G.R. No.
149177 November 23, 2007 termination of respondent's ICA could only be heard and
KAZUHIRO HASEGAWA and NIPPON ENGINEERING
CONSULTANTS CO., LTD., Petitioners,
vs.
MINORU KITAMURA, Respondent.
DECISION
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 Decision1
of the Court of Appeals (CA) in CA-G.R. SP No. 60827, and
the July 25, 2001 Resolution2 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 respondent’s 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-
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. Frank14 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 Decision22 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
Certiorari25 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
SOLUTIONIS IN 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 verification28 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 period30 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 Authorization35 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 Reply38 an updated
Authorization39 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 parties46
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 Dismiss48 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.1âwphi1 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 contract66 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
court’s 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,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. 128803 September 25, 1998
ASIAVEST LIMITED, petitioner,
vs.
THE COURT OF APPEALS and ANTONIO HERAS,
respondents.
DAVIDE, JR., J.:
In issue is the enforceability in the Philippines of a foreign
judgment. The antecedents are summarized in the 24 August
1990 Decision1 of Branch 107 of the Regional Trial Court of
Quezon City in Civil Case No. Q-52452; thus:
The plaintiff Asiavest Limited filed a complaint on December
3, 1987 against the defendant Antonio Heras praying that said
defendant be ordered to pay to the plaintiff the amounts
awarded by the Hong Kong Court Judgment dated December
28, 1984 and amended on April 13, 1987, to wit:
1) US$1,810,265.40 or its equivalent in Hong Kong
currency at the time of payment with legal interest from
December 28, 1984 until fully paid;
2) interest on the sum of US$1,500.00 at 9.875% per
annum from October 31, 1984 to December 28, 1984; and
3) HK$905.00 at fixed cost in the action; and
4) at least $80,000.00 representing attorney's fees,
litigation expenses and cost, with interest thereon from the date
of the judgment until fully paid.
On March 3, 1988, the defendant filed a Motion to Dismiss.
However, before the court could resolve the said motion, a fire
which partially razed the Quezon City Hall Building on June
11, 1988 totally destroyed the office of this Court, together with
all its records, equipment and properties. On July 26, 1988, the
plaintiff, through counsel filed a Motion for Reconstitution of
Case Records. The Court, after allowing the defendant to react
thereto, granted the said Motion and admitted the annexes
attached thereto as the reconstituted records of this case per
Order dated September 6, 1988. Thereafter, the Motion to
Dismiss, the resolution of which had been deferred; was denied
by the Court in its Order of October 4, 1988.
On October 19, 1988, defendant filed his Answer. The case was
then set for pre-trial conference. At the conference, the parties
could not arrive at any settlement. However, they agreed on the
following stipulations of facts:
1. The defendant admits the existence of the judgment
dated December 28, 1984 as well as its amendment dated April
13, 1987, but not necessarily the authenticity or validity thereof;
2. The plaintiff is not doing business and is not licensed
to do business in the Philippines;
3. The residence of defendant, Antonio Heras, is New
Manila, Quezon City.
The only issue for this Court to determine is, whether or not the
judgment of the Hong Kong Court has been repelled by
evidence of want of jurisdiction, want of notice to the party,
collusion, fraud or clear mistake of law or fact, such as to
overcome the presumption established in Section 50, Rule 39 of
the Rules of Court in favor of foreign judgments.
In view of the admission by the defendant of the existence of
the aforementioned judgment (Pls. See Stipulations of Facts in
the Order dated January 5, 1989 as amended by the Order of
January 18, 1989), as well as the legal presumption in favor of
the plaintiff as provided for in paragraph (b); Sec. 50, (Ibid.),
the plaintiff presented only documentary evidence to show
rendition, existence, and authentication of such judgment by the
proper officials concerned (Pls. See Exhibits "A" thru "B", with
their submarkings). In addition, the plaintiff presented
testimonial and documentary evidence to show its entitlement
to attorney's fees and other expenses of litigation. . . . .
On the other hand, the defendant presented two witnesses,
namely. Fortunata dela Vega and Russel Warren Lousich.
The gist of Ms. dela Vega's testimony is to the effect that no
writ of summons or copy of a statement of claim of Asiavest
Limited was ever served in the office of the Navegante Shipping
Agency Limited and/or for Mr. Antonio Heras, and that no
service of the writ of summons was either served on the
defendant at his residence in New Manila, Quezon City. Her
knowledge is based on the fact that she was the personal
secretary of Mr. Heras during his JD Transit days up to the latter
part of 1972 when he shifted or diversified to shipping business
in Hong Kong; that she was in-charge of all his letters and
correspondence, business commitments, undertakings,
conferences and appointments, until October 1984 when Mr.
Heras left Hong Kong for good; that she was also the Officer-
in-Charge or Office Manager of Navegante Shipping Agency
LTD, a Hong Kong registered and based company acting as
ships agent, up to and until the company closed shop sometime
in the first quarter of 1985, when shipping business collapsed
worldwide; that the said company held office at 34-35
Connaught Road, Central Hong Kong and later transferred to
Carton House at Duddel Street, Hong Kong, until the company
closed shop in 1985; and that she was certain of such facts
because she held office at Caxton House up to the first quarter
of 1985.
Mr. Lousich was presented as an expert on the laws of Hong
Kong, and as a representative of the law office of the
defendant's counsel who made a verification of the record of the
case filed by the plaintiff in Hong Kong against the defendant,
as well as the procedure in serving Court processes in Hong
Kong.
In his affidavit (Exh. "2") which constitutes his direct
testimony, the said witness stated that:
The defendant was sued on the basis of his personal guarantee
of the obligations of Compania Hermanos de Navegacion S.A.
There is no record that a writ of summons was served on the
person of the defendant in Hong Kong, or that any such attempt
at service was made. Likewise, there is no record that a copy of
the judgment of the High Court was furnished or served on the
defendant; anyway, it is not a legal requirement to do so under
Hong Kong laws;
a) The writ of summons or claim can be served by the
solicitor (lawyer) of the claimant or plaintiff. In Hong Kong
there are no Court personnel who serve writs of summons
and/or most other processes.
b) If the writ of summons or claim (or complaint) is not
contested, the claimant or the plaintiff is not required to present
proof of his claim or complaint nor present evidence under oath
of the claim in order to obtain a Judgment.
c) There is no legal requirement that such a Judgment or
decision rendered by the Court in Hong Kong [to] make a
recitation of the facts or the law upon which the claim is based.
d) There is no necessity to furnish the defendant with a
copy of the Judgment or decision rendered against him.
e) In an action based on a guarantee, there is no
established legal requirement or obligation under Hong Kong
laws that the creditor must first bring proceedings against the
principal debtor. The creditor can immediately go against the
guarantor.
