TOPIC Alternative - Answer
CASE NO. G.R. No. L-34382. July 20, 1983 ; G.R. No. L-34383. July 20, 1983
CASE NAME THE HOME INSURANCE COMPANY, petitioner, vs. EASTERN SHIPPING
LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A.
MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance,
Branch XVII, respondents.
THE HOME INSURANCE COMPANY , petitioner, v s . N. V. NEDLLOYD
LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and
HON. A. MELENCIO HERRERA, Presiding Judge of the Manila Court of First
Instance, Branch XVII, respondents.
MEMBER 🌲
DOCTRINE
General Denials are inadequate - Section 4, Rule 8 requires that "a party desiring to raise an issue as to
the legal existence of any party or the capacity of any party to sue or be sued in a representative capacity
shall do so by speci c denial, which shall include such supporting particulars as are particularly within the
pleader's knowledge.
RECIT-READY DIGEST
Facts lifted from old Society Digest
In two separate cases, the shipping companies – Eastern Shipping Line and N.V. Nedlloyd Lijnen – each
delivered their assigned equipment-and-parts to the respective consignees, with some goods being
damaged, lost, or lacking in weight. Luckily enough, the consignees’ delivery orders were insured by
Home Insurance, Co – a foreign insurance company who did not have a license to do business in the
Philippines
Thus, the foreign insurance company paid the consignees for their loss and damages; and transferring
upon the insurance company instead the right to seek the reimbursement of the lost and damaged goods
from the two shipping companies.
But, these two shipping companies kept on refusing to pay the reimbursement despite the demands of the
foreign insurance company; so, Home Insurance, Co. secured its license to do business in the Philippines,
and then went to the CFI of Manila for the enforcement of the contract.
Issue: W/N Home Insurance had capacity to sue even if it obtained only the necessary license to operate
SUBSEQUENT to the entering of the contracts? – YES, they had capacity to sue (Main issue in the case)
W/N private respondents sufficiently attacked corp’s capacity to sue? – NO, general averments are
not sufficient. (Issue I made that fits the syllabus)
FIRST ISSUE:
The old Corporation Law is silent on whether or not the contract executed by a foreign corporation with
no capacity to sue is void Yet, pursuant to a basic public policy, the CFI of Manila harshly construed Section
68 of the old Corporation Law to mean that the contracts entered into by foreign companies are void, if
they were without a license to do business in the Philippines at the time of its perfection. Moreover, the CFI
of Manila said that the subsequent acquisition of a license does not validate the absence. Thus, such foreign
company would be incapable of initiating or maintaining any action for the contract’s enforcement.
The Court clarified that the provision of the old Corporation Law was to invite foreign businesses to
be within the jurisdiction of the Philippine courts, and so thus must be given a reasonable
interpretation which does not hamper the development of trade relations. Holding otherwise would
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too prejudicial to both the foreign company and the citizens since the enforcement of a contract could be
easily escaped by simply failing or refusing to secure a license.
SECOND ISSUE: [MORE RELATED TO THE SYLLABUS TOPIC]
[CRUCIAL FACT] The petitioner averred in its complaints that it is a foreign insurance company, that it
is authorized to do business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office
address is the Oledan Building at Ayala Avenue, Makati. These are all the averments required by Section
4, Rule 8 of the Rules of Court. The petitioner sufficiently alleged its capacity to sue.
The private respondents countered either with an admission of the plaintiff's jurisdictional averments or
with a general denial based on lack of knowledge or information sufficient to form a belief as to the truth
of the averments.
RULE: Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal existence of any
party or the capacity of any party to sue or be sued in a representative capacity shall do so by specific
denial, which shall include such supporting particulars as are particularly within the pleader's knowledge.
