El Banco Espanol-Filipino vs.

Vicente Palanca
37 Phil 921 (1981)

DOCTRINE:

The general rule is that a suit against a non-resident cannot be entertained by a Philippine
court. Where, however, the action is in rem or quasi in rem in connection with property
located in the Philippines, the court acquires jurisdiction over the res, and its jurisdiction
over the person of the non-resident is non-essential. In order that the court may exercise
power over the res, it is not necessary that the court should take actual custody of the
property, potential custody thereof being sufficient.

FACTS:

Engracio Palanca Tanquinyeng y Limquingco mortgaged various parcels of real property in

Manila to El Banco Espanol-Filipino. Afterwards, Engracio returned to China and there he
died on January 29, 1910 without returning again to the Philippines. The mortgagor then
instituted foreclosure proceeding but since defendant is a non-resident, it was necessary
to give notice by publication. The Clerk of Court was also directed to send copy of the
summons to the defendants last known address, which is in Amoy, China. It is not shown
whether the Clerk complied with this requirement. Nevertheless, after publication in a
newspaper of the City of Manila, the cause proceeded and judgment by default was
rendered. The decision was likewise published and afterwards sale by public auction was
held with the bank as the highest bidder. On August 7, 1908, this sale was confirmed by
the court. However, about seven years after the confirmation of this sale, a motion was
made by Vicente Palanca, as administrator of the estate of the original defendant, wherein
the applicant requested the court to set aside the order of default and the judgment, and to
vacate all the proceedings subsequent thereto. The basis of this application 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.

ISSUE:

Whether or not the lower court acquired jurisdiction over the defendant and the subject
matter of the action

RULING:

The word jurisdiction 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.

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.

Perkins vs. Dizon

69 Phil 186 (1939)

DOCTRINE:

State, through its tribunals, may subject property situated within its limits owned by non-
residents 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.

FACTS:
Respondent Eugene Arthur Perkins instituted an action in the CFI of Manila against the
Benguet Consolidated Mining Company for dividends on 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. Benguet
Consolidated Mining Company, in its Answer to the Complaint averred that in connection
with the shares of stock in question, conflicting claims were being made upon it by said
Respondent Eugene Arthur Perkins, his wife Idonah Slade Perkins, and one named
George H. Engelhard, and prayed that these last two be made parties to the action and
served with Summons by Publication, so that the three Claimants may litigate their
conflicting claims and settle their rights among themselves. The court has NOT issued an
Order compelling the Conflicting Claimants to interplead with one another and litigate their
several claims among themselves, but instead ordered Respondent Eugene Arthur
Perkins to amend his Complaint including the other two Claimants as Parties-Defendant.
The Complaint was accordingly amended and in addition to the relief prayed for in the
Original Complaint, Respondent Eugene Arthur Perkins prayed that Petitioner Idonah
Slade Perkins and George 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.

Non-resident Defendant Engelhard filed his Answer to the Amended Complaint, while
Petitioner Idonah Slade Perkins, through counsel, filed her pleading entitled objection to
venue, motion to quash, and demurrer to jurisdiction wherein she challenged the
jurisdiction of the lower court over her person. Petitioners objection, Motion and Demurrer
having been overruled as well as her Motion for Reconsideration of the Order of Denial,
she now brought the present Petition for Certiorari, praying that the Summons by
Publication issued against her be declared null and void, and that, with respect to her,
Respondent Judge be permanently prohibited from taking any action on the case.

Petitioner contends that the proceeding instituted against her is one of interpleading and is
therefore an action in personam. She contends that the lower court had not acquired
jurisdiction over her person not only because she is a non-resident, but also because the
court had no jurisdiction over the subject-matter of the action.

ISSUE:

Whether or not the CFI of Manila has acquired jurisdiction over the person of the Petitioner
as a non-resident Defendant, or, notwithstanding the want of such jurisdiction, whether or
not said court may validly try the case?

RULING:

Yes. Here, the service of the Summons by Publication was ordered by the lower court by
virtue of an action quasi in rem against the non-resident Defendant. The action being quasi
in rem, the CFI of Manila has jurisdiction over the person of the Petitioner.

The general rule is that a suit against a non-resident cannot be entertained by a Philippine
court. Where, however, the action is in rem or quasi in rem in connection with property
located in the Philippines, the court acquires jurisdiction over the res, and its jurisdiction
over the person of the non-resident is non-essential. In order that the court may exercise
power over the res, it is not necessary that the court should take actual custody of the
property, potential custody thereof being sufficient. There is potential custody when, from
the nature of the action brought, the power of the court over the property is impliedly
recognized by law In an action in rem or quasi in rem against a non-resident defendant,
jurisdiction over his person is non-essential, and if the law requires in such case that the
summons upon the defendant be served by publication, it is merely to satisfy the
constitutional requirement of due process.

