Avon Insurance PLC vs. Court of Appeals

A foreign reinsurance company that has no office, agent, or business activity in the Philippines is not "doing business" in the country and cannot be subjected to the jurisdiction of Philippine courts; a reinsurance contract is separate and distinct from the original insurance contract, and the original insured has no direct interest in the reinsurance arrangement. Filing a motion to dismiss by special appearance solely to object to the court's jurisdiction does not amount to voluntary submission.

Yupangco Cotton Mills secured fire insurance coverage from Worldwide Surety and Insurance Co., Inc. over its properties under two policies, each for ₱100,000,000.00. Worldwide, in turn, obtained reinsurance from several foreign reinsurance companies, including the petitioners, through the international insurance broker C.J. Boatright and Co. Ltd., which acted as Worldwide's agent. The reinsurance treaties were executed abroad; none of the petitioners maintained any office, place of business, or agent in the Philippines. The legal framework governing service of summons on foreign corporations doing business in the Philippines is found in Section 14, Rule 14 of the Rules of Court, which allows service upon a resident agent or, in the absence of one, upon the government official designated by law — the Insurance Commissioner in the case of foreign insurance companies.

On July 6, 1979, Yupangco Cotton Mills secured fire insurance coverage from Worldwide Surety and Insurance Co., Inc. over several of its properties for the period July 6, 1979 to July 6, 1980, under Policy No. 20719, for a coverage of ₱100,000,000.00. On October 1, 1980, Yupangco renewed its coverage for the period October 1, 1980 to October 1, 1981, under Policy No. 25896, also for ₱100,000,000.00. Both policies were backed by reinsurance treaties between Worldwide and several foreign reinsurance companies, including the petitioners. These reinsurance arrangements were made through the international insurance broker C.J. Boatright and Co. Ltd., acting as agent of Worldwide, and were executed abroad. None of the petitioners maintained any office, place of business, or agent in the Philippines.

On December 16, 1979, within the effectivity period of Policy No. 20719, the insured properties were razed by fire. A second fire occurred on May 2, 1981, within the effectivity period of Policy No. 25896, again destroying the insured properties. These events gave rise to the obligation of the insurer to indemnify Yupangco. Partial payments were made by Worldwide and some of the reinsurance companies.

On May 2, 1983, Worldwide, in a deed of assignment, acknowledged a remaining balance of ₱19,444,447.75 still due to Yupangco and assigned to the latter all reinsurance proceeds still collectible from the foreign reinsurance companies. Yupangco, in its interest as assignee and original insured, then instituted a collection suit against the petitioners before the Regional Trial Court of Manila, Branch 51, docketed as Civil Case No. 86-37932. Because the petitioners were not engaged in business in the Philippines and had no offices or agents therein, service of summons was made upon them through the office of the Insurance Commissioner, pursuant to Section 14, Rule 14 of the Rules of Court.

Petitioners, by counsel on special appearance, seasonably filed motions to dismiss disputing the jurisdiction of the trial court and the extra-territorial service of summons. The trial court denied the motions to dismiss on April 30, 1990, and directed petitioners to file their answer. Petitioners' notice of appeal was denied due course on June 4, 1990. Petitioners then elevated the matter to the Court of Appeals via certiorari, which dismissed the petition on October 11, 1990, finding that petitioners were properly served with summons and that any defect was cured by their voluntary appearance, and that as reinsurers they were deemed to be doing business in the Philippines.

• Lack of Jurisdiction over Foreign Corporations: Petitioners argued that, being foreign corporations not doing business in the Philippines with no office, place of business, or agents in the country, they are not subject to the jurisdiction of Philippine courts.
• Invalid Extra-Territorial Service of Summons: Petitioners maintained that the complaint for sum of money is a personal action not affecting status or relating to property within the Philippines, rendering extra-territorial service of summons upon them null and void.
• No Voluntary Submission by Special Appearance: Petitioners asserted that their counsel's appearance was explicitly "by special appearance without waiving objections to the jurisdiction over their persons or the subject matter," and that their motions to dismiss raised only jurisdictional grounds, so there was no voluntary submission to the trial court's jurisdiction.

• Suability of Foreign Corporations Not Doing Business: Respondent Yupangco countered that foreign corporations not doing business in the Philippines can nonetheless be sued in Philippine courts, citing Facilities Management Corporation vs. Leonardo Dela Osa, et al.
• Voluntary Submission by Filing Motions to Dismiss: Respondent argued that the voluntary appearance of petitioners before the trial court by filing motions to dismiss amounted, in effect, to voluntary submission to its jurisdiction over their persons, even absent valid extra-territorial service of summons.
• Reinsurers as Doing Business: Respondent contended that as reinsurers of Worldwide's risk under the fire insurance policies issued in favor of Yupangco, petitioners must be deemed to have engaged in business in the Philippines, no matter how isolated or singular such business might be.

