G.R. No.
22015 September 1, 1924
MARSHALL-WELLS COMPANY, plaintiff-appellant, vs. HENRY W. ELSER & CO., INC.,
defendant-appellee.
FACTS:
Marshall-Wells Company, an Oregon corporation, sued Henry W. Elser & Co., Inc., a domestic
corporation, for the unpaid balance of a bill of goods sold by plaintiff to defendant and for which
plaintiff holds accepted drafts. Defendant demurred to the complaint on the statutory ground that
the plaintiff has not legal capacity to sue and claimed that the complaint does not show that the
plaintiff has complied with the laws of the Philippines which is required of foreign corporations
desiring to do business in the Philippines, neither does it show that it was authorized to do
business in the Philippine Islands. The demurrer was sustained by the trial judge. Inasmuch as
the plaintiff could not allege compliance with the statute, the order was allowed to become final
and an appeal was perfected.
ISSUE:
WON the obtaining of the license prescribed in section 68, a condition precedent to the
maintaining of any kind of action in the courts of the Philippine Islands by a foreign corporation
RULING:
YES. The Corporation Law (Act No. 1459) contains six sections relating particularly to foreign
corporations. Section 68, as amended by Act No. 2900, provides that no foreign corporation
"shall be permitted to transact business in the Philippine Islands until after it shall have obtained
a license for that purpose from the Chief of the Mercantile Register of the Bureau of Commerce
and Industry," upon order either of the Secretary of Finance or the Secretary of Commerce and
Communications. No order for a license shall be issued except upon a statement under oath of
the managing agent of the corporation, showing to the satisfaction of the proper Secretary that
the corporation is solvent and in sound financial condition, and setting forth the resources and
liabilities of the corporation. Said statement shall contain the following: (1) The name of the
corporation; (2) the purpose for which it was organized; (3) the location of its principal or home
office; (4) the capital stock of the corporation and the amount thereof actually subscribed and
paid into the treasury; (5) the net assets of the corporation over and above all debts, liabilities,
obligations, and claims outstanding against it; and (6) the name of an agent residing in the
Philippine Islands authorized by the corporation to accept evidence of summons and process in
all legal proceedings against the corporation and of all notices affecting the corporation. Further
evidence of the solvency and fair dealing of the corporation may be required. Upon filing in the
Mercantile Register of the Bureau of Commerce and Industry the said statement, a certified
copy of its charter, and the order of the Secretary for the issuance of a license, the Chief of the
Mercantile Register "shall issue to the foreign corporation as directed in the order of license to
do business in the Philippine Islands," and for the issuance of the license shall collect a fee
fixed in accordance with the schedule established in section 8 of the Law.
Returning now to section 69 of the Corporation Law, its literal terminology is as follows:
No foreign corporation or corporation formed, organized, or existing under any laws
other that those of the Philippine Islands shall be permitted to transact business in
the Philippine Islands or maintain by itself or assignee any suit for the recovery of
any debt, claim, or demand whatever, unless it shall have the license prescribed in
the section immediately preceding. Any officer, director, or agent of the 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,
in the discretion of the court.
Corporations have no legal status beyond the bounds of the sovereignty by which they are
created. A state may restrict the right of a foreign corporation to engage in business within its
limits, and to sue in its courts. But by virtue of state comity, a corporation created by the laws of
one state is usually allowed to transact business in other states and to sue in the courts of the
forum.
The object of the statute was to subject the foreign corporation doing business in the Philippines
to the jurisdiction of its courts. The object of the statute was not to prevent the foreign
corporation from performing single acts, but to prevent it from acquiring a domicile for the
purpose of business without taking the steps necessary to render it amenable to suit in the local
courts. The implication of the law is that it was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated order for business from the Philippines,
from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid
their contracts made with such foreign corporations. The effect of the statute preventing foreign
corporations from doing business and from bringing actions in the local courts, except on
compliance with elaborate requirements, must not be unduly extended or improperly applied. It
should not be construed to extend beyond the plain meaning of its terms, considered in
connection with its object, and in connection with the spirit of the entire law.
The law simply means that no foreign corporation shall be permitted "to transact business in the
Philippine Islands," as this phrase is known in corporation law, unless it shall have the license
required by law, and, until it complies with the law, shall not be permitted to maintain any suit in
the local courts. A contrary holding would bring the law to the verge of unconstitutionality, a
result which should be and can be easily avoided. The noncompliance of a foreign corporation
with the statute may be pleaded as an affirmative defense. Thereafter, it must appear from the
evidence, first, that the plaintiff is a foreign corporation, second, that it is doing business in the
Philippines, and third, that it has not obtained the proper license as provided by the statute.
