[G.R. No. 73765. August 26, 1991.
] "AND IT IS ADJUDGED that the 1st and 2nd Defendants do pay the Plaintiff the sum of
HANG LUNG BANK, LTD., petitioner, vs. HON. FELINTRIYE G. SAULOG, Presiding
Judge, Regional Trial Court, National Capital Judicial Region, Branch CXLII, Makati,
Metro Manila and CORDOVA CHIN SAN, respondents.
Belo, Abiera & Associates for petitioner.
Castelo Law Office for private respondent.
DECISION
FERNAN,C. J p:
Challenged in this petition for certiorari which is anchored on grave abuse of discretion,
are two orders of the Regional Trial Court, Branch CXLII of Makati, Metro Manila
dismissing the complaint for collection of a sum of money and denying the motion for
reconsideration of the dismissal order on the ground that petitioner, a Hongkong-based
bank, is barred by the General Banking Act from maintaining a suit in this jurisdiction.
The records show that on July 18, 1979, petitioner Hang Lung Bank, Ltd., which was not
doing business in the Philippines, entered into two (2) continuing guarantee agreements
with Cordova Chin San in Hongkong whereby the latter agreed to pay on demand all
sums of money which may be due the bank from Worlder Enterprises to the extent of the
total amount of two hundred fifty thousand Hongkong dollars (HK $250,000). 1
Worlder Enterprises having defaulted in its payment, petitioner filed in the Supreme
Court of Hongkong a collection suit against Worlder Enterprises and Chin San.
Summonses were allegedly served upon Worlder Enterprises and Chin San at their
addresses in Hongkong but they failed to respond thereto. prLL
Consequently, the Supreme Court of Hongkong issued the following:
"J U D G M E N T
"THE 14th DAY OF JUNE, 1984
"No notice of intention to defend having been given by the 1st and 2nd Defendants
herein, IT IS THIS DAY ADJUDGED that:
"(1) the 1st Defendant (Ko Ching Chong Trading otherwise known as the Worlder
Enterprises) do pay the Plaintiff the sum of HK$, 117,968.36 together with interest on
the respective principal sums of HK$196,591.38, HK$200,216.29, HK$526,557.63,
HK$49,350.00 and HK$3,965.50 at the rates of 1.7% per month (or HK$111.40 per day),
18.5% per annum (or HK$101.48 per day), 1.85% per month (or HK$324.71 per day),
1.55% per month (or HK$25.50 per day) and 1.7% per month (or HK$2.25 per day)
respectively from 4th May 1984 up to the date of payment; and
"(2) the 2nd Defendant (Cordova Chin San) do pay the Plaintiff the sum of
HK$279,325.00 together with interest on the principal sum of HK$250,000.00 at the rate
of 1.7% per month (or HK$141.67 per day) from 4th May 1984 up to the date of
payment.
HK$970.00 fixed costs.
"N.J. BARNETT
Registrar"
Thereafter, petitioner through counsel sent a demand letter to Chin San at his Philippine
address but again, no response was made thereto. Hence, on October 18, 1984, petitioner
instituted in the court below an action seeking "the enforcement of its just and valid
claims against private respondent, who is a local resident, for a sum of money based on a
transaction which was perfected, executed and consummated abroad." 2
In his answer to the complaint, Chin San raised as affirmative defenses: lack of cause of
action, incapacity to sue and improper venue. 3
Pre-trial of the case was set for June 17, 1985 but it was postponed to July 12, 1985.
However, a day before the latter pre-trial date, Chin San filed a motion to dismiss the case
and to set the same for hearing the next day. The motion to dismiss was based on the
grounds that petitioner had no legal capacity to sue and that venue was improperly laid.
Acting on said motion to dismiss, on December 20, 1985, the lower court 4 issued the
following order:
"On defendant Chin San Cordova's motion to dismiss, dated July 10, 1985; plaintiff's
opposition, dated July 12, 1985; defendant's reply, dated July 22, 1985; plaintiff's
supplemental opposition, dated September 13, 1985; and defendant's rejoinder filed on
September 23, 1985, said motion to dismiss is granted.
"Section 14, General Banking Act provides:
'No foreign bank or banking corporation formed, organized or existing under any laws
other than those of the Republic of the Philippines, shall be permitted to transact
business in the Philippines, or maintain by itself any suit for the recovery of any debt,
claims or demands whatsoever until after it shall have obtained, upon order of the
Monetary Board, a license for that purpose.'