• Jurisdiction over Foreign Corporations: Whether Philippine courts have jurisdiction over foreign reinsurance companies that are not doing business in the Philippines and have no office, agent, or place of business therein.
• Validity of Service of Summons: Whether service of summons through the Insurance Commissioner under Section 14, Rule 14 of the Rules of Court is valid against foreign corporations not doing business in the Philippines.
• Voluntary Submission by Special Appearance: Whether the filing of a motion to dismiss by special appearance solely to object to the court's jurisdiction constitutes voluntary submission to that jurisdiction.

• Jurisdiction over Foreign Corporations: No. The foreign reinsurance petitioners were not doing business in the Philippines, there being no showing of any office, agent, or business activity in the country; a reinsurance contract is separate and distinct from the original insurance, and the original insured has no direct interest in the reinsurance arrangement.
• Validity of Service of Summons: No. Service of summons through the Insurance Commissioner under Section 14, Rule 14 is available only against foreign corporations doing business in the Philippines; absent such a showing, the service is null and void, and the defect cannot be cured by alias summons.
• Voluntary Submission by Special Appearance: No. An appearance made precisely and consistently to object to the court's jurisdiction is not equivalent to service of summons and does not constitute acquiescence to the court's jurisdiction.

• Jurisdiction over Foreign Corporations: The true test for "doing business" is whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized, implying a continuity of commercial dealings and arrangements. A single or isolated act does not qualify a foreign corporation as doing business unless it indicates an intention to do business in the Philippines. There was no sufficient basis in the records to substantiate that the petitioners had engaged in business activities in the country. The reinsurance treaties were made through an international insurance broker abroad, not through any entity connected with the Philippines. A reinsurance company is not doing business in a state merely because the property insured by the original insurer is located in that state, because a contract of reinsurance is a separate and distinct arrangement from the original contract of insurance, and the original insured generally has no interest in the contract of reinsurance. A general allegation that a party is doing business in the Philippines does not make it so; a conclusion of fact or law cannot be derived from unsubstantiated assertions. The Court distinguished Facilities Management Corporation vs. Leonardo Dela Osa, where the corporation was found to be doing business in the Philippines and service upon its resident agent was upheld; that case did not declare the absolute suability of foreign corporations not doing business in the country but merely discounted their absolute exemption from liabilities arising from acts done against persons in the Philippines.

• Validity of Service of Summons: Section 14, Rule 14 of the Rules of Court authorizes service upon a foreign corporation "doing business in the Philippines" through its resident agent or, in the absence of one, through the government official designated by law. Since the petitioners were not doing business in the Philippines, service through the Insurance Commissioner was invalid. Unlike the situation in Linger Fisher GMBH vs. IAC, where an alias summons could cure a defective service because the defendant was physically before the court, here there was no showing that the petitioners were doing business in the country, so they could not be summoned at all. The Court also noted the doctrine in Signetics Corp. vs. Court of Appeals that a plaintiff need only allege in the complaint that the defendant has an agent in the Philippines for summons to be validly served, but found that private respondent had made no allegation of the existence of petitioners' domestic agent, averring only that they were doing business in the Philippines.

• Voluntary Submission by Special Appearance: Jurisdiction over the person of the defendant is acquired either by voluntary appearance and submission to the court's authority or by service of summons. A defendant may, by special appearance, object to the court's assumption of jurisdiction without submitting himself to that jurisdiction, provided he does so seasonably by motion for the purpose of objecting to jurisdiction. If the defendant, besides objecting to jurisdiction, alleges other grounds for dismissal or seeks affirmative relief, he is deemed to have submitted to jurisdiction. Here, the petitioners' motions to dismiss were consistently and exclusively directed at objecting to the trial court's assumption of jurisdiction, anchored on their status as foreign corporations not doing business in the Philippines. Their appearance was precisely to question jurisdiction and did not constitute acquiescence. The remedy of certiorari was properly resorted to, as filing an answer would have risked abandoning the jurisdictional objection.

• Doing Business in the Philippines — The true test for whether a foreign corporation is "doing business in the Philippines" is whether it is continuing the body or substance of the business or enterprise for which it was organized. The term ordinarily implies a continuity of commercial dealings and arrangements and contemplates the performance of acts or works normally incident to and in progressive prosecution of the purpose and object of its organization. A single or isolated act does not qualify unless it indicates an intention to do business in the Philippines. The Court applied this test and found no showing that the petitioners performed any act in the country placing them within the sphere of court jurisdiction.

• Reinsurance as a Separate and Distinct Contract — A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of the original insurance. It is separate and distinct from the original contract of insurance, and the original insured generally has no interest in the contract of reinsurance. The Court relied on this principle to hold that a foreign reinsurer is not doing business in a state merely because the property insured by the original insurer is located in that state.

