G.R. No. 97816 July 24, 1992 MERRILL LYNCH FUTURES, INC., petitioner, vs. HON.

COURT OF A EALS, !"# $%& S OUSES E'RO M. LARA !"# ELISA G. LARA, respondents.

2- that pursuant to the contract, orders to buy and sell futures contracts were transmitted to $% &)T)*+, by the %ara ,pouses 9through the facilities of $errill %ynch Philippines, 'nc., a Philippine corporation and a company servicing plaintiffs customers8 2 3- that from the outset, the %ara ,pouses 9:new and were duly advised that $errill %ynch Philippines, 'nc. was not a bro:er in futures contracts,9 and that it 9did not have a license from the ,ecurities and +5change .ommission to operate as a commodity trading advisor (i.e., 2an entity which, not being a bro:er, furnishes advice on commodity futures to persons who trade in futures contracts2-8 =- that in line with the above mentioned agreement and through said $errill %ynch Philippines, 'nc., the %ara ,pouses actively traded in futures contracts, including 9stoc: inde5 futures9 for four years or so, i.e., from !"3 to October, !"#, ) there being more or less regular accounting and corresponding remittances of money (or crediting or debiting- made between the spouses and $% &)T)*+,8 >- that because of a loss amounting to ),? <@,#=!.<! incurred in respect of three (3- transactions involving 9inde5 futures,9 and after setting this off against an amount of ),?#>,! 3.=2 then owing by $% &)T)*+, to the %ara ,pouses, said spouses became indebted to $% &)T)*+, for the ensuing balance of ),?"=,"3<.2#, which the latter as:ed them to pay8 <- that the %ara ,pouses however refused to pay this balance, 9alleging that the transactions were null and void because $errill %ynch Philippines, 'nc., the Philippine company servicing accounts of plaintiff, . . had no license to operate as a 2commodity andAor financial futures bro:er.29 On the foregoing essential facts, $% &)T)*+, prayed ( - for a preliminary attachment against defendant spouses2 properties 9up to the value of at least P2,2<#, 3!.>@,9 and (2- for Budgment, after trial, sentencing the spouses to pay $% &)T)*+,; a- the Philippine peso equivalent of ?"=,"3<.2# at the applicable e5changed rate on date of payment, with legal interest from date of demand until full payment8 b- e5emplary damages in the sum of at least P>@@,@@@.@@8 and c- attorney2s fees and e5penses of litigation as may be proven at the trial.

NAR(ASA, C.J.: The capacity of a foreign corporation to maintain an action in the Philippines against residents thereof, is the principal question in the appellate proceedings at bar. The issue arises from the undisputed facts now to be briefly narrated. On November 23, !"#, $errill %ynch &utures, 'nc. (hereafter, simply $% &)T)*+,- filed a complaint with the *egional Trial .ourt at /ue0on .ity against the ,pouses Pedro $. %ara and +lisa 1. %ara for the recovery of a debt and interest thereon, damages, and attorney2s fees. 1 'n its complaint $% &)T)*+, described itself as 3 a- a non4resident foreign corporation, not doing business in the Philippines, duly organi0ed and e5isting under and by virtue of the laws of the state of 6elaware, ).,.7.89 as well as b- a 9futures commission merchant9 duly licensed to act as such in the futures mar:ets and e5changes in the )nited ,tates, . . essentially functioning as a bro:er . . (e5ecutingorders to buy and sell futures contracts received from its customers on ).,. futures e5changes. 't also defined a 9futures contract9 as a 9contractual commitment to buy and sell a standardi0ed quantity of a particular item at a specified future settlement date and at a price agreed upon, with the purchase or sale being e5ecuted on a regulated futures e5change.9 'n its complaint $% &)T)*+, alleged the following; - that on ,eptember 2", !"3 it entered into a &utures .ustomer 7greement with the defendant spouses (7ccount No. 3"4 2 < -, in virtue of which it agreed to act as the latter2s bro:er for the purchase and sale of futures contracts in the ).,.8

