MERRIL LYNCH FUTURES, INC.

, PETITIONER
V.
COURT OF APPEALS, AND THE SPS. PEDRO M. LARA
LARA, RESPONDENTS

AND

ELISA G.

GR no 97816 July 24, 1992

Narvasa, C.J.
SV: Merill Lync a non-resident foreign corporation entered into transaction with
regard to future contracts with the sps. Lara. They incurred losses at the last
transaction and filed a complaint to recover the sum from the Laras who refused to
pay the amount upon demand. The Laras filed an MTD and alleged that Merril Lynch
had no legal capacity to sue and it lacks a cause of action against them. One of the
issues SC had to rule on is whether it can sue for the sum despite it not having a
license to do business in the Philippines.
SC: the SC ruled that based on the evidence presented Merril Lynch indeed
transacted business with the LAras without a license. But it is a rule that a party is
estopped to challenge the personality of a corporation after having acknowledged
the same by entering into a contract with it. The Laras were denying that they knew
that MLPI (Merril Lynchs agent) was without a license. This fact should be
determined first in order to establish if the Laras are estopped from denying the
personality of Merril Lynch. Case was reinstated at the RTC level.
1. Merill Lynch Futures (MLFI) filed a complaint with the RTC against the sps.
Lara for a recovery fo debt
2. It described itself as a non-resident foreign corporation doing business in the
Philippines, duly organized existing under and by virtue of the laws of the
state of Delaware, USA and that it is a futures commission merchant duly
licensed to act as such in the futures markets and exchanges in the United
States, . . essentially functioning as a broker . . (executing) orders to buy and
sell futures contracts received from its customers on U.S. futures exchanges.
a. futures contract as a contractual commitment to buy and sell a
standardized quantity of a particular item at a specified future
settlement date and at a price agreed upon, with the purchase or sale
being executed on a regulated futures exchange
3. MLFI alleged that it entered into a futures customer agreement with the Laras
wherein it agreed to act as the broker for the laras for the purchase and sale
of futures contracts in the us
a. Orders to buy and sell futures contracts were transmitted to ML Futures by the
Laras through Merill Lynch Philippines, Inc. (MLPI), a Philippine corporation
servicing MLFIs customers
b. That the Laras knew that MLPI was not a broker in futures contracts and that it
didnt have a license from the SEC to operate as a commodity trading advisor
c. That the Laras actively traded in futures contracts including stock index
futures for 4 years (1983- Oct 1987)
d. That because of a loss amounting to $160,749.69 incurred in 3 transactions
involving index futures, and after setting this off against the $ 75,913.42 that
it owed to the Laras, the Laras became indebted to MLFI for $84,836.27 which
MLFI asked them to pay
e. Laras regused to pay the balance alleging that the transactions were null and
void because MLPI had no license to operate as a commodity and/or Financial
Futures broker.

f.

It prayed for preliminary attachment on the properties of the Laras and for
the laras to pay them the due amount with exemplary damages and attys
fees and expenses of litigation.

4. LAras filed an MTD alleging that MLFI had no legal capacity to sue and that
the complaint states no cause of action since it is not the real party in
interest
a. MLFI is prohibited to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines since it is not licensed to
do business in the Philippines
b. That they have never been informed that MLPI has no license to do business
in the countryand that they were actually transacting with Merril Lynch Pierce
Fenner & Smith Inc. and not with MLFI. They attached copies of agreements,
receipts or reminders executed on standard printed forms of MLPFSI

