Respondent Eugene Arthur Perkins instituted an action in the CFI of Manila against the Benguet Consolidated Mining Company for dividends on shares of stock registered in his name, payment of which was being withheld by the company; and, for the recognition of his right to the control and disposal of said shares, to the exclusion of all others.
Benguet Consolidated Mining Company, in its Answer to the Complaint averred that in connection with the shares of stock in question, conflicting claims were being made upon it by said Respondent Eugene Arthur Perkins, his wife Idonah Slade Perkins, and one named George H. Engelhard, and prayed that these last two be made parties to the action and served with Summonsby Publication, so that the three Claimants may litigate their conflicting claims and settle their rights among themselves. The court has NOT issued an Order compelling the Conflicting Claimants to interplead with one another and litigate their several claims among themselves, but instead ordered Respondent Eugene Arthur Perkins to amend his Complaint including the other two Claimants as Parties-Defendant. The Complaint was accordingly amended and in addition to the relief prayed for in the Original Complaint, Respondent Eugene Arthur Perkins prayed that Petitioner Idonah Slade Perkins and George Engelhard be adjudged without interest in the shares of stock in question and excluded from any claim they assert thereon. Thereafter, Summons by Publication were served upon the non-resident Defendants, Idonah Slade Perkins and George H. Engelhard, pursuant to the Order of the trial court.
Non-resident Defendant Engelhard filed his Answer to the Amended Complaint, while Petitioner Idonah Slade Perkins, through counsel, filed her pleading entitled “objection to venue, motion to quash, and demurrer to jurisdiction” wherein she challenged the jurisdiction of the lower court over her person. Petitioner’s objection, Motion and Demurrer having been overruled as well as her Motion for Reconsideration of the Order of Denial, she now brought the present Petition for Certiorari, praying that the Summons by Publication issued against her be declared null and void, and that, with respect to her, Respondent Judge be permanently prohibited from taking any action on the case.
Whether or not the CFI of Manila has acquired jurisdiction over the person of the Petitioner as a non-resident Defendant, or, notwithstanding the want of such jurisdiction, whether or not said court may validly try the case?
Petitioner contends that the proceeding instituted against her is one of interpleading and is therefore an action in personam. She contends that the lower court had not acquired jurisdiction over her person not only because she is a non-resident, but also because the court had no jurisdiction over the subject-matter of the action.
Yes. Here, the service of the Summons by Publication was ordered by the lower court by virtue of an action quasi in rem against the non-resident Defendant. The action being quasi in rem, the CFI of Manila has jurisdiction over the person of the Petitioner.
Petition is DENIED with costs against the Petitioner.
The general rule is that a suit against a non-resident cannot be entertained by a Philippine court. Where, however, the action is in rem or quasi in rem in connection with property located in the Philippines, the court acquires jurisdiction over the res, and its jurisdiction over the person of the non-resident is non-essential. In order that the court may exercise power over the res, it is not necessary that the court should take actual custody of the property, potential custody thereof being sufficient. There is potential custody when, from the nature of the action brought, the power of the court over the property is impliedly recognized by law… In an action in rem or quasi in rem against a non-resident defendant, jurisdiction over his person is non-essential, and if the law requires in such case that the summons upon the defendant be served by publication, it is merely to satisfy the constitutional requirement of due process.
The reason for the rule that Philippine courts cannot acquire jurisdiction over the person of a non-resident, as laid down by the Supreme Court of the United States in Pennoyer v. Neff , may be found in a recognized principle of public law to the effect that “no State can exercise direct jurisdiction and authority over persons or property without its territory (Story, Confl. L., ch. 2; Wheat, Int. L., pt. 2, ch. 2). The several States are of equal dignity and authority, and the independence of one implies the exclusion of power from all others. And so it is laid down by jurists, as an elementary principle, that the laws of one State have no operation outside of its territory, EXCEPT so far as is allowed by comity; and that no tribunal established by it can extend its process beyond that territory so as to subject either persons or property to its decisions. “Any exertion of authority of this sort beyond this limit,” says Story, “is a mere nullity, and incapable of binding such persons or property in any other tribunals” Story, Confl. L., sec. 539″ (Pennoyer v. Neff , 95 U.S., 714; 24 Law. ed., 565, 568-569).