On cross examination, Mr. Lousich stated that before he was
commissioned by the law firm of the defendant's counsel as an
expert witness and to verify the records of the Hong Kong case,
he had been acting as counsel for the defendant in a number of
commercial matters; that there was an application for service of
summons upon the defendant outside the jurisdiction of Hong
Kong; that there was an order of the Court authorizing service
upon Heras outside of Hong Kong, particularly in Manila or any
other place in the Philippines (p. 9, TSN, 2/14/90); that there
must be adequate proof of service of summons, otherwise the
Hong Kong Court will refuse to render judgment (p. 10, ibid);
that the mere fact that the Hong Kong Court rendered judgment,
it can be presumed that there was service of summons; that in
this case, it is not just a presumption because there was an
affidavit stating that service was effected in [sic] a particular
man here in Manila; that such affidavit was filed by one Jose R.
Fernandez of the firm Sycip Salazar on the 21st of December
1984, and stated in essence that "on Friday, the 23rd of
November 1984 he served the 4th defendant at No. 6 First
Street, Quezon City by leaving it at that address with Mr.
Dionisio Lopez, the son-in-law of the 4th defendant the copy of
the writ and Mr. Lopez informed me and I barely believed that
he would bring the said writ to the attention of the 4th
defendant" (pp. 11-12, ibid.); that upon filing of that affidavit,
the Court was asked and granted judgment against the 4th
defendant; and that if the summons or claim is not contested,
the claimant of the plaintiff is not required to present proof of
his claim or complaint or present evidence under oath of the
claim in order to obtain judgment; and that such judgment can
be enforced in the same manner as a judgment rendered after
full hearing.
The trial court held that since the Hong Kong court judgment
had been duly proved, it is a presumptive evidence of a right as
between the parties; hence, the party impugning it had the
burden to prove want of jurisdiction over his person. HERAS
failed to discharge that burden. He did not testify to state
categorically and under oath that he never received summons.
Even his own witness Lousich admitted that HERAS was
served with summons in his Quezon City residence. As to De la
Vega's testimony regarding non-service of summons, the same
was hearsay and had no probative value.
As to HERAS' contention that the Hong Kong court judgment
violated the Constitution and the procedural laws of the
Philippines because it contained no statements of the facts and
the law on which it was based, the trial court ruled that since the
issue relate to procedural matters, the law of the forum, i.e.,
Hong Kong laws, should govern. As testified by the expert
witness Lousich, such legalities were not required under Hong
Kong laws. The trial Court also debunked HERAS' contention
that the principle of excussion under Article 2058 of the Civil
Code of the Philippines was violated. It declared that matters of
substance are subject to the law of the place where the
transaction occurred; in this case, Hong Kong laws must
govern.
The trial court concluded that the Hong Kong court judgment
should be recognized and given effect in this jurisdiction for
failure of HERAS to overcome the legal presumption in favor
of the foreign judgment. It then decreed; thus:
WHEREFORE, judgment is hereby rendered ordering
defendant to pay to the plaintiff the following sums or their
equivalents in Philippine currency at the time of payment:
US$1,810,265.40 plus interest on the sum of US$1,500,000.00
at 9.875% per annum from October 31, 1984 to December 28,
1984, and HK$905 as fixed cost, with legal interests on the
aggregate amount from December 28, 1984, and to pay
attorney's fees in the sum of P80,000.00.
ASIAVEST moved for the reconsideration of the decision. It
sought an award of judicial costs and an increase in attorney's
fees in the amount of US$19,346.45 with interest until full
payment of the said obligations. On the other hand, HERAS no
longer opposed the motion and instead appealed the decision to
the Court of Appeals, which docketed the appeal as CA-G.R.
CV No. 29513.
In its order2 of 2 November 1990, the trial court granted
ASIAVEST's motion for reconsideration by increasing the
award of attorney's fees to "US$19,345.65 OR ITS
EQUIVALENT IN PHILIPPINE CURRENCY, AND TO PAY
THE COSTS OF THIS SUIT," provided that ASIAVEST
would pay the corresponding filing fees for the increase.
ASIAVEST appealed the order requiring prior payment of
filing fees. However, it later withdrew its appeal and paid the
additional filing fees.
On 3 April 1997, the Court of Appeals rendered its decision3
reversing the decision of the trial court and dismissing
ASIAVEST's complaint without prejudice. It underscored the
fact that a foreign judgment does not of itself have any
extraterritorial application. For it to be given effect, the foreign
tribunal should have acquired jurisdiction over the person and
the subject matter. If such tribunal has not acquired jurisdiction,
its judgment is void.
The Court of Appeals agreed with the trial court that matters of
remedy and procedure, such as those relating to service of
summons upon the defendant are governed by the lex fori,
which was, in this case, the law of Hong Kong. Relative thereto,
it gave weight to Lousich's testimony that under the Hong Kong
law, the substituted service of summons upon HERAS effected
in the Philippines by the clerk of Sycip Salazar Hernandez &
Gatmaitan firm would be valid provided that it was done in
accordance with Philippine laws. It then stressed that where the
action is in personam and the defendant is in the Philippines,
the summons should be personally served on the defendant
pursuant to Section 7, Rule 14 of the Rules of Court.4
Substituted service may only be availed of where the defendant
cannot be promptly served in person, the fact of impossibility
of personal service should be explained in the proof of service.
It also found as persuasive HERAS' argument that instead of
directly using the clerk of the Sycip Salazar Hernandez &
Gatmaitan law office, who was not authorized by the judge of
the court issuing the summons, ASIAVEST should have asked
for leave of the local courts to have the foreign summons served
by the sheriff or other court officer of the place where service
was to be made, or for special reasons by any person authorized
by the judge.
The Court of Appeals agreed with HERAS that "notice sent
outside the state to a non-resident is unavailing to give
jurisdiction in an action against him personally for money
recovery." Summons should have been personally served on
HERAS in Hong Kong, for, as claimed by ASIAVEST, HERAS
was physically present in Hong Kong for nearly 14 years. Since
there was not even an attempt to serve summons on HERAS in
Hong Kong, the Hong Kong Supreme Court did not acquire
jurisdiction over HERAS. Nonetheless it did not totally
foreclose the claim of ASIAVEST; thus:
While We are not fully convinced that [HERAS] has a
meritorious defense against [ASIAVEST's] claims or that
[HERAS] ought to be absolved of any liability, nevertheless, in
view of the foregoing discussion, there is a need to deviate front
the findings of the lower court in the interest of justice and fair
play. This, however, is without prejudice to whatever action
[ASIAVEST] might deem proper in order to enforce its claims
against [HERAS].
Finally, the Court of Appeals also agreed with HERAS that it
was necessary that evidence supporting the validity of the
foreign judgment be submitted, and that our courts are not
bound to give effect to foreign judgments which contravene our
laws and the principle of sound morality and public policy.
ASIAVEST forthwith filed the instant petition alleging that the
Court of Appeals erred in ruling that
I.
