Merrill Lynch Futures, Inc. vs. CA (G.R. No. 97816, July 24, 1992) CorpLaw Case Digest by: A.J. Gomez

 Merrill Lynch Futures, Inc. vs. CA (G.R. No. 97816, July 24, 1992)

DOCTRINE: The doctrine of estoppel to deny corporate existence applies to foreign as well asto domestic corporations. The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering intoa contract with it.

FACTS:

Merrill Lynch Futures, Inc. filed a complaint against the Spouses Pedro M. Lara and Elisa G. Lara for the recovery of a debt and interest thereon, damages, and attorney's fees. 

In ML’s complaint, it described itself as 

1.  a non-resident foreign corporation, not doing business in the Philippines and 

2. 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.

In its complaint ML FUTURES alleged the following: 

1. that it entered into a Futures Customer Agreement with the defendant spouses, in virtue of which it agreed to act as the latter's broker for the purchase and sale of futures contracts in the U.S.; 

2. that the orders to buy and sell futures contracts were transmitted to ML FUTURES by the Lara Spouses "through the facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a company servicing plaintiffs customers;  

3. the Lara Spouses "knew and were duly advised that Merrill Lynch Philippines, Inc. was not a broker in futures contracts," and that it "did not have a license from the SEC to operate as a commodity trading advisor; 

4. the Lara Spouses actively traded in futures contracts for four years; 

5. that because of a loss incurred said spouses became indebted to ML FUTURES; 

6. that the Lara Spouses refused to pay this balance, "alleging that the transactions were null and void because Merrill Lynch Philippines, Inc., had no license to operate as a 'commodity and/or financial futures broker.'" 

The RTC and CA  dismissed  the case because the plaintiff has no legal capacity to sue and that the complaint states no cause of action.

ISSUE:

Whether or not a foreign corporation has a capacity to maintain an action in the Philippines against residents thereof

RULING: 

NO.

Despite having no license to transact business in the Philippines, the fact that the Lara Spouses had done business with ML in the Philippines through ML Philippines, the Spouses are now estopped to impugn ML’s capacity to sue them in Philippine courts.

Under Sec. 133 of the Corporation Code, “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.” 

However, one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity.  

This principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases where such person has received the benefits of the contract.

The Court is satisfied that the Spouses did transact business with ML through its agent corporation organized in the Philippines, and that on several occasions the latter   received   account   documents   and   money   in   connection   with   those transactions. 

There would seem to be no question that the Spouses receive benefits generated by their business relations with ML. 

Those business relations, spanned a period of 7 years; and they evidently found those relations to be of such profitability as warranted their maintaining them for that not insignificant period   of   time;   otherwise,   it   is   reasonably   certain   that   they   would   have terminated their dealings with ML much, much earlier. 

Considerations of equity dictate that, at the very least, the issue of whether theSpouses are in truth liable to ML and if so in what amount, and whether they were so far aware of the absence of the requisite licenses on the part of ML and its Philippine correspondent, as to be estopped from alleging that fact as defense to such liability, should be ventilated and adjudicated on the merits by the propertrial court.

CA Decision and Resolution is SET ASIDE. RTC QUEZON is ordered to reinstate Civil Case No. Q-52360.