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Hongkong and Shanghai Banking Corporation vs.

Jack Robert Sherman



G.R. No. 72494 11 August 1989 Medialdea, J:

Facts: Eastern Book Supply Service PTE, Ltd., a company incorporated in
Singapore applied with, and was granted by, the Hongkong and Shanghai
Banking Corporation Singapore branch an overdraft facility in the maximum
amount of Singapore dollars 200,000.00 (which amount was subsequently
increased to Singapore dollar 375,000.00). As a security for the repayment by
the COMPANY of the sum advanced, Jack Robert Sherman and Deodato Reloj,
herein private respondents, and a certain Robin de Clive Lowe, all of whom
were directors of said COMPANY at such time, executed a Joint and Several
Guarantee in favor of petitioner BANK whereby they agreed to pay, jointly and
severally, on demand all sums owed by the COMPANY to petitioner BANK
under the aforestated overdraft facility. The Joint and Several Guarantee
provides that: "This guarantee and all rights, obligations and liabilities arising
hereunder shall be construed and determined under and may be enforced in
accordance with the laws of the Republic of Singapore. We hereby agree that
the Courts of Singapore shall have jurisdiction overall disputes arising under
this guarantee . . ." The COMPANY failed to pay its obligation. Thus, petitioner
BANK demanded payment from the private respondents, conformably with the
provisions of the Joint and Several Guarantee. Inasmuch as the private
respondents still failed to pay, petitioner BANK filed a civil case for a
collection of a sum of money against Sherman and Reloj before the Regional
Trial Court of Quezon City. In turn, the private respondents filed a motion to
dismiss on the ground of lack of jurisdiction over the subject matter of the
complaint and over the persons of the defendants, but, it was denied.
Subsequently, the court granted the petition for prohibition with preliminary
injunction. Hence, this petition for review on certiorari.

Issue: Whether or not Philippine courts have jurisdiction over the suit.

Held: Yes. The parties did not stipulate that only the courts of Singapore, to the
exclusion of all the rest, has jurisdiction. Neither did the clause in question
operate to divest Philippine courts of jurisdiction. In International Law,
jurisdiction is often defined as the right of a State to exercise authority over
persons and things within its boundaries subject to certain exceptions. This
authority, which finds its source in the concept of sovereignty, is exclusive
within and throughout the domain of the State. A State is competent to take hold
of any judicial matter it sees fit by making its courts and agencies assume
jurisdiction over all kinds of cases brought before them.

While it is true that the transaction took place in Singaporean setting and that
the Joint and Several Guarantee contains a choice-of-forum clause, the very
essence of due process dictates that the stipulation be liberally construed. One
basic principle underlies all rules of jurisdiction in International Law: a State
does not have jurisdiction in the absence of some reasonable basis for exercising
it, whether the proceedings are in rem, quasi in rem or in personam. To be
reasonable, the jurisdiction must be based on some minimum contacts that will
not offend traditional notions of fair play and substantial justice.

Minimum contacts is a term used in civil procedure to determine when it is
appropriate for a court in one state to assert personal jurisdiction over a defendant
from another state. The United States Supreme Court has decided a number of
cases that have established and refined the principle that it is unfair for a court to
assert jurisdiction over a party unless that party's contacts with the state in which that
court sits are such that the party "could reasonably expect to be haled
[1]
into court" in
that state. This jurisdiction must "not offend traditional notions of fair play and
substantial justice".
[1]
A non-resident defendant has minimum contacts with the forum
state if they 1) have direct contact with the state; 2) have a contract with a resident of
the state;
[2]
3) have placed their product into the stream of commerce such that it
reaches the forum state;
[3]
4) seek to serve residents of the forum state;
[4]
5) have
satisfied the Calder effects test;
[5]
or 6) have a non-passive website viewed within the
forum state.

Overdraft Facility: An overdraft facility is a formal arrangement with a bank that
allows an account holder to draw on funds in excess of the amount on deposit. This
type of financing is most commonly used by businesses as a way of making their
working capital more flexible, although it can also be available to individuals. Banks
that offer this service typically have a number of expectations from customers who
use it, and it is important for customers to be aware of these expectations before
entering an agreement.
The idea behind overdraft facility agreements is that sometimes one needs a bit
more money than is available on deposit to deal with various expenses. For
example, a business that is always slow in March and April might need help to make
payroll and keep current with all accounts and creditors. Another business might
need to make a big one-time expense that exceeds the funds on deposit.
With an overdraft agreement, the company can repay the funds at its convenience.
The bank may charge an overdraft fee for accessing the money, however, and the
interest rate can be higher than that for other types of loans. The bank also has the
right to demand repayment in full. Balancing an overdraft facility wisely can free up
capital and make people more stable financially, but unwise use can lead people into
a spiral of debt that may be difficult to escape.

HONGKONG AND SHANGHAI BANKING CORPORATION (HSBC) vs. SHERMAN
et al
G.R. No. 72494
August 11, 1989
FACTS: It appears that sometime in 1981, Eastern Book Supply Service PTE, Ltd.
(COMPANY), a company incorporated in Singapore applied with and was granted by HSBC
Singapore branch an overdraft facility in the maximum amount of Singapore dollars 200,000
with interest at 3% over HSBC prime rate, payable monthly, on amounts due under said
overdraft facility.
As a security for the repayment by the COMPANY of sums advanced by HSBC to it through
the aforesaid overdraft facility, in 1982, both private respondents and a certain Lowe, all of
whom were directors of the COMPANY at such time, executed a Joint and Several Guarantee
in favor of HSBC whereby private respondents and Lowe agreed to pay, jointly and severally,
on demand all sums owed by the COMPANY to petitioner BANK under the aforestated
overdraft facility.
The Joint and Several Guarantee provides, inter alia, that:
This guarantee and all rights, obligations and liabilities arising hereunder shall be construed
and determined under and may be enforced in accordance with the laws of the Republic of
Singapore. W e hereby agree that the Courts of Singapore shall have jurisdiction over all
disputes arising under this guarantee.
The COMPANY failed to pay its obligation. Thus, HSBC demanded payment and in as much
as the private respondents still failed to pay, HSBC filed A complaint for collection of a sum
of money against private respondents Sherman and Reloj before RTC of Quezon City.
Private respondents filed an MTD on the ground of lack of jurisdiction over the subject
matter. The trial court denied the motion. They then filed before the respondent IAC a
petition for prohibition with preliminary injunction and/or prayer for a restraining order. The
IAC rendered a decision enjoining the RTC Quezon City from taking further cognizance of
the case and to dismiss the same for filing with the proper court of Singapore which is the
proper forum. MR denied, hence this petition.
ISSUE: Do Philippine courts have jurisdiction over the suit, vis-a-vis the Guarantee
stipulation regarding jurisdiction?
HELD: YES
One basic principle underlies all rules of jurisdiction in International Law: a State does not
have jurisdiction in the absence of some reasonable basis for exercising it, whether the
proceedings are in rem quasi in rem or in personam. To be reasonable, the jurisdiction must
be based on some minimum contacts that will not offend traditional notions of fair play and
substantial justice
The defense of private respondents that the complaint should have been filed in Singapore is
based merely on technicality. They did not even claim, much less prove, that the filing of the
action here will cause them any unnecessary trouble, damage, or expense. On the other hand,
there is no showing that petitioner BANK filed the action here just to harass private
respondents.