said county, in an action wherein he was defendant and J. H. Mitchell
was plaintiff. Neff was then a nonresident of Oregon.

In Mitchell v. Neff, jurisdiction of Neff was obtained by service of summons by


publication. Pennoyer offered in evidence duly certified copies of the complaint,
summons, order for publication of summons, affidavit of service by publication, and the
judgment in that case, to the introduction of which papers the plaintiff objected because,
1, said judgment is in personam, and appears to have been given without the
appearance of the defendant in the action or personal service of the summons upon
him, and while he was a nonresident of the State, and is, therefore, void; 2, said
judgment is not in rem, and therefore constitutes no basis of title in the defendant; 3,
said copies of complaint, &c., do not show jurisdiction to give the judgment alleged,
either in rem or personam; and, 4, it appears from said papers that no proof of service
by publication was ever made, the affidavit thereof being made by the "editor" of the
"Pacific Christian Advocate," and not by "the printer, or his foreman or principal clerk."
The court admitted the evidence subject to the objections.

The finding of the court in regard to the facts bearing upon the asserted jurisdiction of
the State court is as follows: --

That, on Nov. 13, 1865, Mitchell applied to said Circuit Court, upon his own affidavit of
that date, for an order allowing the service of the summons in said action to be made
upon Neff by publication thereof, whereupon said court made said order, in the words
following:

"Now, at this day, comes the plaintiff in his proper person, and by his attorneys, Mitchell
and Dolph, and files affidavit of plaintiff, and motion for an order of publication of
summons, as follows, to wit:"

"Now comes the plaintiff, by his attorneys, and upon the affidavit of plaintiff, herewith
filed, moves the court for an order of publication of summons against defendant, as
required by law, he being a nonresident;"

"and it appearing to the satisfaction of the court that the defendant cannot, after due
diligence, be

Page 95 U. S. 717

found in this State, and that he is a nonresident thereof, that his place of residence is
unknown to plaintiff, and cannot, with reasonable diligence, be ascertained by him, and
that the plaintiff has a cause of action of action against defendant, and that defendant
has property in this county and State, it is ordered and adjudged by the court that
service of the summons in this action be made by publication for six weeks successively
in the 'Pacific Christian Advocate,' a weekly newspaper published in Multnomah County,
Oregon, and this action is continued for such service."

That the affidavit of plaintiff, referred to in said order, is in the words following:

"I, J. H. Mitchell, being first duly sworn, say that the defendant, Marcus Neff, is a
nonresident of this State; that he resides somewhere in the State of California, at what
place affiant knows not, and he cannot be found in this State; that plaintiff has a just
cause of action against defendant for a money demand on account; that this court has
jurisdiction of such action; that the defendant has property in this county and State."

That the complaint in said action was verified and filed on Nov. 3, 1865, and contained
facts tending to prove that, at that date, said Mitchell had a cause of action against said
Neff for services as an attorney, performed "between Jan. 1, 1862, and May 15, 1863."
That the entry of judgment in said action contained the following averments:

"And it appearing to the court that the defendant was, at the time of the commencement
of this action, and ever since has been, a nonresident of this State; and it further
appearing that he has property in this State, and that defendant had notice of the
pendency of this action by publication of the summons for six successive weeks in the
'Pacific Christian Advocate,' a weekly newspaper of general circulation published in
Multnomah County, State of Oregon, the last issue of which was more than twenty days
before the first day of this term."

That the affidavit showing the publication of the summons in the "Advocate" aforesaid
was made as stated therein by the "editor" of that paper. That said complaint, summons,
affidavit of Mitchell and of the "editor" of the "Advocate" aforesaid, and entry of
judgment, were in the judgment roll, made up by the clerk in the case, but the order for
publication of the summons aforesaid was not placed in said roll

Page 95 U. S. 718

by said clerk, but remains on the files of said court; and that, when said court made said
order for publication, and gave said judgment against Neff, the only evidence it had
before it to prove the facts necessary to give it jurisdiction therefor, and particularly to
authorize it to find and state that Neff's residence was unknown to Mitchell, and could
not, with reasonable diligence, be ascertained by him, and that Neff had notice of the
pendency of said action by the publication of the summons as aforesaid, was, so far as
appears by the said roll and the records and files of the said court, the said complaint
and affidavits of Mitchell and the editor of the "Advocate."

The statute of Oregon at the time of the commencement of the suit against Neff was as
follows: --
"SECT. 55. When service of the summons cannot be made as prescribed in the last
preceding section, and the defendant, after due diligence, cannot be found within the
State, and when that fact appears, by affidavit, to the satisfaction of the court or judge
thereof, or justice in an action in a justice's court, and it also appears that a cause of
action exists against the defendant, or that he is a proper party to an action relating to
real property in this State, such court or judge or justice may grant an order that the
service be made by publication of summons in either of the following cases: . . ."

"3. When the defendant is not a resident of the State, but has property therein, and the
court has jurisdiction of the subject of the action."

"SECT. 56. The order shall direct the publication to be made in a newspaper published
in the county where the action is commenced, and, if no newspaper be published in the
county, then in a newspaper to be designated as most likely to give notice to the person
to be served, and for such length of time as may be deemed reasonable, not less than
once a week for six weeks. In case of publication, the court or judge shall also direct a
copy of the summons and complaint to be forthwith deposited in the post office, directed
to the defendant, at his place of residence, unless it shall appear that such residence is
neither known to the party making the application, nor can, with reasonable diligence,
be ascertained by him. When publication is ordered, personal service of a copy of the
summons and complaint out of the State shall be equivalent to publication and deposit
in the post office. In either case, the defendant shall appear and answer by the first day
of the term following the

Page 95 U. S. 719

expiration of the time prescribed in the order for publication; and, if he does not,
judgment may be taken against him for want thereof. In case of personal service out of
the State, the summons shall specify the time prescribed in the order for publication."

"SECT. 57. The defendant against whom publication is ordered, or his personal
representatives, on application and sufficient cause shown, at any time before
judgment, shall be allowed to defend the action; and the defendant against whom
publication is ordered, or his representatives, may in like manner, upon good cause
shown, and upon such terms as may be proper, be allowed to defend after judgment,
and within one year after the entry of such judgment, on such terms as may be just;
and, if the defence be successful, and the judgment or any part thereof have been
collected or otherwise enforced, such restitution may thereupon be compelled as the
court shall direct. But the title to property sold upon execution issued on such judgment
to a purchaser in good faith shall not be thereby affected."

"SECT. 60. Proof of the service of summons shall be, in case of publication, the affidavit
of the printer, or his foreman, or his principal clerk, showing the same."

MR. JUSTICE FIELD delivered the opinion of the court.


This is an action to recover the possession of a tract of land, of the alleged value of
$15,000, situated in the State of Oregon. The plaintiff asserts title to the premises by a
patent of the United States issued to him in 1866, under the act of Congress of Sept.
27, 1850, usually known as the Donation Law of Oregon. The defendant claims to have
acquired the premises under a sheriff's deed, made upon a sale of the property on
execution issued upon a judgment recovered against the plaintiff in one of the circuit
courts of the State. The case turns upon the validity of this judgment.

It appears from the record that the judgment was rendered in February, 1866, in favor of
J. H. Mitchell, for less than $300, including costs, in an action brought by him upon a
demand for services as an attorney; that, at the time the action was commenced and
the judgment rendered, the defendant therein, the plaintiff here, was a nonresident of
the State;

Page 95 U. S. 720

that he was not personally served with process, and did not appear therein; and that the
judgment was entered upon his default in not answering the complaint, upon a
constructive service of summons by publication.

The Code of Oregon provides for such service when an action is brought against a
nonresident and absent defendant who has property within the State. It also provides,
where the action is for the recovery of money or damages, for the attachment of the
property of the nonresident. And it also declares that no natural person is subject to the
jurisdiction of a court of the State

"unless he appear in the court, or be found within the State, or be a resident thereof, or
have property therein; and, in the last case, only to the extent of such property at the
time the jurisdiction attached."

Construing this latter provision to mean that, in an action for money or damages where
a defendant does not appear in the court, and is not found within the State, and is not a
resident thereof, but has property therein, the jurisdiction of the court extends only over
such property, the declaration expresses a principle of general, if not universal, law. The
authority of every tribunal is necessarily restricted by the territorial limits of the State in
which it is established. Any attempt to exercise authority beyond those limits would be
deemed in every other forum, as has been said by this Court, an illegitimate assumption
of power, and be resisted as mere abuse. D'Arcy v. Ketchum et al., 11 How. 165. In the
case against the plaintiff, the property here in controversy sold under the judgment
rendered was not attached, nor in any way brought under the jurisdiction of the court. Its
first connection with the case was caused by a levy of the execution. It was not,
therefore, disposed of pursuant to any adjudication, but only in enforcement of a
personal judgment, having no relation to the property, rendered against a nonresident
without service of process upon him in the action or his appearance therein. The court
below did not consider that an attachment of the property was essential to its jurisdiction
or to the validity of the sale, but held that the judgment was invalid from defects in the
affidavit upon which the order of publication was obtained and in the affidavit by which
the publication was proved.

Page 95 U. S. 721

There is some difference of opinion among the members of this Court as to the rulings
upon these alleged defects. The majority are of opinion that, inasmuch as the statute
requires, for an order of publication, that certain facts shall appear by affidavit to the
satisfaction of the court or judge, defects in such affidavit can only be taken advantage
of on appeal, or by some other direct proceeding, and cannot be urged to impeach the
judgment collaterally. The majority of the court are also of opinion that the provision of
the statute requiring proof of the publication in a newspaper to be made by the "affidavit
of the printer, or his foreman, or his principal clerk" is satisfied when the affidavit is
made by the editor of the paper. The term "printer," in their judgment, is there used not
to indicate the person who sets up the type -- he does not usually have a foreman or
clerks -- it is rather used as synonymous with publisher. The Supreme Court of New
York so held in one case; observing that, for the purpose of making the required proof,
publishers were "within the spirit of the statute." Bunce v. Reed, 16 Barb. (N. Y.) 350.
And, following this ruling, the Supreme Court of California held that an affidavit made by
a "publisher and proprietor" was sufficient. Sharp v. Daugney, 33 Cal. 512. The term
"editor," as used when the statute of New York was passed, from which the Oregon law
is borrowed, usually included not only the person who wrote or selected the articles for
publication, but the person who published the paper and put it into circulation. Webster,
in an early edition of his Dictionary, gives as one of the definitions of an editor, a person
"who superintends the publication of a newspaper." It is principally since that time that
the business of an editor has been separated from that of a publisher and printer, and
has become an independent profession.

If, therefore, we were confined to the rulings of the court below upon the defects in the
affidavits mentioned, we should be unable to uphold its decision. But it was also
contended in that court, and is insisted upon here, that the judgment in the State court
against the plaintiff was void for want of personal service of process on him, or of his
appearance in the action in which it was rendered and that the premises in controversy
could not be subjected to the payment of the demand

Page 95 U. S. 722

of a resident creditor except by a proceeding in rem, that is, by a direct proceeding


against the property for that purpose. If these positions are sound, the ruling of the
Circuit Court as to the invalidity of that judgment must be sustained notwithstanding our
dissent from the reasons upon which it was made. And that they are sound would seem
to follow from two well established principles of public law respecting the jurisdiction of
an independent State over persons and property. The several States of the Union are
not, it is true, in every respect independent, many of the right and powers which
originally belonged to them being now vested in the government created by the
Constitution. But, except as restrained and limited by that instrument, they possess and
exercise the authority of independent States, and the principles of public law to which
we have referred are applicable to them. One of these principles is that every State
possesses exclusive jurisdiction and sovereignty over persons and property within its
territory. As a consequence, every State has the power to determine for itself the civil
status and capacities of its inhabitants; to prescribe the subjects upon which they may
contract, the forms and solemnities with which their contracts shall be executed, the
rights and obligations arising from them, and the mode in which their validity shall be
determined and their obligations enforced; and also the regulate the manner and
conditions upon which property situated within such territory, both personal and real,
may be acquired, enjoyed, and transferred. The other principle of public law referred to
follows from the one mentioned; that is, that no State can exercise direct jurisdiction and
authority over persons or property without its territory. Story, Confl. Laws, c. 2; Wheat.
Int. Law, pt. 2, c. 2. The several States are of equal dignity and authority, and the
independence of one implies the exclusion of power from all others. And so it is laid
down by jurists as an elementary principle that the laws of one State have no operation
outside of its territory except so far as is allowed by comity, and that no tribunal
established by it can extend its process beyond that territory so as to subject either
persons or property to its decisions. "Any exertion of authority of this sort beyond this
limit," says Story, "is a mere nullity, and incapable of binding

Page 95 U. S. 723

such persons or property in any other tribunals." Story, Confl.Laws, sect. 539.

But as contracts made in one State may be enforceable only in another State, and
property may be held by nonresidents, the exercise of the jurisdiction which every State
is admitted to possess over persons and property within its own territory will often affect
persons and property without it. To any influence exerted in this way by a State affecting
persons resident or property situated elsewhere, no objection can be justly taken; whilst
any direct exertion of authority upon them, in an attempt to give ex-territorial operation
to its laws, or to enforce an ex-territorial jurisdiction by its tribunals, would be deemed
an encroachment upon the independence of the State in which the persons are
domiciled or the property is situated, and be resisted as usurpation.

Thus the State, through its tribunals, may compel persons domiciled within its limits to
execute, in pursuance of their contracts respecting property elsewhere situated,
instruments in such form and with such solemnities as to transfer the title, so far as such
formalities can be complied with; and the exercise of this jurisdiction in no manner
interferes with the supreme control over the property by the State within which it is
situated. Penn v. Lord Baltimore, 1 Ves. 444; Massie v. Watts, 6 Cranch 148; Watkins v.
Holman, 16 Pet. 25; Corbett v. Nutt, 10 Wall. 464.

So the State, through its tribunals, may subject property situated within its limits owned
by nonresidents to the payment of the demand of its own citizens against them, and the
exercise of this jurisdiction in no respect infringes upon the sovereignty of the State
where the owners are domiciled. Every State owes protection to its own citizens, and,
when nonresidents deal with them, it is a legitimate and just exercise of authority to hold
and appropriate any property owned by such nonresidents to satisfy the claims of its
citizens. It is in virtue of the State's jurisdiction over the property of the nonresident
situated within its limits that its tribunals can inquire into that nonresident's obligations to
its own citizens, and the inquiry can then be carried only to the extent necessary to
control the disposition of the property. If the nonresident

Page 95 U. S. 724

have no property in the State, there is nothing upon which the tribunals can adjudicate.

These views are not new. They have been frequently expressed, with more or less
distinctness, in opinions of eminent judges, and have been carried into adjudications in
numerous cases. Thus, in Picquet v. Swan, 5 Mas. 35, Mr. Justice Story said:--

"Where a party is within a territory, he may justly be subjected to its process, and bound
personally by the judgment pronounced on such process against him. Where he is not
within such territory, and is not personally subject to its laws, if, on account of his
supposed or actual property being within the territory, process by the local laws may, by
attachment, go to compel his appearance, and, for his default to appear, judgment may
be pronounced against him, such a judgment must, upon general principles, be deemed
only to bind him to the extent of such property, and cannot have the effect of a
conclusive judgment in personam, for the plain reason, that, except so far as the
property is concerned, it is a judgment coram non judice."

And in Boswell's Lessee v. Otis, 9 How. 336, where the title of the plaintiff in ejectment
was acquired on a sheriff's sale under a money decree rendered upon publication of
notice against nonresidents, in a suit brought to enforce a contract relating to land, Mr.
Justice McLean said:--

"Jurisdiction is acquired in one of two modes: first, as against the person of the
defendant by the service of process; or, secondly, by a procedure against the property
of the defendant within the jurisdiction of the court. In the latter case, the defendant is
not personally bound by the judgment beyond the property in question. And it is
immaterial whether the proceeding against the property be by an attachment or bill in
chancery. It must be substantially a proceeding in rem."

These citations are not made as authoritative expositions of the law, for the language
was perhaps not essential to the decision of the cases in which it was used, but as
expressions of the opinion of eminent jurists. But in Cooper v. Reynolds,reported in the
10th of Wallace, it was essential to the disposition of the case to declare the effect of a
personal action against an absent party, without the jurisdiction of the court, not served

Page 95 U. S. 725
with process or voluntarily submitting to the tribunal, when it was sought to subject his
property to the payment of a demand of a resident complainant; and, in the opinion
there delivered, we have a clear statement of the law as to the efficacy of such actions,
and the jurisdiction of the court over them. In that case, the action was for damages for
alleged false imprisonment of the plaintiff; and, upon his affidavit that the defendants
had fled from the State, or had absconded or concealed themselves so that the ordinary
process of law could not reach them, a writ of attachment was sued out against their
property. Publication was ordered by the court, giving notice to them to appear and
plead, answer or demur, or that the action would be taken as confessed and proceeded
in ex parte as to them. Publication was had, but they made default, and judgment was
entered against them, and the attached property was sold under it. The purchaser
having been put into possession of the property, the original owner brought ejectment
for its recovery. In considering the character of the proceeding, the Court, speaking
through Mr. Justice Miller, said:--

"Its essential purpose or nature is to establish, by the judgment of the court, a demand
or claim against the defendant, and subject his property lying within the territorial
jurisdiction of the court to the payment of that demand. But the plaintiff is met at the
commencement of his proceedings by the fact that the defendant is not within the
territorial jurisdiction, and cannot be served with any process by which he can be
brought personally within the power of the court. For this difficulty, the statute has
provided a remedy. It says that, upon affidavit's being made of that fact, a writ of
attachment may be issued and levied on any of the defendant's property, and a
publication may be made warning him to appear; and that thereafter the court may
proceed in the case, whether he appears or not. If 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. But if there is no
appearance of the defendant, and no service of process on him, the case becomes in
its essential nature a proceeding in rem, the only effect of which is to subject the
property attached to the payment of the demand which the court may find to be due to
the plaintiff. That such is

Page 95 U. S. 726

the nature of this proceeding in this latter class of cases is clearly evinced by two well
established propositions: first, the judgment of the court, though in form a personal
judgment against the defendant, has no effect beyond the property attached in that suit.
No general execution can be issued for any balance unpaid after the attached property
is exhausted. No suit can be maintained on such a judgment in the same court, or in
any other; nor can it be used as evidence in any other proceeding not affecting the
attached property; nor could the costs in that proceeding be collected of defendant out
of any other property than that attached in the suit. Second, the court in such a suit
cannot proceed unless the officer finds some property of defendant on which to levy the
writ of attachment. A return that none can be found is the end of the case, and deprives
the court of further jurisdiction, though the publication may have been duly made and
proven in court."

The fact that the defendants in that case had fled from the State, or had concealed
themselves, so as not to be reached by the ordinary process of the court, and were not
nonresidents, was not made a point in the decision. The opinion treated them as being
without the territorial jurisdiction of the court, and the grounds and extent of its authority
over persons and property thus situated were considered when they were not brought
within its jurisdiction by personal service or voluntary appearance.

The writer of the present opinion considered that some of the objections to the
preliminary proceedings in the attachment suit were well taken, and therefore dissented
from the judgment of the Court, but, to the doctrine declared in the above citation, he
agreed, and he may add that it received the approval of all the judges. It is the only
doctrine consistent with proper protection to citizens of other States. If, without personal
service, judgments in personam, obtained ex parte against nonresidents and absent
parties, upon mere publication of process, which, in the great majority of cases, would
never be seen by the parties interested, could be upheld and enforced, they would be
the constant instruments of fraud and oppression. Judgments for all sorts of claims
upon contracts and for torts, real or pretended, would be thus obtained, under which
property would be seized, when the evidence of the transactions upon

Page 95 U. S. 727

which they were founded, if they ever had any existence, had perished.