5. MLFI field an opposition to the MTD

i. mr

6. Laras reply: reaffirmed their lack of awareness that MLPI was not licensed
and submitted additional documents involving transactions with MLPFSI
referring to the same acct no that is involved in the complaint
7. MLFIs rejoinder: it gave the Laras a disclosure statement that the transaction
would take place outside the Philippines and all funds in the trading program
must be placed in MLFI
8. Trial court sustained MTD. MR denied
9. CA: affirmed TC.
a. TC had seen through the charade in the representation of MLPI and
MLFI that MLPI is only a trading advisor and in fact it is a conduit in
MLFIs business transactions in the Philippines. Sec. 133 of the
corporation code was cited
i. Sec. 133. Doing business without a 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 in 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.
b. The evidence established that MLFI is doing business in the Philippines
c. MR denied
ISSUE/s
1. WON the annexes appended by the LAras to their MTD and reply filed
with the RTC, but never authenticated or offered, constitute admissible
evidence. Yes, as to the second ground of the MTD
2. WON MLFI has been accorded procedural due process. NO
3. WON the annexes assuming them to be admissible, established that
MLFI was doing business in the Philippines without a license.

1.

The 2 grounds of the Laras for their MTD was that MLFI had no legal capacity
to sue and that the complaint states no cause of action.

As to the second ground, it was error for the judge to conduct a

preliminary hearing and receive evidence on the affirmative defense of
failure of the complaint to state a cause of action (the annexes). If the
ground is lack of cause of action, the existence of the cause of action is
determined only by the allegation of the complaint
As to the first ground, it may be understood in to senses: one, MLFI is
prohibited or incapacitated by law to institute suit in Philippine courts
or two, it is not a real party in interes.
The laras were arguing that it wasnt transacting with MLFI but
with the other Merril Lynch. Evidence is needed in this situation
since it can not be expected that the ground or any facts from
which its existence may be inferred will be found in the
averments o the complaint. The general rule governing evidence
on motions applies (which allows affidavits or depositions to be
presented by the respective parties when a motion is based on
facts not appearing of record)
There was no affidavit or deposition attached to the MTD and
instead referred to documents purporting to establish that it was
not with MLFI that they had been dealing with.
These genuineness and relevance were not questioned (MLFI
questioned their admissibility in relation to the first ground), the
court did not err when it took account of the documents in
relation to the 2nd cause of action (lack of legal capacity to sue)

2. NO. MLFI was not denied procedural due process

MLFI had more than enough time to impugn the documents and require their
authentication but it did not do so.

3. YES

The SC was satisfied that the facts on record establish that MLFI had indeed
done business with the Laras in the Philippines over several years. That it did
so without being licensed to transact business here, and without MLPI being
authorized to operate as a commodity futures trading advisor. These are
factual findings of both TC and the CA and are generally conclusive. SC found
no reason to reverse these findings
It is also satisfied that the Laras did transact business with MLFI through its
agent corporation organized in the Philippines, it being unnecessary whether
it was MLPI or MLPFSI (MLPIs alleged predecessor). MLFI did deal with futures
contracts in exchanges in the US in behalf and for the account of the Laras
and that on several occasions, the Laras received account documents and
money in connection with those transactions
The last transaction in behalf of the Laras resulted in a loss and that the Laras
refused to pay for it. Now can it sue in Philippine courts for this sum despite it
being not licensed to transact business in the country? In other words if it be
true that during the time that they were transacting with MLFI, the Laras were
fully aware of its lack of license to do business in the Philippines, and
received money in relation to those transaction, are the Laras estopped to
impugn MLFIs capacity to sue them in court?

General rule: a party is estopped to challenge the personality of a

corporation after having acknowledged the same by entering into a
contrac with it. It applies to domestic as well as to foreign corporations.
One who has dealt with a corporation of foreign origins is estopped to
deny its corporate existence and capacity
Theres no question that the Laras benefited from the transactions and
assuming that the Laras were aware that MLFI had no license to act to
do business in the Philippines and that MLPI had no authority to act as
broker for it, it would be inequitable for the Laras to evade payment of
an otherwise legitimate indebtedness due to MLFI.
A proper trial court should adjudicate on the matter on whether they
were aware of the absence of the requisite licenses on the part of MLFI
and its Philippine correspondent MLPI.

CA decision REVERSED and SET ASIDE. RTC ordered to reinstate the civil case.

Justin Benedict A. Moreto