STATUTORY CONSTRUCTION
A.Y. 1819– ATTY. ALIMURUNG
TOPIC Corporations
CASE NO. G.R. No. L-34382
CASE NAME Home Insurance Co. v Eastern Shipping
Line
PONENTE Gutierrez, Jr.
PETITIONER Home Insurance Co.
RESPONDENT In G.R. No. L-34382: Eastern Shipping Line
(and/or Angel Jose Transportation, Inc.)
In G.R. No. L-34383: N.V. Nedlloyd Lijnen
(and/or Columbian Philippines, Inc.)
TYPE OF Two consolidated petition for Certiorari –
CASE seeking to overturn the CFI decision that
dismissed the case on the ground of lack of
Home Insurance, Co.’s Capacity to Sue
MEMBER Lead Dampil
ISSUE
1. W/N Home Insurance, Co. has the Capacity to Sue
FULL RECIT READY SECTION
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.
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 issue here is whether or not Home Insurance, Co. has the capacity
to sue based on a proper construction of the old corporation
law. The Supreme Court held that Home Insurance, Co. HAS
the capacity to sue after it was able to secure its license.
The Court cited prevailing Philippine jurisprudence and
Section 133 of the current Corporation Law to clarify the lack
of a license does not invalidate a contract, but merely
restricts the capacity to sue during its absence.
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 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.
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 STATUTORY CONSTRUCTION
A.Y. 1819– ATTY. ALIMURUNG
RELEVANT FACTS
Note: the fact pattern of the consolidated two cases are the same
1) In L-34382, 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
ii) 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
(i) 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
2) In L-34383, 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
ii) 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
(b) BUT despite the demands, the shipping company
refuses to pay
3) Note: Home Insurance Co. (a foreign insurance company) did not
have a license to do business in the Philippines.
4) 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.
5) But the CFI of Manila held that Home Insurance Co. failed to prove
its capacity to sue; the pertinent laws are:
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”
b) 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” (which it never explained) and should thus
be harshly construed to mean that:
(1) House Insurance Co. is incapable of initiating or
maintaining any action for the contract’s enforcement,
because
(i) 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,
(ii) and the Zsubsequent acquisition of a license
does not validate the absence.
6) Thus, the case is now with the Supreme Court on certiorari.
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 STATUTORY CONSTRUCTION
A.Y. 1819– ATTY. ALIMURUNG
RATIO DECIDENDI
1. YES, House Insurance Co. has the 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).
DISPOSITIVE POSITION
WHEREFORE, the petitions are hereby granted. The decisions of the
respondent court are reversed and set aside. Eastern Shipping Lines
and N. V. Nedlloyd Lijnen are ordered to pay the with interest.
STATUTORY CONSTRUCTION
The whole case is StatCon refer to ratio decidendi, rules and
application.