"Plaintiff Hang Lung Bank, Ltd. with business and postal address at the 3rd Floor, United
Centre, 95 Queensway, Hongkong, does not do business in the Philippines. The
continuing guarantee, Annexes 'A' and 'B' appeared to have been transacted in Hongkong.
Plaintiff's Annex 'C' shows that it had already obtained judgment from the Supreme
Court of Hongkong against defendant involving the same claim on June 14, 1984.
"The cases of Mentholatum Company, Inc. versus Mangaliman, 72 Phil. 524 and Eastern
Seaboard Navigation, Ltd. versus Juan Ysmael & Company, Inc., 102 Phil. 1-8, relied upon
by plaintiff, deal with isolated transaction in the Philippines of foreign corporation. Such
transaction though isolated is the one that conferred jurisdiction to Philippine courts, but
in the instant case, the transaction occurred in Hongkong.
"Case dismissed. The instant complaint not the proper action.
"SO ORDERED." 5
Petitioner filed a motion for the reconsideration of said order but it was denied for lack
of merit. 6 Hence, the instant petition for certiorari seeking the reversal of said orders "so
as to allow petitioner to enforce through the court below its claims against private
respondent as recognized by the Supreme Court of Hongkong." 7
Petitioner asserts that the lower court gravely abused its discretion in: (a) holding that
the complaint was not the proper action for purposes of collecting the amount
guaranteed by Chin San "as recognized and adjudged by the Supreme Court of
Hongkong;" (b) interpreting Section 14 of the General Banking Act as precluding
petitioner from maintaining a suit before Philippine courts because it is a foreign
corporation not licensed to do business in the Philippines despite the fact that it does not
do business here, and (c) impliedly sustaining private respondent's allegation of
improper venue. LLpr
We need not detain ourselves on the issue of improper venue. Suffice it to state that
private respondent waived his right to invoke it when he forthwith filed his answer to the
complaint thereby necessarily implying submission to the jurisdiction of the court. 8
The resolution of this petition hinges on a determination of whether petitioner
foreign banking corporation has the capacity to file the action below.
Private respondent correctly contends that since petitioner is a bank, its capacity to file
an action in this jurisdiction is governed by the General Banking Act (Republic Act No.
337), particularly Section 14 thereof which provides:
"SEC. 14. No foreign bank or banking corporation formed, organized or existing under
any laws other than those of the Republic of the Philippines shall be permitted to
transact business in the Philippines, or maintain by itself or assignee any suit for the
recovery of any debt, claims, or demand whatsoever, until after it shall have obtained,
upon order of the Monetary Board, a license for that purpose from the Securities and
Exchange Commissioner. Any officer, director or agent of any such corporation who
transacts business in the Philippines without the said license shall be punished by
imprisonment for not less than one year nor more than ten years and by a fine of not less
than one thousand pesos nor more than ten thousand pesos." (45 O.G. No. 4, 1647, 1649-
1650).
In construing this provision, we adhere to the interpretation given by this Court to the
almost identical Section 69 of the old Corporation Law (Act No. 1459) which reads:
"SEC. 69. No foreign corporation or corporation formed, organized, or existing under any
laws other than those of the Philippines shall be permitted to transact business in the
Philippines or maintain by itself or assignee any suit for the recovery of any debt, claim,
or demand whatever, unless it shall have the license prescribed in the section
immediately preceding. Any officer, director or agent of the corporation or any person
transacting business for any foreign corporation not having the license prescribed shall
be punished by imprisonment for not less than six months nor more than two years or by
a fine of not less than two hundred pesos nor more than one thousand pesos, or by both
such imprisonment and fine, in the discretion of the Court."
In a long line of cases, this Court has interpreted this last quoted provision as not
altogether prohibiting a foreign corporation not licensed to do business in the
Philippines from suing or maintaining an action in Philippine courts. 9 What it seeks to
prevent is a foreign corporation doing business In the Philippines without a license from
gaining access to Philippine courts. As elucidated in Marshall-Wells Co. vs. Elser & Co., 46
Phil. 70.
