Philsec Investment Corporation v. Court of Appeals

A foreign judgment in an action in personam constitutes merely prima facie evidence of the justness of the claim and may not be given res judicata effect unless the party against whom it is invoked has been afforded a meaningful opportunity to challenge it on grounds of want of jurisdiction, want of notice, collusion, fraud, or clear mistake of law or fact under Rule 39, §50 of the Rules of Court. Additionally, attachment of a non-resident defendant's property within the Philippines satisfies the jurisdictional basis for extraterritorial service of summons under Rule 14, §17.

Petitioners Philsec Investment Corporation (PHILSEC), a domestic corporation, and Ayala International Finance Limited (later BPI-International Finance Limited or BPI-IFL), a foreign corporation, extended loans to private respondent Ventura O. Ducat, a Filipino, secured by shares of stock. To facilitate repayment, private respondent 1488, Inc., a non-resident foreign corporation, through its president Drago Daic, a non-resident alien, assumed Ducat's obligation by selling a parcel of land in Harris County, Texas, to petitioner Athona Holdings, N.V. (ATHONA), a foreign corporation wholly owned by PHILSEC and BPI-IFL, under a Warranty Deed with Vendor's Lien. The transaction linked Philippine lending entities, a Dutch holding company, and a Texas real property sale, creating the transnational character that gave rise to parallel litigation in the United States and the Philippines.

On January 15, 1983, private respondent Ventura O. Ducat obtained separate loans from petitioners Ayala International Finance Limited (AYALA, later BPI-IFL) and Philsec Investment Corporation (PHILSEC) in the aggregate sum of US$2,500,000.00, secured by shares of stock owned by Ducat with a market value of P14,088,995.00. To facilitate repayment of the loans, private respondent 1488, Inc., through its president, private respondent Drago Daic, assumed Ducat's obligation under an Agreement dated January 27, 1983. Pursuant to that Agreement, 1488, Inc. executed a Warranty Deed with Vendor's Lien, selling to petitioner Athona Holdings, N.V. (ATHONA) a parcel of land in Harris County, Texas, U.S.A., for US$2,807,209.02. PHILSEC and AYALA extended a loan to ATHONA in the amount of US$2,500,000.00 as initial payment of the purchase price, with the balance of US$307,209.02 to be covered by a promissory note executed by ATHONA in favor of 1488, Inc. Upon receipt of the US$2,500,000.00 from 1488, Inc., PHILSEC and AYALA released Ducat from his indebtedness and delivered to 1488, Inc. all shares of stock in their possession belonging to Ducat.

When ATHONA failed to pay the interest on the balance of US$307,209.02, the entire amount became due and demandable. On October 17, 1985, 1488, Inc. sued PHILSEC, AYALA, and ATHONA in the United States for payment of the balance and for damages for breach of contract and fraud, alleging that petitioners had misrepresented the marketability of the shares of stock delivered to 1488, Inc. The action was originally filed in the United States District Court of Texas, 165th Judicial District, docketed as Case No. 85-57746, and later transferred to the United States District Court for the Southern District of Texas, where 1488, Inc. filed an amended complaint. ATHONA filed an answer with counterclaim impleading private respondents as counterdefendants for allegedly conspiring to sell the property at a price above its market value; private respondent Perlas, who had allegedly appraised the property, was later dropped as counterdefendant. PHILSEC and AYALA moved to dismiss for lack of jurisdiction over their persons; the motion was denied, and they filed a joint answer with counterclaim against private respondents and Edgardo V. Guevarra, PHILSEC's former president, seeking rescission of the sale on the ground of overvaluation. On March 13, 1990, the U.S. court dismissed the counterclaim against Guevarra as "frivolous" and imposed Rule 11 sanctions on PHILSEC and AYALA, ordering them to pay damages to Guevarra.

While the U.S. case was pending, petitioners filed on April 10, 1987 a complaint "For Sum of Money with Damages and Writ of Preliminary Attachment" against private respondents in the Regional Trial Court of Makati, docketed as Civil Case No. 16563. The complaint alleged that private respondents committed fraud by selling the Texas property at a price 400 percent above its true value of US$800,000.00, inducing ATHONA, PHILSEC, and AYALA to enter into the Agreement and purchase the property. Petitioners prayed for the return of the excess payment of US$1,700,000.00 and damages. On April 20, 1987, the trial court issued a writ of preliminary attachment against the real and personal properties of private respondents. Ducat moved to dismiss on grounds of litis pendentia vis-à-vis the U.S. action, forum non conveniens, and failure to state a cause of action, contending that the alleged overpricing prejudiced only ATHONA as buyer, not PHILSEC and BPI-IFL, whose participation was limited to extending financial accommodation. 1488, Inc. and Daic filed a joint "Special Appearance and Qualified Motion to Dismiss," arguing that the action was in personam, extraterritorial service of summons by publication was ineffectual, and the court lacked jurisdiction over 1488, Inc., a non-resident foreign corporation, and Daic, a non-resident alien.

