KAWASAKI PORT SERVICE CORPORATION, NAIKAI SHIPPING CO. LTD., NAIKAI TUG BOAT SERVICE CO., THE PORT SERVICE CORPORATION, LICENSED LAND SEA PILOTS ASSOCIATION, HAYAKOMA UNYU K.K.,…

Kawasaki Port Service Corporation versus C.F. Sharp and Company

The Case

This is a petition for certiorari brought by several Japanese corporations who were sued in Manila by a Philippine corporation that wanted to stop them from collecting a debt owed by a different, Japanese corporation bearing a similar name. The petitioners never submitted to the jurisdiction of the trial court; they entered only special appearances to argue that the court could not acquire jurisdiction over their persons because they were served summons outside the Philippines. The case matters because it fixes the boundaries of extraterritorial service of summons under the old rules: that mode of service is available only in four enumerated situations, and a complaint that is really an action in personam cannot be dressed up as one affecting status or property to justify reaching a defendant abroad.

Procedural History

The private respondent, C.F. Sharp and Company, Incorporated, filed a complaint for injunction and, in the alternative, declaratory relief in the then Court of First Instance of Manila against seventy-nine Japanese corporations. The trial court authorized extraterritorial service of summons, first generally, and then by registered mail with return cards. The petitioners entered special appearances questioning jurisdiction over their persons. The trial court denied the special appearances, and later denied reconsideration. The petitioners then came to the Supreme Court on certiorari. The Supreme Court gave due course to the petition and, after both sides submitted their memoranda, decided in favor of the petitioners.

Facts

The private respondent is a Philippine corporation. There exists in Japan a separate corporation named C.F. Sharp Kabushiki Kaisha. The complaint itself alleged that the two are in all respects separate and distinct from each other. C.F. Sharp Kabushiki Kaisha ran into financial difficulties and failed or refused to pay its creditors, among them the defendant Japanese corporations. Those creditors then demanded, or attempted to demand, payment from the Philippine corporation.

The Philippine corporation sued in the Court of First Instance of Manila, asking that the Japanese creditors be enjoined from demanding payment from it, and alternatively that the court declare it not liable for the obligations of C.F. Sharp Kabushiki Kaisha. Because the defendants were non-residents with no business addresses in the Philippines, the private respondent asked leave to serve summons outside the country. The trial court granted leave, and later allowed service by registered mail with return cards.

The petitioners appeared specially, insisting that the court could not acquire jurisdiction over their persons. They argued that the action did not concern the personal status of the plaintiff, did not involve property in the Philippines in which they claimed any lien or interest, and was in truth an action in personam, so that extraterritorial service was improper. The trial court denied their special appearances, and denied reconsideration. Hence the petition.

Issues

• Whether or not the complaint for injunction and declaratory relief falls within any of the four instances in which extraterritorial service of summons is permitted under Section 17 of Rule 14 of the Rules of Court.
• Whether or not the action affects the personal status of the private respondent, such that extraterritorial service was proper.
• Whether or not the action relates to property in the Philippines in which the petitioners have or claim a lien or interest, actual or contingent, or from which the relief demanded seeks to exclude them.
• Whether or not the trial court acquired jurisdiction over the persons of the petitioners by means of the extraterritorial service of summons.

Applicable Provisions

Section 17 of Rule 14 of the Rules of Court provides:

Section 17. Extraterritorial service. When the defendant does not reside and is not found in the Philippines and the action affects the personal status of the plaintiff or relates to, or the subject of which is, property within the Philippines, in which the defendant has or claims a lien or interest, actual or contingent, or in which the relief demanded consists, wholly or in part, in excluding the defendant from any interest therein, or the property of the defendant has been attached within the Philippines, service may, by leave of court, be effected out of the Philippines by personal service as under section 7; or by publication in a newspaper of general circulation in such places and for such time as the court may order, in which case a copy of the summons and order of the court shall be sent by registered mail to the last known address of the defendant, or in any other manner the court may deem sufficient. Any order granting such leave shall specify a reasonable time, which shall not be less than sixty (60) days after notice, within which the defendant must answer.