Preliminary attachment issued ex parte on 6ecember 2, !"#, and the defendant spouses were duly served with summons. They then filed a motion to dismiss dated 6ecember ", !"# on the grounds that; ( - plaintiff $% &)T)*+, had 9no legal capacity to sue9 and (2- its 9complaint states no cause of action since . . (it- is not the real party in interest.9 'n that motion to dismiss, the defendant spouses averred that; a- although not licensed to do so, $% &)T)*+, had been doing business in the Philippines 9at least for the last four (=- years,9 this being clear from the very allegations of the complaint8 consequently, $% &)T)*+, is prohibited by law 9to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines89 and b- they had never been informed that $errill %ynch Philippines, 'nc. was not licensed to do business in this country8 and contrary to the allegations of the complaint, all their transactions had actually been with $+**'%% %CN.D P'+*.+ &+NN+* E ,$'TD, 'N.., and not with ML FUTURES ($errill %ynch &utures, 'nc.-, in proof of which they attached to their motion to dismiss copies of eight ("- agreements, receipts or reminders, etc., e5ecuted on standard printed forms of said $errill %ynch Pierce &enner E ,mith 'nc. 4 $% &)T)*+, filed an OPPO,'T'ON to the defendant spouses2 motion to dismiss. 'n that motion 3 a- it drew attention to paragraph = of its complaint, admitted by defendants, that the latter 9have been actively trading in futures contracts . . . in ).,. futures e5changes from !"3 to !"#,9 and as:, 9'f the trading . . . (wasmade in ).,., how could plaintiff be doing business in the PhilippinesF9 b- it also drew attention to a printed form of 9$errill %ynch &utures, 'nc.9 filled out and signed by defendant spouses when they opened an account with $% &utures, in order to supply information about themselves, including their ban:2s name 3 ( - in which appear the following epigraph; 97ccount introduced by $errill %ynch 'nternational, 'nc.,9 and the following statements, to wit;

This .ommodity Trading 7dvisor ($errill %ynch, Pierce, &enner E ,mith Philippines, 'nc.- is prohibited by the Philippine ,ecurities and +5change .ommission from accepting funds in the trading advisor2s name from a client of $errill %ynch &utures, 'nc. for trading commodity interests. 7ll funds in this trading program must be placed with $errill %ynch &utures, 'nc.8 and . . . 't is agreed between $+**'%% %CN.D, P'+*.+, &+NN+* E ,$'TD 'N.., and other account carrying $+**'%% %CN.D entities and their customers that all legal relationships between them will be governed by applicable laws in countries outside the Philippines where sale and purchase transactions ta:e place. c- and it argued that 3 ( - it is not permitted for defendant spouses to present 9evidence9 in connection with a motion to dismiss based on failure of the complaint to state a cause of action8 (2- even if the documents appended to the motion to dismiss be considered as admissible 9evidence,9 the same would be immaterial since the documents refer to a different account number; 138-12136,the defendants2 account number with $% &)T)*+, being 138-121618 (3- it is a lie for the defendant spouses to assert that they were never informed that $errill %ynch Philippines, 'nc. had not been licensed to do business in the Philippines8 and (=- defendant spouses should not be allowed to 9invo:e the aid of the court with unclean hands. The defendant spouses filed a *+P%C reaffirming their lac: of awareness that $errill %ynch Philippines, 'nc.(formerl re!i"tere# a" Merrill L n$h, %ier$e, Fenner & Smith %hilippine", 'n$.( * did not have a license, claiming that they learned of this only from inquiries with the ,ecurities and +5change .ommission which elicited the information that it had denied said corporation2s application to operate as a commodity futures trading advisor 3 a denial subsequently affirmed by the .ourt of 7ppeals ($errill %ynch Philippines, 'nc. v. ,ecurities E +5change .ommission, )*-+.R. ,o. 1-821S%, ,o..1/, 1/80-. The spouses also submitted additional documents

(7nne5es G to *- involving transactions with $errill %ynch Pierce &enner E ,mith, 'nc., dating bac: to !"@, stressing that all but one of the documents 9refer to 7ccount No. 3"4 2 < which is the very account that is involved in the instant complaint.9 $% &)T)*+, filed a *eBoinder alleging it had given the spouses a disclosure statement by which the latter were made aware that the transactions they were agreeing on would ta:e place outside of the Philippines, and that 9all funds in the trading program must be placed with $errill %ynch &utures, 'nc.9 On Ganuary 2, !"", the Trial .ourt promulgated an Order sustaining the motion to dismiss, directing the dismissal of the case and discharging the writ of preliminary attachment. 't later denied $% &)T)*+,2s motion for reconsideration, by Order dated &ebruary 2!, !"". $% &)T)*+, appealed to the .ourt of 7ppeals. 6 'n its own decision promulgated on November 2#, !!@, 7 the .ourt of 7ppeals affirmed the Trial .ourt2s Budgment. 't declared that the Trial .ourt had seen 9through the charade in the representation of $%P' and the plaintiff that $%P' is only a trading advisor and in fact it is a conduit in the plaintiff2s business transactions in the Philippines as a basis for invo:ing the provisions of ,ection 33 of the .orporation .ode,9 8 .i1.; ,ec. 33. 2oin! 34"ine"" witho4t a li$en"e. 3 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 Philippines8 but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recogni0ed under Philippine laws. 't also declared that the evidence established that plaintiff had in fact been 9doing business9 in this country in legal contemplation, adverting to Mentholat4m .. Man!aliman, #2 Phil. >2=, >2"4>3@, and ,ection of *epublic 7ct No. >=>> reading as follows; 9 ,ec. . 2efinition an# "$ope of thi" *)T . ( - 7s used in this 7ct, the term 9investment9 shall mean equity participation in any enterprise formed, organi0ed, or e5isting under the laws of the Philippines8 and the phrase 9doing business9 "hall ',)LU2E "oli$itin! or#er", p4r$ha"e", "er.i$e $ontra$t", openin! offi$e", whether called 9liaison9 offices or branches8 appointin! repre"entati.e" or distributors who are domiciled in the Philippines or who in any calendar year stay