APPLICATION: The general denials are inadequate to attack the foreign corporations lack of
capacity to sue in the light of its positive averment that it is authorized to do so. At the very least, the
private respondents should have stated particulars in their answers upon which a specific denial of the
petitioner's capacity to sue could have been based or which could have supported its denial for lack of
knowledge. And yet, even if the plaintiff's lack of capacity to sue was not properly raised as an issue by
the answers, the petitioner introduced documentary evidence that it had the authority to engage in the
insurance business at the time it filed the complaints.
FACTS
Facts lifted from old Society DIgest
Case 1
Eastern Shipping Lines was contracted to deliver aboard its ship 2,361 Black Hot Rolled Copper Wires to
the consignee, Phelps Dodge Copper Products Corp. of the Philippines a) BUT when then the delivery
arrived:
i. 101 coils were severely damaged
ii. weighed around 600 kilos less than the order
iii. LUCKILY Phelps Dodge was insured by Home Insurance Co. (a foreign insurance company);
and so were thus paid for by the latter for the loss and damages
a. Home Insurance Co. was thus subrogated to the rights and actions of Phelps Dodge
against Eastern Shipping Lines for reimbursements
b. BUT despite the demands, the shipping company refuses to pay
Case 2
N.V. Nedlloyd Lijnen was contracted to deliver aboard its ship 30 packages of Service Parts of Farm
Equipment and Implements to the consignee, International Harvester Macleod, Inc.
a. BUT when then the delivery arrived:
i. 5 were severely damaged
ii. 1 was lost
b. LUCKILY Harvester Macleod was insured by Home Insurance Co. (a foreign insurance company); and
so were thus paid for by the latter for the loss and damages
i. Home Insurance Co. was thus subrogated to the rights and actions of Harvester Macleod against
N.V. Nedlloyd Lijnen
ii. BUT despite the demands, the shipping company refuses to pay
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Home Insurance Co. (a foreign insurance company) did not have a license to do business in the
Philippines. So, Home Insurance Co. first secured a license to do business in the Philippines, before filing
to the Court of First Instance of Manila for the enforcement of the contract.
But the CFI of Manila held that Home Insurance Co. failed to prove its capacity to sue by virture of Corp
Law Sec 68 and 69.
i) SEC. 68 of the old Corporation Law
“No foreign corporation x x x shall be permitted to transact business in the Philippine Islands until after it
shall have obtained a license for that purpose x x x”
ii) SEC. 69 of the old Corporation Law
“x x x any person transacting business for any foreign corporation not having the license prescribed shall
be punished by imprisonment for not less than six months nor more than two years or by a fine of not less
than two hundred pesos nor more than one thousand pesos, or by both such imprisonment and fine x x x”
Although the law is silent on whether or not the contract executed by a foreign corporation with no
capacity to sue is void, the CFI of Manila held that the provision is “reflective of a basic public policy” -
House Insurance Co. is incapable of initiating or maintaining any action because:
1. contracts entered into by foreign companies are void if they were without a license to do
business in the Philippines at the time of its perfection,
2. and the subsequent acquisition of a license does not validate the absence.
ISSUES (Only the syllabus issue was included)
W/N Home Insurance had capacity to sue even if it obtained only the necessary license to operate
SUBSEQUENT to the entering of the contracts? – YES, they had capacity to sue
W/N contracts entered into prior to obtaining the license were null and void? – NO, contracts are valid.
W/N private respondents sufficiently attacked corp’s capacity to sue? – NO, general averments are
not sufficient.
RATIO
On Issue of averments/answer:
The petitioner averred in its complaints that it is a foreign insurance company, that it is authorized to do
business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan
Building at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules
of Court. The petitioner sufficiently alleged its capacity to sue.
The private respondents countered either with an admission of the plaintiff's jurisdictional averments or
with a general denial based on lack of knowledge or information sufficient to form a belief as to the truth
of the averments.
RULE: Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal existence of any
party or the capacity of any party to sue or be sued in a representative capacity shall do so by specific
denial, which shall include such supporting particulars as are particularly within the pleader's knowledge.