Substituted service by publication, or in any other authorized form, may be sufficient to


inform parties of the object of proceedings taken where property is once brought under
the control of the court by seizure or some equivalent act. The law assumes that
property is always in the possession of its owner, in person or by agent, and it proceeds
upon the theory that its seizure will inform him not only that it is taken into the custody of
the court, but that he must look to any proceedings authorized by law upon such seizure
for its condemnation and sale. Such service may also be sufficient in cases where the
object of the action is to reach and dispose of property in the State, or of some interest
therein, by enforcing a contract or a lien respecting the same, or to partition it among
different owners, or, when the public is a party, to condemn and appropriate it for a
public purpose. In other words, such service may answer in all actions which are
substantially proceedings in rem. But where the entire object of the action is to
determine the personal rights and obligations of the defendants, that is, where the suit is
merely in personam, constructive service in this form upon a nonresident is ineffectual
for any purpose. Process from the tribunals of one State cannot run into another State,
and summon parties there domiciled to leave its territory and respond to proceedings
against them. Publication of process or notice within the State where the tribunal sits
cannot create any greater obligation upon the nonresident to appear. Process sent to
him out of the State, and process published within it, are equally unavailing in
proceedings to establish his personal liability.
The want of authority of the tribunals of a State to adjudicate upon the obligations of
nonresidents, where they have no property within its limits, is not denied by the court
below: but the position is assumed, that, where they have property within the State, it is
immaterial whether the property is in the first instance brought under the control of the
court by attachment or some other equivalent act, and afterwards applied by its
judgment to the satisfaction of demands against its owner; or such demands be first
established in a personal action, and

Page 95 U. S. 728

the property of the nonresident be afterwards seized and sold on execution. But the
answer to this position has already been given in the statement that the jurisdiction of
the court to inquire into and determine his obligations at all is only incidental to its
jurisdiction over the property. Its jurisdiction in that respect cannot be made to depend
upon facts to be ascertained after it has tried the cause and rendered the judgment. If
the judgment be previously void, it will not become valid by the subsequent discovery of
property of the defendant, or by his subsequent acquisition of it. The judgment, if void
when rendered, will always remain void; it cannot occupy the doubtful position of being
valid if property be found, and void if there be none. Even if the position assumed were
confined to cases where the nonresident defendant possessed property in the State at
the commencement of the action, it would still make the validity of the proceedings and
judgment depend upon the question whether, before the levy of the execution, the
defendant had or had not disposed of the property. If, before the levy, the property
should be sold, then, according to this position, the judgment would not be binding. This
doctrine would introduce a new element of uncertainty in judicial proceedings. The
contrary is the law: the validity of every judgment depends upon the jurisdiction of the
court before it is rendered, not upon what may occur subsequently. In Webster v.
Reid, reported in 11th of Howard, the plaintiff claimed title to land sold under judgments
recovered in suits brought in a territorial court of Iowa, upon publication of notice under
a law of the territory, without service of process; and the court said:

"These suits were not a proceeding in rem against the land, but were in
personam against the owners of it. Whether they all resided within the territory or not
does not appear, nor is it a matter of any importance. No person is required to answer in
a suit on whom process has not been served, or whose property has not been attached.
In this case, there was no personal notice, nor an attachment or other proceeding
against the land, until after the judgments. The judgments, therefore, are nullities, and
did not authorize the executions on which the land was sold. "

Page 95 U. S. 729

The force and effect of judgments rendered against nonresidents without personal
service of process upon them, or their voluntary appearance, have been the subject of
frequent consideration in the courts of the United States and of the several States, as
attempts have been made to enforce such judgments in States other than those in
which they were rendered, under the provision of the Constitution requiring that "full
faith and credit shall be given in each State to the public acts, records, and judicial
proceedings of every other State;" and the act of Congress providing for the mode of
authenticating such acts, records, and proceedings, and declaring that, when thus
authenticated,

"they shall have such faith and credit given to them in every court within the United
States as they have by law or usage in the courts of the State from which they are or
shall or taken."

In the earlier cases, it was supposed that the act gave to all judgments the same effect
in other States which they had by law in the State where rendered. But this view was
afterwards qualified so as to make the act applicable only when the court rendering the
judgment had jurisdiction of the parties and of the subject matter, and not to preclude an
inquiry into the jurisdiction of the court in which the judgment was rendered, or the right
of the State itself to exercise authority over the person or the subject matter. M'Elmoyle
v. Cohen, 13 Pet. 312. In the case of D'Arcy v. Ketchum, reported in the 11th of Howard,
this view is stated with great clearness. That was an action in the Circuit Court of the
United States for Louisiana, brought upon a judgment rendered in New York under a
State statute, against two joint debtors, only one of whom had been served with
process, the other being a nonresident of the State. The Circuit Court held the judgment
conclusive and binding upon the nonresident not served with process, but this Court
reversed its decision, observing, that it was a familiar rule that countries foreign to our
own disregarded a judgment merely against the person, where the defendant had not
been served with process nor had a day in court; that national comity was never thus
extended; that the proceeding was deemed an illegitimate assumption of power, and
resisted as mere abuse; that no faith and credit or force and effect had been given to
such judgments by any State of the Union, so far

Page 95 U. S. 730

as known; and that the State courts had uniformly, and in many instances, held them to
be void. "The international law," said the court,

"as it existed among the States in 1790, was that a judgment rendered in one State,
assuming to bind the person of a citizen of another, was void within the foreign State,
when the defendant had not been served with process or voluntarily made defence,
because neither the legislative jurisdiction nor that of courts of justice had binding
force."

And the Court held that the act of Congress did not intend to declare a new rule, or to
embrace judicial records of this description. As was stated in a subsequent case, the
doctrine of this Court is that the act

"was not designed to displace that principle of natural justice which requires a person to
have notice of a suit before he can be conclusively bound by its result, nor those rules
of public law which protect persons and property within one State from the exercise of
jurisdiction over them by another."

The Lafayette Insurance Co. v. French et al., 18 How. 404.

This whole subject has been very fully and learnedly considered in the recent case
of Thompson v. Whitman, 18 Wall. 457, where all the authorities are carefully reviewed
and distinguished, and the conclusion above stated is not only reaffirmed, but the
doctrine is asserted that the record of a judgment rendered in another State may be
contradicted as to the facts necessary to give the court jurisdiction against its recital of
their existence. In all the cases brought in the State and Federal courts, where attempts
have been made under the act of Congress to give effect in one State to personal
judgments rendered in another State against nonresidents, without service upon them,
or upon substituted service by publication, or in some other form, it has been held,
without an exception, so far as we are aware, that such judgments were without any
binding force except as to property, or interests in property, within the State, to reach
and affect which was the object of the action in which the judgment was rendered, and
which property was brought under control of the court in connection with the process
against the person. The proceeding in such cases, though in the form of a personal
action, has been uniformly treated, where service was not obtained, and the party did
not voluntarily

Page 95 U. S. 731

appear, as effectual and binding merely as a proceeding in rem, and as having no


operation beyond the disposition of the property, or some interest therein. And the
reason assigned for this conclusion has been that which we have already stated -- that
the tribunals of one State have no jurisdiction over persons beyond its limits, and can
inquire only into their obligations to its citizens when exercising its conceded jurisdiction
over their property within its limits. In Bissell v. Briggs,decided by the Supreme Court of
Massachusetts as early as 1813, the law is stated substantially in conformity with these
views. In that case, the court considered at length the effect of the constitutional
provision, and the act of Congress mentioned, and after stating that, in order to entitle
the judgment rendered in any court of the United States to the full faith and credit
mentioned in the Constitution, the court must have had jurisdiction not only of the
cause, but of the parties, it proceeded to illustrate its position by observing, that, where
a debtor living in one State has goods, effects, and credits in another, his creditor living
in the other State may have the property attached pursuant to its laws, and, on
recovering judgment, have the property applied to its satisfaction, and that the party in
whose hands the property was would be protected by the judgment in the State of the
debtor against a suit for it, because the court rendering the judgment had jurisdiction to
that extent; but that, if the property attached were insufficient to satisfy the judgment,
and the creditor should sue on that judgment in the State of the debtor, he would fail
because the defendant was not amenable to the court rendering the judgment. In other
words, it was held that over the property within the State the court had jurisdiction by the
attachment, but had none over his person, and that any determination of his liability,
except so far as was necessary for the disposition of the property, was invalid.

In Kilbourn v. Woodworth, 5 Johns. (N.Y.) 37, an action of debt was brought in New York
upon a personal judgment recovered in Massachusetts. The defendant in that judgment
was not served with process, and the suit was commenced by the attachment of a
bedstead belonging to the defendant, accompanied with a summons to appear, served
on his wife after she had left her place in Massachusetts. The court held that

Page 95 U. S. 732

the attachment bound only the property attached as a proceeding in rem, and that it
could not bind the defendant, observing, that to bind a defendant personally when he
was never personally summoned or had notice of the proceeding would be contrary to
the first principles of justice, repeating the language in that respect of Chief Justice
DeGrey, used in the case of Fisher v. Lane, 3 Wils. 297, in 1772. See also Borden v.
Fitch, 15 Johns. (N. Y.) 121, and the cases there cited, and Harris v. Hardeman et al., 14
How. 334. To the same purport, decisions are found in all the State courts. In several of
the cases, the decision has been accompanied with the observation that a personal
judgment thus recovered has no binding force without the State in which it is rendered,
implying that, in such State, it may be valid and binding. But if the court has no
jurisdiction over the person of the defendant by reason of his nonresidence, and
consequently no authority to pass upon his personal rights and obligations; if the whole
proceeding, without service upon him or his appearance, is coram non judice and void;
if to hold a defendant bound by such a judgment is contrary to the first principles of
justice -- it is difficult to see how the judgment can legitimately have any force within the
State. The language used can be justified only on the ground that there was no mode of
directly reviewing such judgment or impeaching its validity within the State where
rendered, and that therefore it could be called in question only when its enforcement
was elsewhere attempted. In later cases, this language is repeated with less frequency
than formerly, it beginning to be considered, as it always ought to have been, that a
judgment which can be treated in any State of this Union as contrary to the first
principles of justice, and as an absolute nullity, because rendered without any
jurisdiction of the tribunal over the party, is not entitled to any respect in the State where
rendered. Smith v. McCutchen, 38 Mo. 415; Darrance v. Preston, 18 Iowa, 396; Hakes
v. Shupe, 27 id. 465; Mitchell's Administrator v. Gray, 18 Ind. 123.

Be that as it may, the courts of the United States are not required to give effect to
judgments of this character when any right is claimed under them. Whilst they are not
foreign tribunals in their relations to the State courts, they are tribunals

Page 95 U. S. 733

of a different sovereignty, exercising a distinct and independent jurisdiction, and are


bound to give to the judgments of the State courts only the same faith and credit which
the courts of another State are bound to give to them.
Since the adoption of the Fourteenth Amendment to the Federal Constitution, the
validity of such judgments may be directly questioned, and their enforcement in the
State resisted, 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. Whatever difficulty may be experienced in giving to those
terms a definition which will embrace every permissible exertion of power affecting
private rights, and exclude such as is forbidden, there can be no doubt of their meaning
when applied to judicial proceedings. They then mean a course of legal proceedings
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 such
proceedings any validity, there must be a tribunal competent by its constitution -- that is,
by the law of its creation -- to pass upon the subject matter of the suit; and if that
involves merely a determination of the personal liability of the defendant, he must be
brought within its jurisdiction by service of process within the State, or his voluntary
appearance.

Except in cases affecting the personal status of the plaintiff and cases in which that
mode of service may be considered to have been assented to in advance, as
hereinafter mentioned, the substituted service of process by publication, allowed by the
law of Oregon and by similar laws in other States, where actions are brought against
nonresidents, is effectual only where, in connection with process against the person for
commencing the action, 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. As
stated by Cooley in his Treatise on Constitutional Limitations 405, for any other purpose
than to subject the property of a nonresident to valid claims against

Page 95 U. S. 734

him in the State, "due process of law would require appearance or personal service
before the defendant could be personally bound by any judgment rendered."

It is true that, in a strict sense, a proceeding in rem is one taken directly against
property, and has for its object the disposition of the property, without reference to the
title of individual claimants; but, in a larger and more general sense, the terms are
applied to actions between parties where the direct object is to reach and dispose of
property owned by them, or of some interest therein. Such are cases commenced by
attachment against the property of debtors, or instituted to partition real estate,
foreclose a mortgage, or enforce a lien. So far as they affect property in the State, they
are substantially proceedings in rem in the broader sense which we have mentioned.

It is hardly necessary to observe that, in all we have said, we have had reference to
proceedings in courts of first instance, and to their jurisdiction, and not to proceedings in
an appellate tribunal to review the action of such courts. The latter may be taken upon
such notice, personal or constructive, as the State creating the tribunal may provide.
They are considered as rather a continuation of the original litigation than the
commencement of a new action. Nations et al. v. Johnson et al., 24 How. 195.

It follows from the views expressed that the personal judgment recovered in the State
court of Oregon against the plaintiff herein, then a nonresident of the State, was without
any validity, and did not authorize a sale of the property in controversy.

To prevent any misapplication of the views expressed in this opinion, it is proper to


observe that we do not mean to assert by anything we have said that a State may not
authorize proceedings to determine the status of one of its citizens towards a
nonresident which would be binding within the State, though made without service of
process or personal notice to the nonresident. The jurisdiction which every State
possesses to determine the civil status and capacities of all its inhabitants involves
authority to prescribe the conditions on which proceedings affecting them may be
commenced and carried on within its territory. The State, for example, has absolute

Page 95 U. S. 735

right to prescribe the conditions upon which the marriage relation between its own
citizens shall be created, and the causes for which it may be dissolved. One of the
parties guilty of acts for which, by the law of the State, a dissolution may be granted
may have removed to a State where no dissolution is permitted. The complaining party
would, therefore, fail if a divorce were sought in the State of the defendant; and if
application could not be made to the tribunals of the complainant's domicile in such
case, and proceedings be there instituted without personal service of process or
personal notice to the offending party, the injured citizen would be without redress. Bish.
Marr. and Div., sect. 156.

Neither do we mean to assert that a State may not require a nonresident entering into a
partnership or association within its limits, or making contracts enforceable there, to
appoint an agent or representative in the State to receive service of process and notice
in legal proceedings instituted with respect to such partnership, association, or
contracts, or to designate a place where such service may be made and notice given,
and provide, upon their failure, to make such appointment or to designate such place
that service may be made upon a public officer designated for that purpose, or in some
other prescribed way, and that judgments rendered upon such service may not be
binding upon the nonresidents both within and without the State. As was said by the
Court of Exchequer in Vallee v. Dumergue, 4 Exch. 290,

"It is not contrary to natural justice that a man who has agreed to receive a particular
mode of notification of legal proceedings should be bound by a judgment in which that
particular mode of notification has been followed, even though he may not have actual
notice of them."

See also The Lafayette Insurance Co. v. French et al., 18 How. 404, and Gillespie v.
Commercial Mutual Marine Insurance Co., 12 Gray (Mass.), 201. Nor do we doubt that
a State, on creating corporations or other institutions for pecuniary or charitable
purposes, may provide a mode in which their conduct may be investigated, their
obligations enforced, or their charters revoked, which shall require other than personal
service upon their officers or members. Parties becoming members of such
corporations or institutions would hold their

Page 95 U. S. 736

interest subject to the conditions prescribed by law. Copin v. Adamson, Law Rep. 9 Ex.
345.

In the present case, there is no feature of this kind, and consequently no consideration
of what would be the effect of such legislation in enforcing the contract of a nonresident
can arise. The question here respects only the validity of a money judgment rendered in
one State in an action upon a simple contract against the resident of another without
service of process upon him or his appearance therein.

Judgment affirmed.

MR. JUSTICE HUNT dissenting.

I am compelled to dissent from the opinion and judgment of the court, and, deeming the
question involved to be important, I take leave to record my views upon it.

The judgment of the court below was placed upon the ground that the provisions of the
statute were not complied with. This is of comparatively little importance, as it affects the
present case only. The judgment of this Court is based upon the theory that the
legislature had no power to pass the law in question; that the principle of the statute is
vicious, and every proceeding under it void. It, therefore, affects all like cases, past and
future, and in every State.

The precise case is this: a statute of Oregon authorizes suits to be commenced by the
service of a summons. In the case of a nonresident of the State, it authorizes the
service of the summons to be made by publication for not less than six weeks, in a
newspaper published in the county where the action is commenced. A copy of the
summons must also be sent by mail, directed to the defendant at his place of residence,
unless it be shown that the residence is not known and cannot be ascertained. It
authorizes a judgment and execution to be obtained in such proceeding. Judgment in a
suit commenced by one Mitchell in the Circuit Court of Multnomah County, where the
summons was thus served, was obtained against Neff, the present plaintiff, and the land
in question, situate in Multnomah County, was bought by the defendant Pennoyer at a
sale upon the judgment in such suit. This court now holds that, by reason of the
absence of a personal service of

Page 95 U. S. 737
the summons on the defendant, the Circuit Court of Oregon had no jurisdiction, its
judgment could not authorize the sale of land in said county, and, as a necessary result,
a purchaser of land under it obtained no title; that, as to the former owner, it is a case of
depriving a person of his property without due process of law.

In my opinion, this decision is at variance with the long established practice under the
statutes of the States of this Union, is unsound in principle, and, I fear, may be
disastrous in its effects. It tends to produce confusion in titles which have been obtained
under similar statutes in existence for nearly a century; it invites litigation and strife, and
overthrows a well settled rule of property.

The result of the authorities on the subject, and the sound conclusions to be drawn from
the principles which should govern the decision, as I shall endeavor to show, are
these:--

1. A sovereign State must necessarily have such control over the real and personal
property actually being within its limits, as that it may subject the same to the payment
of debts justly due to its citizens.

2. This result is not altered by the circumstance that the owner of the property is
nonresident, and so absent from the State that legal process cannot be served upon
him personally.

3. Personal notice of a proceeding by which title to property is passed is not


indispensable; it is competent to the State to authorize substituted service by publication
or otherwise, as the commencement of a suit against nonresidents, the judgment in
which will authorize the sale of property in such State.

4. It belongs to the legislative power of the State to determine what shall be the modes
and means proper to be adopted to give notice to an absent defendant of the
commencement of a suit; and if they are such as are reasonably likely to communicate
to him information of the proceeding against him, and are in good faith designed to give
him such information, and an opportunity to defend is provided for him in the event of
his appearance in the suit, it is not competent to the judiciary to declare that such
proceeding is void as not being by due process of law.

5. Whether the property of such nonresident shall be seized

Page 95 U. S. 738

upon attachment as the commencement of a suit which shall be carried into judgment
and execution, upon which it shall then be sold, or whether it shall be sold upon an
execution and judgment without such preliminary seizure, is a matter not of
constitutional power, but of municipal regulation only.
To say that a sovereign State has the power to ordain that the property of nonresidents
within its territory may be subjected to the payment of debts due to its citizens, if the
property is levied upon at the commencement of a suit, but that it has not such power if
the property is levied upon at the end of the suit, is a refinement and a depreciation of a
great general principle that, in my judgment, cannot be sustained.

A reference to the statutes of the different States, and to the statutes of the United
States, and to the decided cases, and a consideration of the principles on which they
stand, will more clearly exhibit my view of the question.

The statutes are of two classes: first, those which authorize the commencement of
actions by publication, accompanied by an attachment which is levied upon property,
more or less, of an absent debtor; second, those giving the like mode of commencing a
suit without an attachment.

The statute of Oregon relating to publication of summons, supra, p. 95 U. S. 718, under


which the question arises, is nearly a transcript of a series of provisions contained in the
New York statute, adopted thirty years since. The latter authorizes the commencement
of a suit against a nonresident by the publication of an order for his appearance, for a
time not less than six weeks, in such newspapers as shall be most likely to give notice
to him, and the deposit of a copy of the summons and complaint in the post office,
directed to him at his residence, if it can be ascertained; and provides for the allowance
to defend the action before judgment, and within seven years after its rendition, upon
good cause shown, and that, if the defence be successful, restitution shall be ordered. It
then declares: "But the title to property sold under such judgment to a purchaser in good
faith shall not be thereby affected." Code, sects. 34, 35; 5 Edm.Rev.Stat. of N.Y., pp. 37-
39.

Provisions similar in their effect, in authorizing the commencement of suits by


attachment against absent debtors, in

Page 95 U. S. 739

which all of the property of the absent debtor, real and personal, not merely that seized
upon the attachment, is placed under the control of trustees, who sell it for the benefit of
all the creditors, and make just distribution thereof, conveying absolute title to the
property sold have been upon the statute book of New York for more than sixty years.
2 id., p. 2 and following; 1 Rev.Laws, 1813, p. 157.

The statute of New York, before the Code, respecting proceedings in chancery where
absent debtors are parties, had long been in use in that State, and was adopted in all
cases of chancery jurisdiction. Whenever a defendant resided out of the State, his
appearance might be compelled by publication in the manner pointed out. A decree
might pass against him, and performance be compelled by sequestration of his real or
personal property, or by causing possession of specific property to be delivered, where
that relief is sought. T he relief was not confined to cases of mortgage foreclosure, or
where there was a specific claim upon the property, but included cases requiring the
payment of money as well. 2 Edm.Rev.Stat. N.Y., pp. 193-195; 186, m.

I doubt not that many valuable titles are now held by virtue of the provisions of these
statutes.

The statute of California authorizes the service of a summons on a nonresident


defendant by publication, permitting him to come in and defend upon the merits within
one year after the entry of judgment. Code, sects. 10,412, 10,473. In its general
character, it is like the statutes of Oregon and New York already referred to.

The Code of Iowa, sect. 2618, that of Nevada, sect. 1093, and that of Wisconsin, are to
the same general effect. The Revised Statutes of Ohio, sects. 70, 75, 2 Swan &
Critchfield, provide for a similar publication, and that the defendant may come in to
defend within five years after the entry of the judgment, but that the title to property held
by any purchaser in good faith under the judgment shall not be affected thereby.

The attachment laws of New Jersey, Nixon Dig. (4th ed.), p. 55, are like those of New
York already quoted, by which title may be transferred to all the property of a
nonresident debtor. And the provisions of the Pennsylvania statute regulating

Page 95 U. S. 740

proceedings in equity, Brightly's Purden's Dig., p. 5988, sects. 51, 52, give the same
authority in substance, and the same result is produced as under the New York statute.

Without going into a wearisome detail of the statutes of the various States, it is safe to
say that nearly every State in the Union provides a process by which the lands and
other property of a nonresident debtor may be subjected to the payment of his debts,
through a judgment or decree against the owner, obtained upon a substituted service of
the summons or writ commencing the action.

The principle of substituted service is also a rule of property under the statutes of the
United States.

The act of Congress "to amend the law of the District of Columbia in relation to judicial
proceedings therein," approved Feb. 23, 1867, 14 Stat. 403, contains the same general
provisions. It enacts (sect. 7) that publication may be substituted for personal service
when the defendant cannot be found in suits for partition, divorce, by attachment, for the
foreclosure of mortgages and deeds of trust, and for the enforcement of mechanics'
liens and all other liens against real or personal property, and in all actions at law or in
equity having for their immediate object the enforcement or establishment of any lawful
right, claim, or demand to or against any real or personal property within the jurisdiction
of the court.