in the Philippines for a perio# or perio#" totallin! one h4n#re# ei!ht #a " or more8 participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines8 7N6 7NC OTD+* 7.T O* 7.T, TD7T '$P%C 7 .ONT'N)'TC O& .O$$+*.'7% 6+7%'N1, O* 7**7N1+$+NT, 7N6 .ONT+$P%7T+ TO TD7T +HT+NT TD+ P+*&O*$7N.+ O& 7.T, O* IO*J,, O* TD+ +H+*.',+ O& ,O$+ &)N.T'ON, NO*$7%%C 'N.'6+NT TO, 7N6 'N P*O1*+,,'K+ P*O,+.)T'ON O& .O$$+*.'7% 17'N O* O& TD+ P)*PO,+ 7N6 OLG+.T O& TD+ L),'N+,, O*17N'M7T'ON. 7s regards the claim that it was error for the Trial .ourt to place reliance on the decision of the .ourt of 7ppeals in .741.*. No. @"2 4,P 3 sustaining the finding of the ,ecurities E +5change .ommission that $% &)T)*+, was doing business in the Philippines 3 since that Budgment was not yet final and $% &)T)*+, was not a party to that proceeding, the .ourt of 7ppeals ruled that there was no need to belabor the point considering that there was, in any event, 9adequate proof of the activities of $%P' . . . which manifestly show that the plaintiff ($% &)T)*+,- performed a series of business acts, consummated contracts and undertoo: transactions for the period from !"3 to October !"#,9 9and because $% &)T)*+, had done so without license, it consequently had 9no legal personality to bring suit in Philippine courts.9 'ts motion for reconsideration having been denied, 1+ $% &)T)*+, has appealed to this .ourt on $ertiorari. Dere, it submits the following issues for resolution; (a- Ihether or not the anne5es appended by the %aras to their $otion to 6ismiss and *eply filed with the *egional Trial .ourt, but never authenticated or offered, constitute admissible evidence. (b- Ihether or not in the proceedings below, $% &)T)*+, has been accorded procedural due process. (c- Ihether or not the anne5es, assuming them to be admissible, established that $% &)T)*+, was doing business in the Philippines without a license. 7s Bust stated, the %ara ,pouse2s motion to dismiss was founded on two (2grounds; (a- that the plaintiff has no legal capacity to sue, and (b- that the complaint states no cause of action (,ec. NdO, and NgO, *ule <, *ules of .ourt-.