On January 26, 1988, the trial court granted Ducat's motion to dismiss on litis pendentia and forum non conveniens, even as it noted that Ducat was not a party in the U.S. case. On March 9, 1988, the trial court granted 1488, Inc. and Daic's motion to dismiss on the same grounds, holding that the "main factual element" — the validity of the sale of real property in the United States — was the subject of the pending U.S. case, and that the U.S. court was the better forum for determining the fair market value of Texas real estate. The trial court also held it lacked jurisdiction over 1488, Inc. and Daic because they were non-residents and the action was not in rem or quasi in rem, rendering extraterritorial service of summons ineffective; it accordingly lifted the writ of attachment. Petitioners appealed to the Court of Appeals, which on January 6, 1992 affirmed the dismissal on all grounds. During the pendency of the appeal, the U.S. District Court for the Southern District of Texas rendered judgment in favor of private respondents, which was affirmed by the Circuit Court of Appeals. On April 22, 1992, 1488, Inc. and Daic filed a petition for enforcement of the U.S. judgment in the RTC of Makati, docketed as Civil Case No. 92-1070 and assigned to Branch 134, though proceedings were suspended due to the pendency of the Supreme Court case.

• Litis Pendentia Inapplicable: Petitioners contended that the doctrine of litis pendentia relied upon by the Court of Appeals in affirming the trial court's dismissal was not applicable to the case.
• Forum Non Conveniens Inapplicable: Petitioners argued that the principle of forum non conveniens, also relied upon by the Court of Appeals, was likewise not applicable.
• Public Policy Requires Assumption of Jurisdiction: As a corollary to the first two grounds, petitioners maintained that Philippine public policy required the assumption, not relinquishment, by the trial court of its rightful jurisdiction, given that there was every reason to protect and vindicate petitioners' rights for tortious or wrongful acts inflicted upon them in the Philippines by private respondents, who were mostly non-resident aliens.
• Foreign Judgment Not Res Judicata: Petitioners argued that the foreign judgment could not be given the effect of res judicata without giving them an opportunity to impeach it on the grounds stated in Rule 39, §50 of the Rules of Court — want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.

• Foreign Judgment as Res Judicata: Private respondents contended that for a foreign judgment to be pleaded as res judicata, a judgment admitting the foreign decision was not necessary.
• Lack of Jurisdiction Over Non-Resident Defendants: 1488, Inc. and Daic argued that the action being in personam, extraterritorial service of summons by publication was ineffectual and did not vest the court with jurisdiction over 1488, Inc., a non-resident foreign corporation, and Daic, a non-resident alien.
• Litis Pendentia and Forum Non Conveniens: Ducat contended that the U.S. case and the Philippine case involved the same parties and the same cause of action arising from the same Warranty Deed, warranting dismissal on litis pendentia and forum non conveniens; he further argued that PHILSEC and BPI-IFL failed to state a cause of action because the alleged overpricing prejudiced only ATHONA as buyer.

• Foreign Judgment / Res Judicata: Whether the judgment rendered by the U.S. District Court for the Southern District of Texas during the pendency of the appeal bars Civil Case No. 16563 on the ground of res judicata.
• Forum Non Conveniens: Whether the trial court properly dismissed the case on the principle of forum non conveniens.
• Jurisdiction Over Non-Resident Defendants: Whether the trial court acquired jurisdiction over non-resident defendants 1488, Inc. and Daic through extraterritorial service of summons, given the prior attachment of their properties.
• Rule 11 Sanctions / Severability: Whether the temporary restraining order suspending enforcement of the Rule 11 sanctions imposed by the U.S. court should be lifted.

