G.R. No.

103493
PHILSEC INVESTMENT CORPORATION VS
THE HONORABLE COURT OF APPEALS, 1488, INC., DRAGO DAIC, VENTURA O. DUCAT,
PRECIOSO R. PERLAS, and WILLIAM H. CRAIG,

FACTS:
Private respondent Ducat obtained separate loans from petitioners Ayala International Finance
Limited (AYALA) and Philsec Investment Corporation (PHILSEC), secured by shares of stock
owned by Ducat. In order to facilitate the payment of the loans, private respondent 1488, Inc.,
through its president, private respondent Drago Daic, assumed Ducat's obligation under an
Agreement, whereby 1488, Inc. executed a Warranty Deed with Vendor's Lien by which it sold to
petitioner Athona Holdings, N.V. (ATHONA) a parcel of land in Harris County, Texas, U.S.A.,
while PHILSEC and AYALA extended a loan to ATHONA as initial payment of the purchase price.
The balance was to be paid by means of a promissory note executed by ATHONA in favor of
1488, Inc. Subsequently, upon their receipt of the amount from 1488, Inc., PHILSEC and AYALA
released Ducat from his indebtedness and delivered to 1488, Inc. all the shares of stock in their
possession belonging to Ducat.

ATHONA failed to pay the interest on the balance and sp private respondent 1488, Inc. sued
petitioners PHILSEC, AYALA, and ATHONA in the United States for payment of the balance and
for damages for breach of contract and for fraud allegedly perpetrated by petitioners in
misrepresenting the marketability of the shares of stock delivered to 1488, Inc. under the
Agreement. Originally instituted in the United States District Court of Texas the venue of the action
was later transferred to the US District Court for the Southern District of Texas, where 1488, Inc.
filed an amended complaint, reiterating its allegations in the original complaint.

ATHONA filed an answer with counterclaim, impleading private respondents herein as

counterdefendants, for allegedly conspiring in selling the property at a price over its market value.
Private respondent Perlas, who had allegedly appraised the property, was later dropped as
counterdefendant. ATHONA sought the recovery of damages and excess payment allegedly
made to 1488, Inc. and, in the alternative, the rescission of sale of the property. For their part,
PHILSEC and AYALA filed a motion to dismiss on the ground of lack of jurisdiction over their
person, but, as their motion was denied, they later filed a joint answer with counterclaim against
private respondents and Guevarra, PHILSEC's own former president, for the rescission of the
sale on the ground that the property had been overvalued. The United States District Court for
the Southern District of Texas dismissed the counterclaim against Guevarra on the ground that it
was "frivolous and [was] brought against him simply to humiliate and embarrass him." For this
reason, the U.S. court imposed so-called Rule 11 sanctions on PHILSEC and AYALA and ordered
them to pay damages to Guevarra.

While the case was pending in the US, petitioners filed a complaint "For Sum of Money with
Damages and Writ of Preliminary Attachment" against private respondents in the RTC of Makati.
The complaint reiterated the allegation of petitioners in their respective counterclaims in Civil
Action of the United States District Court of Southern Texas that private respondents committed
fraud by selling the property at a price 400 percent more than its true value. Petitioners claimed
that, as a result of private respondents' fraudulent misrepresentations, ATHONA, PHILSEC, and
AYALA were induced to enter into the Agreement and to purchase the Houston property.
Petitioners prayed that private respondents be ordered to return to ATHONA the excess payment
and to pay damages. The trial court issued a writ of preliminary attachment against the real and
personal properties of private respondents.
Private respondent Ducat moved to dismiss Civil Case No. 16563 on the grounds of (1) litis
pendentia, vis-a-vis the case filed in the US (2) forum non conveniens, and (3) failure of
petitioners PHILSEC and BPI-IFL to state a cause of action. Ducat contended that the alleged
overpricing of the property prejudiced only petitioner ATHONA, as buyer, but not PHILSEC and
BPI-IFL which were not parties to the sale and whose only participation was to extend financial
accommodation to ATHONA under a separate loan agreement.

On the other hand, private respondents 1488, Inc. and its president Daic filed a joint "Special
Appearance and Qualified Motion to Dismiss," contending 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., which is a non-resident foreign corporation, and Daic, who is a non-
resident alien. The trial court granted Ducat's motion to dismiss, stating that "the evidentiary
requirements of the controversy may be more suitably tried before the forum of the litis
pendentia in the U.S., under the principle in private international law of forum non conveniens,"
even as it noted that Ducat was not a party in the U.S. case.

