Communications Materials and Design, Inc. v. Court of Appeals

G.R. No. 102223 (August 22, 1996)

ITEC won injunction, damages; court upheld foreign access to local courts despite licensing issues.

Facts:

The case involves a dispute between the petitioners, Communication Materials and Design, Inc. (CMDI), Aspac Multi-Trade, Inc. (Aspac), and Francisco S. Aguirre, and the respondents, ITEC, Inc. and ITEC International, Inc. (collectively referred to as ITEC). The petitioners are domestic corporations, while ITEC is a foreign corporation organized under the laws of Alabama, USA, and is not licensed to do business in the Philippines.

On August 14, 1987, ITEC entered into a "Representative Agreement" with Aspac, appointing it as its exclusive representative in the Philippines for the sale of ITEC's products. This agreement was initially for a term of 24 months and was later renewed for another 24 months. A subsequent "License Agreement" allowed Aspac to incorporate and use the name "ITEC" in its business name, leading to the designation of Aspac as Aspac-ITEC (Philippines).

Aspac sold electronic products exported by ITEC to the Philippine Long Distance Telephone Company (PLDT). However, one year into the second term of the Representative Agreement, ITEC decided to terminate the agreement, alleging that Aspac had violated its contractual obligations. ITEC accused the petitioners of using confidential information to develop competing products and selling them to PLDT.

On January 31, 1991, ITEC filed a complaint in the Regional Trial Court of Makati, seeking a preliminary and permanent injunction against the petitioners to stop them from selling products similar to ITEC's and from using ITEC's trademark. The petitioners filed a motion to dismiss the complaint, arguing that ITEC lacked the legal capacity to sue as it was a foreign corporation doing business in the Philippines without the required licenses.

The Regional Trial Court denied the motion to dismiss and issued a writ of preliminary injunction. The petitioners appealed to the Court of Appeals, which upheld the trial court's decision. The petitioners then filed a petition for review on certiorari to the Supreme Court.

Legal Issues:

  1. Whether ITEC is a foreign corporation doing business in the Philippines without the necessary licenses, and if so, whether this bars it from invoking the jurisdiction of Philippine courts.
  2. Whether the trial court and the Court of Appeals committed grave abuse of discretion in denying the petitioners' motion to dismiss and in issuing the writ of preliminary injunction.

Arguments:

Petitioners' Arguments:

  • ITEC, as a foreign corporation, is doing business in the Philippines without the required authority and license, thus disqualifying it from suing in Philippine courts.
  • The Representative Agreement is highly restrictive, reducing Aspac to a mere conduit for ITEC, similar to the situation in the case of Top-Weld Manufacturing, Inc. vs. ECED S.A.
  • The trial court's failure to dismiss the case based on ITEC's lack of capacity to sue constitutes grave abuse of discretion.

Respondents' Arguments:

  • ITEC contends that it is not doing business in the Philippines as it operates through independent representatives like Aspac, which acts in its own name and for its own account.
  • The provisions of the Representative Agreement do not indicate that Aspac is merely a conduit for ITEC.
  • The trial court and the Court of Appeals did not commit grave abuse of discretion in their rulings.

Court's Decision and Legal Reasoning:

The Supreme Court dismissed the petition, affirming the decisions of the lower courts. The Court held that ITEC was indeed engaged in business in the Philippines, as evidenced by its continuous dealings through Aspac and other local representatives. The Court emphasized that the nature of the agreements and the conduct of ITEC indicated a continuous business operation rather than isolated transactions.

The Court also ruled that a foreign corporation may still sue in Philippine courts even if it is not licensed to do business, particularly when the local entity has contracted with and benefited from the foreign corporation. The principle of estoppel applies, preventing the petitioners from challenging ITEC's capacity to sue after having entered into a contract with it.

The Court reiterated that the requirement for foreign corporations to obtain a license is to ensure they are subject to the jurisdiction of Philippine courts, but it does not prevent them from seeking legal remedies for violations of their rights.

Significant Legal Principles Established:

  • A foreign corporation doing business in the Philippines without a license may still sue in Philippine courts if it has contracted with a local entity that has benefited from its services.
  • The doctrine of estoppel prevents a party from denying the corporate existence of a foreign corporation after having acknowledged it through contractual dealings.
  • The definition of "doing business" encompasses continuous and systematic activities within the Philippines, as opposed to isolated transactions.