A following section points out the mode of proceeding, and closes in these words:
"The decree, besides subjecting the thing upon which the lien has attached to the
satisfaction of the plaintiff's demand against the defendant, shall adjudge that the
plaintiff recover his demand against the defendant, and that he may have execution
thereof as at law."

Sect. 10.

A formal judgment against the debtor is thus authorized by means of which any other
property of the defendant within the jurisdiction of the court, in addition to that which is
the subject of the lien, may be sold, and the title transferred to the purchaser.

All these statutes are now adjudged to be unconstitutional and void. The titles obtained
under them are not of the value

Page 95 U. S. 741

of the paper on which they are recorded, except where a preliminary attachment was
issued.

Some of the statutes and several of the authorities I cite go further than the present
case requires. In this case, property lying in the State where the suit was brought,
owned by the nonresident debtor, was sold upon the judgment against him, and it is on
the title to that property that the controversy turns.

The question whether, in a suit commenced like the present one, a judgment can be
obtained which, if sued upon in another State, will be conclusive against the debtor, is
not before us; nor does the question arise as to the faith and credit to be given in one
State to a judgment recovered in another. The learning on that subject is not applicable.
The point is simply whether land lying in the same State may be subjected to process at
the end of a suit thus commenced.

It is here necessary only to maintain the principle laid down by Judge Cooley in his work
on Constitutional Limitations, p. 404, and cited by Mr. Justice Field in Galpin v. Page, 3
Sawyer 93, in these words:

"The fact that process was not personally served is a conclusive objection to the
judgment as a personal claim, unless the defendant caused his appearance to be
entered in the attachment proceedings. Where a party has property in a State, and
resides elsewhere, his property is justly subject to all valid claims that may exist against
him there; but, beyond this, due process of law would require appearance or personal
service before the defendant could be personally bound by any judgment rendered."

The learned author does not make it a condition that there should be a preliminary
seizure of the property by attachment; he lays down the rule that all a person's property
in a State may be subjected to all valid claims there existing against him.
The objection now made that suits commenced by substituted service, as by
publication, and judgments obtained without actual notice to the debtor, are in violation
of that constitutional provision that no man shall be deprived of his property "without due
process of law," has often been presented.

In Matter of the Empire City Bank, 18 N.Y. 199, which

Page 95 U. S. 742

was a statutory proceeding to establish and to enforce the responsibility of the


stockholders of a banking corporation, and the proceedings in which resulted in a
personal judgment against the stockholders for the amount found due, the eminent and
learned Judge Denio, speaking as the organ of the Court of Appeals, says:

"The notice of hearing is to be personal, or by service at the residence of the parties


who live in the county, or by advertisement as to others. It may therefore happen that
some of the persons who are made liable will not have received actual notice, and the
question is whether personal service of process or actual notice to the party is essential
to constitute due process of law. We have not been referred to any adjudication holding
that no man's right of property can be affected by judicial proceedings unless he have
personal notice. It may be admitted that a statute which should authorize any debt or
damages to be adjudged against a person upon a purely ex parte proceeding, without a
pretence of notice or any provision for defending, would be a violation of the
Constitution, and be void; but where the legislature has prescribed a kind of notice by
which it is reasonably probable that the party proceeded against will be apprised of what
is going on against him, and an opportunity is afforded him to defend, I am of the
opinion that the courts have not the power to pronounce the proceeding illegal. The
legislature has uniformly acted upon that understanding of the Constitution."

Numerous provisions of the statutes of the State are commented upon, after which he
proceeds:

"Various prudential regulations are made with respect to these remedies; but it may
possibly happen, notwithstanding all these precautions, that a citizen who owes nothing,
and has done none of the acts mentioned in the statute, may be deprived of his estate
without any actual knowledge of the process by which it has been taken from him. If we
hold, as we must in order to sustain this legislation, that the Constitution does not
positively require personal notice in order to constitute a legal proceeding due process
of law, it then belongs to the legislature to determine whether the case calls for this kind
of exceptional legislation, and what manner of constructive notice shall be sufficient to
reasonably apprise the party proceeded against of the legal steps which are taken
against him. "

Page 95 U. S. 743

In Happy v. Mosher, 48 id. 313, the court say:


"An approved definition of due process of law is 'law in its regular administration through
courts of justice.' 2 Kent Com. 13. It need not be a legal proceeding according to the
course of the common law, neither must there be personal notice to the party whose
property is in question. It is sufficient if a kind of notice is provided by which it is
reasonably probable that the party proceeded against will be apprised of what is going
on against him, and an opportunity afforded him to defend."

The same language is used in Westervelt v. Gregg, 12 id. 202, and in Campbell v.
Evans, 45 id. 356. Campbell v. Evans and The Empire City Bank are cases not of
proceedings against property to enforce a lien or claim, but, in each of them, a personal
judgment in damages was rendered against the party complaining.

It is undoubtedly true, that, in many cases where the question respecting due process of
law has arisen, the case in hand was that of a proceeding in rem. It is true also, as is
asserted, that the process of a State cannot be supposed to run beyond its own
territory. It is equally true, however, that, in every instance where the question has been
presented, the validity of substituted service, which is used to subject property within the
State belonging to a nonresident to a judgment obtained by means thereof has been
sustained. I have found no case in which it is adjudged that a statute must require a
preliminary seizure of such property as necessary to the validity of the proceeding
against it, or that there must have been a previous specific lien upon it; that is, I have
found no case where such has been the judgment of the court upon facts making
necessary the decision of the point. On the contrary, in the case of the attachment laws
of New York and of New Jersey, which distribute all of the nonresident's property, not
merely that levied on by the attachment, and in several of the reported cases already
referred to, where the judgment was sustained, neither of these preliminary facts
existed.

The case of Galpin v. Page, reported in 18 Wall. 350 and again in 3 Sawyer 93, is cited
in hostility to the views I have expressed. There may be general expressions which will
justify

Page 95 U. S. 744

this suggestion, but the judgment is in harmony with those principles. In the case as
reported in this Court, it was held that the title of the purchaser under a decree against a
nonresident infant was invalid, for two reasons: 1st, that there was no jurisdiction of the
proceeding under the statute of California, on account of the entire absence of an
affidavit of nonresidence, and of diligent inquiry for the residence of the debtor; 2d, the
absence of any order for publication in Eaton's case -- both of which are conditions
precedent to the jurisdiction of the court to take any action on the subject. The title was
held void, also, for the reason that the decree under which it was obtained had been
reversed in the State court, and the title was not taken at the sale, nor held then by a
purchaser in good faith, the purchase being made by one of the attorneys in the suit,
and the title being transferred to his law partner after the reversal of the decree. The
court held that there was a failure of jurisdiction in the court under which the plaintiff
claimed title, and that he could not recover. The learned justice who delivered the
opinion in the Circuit Court and in this Court expressly affirms the authority of a State
over persons not only, but property as well, within its limits, and this by means of a
substituted service. The judgment so obtained, he insists, can properly be used as a
means of reaching property within the State, which is thus brought under the control of
the court and subjected to its judgment. This is the precise point in controversy in the
present action.

The case of Cooper v. Reynolds, 10 Wall. 308, is cited for the same purpose. There, the
judgment of the court below, refusing to give effect to a judgment obtained upon an
order of publication against a nonresident, was reversed in this Court. The suit was
commenced, or immediately accompanied (it is not clear which), by an attachment
which was levied upon the real estate sold, and for the recovery of which this action was
brought. This Court sustained the title founded upon the suit commenced against the
nonresident by attachment. In the opinion delivered in that case, there may be remarks,
by way of argument or illustration, tending to show that a judgment obtained in a suit not
commenced by the levy of an attachment will not give title to land purchased under it.
They are,

Page 95 U. S. 745

however, extrajudicial, the decision itself sustaining the judgment obtained under the
State statute by publication.

Webster v. Reid, 11 How. 437, is also cited. There, the action involved the title to certain
lands in the State of Iowa, being lands formerly belonging to the half-breeds of the Sac
and Fox tribes; and title was claimed against the Indian right under the statutes of June
2, 1838, and January, 1839. By these statutes, commissioners were appointed who
were authorized to hear claims for accounts against the Indians, and commence actions
for the same, giving a notice thereof of eight weeks in the Iowa "Territorial Gazette," and
to enter up judgments which should be a lien on the lands. It was provided that it should
not be necessary to name the defendants in the suits, but the words "owners of the half-
breed lands lying in Lee County" should be a sufficient designation of the defendants in
such suits; and it provided that the trials should be by the court, and not by a jury. It will
be observed that the lands were not only within the limits of the territory of Iowa, but that
all the Indians who were made defendants under the name mentioned were also
residents of Iowa, and, for aught that appears to the contrary, of the very county of Lee
in which the proceeding was taken. Nonresidence was not a fact in the case. Moreover,
they were Indians, and, presumptively, not citizens of any State, and the judgments
under which the lands were sold were rendered by the commissioners for their own
services under the act.

The court found abundant reasons, six in number, for refusing to sustain the title thus
obtained. The act was apparently an attempt dishonestly to obtain the Indian title, and
not intended to give a substitution for a personal service which would be likely, or was
reasonably designed, to reach the persons to be affected.
The case of Voorhees v. Jackson, 10 Pet. 449, affirmed the title levied under the
attachment laws of Ohio, and laid down the principle of assuming that all had been
rightly done by a court having general jurisdiction of the subject matter.

In Cooper v. Smith, 25 Iowa, 269, it is said that where no process is served on the
defendant, nor property attached, nor garnishee charged, nor appearance entered, a
judgment based

Page 95 U. S. 746

on a publication of the pendency of the suit will be void, and may be impeached,
collaterally or otherwise, and forms no bar to a recovery in opposition to it, nor any
foundation for a title claimed under it. The language is very general, and goes much
beyond the requirement of the case, which was an appeal from a personal judgment
obtained by publication against the defendant, and where, as the court say, the petition
was not properly verified. All that the court decided was that this judgment should be
reversed. This is quite a different question from the one before us. Titles obtained by
purchase at a sale upon an erroneous judgment are generally good, although the
judgment itself be afterwards reversed.McGoon v. Scales, 9 Wall. 311.

In Darrance v. Preston, 18 Iowa, 396, the distinction is pointed out between the validity
of a judgment as to the amount realized from the sale of property within the jurisdiction
of the court and its validity beyond that amount. Picquet v. Swan,5 Mas. 35; Bissell v.
Briggs, 9 Mass. 462; Ewer v. Coffin, 1 Cush. (Mass.) 23, are cited, but neither of them in
its facts touches the question before us.

In Drake on Attachment, the rule is laid down in very general language; but none of the
cases cited by him will control the present case. They are the following:--

Eaton v. Bridger, 33 N. H. 228, was decided upon the peculiar terms of the New
Hampshire statute, which forbids the entry of a judgment unless the debtor was served
with process, or actually appeared and answered in the suit. The court say the judgment
was "not only unauthorized by law, but rendered in violation of its express provisions."

Johnson v. Dodge was a proceeding in the same action to obtain a reversal on appeal
of the general judgment, and did not arise upon a contest for property sold under the
judgment. Carleton v. Washington Insurance Co., 35 id. 162, and Bruce v.
Cloutman, 45 id. 37, are to the same effect and upon the same statute.

Smith v. McCutchen, 38 Mo. 415, was a motion in the former suit to set aside the
execution by a garnishee, and it was held that the statute was intended to extend to that
class of cases. Abbott v. Shepard, 44 id. 273, is to the same effect, and is based
upon Smith v. McCutchen, supra.

Page 95 U. S. 747
So, in Eastman v. Wadleigh, 65 Me. 251, the question arose in debt on the judgment,
not upon a holding of land purchased under the judgment. It was decided upon the
express language of the statute of Maine, strongly implying the power of the legislature
to make it otherwise, had they so chosen.

It is said that the case where a preliminary seizure has been made, and jurisdiction
thereby conferred, differs from that where the property is seized at the end of the action,
in this: in the first case, the property is supposed to be so near to its owner that, if
seizure is made of it, he will be aware of the fact, and have his opportunity to defend,
and jurisdiction of the person is thus obtained. This, however, is matter of discretion and
of judgment only. Such seizure is not in itself notice to the defendant, and it is not
certain that he will by that means receive notice. Adopted as a means of communicating
it, and although a very good means, it is not the only one, nor necessarily better than a
publication of the pendency of the suit, made with an honest intention to reach the
debtor. Who shall assume to say to the legislature that, if it authorizes a particular mode
of giving notice to a debtor, its action may be sustained, but, if it adopts any or all
others, its action is unconstitutional and void? The rule is universal that modes, means,
questions of expediency or necessity are exclusively within the judgment of the
legislature, and that the judiciary cannot review them. This has been so held in relation
to a bank of the United States, to the legal tender act, and to cases arising under other
provisions of the Constitution.

In Jarvis v. Barrett, 14 Wis. 591, such is the holding. The court say:

"The essential fact on which the publication is made to depend is property of the
defendant in the State, and not whether it has been attached. . . . There is no magic
about the writ [of attachment] which should make it the exclusive remedy. The same
legislative power which devised it can devise some other, and declare that it shall have
the same force and effect. The particular means to be used are always within the control
of the legislature, so that the end be not beyond the scope of legislative power."

If the legislature shall think that publication and deposit in the post office are likely to
give the notice, there seems to be

Page 95 U. S. 748

nothing in the nature of things to prevent their adoption in lieu of the attachment. The
point of power cannot be thus controlled.

That a State can subject land within its limits belonging to nonresident owners to debts
due to its own citizens as it can legislate upon all other local matters -- that it can
prescribe the mode and process by which it is to be reached -- seems to me very plain.

I am not willing to declare that a sovereign State cannot subject the land within its limits
to the payment of debts due to its citizens, or that the power to do so depends upon the
fact whether its statute shall authorize the property to be levied upon at the
commencement of the suit or at its termination. This is a matter of detail, and I am of
opinion that, if reasonable notice be given, with an opportunity to defend when
appearance is made, the question of power will be fully satisfied.

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950)

Mullane v. Central Hanover Bank & Trust Co.

No. 378

Argued February &, 1950

Decided April 24, 1950

339 U.S. 306

APPEAL FROM THE COURT OF APPEALS OF NEW YORK

Syllabus

A trust company in New York which had exclusive management and control of a
common trust fund established by it under §100-c of the New York Banking Law
petitioned under that section for a judicial settlement of accounts which would be
binding and conclusive as to any matter set forth therein upon everyone having any
interest in the common fund or in any participating trust. In this common fund, the trust
company had invested assets of numerous small trusts of which it was trustee and of
which some of the beneficiaries were residents, and some nonresidents, of the State.
The only notice of this petition given beneficiaries was by publication in a local
newspaper pursuant to §100-c(12).

Held:

1. Whether such a proceeding for settlement of accounts be technically in personam, in


rem, or quasi in rem, the interest of each state in providing means to close trusts that
exist by the grace of its laws and are administered under the supervision of its courts is
such as to establish beyond doubt the right of its courts to determine the interests of all
claimants, resident or nonresident, provided its procedure accords full opportunity to
appear and be heard. Pp. 339 U. S. 311-313.

2. The statutory notice by publication is sufficient as to any beneficiaries whose interests


or addresses are unknown to the trustee, since there are no other means of giving them
notice which are both practicable and more effective. Pp. 339 U. S. 313-318.

3. Such notice by publication is not sufficient under the Fourteenth Amendment as a


basis for adjudication depriving of substantial property rights known persons whose
whereabouts are also known, since it is not impracticable to make serious efforts to
notify them at least by ordinary mail to their addresses on record with the trust company.
Pp. 339 U. S. 318-320.

299 N.Y. 697, 87 N.E.2d 73, reversed.

Overruling objections to the statutory notice to beneficiaries by publication authorized by


§100-c of the New York Banking Law, a New York Surrogate's Court entered a final
decree accepting an accounting of the trustee of

Page 339 U. S. 307

a common trust fund established pursuant to that section. 75 N.Y.S.2d 397. This decree
was affirmed by the Appellate Division of the Supreme Court of New York (see 274
App.Div. 772, 80 N.Y.S.2d 127), and the Court of Appeals of New York (229 N.Y. 697, 87
N.E.2d 73). On appeal to this Court, reversed, p. 339 U. S. 320.

Mr. Justice JACKSON delivered the opinion of the Court.

This controversy questions the constitutional sufficiency of notice to beneficiaries on


judicial settlement of accounts by the trustee of a common trust fund established under
the New York Banking Law, Consol.Laws, c. 2. The New York Court of Appeals
considered and overruled objections that the statutory notice contravenes requirements
of the Fourteenth Amendment, and that, by allowance of the account, beneficiaries were
deprived of property without due process of law. 299 N.Y. 697, 87 N.E.2d 73. The case
is here on appeal under 28 U.S.C. § 1257.

Common trust fund legislation is addressed to a problem appropriate for state action.
Mounting overheads have made administration of small trusts undesirable to corporate
trustees. In order that donors and testators of moderately sized trusts may not be
denied the service of corporate fiduciaries, the District of Columbia and some

Page 339 U. S. 308

thirty states other than New York have permitted pooling small trust estates into one
fund for investment administration. * The income, capital gains, losses and expenses of
the collective trust are shared by the constituent trusts in proportion to their contribution.
By this plan, diversification of risk and economy of management can be extended to
those whose capital standing alone would not obtain such advantage.

Statutory authorization for the establishment of such common trust funds is provided in
the New York Banking Law, § 100-c, c. 687, L.1937, as amended by c. 602, L.1943 and
c. 158, L.1944. Under this Act, a trust company may, with approval of the State Banking
Board, establish a common fund and, within prescribed limits,

Page 339 U. S. 309


invest therein the assets of an unlimited number of estates, trusts or other funds of
which it is trustee. Each participating trust shares ratably in the common fund, but
exclusive management and control is in the trust company as trustee, and neither a
fiduciary nor any beneficiary of a participating trust is deemed to have ownership in any
particular asset or investment of this common fund. The trust company must keep fund
assets separate from its own, and, in its fiduciary capacity, may not deal with itself or
any affiliate. Provisions are made for accountings twelve to fifteen months after the
establishment of a fund, and triennially thereafter. The decree, in each such judicial
settlement of accounts, is made binding and conclusive as to any matter set forth in the
account upon everyone having any interest in the common fund or in any participating
estate, trust or fund.

In January, 1946, Central Hanover Bank and Trust Company established a common
trust fund in accordance with these provisions, and, in March, 1947, it petitioned the
Surrogate's Court for settlement of its first account as common trustee. During the
accounting period, a total of 113 trusts, approximately half inter vivos and half
testamentary, participated in the common trust fund, the gross capital of which was
nearly three million dollars. The record does not show the number or residence of the
beneficiaries, but they were many, and it is clear that some of them were not residents
of the State of New York.

The only notice given beneficiaries of this specific application was by publication in a
local newspaper in strict compliance with the minimum requirements of N.Y.Banking
Law § 100-c(12):

"After filing such petition [for judicial settlement of its account], the petitioner shall cause
to be issued by the court in which the petition is filed and shall publish not less than
once in each week

Page 339 U. S. 310

for four successive weeks in a newspaper to be designated by the court, a notice or


citation addressed generally, without naming them, to all parties interested in such
common trust fund and in such estates, trusts or funds mentioned in the petition, all of
which may be described in the notice or citation only in the manner set forth in said
petition and without setting forth the residence of any such decedent or donor of any
such estate, trust or fund."

Thus, the only notice required, and the only one given, was by newspaper publication
setting forth merely the name and address of the trust company, the name and the date
of establishment of the common trust fund, and a list of all participating estates, trusts or
funds.

At the time the first investment in the common fund was made on behalf of each
participating estate; however, the trust company, pursuant to the requirements of § 100-
c(9), had notified by mail each person of full age and sound mind whose name and
address was then known to it and who was

"entitled to share in the income therefrom . . . (or) . . . who would be entitled to share in
the principal if the event upon which such estate, trust or fund will become distributable
should have occurred at the time of sending such notice."

Included in the notice was a copy of those provisions of the Act relating to the sending
of the notice itself and to the judicial settlement of common trust fund accounts.

Upon the filing of the petition for the settlement of accounts, appellant was, by order of
the court pursuant to § 100-c(12), appointed special guardian and attorney for all
persons known or unknown not otherwise appearing who had or might thereafter have
any interest in the income of the common trust fund, and appellee Vaughan was
appointed to represent those similarly interested in the principal. There were no other
appearances on behalf of anyone interested in either interest or principal.

Page 339 U. S. 311

Appellant appeared specially, objecting that notice and the statutory provisions for
notice to beneficiaries were inadequate to afford due process under the Fourteenth
Amendment, and therefore that the court was without jurisdiction to render a final and
binding decree. Appellant's objections were entertained and overruled, the Surrogate
holding that the notice required and given was sufficient. 75 N.Y.S.2d 397. A final decree
accepting the accounts has been entered, affirmed by the Appellate Division of the
Supreme Court, In re Central Hanover Bank & Trust Co., 275 App.Div. 769, 88 N.Y.S.2d
907, and by the Court of Appeals of the State of New York, 299 N.Y. 697, 87 N.E.2d 73.

