TL;DR

The Supreme Court ruled that a Philippine company, Magna Ready Mix Concrete Corporation (MAGNA), was estopped from challenging the legal capacity of a foreign corporation, Andersen Bjornstad Kane Jacobs, Inc. (ANDERSEN), to sue in the Philippines. Despite ANDERSEN lacking the required license to do business in the Philippines, MAGNA could not contest ANDERSEN’s standing because it had previously entered into a contract with ANDERSEN and benefited from its services. This decision underscores that companies cannot take advantage of a foreign corporation’s non-compliance with licensing requirements when they have already acknowledged the corporation’s existence through contractual agreements and received benefits from those agreements. The ruling also adjusted the legal interest imposed, applying different rates before and after July 1, 2013, in accordance with Bangko Sentral ng Pilipinas guidelines.

Contracting Parties: Can You Later Deny the Other’s Right to Sue?

This case revolves around a dispute between Magna Ready Mix Concrete Corporation (MAGNA), a Philippine company, and Andersen Bjornstad Kane Jacobs, Inc. (ANDERSEN), a corporation from the United States. ANDERSEN sued MAGNA for unpaid fees related to design and consultation services. The central legal question is whether MAGNA could challenge ANDERSEN’s legal capacity to sue in the Philippines, given that ANDERSEN was not licensed to do business there, despite having contracted with them and receiving benefits from their services.

The factual backdrop begins in 1996 when MAGNA commissioned ANDERSEN to provide form design and drawing development services for a precast plant project. An Agreement for Professional Services was purportedly executed in November 1996, outlining the terms of compensation for ANDERSEN’s work. Subsequently, MAGNA requested ANDERSEN to prepare a preliminary design for the Ecocentrum Garage Project. ANDERSEN delivered the designs. However, MAGNA failed to settle the outstanding balance of US$60,786.59 for the services rendered, leading ANDERSEN to file a complaint for collection of a sum of money and damages.

MAGNA countered by arguing that ANDERSEN’s claims lacked basis because the contract was executed after the services were allegedly performed. Moreover, MAGNA asserted that the precast designs and the Ecocentrum Garage preliminary design were never delivered. During the trial, MAGNA sought to dismiss the case, contending that ANDERSEN was doing business in the Philippines without the necessary license. The Regional Trial Court (RTC) initially ruled in favor of ANDERSEN but only granted a portion of the claimed amount. Both parties appealed to the Court of Appeals (CA), which affirmed the RTC’s decision with modifications, ordering MAGNA to pay the full amount, plus interest and damages.

The Supreme Court addressed the pivotal issue of whether ANDERSEN had the legal capacity to sue. The court acknowledged that Section 133 of the Corporation Code of the Philippines requires foreign corporations transacting business in the Philippines to secure a license before maintaining or intervening in any action. The purpose of this requirement is to protect Philippine residents from fraud and misrepresentation by requiring foreign corporations to submit to the jurisdiction of Philippine courts. However, an exception exists for foreign corporations suing on an isolated transaction.

The Court determined that ANDERSEN’s engagement with MAGNA did not qualify as an isolated transaction. ANDERSEN’s services, which included providing master plant site layout, plant design, and consultation services, indicated a progressive pursuit of its business purpose. Consequently, ANDERSEN was deemed to be doing business in the Philippines without the required license and, therefore, initially lacked the legal capacity to sue.

However, the Supreme Court invoked the doctrine of estoppel. This principle prevents a party from challenging a foreign corporation’s legal capacity after acknowledging it by entering into a contract and benefiting from it. In this case, MAGNA had entered into a contract with ANDERSEN and received services pursuant to that agreement. As such, MAGNA was estopped from later arguing that ANDERSEN lacked the capacity to sue due to its failure to obtain a license. The Court emphasized the equitable nature of estoppel, preventing parties from deriving advantage from their own wrong.

Finally, the Supreme Court adjusted the legal interest imposed by the Court of Appeals. The initial interest rate of 12% per annum, reckoned from the date of extrajudicial demand, was modified to reflect the changes introduced by Bangko Sentral ng Pilipinas Resolution No. 796. Accordingly, the interest rate was bifurcated: 12% per annum from June 26, 1998, until June 30, 2013, and 6% per annum from July 1, 2013, until full payment.

FAQs

In summary, the Supreme Court’s decision reinforces the principle that parties cannot exploit a foreign corporation’s lack of a license when they have willingly engaged in contractual relations and received benefits from those relations. The doctrine of estoppel serves as a crucial safeguard against opportunistic behavior in commercial dealings, upholding fairness and equity. This ruling also highlights the importance of adhering to regulatory requirements while ensuring that contractual obligations are honored in good faith.

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.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: Magna Ready Mix Concrete Corporation vs. Andersen Bjornstad Kane Jacobs, Inc., G.R. No. 196158, January 20, 2021