"The object of the statute was to subject the foreign corporation doing business in the
Philippines to the jurisdiction of its courts. The object of the statute was not to prevent it
from performing single acts but to prevent it from acquiring a domicile for the purpose of
business without taxing the steps necessary to render it amenable to suit in the local
courts. The implication of the law is that it was never the purpose of the Legislature to
exclude a foreign corporation which happens to obtain an isolated order for business
from the Philippines from securing redress from Philippine courts, and thus, in effect, to
permit persons to avoid their contract made with such foreign corporation. The effect of
the statute preventing foreign corporations from doing business and from bringing
actions in the local courts, except on compliance with elaborate requirements, must not
be unduly extended or improperly applied. It should not be construed to extend beyond
the plain meaning of its terms, considered in connection with its object, and in
connection with the spirit of the entire law."
The fairly recent case of Universal Shipping Lines vs. Intermediate Appellate Court, 10
although dealing with the amended version of Section 69 of the old Corporation Code,
Section 133 of the Corporation Code (Batas Pambansa Blg. 68), but which is nonetheless
apropos, states the rule succinctly: "it is not the lack of the prescribed license (to do
business in the Philippines) but doing business without license, which bars a foreign
corporation from access to our courts."
Thus, we have ruled that a foreign corporation not licensed to do business in the
Philippines may file a suit in this country due to the collision of two vessels at the harbor
of Manila 11 and for the loss of goods bound for Hongkong but erroneously discharged
in Manila. 12
Indeed, the phraseologies of Section 14 of the General Banking Act and its almost
identical counterpart Section 69 of the old Corporation Code are misleading in that they
seem to require a foreign corporation, including a foreign bank or banking corporation,
not licensed to do business and not doing business in the Philippines to secure a license
from the Securities and Exchange Commission before it can bring or maintain an action
in Philippine courts. To avert such misimpression, Section 133 of the Corporation Code is
now more plainly worded thus:
"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."
Under this provision, we have ruled that a foreign corporation may sue in this
jurisdiction for infringement of trademark and unfair competition although it is not
doing business in the Philippines 13 because the Philippines was a party to the
Convention of the Union of Paris for the Protection of Industrial Property. 14
We even went further to say that a foreign corporation not licensed to do business in the
Philippines may not be denied the right to file an action in our courts for an isolated
transaction in this country. 15
Since petitioner foreign banking corporation was not doing business in the
Philippines, it may not be denied the privilege of pursuing its claims against
private respondent for a contract which was entered into and consummated
outside the Philippines. Otherwise we will be hampering the growth and development
of business relations between Filipino citizens and foreign nationals. Worse, we will be
allowing the law to serve as a protective shield for unscrupulous Filipino citizens who
have business relationships abroad. prLL
In its pleadings before the court, petitioner appears to be in a quandary as to whether the
suit below is one for enforcement or recognition of the Hongkong judgment. Its
complaint states:
"COMES NOW Plaintiff, by undersigned counsel, and to this Honorable Court, most
respectfully alleges that:
"1. Plaintiff is a corporation duly organized and existing under and by virtue of the
laws of Hongkong with business and postal address at the 3rd Floor, United Centre, 95
Queensway, Hongkong, not doing business in the Philippines, but is suing for this isolated
transaction, but for purposes of this complaint may be served with summons and legal
processes of this Honorable Court, at the 6th Floor, Cibeles Building, 6780 Ayala Avenue,
Makati, Metro Manila, while defendant Cordova Chin San, may be served with summons
and other legal processes of this Honorable Court at the Municipality of Moncada,
Province of Tarlac, Philippines;
"2. On July 18, 1979 and July 25, 1980, the defendant executed Continuing
Guarantees, in consideration of plaintiff's from time to time making advances, or coming
to liability or discounting bills or otherwise giving credit or granting banking facilities
from time to time to, or on account of the Wolder Enterprises (sic), photocopies of the
Contract of Continuing Guarantees are hereto attached as Annexes 'A' and 'B',
respectively, and made parts hereof;
"3. In June 1984, a complaint was filed by plaintiff against the Wolder Enterprises
(sic) and defendant Cordova Chin San, in The Supreme Court of Hongkong, under Case
No. 3176, and pursuant to which complaint, a judgment dated 14th day of July, 1984 was
rendered by The Supreme Court of Hongkong ordering to (sic) defendant Cordova Chin
San to pay the plaintiff the sum of HK$279,325.00 together with interest on the principal
sum of HK$250,000.00 at the rate of HK$1.7% per month or (HK$141.67) per day from
4th May, 1984 up to the date the said amount is paid in full, and to pay the sum of
HK$970.00 as fixed cost, a photocopy of the Judgment rendered by The Supreme Court of
Hongkong is hereto attached as Annex 'C' and made an integral part hereof;
"4. Plaintiff has made demands upon the defendant in this case to pay the aforesaid
amount the last of which is by letter dated July 16, 1934 sent by undersigned counsel, a
photocopy of the letter of demand is hereto attached as Annex 'D' and the Registry
Return Card hereto attached as Annex 'E' respectively, and made parts hereof. However,
this notwithstanding, defendant failed and refused and still continue to fail and refuse to
make any payment to plaintiff on the aforesaid amount of HK$279,325.00 plus interest
on the principal sum of HK$250,000.00 at the rate of (HK$1141.67) per day from May 4,
1984 up to the date of payment;
"5. In order to protect and safeguard the rights and interests of herein plaintiff, it
has engaged the services of undersigned counsel, to file the suit at bar, and for whose
services it has agreed to pay an amount equivalent to 25% of the total amount due and
owing, as of and by way of attorney's fees plus costs of suit.
