Far East International Import and Export Corporation vs. Nankai Kogyo Co. Ltd.

A foreign corporation is considered "doing business" in the Philippines when its activities, even if comprising a single transaction, indicate a distinct purpose to engage in further business and to make the Philippines a base of operations, thereby subjecting it to service of summons upon its officers or agents under Rule 7, Section 14 of the Rules of Court; moreover, a foreign corporation waives its objection to jurisdiction and any contractual arbitration clause when it files an answer raising non-jurisdictional defenses and participates in trial after initially contesting jurisdiction through a special appearance.

The case arises from a commercial transaction for the export of steel scrap from the Philippines to Japan, which was complicated by the expiration of an export license due to the death of President Magsaysay and the succession of President Garcia, who refused to extend the license. The dispute centers on whether a foreign buyer corporation that entered into a single substantial contract but whose officers were exploring additional business opportunities in the Philippines could be subjected to the jurisdiction of Philippine courts, and whether the corporation's subsequent litigation conduct constituted voluntary submission to such jurisdiction.

• On December 26, 1956, Far East International Import and Export Corporation (Far East), a corporation organized under Philippine laws, entered into a Contract of Sale of Steel Scrap with Nankai Kogyo Co., Ltd. (Nankai), a foreign corporation organized under Japanese laws with principal address at Osaka, Japan, wherein the buyer signed in Japan and the seller in Manila, Philippines. The contract provided for approximately 5,000 metric tons of steel scrap at a total price of $312,500.00 payable via irrevocable Letter of Credit, and contained a force majeure clause excusing delays due to government restrictions and a dispute resolution clause providing that a Board of Arbitration "may" be formed in Japan. Upon perfection of the contract and being informed that the Export License would expire on March 18, 1957, Nankai opened Letter of Credit No. 38/80049 with China Banking Corporation issued by Nippon Kangyo, Ltd. of Tokyo in the amount of $312,500.00 on January 30, 1957. On March 15, 1957, three vessels sent by Nankai arrived in the Philippines—one to load in Manila, two at Poro Point, San Fernando, La Union and Tacloban, Leyte—but only four days remained before the license expiration on March 18, 1957. On March 19, 1957, the expiration date of the export license, only 1,058.6 metric tons had been loaded on the SS Mina in Manila, and loading was stopped; the boat at Poro Point was also unloaded of 200 metric tons for the same reason. An agreement was reached for Far East to seek an extension of the license, but due to the death of President Magsaysay and the succession of President Garcia, the extension was refused by the new administration, causing two boats to sail to Japan empty while the SS Mina carried only the partial shipment of 1,058.6 metric tons. On April 27, 1957, Nankai confirmed delivery of the 1,058.6 metric tons but claimed damages of $148,135.00 for dead freight charges and other expenses. On May 4, 1957, Far East requested the Everett Steamship Corporation to issue a complete set of Bill of Lading to enable collection against the Letter of Credit, but Everett refused on May 7, 1957 stating the Bill of Lading was issued and signed in Tokyo by the Master of the boat upon request of the Charterer (Nankai), and Nankai had already taken possession of the Bill of Lading and secured delivery of the scrap. On May 16, 1957, Far East filed the complaint for Specific Performance, damages, and injunctions, alleging that Nankai was doing business in the Philippines with a temporary office at Room 517 Luneta Hotel, Manila, represented by Mr. Issei Ishida (Trade Manager) and Mr. Tominaga (Chief of Petroleum Section), and that these representatives had made inquiries regarding mining operations and intended to establish a permanent office at the Madrigal building. Testimony at trial established that Ishida personally signed the contract for Nankai, and that Yoshida was the man-in-charge of the Import Section of the company's Tokyo Branch, with all three having been served with summons in the Philippines. Nankai presented evidence through Francisco Santos (accountant of Luneta Hotel) denying the establishment of an office at Room 517, and through Nabuo Yoshida denying the establishment of a branch office in the Philippines and asserting that the scrap purchase was the only transaction conducted in the Philippines.

• Nankai contends that Philippine Courts lack jurisdiction over the case because Nankai is not "doing business" in the Philippines, arguing that entering into a single transaction for the purchase of steel scrap does not constitute "doing business" so as to make it amenable to summons and subject to the court's jurisdiction. Nankai relies on the contractual provision providing that "In case of disputes, Board of Arbitration may be formed in Japan" to argue that the parties agreed to submit disputes to arbitration in Japan rather than to Philippine courts. Nankai argues that the lower court erred in denying the Motion to Dismiss and in awarding damages to Far East, asserting that the award was improper given the circumstances of the partial shipment and the alleged lack of jurisdiction.

• Far East argues that Nankai is doing business in the Philippines through its officers Ishida, Tominaga, and Yoshida who established a temporary office at the Luneta Hotel and were actively exploring mining operations, thereby indicating an intention to continue engaging in business in the Philippines and making the Philippines a base of operations. Far East contends that service of summons was validly effected upon Nankai's officers or agents within the Philippines under Rule 7, Section 14 of the Rules of Court, specifically citing service upon Ishida and Tominaga who were officers of the company. Far East argues that Nankai voluntarily submitted to the jurisdiction of the court when, after entering a special appearance to contest jurisdiction, it subsequently filed an Answer raising non-jurisdictional defenses and proceeded to trial on the merits. Far East asserts that the arbitration clause was waived by Nankai's conduct in filing the Answer and going to trial, and that the word "may" in the arbitration clause indicates it was permissive rather than mandatory. Far East maintains that the failure to make full shipment was due to force majeure (government refusal to extend the export license) as provided in paragraph 13 of the contract, and therefore Nankai is liable for payment of the goods actually delivered.