The reason for the rule that Philippine courts cannot acquire jurisdiction over the person of
a non-resident, as laid down by the Supreme Court of the United States in Pennoyer v.
Neff [1878], may be found in a recognized principle of public law to the effect that no State
can exercise direct jurisdiction and authority over persons or property without its territory.
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 such persons or property in any other tribunals Story, Confl. L., sec.
539.

When, however, the action relates to property located in the Philippines, the Philippine
courts may validly try the case, upon the principle that a State, through its tribunals, may
subject property situated within its limits owned by non-residents 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 citizens; and, when non-residents deal with them, it is a legitimate
and just exercise of authority to hold and appropriate any property owned by such non-
residents to satisfy the claims of its citizens. It is in virtue of the States jurisdiction over the
property of the non-resident situated within its limits that its tribunals can inquire into the
non-residents 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 non-resident has no
property in the State, there is nothing upon which the tribunals can adjudicate.

In the instant case, there can be no question that the action brought by Respondent
Eugene Arthur Perkins in his Amended Complaint against Petitioner Idonah Slade Perkins
seeks to exclude her from any interest in a property located in the Philippines. That
property consists in certain shares of stocks of the Benguet Consolidated Mining
Company, a sociedad anonima, organized in the Philippines under the provisions of the
Spanish Code of Commerce, with its principal office in the City of Manila and which
conducts its mining activities therein. The situs of the shares is in the jurisdiction where the
corporation is created, whether the certificated evidencing the ownership of those shares
are within or without that jurisdiction. Under these circumstances, SC holds that the action
thus brought is quasi in rem, for while the judgement that may be rendered therein is not
strictly a judgment in rem, it fixes and settles the title to the property in controversy and to
that extent partakes of the nature of the judgment in rem.

The action being in quasi in rem, the CFI of Manila has jurisdiction over the person of the
Petitioner. In order to satisfy the constitutional requirement of due process, Summons has
been served upon her by publication. There is no question as to the adequacy of
publication made nor as to the mailing of the Order of Publication to the Petitioners last
known place of residence in the United States. But, of course, the action being quasi in
rem and notice having be made by publication, the relief that may be granted by the
Philippine court must be confined to the res, it having no jurisdiction to render a personal
judgment against the non-resident. In the Amended Complaint filed by Respondent
Eugene Arthur Perkins, no money judgment or other relief in personam is prayed for
against the Petitioner. The only relief sought therein is that she be declared to be without
any interest in the shares in controversy and that she be excluded from any claim thereto.

Travelers Health Association vs. Virginia,

339 U.S. 643 (1950)

DOCTRINE:

A state is helpless when the out of state company operates beyond the borders,
establishes no office in the state, and has no agents, salesmen, or solicitors to obtain
business for it within the state. Then it is beyond the reach of process. In the present case,
however, that is only the formal arrangement. The actual arrangement shows a method of
soliciting business within Virginia as active, continuous, and methodical as it would be if
regular agents or solicitors were employed.

FACTS:

The appellant Travelers Health Association was incorporated in Nebraska as a nonprofit

membership association in 1904. Since that time, its only office has been located in
Omaha, from which it has conducted a mail order health insurance business. New
members pay an initiation fee and obligate themselves to pay periodic assessments at the
Omaha office. The funds so collected are used for operating expenses and sick benefits to
members. The Association has no paid agents; its new members are usually obtained
through the unpaid activities of those already members, who are encouraged to
recommend the Association to friends and submit their names to the home office. The
appellant Pratt in Omaha mails solicitations to these prospects. He encloses blank
applications which, if signed and returned to the home office with the required fee, usually
result in election of applicants as members. Certificates are then mailed, subject to return
within 10 days "if not satisfactory." Travelers has solicited Virginia members in this manner
since 1904, and has caused many sick benefit claims to be investigated. When these
proceedings were instituted, it had approximately 800 Virginia members.

The Commission, holding that the foregoing facts supported the state's power to act in 6
proceedings, overruled appellants' objection to jurisdiction and their motion to quash
service. The Association and its treasurer were ordered to cease and desist from further
solicitations or sales of certificates to Virginia residents "through medium of any
advertisement from within or from without the state, and/or through the mails or otherwise,
by intra- or interstate communication, unless and until it obtained authority in accordance
with the "Blue Sky Law." Notice of the proceeding was served on appellants by registered
mail, as authorized by 6 when other forms of service are unavailable. They appeared
specially, challenged the jurisdiction of the State, and moved to quash the service of
summons. On recommendations from Virginia members, the Association for many years
had been issuing insurance certificates to residents of Virginia, and it had approximately
800 members there. It had caused claims for losses to be investigated, and the Virginia
courts were open to it for the enforcement of obligations of certificate holders.