. . . IT WAS NECESSARY FOR [ASIAVEST] TO PRESENT
EVIDENCE "SUPPORTING THE VALIDITY OF THE
JUDGMENT";
II.
. . . THE SERVICE OF SUMMONS ON [HERAS] WAS
DEFECTIVE UNDER PHILIPPINES LAW;
III.
. . . SUMMONS SHOULD HAVE BEEN PERSONALLY
SERVED ON HERAS IN HONG KONG;
IV.
. . . THE HONG KONG SUMMONS SHOULD HAVE BEEN
SERVED WITH LEAVE OF PHILIPPINE COURTS;
V.
. . . THE FOREIGN JUDGMENT "CONTRAVENES
PHILIPPINE LAWS, THE PRINCIPLES OF SOUND
MORALITY, AND THE PUBLIC POLICY OF THE
PHILIPPINES.
Being interrelated, we shall take up together the assigned errors.
Under paragraph (b) of Section 50, Rule 39 of the Rules of
Court,5 which was the governing law at the time this case was
decided by the trial court and respondent Court of Appeals, a
foreign judgment against a person rendered by a court having
jurisdiction to pronounce the judgment is presumptive evidence
of a right as between the parties and their successors in interest
by the subsequent title. However, the judgment may be repelled
by evidence of want of jurisdiction, want of notice to the party,
collusion, fraud, or clear mistake of law or fact.
Also, Section 3(n) of Rule 131 of the New Rules of Evidence
provides that in the absence of proof to the contrary, a court, or
judge acting as such, whether in the Philippines or elsewhere, is
presumed to have acted in the lawful exercise of jurisdiction.
Hence, once the authenticity of the foreign judgment is proved,
the burden to repel it on grounds provided for in paragraph (b)
of Section 50, Rule 39 of the Rules of Court is on the party
challenging the foreign judgment — HERAS in this case.
At the pre-trial conference, HERAS admitted the existence of
the Hong Kong judgment. On the other hand, ASIAVEST
presented evidence to prove rendition, existence, and
authentication of the judgment by the proper officials. The
judgment is thus presumed to be valid and binding in the
country from which it comes, until the contrary is shown. 6
Consequently, the first ground relied upon by ASIAVEST has
merit. The presumption of validity accorded foreign judgment
would be rendered meaningless were the party seeking to
enforce it be required to first establish its validity.
The main argument raised against the Hong Kong judgment is
that the Hong Kong Supreme Court did not acquire jurisdiction
over the person of HERAS. This involves the issue of whether
summons was properly and validly served on HERAS. It is
settled that matters of remedy and procedure such as those
relating to the service of process upon the defendant are
governed by the lex fori or the law of the forum, 7 i.e., the law
of Hong Kong in this case. HERAS insisted that according to
his witness Mr. Lousich, who was presented as an expert on
Hong Kong laws, there was no valid service of summons on
him.
In his counter-affidavit,8 which served as his direct testimony
per agreement of the parties,9 Lousich declared that the record
of the Hong Kong case failed to show that a writ of summons
was served upon HERAS in Hong Kong or that any such
attempt was made. Neither did the record show that a copy of
the judgment of the court was served on HERAS. He stated
further that under Hong Kong laws (a) a writ of summons could
be served by the solicitor of the claimant or plaintiff; and (b)
where the said writ or claim was not contested, the claimant or
plaintiff was not required to present proof under oath in order
to obtain judgment.
On cross-examination by counsel for ASIAVEST, Lousich'
testified that the Hong Kong court authorized service of
summons on HERAS outside of its jurisdiction, particularly in
the Philippines. He admitted also the existence of an affidavit
of one Jose R. Fernandez of the Sycip Salazar Hernandez &
Gatmaitan law firm stating that he (Fernandez) served summons
on HERAS on 13 November 1984 at No. 6, 1st St., Quezon
City, by leaving a copy with HERAS's son-in-law Dionisio
Lopez. 10 On redirect examination, Lousich declared that such
service of summons would be valid under Hong Kong laws
provided that it was in accordance with Philippine laws. 11
We note that there was no objection on the part of ASIAVEST
on the qualification of Mr. Lousich as an expert on the Hong
Kong law. Under Sections 24 and 25, Rule 132 of the New
Rules of Evidence, the record of public documents of a
sovereign authority, tribunal, official body, or public officer
may be proved by (1) an official publication thereof or (2) a
copy attested by the officer having the legal custody thereof,
which must be accompanied, if the record is not kept in the
Philippines, with a certificate that such officer has the custody.
The certificate may be issued by a secretary of the embassy or
legation, consul general, consul, vice consul, or consular agent,
or 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. The attestation must
state, in substance, that the copy is a correct copy of the original,
or a specific part thereof, as the case may be, and must be under
the official seal of the attesting officer.
Nevertheless, the testimony of an expert witness may be
allowed to prove a foreign law. An authority 12 on private
international law thus noted:
Although it is desirable that foreign law be proved in
accordance with the above rule, however, the Supreme Court
held in the case of Willamette Iron and Steel Works v. Muzzal,
13 that Section 41, Rule 123 (Section 25, Rule 132 of the
Revised Rules of Court) does not exclude the presentation of
other competent evidence to prove the existence of a foreign
law. In that case, the Supreme Court considered the testimony
under oath of an attorney-at-law of San Francisco, California,
who quoted verbatim a section of California Civil Code and
who stated that the same was in force at the time the obligations
were contracted, as sufficient evidence to establish the
existence of said law. Accordingly, in line with this view, the
Supreme Court in the Collector of Internal Revenue v. Fisher et
al., 14 upheld the Tax Court in considering the pertinent law of
California as proved by the respondents' witness. In that case,
the counsel for respondent "testified that as an active member
of the California Bar since 1951, he is familiar with the revenue
and taxation laws of the State of California. When asked by the
lower court to state the pertinent California law as regards
exemption of intangible personal properties, the witness cited
Article 4, Sec. 13851 (a) & (b) of the California Internal and
Revenue Code as published in Derring's California Code, a
publication of Bancroft-Whitney Co., Inc. And as part of his
testimony, a full quotation of the cited section was offered in
evidence by respondents." Likewise, in several naturalization
cases, it was held by the Court that evidence of the law of a
foreign country on reciprocity regarding the acquisition of
citizenship, although not meeting the prescribed rule of
practice, may be allowed and used as basis for favorable action,
if, in the light of all the circumstances, the Court is "satisfied of
the authenticity of the written proof offered." 15 Thus, in, a
number of decisions, mere authentication of the Chinese
Naturalization Law by the Chinese Consulate General of
Manila was held to be competent proof of that law. 16
There is, however, nothing in the testimony of Mr. Lousich that
touched on the specific law of Hong Kong in respect of service
of summons either in actions in rem or in personam, and where
the defendant is either a resident or nonresident of Hong Kong.