The effect of this decree, as held below, is to settle "all questions respecting the
management of the common fund." We understand that every right which beneficiaries
would otherwise have against the trust company, either as trustee of the common fund
or as trustee of any individual trust, for improper management of the common trust fund
during the period covered by the accounting is sealed and wholly terminated by the
decree. See Matter of Hoaglund's Estate, 194 Misc. 803, 811-812, 74 N.Y.S.2d 156,
164, affirmed, 272 App.Div. 1040, 74 N.Y.S.2d 911, affirmed, 297 N.Y. 920, 79 N.E.2d
746; Matter of Bank of New York, 189 Misc. 459, 470, 67 N.Y.S.2d 444, 453; Matter of
Security Trust Co. of Rochester, 189 Misc. 748, 760, 70 N.Y.S.2d 260, 271; Matter of
Continental Bank & Trust Co., 189 Misc. 795, 797, 67 N.Y.S.2d 806, 807-808.

We are met at the outset with a challenge to the power of the State -- the right of its
courts to adjudicate at all as against those beneficiaries who reside without the State of
New York. It is contended that the proceeding is one in personam, in that the decree
affects neither title to nor possession of any res, but adjudges only personal rights of the
beneficiaries to surcharge their trustee for negligence or breach of trust. Accordingly, it
is said, under the strict doctrine of Pennoyer v. Neff,95 U. S. 714, the Surrogate
Page 339 U. S. 312

is without jurisdiction as to nonresidents upon whom personal service of process was


not made.

Distinctions between actions in rem and those in personam are ancient, and originally
expressed in procedural terms what seems really to have been a distinction in the
substantive law of property under a system quite unlike our own. Buckland and McNair,
Roman Law and Common Law, 66; Burdick, Principles of Roman Law and Their
Relation to Modern Law, 298. The legal recognition and rise in economic importance of
incorporeal or intangible forms of property have upset the ancient simplicity of property
law and the clarity of its distinctions, while new forms of proceedings have confused the
old procedural classification. American courts have sometimes classed certain actions
as in rem because personal service of process was not required, and, at other times,
have held personal service of process not required because the action was in
rem. See cases collected in Freeman on Judgments, §§ 1517 et seq. (5th ed.).

Judicial proceedings to settle fiduciary accounts have been sometimes termed in


rem, or, more indefinitely, quasi in rem, or more vaguely still, "in the nature of a
proceeding in rem." It is not readily apparent how the courts of New York did or would
classify the present proceeding, which has some characteristics, and is wanting in some
features of, proceedings both in rem and in personam. But, in any event, we think that
the requirements of the Fourteenth Amendment to the Federal Constitution do not
depend upon a classification for which the standards are so elusive and confused
generally, and which, being primarily for state courts to define, may and do vary from
state to state. Without disparaging the usefulness of distinctions between actions in
rem and those in personam in many branches of law, or on other issues, or the
reasoning which underlies them, we do not rest the power of the State to resort to
constructive service in this proceeding

Page 339 U. S. 313

upon how its courts or this Court may regard this historic antithesis. It is sufficient to
observe that, whatever the technical definition of its chosen procedure, the interest of
each state in providing means to close trusts that exist by the grace of its laws and are
administered under the supervision of its courts is so insistent and rooted in custom as
to establish beyond doubt the right of its courts to determine the interests of all
claimants, resident or nonresident, provided its procedure accords full opportunity to
appear and be heard.

Quite different from the question of a state's power to discharge trustees is that of the
opportunity it must give beneficiaries to contest. Many controversies have raged about
the cryptic and abstract words of the Due Process Clause, but there can be no doubt
that, at a minimum, they require that deprivation of life, liberty or property by
adjudication be preceded by notice and opportunity for hearing appropriate to the nature
of the case.
In two ways, this proceeding does or may deprive beneficiaries of property. It may cut
off their rights to have the trustee answer for negligent or illegal impairments of their
interests. Also, their interests are presumably subject to diminution in the proceeding by
allowance of fees and expenses to one who, in their names but without their knowledge,
may conduct a fruitless or uncompensatory contest. Certainly the proceeding is one in
which they may be deprived of property rights and hence notice and hearing must
measure up to the standards of due process.

Personal service of written notice within the jurisdiction is the classic form of notice
always adequate in any type of proceeding. But the vital interest of the State in bringing
any issues as to its fiduciaries to a final settlement can be served only if interests or
claims of individuals who are outside of the State can somehow be determined. A
construction of the Due Process Clause which

Page 339 U. S. 314

would place impossible or impractical obstacles in the way could not be justified.

Against this interest of the State, we must balance the individual interest sought to be
protected by the Fourteenth Amendment. This is defined by our holding that "[t]he
fundamental requisite of due process of law is the opportunity to be heard." Grannis v.
Ordean, 234 U. S. 385, 234 U. S. 394. This right to be heard has little reality or worth
unless one is informed that the matter is pending and can choose for himself whether to
appear or default, acquiesce or contest.

The Court has not committed itself to any formula achieving a balance between these
interests in a particular proceeding or determining when constructive notice may be
utilized, or what test it must meet. Personal service has not, in all circumstances, been
regarded as indispensable to the process due to residents, and it has more often been
held unnecessary as to nonresidents. We disturb none of the established rules on these
subjects. No decision constitutes a controlling, or even a very illuminating, precedent for
the case before us. But a few general principles stand out in the books.

An elementary and fundamental requirement of due process in any proceeding which is


to be accorded finality is notice reasonably calculated, under all the circumstances, to
apprise interested parties of the pendency of the action and afford them an opportunity
to present their objections. Milliken v. Meyer, 311 U. S. 457; Grannis v. Ordean, 234 U.
S. 385; Priest v. Las Vegas, 232 U. S. 604; Roller v. Holly, 176 U. S. 398. The notice
must be of such nature as reasonably to convey the required information, Grannis v.
Ordean, supra, and it must afford a reasonable time for those interested to make their
appearance, Roller v. Holly, supra, and cf. Goodrich v. Ferris, 214 U. S. 71. But if, with
due regard for the practicalities and peculiarities of the case, these conditions

Page 339 U. S. 315

are reasonably met, the constitutional requirements are satisfied.


"The criterion is not the possibility of conceivable injury, but the just and reasonable
character of the requirements, having reference to the subject with which the statute
deals."

American Land Co. v. Zeiss, 219 U. S. 47, 219 U. S. 67, and see Blinn v. Nelson, 222 U.
S. 1, 222 U. S. 7.

But when notice is a person's due, process which is a mere gesture is not due process.
The means employed must be such as one desirous of actually informing the absentee
might reasonably adopt to accomplish it. The reasonableness, and hence the
constitutional validity of, any chosen method may be defended on the ground that it is,
in itself, reasonably certain to inform those affected, compare Hess v. Pawloski, 274 U.
S. 352, with Wuchter v. Pizzutti, 276 U. S. 13, or, where conditions do not reasonably
permit such notice, that the form chosen is not substantially less likely to bring home
notice than other of the feasible and customary substitutes.

It would be idle to pretend that publication alone, as prescribed here, is a reliable means
of acquainting interested parties of the fact that their rights are before the courts. It is
not an accident that the greater number of cases reaching this Court on the question of
adequacy of notice have been concerned with actions founded on process
constructively served through local newspapers. Chance alone brings to the attention of
even a local resident an advertisement in small type inserted in the back pages of a
newspaper, and, if he makes his home outside the area of the newspaper's normal
circulation, the odds that the information will never reach him are large indeed. The
chance of actual notice is further reduced when, as here, the notice required does not
even name those whose attention it is supposed to attract, and does not inform
acquaintances who might call it to attention. In weighing its sufficiency on the basis of
equivalence with actual notice, we are unable to regard this as more than a feint.

Page 339 U. S. 316

Nor is publication here reinforced by steps likely to attract the parties' attention to the
proceeding. It is true that publication traditionally has been acceptable as notification
supplemental to other action which, in itself, may reasonably be expected to convey a
warning. The ways of an owner with tangible property are such that he usually arranges
means to learn of any direct attack upon his possessory or proprietary rights. Hence,
libel of a ship, attachment of a chattel or entry upon real estate in the name of law may
reasonably be expected to come promptly to the owner's attention. When the state
within which the owner has located such property seizes it for some reason, publication
or posting affords an additional measure of notification. A state may indulge the
assumption that one who has left tangible property in the state either has abandoned it,
in which case proceedings against it deprive him of nothing, cf. Anderson National Bank
v. Luckett, 321 U. S. 233; Security Savings Bank v. California, 263 U. S. 282, or that he
has left some caretaker under a duty to let him know that it is being jeopardized. Ballard
v. Hunter, 204 U. S. 241; Huling v. Kaw Valley R. Co., 130 U. S. 559,. As phrased long
ago by Chief Justice Marshall in The Mary, 9 Cranch 126, 13 U. S. 144,
"It is the part of common prudence for all those who have any interest in [a thing] to
guard that interest by persons who are in a situation to protect it."

In the case before us, there is, of course, no abandonment. On the other hand, these
beneficiaries do have a resident fiduciary as caretaker of their interest in this property.
But it is their caretaker who, in the accounting, becomes their adversary. Their trustee is
released from giving notice of jeopardy, and no one else is expected to do so. Not even
the special guardian is required or apparently expected to communicate with his ward
and client, and, of course, if such a duty were merely transferred

Page 339 U. S. 317

from the trustee to the guardian, economy would not be served and more likely the cost
would be increased.

This Court has not hesitated to approve of resort to publication as a customary


substitute in another class of cases where it is not reasonably possible or practicable to
give more adequate warning. Thus, it has been recognized that, in the case of persons
missing or unknown, employment of an indirect, and even a probably futile, means of
notification is all that the situation permits, and creates no constitutional bar to a final
decree foreclosing their rights. Cunnius v. Reading School District, 198 U. S. 458; Blinn
v. Nelson, 222 U. S. 1; and see Jacob v. Roberts, 223 U. S. 261.

Those beneficiaries represented by appellant whose interests or whereabouts could not,


with due diligence, be ascertained come clearly within this category. As to them, the
statutory notice is sufficient. However great the odds that publication will never reach
the eyes of such unknown parties, it is not in the typical case, much more likely to fail
than any of the choices open to legislators endeavoring to prescribe the best notice
practicable.

Nor do we consider it unreasonable for the State to dispense with more certain notice to
those beneficiaries whose interests are either conjectural or future or, although they
could be discovered upon investigation, do not, in due course of business, come to
knowledge of the common trustee. Whatever searches might be required in another
situation under ordinary standards of diligence, in view of the character of the
proceedings and the nature of the interests here involved, we think them unnecessary.
We recognize the practical difficulties and costs that would be attendant on frequent
investigations into the status of great numbers of beneficiaries, many of whose interests
in the common fund are so remote as to be ephemeral, and we have no doubt that such
impracticable and extended searches are not required in the

Page 339 U. S. 318

name of due process. The expense of keeping informed from day to day of substitutions
among even current income beneficiaries and presumptive remaindermen, to say
nothing of the far greater number of contingent beneficiaries, would impose a severe
burden on the plan, and would likely dissipate its advantages. These are practical
matters in which we should be reluctant to disturb the judgment of the state authorities.

Accordingly we overrule appellant's constitutional objections to published notice insofar


as they are urged on behalf of any beneficiaries whose interests or addresses are
unknown to the trustee.

As to known present beneficiaries of known place of residence, however, notice by


publication stands on a different footing. Exceptions in the name of necessity do not
sweep away the rule that, within the limits of practicability, notice must be such as is
reasonably calculated to reach interested parties. Where the names and post office
addresses of those affected by a proceeding are at hand, the reasons disappear for
resort to means less likely than the mails to apprise them of its pendency.

The trustee has on its books the names and addresses of the income beneficiaries
represented by appellant, and we find no tenable ground for dispensing with a serious
effort to inform them personally of the accounting, at least by ordinary mail to the record
addresses. Cf. Wuchter v. Pizzutti, supra. Certainly sending them a copy of the statute
months, and perhaps years, in advance does not answer this purpose. The trustee
periodically remits their income to them, and we think that they might reasonably expect
that, with or apart from their remittances, word might come to them personally that steps
were being taken affecting their interests.

We need not weigh contentions that a requirement of personal service of citation on


even the large number of known resident or nonresident beneficiaries would, by

Page 339 U. S. 319

reasons of delay, if not of expense, seriously interfere with the proper administration of
the fund. Of course, personal service, even without the jurisdiction of the issuing
authority, serves the end of actual and personal notice, whatever power of compulsion it
might lack. However, no such service is required under the circumstances. This type of
trust presupposes a large number of small interests. The individual interest does not
stand alone, but is identical with that of a class. The rights of each in the integrity of the
fund, and the fidelity of the trustee, are shared by many other beneficiaries. Therefore,
notice reasonably certain to reach most of those interested in objecting is likely to
safeguard the interests of all, since any objections sustained would inure to the benefit
of all. We think that, under such circumstances, reasonable risks that notice might not
actually reach every beneficiary are justifiable.

"Now and then, an extraordinary case may turn up, but constitutional law, like other
mortal contrivances, has to take some chances, and, in the great majority of instances,
no doubt, justice will be done."

Blinn v. Nelson, at 222 U. S. 7.


The statutory notice to known beneficiaries is inadequate not because, in fact, it fails to
reach everyone, but because, under the circumstances, it is not reasonably calculated
to reach those who could easily be informed by other means at hand. However it may
have been in former times, the mails today are recognized as an efficient and
inexpensive means of communication. Moreover, the fact that the trust company has
been able to give mailed notice to known beneficiaries at the time the common trust
fund was established is persuasive that postal notification at the time of accounting
would not seriously burden the plan.

In some situations, the law requires greater precautions in its proceedings than the
business world accepts for its own purposes. In few, if any, will it be satisfied with

Page 339 U. S. 320

less. Certainly it is instructive, in determining the reasonableness of the impersonal


broadcast notification here used, to ask whether it would satisfy a prudent man of
business, counting his pennies but finding it in his interest to convey information to
many persons whose names and addresses are in his files. We are not satisfied that it
would. Publication may theoretically be available for all the world to see, but it is too
much, in our day, to suppose that each or any individual beneficiary does or could
examine all that is published to see if something may be tucked away in it that affects
his property interests. We have before indicated, in reference to notice by publication,
that "Great caution should be used not to let fiction deny the fair play that can be
secured only by a pretty close adhesion to fact." McDonald v. Mabee, 243 U. S. 90, 243
U. S. 91.

We hold the notice of judicial settlement of accounts required by the New York Banking
Law § 100-c(12) is incompatible with the requirements of the Fourteenth Amendment as
a basis for adjudication depriving known persons whose whereabouts are also known of
substantial property rights. Accordingly, the judgment is reversed, and the cause
remanded for further proceedings not inconsistent with this opinion.

Reversed.

MR. JUSTICE DOUGLAS took no part in the consideration or decision of this case.

* Ala.Code Ann., 1940, Cum.Supp.1947, tit. 58, §§ 88 to 103, as amended, Laws 1949,
Act 262; Ariz.Code Ann., 1939, Cum.Supp.1949, §§ 51-1101 to 51-1104;
Ark.Stat.Ann.1947, §§ 58-110 to 58-112; Cal.Bank.Code Ann., Deering 1949, § 1564;
Colo.Stat.Ann., 1935, Cum.Supp.1947, c. 18, §§ 173 to 178; Conn.Gen.Stat.1949 Rev.,
§ 5805; Del.Rev.Code, 1935, § 4401, as amended, Laws 1943, c. 171, Laws 1947, c.
268; (D.C.) Pub.Law No. 416, 81st Cong., 1st Sess., c. 767, Oct. 27, 1949, 63 Stat. 938;
Fla.Stat., 1941, §§ 655.29 to 655.34, F.S.A.; Ga.Code Ann., 1937, Cum.Supp.1947, §§
109-601 to 109-622; Idaho Code Ann., 1949, Cum.Supp.1949, §§ 68-701 to 68-703;
Ill.Rev.Stat., 1949, c. 16 1/2, §§ 57 to 63; Ind.Stat.Ann., Burns 1950, §§ 18-2009 to 18-
2014; Ky.Rev.Stat., 1948, § 287.230; La.Gen.Stat.Ann., 1939, § 9850.64, Act No. 81 of
1938, § 64; Md.Ann.Code Gen.Laws, 1939, Cum.Supp.1947, art. 11, § 62A;
Mass.Ann.Laws, 1933, Cum.Supp.1949, c. 203A; Mich.Stat.Ann., 1943,
Cum.Supp.1949, §§ 23.1141 to 23.1153, Comp.Laws 1948, §§ 555.101-555.113;
Minn.Stat., 1945, § 48.84, as amended, Laws 1947, c. 234, M.S.A.; N.J.S.A., 1939,
Cum.Supp.1949, §§ 17:9A-36 to 17:9A-46; N.C.Gen.Stat., 1943, §§ 36-47 to 36-52;
Ohio Gen.Code Ann. (Page's 1946), Cum.Supp.1949, §§ 715 to 720, 722;
Okla.Stat.1941, Cum.Supp.1949, tit. 60, § 162; Pa.Stat.Ann., 1939, Cum.Supp.1949, tit.
7, §§ 819-1109 to 819-1109d; So.Dak.Laws 1941, c. 20; Vernon's Tex.Rev.Civ.Stat.Ann.,
1939, Cum.Supp.1949, art. 7425b-48; Vt. Stat., 1947 Rev., § 8873; Va.Code Ann., 1950,
§§ 6-569 to 6-576; Wash.Rev.Stat.Ann., Supp.1943, §§ 3388 to 3388-6; W.Va.Code
Ann., 1949, § 4219 (1) et seq.; Wisc.Stat., 1947, § 223.055.

MR. JUSTICE BURTON, dissenting.

These common trusts are available only when the instruments creating the participating
trusts permit participation in the common fund. Whether or not further notice to
beneficiaries should supplement the notice and representation here provided is properly
within the discretion of the State. The Federal Constitution does not require it here.

Shaffer v. Heitner, 433 U.S. 186 (1977)

Shaffer v. Heitner

No. 75-1812

Argued February 22, 1977

Decided June 24, 1977

433 U.S. 186

APPEAL FROM THE SUPREME COURT OF DELAWARE

Syllabus

Appellee, a nonresident of Delaware, filed a shareholder's derivative suit in a Delaware


Chancery Court, naming as defendants a corporation and its subsidiary, as well as 28
present or former corporate officers or directors, alleging that the individual defendants
had violated their duties to the corporation by causing it and its subsidiary to engage in
actions (which occurred in Oregon) that resulted in corporate liability for substantial
damages in a private antitrust suit and a large fine in a criminal contempt action.
Simultaneously, appellee, pursuant to Del.Code Ann., Tit. 10, § 366 (1975), filed a
motion for sequestration of the Delaware property of the individual defendants, all
nonresidents of Delaware, accompanied by an affidavit identifying the property to be
sequestered as stock, options, warrants, and various corporate rights of the defendants.
A sequestration order was issued pursuant to which shares and options belonging to 21
defendants (appellants) were "seized" and "stop transfer" orders were placed on the
corporate books. Appellants entered a special appearance to quash service of process
and to vacate the sequestration order, contending that the ex partesequestration
procedure did not accord them due process; that the property seized was not capable of
attachment in Delaware; and that they did not have sufficient contacts with Delaware to
sustain jurisdiction of that State's courts under the rule of International Shoe Co. v.
Washington, 326 U. S. 310. In that case, the Court (after noting that the historical basis
of in personam jurisdiction was a court's power over the defendant's person, making his
presence within the court's territorial jurisdiction a prerequisite to its rendition of a
personally binding judgment against him, Pennoyer v. Neff, 95 U. S. 714) held that that
power was no longer the central concern, and that

"due process requires only that, in order to subject a defendant to a judgment in


personam, if he be not present within the territory of the forum, he have certain
minimum contacts with it such that the maintenance of the suit does not offend
'traditional notions of fair play and substantial justice'"

(and thus the focus shifted to the relationship among the defendant, the forum, and the
litigation, rather than the mutually exclusive sovereignty of the States on which the rules
of Pennoyer had rested). The Court of Chancery, rejecting appellants' arguments,
upheld the § 366 procedure of compelling the

Page 433 U. S. 187

personal appearance of a nonresident defendant to answer and defend a suit brought


against him in a court of equity, which is accomplished by the appointment of a
sequestrator to seize and hold the property of the nonresident located in Delaware
subject to court order, with release of the property being made upon the defendant's
entry of a general appearance. The court held that the limitation on the purpose and
length of time for which sequestered property is held comported with due process, and
that the statutory situs of the stock (under a provision making Delaware the situs of
ownership of the capital stock of all corporations existing under the laws of that State)
provided a sufficient basis for the exercise of quasi in rem jurisdiction by a Delaware
court. The Delaware Supreme Court affirmed, concluding that International Shoe raised
no constitutional barrier to the sequestration procedure because

"jurisdiction under § 366 remains . . . quasi in rem founded on the presence of capital
stock [in Delaware], not on prior contact by defendants with this forum."

Held:

1. Whether or not a State can assert jurisdiction over a nonresident must be evaluated
according to the minimum contacts standard of International Shoe Co. v. Washington,
supra. Pp. 433 U. S. 207-212.
(a) In order to justify an exercise of jurisdiction in rem, the basis for jurisdiction must be
sufficient to justify exercising "jurisdiction over the interests of persons in the thing." The
presence of property in a State may bear upon the existence of jurisdiction by providing
contacts among the forum State, the defendant, and the litigation, as for example, when
claims to the property itself are the source of the underlying controversy between the
plaintiff and defendant, where it would be unusual for the State where the property is
located not to have jurisdiction. Pp. 433 U. S. 207-208.