When, however, the action relates to property located in the Philippines, the Philippine courts may validly try the case, upon the principle that a “State, through its tribunals, may subject property situated within its limits owned by non-residents to the payment of the demand of its own citizens against them; and the exercise of this jurisdiction in no respect infringes upon the sovereignty of the State where the owners are domiciled. Every State owes protection to its citizens; and, when non-residents deal with them, it is a legitimate and just exercise of authority to hold and appropriate any property owned by such non-residents to satisfy the claims of its citizens. It is in virtue of the State’s jurisdiction over the property of the non-resident situated within its limits that its tribunals can inquire into the non-resident’s obligations to its own citizens, and the inquiry can then be carried only to the extent necessary to control the disposition of the property. If the non-resident has no property in the State, there is nothing upon which the tribunals can adjudicate.” (Pennoyer v. Neff )
In the instant case, there can be no question that the action brought by Respondent Eugene Arthur Perkins in his Amended Complaint against Petitioner Idonah Slade Perkins seeks to exclude her from any interest in a property located in the Philippines. That property consists in certain shares of stocks of the Benguet Consolidated Mining Company, a sociedad anonima, organized in the Philippines under the provisions of the Spanish Code of Commerce, with its principal office in the City of Manila and which conducts its mining activities therein. The situs of the shares is in the jurisdiction where the corporation is created, whether the certificated evidencing the ownership of those shares are within or without that jurisdiction. (Fletcher Cyclopedia Corporations, Permanent ed. Vol. 11, p. 95). Under these circumstances, SC holds that the action thus brought is quasi in rem, for while the judgement that may be rendered therein is not strictly a judgment in rem, “it fixes and settles the title to the property in controversy and to that extent partakes of the nature of the judgment in rem” (50 C.J., p 503). As held by the Supreme Court of the United States in Pennoyer v. Neff :
It is true that, in a strict sense, a proceeding in rem is one taken directly against property, and has for its object the disposition of the property, without reference to the title of individual claimants; but, in a large and more general sense, the terms are applied to actions between parties, where the direct object is to reach and dispose of property owned by them, or of some interest therein.
The action being in quasi in rem, the CFI of Manila has jurisdiction over the person of the Petitioner. In order to satisfy the constitutional requirement of due process, Summons has been served upon her by publication. There is no question as to the adequacy of publication made nor as to the mailing of the Order of Publication to the Petitioner’s last known place of residence in the United States. But, of course, the action being quasi in rem and notice having be made by publication, the relief that may be granted by the Philippine court must be confined to the res, it having no jurisdiction to render a personal judgment against the non-resident. In the Amended Complaint filed by Respondent Eugene Arthur Perkins, no money judgment or other relief in personam is prayed for against the Petitioner. The only relief sought therein is that she be declared to be without any interest in the shares in controversy and that she be excluded from any claim thereto.
Original Defendant Engracion Palanca Tanguinyen y Limquingco executed a mortgage upon various real property situated in Manila as security for a debt owing by him to Plaintiff El Banco Español-Filipino. After executing the same, he returned to China, his native country, and died there without returning to the Philippines.
As the Defendant was a non-resident at the time of the institution of the foreclosure of said mortgage, it was necessary for the Plaintiff therein to give notice to the former by publication pursuant to Section 399 of the Code of Civil Procedure. An Order for Publication was accordingly obtained from the court, and publication was made in due form in a newspaper of the City of Manila. At the same time that the order of the court should deposit in the post office in a stamped envelope a copy of the Summons and Complaint directed to the Defendant at his last place of residence, to wit, the City of Amoy, in the Empire of China.
