Title
Far East International Import vs. kai Kogyo Co., Ltd.
Case
G.R. No. L-13525
Decision Date
Nov 30, 1962
Philippine court upheld jurisdiction over Japanese firm Nankai, ruling it was "doing business" in PH despite arbitration clause; affirmed payment for partial steel scrap delivery due to Force Majeure.
foreign corporation
breach of contract
jurisdiction

Case Summary (G.R. No. L-13525)

Factual Background

The parties executed a Contract of Sale for approximately 5,000 metric tons of steel scrap on December 26, 1956, with payment by an irrevocable, without recourse Letter of Credit in the amount of U.S. $312,500.00. The buyer, NANKAI, signed in Japan; the seller, FAR EAST, signed in Manila. The contract contained a Force Majeure clause excusing delay or failure of shipment caused by government restrictions and a Dispute clause providing that a Board of Arbitration "may be formed in Japan" and that its decision would be final and binding. After confirmation of readiness to ship and notice that the export license would expire March 19, 1957, NANKAI opened the Letter of Credit on January 30, 1957. Three vessels arrived in the Philippines on March 15, 1957. By March 19 only 1,058.6 metric tons had been loaded aboard the SS. Mina; loading was stopped when the export license expired. Two vessels departed without cargo. Efforts to obtain an extension of the export license were unsuccessful following a change of administration. NANKAI acknowledged receipt of 1,058.6 metric tons on April 27, 1957, and demanded damages. FAR EAST sought a complete set of negotiable bills of lading, but the steamship company refused, stating the bill of lading had been issued and signed in Tokyo upon the charterer’s request.

Trial Court Proceedings

On May 16, 1957, FAR EAST filed a complaint for Specific Performance, damages, issuance of a writ of preliminary mandatory injunction ordering NANKAI and the shipping company to deliver a complete set of negotiable Bill of Lading, and a preliminary injunction to maintain the Letter of Credit. The court issued an ex parte writ of preliminary mandatory injunction on May 17, 1957, upon plaintiff’s posting of a P50,000.00 bond. NANKAI entered a Special Appearance and moved to dismiss and to dissolve the injunction for lack of jurisdiction over its person and over the subject matter and for failure to state a cause of action. FAR EAST opposed. Plaintiff sought leave to file an amended complaint to allege that NANKAI was doing business in the Philippines and to add a prayer for payment of the contract price. The motion to dismiss was denied as not indubitable, the motion to file an amended complaint was initially denied but ultimately the Amended Complaint was admitted on August 20, 1957. NANKAI filed an answer asserting customary denials and alleging the same defenses it had advanced. Trial ensued with testimony from plaintiff’s secretary and witnesses for defendants. The trial court absolved the steamship company and the China Banking Corporation from liability, denied claims for actual and moral damages, and found the jurisdictional question moot. The court rendered judgment for FAR EAST against NANKAI for U.S. $67,710.50, with legal interest from filing of the complaint, attorney’s fees of P1,000.00, and costs.

The Parties’ Contentions

NANKAI maintained that Philippine courts lacked jurisdiction because it was not doing business in the Philippines and because process had not been properly served. It contended that the arbitration clause requiring submission of disputes to a Board of Arbitration in Japan precluded resort to the Philippine courts. FAR EAST asserted that service under the third mode of Rule 7—service upon an officer or agent within the Philippines—was proper because NANKAI’s representatives, Messrs. Ishida and Tominaga, had acted for the company in Manila and had been served. FAR EAST further relied on evidence that NANKAI intended to conduct business in the Philippines, had established a temporary office at Room 517, Luneta Hotel, and had sent officers to inquire into mining operations. Plaintiff also argued that by filing an answer and litigating the merits, NANKAI had waived any objection to jurisdiction and likewise had waived the arbitration clause by voluntary submission to the court’s process.

Issues Presented

The appeal consolidated six assigned errors into two principal issues: (1) whether the trial court acquired jurisdiction over the subject matter and over the person of NANKAI, and (2) whether the monetary award and ancillary relief granted by the court a quo were proper. The parties did not appeal the lower court’s factual determination that failure to complete shipment resulted from government action beyond the control of FAR EAST, an outcome addressed by the contract’s Force Majeure clause.

Court’s Analysis on Jurisdiction

The Court examined Rule 7’s three modes of service upon private foreign corporations and concluded that plaintiff properly effected service by serving an officer or agent within the Philippines. The Court found that Messrs. Ishida and Tominaga were officers of NANKAI; they had signed the contract for the company and had maintained a temporary office. The Court further held that NANKAI’s Special Appearance contesting jurisdiction was waived when it filed an answer raising non-jurisdictional defenses and proceeded to trial. The Court applied established authority that when a defendant objects solely to jurisdiction but subsequently invokes other defenses or seeks affirmative relief, the appearance ceases to be merely special and subjects the defendant to the court’s jurisdiction. The Court quoted the doctrine that by invoking non-jurisdictional grounds a defendant submits to the court, and that decision on such issues binds the defendant. The Dispute clause providing for arbitration in Japan was deemed waived by NANKAI’s voluntary submission to the court, and the clause’s use of the word "may" weakened the contention that arbitration was mandatory.

Court’s Analysis on Doing Business

The Court recognized that no universal rule governs when a foreign corporation is doing business within the jurisdiction and that determinations depend on the facts and the statute. The Court distinguished the cited case of Pacific Micronesian Line, Inc. v. N. Baens del Rosario, et al., 96 Phil., 23; 50 Off. Gaz. [11] 5271, where the acts of the foreign corporation were isolated and incidental. The Court found the present facts materially different. Testimony, including that of NANKAI’s own officer Nabuo Yoshida, showed intent to engage in business activities in the Philippines and actions consistent with establishing a base of operations, including inquiries into mining and the maintenance of a temporary office. The Court invoked an authoritative exposition that a single act may suffice to bring a corporation within the purview of doing-business statutes where the act is of the ordinary business of the corporation and indicates an intent to conduct further business. On these facts, the Court concluded that NANKAI’s transaction was not merely casual or incidental and that the trial court had jurisdiction.

Merits, Force Majeure, and Relief Awarded

On the merits, the Court accepted the lower court’s finding that the short shipment and the failure to load the full quantity were due to governmental intervention beyond the control of FAR EAST, a condition covered by the contract’s Force Majeure clause. The Court affirmed the judgment awarding FAR EAST U.S. $67,710.50 or its peso equivalent, with legal interest from the date of filing of the complaint, attorney’s fees of P1,000.00, and costs. The Court affirmed the dismissal of claims against the steamship company and the China Banking Corporation and denied other claims for actual and moral damages.

Legal Basis and Reasoning

The Court grounded its dec

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