Application: The general denials are inadequate to attack the foreign corporations lack of capacity to
sue in the light of its positive averment that it is authorized to do so. At the very least, the private
respondents should have stated particulars in their answers upon which a specific denial of the
petitioner's capacity to sue could have been based or which could have supported its denial for lack
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of knowledge. And yet, even if the plaintiff's lack of capacity to sue was not properly raised as an issue by
the answers, the petitioner introduced documentary evidence that it had the authority to engage in the
insurance business at the time it filed the complaints.
On Issue of Capacity to sue:
1ST RULE: In the leading case of Marshall Wells Co. v. Henry W. Elser & Co., the Court
clarified that the real public policy behind Sections 68 and 69 of the old Corporation Law was
to subject the foreign corporation doing business in the Philippines to the jurisdiction of our
courts.
So the provisions must be given a reasonable interpretation that does not hamper the
development of trade relations – and thus, a lack of a license does not invalidate a contract,
but merely restricts the capacity to sue during its absence.
SUPPORTED FURTHER BY:
(1) American Jurisprudence in a Michigan statute and decision declaring...
“where the statute merely prohibits the maintenance of a suit on such contract, a failure to
comply with the statute rendered the contract voidable and not void, and compliance at any time
before suit was sufficient”
(2) Philippine Jurisprudence in General Corporation of the Philippines v. Union Insurance
Society of Canton Ltd.
“Otherwise, a foreign corporation illegally doing business here because of its refusal or neglect
to obtain the corresponding license and authority to do business may successfully though
unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the
jurisdiction of the local courts.”
(3) Section 133 of the current Corporation Law, which corrected the ambiguity of the old
Corporation Law
“No foreign corporation transacting business in the Philippines without a license x x x shall be
permitted to maintain or intervene in any action, suit or proceeding in any court x x x in the
Philippines; but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws."
APPLICATION: Given that House Insurance Co. secured a license to do business in the
Philippines by the time it filed an action with the CFI of Manila, then it had the capacity to sue
(notwithstanding the penalties it is liable to under section 69 of the old corporation law).
On Issue of Nullity of contract
The Corporation Law is silent as to whether a contract executed by a ofreign corp with no capacity to sue
is null and void. There are two schools of thought (Illinois case):
1. Where a contract which is entered into by foreign corp without complying with the loal reqs of
doing business is rendered void either by express terms of a statute of by stat con, a subsequent
compliance with the statute will not enable it to maintain an action on the contract
2. But where the statute merely prohibits the maintenance of a suit on such contract (without
expressly declaring the contract void), it was held that a failure to comply with the statute
rendered the contract voidable and not void, and compliance at any time before suit was
sufficient.
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Jurisprudence leans towards the latter view. The better reason, the wiser and fairer policy, and the greater
weight he with these decisions which hold that where, as here, there is prohibition with a penalty, with no
express or implied declarations respecting the validity of enforceability of contracts made by qualified
foreign corporations, the contracts are enforceable upon compliance with the law.
DISPOSTIVE PORTION
WHEREFORE, the petitions are hereby granted. The decisions of the respondent court are reversed and set aside.
In L-34382, respondent Eastern Shipping Lines is ordered to pay the petitioner the sum of P1,630.22 with interest at
the legal rate from January 5, 1968 until fully paid and respondent Angel Jose Transportation Inc. is ordered to pay
the petitioner the sum of P1,630.22 also with interest at the legal rate from January 5, 1968 until fully paid. Each
respondent shall pay one-half of the costs. The counterclaim of Angel Jose Transportation Inc. is dismissed.
In L-34383, respondent N. V. Nedlloyd Lijnen or its agent Columbian Phil. Inc. is ordered to pay the petitioner the
sum of P2,426.98 with interest at the legal rate from February 1, 1968 until fully paid, the sum of P500.00 attorney's
fees, and costs. The complaint against Guacods, Inc. is dismissed.
NO SEPARATE OPINION
OTHER NOTES