Whether the clerk complied with this order does not affirmatively appear. An Affidavit, however, was signed by Bernardo Chan y Garcia, the bank’s attorney, showing that he had deposited in the Manila post-office a registered letter, addressed to Engracio Palanca Tanquinyeng, at Manila, containing copies of the Complaint, the Plaintiff’s Affidavit, the Summons, and the aforesaid Order for Publication. It appears from the postmaster’s receipt that Bernardo probably used an envelope obtained from the clerk’s office, as the receipt purports to show that the letter emanated from the office.
The Defendant not having appeared, Judgment by Default was then taken against him before the trial court and a Decision rendered in favor of Plaintiff. In this Decision, it was recited that publication had been properly made in a periodical, but nothing was said about notice having been given by mail. Foreclosure of the subject property proceeded and sale was confirmed by the court thereafter.
Seven years after the confirmation sale, Vicente Palanca, as administrator of the Defendant’s estate, moved that the Order of Default and the above Judgment rendered thereon be declared void. Said Motion to Vacate Judgment was denied; hence, this Appeal.
Whether or not the trial court acquired the necessary jurisdiction over the property to proceed with the foreclosure proceeding?
Defendant-Appellant Vicente Palanca argues that the Order of Default and the Judgment rendered thereon were void because the court had never acquired jurisdiction over the person of the Defendant or over the subject of the action.
Yes. The action to foreclose a mortgage is quasi in rem. The property itself is the sole thing which is impleaded and which is the subject of the exercise of judicial power. The jurisdiction of the court is derived from the power which it possesses over the property. The jurisdiction over the person is non-essential.
The Judgment appealed from is without error, and the same is accordingly affirmed, with costs against Defendant-Appellant.
In the terminology of American law the action to foreclose a mortgage is said to be a proceeding quasi in rem, by which is expressed the idea that while it is not strictly speaking an action in rem yet it partakes of that nature and is substantially such… The action quasi in rem differs from the true action in rem in the circumstance that in the former an individual is named as defendant, and the purpose of the proceeding is to subject his interest therein to the obligation or lien burdening the property. All proceedings having for their sole object the sale or other disposition of the property of the defendant, whether by attachment, foreclosure, or other form of remedy, are in a general way thus designated. The judgment entered in these proceedings is conclusive only between the parties.
It is true that in proceedings of this character, if the defendant for whom publication is made appears, the action becomes as to him a personal action and is conducted as such. This, however, does not affect the proposition that where the defendant fails to appear the action is quasi in rem; and it should therefore be considered with reference to the principles governing actions in rem… If the defendant appears, the cause becomes mainly a suit in personam, with the added incident, that the property attached remains liable, under the control of the court, to answer to any demand which may be established against the defendant by the final judgment of the court. But, if there is no appearance of the defendant, and no service of process on him, the case becomes, in its essential nature, a proceeding in rem, the only effect of which is to subject the property attached to the payment of the defendant which the court may find to be due to the plaintiff (Cooper vs. Reynolds ).
Here the property itself is in fact the sole thing which is impleaded and is the responsible object which is the subject of the exercise of judicial power. It follows that the jurisdiction of the court in such case is based exclusively on the power which, under the law, it possesses over the property; and any discussion relative to the jurisdiction of the court over the person of the defendant is entirely apart from the case. The jurisdiction of the court over the property, considered as the exclusive object of such action, is evidently based upon the following conditions and considerations, namely: (1) that the property is located within the district; (2) that the purpose of the litigation is to subject the property by sale to an obligation fixed upon it by the mortgage; and (3) that the court at a proper stage of the proceedings takes the property into custody, if necessary, and expose it to sale for the purpose of satisfying the mortgage debt. An obvious corollary is that no other relief can be granted in this proceeding than such as can be enforced against the property.
