The Supreme Court held that a foreign corporation, Monsanto, could sue in the Philippines despite not having a local business license because its transactions were conducted through an independent indentor. This decision clarifies when a foreign entity is considered “doing business” in the Philippines and under what circumstances they can access Philippine courts.

When Does Foreign Business Trigger Legal Standing in the Philippines?

This case arose from a complaint filed by Monsanto International Sales Company (MISCO), a foreign corporation, against Continental Manufacturing Corporation (CMC) for unpaid debts. MISCO alleged that CMC purchased acrylic fibers worth US$1,417,980.89, covered by drafts co-accepted by CMC and the Development Bank of the Philippines (DBP). After MISCO was substituted by its mother company, Monsanto, as the plaintiff, the central issue became whether Monsanto, as an unlicensed foreign corporation, had the legal capacity to sue in the Philippines. The RTC initially dismissed the case, but the Court of Appeals (CA) reversed this decision, leading to DBP’s appeal to the Supreme Court. The primary question before the Supreme Court was whether MISCO, or its assign Monsanto, was “doing business” in the Philippines without a license, thus affecting their capacity to sue.

The Supreme Court anchored its analysis on the principle that an unlicensed foreign corporation “doing business” in the Philippines lacks the capacity to sue in local courts. This rule is outlined in Section 133 of the Corporation Code, which states:

SECTION 133. Doing Business Without License. – 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 or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

However, the Corporation Code does not define “doing business,” necessitating a review of other relevant laws and jurisprudence. The Court considered Presidential Decree No. (PD) 1789, the Omnibus Investments Act of 1981, which defines “doing business” as including:

ARTICLE 65. Definition of Terms. – As used in this Book, the term “investment” shall mean equity participation in any enterprise formed, organized or existing under the laws of the Philippines; and the phrase “doing business” shall include soliciting orders, purchases, service contracts, opening offices, whether called “liaison” offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.

The Implementing Rules and Regulations (IRR) of PD 1789 further clarify this definition, stating that a foreign firm operating through independent middlemen, such as indentors, is not deemed to be “doing business” in the Philippines. This distinction is critical because it determines whether a foreign corporation needs a license to sue in Philippine courts. The Court emphasized that if the distributor or representative operates independently, transacting business in its own name and for its own account, the foreign corporation is not considered to be “doing business”.

The Supreme Court referenced its earlier decision in Schmid & Oberly, Inc. v. RJL Martinez Fishing Corp., which defines an indentor as a middleman who acts as an agent for both the buyer and the seller. The Court explained:

An indentor may therefore be best described as one who, for compensation, acts as a middleman in bringing about a purchase and sale of goods between a foreign supplier and a local purchaser.

The Court found that MISCO’s transactions with CMC were facilitated through Robert Lipton and Co., Inc. (Lipton), a local indentor. Lipton, acting as an independent entity, solicited orders and negotiated terms on behalf of MISCO. The Supreme Court concluded that because Lipton operated independently, MISCO was not “doing business” in the Philippines, and therefore, MISCO, or its assignee Monsanto, had the capacity to sue.

DBP argued that Lipton did not transact business in its own name and account, but merely acted as a go-between. The Court rejected this argument, clarifying that acting as a go-between is precisely the role of an indentor. The Court also noted that Lipton’s lack of authority to enter into agreements independently was consistent with its role as a middleperson. This underscored the importance of the indentor’s independent status in determining whether the foreign corporation is “doing business” in the Philippines.

Even if MISCO lacked the capacity to sue, the Court agreed with the CA that the doctrine of estoppel would apply. This doctrine prevents a party from challenging the personality of a corporation after having acknowledged it by entering into a contract. As the Supreme Court explained in Merrill Lynch Futures, Inc. v. Court of Appeals:

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 corporate existence and capacity.” The principle “will be applied to prevent a person contracting with a foreign corporations from later taking advantage of its noncompliance with the statues, chiefly in cases where such person has received the benefits of the contract (Sherwood v. Alvis, 83 Ala 115, 3 So 307, limited and distinguished in Dudley v. Collier, 87 Ala 431, 6 So 304; Spinney v. Miller 114 Iowa 210, 86 NW 317), where such person has acted as agent for the corporation and has violated his fiduciary obligations as such, and where the statute does not provide that the contract shall be void, but merely fixes a special penalty for violation of the statute. . . “

In this case, CMC had contracted with and benefitted from its transactions with MISCO, making the doctrine of estoppel applicable. This principle prevents CMC, and by extension DBP, from later denying MISCO’s corporate existence and capacity to sue.

The Court also addressed DBP’s contention that Monsanto was not a real party-in-interest. The Court noted that DBP did not question the substitution of Monsanto as the party-plaintiff before the RTC. The Court found that Monsanto, as the mother company and sole stockholder of MISCO, had a direct financial interest in the outcome of the case. Even if there were issues regarding the joinder of parties, the Court emphasized that such issues would not result in the outright dismissal of the complaint.

Ultimately, the Supreme Court affirmed the CA’s decision, holding that MISCO, through its independent indentor Lipton, was not “doing business” in the Philippines without a license and thus had the capacity to sue. The Court also supported the application of the doctrine of estoppel, preventing DBP from challenging Monsanto’s legal standing.

FAQs

What was the key issue in this case?	The central issue was whether a foreign corporation, Monsanto, had the legal capacity to sue in the Philippines despite not having a local business license, due to transacting through an independent indentor.
What does “doing business” mean in this context?	“Doing business” refers to engaging in activities that imply a continuity of commercial dealings in the Philippines. However, transacting through an independent indentor is generally excluded from this definition.
What is an indentor?	An indentor is a middleman who, for compensation, acts as an agent for both the buyer and the seller, facilitating the purchase and sale of goods between a foreign supplier and a local purchaser.
Why was the indentor’s independence important in this case?	The indentor’s independence was crucial because it determined whether the foreign corporation was “doing business” directly in the Philippines. If the indentor operates independently, the foreign corporation is not considered to be “doing business” locally.
What is the doctrine of estoppel, and how did it apply in this case?	The doctrine of estoppel prevents a party from challenging the personality of a corporation after having acknowledged it by entering into a contract. In this case, CMC contracted with MISCO and benefitted from the transaction, thus estopping them from denying MISCO’s capacity to sue.
Did DBP’s denial of participation affect the outcome of the case?	DBP’s denial of direct participation was not decisive. The Court focused on MISCO’s capacity to sue, which was established through its use of an independent indentor, regardless of DBP’s involvement.
Was Monsanto considered a real party-in-interest?	Yes, Monsanto was considered a real party-in-interest because it was the mother company and sole stockholder of MISCO, giving it a direct financial stake in the outcome of the case.
What law governs the definition of “doing business” in this case?	Presidential Decree No. (PD) 1789, the Omnibus Investments Act of 1981, governs the definition of “doing business” in this case.

This Supreme Court decision provides essential clarity on the conditions under which a foreign corporation can pursue legal action in the Philippines without a local license. It reinforces the significance of independent intermediaries like indentors and underscores the application of estoppel in preventing parties from denying a corporation’s legal standing after benefiting from transactions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: DEVELOPMENT BANK OF THE PHILIPPINES VS. MONSANTO COMPANY, G.R. No. 207153, January 25, 2023