"WHEREFORE, premises considered, it is most respectfully prayed of this Honorable
Court that judgment be rendered ordering the defendant:
"a) To pay plaintiff the sum of HK$279,325.00 together with interest on the
principal sum of HK$250,000.00 at the rate of HK$1.7% (sic) per month (or HK$141.67
per day) from May 4, 1984 until the aforesaid amount is paid in full;
"b) To pay an amount equivalent to 25% of the total amount due and demandable
as of and by way of attorney's fees, and
"c) To pay costs of suit, and
"Plaintiff prays for such other and further reliefs, to which it may by law and equity, be
entitled." 16
The complaint therefore appears to be one of the enforcement of the Hongkong judgment
because it prays for the grant of the affirmative relief given by said foreign judgment. 17
Although petitioner asserts that it is merely seeking the recognition of its claims based
on the contract sued upon and not the enforcement of the Hongkong judgment, 18 it
should be noted that in the prayer of the complaint, petitioner simply copied the
Hongkong judgment with respect to private respondent's liability. prLL
However, a foreign judgment may not be enforced if it is not recognized in the
jurisdiction where affirmative relief is being sought. Hence, in the interest of justice, the
complaint should be considered as a petition for the recognition of the Hongkong
judgment under Section 50 (b), Rule 39 of the Rules of Court in order that the defendant,
private respondent herein, may present evidence of lack of jurisdiction, notice, collusion,
fraud or clear mistake of fact and law, if applicable.
WHEREFORE, the questioned orders of the lower court are hereby set aside. Civil Case
No. 8762 is reinstated and the lower court is directed to proceed with dispatch in the
disposition of said case. This decision is immediately executory. No costs.
FIRST DIVISION
[G.R. No. 97816. July 24, 1992.]
MERRILL LYNCH FUTURES, INC., petitioner, vs. HON. COURT OF APPEALS, and the
SPOUSES PEDRO M. LARA and ELISA G. LARA, respondents.
Sycip, Salazar, Hernandez & Gatmaitan for petitioner.
Renato T. Paguio for private respondent.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; MOTION TO DISMISS; FAILURE TO STATE
A CAUSE OF ACTION; RULE. the Lara Spouses' motion to dismiss was founded on two
(2) grounds: (a) that the plaintiff has no legal capacity to sue, and (b) that the complaint
states no cause of action (Sec. 1 [d], and [g], Rule 16, Rules of Court). As 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 existence
may be determined only by the allegations of the complaint, considering of other facts
being proscribed, and any attempt to prove extraneous circumstances not being allowed.
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
judgment upon the same in accordance with the prayer of the complaint. Indeed, it is
error for a judge to conduct a preliminary hearing and receive evidence on the
affirmative defense of failure of the complaint to state a cause of action.
2. ID.; ID.; ID.; NO LEGAL CAPACITY TO SUE AS A GROUND; CONSTRUED. The
other ground for dismissal relied upon, i.e., that the plaintiff has no legal capacity to sue
may be understood in two senses: one, that the plaintiff is prohibited or otherwise
incapacitated by law to institute suit in Philippine Courts, or two, although not otherwise
incapacitated in the sense just stated, that it is not a real party in interest.