• Foreign Judgment / Res Judicata: No. The foreign judgment cannot be given res judicata effect without affording petitioners the opportunity to challenge it under Rule 39, §50; the summary proceedings below denied that opportunity, and the case must be consolidated with the enforcement proceeding for proper determination.
• Forum Non Conveniens: No. Forum non conveniens is not a ground for motion to dismiss under Rule 16, §1, requires factual determination rather than resolution on the pleadings alone, and was arbitrarily applied without considering that PHILSEC is a domestic corporation and Ducat is a Filipino.
• Jurisdiction Over Non-Resident Defendants: Yes. Jurisdiction was properly acquired because the property of the defendants had been attached within the Philippines prior to service of summons, satisfying the jurisdictional basis for extraterritorial service under Rule 14, §17.
• Rule 11 Sanctions / Severability: Yes. The TRO should be lifted because Guevarra's claim for Rule 11 sanctions is severable from the main judgment, petitioners having only belatedly impleaded Guevarra as a defendant.

• Foreign Judgment / Res Judicata: In actions in personam, a foreign judgment constitutes merely prima facie evidence of the justness of the claim and is subject to proof to the contrary under Rule 39, §50(b). While the Court has given res judicata effect to foreign judgments in prior cases, it did so only after the party opposing the judgment was given ample opportunity to repel it on the grounds enumerated in the Rule — want of jurisdiction, want of notice, collusion, fraud, or clear mistake of law or fact. In this case, the proceedings in both the trial court and the Court of Appeals were summary; neither court was furnished copies of the pleadings or evidence from the U.S. case to determine whether the issues litigated there were identical to those in the Philippine case. The trial court itself stated in its order that it "never found that the causes of action of this case and the case pending before the USA Court, were identical." Petitioners had questioned the jurisdiction of the U.S. court over their persons, but their claim was brushed aside. Moreover, 1488, Inc. and Daic had filed a separate enforcement proceeding (Civil Case No. 92-1070); to sustain res judicata here would preclude petitioners from challenging the foreign judgment in that enforcement proceeding, creating the absurd result that a foreign judgment is unchallengeable when invoked defensively yet challengeable when sought to be enforced. Accordingly, the two cases should be consolidated, with petitioners bearing the burden of impeaching the foreign judgment and proceeding with their action only if they succeed.

• Forum Non Conveniens: Forum non conveniens is not among the grounds for a motion to dismiss enumerated in Rule 16, §1; its propriety requires factual determination and is more properly a matter of defense. While a trial court may abstain from assuming jurisdiction on this ground, it should do so only after "vital facts are established, to determine whether special circumstances" require desistance. Here, the trial court abstained solely on the basis of pleadings filed in connection with the motion to dismiss. It failed to consider that PHILSEC is a domestic corporation, that Ducat is a Filipino, and that the extinguishment of Ducat's debt was the object of the transaction. It arbitrarily dismissed the case even after finding that Ducat was not a party in the U.S. case.

• Jurisdiction Over Non-Resident Defendants: Rule 14, §17 on extraterritorial service provides that service of summons on a non-resident defendant may be effected out of the Philippines by leave of court where, among other circumstances, "the property of the defendant has been attached within the Philippines." It was undisputed that the real and personal properties of private respondents had been attached prior to service of summons under the trial court's order dated April 20, 1987. The prior attachment thus satisfied the statutory predicate for extraterritorial service, and the trial court erred in holding that it lacked jurisdiction over 1488, Inc. and Daic.

• Rule 11 Sanctions / Severability: The judgment sought to be enforced by Guevarra — the Rule 11 sanctions imposed on PHILSEC and AYALA by the U.S. court — is severable from the main judgment under consideration in Civil Case No. 16563. The severability was admitted by petitioners and was evident from the fact that Guevarra was only belatedly impleaded as a defendant in the amended complaint filed March 31, 1992. The TRO was therefore lifted and Civil Case No. 92-1445 allowed to proceed.

• Effect of Foreign Judgments in Actions In Personam — Under Rule 39, §50(b) of the Rules of Court, a foreign judgment in an action in personam is presumptive evidence of a right between the parties and their successors in interest, but it may be repelled by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact. The judgment constitutes prima facie evidence, not conclusive proof, and the party against whom it is invoked must be afforded a meaningful opportunity to challenge it before it can operate as res judicata. The Court applied this doctrine by holding that the summary dismissal below, without furnishing the courts with the U.S. pleadings or evidence, denied petitioners that opportunity; consolidation with the enforcement proceeding was ordered to allow such challenge.

• Forum Non Conveniens as a Defense, Not a Ground for Dismissal — Forum non conveniens is not enumerated among the grounds for a motion to dismiss under Rule 16, §1. Its application requires factual determination and is more properly treated as a matter of defense. A court may abstain from jurisdiction on this ground only after vital facts are established to determine whether special circumstances require desistance. The Court found the trial court's application defective because it was based solely on the pleadings and failed to weigh significant Philippine contacts (a domestic corporate plaintiff and a Filipino defendant).