We may then, from what has been stated, formulate the following proposition relative to the foreclosure proceeding against the property of a non-resident mortgagor who fails to come in and submit himself personally to the jurisdiction of the court: (I) that the jurisdiction of the court is derived from the power which it possesses over the property; (II) that jurisdiction over the person is not acquired and is non-essential; (III) that the relief granted by the court must be limited to such as can be enforced against the property itself.
In the light of the decision in Pennoyer vs. Neff , and of other decisions which have subsequently been rendered in that and other courts, the proposition that jurisdiction over the person cannot be thus acquired by publication and notice is no longer open to question; and it is now fully established that a personal judgment upon constructive or substituted service against a non-resident who does not appear is wholly invalid. This doctrine applies to all kinds of constructive or substituted process, including service by publication and personal service outside of the jurisdiction in which the judgment is rendered; and the only exception seems to be found in the case where the non-resident defendant has expressly or impliedly consented to the mode of service.
The idea upon which the decision in Pennoyer vs. Neff  proceeds is that the process from the tribunals of one State cannot run into other States or countries and that due process of law requires that the defendant shall be brought under the power of the court by service of process within the State, or by his voluntary appearance, in order to authorize the court to pass upon the question of his personal liability. The doctrine established by the Supreme Court of the United States on this point, being based upon the constitutional conception of due process of law, is binding upon the courts of the Philippine Islands. Involved in this decision is the principle that in proceedings in rem or quasi in rem against a non-resident who is not served personally within the state, and who does not appear, the relief must be confined to the res, and the court cannot lawfully render a personal judgment against him (Dewey vs. Des Moines, 173 U. S., 193; 43 L. ed., 665; Heidritter vs. Elizabeth Oil Cloth Co., 112 U. S., 294; 28 L. ed., 729.). Therefore in an action to foreclose a mortgage against a non-resident, upon whom service has been effected exclusively by publication, no personal judgment for the deficiency can be entered (Latta vs. Tutton, 122 Cal., 279; Blumberg vs. Birch, 99 Cal., 416.).
MALCOLM, J., dissenting:
I dissent. It will not make me long to state my reasons. An immutable attribute — the fundamental idea — of due process of law is that no man shall be condemned in his person or property without notice and an opportunity of being heard in his defense. Protection of the parties demands a strict and an exact compliance with this constitutional provision in our organic law and of the statutory provisions in amplification. Literally hundreds of precedents could be cited in support of these axiomatic principles. Where as in the instant case the defendant received no notice and had no opportunity to be heard, certainly we cannot say that there is due process of law. Resultantly, “A judgment which is void upon its face, and which requires only an inspection of the judgment roll to demonstrate its want of vitality is a dead limb upon the judicial tree, which should be lopped off, if the power so to do exists. It can bear no fruit to the plaintiff, but is a constant menace to the defendant.” (Mills vs. Dickons, 6 Rich [S. C.], 487.)
Augusto Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas. He entered into an Owner-Contractor Agreement with Respondent Laperal Realty Corporation to render and provide complete (horizontal) construction services on his land. Said agreement contains an arbitration clause, to wit:
“ARTICLE VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNER’S representative shall be referred to the committee represented by:
1. One representative of the OWNER;
2. One representative of the CONTRACTOR;
3. One representative acceptable to both OWNER and CONTRACTOR.”
Salas, Jr. then executed a Special Power of Attorney in favor of Respondent Laperal Realty to exercise general control, supervision and management of the sale of his land, for cash or on installment basis. By virtue thereof, Respondent Laperal Realty subdivided said land and sold portions thereof to Respondents Rockway Real Estate Corporation and South Ridge Village, Inc. in 1990; to Respondent spouses Abrajano and Lava and Oscar Dacillo in 1991; and to Respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan in 1996 (Respondent Lot Buyers hereinafter).
Back in 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He, however, never returned on that unfaithful morning. Seven years later or in 1996, his wife, Teresita Diaz-Salas filed with the RTC of Makati City a verified Petition for the Declaration of Presumptive Death, which Petition was granted.