3. ID.; ID.; ID.; ID.; RULE WHEN SAID GROUND CANNOT BE FOUND IN THE
AVERMENTS OF THE COMPLAINT. The Lara Spouses contend that ML Futures has no
capacity to sue them because the transactions subject of the complaint were had by them,
not with the plaintiff ML FUTURES, but with Merrill Lynch Pierce Fenner & Smith, Inc.
Evidence is quite obviously needed in this situation, for it is not to be expected that said
ground, or any facts from which its existence may be inferred, will be found in the
averments of the complaint. When such a ground is asserted in a motion to dismiss, the
general rule governing evidence on motions applies. The rule is embodied in Section 7,
Rule 133 of the Rules of Court. "SEC. 7. Evidence on motion. When 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."
4. ID.; ID.; ID.; ID.; APPLICATION TO FOREIGN CORPORATIONS DOING BUSINESS
IN THE PHILIPPINES WITHOUT LICENSE; CASE AT BAR. There was, to be sure, no
affidavit or deposition attached to the Lara Spouses' motion to dismiss or thereafter
proffered in proof of the averments of their motion. The motion itself was not verified.
What the spouses did do was to refer in their motion to documents which purported to
establish that it was not with ML FUTURES that they had therefore been dealing, but
another, distinct entity, Merril Lynch, Pierce, Fenner & Smith, Inc., copies of which
documents were attached to the motion. It is significant that ML FUTURES raised no
issue relative to the authenticity of the documents thus annexed to the Laras' motion. In
fact, its arguments subsumed the genuineness thereof and even adverted to one or two of
them. Its objection was centered on the propriety of taking 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 i.e., the
prohibition on suits in Philippine Courts by foreign corporations doing business in the
country without license it would have been a superfluity for the Court to require prior
proof of their authenticity, and no error may be ascribed to the Trial Court in taking
account of them in the determination of the motion on the ground, not that the complaint
fails to state a cause of action as regards which evidence is improper and
impermissible but that the plaintiff has no legal capacity to sue respecting which
proof may and should be presented. Neither may ML FUTURES argue with any degree of
tenability that it had been denied due process in the premises. As just pointed out, it was
very clear from the outset that the claim of lack of its capacity to sue was being made to
rest squarely on the documents annexed thereto, and ML FUTURES 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 Court pursuant to the rules of evidence
would be to give unwarranted importance to technicality and make it prevail over the
substance of the issue.
5. ID.; ID.; PARTIES IN CIVIL ACTIONS; FOREIGN CORPORATION DOING BUSINESS
IN THE PHILIPPINES WITHOUT LICENSE; CASE AT BAR. The first question then, is, as
ML FUTURES formulates it, whether or not the annexes, assuming them to be admissible,
establish that (a) ML FUTURES is prohibited from suing in Philippine Courts because
doing business in the country without a license, and that (b) it is not a real party in
interest since the Lara Spouses had not been doing business with it, but with another
corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc. The Court is satisfied that the
facts on record adequately establish that ML FUTURES, operating in the United States,
had indeed done business with the Lara Spouses in the Philippines over several years,
had done so at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation
organized in this country, and had executed all these transactions without ML FUTURES
being licensed to so transact business here, and without MLPI being authorized to
operate as a commodity futures trading advisor. These are the factual findings of both the
Trial Court and the Court of Appeals. These, too, are the conclusions of the Securities &
Exchange Commission which denied MLPI's application to operate as a commodity
futures trading advisor, a denial subsequently affirmed by the Court of Appeals.
Prescinding from the proposition that factual findings of the Court of Appeals are
generally conclusive, this Court has been cited to no circumstance of substance to
warrant reversal of said Appellate Court's findings or conclusions in this case. The Court
is satisfied, too, that the Laras did transact business with ML FUTURES through its agent
corporation organized in the Philippines, it being unnecessary to determine whether this
domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner
& Smith (MLPI's alleged predecessor). The fact is that ML FUTURES did deal with futures
contracts in exchanges in the United States in behalf and for the account of the Lara
Spouses, and that on several occasions the latter received account documents and money
in connection with those transactions. Given these facts, if indeed the last transaction
executed by ML FUTURES in the Laras's behalf had resulted in a loss amounting to US
$160,749.69; that in relation to this loss, ML FUTURES had credited the Laras with the
amount of US $ 75,913.42 which it (ML FUTURES) then admittedly owed the spouses
and thereafter sought to collect the balance, US $84,836.27, but the Laras had refused
to pay (for the reasons already above stated), the crucial question is whether or not ML
FUTURES may sue in Philippine Courts 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.