• Special Appearance to Object to Jurisdiction — A defendant may appear by special appearance solely to object to the court's jurisdiction without submitting himself to that jurisdiction. If the appearance is precisely to question jurisdiction, it is not equivalent to service of summons and does not constitute acquiescence. However, if the defendant alleges non-jurisdictional grounds or seeks affirmative relief in the same motion, he is deemed to have submitted to the court's jurisdiction. The Court found that the petitioners consistently and exclusively objected to jurisdiction, and thus did not voluntarily submit.

• "A general allegation standing alone, that a party is doing business in the Philippines does not make it so. A conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness." — This passage articulates the Court's refusal to infer jurisdiction from bare allegations, emphasizing that the burden of establishing "doing business" requires substantiation, not mere assertion.

• "if the appearance of a party in a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant, then this appearance is not equivalent to service of summons, nor does is constitute an acquiescence to the court's jurisdiction." — This is the canonical formulation of the special appearance doctrine as applied to foreign corporations, distinguishing a jurisdictional objection from voluntary submission.

• "A foreign corporation, is one which owes its existence to the laws of another state, and generally has no legal existence within the state in which it is foreign." — This passage defines the legal status of foreign corporations and underpins the Court's reasoning that a foreign corporation not doing business in the Philippines has no legal existence within the state and cannot be subjected to its courts without violating the essence of sovereignty.

• Communication Materials and Design, Inc. vs. Court of Appeals, G.R. No. 102223, August 22, 1996 — Cited for the true test of "doing business": whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized.

• Facilities Management Corporation vs. Leonardo Dela Osa, et al., G.R. No. L-38649, March 26, 1979, 89 SCRA 131 — Distinguished. The Court clarified that this case did not declare the absolute suability of foreign corporations not doing business in the Philippines but merely discounted their absolute exemption from liabilities arising from acts done against persons in the Philippines; in that case, the corporation was found to be doing business and service upon its resident agent was upheld.

• Linger Fisher GMBH vs. IAC, 125 SCRA 253 — Distinguished. The CA relied on this case for the proposition that a case should not be dismissed simply because an original summons was wrongfully served, as an alias summons could be issued. The Supreme Court distinguished it, noting that here there was no showing the petitioners were doing business in the country, so they could not be summoned at all.

• Signetics Corp. vs. Court of Appeals, G.R. No. 105141, August 31, 1993, 225 SCRA 737 — Cited for the doctrine that a plaintiff need only allege in the complaint that the defendant has an agent in the Philippines for summons to be validly served. The Court noted that private respondent made no such allegation of a domestic agent.

• Time, Inc. vs. Reyes, G.R. No. L-28882, May 31, 1971, 39 SCRA 303 — Cited for the proposition that a foreign corporation may seek relief against wrongful assumption of jurisdiction by local courts through certiorari or prohibition, and that jurisdiction is not dependent upon the convenience or inconvenience of a party.

• Wang Laboratories vs. Mendoza, G.R. No. 72147, December 1, 1987, 156 SCRA 44 — Cited for the rule that if a defendant, besides objecting to jurisdiction, alleges other grounds or seeks affirmative relief in the motion to dismiss, he is deemed to have submitted to the court's jurisdiction.

• Section 14, Rule 14, Rules of Court — Governs service of summons upon private foreign corporations doing business in the Philippines, allowing service upon a resident agent, or if none, upon the government official designated by law. The Court held this provision inapplicable because the petitioners were not doing business in the Philippines.

• Section 17, Rule 14, Rules of Court — Governs extra-territorial service of summons. Petitioners argued it was inapplicable because the complaint was a personal action not affecting status or relating to property within the Philippines.

• Article 44, Omnibus Investments Code of 1987 — Defines "doing business in the Philippines" to include soliciting orders, service contracts, opening offices, appointing representatives domiciled in the Philippines, and any other acts implying continuity of commercial dealings. The Court used this definition to evaluate whether the petitioners' activities qualified.

• Section 123, Corporation Code of the Philippines — Defines a foreign corporation as one that owes its existence to the laws of another state.

• Sections 125–126, Corporation Code of the Philippines — Require foreign corporations to obtain a license before transacting business in the Philippines.

• Section 133, Corporation Code of the Philippines — Provides that a foreign corporation doing business without the necessary license may be sued but cannot maintain or intervene in an action for its own account.

• Section 95, Presidential Decree No. 1460 (Insurance Code of the Philippines) — Defines a contract of reinsurance as one by which an insurer procures a third person to insure him against loss or liability by reason of the original insurance.

• Section 98, Presidential Decree No. 1460 — Provides that the original insured has no interest in the contract of reinsurance.

Romero, Puno, and Mendoza, JJ., concurred. Regalado, J. (Chairman), was on leave.