• Attachment as Basis for Extraterritorial Service of Summons — Under Rule 14, §17, extraterritorial service of summons on a non-resident defendant may be effected where "the property of the defendant has been attached within the Philippines." Prior attachment of the defendant's property within Philippine territory satisfies the jurisdictional predicate for such service, vesting the court with jurisdiction over the non-resident defendant's person.

• "in this jurisdiction, with respect to actions in personam, as distinguished from actions in rem, a foreign judgment merely constitutes prima facie evidence of the justness of the claim of a party and, as such, is subject to proof to the contrary." — This passage articulates the fundamental distinction in Philippine law between the conclusive effect of foreign judgments in rem and the merely presumptive effect of foreign judgments in personam, central to the Court's ruling that the U.S. judgment could not bar petitioners' claim without an opportunity for challenge.

• "An absurdity could then arise: a foreign judgment is not subject to challenge by the plaintiff against whom it is invoked, if it is pleaded to resist a claim as in this case, but it may be opposed by the defendant if the foreign judgment is sought to be enforced against him in a separate proceeding. This is plainly untenable." — This reasoning explains why the Court required consolidation of the main action with the enforcement proceeding, ensuring a single forum for determining the efficacy of the foreign judgment.

• "the property of the defendant has been attached within the Philippines, service may, by leave of court, be effected out of the Philippines" — Quoting Rule 14, §17, this provision was dispositive of the jurisdictional issue, establishing that prior attachment of a non-resident defendant's property validates extraterritorial service of summons.

• General Corporation of the Philippines vs. Union Insurance Society of Canton, Ltd., G.R. No. L-2303, Dec. 29, 1951 — Cited by private respondents for the proposition that a foreign judgment can have conclusive res judicata effect; distinguished by the Court, which noted that in that case the foreign judgment was declared res judicata only after trial in the lower court and a finding that the foreign court did not make a clear mistake of law or fact and that its judgment was not void for want of jurisdiction, fraud, or collusion.

• Philippines International Shipping Corp. vs. Court of Appeals, 172 SCRA 810 (1989) — Followed for the principle that a foreign judgment is valid and enforceable in the Philippines where there is no showing it was vitiated by want of notice, collusion, fraud, or clear mistake of law or fact, and the prima facie presumption under Rule 39, §50 has not been rebutted.

• Hang Lung Bank vs. Saulog, 201 SCRA 137 (1991) — Followed for the proposition that a foreign judgment may not be enforced if it is not recognized in the jurisdiction where affirmative relief is sought, and that in the interest of justice a complaint should be treated as a petition for recognition of the foreign judgment to allow the defendant to present evidence of defects.

• Development Bank of the Philippines vs. Pundogar, 218 SCRA 118 (1993) — Cited for the rule that forum non conveniens is not among the grounds for a motion to dismiss under Rule 16, §1.

• K.K. Shell Sekiyu Osaka Hatsubaisho vs. Court of Appeals, 188 SCRA 145 (1990) — Cited for the principle that a court should abstain from jurisdiction on forum non conveniens only after vital facts are established to determine whether special circumstances require desistance.

• Boudard vs. Tait, 67 Phil. 170 (1939) — Cited for the principle that a foreign judgment in an action in personam constitutes prima facie evidence subject to proof to the contrary.

• Rule 39, §50, Rules of Court — Governs the effect of foreign judgments. Section 50(b) provides that in an action against a person, a foreign judgment is presumptive evidence of a right between the parties but may be repelled by evidence of want of jurisdiction, want of notice, collusion, fraud, or clear mistake of law or fact. Applied as the controlling provision for determining whether the U.S. judgment could bar petitioners' claim.

• Rule 14, §17, Rules of Court — Governs extraterritorial service of summons. Provides that service on a non-resident defendant may be effected out of the Philippines by leave of court where, among other circumstances, "the property of the defendant has been attached within the Philippines." Applied to hold that prior attachment of private respondents' properties satisfied the jurisdictional basis for extraterritorial service.

• Rule 16, §1, Rules of Court — Enumerates the grounds for a motion to dismiss. Forum non conveniens is not among them, supporting the Court's conclusion that the principle is more properly a matter of defense requiring factual determination.

Regalado, Romero, Puno, and Torres, Jr., JJ., concurred.