Litton Mills, Inc. v. Court of Appeals

G.R. No. 94980 (May 15, 1996)

Facts:

Petitioner Litton Mills, Inc. (Litton) entered into a contract with Empire Sales Philippines Corporation (Empire), which acted as the local agent for the private respondent Gelhaar Uniform Company, Inc. (Gelhaar), a corporation organized under U.S. law. The agreement involved Litton supplying Gelhaar with 7,770 dozens of soccer jerseys, with a stipulation that an inspection certificate from Empire was required before Litton could collect on a letter of credit.

Litton shipped 4,770 dozens of jerseys between December 2 and December 30, 1983. However, when it came to the fifth shipment of 2,110 dozens, Empire refused to issue the necessary inspection certificate despite the goods being inspected from January 9 to January 19, 1984. Litton filed a complaint for specific performance with the Regional Trial Court of Pasig on January 23, 1984, seeking a writ of preliminary mandatory injunction to compel Empire to issue the inspection certificate, along with damages and other relief.

The trial court granted the injunction, leading Empire to issue the inspection certificate the following day, allowing the timely shipment of the goods. Subsequently, Empire and Gelhaar filed motions to dismiss the case, arguing that Gelhaar was a foreign corporation not doing business in the Philippines, and thus not subject to the jurisdiction of Philippine courts. They contended that Litton failed to prove Gelhaar was doing business in the Philippines, which was necessary for the court to acquire jurisdiction.

The trial court denied Gelhaar's motion to dismiss, asserting that Gelhaar was indeed doing business in the Philippines. Gelhaar then sought a special civil action of certiorari with the Court of Appeals, which ultimately annulled the trial court's order, leading to the present petition by Litton.

Legal Issues:

1. Did the trial court acquire jurisdiction over Gelhaar through the service of summons on its agent, Empire?
2. Was the appearance of Atty. Remie Noval on behalf of Gelhaar binding on the corporation?

Arguments:

• Petitioner (Litton): Litton argued that the trial court had acquired jurisdiction over Gelhaar through valid service of summons on Empire, which acted as Gelhaar's agent. Litton contended that the allegations in the complaint sufficiently established that Gelhaar was doing business in the Philippines, as it had engaged in a transaction involving the purchase of soccer jerseys, which was part of its ordinary business operations.

• Respondents (Gelhaar and Empire): Gelhaar maintained that it was a foreign corporation not doing business in the Philippines, and thus the trial court lacked jurisdiction. They argued that the contract with Litton was a single, isolated transaction and did not constitute "doing business." Additionally, they questioned the authority of Atty. Noval to represent Gelhaar, asserting that his actions could not bind the corporation.

Court's Decision and Legal Reasoning:

The Supreme Court reversed the decision of the Court of Appeals, reinstating the trial court's order denying Gelhaar's motion to dismiss. The Court held that:

1. Jurisdiction through Agent: The Court clarified that service of summons on Gelhaar was valid as it was made through its agent, Empire. The Court emphasized that the allegations in the complaint were sufficient to establish that Gelhaar was doing business in the Philippines, as it had engaged in a transaction that was part of its ordinary business activities.

2. Nature of Doing Business: The Court distinguished between isolated transactions and those that indicate a purpose to engage in business. It ruled that Gelhaar's act of purchasing soccer jerseys was not merely incidental but indicative of a business purpose, thus constituting "doing business" in the Philippines.

3. Authority of Atty. Noval: The Court agreed with the appellate court's ruling that Atty. Noval's appearance was not binding on Gelhaar. It noted that there was no evidence of direct communication or authorization from Gelhaar to Atty. Noval, and thus his actions could not be construed as a voluntary submission to the jurisdiction of the court.

Significant Legal Principles Established:

• The case reaffirmed the principle that a foreign corporation must be shown to be doing business in the Philippines for Philippine courts to acquire jurisdiction over it.
• It clarified that mere allegations in a complaint can suffice to establish jurisdiction, provided they are not fatally deficient.
• The ruling also highlighted the importance of proper authority in legal representation, emphasizing that a party cannot be bound by the actions of a representative who lacks explicit authorization.