Communication Materials and Design, Inc. vs. The Court of Appeals

A domestic entity that has contracted with and benefited from an unlicensed foreign corporation is estopped from challenging the foreign corporation's capacity to sue, even if the foreign corporation is in fact doing business in the Philippines without a license. The determination that a foreign corporation is "doing business" depends on whether it is continuing the body or substance of the business or enterprise for which it was organized, as shown by its contracts and conduct.

ITEC, Inc. and ITEC International, Inc. are corporations organized under Alabama law, while ASPAC Multi-Trade, Inc. and Communication Materials and Design, Inc. are Philippine corporations whose president and majority stockholder is Francisco S. Aguirre. ITEC and ASPAC entered into a Representative Agreement making ASPAC ITEC's exclusive Philippine representative for the sale of ITEC products, later supplemented by a License Agreement allowing ASPAC to use the ITEC name. The dispute implicated Section 133 of the Corporation Code and Article 44 of the Omnibus Investments Code of 1987, which govern foreign corporations transacting business in the Philippines without a license and define what constitutes "doing business."

ITEC, Inc. and ITEC International, Inc. are corporations organized under the laws of Alabama, United States of America, and are not licensed to do business in the Philippines. ASPAC Multi-Trade, Inc. and Communication Materials and Design, Inc. are Philippine corporations, and Francisco S. Aguirre is their president and majority stockholder. On August 14, 1987, ITEC entered into a Representative Agreement with ASPAC, engaging ASPAC as ITEC's exclusive representative in the Philippines for the sale of ITEC products in consideration of a stipulated commission. The agreement was signed by G.A. Clark and Aguirre as presidents of ITEC and ASPAC, respectively, and was initially for twenty-four months, later renewed for another twenty-four months. The Representative Agreement contained restrictive provisions, including a no-competing-product clause and a provision that ASPAC could solicit sales on ITEC's behalf but could bind ITEC only as its representative and only for specific customers and on terms expressly authorized by ITEC in writing.

Through a License Agreement dated November 10, 1988, ASPAC was able to incorporate and use the name "ITEC" in its own name, and ASPAC Multi-Trade, Inc. became publicly known as ASPAC-ITEC (Philippines). By virtue of these contracts, ASPAC sold electronic products exported by ITEC to its sole customer, the Philippine Long Distance Telephone Company (PLDT). To facilitate their transactions, ASPAC and PLDT executed the "PLDT-ASPAC/ITEC Protocol," which defined the project details for the supply of ITEC's Interface Equipment in connection with PLDT's Fifth Expansion Program.

ITEC also engaged Telephone Equipment Sales and Services, Inc. (TESSI), a local electronics firm, as its local technical representative and to create a service center for ITEC products sold locally. Under their Master Service Agreement, TESSI was required to provide the employees of the technical and service center with ITEC identification cards and business cards, to correspond only on ITEC, Inc. letterhead, and to answer the telephone with "ITEC Technical Assistance Center." The telephone was listed in the telephone book under that heading, and all calls were recorded and forwarded to ITEC weekly. TESSI was also obliged to provide ITEC with a monthly report detailing the failure and repair of ITEC products and to requisition monthly the materials and components needed to replace stock consumed in warranty repairs of the prior month.

One year into the second term of the Representative Agreement, ITEC decided to terminate the agreement because ASPAC allegedly violated its contractual commitment. ITEC charged petitioners and another Philippine corporation, Digital Base Communications, Inc. (DIGITAL), whose president was likewise Aguirre, with using knowledge and information of ITEC's product specifications to develop their own line of equipment and product support similar, if not identical, to ITEC's own, and offering them to ITEC's former customer.

On January 31, 1991, ITEC, Inc. filed a complaint in the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 91-294. The complaint sought to enjoin, preliminarily and permanently, (1) DIGITAL, CMDI, Aguirre, and their agents and business associates from selling or attempting to sell to PLDT or any other party products copied or manufactured in like manner, similar or identical to ITEC's products, wares, and equipment, and (2) ASPAC from using ITEC's trademark in its corporate name, letterheads, envelopes, sign boards, and business dealings. It also sought recovery from defendants in solidum of at least P500,000.00 in damages, attorney's fees, and litigation expenses.

