Steelcase Inc. vs.

Design International Selections

Petition for review on certiorari under Rule 45

FACTS:

 Steelcase is a foreign corporation engaged in manufacture of furniture while Design

International Selections, Inc. (DISI) is a corporation existing under Philippine Laws engaged in
the furniture business, including the distribution of furniture.
 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
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. Steelcase prayed that DISI be ordered to pay actual or compensatory
damages, exemplary damages, attorney’s fees, and costs of suit.
 In its Answer with Compulsory Counterclaims, DISI sought the following: (1) the issuance of a
TRO and a WPI to enjoin Steelcase from selling its products in the Philippines except through
DISI; (2) the dismissal of the complaint for lack of merit; and (3) the payment of damages. 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 it 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.
 Steelcase filed its Motion to Admit Amended Complaint which was granted by the RTC through
then Acting Presiding Judge Diokno. However, Steelcase sought to further amend its complaint
by filing a Motion to Admit Second Amended Complaint
 Acting Presiding Judge Bonifacio Sanz Maceda dismissed the complaint, granted the TRO prayed
for by DISI,denied the 2nd motion to amend complaint
 Steelcase unwittingly revealed that it participated in the operations of DISI to meet the Dealer
Performance Expectation and it did not have the license to do business in the country thus it
was barred from seeking redress from our courts until it obtained the requisite license to do so
 CA affirmed the RTC orders, ruling that Steelcase was a foreign corporation doing or transacting
business in the Philippines without a license.

ISSUE:

WON DISI is estopped from challenging the Steelcase’s legal capacity to sue.

HELD:

YES. If indeed Steelcase had been doing business in the Philippines without a license, DISI would
nonetheless be estopped from challenging the formers legal capacity to sue.

By entering into a dealership agreement with Steelcase charged DISI with the knowledge that Steelcase
was not licensed to engage in business activities in the Philippines. This Court has carefully combed the
records and found no proof that, from the inception of the dealership agreement, DISI even brought to
Steelcases attention that it was improperly doing business in the Philippines without a license. It was
only towards the latter part of 1998 that DISI deemed it necessary to inform Steelcase of the
impropriety of the conduct of its business without the requisite Philippine license. It should, however,
be noted that DISI only raised the issue of the absence of a license with Steelcase after it was informed
that it owed the latter US$600,000.00 for the sale and delivery of its products under their special credit
arrangement.

By acknowledging the corporate entity of Steelcase and entering into a dealership agreement with it and
even benefiting from it, DISI is estopped from questioning Steelcases existence and capacity to sue. This
is consistent with the Courts ruling in Communication Materials and Design, Inc. v. Court of
Appeals where it was written:

Notwithstanding such finding that ITEC is doing business in the country, petitioner is
nonetheless estopped from raising this fact to bar ITEC from instituting this injunction case
against it.
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.
The rule is deeply rooted in the time-honored axiom of Commodum ex injuria sua non habere
debet no person ought to derive any advantage of his own wrong.

The case of Rimbunan Hijau Group of Companies v. Oriental Wood Processing Corporation is likewise
instructive:

Respondents unequivocal admission of the transaction which gave rise to the complaint establishes the
applicability of estoppel against it. Rule 129, Section 4 of the Rules on Evidence provides that a written
admission made by a party in the course of the proceedings in the same case does not require proof. We
held in the case of Elayda v. Court of Appeals, that an admission made in the pleadings cannot be
controverted by the party making such admission and are conclusive as to him. Thus, our consistent
pronouncement, as held in cases such as Merril Lynch Futures v. Court of Appeals, is apropos:

The rule is that 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 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 existence and capacity. The
principle will be applied to prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in cases where such person has received the
benefits of the contract . . .

Court has time and again upheld the principle that a foreign corporation doing business in the
Philippines without a license may still sue before the Philippine courts a Filipino or a Philippine entity
that had derived some benefit from their contractual arrangement because the latter is considered to
be estopped from challenging the personality of a corporation after it had acknowledged the said
corporation by entering into a contract with it.

In Antam Consolidated, Inc. v. Court of Appeals, this Court had the occasion to draw attention to the
common ploy of invoking the incapacity to sue of an unlicensed foreign corporation utilized by
defaulting domestic companies which seek to avoid the suit by the former. The Court cannot allow this
to continue by always ruling in favor of local companies, despite the injustice to the overseas
corporation which is left with no available remedy.

Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines. The phrase doing
business is clearly defined in Section 3(d) of R.A. No. 7042 (Foreign Investments Act of 1991). This
definition is supplemented by its Implementing Rules and Regulations, Rule I, Section 1(f) which
elaborates on the meaning of the same phrase. 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. On
the other hand, 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.

It is undisputed that DISI was founded in 1979 and is independently owned and managed by the spouses
Leandro and Josephine Bantug. 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. The dealership agreement
between Steelcase and DISI had been described by the owner himself as basically 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.

Case is remanded to the RTC appropriate action.