7s regards the second ground, i.e., that the complaint states no cause of action, the settled doctrine of course is that said ground must appear on the face of the complaint, and its e5istence may be determined only by the allegations of the complaint, consideration of other facts being proscribed, and any attempt to prove e5traneous circumstances not being allowed. 11 The test of the sufficiency of the facts alleged in a complaint as constituting a cause of action is whether or not, admitting the facts alleged, the court might render a valid Budgment upon the same in accordance with the prayer of the complaint. 12 'ndeed, it is error for a Budge to conduct a preliminary hearing and receive evidence on the affirmative defense of failure of the complaint to state a cause of action. 1) The other ground for dismissal relied upon, i.e., that the plaintiff has no legal capacity to sue 3 may be understood in two senses; one, that the plaintiff is prohibited or otherwise incapacitated by law to institute suit in Philippine .ourts, 14 or two, although not otherwise incapacitated in the sense Bust stated, that it is not a real party in interest. 1* Now, the %ara ,pouses contend that $% &utures has no capacity to sue them because the transactions subBect of the complaint were had by them, not with the plaintiff $% &)T)*+,, but with Merrill L n$h %ier$e Fenner & Smith, 'n$. +vidence is quite obviously needed in this situation, for it is not to be e5pected that said ground, or any facts from which its e5istence may be inferred, will be found in the averments of the complaint. Ihen such a ground is asserted in a motion to dismiss, the general rule governing evidence on motions applies. The rule is embodied in ,ection #, *ule 33 of the *ules of .ourt. ,ec. #. E.i#en$e on motion. 3 Ihen a motion is based on facts not appearing of record the court may hear the matter on affidavits or depositions presented by the respective parties, but the court may direct that the matter be heard wholly or partly on oral testimony or depositions. There was, to be sure, no affidavit or deposition attached to the %ara ,pouses2 motion to dismiss or thereafter proffered in proof of the averments of their motion. The motion itself was not verified. Ihat the spouses did do was to refer in their motion to documents which purported to establish that it was not with $% &)T)*+, that they had theretofore been dealing, but another, distinct entity, $errill %ynch, Pierce, &enner E ,mith, 'nc., copies of which documents were attached to the motion. 't is significant that $% &)T)*+, raised no issue relative to the authenticity of the documents thus anne5ed to the %aras2 motion. 'n fact, its arguments subsumed the genuineness thereof and even adverted to one or two of them. 'ts obBection was centered on the propriety of ta:ing account of those documents as evidence, considering the established principle that no evidence should be received in the resolution of a motion to dismiss based on an alleged failure of the complaint to state a cause of action.

There being otherwise no question respecting the genuineness of the documents, nor of their relevance to at least one of the grounds for dismissal 3 i.e., the prohibition on suits in Philippine .ourts by foreign corporations doing business in the country without license 3 it would have been a superfluity for the .ourt to require prior proof of their authenticity, and no error may be ascribed to the Trial .ourt in ta:ing account of them in the determination of the motion on the !ro4n#, not that the $omplaint fail" to "tate a $a4"e of a$tion 5 a" re!ar#" whi$h e.i#en$e i" improper an# impermi""i3le 5 34t that the plaintiff ha" no le!al $apa$it to "4e 5 re"pe$tin! whi$h proof ma an# "ho4l# 3e pre"ente# . Neither may $% &)T)*+, argue with any degree of tenability that it had been denied due process in the premises. 7s Bust pointed out, it was very clear from the outset that the claim of lac: of its capacity to sue was being made to rest squarely on the documents anne5ed thereto, and $% &)T)*+, had more than ample opportunity to impugn those documents and require their authentication, but did not do so. To sustain its theory that there should have been identification and authentication, and formal offer, of those documents in the Trial .ourt pursuant to the rules of evidence would be to give unwarranted importance to technicality and ma:e it prevail over the substance of the issue. The first question then, is, as $% &)T)*+, formulates it, whether or not the anne5es, assuming them to be admissible, establish that (a- $% &)T)*+, is prohibited from suing in Philippine .ourts because doing business in the country without a license, and that (b- it is not a real party in interest since the %ara ,pouses had not been doing business with it, but with another corporation, $errill %ynch, Pierce, &enner E ,mith, 'nc. The .ourt is satisfied that the facts on record adequately establish that $% &)T)*+,, operating in the )nited ,tates, had indeed done business with the %ara ,pouses in the Philippines over several years, had done so at all times through $errill %ynch Philippines, 'nc. ($%P'-, a corporation organi0ed in this country, and had e5ecuted all these transactions without $% &)T)*+, being licensed to so transact business here, and without $%P' being authori0ed to operate as a commodity futures trading advisor. These are the factual findings of both the Trial .ourt and the .ourt of 7ppeals. These, too, are the conclusions of the ,ecurities E +5change .ommission which denied $%P'2s application to operate as a commodity futures trading advisor, a denial subsequently affirmed by the .ourt of 7ppeals. Prescinding from the proposition that factual findings of the .ourt of 7ppeals are generally conclusive this .ourt has been cited to no circumstance of substance to warrant reversal of said 7ppellate .ourt2s findings or conclusions in this case.