6. ID.; ID.; ID.; ONE WHO HAS DEALT WITH A CORPORATION OF FOREIGN ORIGIN
AS A CORPORATE ENTITY IS ESTOPPED TO DENY ITS CORPORATE EXISTENCE AND
CAPACITY TO SUE CASE AT BAR. In other words, if it be true that during all the time
that they were transacting with ML FUTURES, the Laras were fully aware of its lack 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 Lara Spouses are now estopped to impugn ML FUTURES 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 acknowledged the same by entering into a contract with it. [SEE
Ohta Development Co. v. Steamship 'Pompey,' et al., 49 Phil. 117 120 (1926); Asia banking
Corporation v. Standard Products Co., 46 Phil. 144 (1924)] And the "doctrine of estoppel
to deny corporate existence applies to foreign as well as to domestic corporations;" [14
C.J. 227] "one who has dealt with a corporation of foreign origin as a corporate entity is
estopped to deny its corporate existence and capacity." [36 Am Jur 2d, pp. 296-297,
although there is authority that said doctrine "does not, by analogy, require that such
person be held estopped to deny that the corporation has complied with the local
statutes imposing conditions, restrictions, and regulations on foreign corporations and
that it has acquired thereby the right to do business in the state"] The principle "will be
applied to prevent a person contracting with a foreign corporations from later taking
advantage of its noncompliance with the statutes, 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." The doctrine
was adopted by this Court as early as 1924 in Asia Banking Corporation v. Standard
Products Co., in which the following pronouncement was made: "The general rule that in
the absence of fraud a person who has contracted or otherwise dealt with an association
in such a way as to recognize and in effect admit its legal existence as corporate body is
thereby estopped to deny its corporate existence in any action leading out of or involving
such contract or dealing, unless its existence is attacked for causes which have arisen
since making the contract or other dealing relied on as an estoppel and this applies to
foreign as well as domestic corporations. (14 C.J. 227; Chinese Chamber of Commerce vs.
Pua Te Ching, 14 Phil. 222)." There would seem to be no question that the Laras received
benefits generated by their business relations with ML FUTURES. Those business
relations, according to the Laras themselves, spanned a period of seven (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 FUTURES much, much
earlier. In fact, even as regards their last transaction, in which the Laras allegedly suffered
a loss in the sum of US$160,749.69, the Laras nonetheless still received some monetary
advantage, for ML FUTURES credited them with the amount of US $75,913.42 then due to
them, thus reducing their debt to US $84,836.27. Given these facts, and assuming that the
Lara Spouses were aware from the outset that ML FUTURES had no license to do
business in this country and MLPI, no authority to act as broker for it, it would appear
quite inequitable for the Laras to evade payment of an otherwise legitimate indebtedness
due and owing to ML FUTURES upon the plea that it should not have done business in
this country in the first place, or that its agent in this country, MLPI, had no license either
to operate as a "commodity and/or financial futures broker."
DECISION
NARVASA, C.J p:
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, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML FUTURES) filed
a complaint with the Regional Trial Court at Quezon City against the Spouses Pedro M.
Lara and Elisa G. Lara for the recovery of a debt and interest thereon, damages, and
attorney's fees. 1 In its complaint ML FUTURES described itself as
a) "a non-resident foreign corporation, not doing business in the Philippines, duly
organized and existing under and by virtue of the laws of the state of Delaware, U.S.A.;" as
well as
b) "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."
It also defined 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." LLjur
In its complaint ML FUTURES alleged the following:
1) that on September 28, 1983 it entered into a Futures Customer Agreement with
the defendant spouses (Account No. 138-12161), 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 pursuant to the contract, 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 plaintiff's customers;"
2
3) that from the outset, 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 Securities and Exchange Commission to operate as a commodity trading
advisor (i.e., 'and entity which, not being a broker, furnishes advice on commodity futures
to persons who trade in futures contracts');
4) that in line with the above mentioned agreement and through said Merill Lynch
Philippines, Inc., the Lara Spouses actively traded in futures contracts, including "stock
index futures" for four years or so, i.e., from 1983 to October, 1987, 3 there being more or
less regular accounting and corresponding remittances of money (or crediting or
debiting) made between the spouses and ML FUTURES;
5) that because of a loss amounting to US $160,749.69 incurred in respect of three
(3) transactions involving "index futures," and after setting this off against an amount of
US $75,913.42 then owing by ML FUTURES to the Lara Spouses, said spouses became
indebted to ML FUTURES for the ensuing balance of US $84,836.27, which the latter
asked them to pay;
6) that the Lara Spouses however refused to pay this balance, "alleging that the
transactions were null and void because Merrill Lynch Philippines, Inc., the Philippine
company servicing accounts of plaintiff, . . . had no license to operate as a 'commodity
and/or financial futures broker.'"