Appellants do not question the validity of the Virginia law "to the extent that it provides that
individual and corporate residents of other states shall not come into the State for the
purpose of doing business there without first submitting to the regulatory authority of the
State. Their basic contention is that all their activities take place in Nebraska, and that
consequently Virginia has no power to reach them in cease and desist proceedings to
enforce any part of its regulatory law.

ISSUE:

Whether or not the Court acquires jurisdiction over the Association.

RULING:

An order of the Virginia Corporation Commission requiring appellants to cease and desist
from offering and issuing, without a permit, certificates of insurance to residents of the
State, was affirmed by the Supreme Court of Appeals.

Based on the principles in the Osborn, Hoopeston, and International Shoe cases, the
contacts and ties of appellants with Virginia residents, together with that state's interest in
faithful observance of the certificate obligations, justify subjecting appellants to cease and
desist proceedings under 6. The Association did not engage in mere isolated or short-
lived transactions. Its insurance certificates, systematically and widely delivered in Virginia
following solicitation based on recommendations of Virginians, create continuing
obligations between the Association and each of the many certificate holders in the state.
Appellants have caused claims for losses to be investigated, and the Virginia courts were
available to them in seeking to enforce obligations created by the group of certificates.

A state is helpless when the out of state company operates beyond the borders,
establishes no office in the state, and has no agents, salesmen, or solicitors to obtain
business for it within the state. Then it is beyond the reach of process. In the present case,
however, that is only the formal arrangement. The actual arrangement shows a method of
soliciting business within Virginia as active, continuous, and methodical as it would be if
regular agents or solicitors were employed.

Practically all of appellants' business in Virginia originates with and is the result of the
activities of its Virginia members. The recommendation of a member relieves an applicant
of the duty of furnishing any reference. Though the old members are not designated as
"agents," it "clearly appears," as stated by the Supreme Court of Appeals,"that the
association relies almost exclusively on these activities of its Virginia members to bring
about an expansion of its Virginia business." This device for soliciting business in Virginia
may be unconventional and unorthodox; but it operates functionally precisely as though
appellants had formally designated the Virginia members as their agents. Through these
people, appellants have realistically entered the state, looking for and obtaining business.
Whether such solicitation is isolated or continuous, it is activity which Virginia can regulate.
The requirements of due process may demand more or less minimal contacts than are
present here, depending on what the pinch of the decision is or what it requires of the
foreign corporation.
Moreover, if Virginia is without power to require this Association to accept service of
process on the Secretary of the Commonwealth, the only forum for injured certificate
holders might be Nebraska. Health benefit claims are seldom so large that Virginia
policyholders could afford the expense and trouble of a Nebraska law suit. In addition,
suits on alleged losses can be more conveniently tried in Virginia, where witnesses would
most likely live and where claims for losses would presumably be investigated. Such
factors have been given great weight in applying the doctrine of forum non conveniens.
And prior decisions of this Court have referred to the unwisdom, unfairness, and injustice
of permitting policyholders to seek redress only in some distant state where the insurer is
incorporated. The Due Process Clause does not forbid a state to protect its citizens from
such injustice.

There is, of course, one method by which claimants could recover from appellants in
Virginia courts without the aid of substituted service of process: certificate holders in
Virginia could all be garnished to the extent of their obligations to the Association. While
such an indirect procedure would undeniably be more troublesome to claimants than the
plan adopted by the state in its "Blue Sky Law," it would clearly be even more harassing to
the Association and its Virginia members. Metaphysical concepts of "implied consent" and
"presence" in a state should not be solidified into a constitutional barrier against Virginia's
simple, direct, and fair plan for service of process on the Secretary of the Commonwealth.

We hold that Virginia's subjection of this Association to the jurisdiction of that state's
Corporation Commission in a 6 proceeding is consistent with "fair play and substantial
justice," and is not offensive to the Due Process Clause.

ACTS OF STATE DOCTRINE

FRENCH v. BANCO NACIONAL de CUBA

23 N.Y.2d 46 (1968)

DOCTRINE:

Our courts will not examine a foreign law to determine whether it was adopted in
conformity with the internal procedures and requirements of the enacting state. The act of
state doctrine, it has been well said, is not limited to situations in which "the foreign act is
committed in a manner `colorably valid' under foreign law. It should make no difference
whether the foreign act is, under local law, partially or wholly, technically or fundamentally,
illegal. So long as the act is the act of the foreign sovereign, it matters not how grossly the
sovereign has transgressed its own laws.

