Olympia Business Machines Co. (Phil.) Inc. v. E. Razon, Inc.
MODIFICATIONFacts
1. The Antecedents: Olympia Business Machines Company (Phil.), Inc. (Olympia Phil.), a domestic corporation, received a shipment of 300 portable typewriters from its foreign sister company, Olympia Office Machines, Ltd. The shipment, insured against all risks by California Insurance Co., Ltd. (California), a foreign corporation, was discharged in Manila. While in the custody of E. Razon, Inc., a portion of the shipment was stolen. California paid Olympia Phil. P 289,626.31 as full settlement for the loss, and Olympia Phil. executed a subrogation receipt, granting California the right to pursue recovery against responsible parties. 2. Procedural History: Both California and Olympia Phil. filed suit against E. Razon, Inc., the carrier, and the container company, which had refused to cover the loss. E. Razon, Inc. was initially declared in default by the Regional Trial Court (RTC) and a judgment was rendered in favor of the plaintiffs. However, upon E. Razon, Inc.'s motion for reconsideration, the judgment was set aside, and an amended answer was filed, asserting defenses including California's alleged lack of capacity to sue as an unlicensed foreign corporation. E. Razon, Inc. was again declared in default for failing to appear at pre-trial. The RTC revived its initial decision. E. Razon, Inc. appealed to the Intermediate Appellate Court (IAC), which reversed the RTC's decision, finding that California, as an unlicensed foreign corporation, lacked the capacity to sue in Philippine courts, citing the case of Atlantic Mutual Insurance Co. v. Cebu Stevedoring Co., Inc.. 3. The Petition: The petitioners, Olympia Business Machines Co. (Phil.), Inc. and California Insurance Co., Ltd., seek review of the Intermediate Appellate Court's decision. They argue that the IAC erred in applying the Atlantic Mutual doctrine, highlighting significant factual distinctions: the present case involves both a subrogee (California) and a subrogor (Olympia Phil., a domestic corporation) as co-plaintiffs, whereas Atlantic Mutual involved only foreign subrogees. Furthermore, E. Razon, Inc. raised the defense of lack of capacity to sue late in the proceedings, after being declared in default twice, and the IAC itself acknowledged that E. Razon, Inc. had no other meritorious defenses. The petitioners contend that even if California lacked capacity, Olympia Phil. did not, and the dismissal of the case would be a circuitous formality given the lack of substantial defenses by the respondent.
Issue(s)
Whether E. Razon, Inc. can raise the defense of lack of capacity to sue by a foreign corporation after being declared in default twice. Whether the subrogee foreign insurance company, unlicensed to do business in the Philippines, can maintain a suit when joined with a domestic subrogor corporation. Whether the IAC erred in reversing the RTC decision based on the foreign corporation's lack of capacity to sue.
Ruling
The Supreme Court reversed the judgment of the Intermediate Appellate Court and reinstated the decision of the Regional Trial Court dated February 1, 1980, ordering E. Razon, Inc. to pay the plaintiffs.
Ratio Decidendi
On the issue of raising the defense of lack of capacity to sue: The Court held that E. Razon, Inc.'s conduct, including being declared in default twice for failure to appear at pre-trial, strongly indicated the absence of any valid defense against the plaintiffs' claims. The defense of lack of capacity to sue was raised only after the first declaration of default had been lifted, which was significantly delayed. This conduct proscribed the application of the doctrine in Atlantic Mutual Insurance Co. v. Cebu Stevedoring Co., Inc., where the defense was raised at the earliest opportunity through a motion to dismiss. On the capacity to sue of the foreign subrogee joined with a domestic subrogor: The Court distinguished the present case from Atlantic Mutual. In the instant case, the action was instituted by both the subrogee, California Insurance Co., Ltd., and the subrogor, Olympia (Phil.), a domestic corporation whose capacity to sue was not disputed. Even assuming, arguendo, that California lacked capacity, such incapacity could not be attributed to its co-plaintiff, Olympia (Phil.). Furthermore, the Court noted that Olympia (Phil.) could easily execute a cancellation of the subrogation or re-assignment of the right of action, rendering the issue of California's capacity moot in light of the other circumstances. On the IAC's reversal of the RTC decision: The Court found that the IAC erred in reversing the RTC decision. The IAC's reliance on Atlantic Mutual was misplaced due to significant factual distinctions. The defendant's repeated failures to appear at pre-trial and the IAC's own pronouncement that E. Razon, Inc. had no meritorious defenses except for the capacity to sue issue, demonstrated that technical rules should not be allowed to frustrate a plainly valid claim. The Court emphasized that dismissing the case at that stage would be an idle, circuitous ceremony, given the unchallenged declaration of the absence of substantial defenses.
Main Doctrine
A foreign corporation's lack of capacity to sue due to non-licensure to do business in the Philippines cannot be raised for the first time after the defendant has been declared in default twice and has failed to appear at pre-trial, especially when the subrogor, a domestic corporation, is joined as a co-plaintiff.