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STEELCASE v. DESIGN INTERNATIONAL SELECTIONS

FACTS:

The case involves a dispute between petitioner Steelcase, Inc. (Steelcase), a foreign corporation engaged in the manufacture of office furniture, and respondent Design International Selections, Inc. (DISI), a Philippine corporation engaged in the furniture business. Steelcase and DISI entered into a dealership agreement whereby Steelcase granted DISI the right to market and distribute its products in the Philippines. However, the agreement was terminated due to a breach, with no party admitting fault.

Steelcase filed a complaint for the sum of money against DISI, alleging an unpaid account of US$600,000.00. DISI, in its answer, sought a temporary restraining order and a writ of preliminary injunction to prevent Steelcase from selling its products in the Philippines, except through DISI. DISI also raised the defense that Steelcase lacked the legal capacity to sue in Philippine courts, as it was doing business in the country without the required license.

The Regional Trial Court (RTC) dismissed the complaint, granted the TRO requested by DISI, and denied Steelcase's motion to admit a second amended complaint. The RTC concluded that Steelcase was "doing business" in the Philippines without a license, as it participated in the operations of DISI and appointed a representative in the country.

Steelcase appealed the RTC's orders to the Court of Appeals (CA), but the CA affirmed the lower court's decision. The CA found that Steelcase conducted acts showing its intention to continue its business in the Philippines without a license, such as sending letters to potential distributors and directing orders for its products to Steelcase International. The CA also noted that Steelcase imposed several impositions on the management and operations of DISI.

Unsatisfied with the CA's decision, Steelcase filed a petition for review before the Supreme Court, arguing that it was not doing business without a license and that DISI was estopped from challenging its legal capacity to sue.

ISSUES:

  1. Whether Steelcase was considered doing business in the Philippines.

  2. Whether Steelcase had the legal capacity to sue in Philippine courts.

  3. Whether Steelcase was engaged in "doing business" in the Philippines.

  4. Whether Modernform acted as the alter ego of Steelcase.

  5. Whether Steelcase can be considered as doing business in the Philippines by appointing a distributor.

  6. Whether DISI is estopped from challenging Steelcase's legal capacity to sue in the Philippines.

  7. Whether the petitioner can raise the incapacity of ITEC, a foreign entity, as a defense.

  8. Whether the respondent is estopped from challenging the petitioner's lack of license to transact business in the Philippines.

  9. Did the Court of Appeals err in dismissing the appeal filed by the petitioner based on technical grounds?

  10. Was the petitioner deprived of due process when the Court of Appeals dismissed the appeal without giving him the opportunity to cure the procedural defect?

RULING:

  1. The Court rules in favor of the petitioner. Steelcase was considered doing business in the Philippines without a license, and thus, does not have the legal capacity to sue in Philippine courts.

  2. Steelcase was not engaged in "doing business" in the Philippines. The appointment of a distributor, such as DISI in this case, is not sufficient to constitute "doing business" unless the distributor is under the full control of the foreign corporation. In this case, DISI was an independent contractor, distributing various products of Steelcase and other companies, acting in its own name and for its own account.

  3. Modernform did not act as the alter ego of Steelcase. Despite Steelcase owning 25% of Modernform, with the remaining 75% being owned and controlled by Thai stockholders, this ownership interest is insufficient to justify piercing the corporate veil and declare that Modernform acted as the alter ego of Steelcase to enable it to improperly conduct business in the Philippines.

  4. Steelcase cannot be considered as doing business in the Philippines by appointing a distributor. Steelcase falls under one of the exceptions under R.A. No. 7042, as it operates as an independent contractor selling its products in its own name and for its own account.

  5. DISI is estopped from challenging Steelcase's legal capacity to sue in the Philippines. The court found that DISI entered into a dealership agreement with Steelcase, profited from it, and acknowledged the corporate entity of Steelcase. DISI was aware that Steelcase was not licensed to do business in the Philippines, but it only raised the issue after being informed of its debt to Steelcase. Therefore, DISI cannot question Steelcase's existence and capacity to sue.