(b) But where, as in the instant quasi in rem action, the property now serving as the
basis for state court jurisdiction is completely unrelated to the plaintiff's cause of action,
the presence of the property alone, i.e., absent other ties among the defendant, the
State, and the litigation, would not support the State's jurisdiction. Pp. 433 U. S. 208-
209.

(c) Though the primary rationale for treating the presence of property alone as a basis
for jurisdiction is to prevent a wrongdoer from avoiding payment of his obligations by
removal of his assets to a place where he is not subject to an in personam suit, that is
an insufficient justification for recognizing jurisdiction without regard to whether the
property is in the State for that purpose. Moreover, the availability of attachment
procedures and the protection of the Full Faith and Credit Clause also militate against
that rationale. Pp. 433 U. S. 209-210.

Page 433 U. S. 188

(d) The fairness standard of International Shoe can be easily applied in the vast majority
of cases. P. 433 U. S. 211.

(e) Though jurisdiction based solely on the presence of property in a State has had a
long history, "traditional notions of fair play and substantial justice" can be as readily
offended by the perpetuation of ancient forms that are no longer justified as by the
adoption of new procedures that do not comport with the basic values of our
constitutional heritage. Cf. Sniadach v. Family Finance Corp, 395 U. S. 337, 395 U. S.
340; Wolf v. Colorado, 338 U. S. 25, 338 U. S. 27. Pp. 433 U. S. 211-212.

2. Delaware's assertion of jurisdiction over appellants, based solely as it is on the


statutory presence of appellants' property in Delaware, violates the Due Process
Clause, which

"does not contemplate that a state may make binding a judgment . . . against an
individual or corporate defendant with which the state has no contacts, ties, or
relations."

International Shoe, supra at 433 U. S. 319. Pp. 433 U. S. 213-217.

(a) Appellants' holdings in the corporation, which are not the subject matter of this
litigation and are unrelated to the underlying cause of action, do not provide contacts
with Delaware sufficient to support jurisdiction of that State's courts over appellants.
P. 433 U. S. 213.

(b) Nor is Delaware state court jurisdiction supported by that State's interest in
supervising the management of a Delaware corporation and defining the obligations of
its officers and directors, since Delaware bases jurisdiction not on appellants' status as
corporate fiduciaries, but on the presence of their property in the State. Moreover,
sequestration has been available in any suit against a nonresident, whether against
corporate fiduciaries or not. Pp. 433 U. S. 213-215.

(c) Though it may be appropriate for Delaware law to govern the obligations of
appellants to the corporation and stockholders, this does not mean that appellants have
"purposefully avail[ed themselves] of the privilege of conducting activities within the
forum State," Hanson v. Denckla, 357 U. S. 235, 357 U. S. 253. Appellants, who were
not required to acquire interests in the corporation in order to hold their positions, did
not, by acquiring those interests, surrender their right to be brought to judgment in the
States in which they had "minimum contacts." Pp. 433 U. S. 215-216.

361 A.2d 225, reversed.

MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J., and
STEWART, WHITE, BLACKMUN, and POWELL, JJ., joined, and in Parts I-III of which
BRENNAN, J., joined. POWELL, J., filed a concurring opinion, post, p. 433 U. S. 217.
STEVENS, J., filed an opinion concurring in the

Page 433 U. S. 189

judgment, post, p. 433 U. S. 217. BRENNAN, J., filed an opinion concurring in part and
dissenting in part, post, p. 433 U. S. 219. REHNQUIST, J., took no part in the
consideration or decision of the case.

MR. JUSTICE MARSHALL delivered the opinion of the Court.

The controversy in this case concerns the constitutionality of a Delaware statute that
allows a court of that State to take jurisdiction of a lawsuit by sequestering any property
of the defendant that happens to be located in Delaware. Appellants contend that the
sequestration statute as applied in this case violates the Due Process Clause of the
Fourteenth Amendment both because it permits the state courts to exercise jurisdiction
despite the absence of sufficient contacts among the defendants, the litigation, and the
State of Delaware and because it authorizes the deprivation of defendants' property
without providing adequate procedural safeguards. We find it necessary to consider
only the first of these contentions.

I
Appellee Heitner, a nonresident of Delaware, is the owner of one share of stock in the
Greyhound Corp., a business incorporated under the laws of Delaware with its principal
place of business in Phoenix, Ariz. On May 22, 1974, he filed a shareholder's derivative
suit in the Court of Chancery for New Castle County, Del., in which he named as
defendants Greyhound, its wholly owned subsidiary Greyhound Lines, Inc., [Footnote 1]
and 28 present or former officers or directors of one or

Page 433 U. S. 190

both of the corporations. In essence, Heitner alleged that the individual defendants had
violated their duties to Greyhound by causing it and its subsidiary to engage in actions
that resulted in the corporation's being held liable for substantial damages in a private
antitrust suit [Footnote 2] and a large fine in a criminal contempt action. [Footnote 3]
The activities which led to these penalties took place in Oregon.

Simultaneously with his complaint, Heitner filed a motion for an order of sequestration of
the Delaware property of the individual defendants pursuant to Del.Code Ann., Tit. 10, §
366 (1975). [Footnote 4] This motion was accompanied by a supporting

Page 433 U. S. 191

affidavit of counsel which stated that the individual defendants were nonresidents of
Delaware. The affidavit identified the property to be sequestered as

"common stock, 3% Second Cumulative Preferenced Stock and stock unit credits of the
Defendant Greyhound Corporation, a Delaware corporation, as well as all options and
all warrants to purchase said stock issued to said individual Defendants and all
contractural [sic] obligations, all rights, debts or credits due or accrued to or for the
benefit of any of the said Defendants under any type of written agreement, contract or
other legal instrument of any kind whatever between any of the individual Defendants
and said corporation."

The requested sequestration order was signed the day the motion was filed. [Footnote
5] Pursuant to that order, the sequestrator [Footnote 6]

Page 433 U. S. 192

"seized" approximately 82,000 shares of Greyhound common stock belonging to 19 of


the defendants, [Footnote 7] and options belonging to another 2 defendants. [Footnote
8] These seizures were accomplished by placing "stop transfer" orders or their
equivalents on the books of the Greyhound Corp. So far as the record shows, none of
the certificates representing the seized property was physically present in Delaware.
The stock was considered to be in Delaware, and so subject to seizure, by virtue of
Del.Code Ann., Tit. 8, § 169 (1975), which makes Delaware the situs of ownership of all
stock in Delaware corporations. [Footnote 9]
All 28 defendants were notified of the initiation of the suit by certified mail directed to
their last known addresses and by publication in a New Castle County newspaper. The
21 defendants whose property was seized (hereafter referred to as appellants)
responded by entering a special appearance for

Page 433 U. S. 193

the purpose of moving to quash service of process and to vacate the sequestration
order. They contended that the ex parte sequestration procedure did not accord them
due process of law, and that the property seized was not capable of attachment in
Delaware. In addition, appellants asserted that, under the rule of International Shoe Co.
v. Washington, 326 U. S. 310 (1945), they did not have sufficient contacts with
Delaware to sustain the jurisdiction of that State's courts.

The Court of Chancery rejected these arguments in a letter opinion which emphasized
the purpose of the Delaware sequestration procedure:

"The primary purpose of 'sequestration' as authorized by 10 Del.C. § 366 is not to


secure possession of property pending a trial between resident debtors and creditors on
the issue of who has the right to retain it. On the contrary, as here employed,
'sequestration' is a process used to compel the personal appearance of a nonresident
defendant to answer and defend a suit brought against him in a court of equity. Sands v.
Lefcourt Realty Corp., Del.Super., 117 A.2d 365 (1955). It is accomplished by the
appointment of a sequestrator by this Court to seize and hold property of the
nonresident located in this State subject to further Court order. If the defendant enters a
general appearance, the sequestered property is routinely released, unless the plaintiff
makes special application to continue its seizure, in which event the plaintiff has the
burden of proof and persuasion."

App. 75-76. This limitation on the purpose and length of time for which sequestered
property is held, the court concluded, rendered inapplicable the due process
requirements enunciated in Sniadach v. Family Finance Corp., 395 U. S.
337 (1969); Fuentes v. Shevin, 407 U. S. 67 (1972); and Mitchell v. W. T. Grant Co., 416
U. S. 600 (1974). App. 75-76, 80, 83-85. The court also found no state law or federal
constitutional barrier to the sequestrator's reliance on Del.Code Ann., Tit. 8, § 169

Page 433 U. S. 194

(1975). App. 76-79. Finally, the court held that the statutory Delaware situs of the stock
provided a sufficient basis for the exercise of quasi in rem jurisdiction by a Delaware
court. Id. at 85-87.

On appeal, the Delaware Supreme Court affirmed the judgment of the Court of
Chancery. Greyhound Corp. v. Heitner, 361 A.2d 225 (1976). Most of the Supreme
Court's opinion was devoted to rejecting appellants' contention that the sequestration
procedure is inconsistent with the due process analysis developed in the Sniadach line
of cases. The court based its rejection of that argument in part on its agreement with the
Court of Chancery that the purpose of the sequestration procedure is to compel the
appearance of the defendant, a purpose not involved in the Sniadach cases. The court
also relied on what it considered the ancient origins of the sequestration procedure and
approval of that procedure in the opinions of this Court, [Footnote 10] Delaware's
interest in asserting jurisdiction to adjudicate claims of mismanagement of a Delaware
corporation, and the safeguards for defendants that it found in the Delaware statute.
361 A.2d at 230-236.

Page 433 U. S. 195

Appellants' claim that the Delaware courts did not have jurisdiction to adjudicate this
action received much more cursory treatment. The court's analysis of the jurisdictional
issue is contained in two paragraphs:

"There are significant constitutional questions at issue here, but we say at once that we
do not deem the rule of International Shoe to be one of them. . . . The reason, of course,
is that jurisdiction under § 366 remains . . . quasi in remfounded on the presence of
capital stock here, not on prior contact by defendants with this forum. Under 8 Del. C. §
169 the 'situs of the ownership of the capital stock of all corporations existing under the
laws of this State . . . [is] in this State,' and that provides the initial basis for jurisdiction.
Delaware may constitutionally establish situs of such shares here, . . . it has done so
and the presence thereof provides the foundation for § 366 in this case. . . . On this
issue, we agree with the analysis made and the conclusion reached by Judge Stapleton
in U.S. Industries, Inc. v. Gregg, D.Del., 348 F.Supp. 1004 (1972). [Footnote 11]"

"We hold that seizure of the Greyhound shares is not invalid because plaintiff has failed
to meet the prior contacts tests of International Shoe."

Id. at 22.

We noted probable jurisdiction. 429 U.S. 813. [Footnote 12] We reverse.

Page 433 U. S. 196

II

The Delaware courts rejected appellants' jurisdictional challenge by noting that this suit
was brought as a quasi in remproceeding. Since quasi in rem jurisdiction is traditionally
based on attachment or seizure of property present in the jurisdiction, not on contacts
between the defendant and the State, the courts considered appellants' claimed lack of
contacts with Delaware to be unimportant. This categorical analysis assumes the
continued soundness of the conceptual structure founded on the century-old case
of Pennoyer v. Neff, 95 U. S. 714 (1878).
Pennoyer was an ejectment action brought in federal court under the diversity
jurisdiction. Pennoyer, the defendant in that action, held the land under a deed
purchased in a sheriff's sale conducted to realize on a judgment for attorney's fees
obtained against Neff in a previous action by one Mitchell. At the time of Mitchell's suit in
an Oregon State court, Neff was a nonresident of Oregon. An Oregon statute allowed
service by publication on nonresidents who had property in the State, [Footnote 13] and
Mitchell had used that procedure to bring Neff

Page 433 U. S. 197

before the court. The United States Circuit Court for the District of Oregon, in which Neff
brought his ejectment action, refused to recognize the validity of the judgment against
Neff in Mitchell's suit, and accordingly awarded the land to Neff. [Footnote 14] This
Court affirmed.

Mr. Justice Field's opinion for the Court focused on the territorial limits of the States'
judicial powers. Although recognizing that the States are not truly independent
sovereigns, Mr. Justice Field found that their jurisdiction was defined by the "principles
of public law" that regulate the relationships among independent nations. The first of
those principles was "that every State possesses exclusive jurisdiction and sovereignty
over persons and property within its territory." The second was "that no State can
exercise direct jurisdiction and authority over persons or property without its
territory." Id.at 95 U. S. 722. Thus, "in virtue of the State's jurisdiction over the property
of the nonresident situated within its limits," the state courts "can inquire into that
nonresident's obligations to its own citizens . . . to the extent necessary to control the
disposition of the property." Id. at 95 U. S. 723. The Court recognized that, if the
conclusions of that inquiry were adverse to the nonresident property owner, his interest
in the property would be affected. Ibid. Similarly, if the defendant consented to the
jurisdiction of the state courts or was personally served within the State, a judgment
could affect his interest in property outside the State. But any attempt "directly" to assert
extraterritorial jurisdiction over persons or property would offend sister States and
exceed the inherent limits of the State's power. A judgment resulting from such an
attempt, Mr. Justice Field concluded, was not only unenforceable

Page 433 U. S. 198

in other States, [Footnote 15] but was also void in the rendering State because it had
been obtained in violation of the Due Process Clause of the Fourteenth
Amendment. Id. at 95 U. S. 732-733. See also e.g., Freeman v. Alderson, 119 U. S.
185,119 U. S. 187-188 (1886).

This analysis led to the conclusion that Mitchell's judgment against Neff could not be
validly based on the State's power over persons within its borders, because Neff had
not been personally served in Oregon, nor had he consensually appeared before the
Oregon court. The Court reasoned that, even if Neff had received personal notice of the
action, service of process outside the State would have been ineffectual, since the
State's power was limited by its territorial boundaries. Moreover, the Court held, the
action could not be sustained on the basis of the State's power over property within its
borders because that property had not been brought before the court by attachment or
any other procedure prior to judgment. [Footnote 16] Since the judgment which
authorized the sheriff's sale was therefore invalid, the sale transferred no title. Neff
regained his land.

From our perspective, the importance of Pennoyer is not its result, but the fact that its
principles and corollaries derived from them became the basic elements of the
constitutional

Page 433 U. S. 199

doctrine governing state court jurisdiction. See, e.g., Hazard, A General Theory of State
Court Jurisdiction, 1965 Sup.Ct.Rev. 241 (hereafter Hazard). As we have noted,
under Pennoyer, state authority to adjudicate was based on the jurisdiction's power over
either persons or property. This fundamental concept is embodied in the very
vocabulary which we use to describe judgments. If a court's jurisdiction is based on its
authority over the defendant's person, the action and judgment are denominated "in
personam," and can impose a personal obligation on the defendant in favor of the
plaintiff. If jurisdiction is based on the court's power over property within its territory, the
action is called "in rem" or "quasi in rem." The effect of a judgment in such a case is
limited to the property that supports jurisdiction, and does not impose a personal liability
on the property owner, since he is not before the court. [Footnote 17]
In Pennoyer's terms, the owner is affected only "indirectly" by an in rem judgment
adverse to his interest in the property subject to the court's disposition.

By concluding that "[t]he authority of every tribunal is necessarily restricted by the


territorial limits of the State in which it is established," 95 U.S. at 95 U. S.
720, Pennoyer sharply limited the availability of in personam jurisdiction over
defendants not resident in the forum State. If a nonresident defendant could not be
found in a State, he could not be sued there. On the other hand, since the State in
which property

Page 433 U. S. 200

was located was considered to have exclusive sovereignty over that property, in
rem actions could proceed regardless of the owner's location. Indeed, since a State's
process could not reach beyond its borders, this Court held after Pennoyerthat due
process did not require any effort to give a property owner personal notice that his
property was involved in an in rem proceeding. See, e.g., Ballard v. Hunter, 204 U. S.
241 (1907); Arndt v. Griggs, 134 U. S. 316 (1890); Huling v. Kaw Valley R. Co., 130 U.
S. 559 (1889). The Pennoyer rules generally favored nonresident defendants by making
them harder to sue. This advantage was reduced, however, by the ability of a resident
plaintiff to satisfy a claim against a nonresident defendant by bringing into court any
property of the defendant located in the plaintiff's State. See, e.g., Zammit, Quasi-In-
RemJurisdiction: Outmoded and Unconstitutional?, 49 St. John's L.Rev. 668, 670
(1975). For example, in the well known case of Harris v. Balk, 198 U. S. 215 (1905),
Epstein, a resident of Maryland, had a claim against Balk, a resident of North Carolina.
Harris, another North Carolina resident, owed money to Balk. When Harris happened to
visit Maryland, Epstein garnished his debt to Balk. Harris did not contest the debt to
Balk, and paid it to Epstein's North Carolina attorney. When Balk later sued Harris in
North Carolina, this Court held that the Full Faith and Credit Clause, U.S.Const., Art. IV,
§ 1, required that Harris' payment to Epstein be treated as a discharge of his debt to
Balk. This Court reasoned that the debt Harris owed Balk was an intangible form of
property belonging to Balk, and that the location of that property traveled with the
debtor. By obtaining personal jurisdiction over Harris, Epstein had "arrested" his debt to
Balk, 198 U.S. at 198 U. S. 223, and brought it into the Maryland Court. Under the
structure established by Pennoyer, Epstein was then entitled to proceed against that
debt to vindicate his claim against Balk, even though Balk himself was not subject to the
jurisdiction

Page 433 U. S. 201

of a Maryland tribunal. [Footnote 18] See also e.g., Louisville & N. R. Co. v. Deer, 200
U. S. 176 (1906); Steele v. G. D. Searle & Co., 483 F.2d 339 (CA5 1973), cert.
denied, 415 U.S. 958 (1974).

Pennoyer itself recognized that its rigid categories, even as blurred by the kind of action
typified by Harris, could not accommodate some necessary litigation. Accordingly, Mr.
Justice Field's opinion carefully noted that cases involving the personal status of the
plaintiff, such as divorce actions, could be adjudicated in the plaintiff's home State even
though the defendant could not be served within that State. 95 U.S. at 95 U. S. 733-735.
Similarly, the opinion approved the practice of considering a foreign corporation doing
business in a State to have consented to being sued in that State. Id. at 95 U. S. 735-
736; See Lafayette Ins. Co. v. French, 18 How. 404 (1856). This

Page 433 U. S. 202

basis for in personam jurisdiction over foreign corporations was later supplemented by
the doctrine that a corporation doing business in a State could be deemed "present" in
the State, and so subject to service of process under the rule of Pennoyer. See, e.g.,
International Harvester Co. v. Kentucky, 234 U. S. 579 (1914); Philadelphia & Reading
R. Co. v. McKibbin, 243 U. S. 264 (1917). See generally Note, Developments in the
Law, State-Court Jurisdiction, 73 Harv.L.Rev. 909, 919-923 (1960) (hereafter
Developments).

The advent of automobiles, with the concomitant increase in the incidence of individuals
causing injury in States where they were not subject to in personam actions
under Pennoyer, required further moderation of the territorial limits on jurisdictional
power. This modification, like the accommodation to the realities of interstate corporate
activities, was accomplished by use of a legal fiction that left the conceptual structure
established in Pennoyer theoretically unaltered. Cf. Olberding v. Illinois Central R.
Co., 346 U. S. 338, 346 U. S. 340-341 (1953). The fiction used was that the out-of-state
motorist, who it was assumed could be excluded altogether from the State's highways,
had, by using those highways, appointed a designated state official as his agent to
accept process. See Hess v. Pawloski, 274 U. S. 352 (1927). Since the motorist's
"agent" could be personally served within the State, the state courts could obtain in
personam jurisdiction over the nonresident driver.

The motorists' consent theory was easy to administer, since it required only a finding
that the out-of-state driver had used the State's roads. By contrast, both the fictions of
implied consent to service on the part of a foreign corporation and of corporate
presence required a finding that the corporation was "doing business" in the forum
State. Defining the criteria for making that finding and deciding whether they were met
absorbed much judicial energy. See, e.g., International Shoe

Page 433 U. S. 203

Co. v. Washington, 326 U.S. at 326 U. S. 317-319. While the essentially quantitative
tests which emerged from these cases purported simply to identify circumstances under
which presence or consent could be attributed to the corporation, it became clear that
they were, in fact, attempting to ascertain "what dealings make it just to subject a
foreign corporation to local suit." Hutchinson v. Chase & Gilbert, 45 F.2d 139, 141 (CA2
1930) (L. Hand, J.). In International Shoe, we acknowledged that fact.

The question in International Shoe was whether the corporation was subject to the
judicial and taxing jurisdiction of Washington. Mr. Chief Justice Stone's opinion for the
Court began its analysis of that question by noting that the historical basis of in
personam jurisdiction was a court's power over the defendant's person. That power,
however, was no longer the central concern:

"But now that the capias ad respondendum has given way to personal service of
summons or other form of notice, due process requires only that in order to subject a
defendant to a judgment in personam, if he be not present within the territory of the
forum, he have certain minimum contacts with it such that the maintenance of the suit
does not offend 'traditional notions of fair play and substantial justice.' Milliken v.
Meyer, 311 U. S. 457, 311 U. S. 463."