On the foregoing essential facts, ML FUTURES prayed (1) for a preliminary attachment
against defendant spouses' properties "up to the value of at least P2,267,139.50," and (2)
for judgment, after trial, sentencing the spouses to pay ML FUTURES:
a) the Philippine peso equivalent of $84,836.27 at the applicable exchange rate on
date of payment, with legal interest from the date of demand until full payment;
b) exemplary damages in the sum of at least P500,000,00; and LLjur
c) attorney's fees and expenses of litigation as may be proven at the trial.
Preliminary attachment issued ex parte on December 2, 1987, and the defendant spouses
were duly served with summons.
They then filed a motion to dismiss dated December 18, 1987 on the grounds that:
(1) plaintiff ML FUTURES had "no legal capacity to sue" and
(2) its "complaint states no cause of action since . . . (it) is not the real party in
interest."
In that motion to dismiss, the defendant spouses averred that:
a) although not licensed to do so, ML FUTURES had been doing business in the
Philippines "at least for the last four (4) years," this being clear from the very allegations
of the complaint; consequently, ML FUTURES is prohibited by law "to maintain or
intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines;" and
b) they had never been informed that Merrill Lynch Philippines, Inc. was not
licensed to do business in this country; and contrary to the allegations of the complaint,
all their transactions had actually been with MERRILL LYNCH PIERCE FENNER & SMITH,
INC., and not with ML FUTURES (Merrill Lynch Futures, Inc.), in proof of which they
attached to their motion to dismiss copies of eight (8) agreements, receipts or reminders,
etc., executed on standard printed forms of said Merrill Lynch Pierce Fenner & Smith Inc.
4 1987). The spouses also submitted additional documents (Annexes J to R) involving
ML FUTURES filed an OPPOSITION to the defendant spouses' motion to dismiss. In that
motion
a) it drew attention to paragraph 4 of its complaint, admitted by defendants, that
the latter "have been actively trading in futures contracts . . . in U.S. futures exchanges
from 1983 to 1987," and ask, "If the trading . . . (was) made in U.S., how could plaintiff be
doing business in the Philippines?"
b) it also drew attention to a printed form of "Merrill Lynch Futures, Inc." filled out
and signed by defendant spouses when they opened an account with ML FUTURES, in
order to supply information about themselves, including their bank's name
(1) in which appear the following epigraph: "Account introduced by Merrill Lynch
International, Inc.," and the following statements, to wit:
"This Commodity Trading Advisor (Merrill Lynch, Pierce, Fenner & Smith Philippines,
Inc.) is prohibited by the Philippine Securities and Exchange Commission from accepting
funds in the trading advisor's name from a client of Merrill Lynch Futures, Inc. for trading
commodity interest. All funds in this trading program must be placed with Merrill Lynch
Futures, Inc.;"
and
". . . It is agreed between MERRILL LYNCH, PIERCE, FENNER & SMITH INC., and other
account carrying MERRILL LYNCH 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 take place."
c) and it argued that
(1) it is not permitted for defendant spouses to present "evidence" in connection
with a motion to dismiss based on failure of the complaint to state a cause of action;
cdphil
(2) even if the documents appended to the motion to dismiss be considered as
admissible "evidence," the same would be immaterial since the documents refer to a
different account number: 138-12136, the defendants' account number with ML
FUTURES being 138-12161;
(3) it is a lie for the defendant spouses to assert that they were never informed that
Merrill Lynch Philippines, Inc. had not been licensed to do business in the Philippines;
and
(4) defendant spouses should not be allowed to "invoke the aid of the court with
unclean hands."