• Doing Business / Lack of Capacity: Petitioners argued that private respondents are foreign corporations actually doing business in the Philippines without the requisite authority and license from the Board of Investments and the Securities and Exchange Commission, and are thus disqualified from instituting the action in Philippine courts.
• Restrictive Representative Agreement: Petitioners maintained that the provisions of the Representative Agreement are highly restrictive in nature, similar to those in Top-Weld Manufacturing, Inc. vs. ECED S.A. et al., such as to reduce ASPAC to a mere conduit or extension of ITEC in the Philippines.
• Continuous Business Activities: Petitioners pointed to record matters allegedly showing ITEC's continuous doing business: ASPAC solicited and closed sales for ITEC products only, to PLDT, worth no less than US $15 Million; Contract No. 1 was in the name of ITEC, Inc.; the "PLDT-ASPAC/ITEC Protocol" was in the names jointly of ASPAC and ITEC; and ITEC issued a Confirmation of Payment dated November 13, 1989 and an Invoice dated November 22, 1989 on its letterhead.
• Forum Non Conveniens: Petitioners argued that since ITEC had no capacity to bring suit, the Philippines was not the "most convenient forum" because the trial court lacked power to enforce its orders or decisions in a case that could not have been commenced, and that assuming jurisdiction was grave abuse of discretion and excess of jurisdiction.

• No Doing Business: Respondent maintained that it is not doing business in the Philippines.
• Independent Representative: Respondent argued that under Section 1(f)(1) and 1(f)(2) of the Rules and Regulations Implementing the Omnibus Investments Code of 1987, a foreign firm is deemed not engaged in business if it transacts through middlemen acting in their own names, and a foreign corporation is deemed not doing business if its representative in the Philippines has an independent status, transacting business in its name and for its account.
• Contract Provisions Showing Independence: Respondent cited provisions of the Representative Agreement showing ASPAC acted in its own name and for its own account: ASPAC would pay customs duties and import fees if it imported directly; ASPAC received a sales commission; and ASPAC was expressly designated an independent contractor, not an employee, worker, laborer, partner, or joint venturer of ITEC.
• No Grave Abuse of Discretion: Respondent echoed the Court of Appeals' finding that the lower court did not commit grave abuse of discretion nor act in excess of jurisdiction when it found that the ground relied upon in the motion to dismiss did not appear to be indubitable.

• Doing Business: Whether ITEC is an unlicensed foreign corporation doing business in the Philippines.
• Capacity to Sue / Estoppel: Whether ITEC's doing business without a license bars it from invoking the injunctive authority of Philippine courts.
• Forum Non Conveniens: Whether the action should be dismissed on the ground of forum non conveniens because ITEC allegedly lacks capacity to sue and the Philippine court cannot enforce its orders or decisions.

• Doing Business: Yes. ITEC was engaged in or doing business in the Philippines. Its contracts with ASPAC and TESSI and its conduct established a continuous business, not merely temporary or isolated transactions.
• Capacity to Sue / Estoppel: No. Although ITEC was doing business without a license, petitioners were estopped from challenging its capacity to sue, having contracted with and benefited from ITEC; a foreign corporation may sue a Philippine entity that dealt with it.
• Forum Non Conveniens: No. The trial court acquired jurisdiction over ITEC upon the filing of the complaint, and the requisites for assuming jurisdiction were met; forum non conveniens did not require dismissal.