In view of the absence of proof of the Hong Kong law on this
particular issue, the presumption of identity or similarity or the
so-called processual presumption shall come into play. It will
thus be presumed that the Hong Kong law on the matter is
similar to the Philippine law. 17
As stated in Valmonte vs. Court of Appeals, 18 it will be helpful
to determine first whether the action is in personam, in rem, or
quasi in rem because the rules on service of summons under
Rule 14 of the Rules of Court of the Philippines apply according
to the nature of the action.
An action in personam is an action against a person on the basis
of his personal liability. An action in rem is an action against
the thing itself instead of against the person. 19 An action quasi
in rem is one wherein 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. 20
In an action in personam, jurisdiction over the person of the
defendant is necessary for the court to validly try and decide the
case. Jurisdiction over the person of a resident defendant who
does not voluntarily appear in court can be acquired by personal
service of summons as provided under Section 7, Rule 14 of the
Rules of Court. If he cannot be personally served with summons
within a reasonable time, substituted service may be made in
accordance with Section 8 of said Rule. If he is temporarily out
of the country, any of the following modes of service may be
resorted to: (1) substituted service set forth in Section 8; 21 (2)
personal service outside the country, with leave of court; (3)
service by publication, also with leave of court; 22 or (4) any
other manner the court may deem sufficient. 23
However, in an action in personam wherein the defendant is a
non-resident who does not voluntarily submit himself to the
authority of the court, personal service of summons within the
state is essential to the acquisition of jurisdiction over her
person. 24 This method of service is possible if such defendant
is physically present in the country. If he is not found therein,
the court cannot acquire jurisdiction over his person and
therefore cannot validly try and decide the case against him. 25
An exception was laid down in Gemperle v. Schenker 26
wherein a non-resident was served with summons through his
wife, who was a resident of the Philippines and who was his
representatives and attorney-in-fact in a prior civil case filed by
him; moreover, the second case was a mere offshoot of the first
case.
On the other hand, in a proceeding in rem or quasi in rem,
jurisdiction over the person of the defendant is not a prerequisite
to confer jurisdiction on the court provided that the court
acquires jurisdiction over the res. Nonetheless summons must
be served upon the defendant not for the purpose of vesting the
court with jurisdiction but merely for satisfying the due process
requirements. 27 Thus, where the defendant is a non-resident
who is not found in the Philippines and (1) the action affects the
personal status of the plaintiff; (2) the action relates to, or the
subject matter of which is property in the Philippines in which
the defendant has or claims a lien or interest; (3) the action seeks
the exclusion of the defendant from any interest in the property
located in the Philippines; or (4) the property of the defendant
has been attached in the Philippines — 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. 28
In the case at bar, the action filed in Hong Kong against HERAS
was in personam, since it was based on his personal guarantee
of the obligation of the principal debtor. Before we can apply
the foregoing rules, we must determine first whether HERAS
was a resident of Hong Kong.
Fortunata de la Vega, HERAS's personal secretary in Hong
Kong since 1972 until 1985, 29 testified that HERAS was the
President and part owner of a shipping company in Hong Kong
during all those times that she served as his secretary. He had in
his employ a staff of twelve. 30 He had "business commitments,
undertakings, conferences, and appointments until October
1984 when [he] left Hong Kong for good," 31 HERAS's other
witness, Russel Warren Lousich, testified that he had acted as
counsel for HERAS "for a number of commercial matters." 32
ASIAVEST then infers that HERAS was a resident of Hong
Kong because he maintained a business there.
It must be noted that in his Motion to Dismiss, 33 as well as in
his
Answer 34 to ASIAVEST's complaint for the enforcement of
the Hong Kong court judgment, HERAS maintained that the
Hong Kong court did not have jurisdiction over him because the
fundamental rule is that jurisdiction in personam over non-
resident defendants, so as to sustain a money judgment, must be
based upon personal service of summons within the state which
renders the judgment. 35
For its part, ASIAVEST, in its Opposition to the Motion to
Dismiss 36 contended: "The question of Hong Kong court's
'want of jurisdiction' is therefore a triable issue if it is to be
pleaded by the defendant to 'repel' the foreign judgment. Facts
showing jurisdictional lack (e.g. that the Hong Kong suit was in
personam, that defendant was not a resident of Hong Kong
when the suit was filed or that he did not voluntarily submit to
the Hong Kong court's jurisdiction) should be alleged and
proved by the defendant." 37
In his Reply (to the Opposition to Motion to Dismiss), 38
HERAS argued that the lack of jurisdiction over his person was
corroborated by ASIAVEST's allegation in the complaint that
he "has his residence at No. 6, 1st St., New Manila, Quezon
City, Philippines." He then concluded that such judicial
admission amounted to evidence that he was and is not a
resident of Hong Kong.
Significantly, in the pre-trial conference, the parties came up
with stipulations of facts, among which was that "the residence
of defendant, Antonio Heras, is New Manila, Quezon City." 39
We note that the residence of HERAS insofar as the action for
the enforcement of the Hong Kong court judgment is
concerned, was never in issue. He never challenged the service
of summons on him through a security guard in his Quezon City
residence and through a lawyer in his office in that city. In his
Motion to Dismiss, he did not question the jurisdiction of the
Philippine court over his person on the ground of invalid service
of summons. What was in issue was his residence as far as the
Hong Kong suit was concerned. We therefore conclude that the
stipulated fact that HERAS "is a resident of New Manila,
Quezon City, Philippines" refers to his residence at the time
jurisdiction over his person was being sought by the Hong Kong
court. With that stipulation of fact, ASIAVEST cannot now
claim that HERAS was a resident of Hong Kong at the time.
Accordingly, since HERAS was not a resident of Hong Kong
and the action against him was, indisputably, one in personam,
summons should have been personally served on him in Hong
Kong. The extraterritorial service in the Philippines was
therefore invalid and did not confer on the Hong Kong court
jurisdiction over his person. It follows that the Hong Kong court
judgment cannot be given force and effect here in the
Philippines for having been rendered without jurisdiction.
Even assuming that HERAS was formerly a resident of Hong
Kong, he was no longer so in November 1984 when the
extraterritorial service of summons was attempted to be made
on him. As declared by his secretary, which statement was not
disputed by ASIAVEST, HERAS left Hong Kong in October
1984 "for good." 40 His absence in Hong Kong must have been
the reason why summons was not served on him therein; thus,
ASIAVEST was constrained to apply for leave to effect service
in the Philippines, and upon obtaining a favorable action on the
matter, it commissioned the Sycip Salazar Hernandez &
Gatmaitan law firm to serve the summons here in the
Philippines.
In Brown v. Brown, 41 the defendant was previously a resident
of the Philippines. Several days after a criminal action for
concubinage was filed against him, he abandoned the
Philippines. Later, a proceeding quasi in rem was instituted
against him. Summons in the latter case was served on the
defendant's attorney-in-fact at the latter's address. The Court
held that under the facts of the case, it could not be said that the
defendant was "still a resident of the Philippines because he
ha[d] escaped to his country and [was] therefore an absentee in
the Philippines." As such, he should have been "summoned in
the same manner as one who does not reside and is not found in
the Philippines."