326 U.S. at 326 U. S. 316. Thus, the inquiry into the State's jurisdiction over a foreign
corporation appropriately focused not on whether the corporation was "present," but on
whether there have been

"such contacts of the corporation with the state of the forum as make it reasonable, in
the context of our federal system of government, to require the corporation to defend
the particular suit which is brought there."

Id. at 326 U. S. 317.


Page 433 U. S. 204

Mechanical or quantitative evaluations of the defendant's activities in the forum could


not resolve the question of reasonableness:

"Whether due process is satisfied must depend rather upon the quality and nature of the
activity in relation to the fair and orderly administration of the laws which it was the
purpose of the due process clause to insure. That clause does not contemplate that a
state may make binding a judgment in personam against an individual or corporate
defendant with which the state has no contacts, ties, or relations."

Id. at 326 U. S. 319. [Footnote 19] Thus, the relationship among the defendant, the
forum, and the litigation, rather than the mutually exclusive sovereignty of the States on
which the rules of Pennoyer rest, became the central concern of the inquiry into
personal jurisdiction. [Footnote 20] The immediate effect of this departure
from Pennoyer's conceptual apparatus was to increase the ability of the state courts to
obtain personal jurisdiction over nonresident defendants. See, e.g., Green,
Jurisdictional Reform in California,

Page 433 U. S. 205

21 Hastings L.J. 1219, 1231-1233 (1970); Currie, The Growth of the Long Arm: Eight
Years of Extended Jurisdiction in Illinois, 1963 U.Ill.L.F. 533; Developments 1000-1008.

No equally dramatic change has occurred in the law governing jurisdiction in rem. There
have, however, been intimations that the collapse of the in personam wing
of Pennoyer has not left that decision unweakened as a foundation for in
remjurisdiction. Well-reasoned lower court opinions have questioned the proposition
that the presence of property in a State gives that State jurisdiction to adjudicate rights
to the property regardless of the relationship of the underlying dispute and the property
owner to the forum. See, e.g., U.S. Industries, Inc. v. Gregg, 540 F.2d 142 (CA3
1976), cert. pending, No. 76-359; Jonnet v. Dollar Savings Bank, 530 F.2d 1123, 1130-
1143 (CA3 1976) (Gibbons, J., concurring); Camire v. Scieszka, 116 N.H. 281, 358 A.2d
397 (1976); Bekins v. Huish, 1 Ariz.App. 258, 401 P.2d 743 (1965); Atkinson v. Superior
Court, 49 Cal.2d 338, 316 P.2d 960 (1957), appeal dismissed and cert. denied sub nom.
Columbia Broadcasting System v. Atkinson, 357 U. S. 569(1958). The overwhelming
majority of commentators have also rejected Pennoyer's premise that a proceeding
"against" property is not a proceeding against the owners of that property. Accordingly,
they urge that the "traditional notions of fair play and substantial justice" that govern a
State's power to adjudicate in personam should also govern its power to adjudicate
personal rights to property located in the State. See, e.g., Von Mehren & Trautman,
Jurisdiction to Adjudicate: A Suggested Analysis, 79 Harv.L.Rev. 1121 (1966) (hereafter
Von Mehren & Trautman); Traynor, Is This Conflict Really Necessary?, 37 Texas L.Rev.
657 (1959) (hereafter Traynor); Ehrenzweig, The Transient Rule of Personal
Jurisdiction: The "Power" Myth and Forum Conveniens, 65 Yale L.J. 289 (1956);
Developments; Hazard.
Page 433 U. S. 206

Although this Court has not addressed this argument directly, we have held that
property cannot be subjected to a court's judgment unless reasonable and appropriate
efforts have been made to give the property owners actual notice of the
action. Schroeder v. City of New York, 371 U. S. 208 (1962); Walker v. City of
Hutchinson, 352 U. S. 112 (1956); Mullane v. Central Hanover Bank & Trust Co., 339 U.
S. 306 (1950). This conclusion recognizes, contrary to Pennoyer, that an adverse
judgment in rem directly affects the property owner by divesting him of his rights in the
property before the court. Schroeder v. City of New York, supra at 371 U. S. 213; cf.
Continental Grain Co. v. Barge FBL-585, 364 U. S. 19 (1960) (separate actions against
barge and barge owner are one "civil action" for purpose of transfer under 28 U.S.C. §
1404(a)). Moreover, in Mullane, we held that Fourteenth Amendment rights cannot
depend on the classification of an action as in rem or in personam, since that is

"a classification for which the standards are so elusive and confused generally, and
which, being primarily for state courts to define, may and do vary from state to state."

339 U.S. at 339 U. S. 312.

It is clear, therefore, that the law of state court jurisdiction no longer stands securely on
the foundation established in Pennoyer. [Footnote 21] We think that the time is ripe to
consider whether the standard of fairness and substantial justice set forth
in International Shoe should be held to govern actions in rem as well as in personam.

Page 433 U. S. 207

III

The case for applying to jurisdiction in rem the same test of "fair play and substantial
justice" as governs assertions of jurisdiction in personam is simple and straightforward.
It is premised on recognition that "[t]he phrase, judicial jurisdiction over a thing,' is a
customary elliptical way of referring to jurisdiction over the interests of persons in a
thing." Restatement (Second) of Conflict of Laws § 56, Introductory Note (1971)
(hereafter Restatement). [Footnote 22] This recognition leads to the conclusion that, in
order to justify an exercise of jurisdiction in rem, the basis for jurisdiction must be
sufficient to justify exercising "jurisdiction over the interests of persons in a thing."
[Footnote 23] The standard for determining whether an exercise of jurisdiction over the
interests of persons is consistent with the Due Process Clause is the minimum contacts
standard elucidated in International Shoe.

This argument, of course, does not ignore the fact that the presence of property in a
State may bear on the existence of jurisdiction by providing contacts among the forum
State, the defendant, and the litigation. For example, when claims to the property itself
are the source of the underlying controversy between the plaintiff and the defendant,
[Footnote 24] it would be unusual for the State where the property is located not to have
jurisdiction. In such cases, the defendant's claim to property

Page 433 U. S. 208

located in the State would normally [Footnote 25] indicate that he expected to benefit
from the State's protection of his interest. [Footnote 26] The State's strong interests in
assuring the marketability of property within its borders [Footnote 27] and in providing a
procedure for peaceful resolution of disputes about the possession of that property
would also support jurisdiction, as would the likelihood that important records and
witnesses will be found in the State. [Footnote 28] The presence of property may also
favor jurisdiction in cases, such as suits for injury suffered on the land of an absentee
owner, where the defendant's ownership of the property is conceded, but the cause of
action is otherwise related to rights and duties growing out of that ownership. [Footnote
29]

It appears, therefore, that jurisdiction over many types of actions which now are or might
be brought in rem would not be affected by a holding that any assertion of state court
jurisdiction must satisfy the International Shoe standard. [Footnote 30] For the type
of quasi in rem action typified by Harris v. Balk and the present case, however,
accepting the proposed analysis would result in significant change. These are cases
where

Page 433 U. S. 209

the property which now serves as the basis for state court jurisdiction is completely
unrelated to the plaintiff's cause of action. Thus, although the presence of the
defendant's property in a State might suggest the existence of other ties among the
defendant, the State, and the litigation, the presence of the property alone would not
support the State's jurisdiction. If those other ties did not exist, cases over which the
State is now thought to have jurisdiction could not be brought in that forum.

Since acceptance of the International Shoe test would most affect this class of cases,
we examine the arguments against adopting that standard as they relate to this
category of litigation. [Footnote 31] Before doing so, however, we note that this type of
case also presents the clearest illustration of the argument in favor of assessing
assertions of jurisdiction by a single standard. For in cases such as Harris and this one,
the only role played by the property is to provide the basis for bringing the defendant
into court. [Footnote 32] Indeed, the express purpose of the Delaware sequestration
procedure is to compel the defendant to enter a personal appearance. [Footnote 33] In
such cases, if a direct assertion of personal jurisdiction over the defendant would violate
the Constitution, it would seem that an indirect assertion of that jurisdiction should be
equally impermissible.

Page 433 U. S. 210


The primary rationale for treating the presence of property as a sufficient basis for
jurisdiction to adjudicate claims over which the State would not have jurisdiction
if International Shoe applied is that a wrongdoer

"should not be able to avoid payment of his obligations by the expedient of removing his
assets to a place where he is not subject to an in personam suit."

Restatement § 66, Comment a. Accord, Developments 955. This justification, however,


does not explain why jurisdiction should be recognized without regard to whether the
property is present in the State because of an effort to avoid the owner's obligations.
Nor does it support jurisdiction to adjudicate the underlying claim. At most, it suggests
that a State in which property is located should have jurisdiction to attach that property,
by use of proper procedures, [Footnote 34] as security for a judgment being sought in a
forum where the litigation can be maintained consistently with International Shoe. See,
e.g., Von Mehren & Trautman 1178; Hazard 284-285; Beale, supra, n 18, at 123-124.
Moreover, we know of nothing to justify the assumption that a debtor can avoid paying
his obligations by removing his property to a State in which his creditor cannot obtain
personal jurisdiction over him. [Footnote 35] The Full Faith and Credit Clause, after all,
makes the valid in personam judgment of one State enforceable in all other States.
[Footnote 36]

Page 433 U. S. 211

It might also be suggested that allowing in rem jurisdiction avoids the uncertainty
inherent in the International Shoestandard and assures a plaintiff of a forum. [Footnote
37] See Folk & Moyer, supra, n 10, at 749, 767. We believe, however, that the fairness
standard of International Shoe can be easily applied in the vast majority of cases.
Moreover, when the existence of jurisdiction in a particular forum under International
Shoe is unclear, the cost of simplifying the litigation by avoiding the jurisdictional
question may be the sacrifice of "fair play and substantial justice." That cost is too high.

We are left, then, to consider the significance of the long history of jurisdiction based
solely on the presence of property in a State. Although the theory that territorial power is
both essential to and sufficient for jurisdiction has been undermined, we have never
held that the presence of property in a State does not automatically confer jurisdiction
over the owner's interest in that property. [Footnote 38] This history must be

Page 433 U. S. 212

considered as supporting the proposition that jurisdiction based solely on the presence
of property satisfies the demands of due process, cf. Ownbey v. Morgan, 256 U. S.
94, 256 U. S. 111 (1921), but it is not decisive. "[T]raditional notions of fair play and
substantial justice" can be as readily offended by the perpetuation of ancient forms that
are no longer justified as by the adoption of new procedures that are inconsistent with
the basic values of our constitutional heritage. Cf. Sniadach v. Family Finance
Corp., 395 U.S. at 395 U. S. 340; Wolf v. Colorado, 338 U. S. 25, 338 U. S. 27 (1949).
The fiction that an assertion of jurisdiction over property is anything but an assertion of
jurisdiction over the owner of the property supports an ancient form without substantial
modern justification. Its continued acceptance would serve only to allow state court
jurisdiction that is fundamentally unfair to the defendant.

We therefore conclude that all assertions of state court jurisdiction must be evaluated
according to the standards set forth in International Shoe and its progeny. [Footnote 39]

Page 433 U. S. 213

IV

The Delaware courts based their assertion of jurisdiction in this case solely on the
statutory presence of appellants' property in Delaware. Yet that property is not the
subject matter of this litigation, nor is the underlying cause of action related to the
property. Appellants' holdings in Greyhound do not, therefore, provide contacts with
Delaware sufficient to support the jurisdiction of that State's courts over appellants. If it
exists, that jurisdiction must have some other foundation. [Footnote 40]

Appellee Heitner did not allege, and does not now claim, that appellants have ever set
foot in Delaware. Nor does he identify any act related to his cause of action as having
taken place in Delaware. Nevertheless, he contends that appellants' positions as
directors and officers of a corporation chartered in Delaware [Footnote 41] provide
sufficient "contacts, ties, or relations," International Shoe Co. v. Washington, 326 U.S. at

Page 433 U. S. 214

326 U. S. 319, with that State to give its courts jurisdiction over appellants in this
stockholder's derivative action. This argument is based primarily on what Heitner
asserts to be the strong interest of Delaware in supervising the management of a
Delaware corporation. That interest is said to derive from the role of Delaware law in
establishing the corporation and defining the obligations owed to it by its officers and
directors. In order to protect this interest, appellee concludes, Delaware's courts must
have jurisdiction over corporate fiduciaries such as appellants.

This argument is undercut by the failure of the Delaware Legislature to assert the state
interest appellee finds so compelling. Delaware law bases jurisdiction not on appellants'
status as corporate fiduciaries, but rather on the presence of their property in the State.
Although the sequestration procedure used here may be most frequently used in
derivative suits against officers and directors, Hughes Tool Co. v. Fawcett Publications,
Inc., 290 A.2d 693, 695 (Del.Ch.1972), the authorizing statute evinces no specific
concern with such actions. Sequestration can be used in any suit against a nonresident,
[Footnote 42] see, e.g., U.S. Industries, Inc. v. Gregg, 540 F.2d 142 (CA3 1976), cert.
pending, No. 76-359 (breach of contract); Hughes Tool Co. v. Fawcett Publications, Inc.,
supra, (same), and reaches corporate fiduciaries only if they happen to own interests in
a Delaware corporation, or other property in the State. But as Heitner's failure to secure
jurisdiction over seven of the defendants named in his complaint demonstrates, there is
no necessary relationship between holding a position as a corporate fiduciary and
owning stock or other interests in the corporation. [Footnote 43] If Delaware perceived
its interest in securing jurisdiction over corporate fiduciaries

Page 433 U. S. 215

to be as great as Heitner suggests, we would expect it to have enacted a statute more


clearly designed to protect that interest. Moreover, even if Heitner's assessment of the
importance of Delaware's interest is accepted, his argument fails to demonstrate that
Delaware is a fair forum for this litigation. The interest appellee has identified may
support the application of Delaware law to resolve any controversy over appellants'
actions in their capacities as officers and directors. [Footnote 44] But we have rejected
the argument that, if a State's law can properly be applied to a dispute, its courts
necessarily have jurisdiction over the parties to that dispute.

"[The State] does not acquire . . . jurisdiction by being the 'center of gravity' of the
controversy, or the most convenient location for litigation. The issue is personal
jurisdiction, not choice of law. It is resolved in this case by considering the acts of the
[appellants]."

Hanson v. Denckla, 357 U. S. 235, 357 U. S. 254 (1958). [Footnote 45] Appellee
suggests that, by accepting positions as officers or directors of a Delaware corporation,
appellants performed the acts required by Hanson v. Denckla. He notes that Delaware
law provides substantial benefits to corporate officers and directors, [Footnote 46] and
that these benefits were, at least in part,

Page 433 U. S. 216

the incentive for appellants to assume their positions. It is, he says, "only fair and just"
to require appellants, in return for these benefits, to respond in the State of Delaware
when they are accused of misusing their power. Brief for Appellee 15.

But, like Heitner's first argument, this line of reasoning establishes only that it is
appropriate for Delaware law to govern the obligations of appellants to Greyhound and
its stockholders. It does not demonstrate that appellants have "purposefully avail[ed
themselves] of the privilege of conducting activities within the forum State," Hanson v.
Denckla, supra at 357 U. S. 253, in a way that would justify bringing them before a
Delaware tribunal. Appellants have simply had nothing to do with the State of Delaware.
Moreover, appellants had no reason to expect to be haled before a Delaware court.
Delaware, unlike some States, [Footnote 47] has not enacted a statute that treats
acceptance of a directorship as consent to jurisdiction in the State. And

"[i]t strains reason . . . to suggest that anyone buying securities in a corporation formed
in Delaware 'impliedly consents' to subject himself to Delaware's . . . jurisdiction on any
cause of action."
Folk & Moyer, supra, n 10, at 785. Appellants, who were not required to acquire
interests in Greyhound in order to hold their positions, did not, by acquiring those
interests, surrender their right to be brought to judgment only in States with which they
had had "minimum contacts."

The Due Process Clause

"does not contemplate that a state may make binding a judgment . . . against an
individual or corporate defendant with which the state has no contacts, ties, or
relations."

International Shoe Co. v. Washington, 326 U.S. at 326 U. S. 319. Delaware's assertion
of jurisdiction over appellants in this case is inconsistent with that constitutional
limitation on

Page 433 U. S. 217

state power. The judgment of the Delaware Supreme Court must, therefore, be
reversed.

It is so ordered.

MR. JUSTICE REHNQUIST took no part in the consideration or decision of this case.

[Footnote 1]

Greyhound Lines, Inc., is incorporated in California and has its principal place of
business in Phoenix, Ariz.

[Footnote 2]

A judgment of $13,146,090 plus attorneys' fees was entered against Greyhound in Mt.
Hood States, Inc. v. Greyhound Corp.,1972-3 Trade Cas. � 74,824, aff'd, ___ F.2d ___
(CA9 1977); App. 10.

[Footnote 3]

See United States v. Greyhound Corp., 363 F.Supp. 525 (ND Ill.1973) and 370 F.Supp.
881 (ND Ill.), aff'd, 508 F.2d 529 (CA7 1974). Greyhound was fined $100,000 and
Greyhound Lines $500,000.

[Footnote 4]

Section 366 provides:


"(a) If it appears in any complaint filed in the Court of Chancery that the defendant or
any one or more of the defendants is a nonresident of the State, the Court may make an
order directing such nonresident defendant or defendants to appear by a day certain to
be designated. Such order shall be served on such nonresident defendant or
defendants by mail or otherwise, if practicable, and shall be published in such manner
as the Court directs, not less than once a week for 3 consecutive weeks. The Court may
compel the appearance of the defendant by the seizure of all or any part of his property,
which property may be sold under the order of the Court to pay the demand of the
plaintiff, if the defendant does not appear, or otherwise defaults. Any defendant whose
property shall have been so seized and who shall have entered a general appearance
in the cause may, upon notice to the plaintiff, petition the Court for an order releasing
such property or any part thereof from the seizure. The Court shall release such
property unless the plaintiff shall satisfy the Court that, because of other circumstances
there is a reasonable possibility that such release may render it substantially less likely
that plaintiff will obtain satisfaction of any judgment secured. If such petition shall not be
granted, or if no such petition shall be filed, such property shall remain subject to
seizure and may be sold to satisfy any judgment entered in the cause. The Court may at
any time release such property or any part thereof upon the giving of sufficient security."

"(b) The Court may make all necessary rules respecting the form of process, the
manner of issuance and return thereof, the release of such property from seizure and
for the sale of the property so seized, and may require the plaintiff to give approved
security to abide any order of the Court respecting the property."

"(c) Any transfer or assignment of the property so seized after the seizure thereof shall
be void and after the sale of the property is made and confirmed, the purchaser shall be
entitled to and have all the right, title and interest of the defendant in and to the property
so seized and sold and such sale and confirmation shall transfer to the purchaser all the
right, title and interest of the defendant in and to the property as fully as if the defendant
had transferred the same to the purchaser in accordance with law."

[Footnote 5]

As a condition of the sequestration order, both the plaintiff and the sequestrator were
required to file bonds of $1,000 to assure their compliance with the orders of the court.
App. 24.

Following a technical amendment of the complaint, the original sequestration order was
vacated and replaced by an alias sequestration order identical in its terms to the
original.

[Footnote 6]

The sequestrator is appointed by the court to effect the sequestration. is duties appear
to consist of serving the sequestration order on the named corporation, receiving from
that corporation a list of the property which the order affects, and filing that list with the
court. For performing those services in this case, the sequestrator received a fee of
$100 under the original sequestration order and $100 under the alias order.

[Footnote 7]

The closing price of Greyhound stock on the day the sequestration order was issued
was $14 8. New York Times, May 23, 1974, p. 62. Thus, the value of the sequestered
stock was approximately $1.2 million.

[Footnote 8]

Debentures, warrants, and stock unit credits belonging to some of the defendants who
owned either stock or options were also sequestered. In addition, Greyhound reported
that it had an employment contract with one of the defendants calling for payment of
$250,000 over a 12-month period. Greyhound refused to furnish any further information
on that debt on the ground that, since the sums due constituted wages, their seizure
would be unconstitutional. See Sniadach v. Family Finance Corp., 395 U. S. 337 (1969).
Heitner did not challenge this refusal.

The remaining defendants apparently owned no property subject to the sequestration


order.

[Footnote 9]

Section 169 provides:

"For all purposes of title, action, attachment garnishment and jurisdiction of all courts
held in this State, but not for the purpose of taxation, the situs of the ownership of the
capital stock of all corporations existing under the laws of this State, whether organized
under this chapter or otherwise, shall be regarded as in this State."

[Footnote 10]

The court relied, 361 A.2d at 228, 230-231, on our decision in Ownbey v. Morgan, 256
U. S. 94 (1921), and references to that decision in North Georgia Finishing, Inc. v. Di-
Chem, Inc., 419 U. S. 601, 419 U. S. 610 (1975) (POWELL, J., concurring in
judgment); Calero-Toledo v. Pearson Yacht Leasing Co., 416 U. S. 663, 416 U. S.
679 n. 14 (1974); Mitchell v. W. T. Grant Co., 416 U. S. 600, 416 U. S.
613 (1974); Fuentes v. Shevin, 407 U. S. 67, 407 U. S. 91 n. 23 (1972); Sniadach v.
Family Finance Corp., supra at 395 U. S. 339. The only question before the Court
in Ownbey was the constitutionality of a requirement that a defendant whose property
has been attached file a bond before entering an appearance. We do not read the
recent references to Ownbey as necessarily suggesting that Ownbey is consistent with
more recent decisions interpreting the Due Process Clause.
Sequestration is the equity counterpart of the process of foreign attachment in suits at
law considered in Ownbey.Delaware's sequestration statute was modeled after its
attachment statute. See Sands v. Lefcourt Realty Corp., 35 Del.Ch. 340, 344-345, 117
A.2d 365, 367 (Sup.Ct.1955); Folk & Moyer, Sequestration in Delaware: A Constitutional
Analysis, 73 Colum.L.Rev. 749, 751-754 (1973).