• Doing Business: Section 133 of the Corporation Code provides that no 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, but such corporation may be sued. A foreign corporation has no legal existence beyond the state of its incorporation and may be excluded or subjected to conditions by another state. Before transacting business in the Philippines, it must obtain a license and a certificate from the appropriate government agency; without these, it cannot maintain suit. However, the Court has not altogether prohibited an unlicensed foreign corporation from suing; what is prevented is a foreign corporation doing business without a license from gaining access to Philippine courts. The purpose of the license requirement is to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts, not to prevent single acts or to allow persons to avoid contracts with such corporations. There is no exact rule on what constitutes doing business; the true test is whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized. Article 44 of the Omnibus Investments Code of 1987 defines doing business to include soliciting orders, purchases, service contracts, opening offices, appointing representatives or distributors domiciled in the Philippines or staying 180 days or more, participating in management, supervision, or control of a domestic business, and any other acts implying continuity of commercial dealings. Prior cases found doing business where a foreign corporation had a settling agent issuing marine policies, collected premiums, used an exclusive distributing agent selling since 1929, or manufactured and sold computers locally with installed products, logo, trademark, and a designated distributor. A single or isolated transaction, or occasional, incidental, or casual transactions, do not constitute doing business, but a single act that is not merely incidental or casual and indicates an intention to do other business does. In determining whether a corporation does business, reference may be made to its contractual agreements. Applying these rules, ITEC had been engaged in or doing business in the Philippines for some time. Its contracts and agreements with ASPAC and TESSI showed continuous commercial dealings. The TESSI Master Service Agreement required TESSI personnel to use ITEC identification and business cards, correspond on ITEC letterhead, answer the telephone as "ITEC Technical Assistance Center," have the telephone listed under that heading, record and forward calls weekly to ITEC, submit monthly failure and repair reports, and requisition monthly materials and components for warranty repairs. The ASPAC Representative Agreement contained highly restrictive provisions, including a no-competing-product clause and a provision that ASPAC could solicit sales on ITEC's behalf but could bind ITEC only as representative and only for specific customers and authorized terms. These arrangements showed ITEC's purpose to make customers and the public believe they were dealing directly with ITEC and that ITEC was actively engaging in business in the country. ITEC entered the contracts to carry out its purpose of marketing electronics and communications products, and the terms and conduct established a continuous business, not merely a temporary one.
• Capacity to Sue / Estoppel: Notwithstanding the finding that ITEC was doing business in the country, petitioners were estopped from raising that fact to bar ITEC from instituting the injunction case. 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 from it. 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 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. This principle prevents a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly where the person has received the benefits of the contract. It is rooted in the axiom commodum ex injuria sua non habere debet—no person ought to derive any advantage of his own wrong—and in Article 19 of the Civil Code, which requires every person to act with justice, give everyone his due, and observe honesty and good faith. Corporate dealings must be characterized by utmost good faith and fairness; corporations act through agents and officers and cannot feign ignorance of legal rules. The license requirement was imposed to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts and was never intended to favor domestic corporations that enter into solitary transactions with unwary foreign firms and then repudiate their obligations simply because the latter are not licensed. By entering into the Representative Agreement with ITEC, petitioners were charged with knowledge that ITEC was not licensed to engage in business in the country and were estopped from raising ITEC's incapacity, having chosen to ignore or presumptively take advantage of it. In Top-Weld, a foreign corporation could be exempted from the license requirement to institute an action if its local representative maintained an independent status; petitioners were deemed to have acceded to such independent character when they entered into the Representative Agreement, particularly provision 6.2.
• Forum Non Conveniens: Petitioners' insistence on dismissal due to forum non conveniens was misplaced. They argued that the Philippine court had no venue to exercise discretion because it had not acquired jurisdiction over the person of the plaintiff, who allegedly had no personality to sue. The court had already acquired jurisdiction over the plaintiff by virtue of the filing of the original complaint, and petitioners were not at liberty to question plaintiff's standing because they had acceded to it by entering into the Representative Agreement. Having acquired jurisdiction, it was for the Philippine court, based on the facts, to decide whether to give due course to the suit or dismiss it on the principle of forum non conveniens. The court may refuse to assume jurisdiction despite having acquired it, or it may assume jurisdiction if it chooses to do so, provided the following requisites are met: (1) the Philippine court is one to which the parties may conveniently resort; (2) the Philippine court is in a position to make an intelligent decision as to the law and the facts; and (3) the Philippine court has or is likely to have power to enforce its decision. These requisites were met, and the court was disposed to give due course to the action, so the claim that the forum was not the most convenient deserved scant consideration.