FACTS:

An action was brought against Banco Nacional de Cuba for breach of contract arising from
the banks refusal to redeem in American currency eight certificates of tax exemption worth
$150,000 which had been issued to plaintiffs assignor. The assignor, an American national
now living in Florida, had resided in Cuba between 1957 and 1959 and had invested in
property there on terms that he could convert his proceeds into dollars and that such
proceeds would be exempt from Cuban tax on the exportation of currency. In June 1959,
six months after the establishment of the Castro regime, the eight certificates of tax
exemption were issued to the assignor. In July, the Cuban Currency Stabilisation Fund
issued a decision or order suspending the redemption of such certificates as a means of
controlling the foreign currency reserves of the country.The plaintiff, as assignee, brought
an action in 1960 against the bank is the Supreme Court, New York County, and obtained
a judgment for $150,000 with interest, which the Appellate Division of the Supreme Court
affirmed, rejecting the government enterprise contention that it was entitled to sovereign
immunity from suit and that the currency control order was an act of state the validity of
which must be recognised by the United States courts. The Court of Appeals reversed this
decision and dismissed the complaint.

ISSUE:

Whether the defendant is entitled to sovereign immunity and, second, whether the act of
state doctrine bars the plaintiff's claim.

RULING:

1. On the first of these questions, that of sovereign immunity, the entire court is in
agreement with the Appellate Division, and we dispose of the point very quickly. In view of
the State Department's conclusion that the activities out of which the present action arose
"were of a jure gestionis commercial nature" and its position that immunity should not be
granted in such cases, we must decline to accord the defendant sovereign immunity from
suit. It is "not for the courts to allow immunity" on grounds "which the government has not
seen fit to recognize."

2. It has long been settled, and recently reaffirmed by the Supreme Court in Banco
Nacional de Cuba v. Sabbatino, that the courts in the United States will not inquire into the
validity of the acts of a foreign government done within its own territory. As the Supreme
Court stated in Underhill v. Hernandez quoted in Sabbatino "every sovereign State is
bound to respect the independence of every other sovereign State, and the courts of one
country will not sit in judgment on the acts of the government of another done within its
own territory. Redress of grievances by reason of such acts must be obtained through the
means open to be availed of by sovereign powers as between themselves.

Our courts will not examine a foreign law to determine whether it was adopted in
conformity with the internal procedures and requirements of the enacting state. The act of
state doctrine, it has been well said, is not limited to situations in which "the foreign act is
committed in a manner `colorably valid' under foreign law. It should make no difference
whether the foreign act is, under local law, partially or wholly, technically or fundamentally,
illegal. So long as the act is the act of the foreign sovereign, it matters not how grossly the
sovereign has transgressed its own laws.

Consequently, there is no basis whatever for the plaintiff's contention that the action
dishonoring and repudiating the certificates held by Ritter was not an "act of state."
Regardless of whether or not Decision No. 346 was published in the Official Gazette or
otherwise complied with internal Cuban standards of regularity, it was issued by the
Currency Stabilization Fund, an official instrumentality of the Cuban Government.
Moreover, in compliance with that Decision or even if only in purported compliance
Banco Nacional, also an agency of the Cuban Government, refused and continues to
refuse to exchange pesos for dollars as the certificates had required.

These undisputed facts establish, as matter of law, that the breach of contract, of which
the plaintiff complains, resulted from, and, indeed, itself constitutes, an act of state. On this
analysis, there is no issue of burden of proof. Rather, the question is, what need be
proved. The defendant introduced evidence showing that Decision No. 346 had been
issued by the Currency Stabilization Fund, that it was adopted as a measure to control
currency and foreign exchange and that defendant bank had regarded the Decision as
binding upon it and as prohibiting performance of the agreement in the tax exemption
certificates. The plaintiff adduced evidence to the effect that the Decision did not conform
to Cuba's fundamental law and that it had not been published in the "Official Gazette." But
that was insufficient, as matter of law, to establish that the action dishonoring and
repudiating the certificates was not an act of state. It was incumbent on the plaintiff to
prove that the Cuban authorities themselves would deem Decision No. 346 invalid and
would disregard it. This she was obviously unable to do. Since it is thus apparent that
there was an act of state, it follows unless the Hickenlooper Amendment requires the
court not to apply the act of state doctrine (infra, pp. 57-62) that we are barred from all
further inquiry in this case concerning Cuba's action and, in particular, from any inquiry that
would test such action by the standards of international law or the public policy of this
forum.

In sum, then, it is our conclusion that the actions complained of constituted an act of state;
that, under the rule announced in Sabbatino, we are required to give effect to that act of
state; and that, since the record before us establishes that there was no taking of property
to which a claim of title or other right is asserted, the Hickenlooper Amendment does not
apply to require us to disregard the act of state doctrine. Consequently, the plaintiff or her
assignor may seek a remedy in this country only through diplomatic efforts by the United
States and arrangements established by Congress for the protection of the interests of all
American claimants against Cuba.