Similarly, HERAS, who was also an absentee, should have been
served with summons in the same manner as a non-resident not
found in Hong Kong. Section 17, Rule 14 of the Rules of Court
providing for extraterritorial service will not apply because the
suit against him was in personam. Neither can we apply Section
18, which allows extraterritorial service on a resident defendant
who is temporarily absent from the country, because even if
HERAS be considered as a resident of Hong Kong, the
undisputed fact remains that he left Hong Kong not only
"temporarily" but "for good."
IN VIEW OF ALL THE FOREGOING, judgment is hereby
rendered DENYING the petition in this case and AFFIRMING
the assailed judgment of the Court of Appeals in CA-G.R. CV
No. 29513.
No costs.
SO ORDERED.
G.R. No. 156848 October 11, 2007
PIONEER INTERNATIONAL, LTD., petitioner,
vs.
HON. TEOFILO GUADIZ, JR., in his capacity as Presiding
Judge of Regional Trial Court, Branch 147, Makati City, and
ANTONIO D. TODARO, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 of the Decision2
dated 27 September 2001 and of the Resolution3 dated 14
January 2003 of the Court of Appeals (appellate court) in CA-
G.R. SP No. 54062. The Decision affirmed the Orders4 dated 4
January 19995 and 3 June 19996 of Branch 147 of the Regional
Trial Court of Makati City (trial court) in Civil Case No. 98-
124. The trial court denied the motion to dismiss filed by
Pioneer International, Ltd. (PIL)7 in its special appearance.
The Facts
On 16 January 1998, Antonio D. Todaro (Todaro) filed a
complaint for sum of money and damages with preliminary
attachment against PIL, Pioneer Concrete Philippines, Inc.
(PCPI), Pioneer Philippines Holdings, Inc. (PPHI), John G.
McDonald (McDonald), and Philip J. Klepzig (Klepzig). PIL
and its co-defendants were served copies of the summons and
of the complaint at PPHI and PCPI’s office in Alabang,
Muntinlupa, through Cecille L. De Leon (De Leon), who was
Klepzig’s Executive Assistant.
Todaro alleged that PIL is a corporation duly organized under
Australian laws, while PCPI and PPHI are corporations duly
organized under Philippine laws. PIL is engaged in the ready-
mix and concrete aggregates business and has established a
presence worldwide. PIL established PPHI as the holding
company of the stocks of its operating company in the
Philippines, PCPI. McDonald is the Chief Executive Officer of
PIL’s Hong Kong office while Klepzig is the President and
Managing Director of PPHI and PCPI. For his part, Todaro
further alleged that he was the managing director of Betonval
Readyconcrete, Inc. (Betonval) from June 1975 up to his
resignation in February 1996.
Before Todaro filed his complaint, there were several meetings
and exchanges of letters between Todaro and the officers of
Pioneer Concrete (Hong Kong) Limited, Pioneer Concrete
Group HK, PPHI, and PIL. According to Todaro, PIL contacted
him in May 1996 and asked if he could join it in establishing a
pre-mixed concrete plant and in overseeing its operations in the
Philippines. Todaro confirmed his availability and expressed
interest in joining PIL. Todaro met with several of PIL’s
representatives and even gave PIL the names of three of his
subordinates in Betonval whom he would like to join him in
PIL.
Todaro attached nine letters, marked as Annexes "A" to "I," to
his complaint. Annex "A"8 shows that on 15 July 1996, Todaro,
under the letterhead of Ital Tech Distributors, Inc., sent a letter
to Max Lindsay (Lindsay) of Pioneer Concrete (Hong Kong)
Limited. Todaro wrote that "[m]y aim is to run again a ready-
mix concrete company in the Philippines and not to be a part-
time consultant. Otherwise, I could have charged your company
with a much higher fee."
Annex "B"9 shows that on 4 September 1996, Lindsay, under
the letterhead of Pioneer Concrete (Hong Kong) Limited,
responded by fax to Todaro’s faxed letter to McDonald and
proposed that Todaro "join Pioneer on a retainer basis for 2 to
3 months on the understanding that [Todaro] would become a
permanent employee if as we expect, our entry proceeds." The
faxed letter to McDonald referred to by Lindsay is not found in
the rollo and was not attached to Todaro’s complaint.
Annex "C"10 shows that on the same date as that of Annex "B,"
Todaro, under the letterhead of Ital Tech Distributors, Inc.,
faxed another letter to Lindsay of Pioneer Concrete (Hong
Kong) Limited. Todaro asked for a formal letter addressed to
him about the proposed retainer. Todaro requested that the letter
contain a statement on his remuneration package and on his
permanent employment "with PIONEER once it has established
itself on a permanent basis in the Philippines."
Annex "D"11 shows that Todaro, under the letterhead of Ital
Tech Distributors, Inc., sent a letter to McDonald of PIL.
Todaro confirmed the following to McDonald:
1. That I am accepting the proposal of PIONEER INT’L. as a
consultant for three (3) months, starting October 1, 1996, with
a retainer fee of U.S. $15,000.00 per month;
2. That after three (3) months consultancy, I should be
employed by PIONEER INT’L., on a permanent basis, as its
Managing Director or CEO in the Philippines. Remuneration
package will be mutually agreed upon by PIONEER and the
undersigned;
3. That Gino Martinel and the Sales Manager – Jun Ong, will
be hired as well, on a permanent basis, by PIONEER as soon as
the company is established. Salary, likewise, will be accepted
by both PIONEER and the respective parties.
Annex "E"12 is a faxed letter dated 18 November 1996 of
McDonald, under the letterhead of Pioneer Concrete Group HK,
to Todaro of Ital Tech Distributors, Inc. The first three
paragraphs of McDonald’s letter read:
Further to our recent meeting in Hong Kong, I am now able to
confirm my offer to engage you as a consultant to Pioneer
International Ltd. Should Pioneer proceed with an investment
in the Philippines, then Pioneer would offer you a position to
manage the premixed concrete operations.
Pioneer will probably be in a position to make a decision on
proceeding with an investment by mid January ‘97.
The basis for your consultancy would be:
Monthly fee USD 15,000 per month billed on monthly basis and
payable 15 days from billing date.
Additional pre-approved expenses to be reimbursed.
Driver and secretarial support-basis for reimbursement of this
to be agreed.
Arrangement to commence from 1st November ‘96, reflecting
your contributions so far and to continue until Pioneer makes a
decision.
Annex "F"13 shows Todaro’s faxed reply, under the letterhead
of Ital Tech Distributors, Inc., to McDonald of Pioneer Concrete
Group HK dated 19 November 1996. Todaro confirmed
McDonald’s package concerning the consultancy and reiterated
his desire to be the manager of Pioneer’s Philippine business
venture.