The .ourt is satisfied, too, that the %aras did transact business with $% &)T)*+, through its agent corporation organi0ed in the Philippines, it being unnecessary to determine whether this domestic firm was $%P' ($errill %ynch Philippines, 'nc.- or $errill %ynch Pierce &enner E ,mith ($%P'2s alleged predecessor-. The fact is that $% &)T)*+, did deal with futures contracts in e5changes in the )nited ,tates in behalf and for the account of the %ara ,pouses, and that on several occasions the latter received account documents and money in connection with those transactions. 1iven these facts, if indeed the last transaction e5ecuted by $% &)T)*+, in the %aras2s behalf had resulted in a loss amounting to ), ? <@,#=!.<!8 that in relation to this loss, $% &)T)*+, had credited the %aras with the amount of ),?#>,! 3.=2 3 which it ($% &)T)*+,- then admittedly owed the spouses 3 and thereafter sought to collect the balance, ),?"=,"3<.2#, but the %aras had refused to pay (for the reasons already above stated-, the crucial question is whether or not $% &)T)*+, may sue in Philippine .ourts to establish and enforce its rights against said spouses, in light of the undeniable fact that it had transacted business in this country without being licensed to do so. 'n other words, if it be true that during all the time that they were transacting with $% &)T)*+,, the %aras were fully aware of its lac: of license to do business in the Philippines, and in relation to those transactions had made payments to, and received money from it for several years, the question is whether or not the %ara ,pouses are now estopped to impugn $% &)T)*+,2 capacity to sue them in the courts of the forum. The rule is that a party is estopped to challenge the personality of a corporation after having ac:nowledged the same by entering into a contract with it. 16 7nd the 9doctrine of estoppel to deny corporate e5istence applies to foreign as well as to domestic corporations89 17 9one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate e5istence and capacity.9 18 The principle 9will be applied to prevent a person contracting with a foreign corporation from later ta:ing advantage of its noncompliance with the statutes, chiefly in cases where such person has received the benefits of the contract (,herwood v. 7lvis, "3 7la >, 3 ,o 3@#, limited and distinguished in 6udley v. .ollier, "# 7la =3 , < ,o 3@=8 ,pinney v. $iller, = 'owa 2 @, "< NI 3 #-, where such person has acted as agent for the corporation and has violated his fiduciary obligations as such, and where the statute does not provide that the contract shall be void, but merely fi5es a special penalty for violation of the statute. . . .9 19 The doctrine was adopted by this .ourt as early as !2= in *"ia 6an7in! )orporation .. Stan#ar# %ro#4$t" )o.,2+ in which the following pronouncement was made; 21 The general rule that in the absence of fraud of person who has contracted or otherwise dealt with an association in such

a way as to recogni0e and in effect admit its legal e5istence as a corporate body is thereby estopped to deny its corporate e5istence in any action leading out of or involving such contract or dealing, unless its e5istence is attac:ed for causes which have arisen since ma:ing the contract or other dealing relied on as an estoppel and thi" applie" to forei!n a" well a" #ome"ti$ $orporation". ( = ).8 .#8 .hinese .hamber of .ommerce vs. Pua Te .hing, = Phil. 222-. There would seem to be no question that the %aras received benefits generated by their business relations with $% &)T)*+,. Those business relations, according to the %aras themselves, spanned a period of seven (#years8 and they evidently found those relations to be of such profitability as warranted their maintaining them for that not insignificant period of time8 otherwise, it is reasonably certain that they would have terminated their dealings with $% &)T)*+, much, much earlier. 'n fact, even as regards their last transaction, in which the %aras allegedly suffered a loss in the sum of ),? <@,#=!.<!, the %aras nonetheless still received some monetary advantage, for $% &)T)*+, credited them with the amount of ),?#>,! 3.=2 then due to them, thus reducing their debt to ),?"=,"3<.2#. 1iven these facts, and assuming that the %ara ,pouses were aware from the outset that $% &)T)*+, had no license to do business in this country and $%P', no authority to act as bro:er for it, it would appear quite inequitable for the %aras to evade payment of an otherwise legitimate indebtedness due and owing to $% &)T)*+, upon the plea that it should not have done business in this country in the first place, or that its agent in this country, $%P', had no license either to operate as a 9commodity andAor financial futures bro:er.9 .onsiderations of equity dictate that, at the very least, the issue of whether the %aras are in truth liable to $% &)T)*+, and if so in what amount, and whether they were so far aware of the absence of the requisite licenses on the part of $% &)T)*+, and its Philippine correspondent, $%P', as to be estopped from alleging that fact as defense to such liability, should be ventilated and adBudicated on the merits by the proper trial court. ID+*+&O*+, the decision of the .ourt of 7ppeals in .741.*. .K No. <=#" dated November 2#, !!@ and its *esolution of $arch #, !! are *+K+*,+6 and ,+T 7,'6+, and the *egional Trial .ourt at /ue0on .ity, Lranch "=, is O*6+*+6 to reinstate .ivil .ase No. /4>23<@ and forthwith conduct a hearing to adBudicate the issues set out in the preceding paragraph on the merits. ,O O*6+*+6. %a#illa, Re!ala#o an# ,o$on, 889, $on$4r9

%ara", 89, Retire# a" of 84l :, 1//29