In 1998, Petitioners, as heirs of Salas, Jr. filed in the RTC of Lipa City a Complaint for Declaration of Nullity of Sale, Reconveyance, Cancellation of Contract, Accounting and Damages against Respondents.
Respondent Laperal Realty filed a Motion to Dismiss on the ground that Petitioners failed to submit their grievance to arbitration as required under Article VI of the Owner-Contractor Agreement. Respondent spouses Abrajano and Lava and Respondent Dacillo filed a Joint Answer with Counterclaim and Crossclaim praying for dismissal of Petitioners’ Complaint for the same reason.
The RTC then issued the herein assailed Order dismissing Petitioners’ Complaint for non-compliance with the foregoing arbitration clause.
Hence the present Petition for Review on Certiorari under Rule 45.
Whether or not the arbitration clause under Article VI of the Owner-Contractor Agreement is binding upon the Respondent Lot Buyers?
Petitioners argue that (1) their causes of action did not emanate from the Owner-Contractor Agreement, (2) that their causes of action for cancellation of contract and accounting are covered by the exception under the Arbitration Law, and (3) that failure to arbitrate is not a ground for dismissal.
Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of Salas, Jr.’s land when Respondent Laperal Realty subdivided it and sold portions thereof to Respondent Lot Buyers. Thus, they instituted action against both Respondent Laperal Realty and Respondent Lot Buyers for rescission of the sale transactions and reconveyance to them of the subdivided lots. They argue that rescission, being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 which provides that “such submission [to] or contract [of arbitration] shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract”.
NO. Respondent Lot Buyers are neither parties to the Agreement nor the latter’s assigns or heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement was never vested in Respondent Lot Buyers.
Respondent Laperal Realty, on the other hand, as a contracting party to the Agreement, has the right to compel Petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into arbitration for Respondent Laperal Realty and trial for the Respondent Lot Buyers, or to hold trial in abeyance pending arbitration between Petitioners and Respondent Laperal Realty, would in effect result in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears the complaint against all herein Respondents and adjudicates Petitioners’ rights as against theirs in a single and complete proceeding.
Petition is GRANTED. The assailed Order of RTC of Lipa City is NULLIFIED and SET ASIDE.
In a catena of cases inspired by Justice Malcolm’s provocative dissent in Vega v. San Carlos Milling Co. , the SC has recognized arbitration agreements as valid, binding, enforceable and not contrary to public policy so much so that when there obtains a written provision for arbitration which is not complied with, the trial court should suspend the proceedings and order the parties to proceed to arbitration in accordance with the terms of their agreement. Arbitration is the “wave of the future” in dispute resolution. To brush aside a contractual agreement calling for arbitration in case of disagreement between parties would be a step backward.
A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. But only they. Petitioners, as heirs of Salas, Jr., and Respondent Laperal Realty are certainly bound by the Agreement. If Respondent Laperal Realty, had assigned its rights under the Agreement to a third party, making the former, the assignor, and the latter, the assignee, such assignee would also be bound by the arbitration provision since assignment involves such transfer of rights as to vest in the assignee the power to enforce them to the same extent as the assignor could have enforced them against the debtor or, in this case, against the heirs of the original party to the Agreement. However, Respondent Lot Buyers are NOT assignees of the rights of Respondent Laperal Realty under the Agreement to develop Salas, Jr.’s land and sell the same. They are, rather, buyers of the land that Respondent Laperal Realty was given the authority to develop and sell under the Agreement. As such, they are NOT “assigns” contemplated in Art. 1311 of the New Civil Code which provides that “contracts take effect only between the parties, their assigns and heirs”.
In the same vein, Petitioners’ contention that rescission, being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 is without merit. For while rescission, as a general rule, is an arbitrable issue,theyimpleaded in the suit for rescission the Respondent Lot Buyers who are neither parties to the Agreement nor the latter’s assigns or heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement was never vested in Respondent Lot Buyers.