Annex "G"14 shows Todaro’s faxed reply, under the letterhead
of Ital Tech Distributors, Inc., to McDonald of PIL dated 8 April
1997. Todaro informed McDonald that he was willing to extend
assistance to the Pioneer representative from Queensland. The
tenor of the letter revealed that Todaro had not yet occupied his
expected position.
Annex "H"15 shows Klepzig’s letter, under the letterhead of
PPHI, to Todaro dated 18 September 1997. Klepzig’s message
reads:
It has not proven possible for this company to meet with your
expectations regarding the conditions of your providing Pioneer
with consultancy services. This, and your refusal to consider my
terms of offer of permanent employment, leave me no
alternative but to withdraw these offers of employment with this
company.
As you provided services under your previous agreement with
our Pioneer Hong Kong office during the month of August, I
will see that they pay you at the previous rates until the end of
August. They have authorized me on behalf of Pioneer
International Ltd. to formally advise you that the agreement will
cease from August 31st as per our previous discussions.
Annex "I"16 shows the letter dated 20 October 1997 of K.M.
Folwell (Folwell), PIL’s Executive General Manager of
Australia and Asia, to Todaro. Folwell confirmed the contents
of Klepzig’s 18 September 1997 letter. Folwell’s message
reads:
Thank you for your letter to Dr. Schubert dated 29th September
1997 regarding the alleged breach of contract with you. Dr.
Schubert has asked me to investigate this matter.
I have discussed and examined the material regarding your
association with Pioneer over the period from mid 1996 through
to September 1997.
Clearly your consultancy services to Pioneer Hong Kong are
well documented and have been appropriately rewarded.
However, in regard to your request and expectation to be given
permanent employment with Pioneer Philippines Holdings, Inc.
I am informed that negotiations to reach agreement on
appropriate terms and conditions have not been successful.
The employment conditions you specified in your letter to John
McDonald dated 11th September are well beyond our
expectations.
Mr. Todaro, I regret that we do not wish to pursue our
association with you any further. Mr. Klepzig was authorized to
terminate this association and the letter he sent to you dated 18th
September has my support.
Thank you for your involvement with Pioneer. I wish you all
the best for the future. (Emphasis added)
PIL filed, by special appearance, a motion to dismiss Todaro’s
complaint. PIL’s co-defendants, PCPI, PPHI, and Klepzig, filed
a separate motion to dismiss.17 PIL asserted that the trial court
has no jurisdiction over PIL because PIL is a foreign
corporation not doing business in the Philippines. PIL also
questioned the service of summons on it. Assuming arguendo
that Klepzig is PIL’s agent in the Philippines, it was not Klepzig
but De Leon who received the summons for PIL. PIL further
stated that the National Labor Relations Commission (NLRC),
and not the trial court, has jurisdiction over the subject matter
of the action. It claimed that assuming that the trial court has
jurisdiction over the subject matter of the action, the complaint
should be dismissed on the ground of forum non-conveniens.
Finally, PIL maintained that the complaint does not state a cause
of action because there was no perfected contract, and no
personal judgment could be rendered by the trial court against
PIL because PIL is a foreign corporation not doing business in
the Philippines and there was improper service of summons on
PIL.
Todaro filed a Consolidated Opposition dated 26 August 1998
to refute PIL’s assertions. PIL filed, still by special appearance,
a Reply on 2 October 1998.
The Ruling of the Trial Court
On 4 January 1999, the trial court issued an order18 which ruled
in favor of Todaro. The trial court denied the motions to dismiss
filed by PIL, PCPI, PPHI, and Klepzig.
The trial court stated that the merits of a motion to dismiss a
complaint for lack of cause of action are tested on the strength
of the allegation of facts in the complaint. The trial court found
that the allegations in the complaint sufficiently establish a
cause of action. The trial court declared that Todaro’s cause of
action is based on an alleged breach of a contractual obligation
and an alleged violation of Articles 19 and 21 of the Civil Code.
Therefore, the cause of action does not lie within the jurisdiction
of the NLRC but with the trial court.
The trial court also asserted its jurisdiction over PIL, holding
that PIL did business in the Philippines when it entered into a
contract with Todaro. Although PIL questions the service of
summons on Klepzig, whom PIL claims is not its agent, the trial
court ruled that PIL failed to adduce evidence to prove its
contention. Finally, on the issue of forum non-conveniens, the
trial court found that it is more convenient to hear and decide
the case in the Philippines because Todaro resides in the
Philippines and the contract allegedly breached involves
employment in the Philippines.
PIL filed an urgent omnibus motion for the reconsideration of
the trial court’s 4 January 1999 order and for the deferment of
filing its answer. PCPI, PPHI, and Klepzig likewise filed an
urgent omnibus motion. Todaro filed a consolidated opposition,
to which PIL, PCPI, PPHI, and Klepzig filed a joint reply. The
trial court issued an order19 on 3 June 1999 denying the
motions of PIL, PCPI, PPHI, and Klepzig. The trial court gave
PIL, PCPI, PPHI, and Klepzig 15 days within which to file their
respective answers.
PIL did not file an answer before the trial court and instead filed
a petition for certiorari before the appellate court.
The Ruling of the Appellate Court
The appellate court denied PIL’s petition and affirmed the trial
court’s ruling in toto. The dispositive portion of the appellate
court’s decision reads:
WHEREFORE, premises considered, the present petition for
certiorari is hereby DENIED DUE COURSE and accordingly
DISMISSED. The assailed Orders dated January 4, 1999 and
June 3, 1999 of the Regional Trial Court of Makati City, Branch
147, in Civil Case No, 98-124 are hereby AFFIRMED in toto.
SO ORDERED.20
On 14 January 2003, the appellate court dismissed21 PIL’s
motion for reconsideration for lack of merit. The appellate court
stated that PIL’s motion raised no new substantial or weighty
arguments that could impel the appellate court from departing
or overturning its previous decision. PIL then filed a petition for
review on certiorari before this Court.
The Issues
PIL raised the following issues before this Court:
A. [The trial court] did not and cannot acquire jurisdiction over
the person of [PIL] considering that:
A.1. [PIL] is a foreign corporation "not doing business" in the
Philippines.
A.2. Moreover, the complaint does not contain appropriate
allegations of ultimate facts showing that [PIL] is doing or
transacting business in the Philippines.
A.3. Assuming arguendo that jurisdiction may be acquired over
the person of [PIL], [the trial court] still failed to acquire
jurisdiction since summons was improperly served on [PIL].
B. [Todaro] does not have a cause of action and the complaint
fails to state a cause of action. Jurisprudence is settled in that in
resolving a motion to dismiss, a court can consider all the
pleadings filed in the case, including annexes, motions and all
evidence on record.