[Footnote 11]

The District Court judgment in U.S. Industries was reversed by the Court of Appeals for
the Third Circuit. 540 F.2d 142 (1976), cert. pending, No. 76-359. The Court of Appeals
characterized the passage from the Delaware Supreme Court's opinion quoted in text
as "cryptic conclusions." Id. at 149.

[Footnote 12]

Under Delaware law, defendants whose property has been sequestered must enter a
general appearance, thus subjecting themselves to in personam liability, before they
can defend on the merits. See Greyhound Corp. v. Heitner, 361 A.2d 225, 235-236
(1976). Thus, if the judgment below were considered not to be an appealable final
judgment, 28 U.S.C. § 1257(2), appellants would have the choice of suffering a default
judgment or entering a general appearance and defending on the merits. This case is in
the same posture as was Cox Broadcasting Corp. v. Cohn, 420 U. S. 469, 420 U. S.
485 (1975):

"The [Delaware] Supreme Court's judgment is plainly final on the federal issue, and is
not subject to further review in the state courts. Appellants will be liable for damages if
the elements of the state cause of action are proved. They may prevail at trial on
nonfederal grounds, it is true, but if the [Delaware] court erroneously upheld the statute,
there should be no trial at all."

Accordingly, "consistent with the pragmatic approach that we have followed in the past
in determining finality," id. at 420 U. S. 486, we conclude that the judgment below is final
within the meaning of § 1257.

[Footnote 13]

The statute also required that a copy of the summons and complaint be mailed to the
defendant if his place of residence was known to the plaintiff or could be determined
with reasonable diligence. 95 U.S. at 95 U. S. 718. Mitchell had averred that he did not
know and could not determine Neff's address, so that the publication was the only
"notice" given. Id. at 95 U. S. 717.

[Footnote 14]

The Federal Circuit Court based its ruling on defects in Mitchell's affidavit in support of
the order for service by publication and in the affidavit by which publication was
proved. Id. at 95 U. S. 720. Mr. Justice Field indicated that, if this Court had confined
itself to considering those rulings, the judgment would have been reversed. Id. at 95 U.
S. 721.

[Footnote 15]

The doctrine that one State does not have to recognize the judgment of another State's
courts if the latter did not have jurisdiction was firmly established at the time
of Pennoyer. See, e.g., 52 U. S. Ketchum, 11 How. 165 (1851); Boswell's Lessee v.
Otis, 9 How. 336 (1850); Kibbe v. Kibbe, 1 Kirby 119 (Conn.Super.Ct. 1786).

[Footnote 16]

Attachment was considered essential to the state court's jurisdiction for two reasons.
First, attachment combined with substituted service would provide greater assurance
that the defendant would actually receive notice of the action than would publication
alone. Second, since the court's jurisdiction depended on the defendant's ownership of
property in the State, and could be defeated if the defendant disposed of that property,
attachment was necessary to assure that the court had jurisdiction when the
proceedings began and continued to have jurisdiction when it entered judgment. 95
U.S. at 95 U. S. 727-728.

[Footnote 17]

"A judgment in rem affects the interests of all persons in designated property. A
judgment quasi in rem affects the interests of particular persons in designated property.
The latter is of two types. In one, the plaintiff is seeking to secure a preexisting claim in
the subject property and to extinguish or establish the nonexistence of similar interests
of particular persons. In the other, the plaintiff seeks to apply what he concedes to be
the property of the defendant to the satisfaction of a claim against him. Restatement,
Judgments, 5-9."

Hanson v. Denckla, 357 U. S. 235, 357 U. S. 246 n. 12 (1958).

As did the Court in Hanson, we will, for convenience, generally use the term "in rem" in
place of "in rem and quasi in rem."

[Footnote 18]

The Court in Harris limited its holding to States in which the principal defendant (Balk)
could have sued the garnishee (Harris) if he had obtained personal jurisdiction over the
garnishee in that State. 198 U.S. at 198 U. S. 222-223, 198 U. S. 226. The Court
explained:

"The importance of the fact of the right of the original creditor to sue his debtor in the
foreign State, as affecting the right of the creditor of that creditor to sue the debtor or
garnishee, lies in the nature of the attachment proceeding. The plaintiff in such
proceeding in the foreign State is able to sue out the attachment and attach the debt
due from the garnishee to his (the garnishee's) creditor, because of the fact that the
plaintiff is really, in such proceeding, a representative of the creditor of the garnishee,
and therefore if such creditor himself had the right to commence suit to recover the debt
in the foreign State, his representative has the same right, as representing him, and
may garnish or attach the debt, provided the municipal law of the State where the
attachment was sued out permits it."

Id. at 198 U. S. 226. The problem with this reasoning is that, unless the plaintiff has
obtained a judgment establishing his claim against the principal defendant, see, e.g.,
Baltimore & O. R. Co. v. Hostetter, 240 U. S. 620 (1916), his right to "represent" the
principal defendant in an action against the garnishee is at issue. See Beale, The
Exercise of Jurisdiction in Rem to Compel Payment of a Debt, 27 Harv.L.Rev. 107, 118-
120 (1913).

[Footnote 19]

As the language quoted indicates, the International Shoe Court believed that the
standard it was setting forth governed actions against natural persons, as well as
corporations, and we see no reason to disagree. See also McGee v. International Life
Ins. Co., 355 U. S. 220, 355 U. S. 222 (1957) (International Shoe culmination of trend
toward expanding state jurisdiction over "foreign corporations and other nonresidents").
The differences between individuals and corporations may, of course, lead to the
conclusion that a given set of circumstances establishes state jurisdiction over one type
of defendant but not over the other.

[Footnote 20]

Nothing in Hanson v. Denckla, 357 U. S. 235 (1958), is to the contrary.


The Hanson Court's statement that restrictions on state jurisdiction "are a consequence
of territorial limitations on the power of the respective States," id. at 357 U. S. 251,
simply makes the point that the States are defined by their geographical territory. After
making this point, the Court in Hanson determined that the defendant over which
personal jurisdiction was claimed had not committed any acts sufficiently connected to
the State to justify jurisdiction under the International Shoe standard.

[Footnote 21]

Cf. Restatement (Second) of Conflict of Laws § 59, Comment a (possible inconsistency


between principle of reasonableness which underlies field of judicial jurisdiction and
traditional rule of in rem jurisdiction based solely on land in State); § 60,
Comment a (same as to jurisdiction based solely on chattel in State); § 68,
Comment c (rule of Harris v. Balk"might be thought inconsistent with the basic principle
of reasonableness") (1971).
[Footnote 22]

"All proceedings, like all rights, are really against persons. Whether they are
proceedings or rights in rem depends on the number of persons affected."

Tyler v. Court of Registration, 175 Mass. 71, 76, 55 N.E. 812, 814 (Holmes,
C.J.), appeal dismissed, 179 U. S. 405 (1900).

[Footnote 23]

It is true that the potential liability of a defendant in an in rem action is limited by the
value of the property, but that limitation does not affect the argument. The fairness of
subjecting a defendant to state court jurisdiction does not depend on the size of the
claim being litigated. Cf. Fuentes v. Shevin, 407 U.S. at 407 U. S. 88-90; n 32, infra.

[Footnote 24]

This category includes true in rem actions and the first type of quasi in
rem proceedings. See n 17, supra.

[Footnote 25]

In some circumstances, the presence of property in the forum State will not support the
inference suggested in text. Cf., e.g., Restatement § 60, Comments c, d; Traynor 672-
673; Note, The Power of a State to Affect Title in a Chattel Atypically Removed to It, 47
Colum.L.Rev. 767 (1947).

[Footnote 26]

Cf. Hanson v. Denckla, 357 U.S. at 357 U. S. 253.

[Footnote 27]

See, e.g., Tyler v. Court of Registration, supra.

[Footnote 28]

We do not suggest that these illustrations include all the factors that may affect the
decision, nor that the factors we have mentioned are necessarily decisive.

[Footnote 29]

Cf. Dubin v. Philadelphia, 34 Pa.D. & C. 61 (1938). If such an action were brought under
the in rem jurisdiction, rather than under a long-arm statute, it would be a quasi in
rem action of the second type. See n 17, supra.
[Footnote 30]

Cf. Smit, The Enduring Utility of In Rem Rules: A Lasting Legacy of Pennoyer v. Neff, 43
Brooklyn L.Rev. 600 (1977). We do not suggest that jurisdictional doctrines other than
those discussed in text, such as the particularized rules governing adjudications of
status, are inconsistent with the standard of fairness. See, e.g., Traynor 660-661.

[Footnote 31]

Concentrating on this category of cases is also appropriate because, in the other


categories, to the extent that presence of property in the State indicates the existence of
sufficient contacts under International Shoe, there is no need to rely on the property as
justifying jurisdiction regardless of the existence of those contacts.

[Footnote 32]

The value of the property seized does serve to limit the extent of possible liability, but
that limitation does not provide support for the assertion of
jurisdiction. See n 23, supra. In this case, appellants' potential liability under the in
remjurisdiction exceeds $1 million. See nn. 7 8 supra.

[Footnote 33]

See supra at 433 U. S. 193, 433 U. S. 194. This purpose is emphasized by Delaware's
refusal to allow any defense on the merits unless the defendant enters a general
appearance, thus submitting to full in personam liability. See n 12, supra.

[Footnote 34]

See North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U. S. 601 (1975); Mitchell v. W.
T. Grant Co, 416 U. S. 600 (1974); Fuentes v. Shevin, 407 U. S. 67 (1972); Sniadach v.
Family Finance Corp., 395 U. S. 337 (1969).

[Footnote 35]

The role of in rem jurisdiction as a means of preventing the evasion of obligations, like
the usefulness of that jurisdiction to mitigate the limitations Pennoyer placed on in
personam jurisdiction, may once have been more significant. Von Mehren & Trautman
1178.

[Footnote 36]

Once it has been determined by a court of competent jurisdiction that the defendant is a
debtor of the plaintiff, there would seem to be no unfairness in allowing an action to
realize on that debt in a State where the defendant has property, whether or not that
State would have jurisdiction to determine the existence of the debt as an original
matter. Cf. n 18, supra.

[Footnote 37]

This case does not raise, and we therefore do not consider, the question whether the
presence of a defendant's property in a State is a sufficient basis for jurisdiction when
no other forum is available to the plaintiff.

[Footnote 38]

To the contrary, in Pennington v. Fourth Nat. Bank, 243 U. S. 269, 243 U. S. 271 (1917),
we said:

"The Fourteenth Amendment did not, in guaranteeing due process of law, abridge the
jurisdiction which a State possessed over property within its borders, regardless of the
residence or presence of the owner. That jurisdiction extends alike to tangible and to
intangible property. Indebtedness due from a resident to a nonresident -- of which bank
deposits are an example -- is property within the State. Chicago, Rock Island Pacific Ry.
Co. v. Sturm, 174 U. S. 710. It is, indeed, the species of property which courts of the
several States have most frequently applied in satisfaction of the obligations of absent
debtors. Harris v. Balk, 198 U. S. 215. Substituted service on a nonresident by
publication furnishes no legal basis for a judgment in personam. Pennoyer v. Neff, 95 U.
S. 714. But garnishment or foreign attachment is a proceeding quasi in rem. Freeman v.
Alderson, 119 U. S. 185, 119 U. S. 187. The thing belonging to the absent defendant is
seized and applied to the satisfaction of his obligation. The Federal Constitution
presents no obstacle to the full exercise of this power."

See also Huron Holding Corp. v. Lincoln Mine Operating Co., 312 U. S. 183, 312 U. S.
193 (1941).

More recent decisions, however, contain no similar sweeping endorsements of


jurisdiction based on property. In Hanson v. Denckla, 357 U.S. at 357 U. S. 246, we
noted that a state court's in rem jurisdiction is "[f]ounded on physical power," and that
"[t]he basis of the jurisdiction is the presence of the subject property within the territorial
jurisdiction of the forum State." We found in that case, however, that the property which
was the basis for the assertion of in rem jurisdiction was not present in the State. We
therefore did not have to consider whether the presence of property in the State was
sufficient to justify jurisdiction. We also held that the defendant did not have sufficient
contact with the State to justify in personam jurisdiction.

[Footnote 39]

It would not be fruitful for us to reexamine the facts of cases decided on the rationales
of Pennoyer and Harris to determine whether jurisdiction might have been sustained
under the standard we adopt today. To the extent that prior decisions are inconsistent
with this standard, they are overruled.

[Footnote 40]

Appellants argue that our determination that the minimum contacts standard
of International Shoe governs jurisdiction here makes unnecessary any consideration of
the existence of such contacts. Brief for Appellants 27; Reply Brief for Appellants 9.
They point out that they were never personally served with a summons, that Delaware
has no long-arm statute which would authorize such service, and that the Delaware
Supreme Court has authoritatively held that the existence of contacts is irrelevant to
jurisdiction under Del.Code Ann., Tit. 10, § 366 (1975). As part of its sequestration order,
however, the Court of Chancery directed its clerk to send each appellant a copy of the
summons and complaint by certified mail. The record indicates that those mailings were
made, and contains return receipts from at least 19 of the appellants. None of the
appellants has suggested that he did not actually receive the summons which was
directed to him in compliance with a Delaware statute designed to provide jurisdiction
over nonresidents. In these circumstances, we will assume that the procedures followed
would be sufficient to bring appellants before the Delaware courts, if minimum contacts
existed.

[Footnote 41]

On the view we take of the case, we need not consider the significance, if any, of the
fact that some appellants hold positions only with a subsidiary of Greyhound which is
incorporated in California.

[Footnote 42]

Sequestration is an equitable procedure available only in equity actions, but a similar


procedure may be utilized in actions at law. See n 10, supra.

[Footnote 43]

Delaware does not require directors to own stock. Del.Code Ann., Tit. 8, § 141(b) (Supp.
1976).

[Footnote 44]

In general, the law of the State of incorporation is held to govern the liabilities of officers
or directors to the corporation and its stockholders. See Restatement § 309. But
see Cal.Corp.Code § 2115 (West Supp. 1977). The rationale for the general rule
appears to be based more on the need for a uniform and certain standard to govern the
internal affairs of a corporation than on the perceived interest of the State of
incorporation. Cf. Koster v. Lumbermens Mutual Casualty Co., 330 U. S. 518, 330 U. S.
527-528 (1947).
[Footnote 45]

Mr. Justice Black, although dissenting in Hanson, agreed with the majority that

"the question whether the law of a State can be applied to a transaction is different from
the question whether the courts of that State have jurisdiction to enter a judgment. . . ."

357 U.S. at 357 U. S. 258.

[Footnote 46]

See, e.g., Del.Code Ann., Tit. 8, §§ 143, 145 (1975 ed. and Supp. 1976).

[Footnote 47]

See, e.g., Conn.Gen.Stat.Rev. § 33-322 (1976); N.C.Gen.Stat. § 55-33 (1975);


S.C.Code Ann. § 33-5-70 (1977).

MR. JUSTICE POWELL, concurring.

I agree that the principles of International Shoe Co. v. Washington, 326 U. S.


310 (1945), should be extended to govern assertions of in rem as well as in
personam jurisdiction in a state court. I also agree that neither the statutory presence of
appellants' stock in Delaware nor their positions as directors and officers of a Delaware
corporation can provide sufficient contacts to support the Delaware courts' assertion of
jurisdiction in this case.

I would explicitly reserve judgment, however, on whether the ownership of some forms
of property whose situs is indisputably and permanently located within a State may,
without more, provide the contacts necessary to subject a defendant to jurisdiction
within the State to the extent of the value of the property. In the case of real property, in
particular, preservation of the common law concept of quasi in rem jurisdiction arguably
would avoid the uncertainty of the general International Shoe standard without
significant cost to "traditional notions of fair play and substantial justice.'" Id.at 326 U. S.
316, quoting Milliken v. Meyer, 311 U. S. 457, 311 U. S. 463 (1940).

Subject to the foregoing reservation, I join the opinion of the Court.

MR. JUSTICE STEVENS, concurring in the judgment.

The Due Process Clause affords protection against "judgments without


notice." International Shoe Co. v. Washington, 326 U. S. 310, 326 U. S. 324 (opinion of
Black, J.). Throughout our history, the acceptable exercise of in rem and quasi in rem

Page 433 U. S. 218


jurisdiction has included a procedure giving reasonable assurance that actual notice of
the particular claim will be conveyed to the defendant. * Thus, publication, notice by
registered mail, or extraterritorial personal service has been an essential ingredient of
any procedure that serves as a substitute for personal service within the jurisdiction.

The requirement of fair notice also, I believe, includes fair warning that a particular
activity may subject a person to the jurisdiction of a foreign sovereign. If I visit another
State, or acquire real estate or open a bank account in it, I knowingly assume some risk
that the State will exercise its power over my property or my person while there. My
contact with the State, though minimal, gives rise to predictable risks.

Perhaps the same consequences should flow from the purchase of stock of a
corporation organized under the laws of a foreign nation, because, to some limited
extent, one's property and affairs then become subject to the laws of the nation of
domicile of the corporation. As a matter of international law, that suggestion might be
acceptable because a foreign investment is sufficiently unusual to make it appropriate to
require the investor to study the ramifications of his decision. But a purchase of
securities in the domestic market is an entirely different matter.

One who purchases shares of stock on the open market can hardly be expected to
know that he has thereby become subject to suit in a forum remote from his residence
and unrelated to the transaction. As a practical matter, the Delaware sequestration
statute creates an unacceptable risk of judgment without notice. Unlike the 49 other
States, Delaware treats the place of incorporation as the situs of the stock, even though
both the owner and the custodian of the shares are elsewhere. Moreover, Delaware
denies the defendant

Page 433 U. S. 219

the opportunity to defend the merits of the suit unless he subjects himself to the
unlimited jurisdiction of the court. Thus, it coerces a defendant either to submit to
personal jurisdiction in a forum which could not otherwise obtain such jurisdiction or to
lose the securities which have been attached. If its procedure were upheld, Delaware
would, in effect, impose a duty of inquiry on every purchaser of securities in the national
market. For unless the purchaser ascertains both the State of incorporation of the
company whose shares he is buying, and also the idiosyncrasies of its law, he may be
assuming an unknown risk of litigation. I therefore agree with the Court that, on the
record before us, no adequate basis for jurisdiction exists, and that the Delaware statute
is unconstitutional on its face.

How the Court's opinion may be applied in other contexts is not entirely clear to me. I
agree with MR. JUSTICE POWELL that it should not be read to invalidate quasi in
rem jurisdiction where real estate is involved. I would also not read it as invalidating
other long-accepted methods of acquiring jurisdiction over persons with adequate notice
of both the particular controversy and the fact that their local activities might subject
them to suit. My uncertainty as to the reach of the opinion, and my fear that it purports
to decide a great deal more than is necessary to dispose of this case, persuade me
merely to concur in the judgment.

"To dispense with personal service, the substitute that is most likely to reach the
defendant is the least that ought to be required if substantial justice is to be done."

McDonald v. Mabee, 243 U. S. 90, 243 U. S. 92.

MR. JUSTICE BRENNAN, concurring in part and dissenting in part.

I join Parts I-III of the Court's opinion. I fully agree that the minimum contacts analysis
developed in International Shoe Co. v. Washington, 326 U. S. 310 (1945), represents a
far more sensible construct for the exercise of state court jurisdiction than the patchwork
of legal and factual fictions that has been generated from the decision in Pennoyer v.
Neff, 95 U. S. 714(1878). It is precisely because

Page 433 U. S. 220

the inquiry into minimum contacts is now of such overriding importance, however, that I
must respectfully dissent from433 U. S.

The primary teaching of Parts I-III of today's decision is that a State, in seeking to assert
jurisdiction over a person located outside its borders, may only do so on the basis of
minimum contacts among the parties, the contested transaction, and the forum State.
The Delaware Supreme Court could not have made plainer, however, that its
sequestration statute, Del.Code Ann., Tit. 10, § 366 (1975), does not operate on this
basis, but instead is strictly an embodiment of quasi in remjurisdiction, a jurisdictional
predicate no longer constitutionally viable:

"[J]urisdiction under § 366 remains . . . quasi in rem founded on the presence of capital
stock here, not on prior contact by defendants with this forum."

Greyhound Corp. v. Heitner, 361 A.2d 225, 229 (1976). This state court ruling obviously
comports with the understanding of the parties, for the issue of the existence of
minimum contacts was never pleaded by appellee, made the subject of discovery, or
ruled upon by the Delaware courts. These facts notwithstanding, the Court in 433 U.
S. Succinctly stated, once having properly and persuasively decided that the quasi in
rem statute that Delaware admits to having enacted is invalid, the Court then proceeds
to find that a minimum contacts law that Delaware expressly denies having enacted also
could not be constitutionally applied in this case.
In my view, a purer example of an advisory opinion is not to be found. True, appellants
do not deny having received actual notice of the action in question. Ante at 433 U. S.
213 n. 40.