  6. No, the petitioner is estopped from raising the incapacity of ITEC as a defense. By entering into the "Representative Agreement" with ITEC, the petitioner is charged with knowledge that ITEC was not licensed to engage in business activities in the country.

  7. Yes, the respondent is estopped from challenging the petitioner's lack of capacity to sue. The respondent cannot take advantage of the petitioner's non-compliance with the statutes after having contracted and benefited from its business transaction with the petitioner.

  8. No, the Court of Appeals did not err in dismissing the appeal filed by the petitioner based on technical grounds. The rules of court must be strictly followed, especially when it involves appeal periods and procedural requirements. The appellant failed to file the required pleadings within the prescribed period, thus, the dismissal is warranted.

  9. Yes, the petitioner was deprived of due process when the Court of Appeals dismissed the appeal without giving him the opportunity to cure the procedural defect. The court should have allowed the petitioner to rectify the lapse concerning the filing of his pleadings. Dismissal based on technicalities should not prevail over the constitutional right to due process.

PRINCIPLES:

  • Section 133 of the Corporation Code of the Philippines provides that foreign corporations transacting business in the Philippines without a license do not have the capacity to maintain or intervene in any action in Philippine courts.

  • Section 3(d) of the Foreign Investments Act of 1991 (FIA) defines "doing business" to include various commercial dealings or arrangements, implying a continuity of business activities that aim for commercial gain or the purpose and object of the business organization.

  • The Implementing Rules and Regulations of the FIA further elaborate on the definition of "doing business" and provide that certain acts, such as investment as a shareholder by a foreign entity in domestic corporations and appointing a representative or distributor domiciled in the Philippines, who transacts business in its own name and for its own account, are not considered "doing business" in the Philippines.

  • The determination of whether a foreign corporation is "doing business" in the Philippines must be judged in light of the attendant circumstances.

  • Mere investment as a shareholder in domestic corporations, having a nominee director or officer, appointing a representative or distributor, maintaining a stock of goods, consignment of equipment, collecting information, and performing services auxiliary to an existing isolated contract are not sufficient to constitute "doing business" unless the activities are under the full control of the foreign corporation.

  • An independent distributor buying and distributing products for its own name and account does not make the foreign corporation "doing business" in the Philippines.

  • The ownership interest of a foreign corporation in another corporation does not automatically make the latter the alter ego of the former. The corporate veil can only be pierced when there is evidence showing that the subsidiary is acting as a mere instrumentality or alter ego of the foreign corporation.

  • A foreign corporation doing business in the Philippines without a license may still sue in Philippine courts against a Philippine citizen or entity who had contracted with and benefited from said corporation. This is based on the principle of estoppel.

  • One who has dealt with a corporation, whether foreign or domestic, as a corporate entity, is estopped from denying its corporate existence and capacity to sue.

  • Corporate dealings must be characterized by utmost good faith and fairness. Parties to a corporate transaction are expected to act with candor and fairness, allowing a reasonable proportion between benefits and expected burdens. Both parties should observe justice, honesty, and good faith in exercising their rights and performing their duties.

  • A party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it.

  • The doctrine of estoppel to deny corporate existence applies to both domestic and foreign corporations.

  • The principle of estoppel to deny corporate existence will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its non-compliance with the statutes, especially if such person has received the benefits of the contract.

  • The lack of capacity to sue based on failure to acquire a local license cannot be invoked if there is no evidence to support its invocation or if the facts do not warrant its application.

  • The rule that denies unlicensed foreign corporations access to Philippine courts must not be used to frustrate the ends of justice and protect unscrupulous domestic enterprises from foreign entities seeking redress in the country.

  • The rules of court must be strictly followed, especially when it involves appeal periods and procedural requirements.

  • Dismissal based on technicalities should not prevail over the constitutional right to due process.