C. [The trial court] did not and cannot acquire jurisdiction over
the subject matter of the complaint since the allegations
contained therein indubitably show that [Todaro] bases his
claims on an alleged breach of an employment contract. Thus,
exclusive jurisdiction is vested with the [NLRC].
D. Pursuant to the principle of forum non-conveniens, [the trial
court] committed grave abuse of discretion when it took
cognizance of the case.22
The Ruling of the Court
The petition has partial merit. We affirm with modification the
rulings of the trial and appellate courts. Apart from the issue on
service of summons, the rulings of the trial and appellate courts
on the issues raised by PIL are correct.
Cause of Action

Section 2, Rule 2 of the 1997 Rules of Civil Procedure states
that a cause of action is the act or omission by which a party
violates a right of another.
The general rule is that the allegations in a complaint are
sufficient to constitute a cause of action against the defendants
if, admitting the facts alleged, the court can render a valid
judgment upon the same in accordance with the prayer therein.
A cause of action exists if the following elements are present,
namely: (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.23
In the present case, the summary of Todaro’s allegations states
that PIL, PCPI, PPHI, McDonald, and Klepzig did not fulfill
their contractual obligation to employ Todaro on a permanent
basis in PIL’s Philippine office. Todaro’s allegations are thus
sufficient to establish a cause of action. We quote with approval
the trial court’s ruling on this matter:
On the issue of lack of cause of action – It is well-settled that
the merits of a motion to dismiss a complaint for lack of cause
of action is tested on the strength of the allegations of fact
contained in the complaint and no other (De Jesus, et al. vs.
Belarmino, et al., 95 Phil. 366 [1954]). This Court finds that the
allegations of the complaint, specifically paragraphs 13-33
thereof, paragraphs 30-33 alleging as follows:
"30. All of the acts set forth in the foregoing have been done
with the knowledge, consent and/or approval of the defendants
who acted in concert and/or in conspiracy with one another.
31. Under the circumstances, there is a valid contract entered
into between [Todaro] and the Pioneer Group, whereby, among
others, the Pioneer Group would employ [Todaro], on a
permanent basis, to manage and operate the ready-mix concrete
operations, if the Pioneer Group decides to invest in the
Philippines.
32. The Pioneer Group has decided to invest in the Philippines.
The refusal of the defendants to comply with the Pioneer
Group’s undertaking to employ [Todaro] to manage their
Philippine ready-mix operations, on a permanent basis, is a
direct breach of an obligation under a valid and perfected
contract.
33. Alternatively, assuming without conceding, that there was
no contractual obligation on the part of the Pioneer Group to
employ [Todaro] on a permanent basis, in their Philippine
operations, the Pioneer Group and the other defendants did not
act with justice, give [Todaro] his due and observe honesty and
good faith and/or they have willfully caused injury to [Todaro]
in a manner that is contrary to morals, good customs, and public
policy, as mandated under Arts. 19 and 21 of the New Civil
Code."
sufficiently establish a cause of action for breach of contract
and/or violation of Articles 19 and 21 of the New Civil Code.
Whether or not these allegations are true is immaterial for the
court cannot inquire into the truth thereof, the test being
whether, given the allegations of fact in the complaint, a valid
judgment could be rendered in accordance with the prayer in
the complaint.24
It should be emphasized that the presence of a cause of action
rests on the sufficiency, and not on the veracity, of the
allegations in the complaint. The veracity of the allegations will
have to be examined during the trial on the merits. In resolving
a motion to dismiss based on lack of cause of action, the trial
court is limited to the four corners of the complaint and its
annexes. It is not yet necessary for the trial court to examine the
truthfulness of the allegations in the complaint. Such
examination is proper during the trial on the merits.
Forum Non-Conveniens
The doctrine of forum non-conveniens requires an examination
of the truthfulness of the allegations in the complaint. Section
1, Rule 16 of the 1997 Rules of Civil Procedure does not
mention forum non-conveniens as a ground for filing a motion
to dismiss. The propriety of dismissing a case based on forum
non-conveniens requires a factual determination; hence, it is
more properly considered a matter of defense. While it is within
the discretion of the trial court to abstain from assuming
jurisdiction on this ground, the trial court should do so only after
vital facts are established to determine whether special
circumstances require the court’s desistance.25
Jurisdiction over PIL
PIL questions the trial court’s exercise of jurisdiction over it on
two levels. First, that PIL is a foreign corporation not doing
business in the Philippines and because of this, the service of
summons on PIL did not follow the mandated procedure.
Second, that Todaro’s claims are based on an alleged breach of
an employment contract so Todaro should have filed his
complaint before the NLRC and not before the trial court.
Transacting Business in the Philippines and
Service of Summons
The first level has two sub-issues: PIL’s transaction of business
in the Philippines and the service of summons on PIL. Section
12, Rule 14 of the 1997 Rules of Civil Procedure provides the
manner by which summons may be served upon a foreign
juridical entity which has transacted business in the Philippines.
Thus:
Service upon foreign private juridical entity. — When the
defendant is a foreign juridical entity which has transacted
business in the Philippines, service may be made on its resident
agent designated in accordance with law for that purpose, or, if
there be no such agent, on the government official designated
by law to that effect, or any of its officers or agents within the
Philippines.
As to the first sub-issue, PIL insists that its sole act of
"transacting" or "doing business" in the Philippines consisted of
its investment in PPHI. Under Philippine law, PIL’s mere
investment in PPHI does not constitute "doing business."
However, we affirm the lower courts’ ruling and declare that,
based on the allegations in Todaro’s complaint, PIL was doing
business in the Philippines when it negotiated Todaro’s
employment with PPHI. Section 3(d) of Republic Act No. 7042,
Foreign Investments Act of 1991, states:
The phrase "doing business" shall include soliciting orders,
service contracts, opening offices, whether called "liaison"
offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in
the country for a period or periods totaling one hundred eighty
[180] days or more; participating in the management,
supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements and
contemplate to that extent the performance of acts or works, or
the exercise of some of the functions normally incident to, and
in progressive prosecution of commercial gain or of the purpose
and object of the business organization: Provided, however,
That the phrase "doing business" shall not be deemed to include
mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise
of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor
appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its
own account; (Emphases added)
PIL’s alleged acts in actively negotiating to employ Todaro to
run its pre-mixed concrete operations in the Philippines, which
acts are hypothetically admitted in PIL’s motion to dismiss, are
not mere acts of a passive investor in a domestic corporation.
Such are managerial and operational acts in directing and
establishing commercial operations in the Philippines. The
annexes that Todaro attached to his complaint give us an idea
on the extent of PIL’s involvement in the negotiations regarding
Todaro’s employment. In Annex "E," McDonald of Pioneer
Concrete Group HK confirmed his offer to engage Todaro as a
consultant of PIL. In Annex "F," Todaro accepted the
consultancy. In Annex "H," Klepzig of PPHI stated that PIL
authorized him to tell Todaro about the cessation of his
consultancy. Finally, in Annex "I," Folwell of PIL wrote to
Todaro to confirm that "Pioneer" no longer wishes to be
associated with Todaro and that Klepzig is authorized to
terminate this association. Folwell further referred to a Dr.