A separate hearing was held with regard to 1488, Inc. and Daic's motion to dismiss. The trial
court granted the motion to dismiss filed by 1488, Inc. and Daic on the ground of litis pendentia.
Petitioners appealed to the Court of Appeals, arguing that the trial court erred in applying the
principle of litis pendentia and forum non conveniens and in ruling that it had no jurisdiction over
the defendants, despite the previous attachment of shares of stocks belonging to 1488, Inc. and
Daic. The CA affirmed the dismissal of the case against Ducat, 1488, Inc., and Daic on the ground
of litis pendentia.

ISSUE:
a. WON a Civil Case filed in the Philippine can be barred by a prior judgment made in the
US
b. WON the case can be the dismissed on the ground of forum non conveniens
c. WON the lower courts were correct in dismissing the case on the ground that jurisdiction
cannot be obtained

RULING:
A. NO
Private respondents contend that for a foreign judgment to be pleaded as res judicata, a judgment
admitting the foreign decision is not necessary. On the other hand, petitioners argue that the
foreign judgment cannot be given the effect of res judicata without giving them an opportunity to
impeach it on grounds stated in Rule 39, S50 of the Rules of Court, to wit: "want of jurisdiction,
want of notice to the party, collusion, fraud, or clear mistake of law or fact."
While this Court has given the effect of res judicata to foreign judgments in several cases, it was
after the parties opposed to the judgment had been given ample opportunity to repel them on
grounds allowed under the law. It is not necessary for this purpose to initiate a separate
action or proceeding for enforcement of the foreign judgment. What is essential is that
there is opportunity to challenge the foreign judgment, in order for the court to properly
determine its efficacy. This is because 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.

In Philippines International Shipping Corp. v. Court of Appeals, this Court held that the foreign
judgment was valid and enforceable in the Philippines there being no showing that it was vitiated
by want of notice to the party, collusion, fraud or clear mistake of law or fact. The prima
facie presumption under the Rule had not been rebutted.
In the case at bar, it cannot be said that petitioners were given the opportunity to challenge the
judgment of the U.S. court as basis for declaring it res judicata or conclusive of the rights of private
respondents. The proceedings in the trial court were summary. Neither the trial court nor the
appellate court was even furnished copies of the pleadings in the U.S. court or apprised of the
evidence presented thereat, to assure a proper determination of whether the issues then being
litigated in the U.S. court were exactly the issues raised in this case such that the judgment that
might be rendered would constitute res judicata.

Moreover, the Court notes that 1488, Inc. and Daic filed a petition for the enforcement of judgment
in the RTC of Makati but the proceedings were suspended because of the pendency of this case.
To sustain the appellate court's ruling that the foreign judgment constitutes res judicata and is a
bar to the claim of petitioners would effectively preclude petitioners from repelling the judgment in
the case for enforcement. 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. It has been held therefore that:
[A] foreign judgment may not be enforced if it is not recognized in the jurisdiction
where affirmative relief is being sought. Hence, in the interest of justice, the
complaint should be considered as a petition for the recognition of the Hongkong
judgment under Section 50 (b), Rule 39 of the Rules of Court in order that the
defendant, private respondent herein, may present evidence of lack of jurisdiction,
notice, collusion, fraud or clear mistake of fact and law, if applicable.

In such proceedings, petitioners should have the burden of impeaching the foreign judgment and
only in the event they succeed in doing so may they proceed with their action against private
respondents.

B. NO

The principle of non conveniens is not applicable. First, a motion to dismiss is limited to the
grounds under Rule 16, S1 of the ROC, which does not include forum non conveniens. The
propriety of dismissing a case based on this principle requires a factual determination, hence, it
is more properly considered a matter of defense. Second, while it is within the discretion of the
trial court to abstain from assuming jurisdiction on this ground, it should do so only after "vital
facts are established, to determine whether special circumstances" require the court's
desistance.
In this case, the trial court abstained from taking jurisdiction solely on the basis of the pleadings
filed by private respondents in connection with the motion to dismiss. It failed to consider that one
of the plaintiffs (PHILSEC) is a domestic corporation and one of the defendants (Ventura Ducat)
is a Filipino, and that it was the extinguishment of the latter's debt which was the object of the
transaction under litigation. The trial court arbitrarily dismissed the case even after finding that
Ducat was not a party in the U.S. case.

C. NO

The court finds error in the decisions made by the CA and the RTC in holding that jurisdiction over
1488, Inc. and Daic could not be obtained because it is an action in personam and summons
were served by extraterritorial service. Rule 14,S17 of the ROC 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 others, "the property of the defendant has been attached within the
Philippines." It is not disputed that the properties, real and personal, of the private respondents
had been attached prior to service of summons. Since, proper service of summons were served
therefore Philippine courts obtained jurisdiction over the case.