• Doing Business by a Foreign Corporation — A foreign corporation is "doing business" in the Philippines when it is continuing the body or substance of the business or enterprise for which it was organized. Article 44 of the Omnibus Investments Code of 1987 enumerates acts that constitute doing business, including soliciting orders, purchases, service contracts, opening offices, appointing representatives or distributors domiciled in the Philippines or staying 180 days or more, participating in management, supervision, or control of a domestic business, and other acts implying continuity of commercial dealings. Single, isolated, occasional, incidental, or casual transactions are not doing business, but a single act that is not merely incidental or casual and indicates an intention to do other business is. The Court applied this doctrine to find ITEC doing business because its contracts with ASPAC and TESSI and its conduct established continuous commercial dealings.
• Estoppel to Challenge Capacity to Sue — A domestic entity that has contracted with and benefited from an unlicensed foreign corporation is estopped from challenging the foreign corporation's capacity to sue, even if the foreign corporation is doing business in the Philippines without a license. The doctrine applies to foreign and domestic corporations and prevents a party from taking advantage of the foreign corporation's noncompliance with licensing laws after receiving the benefits of the contract. The Court applied this doctrine to bar petitioners from raising ITEC's lack of license as a defense.
• Forum Non Conveniens — A Philippine court that has acquired jurisdiction may still refuse to assume jurisdiction, or it may assume jurisdiction if it chooses, provided that (1) the Philippine court is one to which the parties may conveniently resort; (2) the Philippine court is in a position to make an intelligent decision as to the law and the facts; and (3) the Philippine court has or is likely to have power to enforce its decision. The Court found these requisites met and held that forum non conveniens did not require dismissal.
• Commodum ex injuria sua non habere debet — No person ought to derive any advantage from his own wrong. This principle, together with Article 19 of the Civil Code, supports the estoppel against petitioners, who contracted with and benefited from ITEC and then sought to challenge ITEC's capacity to sue.

• "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." — This states the estoppel-based exception that allowed ITEC to maintain the injunction action despite being an unlicensed foreign corporation doing business in the Philippines.
• "The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized." — This supplies the general test for "doing business" applied to ITEC's contracts and conduct.
• "The doctrine of lack of capacity to sue based on the failure to acquire a local license is based on considerations of sound public policy. The license requirement was imposed to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. It was never intended to favor domestic corporations who enter into solitary transactions with unwary foreign firms and then repudiate their obligations simply because the latter are not licensed to do business in this country." — This explains the policy rationale for rejecting petitioners' capacity challenge.
• "Hence, the Philippine Court may refuse to assume jurisdiction in spite of its having acquired jurisdiction. Conversely, the court may assume jurisdiction over the case if it chooses to do so; provided, that the following requisites are met: 1) That the Philippine Court is one to which the parties may conveniently resort to; 2) That the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, 3) That the Philippine Court has or is likely to have power to enforce its decision." — This sets out the forum non conveniens requisites that the Court found satisfied.

