On Doing Business in the Philippines

Steelcase, Inc., Petitioner, v. Design International Selections, Inc., Respondent; G.R. No. 171995

Facts:

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.

On January 18, 1999, 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.

In its Answer, DISI sought the dismissal of the complaint on the ground that Steelcase lacked the legal capacity to sue in Philippine courts, being a foreign corporation doing business in the Philippines without a license.

Issue:

Whether Steelcase is doing business in the Philippines.

Ruling:

No.

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…

The phrase doing business is clearly defined in Section 3(d) of R.A. No. 7042 (Foreign Investments Act of 1991). The definition is supplemented by its Implementing Rules and Regulations, Rule I, Section 1(f) which elaborates on the meaning of the same phrase.

Based on the said provisions, 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 should be kept in mind that the determination of whether a foreign corporation is doing business in the Philippines must be judged in light of the attendant circumstances.

In the case at bench, 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. Thus, DISI was an independent contractor, distributing various products of Steelcase and of other companies, acting in its own name and for its own account.