• Procedural Issues: Whether the trial court acquired jurisdiction over the person of defendant Nankai (a foreign corporation) and over the subject matter of the dispute; and whether the contractual arbitration clause bars the exercise of jurisdiction by Philippine courts.
• Substantive Issues: Whether the defendant foreign corporation was "doing business" in the Philippines within the meaning of Section 14, Rule 7 of the Rules of Court so as to be subject to service of summons; and whether the award of $67,710.50 in favor of plaintiff was proper and legally justified.

• Procedural: The Supreme Court held that the trial court validly acquired jurisdiction over the person of defendant Nankai because (1) Nankai was doing business in the Philippines, having established a presence through its officers who were exploring mining operations with the intent to make the Philippines a base for business operations, thereby bringing it within the purview of Rule 7, Section 14 allowing service of summons on its officers or agents within the Philippines; and (2) even assuming arguendo that the initial service was defective, Nankai voluntarily submitted to the jurisdiction when it filed an Answer raising non-jurisdictional defenses (such as failure to state a cause of action and reiterating grounds for dismissal other than lack of jurisdiction) and proceeded to trial on the merits, thereby waiving its objection to jurisdiction and the arbitration clause. The Court ruled that a special appearance to contest jurisdiction, when followed by the invocation of the court's jurisdiction to decide non-jurisdictional issues, constitutes voluntary submission.
• Substantive: The Court ruled that Nankai was indeed "doing business" in the Philippines, qualifying the "single act" doctrine by holding that while a single isolated act does not constitute doing business, a single act may constitute doing business if it is "of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state, and to make the state a basis of operations for the conduct of a part of corporation's ordinary business," which was evidenced by Nankai's officers inquiring into mining operations and establishing a temporary office. The Court affirmed the award of $67,710.50 (representing the price of the scrap delivered) plus interest and attorney's fees, finding that the partial delivery was due to force majeure (government refusal to extend the license) as provided in the contract, and that Nankai had accepted the 1,058.6 metric tons of scrap and was therefore liable for payment thereof.

• Doing Business Test for Foreign Corporations (Qualified Single Act Doctrine) — This doctrine holds that while a single isolated act does not constitute "doing business," a single transaction may constitute doing business if it indicates a distinct purpose to engage in further business in the jurisdiction and to make that jurisdiction a base of operations for the corporation's ordinary business activities, thereby subjecting the foreign corporation to local jurisdiction and service of process under Rule 7, Section 14 of the Rules of Court.
• Voluntary Submission by Filing Answer with Non-Jurisdictional Defenses — This doctrine provides that a foreign corporation which enters a special appearance solely to contest jurisdiction does not thereby submit to the court's jurisdiction, but if it subsequently files an answer raising non-jurisdictional defenses or seeking affirmative relief, it thereby voluntarily submits to the court's jurisdiction regardless of its initial objection, as the invocation of the court's power to decide non-jurisdictional issues constitutes consent to jurisdiction.
• Distinction Between Domestic and Foreign Corporations for Jurisprudential Purposes — This principle recognizes that domestic corporations (organized under Philippine laws) are subject to Philippine jurisdiction by virtue of their creation, while foreign corporations (organized under foreign laws) are generally not subject to jurisdiction unless they are "doing business" in the Philippines or voluntarily submit to jurisdiction, with "doing business" being determined by the nature and character of the corporate activities within the territory.

• "The rule stated in the preceding section that the doing of a single act does not constitute business within the meaning of statutes prescribing the conditions to be complied with the foreign corporations must be qualified to this extent, that a single act may bring the corporation. In such a case, the single act of transaction is not merely incidental or casual, but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state, and to make the state a basis of operations for the conduct of a part of corporation's ordinary business."
• "Even though the defendant objects to the jurisdiction of the court, if at the same time he alleges any non-jurisdictional ground for dismissing the action, the Court acquires jurisdiction over him. Even though he does not intend to confer jurisdiction upon the court, his appearance for some other purpose than to object to the jurisdiction subjects him to jurisdiction of the court."
• "Undoubtedly if after his objection to the jurisdiction is wrongly overruled, a defendant files a cross complaint demanding affirmative relief, he cannot thereafter claim that the court had no jurisdiction over him."

• Pacific Micronesian Line, Inc. v. Baens del Rosario — Cited as authority for the general rule that a single isolated act does not constitute doing business, but distinguished by the Court because in that case the act was merely incidental or casual (hiring a cook) not indicating a purpose to engage in business, whereas in the instant case Nankai's activities indicated an intent to establish a business base in the Philippines.

• Section 14, Rule 7 of the Rules of Court — Provides the three modes of serving summons upon private foreign corporations doing business in the Philippines: (1) service upon a resident agent designated in accordance with law; (2) service upon the government official designated by law if no resident agent exists; and (3) service upon any officer or agent of the corporation within the Philippines.
• Section 1, Rule 17 of the Rules of Court — Cited by plaintiff regarding the right to amend pleadings as a matter of right before a responsive pleading is filed.
• Paragraph 13 of the Contract of Sale (Force Majeure Clause) — Excused the seller from liability for delay or failure of shipment due to government restrictions prohibiting export, which the Court applied to justify the partial delivery and absolve the seller of liability for breach while entitling it to payment for goods actually delivered.