Page 433 U. S. 221

However, notice is but one ingredient of a proper assertion of state court jurisdiction.
The other is a statute authorizing the exercise of the State's judicial power along
constitutionally permissible grounds -- which henceforth means minimum contacts. As of
today, § 366 is not such a law. [Footnote 2/1] Recognizing that today's decision
fundamentally alters the relevant jurisdictional ground rules, I certainly would not want to
rule out the possibility that Delaware's courts might decide that the legislature's
overriding purpose of securing the personal appearance in state courts of defendants
would best be served by reinterpreting its statute to permit state jurisdiction on the basis
of constitutionally permissible contacts, rather than stock ownership. Were the state
courts to take this step, it would then become necessary to address the question of
whether minimum contacts exist here. But in the present posture of this case, the
Court's decision of this important issue is purely an abstract ruling.

My concern with the inappropriateness of the Court's action is highlighted by two other
considerations. First, an inquiry into minimum contacts inevitably is highly dependent on
creating a proper factual foundation detailing the contacts between the forum State and
the controversy in question. Because neither the plaintiff-appellee nor the state courts
viewed such an inquiry as germane in this instance, the Court today is unable to draw
upon a proper factual record in reaching its conclusion; moreover, its disposition denies
appellee the normal opportunity to seek discovery on the contacts issue. Second, it
must be remembered that the Court's ruling is a constitutional one, and necessarily

Page 433 U. S. 222

will affect the reach of the jurisdictional laws of all 50 States. Ordinarily this would
counsel restraint in constitutional pronouncements. Ashwander v. TVA, 297 U. S.
288, 297 U. S. 345-348 (1936) (Brandeis, J., concurring). Certainly it should have
cautioned the Court against reaching out to decide a question that, as here, has yet to
emerge from the state courts ripened for review on the federal issue.

II

Nonetheless, because the Court rules on the minimum contacts question, I feel impelled
to express my view. While evidence derived through discovery might satisfy me that
minimum contacts are lacking in a given case, I am convinced that, as a general rule, a
state forum has jurisdiction to adjudicate a shareholder derivative action centering on
the conduct and policies of the directors and officers of a corporation chartered by that
State. Unlike the Court, I therefore would not foreclose Delaware from asserting
jurisdiction over appellants were it persuaded to do so on the basis of minimum
contacts.
It is well settled that a derivative lawsuit, as presented here, does not inure primarily to
the benefit of the named plaintiff. Rather, the primary beneficiaries are the corporation
and its owners, the shareholders.

"The cause of action which such a plaintiff brings before the court is not his own, but the
corporation's. . . . Such a plaintiff often may represent an important public and
stockholder interest in bringing faithless managers to book."

Koster v. Lumbermens Mutual Casualty Co., 330 U. S. 518, 330 U. S. 522, 524 (1947).

Viewed in this light, the chartering State has an unusually powerful interest in insuring
the availability of a convenient forum for litigating claims involving a possible multiplicity
of defendant fiduciaries and for vindicating the State's substantive policies regarding the
management of its domestic corporations. I believe that our cases fairly establish that

Page 433 U. S. 223

the State's valid substantive interests are important considerations in assessing whether
it constitutionally may claim jurisdiction over a given cause of action.

In this instance, Delaware can point to at least three interrelated public policies that are
furthered by its assertion of jurisdiction. First, the State has a substantial interest in
providing restitution for its local corporations that allegedly have been victimized by
fiduciary misconduct, even if the managerial decisions occurred outside the State. The
importance of this general state interest in assuring restitution for its own residents
previously found expression in cases that went outside the then-prevailing due process
framework to authorize state court jurisdiction over nonresident motorists who injure
others within the State. Hess v. Pawloski, 274 U. S. 352 (1927); see Olberding v. Illinois
Central R. Co., 346 U. S. 338, 346 U. S. 341 (1953). More recently, it has led States to
seek and to acquire jurisdiction over nonresident tortfeasors whose purely out-of-state
activities produce domestic consequences. E.g., Gray v. American Radiator & Standard
Sanitary Corp., 22 Ill.2d 432, 176 N.E.2d 761 (1961). Second, state courts have
legitimately read their jurisdiction expansively when a cause of action centers in an area
in which the forum State possesses a manifest regulatory interest. E.g., McGee v.
International life Ins. Co., 355 U. S. 220 (1957) (insurance regulation); Travelers Health
Assn. v. Virginia, 339 U. S. 643 (1950) (blue sky laws). Only this Term, we reiterated
that the conduct of corporate fiduciaries is just such a matter in which the policies and
interests of the domestic forum are ordinarily presumed to be paramount. Santa Fe
Industries, Inc. v. Green, 430 U. S. 462,430 U. S. 478-480 (1977); see Cort v. Ash, 422
U. S. 66, 422 U. S. 84-85 (1975). Finally, a State like Delaware has a recognized,
interest in affording a convenient forum for supervising and overseeing the affairs of an
entity that is purely the creation of that State's law. For example, even following our
decision in

Page 433 U. S. 224


International Shoe, New York courts were permitted to exercise complete judicial
authority over nonresident beneficiaries of a trust created under state law, even though,
unlike appellants here, the beneficiaries personally entered into no association
whatsoever with New York. Mullane v. Central Hanover Bank & Trust Co., 339 U. S.
306, 339 U. S. 313 (1950); [Footnote 2/2] cf. Hartford Life Ins. Co. v. Ibs, 237 U. S.
662, 237 U. S. 671 (1915) (litigation concerning management of mortuary fund operated
by locally chartered corporation rests in court of that State); Bernheimer v.
Converse, 206 U. S. 516,206 U. S. 533 (1907) (state courts can oversee liquidation of
state-chartered corporation). I, of course, am not suggesting that Delaware's varied
interests would justify its acceptance of jurisdiction over any transaction touching upon
the affairs of its domestic corporations. But a derivative action which raises allegations
of abuses of the basic management of an institution whose existence is created by the
State and whose powers and duties are defined by state law fundamentally implicates
the public policies of that forum.

To be sure, the Court is not blind to these considerations. It notes that the State's
interests

"may support the application of Delaware law to resolve any controversy over
appellants' actions in their capacities as officers and directors."

Ante at 433 U. S. 215. But this, the Court argues, pertains to choice of law, not
jurisdiction. I recognize that the jurisdictional and choice of law inquiries are not
identical. Hanson v. Denckla, 357 U. S. 235, 357 U. S. 254 (1958). But I would not
compartmentalize thinking in this area quite so rigidly as it seems to me the Court does
today, for both inquiries "are

Page 433 U. S. 225

often closely related and to a substantial degree depend upon similar


considerations." Id. at 357 U. S. 258 (Black, J., dissenting). In either case, an important
linchpin is the extent of contacts between the controversy, the parties, and the forum
State. While constitutional limitations on the choice of law are by no means settled, see,
e.g., Home Ins. Co. v. Dick,281 U. S. 397 (1930), important considerations certainly
include the expectancies of the parties and the fairness of governing the defendants'
acts and behavior by rules of conduct created by a given jurisdiction. See,
e.g., Restatement (Second) of Conflict of Laws § 6 (1971) (hereafter Restatement).
These same factors bear upon the propriety of a State's exercising jurisdiction over a
legal dispute. At the minimum, the decision that it is fair to bind a defendant by a State's
laws and rules should prove to be highly relevant to the fairness of permitting that same
State to accept jurisdiction for adjudicating the controversy.

Furthermore, I believe that practical considerations argue in favor of seeking to bridge


the distance between the choice of law and jurisdictional inquiries. Even when a court
would apply the law of a different forum, [Footnote 2/3] as a general rule, it will feel less
knowledgeable and comfortable in interpretation, and less interested in fostering the
policies of that foreign jurisdiction, than would the courts established by the State that
provides the applicable law. See, e.g., Gulf Oil Co. v. Gilbert, 330 U. S. 501, 330 U. S.
509 (1947); Restatement § 313, p. 347; Traynor, Is This Conflict Really Necessary?, 37
Texas L.Rev. 657, 664 (1959). Obviously, such choice of law problems cannot entirely
be avoided in a diverse legal system such as our own. Nonetheless, when a suitor

Page 433 U. S. 226

seeks to lodge a suit in a State with a substantial interest in seeing its own law applied
to the transaction in question, we could wisely act to minimize conflicts, confusion, and
uncertainty by adopting a liberal view of jurisdiction, unless considerations of fairness or
efficiency strongly point in the opposite direction.

This case is not one where, in my judgment, this preference for jurisdiction is
adequately answered. Certainly nothing said by the Court persuades me that it would
be unfair to subject appellants to suit in Delaware. The fact that the record does not
reveal whether they "set foot" or committed "act[s] related to [the] cause of action" in
Delaware, ante at 433 U. S. 213, is not decisive, for jurisdiction can be bad strictly on
out-of-state acts having foreseeable effects in the forum State. E.g., McGee v.
International Life Ins. Co., supra; Gray v. American Radiator & Standard Sanitary Corp.,
supra; Restatement § 37. I have little difficulty in applying this principle to nonresident
fiduciaries whose alleged breaches of trust are said to have substantial damaging effect
on the financial posture of a resident corporation. [Footnote 2/4] Further, I cannot
understand how the existence of minimum contacts in a constitutional sense is at all
affected by Delaware's failure statutorily to express an interest in controlling corporate
fiduciaries. Ante at 433 U. S. 214. To me this simply demonstrates that Delaware

Page 433 U. S. 227

did not elect to assert jurisdiction to the extent the Constitution would allow. [Footnote
2/5] Nor would I view as controlling or even especially meaningful Delaware's failure to
exact from appellants their consent to be sued. Ante at 433 U. S. 216. Once we have
rejected the jurisdictional framework created in Pennoyer v. Neff, I see no reason to rest
jurisdiction on a fictional outgrowth of that system such as the existence of a consent
statute, expressed or implied. [Footnote 2/6]

I, therefore, would approach the minimum contacts analysis differently than does the
Court. Crucial to me is the fact that appellants [Footnote 2/7] voluntarily associated
themselves with the

Page 433 U. S. 228

State of Delaware, "invoking the benefits and protections of its laws," Hanson v
Denckla, 357 U.S. at 357 U. S. 253; International Shoe Co. v. Washington, 326 U.S.
at 326 U. S. 319, by entering into a long-term and fragile relationship with one of its
domestic corporations. They thereby elected to assume powers and to undertake
responsibilities wholly derived from that State's rules and regulations, and to become
eligible for those benefits that Delaware law makes available to its corporations'
officials. E.g., Del.Code Ann., Tit. 8, § 143 (1975) (interest-free loans); § 145 (1975 ed.
and Supp. 1976) (indemnification). While it is possible that countervailing issues of
judicial efficiency and the like might clearly favor a different forum, they do not appear
on the meager record before us; [Footnote 2/8] and, of course, we are concerned solely
with "minimum" contacts, not the "best" contacts. I thus do not believe that it is unfair to
insist that appellants make themselves available to suit in a competent forum that
Delaware might create for vindication of its important public policies directly pertaining
to appellants' fiduciary associations with the State.

[Footnote 2/1]

Indeed, the Court's decision to proceed to the minimum contacts issue treats
Delaware's sequestration statute as if it were the equivalent of Rhode Island's long-arm
law, which specifically authorizes its courts to assume jurisdiction to the limit permitted
by the Constitution, R.I.Gen.Laws Ann. § 9-33 (1970), thereby necessitating judicial
consideration of the frontiers of minimum contacts in every case arising under that
statute.

[Footnote 2/2]

The Mullane Court held:

"[T]he interest of each state in providing means to close trusts that exist by the grace of
its laws and are administered under the supervision of its courts is so insistent and
rooted in custom as to establish beyond doubt the right of its courts to determine the
interests of all claimants, resident or nonresident, provided its procedure accords full
opportunity to appear and be heard."

339 U.S. at 339 U. S. 313.

[Footnote 2/3]

In this case, the record does not inform us whether an actual conflict is likely to arise
between Delaware law and that of the likely alternative forum. Pursuant to the general
rule, I assume that Delaware law probably would obtain in the foreign court.
Restatement § 309.

[Footnote 2/4]

I recognize, of course, that identifying a corporation as a resident of the chartering State


is to build upon a legal fiction. In many respects, however, the law acts as if state
chartering of a corporation has meaning. E.g., 28 U.S.C. § 1332(c) (for diversity
purposes, a corporation is a citizen of the State of incorporation). And, if anything, the
propriety of treating a corporation as a resident of the incorporating State seems to me
particularly appropriate in the context of a shareholder derivative suit, for the State
realistically may perceive itself as having a direct interest in guaranteeing the
enforcement of its corporate laws, in assuring the solvency and fair management of its
domestic corporations, and in protecting from fraud those shareholders who placed their
faith in that state-created institution.

[Footnote 2/5]

In fact, it is quite plausible that the Delaware Legislature never felt the need to assert
direct jurisdiction over corporate managers precisely because the sequestration statute
heretofore has served as a somewhat awkward but effective basis for achieving such
personal jurisdiction. See, e.g., Hughes Tool Co. v. Fawcett Publications, Inc., 290 A.2d
693, 695 (Del.Ch.1972):

"Sequestration is most frequently resorted to in suits by stockholders against corporate


directors in which recoveries are sought for the benefit of the corporation on the ground
of claimed breaches of fiduciary duty on the part of directors."

[Footnote 2/6]

Admittedly, when one consents to suit in a forum, his expectation is enhanced that he
may be haled into that State's courts. To this extent, I agree that consent may have
bearing on the fairness of accepting jurisdiction. But whatever is the degree of personal
expectation that is necessary to warrant jurisdiction should not depend on the formality
of establishing a consent law. Indeed, if one's expectations are to carry such weight,
then appellants here might be fairly charged with the understanding that Delaware
would decide to protect its substantial interests through its own courts, for they certainly
realized that, in the past, the sequestration law has been employed primarily as a
means of securing the appearance of corporate officials in the State's courts. N.
5, supra. Even in the absence of such a statute, however, the close and special
association between a state corporation and its managers should apprise the latter that
the State may seek to offer a convenient forum for addressing claims of fiduciary breach
of trust.

[Footnote 2/7]

Whether the directors of the out-of-state subsidiary should be amenable to suit in


Delaware may raise additional questions. It may well require further investigation into
such factors as the degree of independence in the operations of the two corporations,
the interrelationship of the managers of parent and subsidiary in the actual conduct
under challenge, and the reasonable expectations of the subsidiary directors that the
parent State would take an interest in their behavior. Cf. United States v. First Nat. City
Bank, 379 U. S. 378, 379 U. S. 384 (1965). While the present record is not illuminating
on these matters, it appears that all appellants acted largely in concert with respect to
the alleged fiduciary misconduct, suggesting that overall jurisdiction might fairly rest in
Delaware.
[Footnote 2/8]

And, of course, if a preferable forum exists elsewhere, a State that is constitutionally


entitled to accept jurisdiction nonetheless remains free to arrange for the transfer of the
litigation under the doctrine of forum non conveniens. See, e.g., Broderick v.
Rosner, 294 U. S. 629, 294 U. S. 643 (1935); Gulf Oil Co. v. Gilbert, 330 U. S. 501, 330
U. S. 504 (1947).

G.R. No. 47517 June 27, 1941

IDONAH SLADE PERKINS, petitioner,


vs.
MAMERTO ROXAS, ET AL., respondents.

Alva J. Hill for petitioner.


DeWitt, Perkins & Ponce Enrile for respondent Judge and respondent Perkins.
Ross, Lawrence, Selph & Carrascoso, Jr., for respondent Benguet Consolidated Mining Co.

LAUREL, J.:

On July 5, 1938, the respondent Eugene Arthur Perkins, filed a complaint in the Court of First
Instance of Manila against the Benguet Consolidated Mining Company for the recovery of the sum of
P71,379.90, consisting of dividends which have been declared and made payable on 52,874 shares
of stock registered in his name, payment of which was being withheld by the company, and for the
recognition of his right to the control and disposal of said shares, to the exclusion of all others. To the
complaint, the company filed its answer, alleging, by way of defense, that the withholding of plaintiff's
right to the disposal and control of the shares was due to certain demands made with respect to said
shares by the petitioner herein. Idonah Slade Perkins, and by one George H. Engelhard. The answer
prays that the adverse claimants be made parties to the action and served with notice thereof by
publication, and that thereafter all such parties be required to interplead and settle the rights among
themselves.

On September 5, 1938, the trial court ordered the respondent, Eugene Arthur Perkins, to include in
his complaint as parties defendants petitioner, Idonah Slade Perkins, and George H. Engelhard. The
complaint was accordingly amended and in addition to the relief prayed for in the original complaint,
respondent Perkins prayed that petitioner Idonah Slade Perkins and George H. Engelhard be
adjudged without interest in the shares of stock in question and excluded from any claim they assert
thereon. Thereafter, summons by publication were served upon the non-resident defendants, Idonah
Slade Perkins and George H. Engelhard, pursuant to the order of the trial court. On December 9,
1938, Engelhard filed his answer to the amended complaint, and on January 8, 1940, petitioner's
objection to the court's jurisdiction over her person having been overruled by the trial court and by
this court in G. R. No. 46831, petitioner filed her answer with a cross-complaint in which she sets up
a judgment allegedly obtained by her against respondent, Eugene Arthur Perkins, from the Supreme
Court of the State of New York, wherein it is declared that she is the sole legal owner and entitled to
the possession and control of the shares of stock in question together with all the cash dividends
declared thereon by the Benguet Consolidated Mining Company, and prays for various affirmative
reliefs against the respondent. To the answer and cross-complaint thus filed, the respondent,
Eugene Arthur Perkins, filed a reply and an answer in which he sets up several defenses to the
enforcement in this jurisdiction of the judgment of the Supreme Court of the State of New York above
alluded to. Instead of demurring to the reply on either of the two grounds specified in section 100 of
the Code of Civil Procedure, petitioner, Idonah Slade Perkins, on June 5, 1940, filed a demurrer
thereto on the ground that "the court has no jurisdiction of the subject of the action," because the
alleged judgment of the Supreme Court of the State of New York is res judicata.

Petitioner's demurrer having been overruled, she now filed in this court a petition entitled "Certiorari,
Prohibition and Mandamus," alleging that "the respondent judge is about to and will render judgment
in the above-mentioned case disregarding the constitutional rights of this petitioner; contrary to and
annulling the final, subsisting, valid judgment rendered and entered in this petitioner's favor by the
courts of the State of New York, ... which decision is res judicata on all the questions constituting the
subject matter of civil case No. 53317, of the Court of First Instance of Manila; and which New York
judgment the Court of First Instance of Manila is without jurisdiction to annul, amend, reverse, or
modify in any respect whatsoever"; and praying that the order of the respondent judge overruling the
demurrer be annulled, and that he and his successors be permanently prohibited from taking any
action on the case, except to dismiss the same.

The only question here to be determined, therefore, is whether or not, in view of the alleged
judgment entered in favor of the petitioner by the Supreme Court of New York, and which is claimed
by her to be res judicata on all questions raised by the respondent, Eugene Arthur Perkins, in civil
case No. 53317 of the Court of First Instace of Manila, the local court has jurisdiction over the
subject matter of the action in the said case. By jurisdiction over the subject matter is meant the
nature of the cause of action and of the relief sought, and this is conferred by the sovereign authority
which organizes the court, and is to be sought for in general nature of its powers, or in authority
specially conferred. In the present case, the amended complaint filed by the respondent, Eugene
Arthur Perkins, in the court below alleged the ownership in himself of the conjugal partnership
between him and his wife, Idonah Slade Perkins; that the petitioner, Idonah Slade Perkins, and
George H. Engelhard assert claims to and interests in the said stock adverse to Eugene Arthur
Perkins; that such claims are invalid, unfounded, and made only for the purpose of vexing, hindering
and delaying Eugene Arthur Perkins in the exercise of the lawful control over and use of said shares
and dividends accorded to him and by law and by previous orders and decrees of this court; and the
said amended complaint prays, inter alia, "that defendant Benguet Consolidated Mining Company be
required and ordered to recognize the right of the plaintiff to the control and disposal of said shares
so standing in his name to the exclusion of all others; that the additional defendants, Idonah Slade
Perkins and George H. Engelhard, be each held to have no interest or claim in the subject matter of
the controversy between plaintiff and defendant Benguet Consolidated Mining Company, or in or
under the judgment to be rendered herein and that by said judgment they, and each of them be
excluded therefrom; and that the plaintiff be awarded the costs of this suit and general relief." The
respondent's action, therefore, calls for the adjudication of title to certain shares of stock of the
Benguet Consolidated Mining Company, and the granting of affirmative reliefs, which fall within the
general jurisdiction of the Court of First Instance of Manila. (Vide: sec. 146, et seq., Adm. Code, as
amended by Commonwealth Act No. 145; sec. 56, Act No. 136, as amended by Act No. 400.)

Similarly, the Court of First Instance of Manila is empowered to adjudicate the several demands
contained in petitioner's cross-complaint. The cross-complaint sets up a judgment allegedly
recovered by Idonah Slade Perkins against Eugene Arthur Perkins in the Supreme Court of New
York and by way of relief prays:

(1) Judgment against the plaintiff Eugene Arthur Perkins in the sum of one hundred eighty-
five thousand and four hundred dollars ($185,400), representing cash dividends paid to him
by defendant Benguet Consolidated Mining Co. from February, 1930, up to and including the
dividend of March 30, 1937.

(2) That plaintiff Eugene Arthur Perkins be required to deliver to this defendant the
certificates rep