In Steelcase, Inc. vs. Design International Selections, Inc., G.R. No. 171995, 18 April 2012, the Philippine Supreme Court declared that a foreign corporation doing business in the Philippines without the requisite license may sue in Philippine Courts against a Philippine citizen or entity who had contracted with and benefited by said corporation. In other words, a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it.
Petitioner Steelcase, Inc. ("Steelcase") is a foreign corporation existing under the laws of Michigan, United States of America (U.S.A.), and engaged in the manufacture of office furniture with dealers worldwide. Respondent Design International Selections, Inc. ("DISI") is a corporation existing under Philippine Laws and engaged in the furniture business, including the distribution of furniture.
Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement whereby Steelcase granted DISI the right to market, sell, distribute, install, and service its products to end-user customers within the Philippines. The business relationship continued smoothly until it was terminated sometime in January 1999 after the agreement was breached with neither party admitting any fault. Steelcase filed a complaint for sum of money against DISI alleging, among others, that DISI had an unpaid account of US$600,000.00. Steelcase prayed that DISI be ordered to pay actual or compensatory damages, exemplary damages, attorney’s fees, and costs of suit. Among the counter-arguments raised, DISI alleged that the complaint failed to state a cause of action and to contain the required allegations on Steelcase’s capacity to sue in the Philippines despite the fact that Steelcase was doing business in the Philippines without the required license to do so. Consequently, it posited that the complaint should be dismissed because of Steelcase’s lack of legal capacity to sue in Philippine courts.
The Regional Trial Court (RTC) dismissed the complaint and granted the temporary restraining order prayed for by DISI. The RTC stated that in requiring DISI to meet the Dealer Performance Expectation and in terminating the dealership agreement with DISI based on its failure to improve its performance in the areas of business planning, organizational structure, operational effectiveness, and efficiency, Steelcase unwittingly revealed that it participated in the operations of DISI. Despite a showing that DISI transacted with the local customers in its own name and for its own account, the RTC stated that any doubt in the factual environment should be resolved in favor of a pronouncement that a foreign corporation was doing business in the Philippines, considering the twelve-year period that DISI had been distributing Steelcase products in the Philippines. The RTC concluded that Steelcase was "doing business" in the Philippines, as contemplated by the Foreign Investments Act of 1991, and since it did not have the license to do business in the country, it was barred from seeking redress from our courts until it obtained the requisite license to do so. Steelcase moved for the reconsideration of the dismissal but the same was denied.
Aggrieved, Steelcase appealed the case to the Court of Appeals. The Court of Appeals rendered its Decision affirming the RTC orders, ruling that Steelcase was a foreign corporation doing or transacting business in the Philippines without a license. Steelcase filed a motion for reconsideration but it was denied by the Court of Appeals.
Steelcase filed a Petition for Review with the Supreme Court. The issues in the Supreme Court petition are: (a) whether or not Steelcase is doing business in the Philippines without a license; and (b) whether or not DISI is estopped from challenging the Steelcase’s legal capacity to sue.
Supreme Court’s Ruling
The Supreme Court ruled in favor of Steelcase.
Steelcase is an unlicensed foreign corporation not doing business in the Philippines
According to the Supreme Court, the following acts shall not be deemed "doing business" in the Philippines: (a) mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; (b) having a nominee director or officer to represent its interest in such corporation; (c) appointing a representative or distributor domiciled in the Philippines which transacts business in the representative's or distributor's own name and account; (d) the publication of a general advertisement through any print or broadcast media; (e) maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines; (f) consignment by a foreign entity of equipment with a local company to be used in the processing of products for export; (g) collecting information in the Philippines; and (h) performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services.
Based on this list, the Supreme Court said that the appointment of a distributor in the Philippines is not sufficient to constitute "doing business" unless it is under the full control of the foreign corporation. If the distributor is an independent entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own account, the latter cannot be considered to be doing business in the Philippines.
Applying these rules, the Supreme Court said that DISI was founded in 1979 and is independently owned and managed. In addition to Steelcase products, DISI also distributed products of other companies including carpet tiles, relocatable walls and theater settings. The dealership agreement between Steelcase and DISI had been described by the owner himself as a buy and sell arrangement. This clearly belies DISI’s assertion that it was a mere conduit through which Steelcase conducted its business in the country. From the preceding facts, the only reasonable conclusion that can be reached is that DISI was an independent contractor, distributing various products of Steelcase and of other companies, acting in its own name and for its own account. As a result, Steelcase cannot be considered to be doing business in the Philippines by its act of appointing a distributor as it falls under one of the exceptions under R.A. No. 7042.
DISI is estopped from challenging Steelcase's capacity to sue
On this point, the Supreme Court declared that “if indeed Steelcase had been doing business in the Philippines without a license, DISI would nonetheless be estopped from challenging the former’s legal capacity to sue xxx A foreign corporation doing business in the Philippines may sue in Philippine Courts although not authorized to do business here against a Philippine citizen or entity who had contracted with and benefited by said corporation. To put it in another way, a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies to a foreign as well as to domestic corporations. One who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity.”
Although the foreign corporation in this case was declared to be not doing business in the Philippines, this case, nonetheless, explicitly declares another exception to the rule provided in Section 133 of the Corporation Code of the Philippines that “[n]o foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines…” Following the ruling in this case, a foreign corporation doing business in the Philippines without a license may maintain suit in the Philippines against a domestic corporation or person who is party to a contract as the domestic corporation or person is deemed estopped from challenging the personality of the foreign corporation.