Schubert and to Pioneer Hong Kong. These confirmations and
references tell us that, in this instance, the various officers and
companies under the Pioneer brand name do not work
independently of each other. It cannot be denied that PIL had
knowledge of and even authorized the non-implementation of
Todaro’s alleged permanent employment. In fact, in the letters
to Todaro, the word "Pioneer" was used to refer not just to PIL
alone but also to all corporations negotiating with Todaro under
the Pioneer name.
As further proof of the interconnection of the various Pioneer
corporations with regard to their negotiations with Todaro,
McDonald of Pioneer Concrete Group HK confirmed Todaro’s
engagement as consultant of PIL (Annex "E") while Folwell of
PIL stated that Todaro rendered consultancy services to Pioneer
HK (Annex "I"). In this sense, the various Pioneer corporations
were not acting as separate corporations. The behavior of the
various Pioneer corporations shoots down their defense that the
corporations have separate and distinct personalities,
managements, and operations. The various Pioneer
corporations were all working in concert to negotiate an
employment contract between Todaro and PPHI, a domestic
corporation.
Finally, the phrase "doing business in the Philippines" in the
former version of Section 12, Rule 14 now reads "has transacted
business in the Philippines." The scope is thus broader in that it
is enough for the application of the Rule that the foreign private
juridical entity "has transacted business in the Philippines."26
As to the second sub-issue, the purpose of summons is not only
to acquire jurisdiction over the person of the defendant, but also
to give notice to the defendant that an action has been
commenced against it and to afford it an opportunity to be heard
on the claim made against it. The requirements of the rule on
summons must be strictly followed; otherwise, the trial court
will not acquire jurisdiction over the defendant.
When summons is to be served on a natural person, service of
summons should be made in person on the defendant.27
Substituted service is resorted to only upon the concurrence of
two requisites: (1) when the defendant cannot be served
personally within a reasonable time and (2) when there is
impossibility of prompt service as shown by the statement in
the proof of service in the efforts made to find the defendant
personally and that such efforts failed.28
The statutory requirements of substituted service must be
followed strictly, faithfully, and fully, and any substituted
service other than by the statute is considered ineffective.
Substituted service is in derogation of the usual method of
service. It is a method extraordinary in character and may be
used only as prescribed and in the circumstances authorized by
the statute.29 The need for strict compliance with the
requirements of the rule on summons is also exemplified in the
exclusive enumeration of the agents of a domestic private
juridical entity who are authorized to receive summons.
At present, Section 11 of Rule 14 provides that when the
defendant is a domestic private juridical entity, service may be
made on the "president, managing partner, general manager,
corporate secretary, treasurer, or in-house counsel." The
previous version of Section 11 allowed for the service of
summons on the "president, manager, secretary, cashier, agent,
or any of its directors." The present Section 11 qualified
"manager" to "general manager" and "secretary" to "corporate
secretary." The present Section 11 also removed "cashier, agent,
or any of its directors" from the exclusive enumeration.
When summons is served on a foreign juridical entity, there are
three prescribed ways: (1) service on its resident agent
designated in accordance with law for that purpose, (2) service
on the government official designated by law to receive
summons if the corporation does not have a resident agent, and
(3) service on any of the corporation’s officers or agents within
the Philippines.30
In the present case, service of summons on PIL failed to follow
any of the prescribed processes. PIL had no resident agent in
the Philippines. Summons was not served on the Securities and
Exchange Commission (SEC), the designated government
agency,31 since PIL is not registered with the SEC. Summons
for PIL was served on De Leon, Klepzig’s Executive Assistant.
Klepzig is PIL’s "agent within the Philippines" because PIL
authorized Klepzig to notify Todaro of the cessation of his
consultancy (Annexes "H" and "I").32 The authority given by
PIL to Klepzig to notify Todaro implies that Klepzig was
likewise authorized to receive Todaro’s response to PIL’s
notice. Todaro responded to PIL’s notice by filing a complaint
before the trial court.
the New Civil Code" for the "clear and evident bad faith and
malice"35 on the part of defendants. The NLRC’s jurisdiction
is limited to those enumerated under Article 217 of the Labor
Code.
WHEREFORE, the petition is PARTIALLY GRANTED. The
Decision dated 27 September 2001 and the Resolution dated 14
January 2003 of the appellate court are AFFIRMED with the
MODIFICATION that there was improper service of summons
on Pioneer International, Ltd. The case is remanded to the trial
court for proper service of summons and trial. No costs.
SO ORDERED.

However, summons was not served personally on Klepzig as

agent of PIL. Instead, summons was served on De Leon,
Klepzig’s Executive Assistant. In this instance, De Leon was
not PIL’s agent but a mere employee of Klepzig. In effect, the
sheriff33 resorted to substituted service. For symmetry, we
apply the rule on substituted service of summons on a natural
person and we find that no reason was given to justify the
service of PIL’s summons on De Leon.

Thus, we rule that PIL transacted business in the Philippines

and Klepzig was its agent within the Philippines. However,
there was improper service of summons on PIL since summons
was not served personally on Klepzig.

NLRC Jurisdiction

As to the second level, Todaro prays for payment of damages

due him because of PIL’s non-implementation of Todaro’s
alleged employment agreement with PPHI. The appellate court
stated its ruling on this matter, thus:

It could not be denied that there was no existing contract yet to

speak of between PIONEER INTL. and [Todaro]. Since there
was an absence of an employment contract between the two
parties, this Court is of the opinion and so holds that no
employer-employee relationship actually exists. Record reveals
that all that was agreed upon by [Todaro] and the Pioneer
Concrete, acting in behalf of PIONEER INTL., was the
confirmation of the offer to engage the services of the former as
consultant of PIONEER INTL. (Rollo, p. 132). The failure on
the part of PIONEER INTL. to abide by the said agreement,
which was duly confirmed by PIONEER INTL., brought about
a breach of an obligation on a valid and perfected agreement.
There being no employer-employee relationship established
between [PIL] and [Todaro], it could be said that the instant
case falls within the jurisdiction of the regular courts of justice
as the money claim of [Todaro] did not arise out of or in
connection with [an] employer-employee relationship.34

Todaro’s employment in the Philippines would not be with PIL

but with PPHI as stated in the 20 October 1997 letter of Folwell.
Assuming the existence of the employment agreement, the
employer-employee relationship would be between PPHI and
Todaro, not between PIL and Todaro. PIL’s liability for the
non-implementation of the alleged employment agreement is a
civil dispute properly belonging to the regular courts. Todaro’s
causes of action as stated in his complaint are, in addition to
breach of contract, based on "violation of Articles 19 and 21 of