• Top-Weld Manufacturing, Inc. vs. ECED S.A. et al., G.R. No. L-44944, August 9, 1985, 138 SCRA 118 — Cited for the rule that highly restrictive agreements may reduce a local representative to a mere conduit or extension of a foreign corporation, and for the exemption from the license requirement where the local representative maintains independent status; also invoked for the in pari delicto principle.
• Wang Laboratories, Inc. vs. Hon. Rafael T. Mendoza, et al., G.R. No. 72147, December 1, 1987, 156 SCRA 44 — Cited as a standard for determining "doing business," involving a foreign computer manufacturer that installed products locally and allowed its logo and trademark to be used through a designated distributor.
• Merrill Lynch Futures, Inc. vs. Court of Appeals, G.R. No. 97816, July 24, 1992, 211 SCRA 824 — Cited for considering the futures contract in determining doing business, and for the rule that a foreign corporation may sue a Philippine entity that contracted with and benefited from it.
• Georg Grotjahn GMBH and Co. vs. Isnani, G.R. No. 109272, August 10, 1994, 235 SCRA 216 — Cited for the principle that uninterrupted performance of acts pursuant to primary purposes as a regional area headquarters qualifies as doing business, and for estoppel to deny corporate existence.
• Mentholatum Co., Inc., et al. vs. Mangaliman, et al., G.R. No. 47701, June 27, 1941, 72 Phil. 524 — Cited for Section 133 and the definition of doing business, including an exclusive distributing agent selling in the Philippines since 1929.
• Antam Consolidated Inc. vs. Court of Appeals, et al., G.R. No. L-61523, July 31, 1986, 143 SCRA 288 — Cited to condemn the practice of defaulting local companies invoking the lack of capacity of unlicensed foreign corporations.
• National Sugar Trading Corporation vs. Court of Appeals, et al., G.R. No. 110910, July 17, 1995, 246 SCRA 465 — Cited for the public-policy rationale that the license requirement was not intended to favor domestic corporations that repudiate obligations to unlicensed foreign firms.
• Marshall-Wells Co. vs. Elser and Co., G.R. No. 22015, September 1, 1924, 46 Phil. 71 — Cited for the purpose of the license requirement: to subject the foreign corporation doing business in the Philippines to the jurisdiction of local courts.
• Huang Lung Bank, Ltd. vs. Saulog, G.R. No. 73765, August 26, 1991, 210 SCRA 137 — Cited for the rule that the Court has not altogether prohibited an unlicensed foreign corporation from suing; what is prevented is a foreign corporation doing business without a license gaining access to Philippine courts.
• Far East International Import and Export Corporation vs. Nankai Kogyo Co., G.R. No. 13525, November 30, 1962, 6 SCRA 725 — Cited for the rule that a single act or transaction not merely incidental or casual but indicating an intention to do other business constitutes doing business.

• Section 133, Corporation Code of the Philippines — Provides that no 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, but such corporation may be sued. Applied as the threshold rule on capacity to sue, subject to the estoppel doctrine.
• Sections 123 and 133, Corporation Code of the Philippines — Require a foreign corporation to obtain a license and a certificate from the appropriate government agency before transacting business in the Philippines; without such license, it cannot maintain suit. Applied to frame the licensing requirement and its consequences.
• Article 44, Omnibus Investments Code of 1987 — Defines "doing business" to include soliciting orders, purchases, service contracts, opening offices, appointing representatives or distributors domiciled in the Philippines or staying 180 days or more, participating in management, supervision, or control of a domestic business, and other acts implying continuity of commercial dealings. Applied to find ITEC doing business in the Philippines.
• Section 1(f)(1) and 1(f)(2), Rules and Regulations Implementing the Omnibus Investments Code of 1987 — Provide that a foreign firm is deemed not engaged in business if it transacts through middlemen acting in their own names, and a foreign corporation is deemed not doing business if its representative in the Philippines has an independent status, transacting business in its name and for its account. Cited by respondent but not sufficient to overcome the finding of doing business based on ITEC's contracts and conduct.
• Article 19, Civil Code — Requires every person, in the exercise of rights and performance of duties, to act with justice, give everyone his due, and observe honesty and good faith. Applied to support the estoppel against petitioners and the requirement of good faith in corporate dealings.
• Rule 65, Revised Rules of Court — The procedural rule under which petitioners elevated the RTC order to the Court of Appeals via a Petition for Certiorari and Prohibition.
• Rule 45, Revised Rules of Court — The procedural rule under which petitioners filed the Petition for Review on Certiorari with the Supreme Court.
• Republic Act No. 5455 — Mentioned in the discussion of Top-Weld as the law requiring licensing of foreign corporations; cited in relation to the parties' knowledge of the licensing requirement and the in pari delicto principle.

Regalado (Chairman), Romero, Puno, and Mendoza, JJ., concur.