This is the provision whose four situations the Court had to test against the complaint, because if none of them applies, service outside the Philippines cannot confer jurisdiction over the persons of non-resident defendants.

Ruling

The Court granted the petition. On the first issue, it held that extraterritorial service of summons is proper only in four instances: when the action affects the personal status of the plaintiff; when the action relates to, or its subject is, property within the Philippines in which the defendant has or claims a lien or interest, actual or contingent; when the relief demanded consists, wholly or in part, in excluding the defendant from any interest in property located in the Philippines; and when the non-resident defendant's property has been attached within the Philippines. The complaint before the trial court fitted none of them.

On the issue of status, the Court defined status as a legal personal relationship, not temporary in nature nor terminable at the mere will of the parties, with which third persons and the State are concerned. What the private respondent really sought was a declaration that it is separate and distinct from C.F. Sharp Kabushiki Kaisha and therefore not liable for the latter's debts. The Court held that monetary obligations do not refer to status; obligations are more or less temporary, while status is relatively permanent. It also held that a declaratory relief proceeding is unavailable where judgment would have to be made only after a judicial investigation of disputed issues, and it noted that the private respondent itself perceived that the petitioners might even seek to pierce the veil of corporate identity. The separate personality of the Philippine corporation was, in the Court's words, a matter of defense that could be raised at the proper time.

On the issue of property, the Court found that the petitioners owned no property in the Philippines, and that they had claimed no lien or interest, actual or contingent, over any property here. They had merely demanded or attempted to demand payment of the monetary obligations of C.F. Sharp Kabushiki Kaisha, and no action in court had yet ensued. Nor did the prayer for injunction seek to exclude the petitioners from any property located in the Philippines, and no property of the petitioners had been attached.

On the issue of jurisdiction, the Court held that the complaint was purely an action for injunction, hence a personal action and an action in personam, not an action in rem or quasi in rem. As a personal action, personal or substituted service of summons on the defendants, not extraterritorial service, was necessary to confer jurisdiction on the court. Extraterritorial service of summons upon non-resident defendants in an injunction suit cannot subject them to the processes of the courts, which are powerless to reach them outside the territory over which they exercise authority. Because the extraterritorial service was improper, it was null and void.

Doctrine

Extraterritorial service of summons under Section 17 of Rule 14 of the Rules of Court is proper only in four instances: when the action affects the personal status of the plaintiff; when the action relates to, or its subject is, property within the Philippines in which the defendant has or claims a lien or interest, actual or contingent; when the relief demanded consists, wholly or in part, in excluding the defendant from any interest in property located in the Philippines; and when the non-resident defendant's property has been attached within the Philippines. Outside these four, service abroad is void and confers no jurisdiction over the person of a non-resident defendant.

Status means a legal personal relationship, not temporary in nature nor terminable at the mere will of the parties, with which third persons and the State are concerned. A suit to declare that one corporation is separate from another and not liable for the latter's debts concerns monetary obligations, which are temporary, not status, which is relatively permanent. Declaratory relief is unavailable where judgment would have to be made only after a judicial investigation of disputed issues.

An action for injunction against non-resident defendants, where no property in the Philippines is involved and no property of the defendants has been attached, is a personal action and an action in personam. In such a case, personal or substituted service of summons is necessary; extraterritorial service will not confer on the court the power to compel the defendants to obey its orders.

Disposition

The petition was granted, and the trial court's orders denying the special appearances and denying reconsideration were reversed and set aside, because the extraterritorial service of summons was null and void.

Remember This

Memorize the four instances of extraterritorial service and the rule that an injunction suit against non-residents with no property here is an action in personam that cannot be commenced by service abroad. Examiners use this case to test jurisdiction over the person of non-resident defendants and the distinction between actions in personam, in rem, and quasi in rem.