The defendant spouses filed a REPLY reaffirming their lack of awareness that Merrill
Lynch Philippines, Inc. (formerly registered as Merrill Lynch, Pierce, Fenner & Smith
Philippines, Inc.) 5 did not have a license, claiming that they learned of this only from
inquiries with the Securities & Exchange Commission which elicited the information that
it had denied said corporation's application to operate as a commodity futures trading
advisor a denial subsequently affirmed by the Court of Appeals (Merrill Lynch
Philippines, Inc. v. Securities & Exchange Commission, CA-G.R. No. 10821-SP, Nov. 19,
transactions with Merrill Lynch Pierce Fenner & Smith, Inc., dating back to 1980,
stressing that all but one of the documents "refer to Account No. 138-12161 which is the
very account that is involved in the instant complaint."

ML FUTURES filed a Rejoinder alleging it had given the spouses a disclosure statement by
which the latter were made aware that the transactions they were agreeing on would
take place outside of the Philippines, and that "all funds in the trading program must be
placed with Merrill Lynch Futures, Inc."
On January 12, 1988, the Trial Court promulgated an Order sustaining the motion to
dismiss, directing the dismissal of the case and discharging the writ of preliminary
attachment. It later denied ML FUTURES's motion for reconsideration, by Order dated
February 29, 1988. ML FUTURES appealed to the Court of Appeals. 6
In its own decision promulgated on November 27, 1990, 7 the Court of Appeals affirmed
the Trial Court's judgment. It declared that the Trial Court had seen "through the charade
in the representation of MLPI and the plaintiff that MLPI is only a trading advisor and in
fact it is a conduit in the plaintiff's business transactions in the Philippines as a basis for
invoking the provisions of Section 133 of the Corporation Code," 8 viz.:
"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."
It also declared that the evidence established that plaintiff had in fact been "doing
business" in this country in legal contemplation, adverting to Mentholatum v.
Mangaliman, 72 Phil. 524, 528-530, and Section 1 of Republic Act No. 5455 reading as
follows: 9
"SEC. 1. Definition and scope of this ACT . (1) As used in this Act, 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 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 FUNCTIONS NORMALLY INCIDENT TO, AND IN
PROGRESSIVE PROSECUTION OF COMMERCIAL GAIN OR OF THE PURPOSE AND OBJECT
OF THE BUSINESS ORGANIZATION ." cdrep
As regards the claim that it was error for the Trial Court to place reliance on the decision
of the Court of Appeals in CA-G.R. No. 10821-SP sustaining the finding of the Securities
& Exchange Commission that ML FUTURES was doing business in the Philippines
since that judgment was not yet final and ML FUTURES was not a party to that
proceeding, the Court of Appeals ruled that there was no need to belabor the point
considering that there was, in any event, "adequate proof of the activities of MLPI . . .
which manifestly show that the plaintiff (ML FUTURES) performed a series of business
acts, consummated contracts and undertook transactions for the period from 1983 to
October 1987," and because ML FUTURES had done so without license, it consequently
had "no legal personality to bring suit in Philippine courts."
Its motion for reconsideration having been denied, 10 ML FUTURES has appealed to this
Court on certiorari. Here, it submits the following issues for resolution:
"(a) Whether or not the annexes appended by the Laras to their Motion to Dismiss
and Reply filed with the Regional Trial Court, but never authenticated or offered,
constitute admissible evidence.
(b) Whether or not in the proceedings below, ML FUTURES has been accorded
procedural due process.
(c) Whether or not the annexes, assuming them to be admissible, established that
ML FUTURES was doing business in the Philippines without a license."
As just stated, the Lara Spouses' motion to dismiss was founded on two (2) grounds: (a)
that the plaintiff has no legal capacity to sue, and (b) that the complaint states no cause of
action (Sec. 1 [d], and [g], Rule 16, Rules of Court).
As 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
existence may be determined only by the allegations of the complaint, considering of
other facts being proscribed, and any attempt to prove extraneous 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 judgment upon the same in accordance with the prayer of the
complaint. 12 Indeed, it is error for a judge to conduct a preliminary hearing and receive
evidence on the affirmative defense of failure of the complaint to state a cause of action.
13
The other ground for dismissal relied upon, i.e., that the plaintiff has no legal capacity to
sue may be understood in two senses: one, that the plaintiff is prohibited or otherwise
incapacitated by law to institute suit in Philippine Courts, 14 or two, although not
otherwise incapacitated in the sense just stated, that it is not a real party in interest. 15
Now, the Lara Spouses contend that ML Futures has no capacity to sue them because the
transactions subject of the complaint were had by them, not with the plaintiff ML
FUTURES, but with Merrill Lynch Pierce Fenner & Smith, Inc. Evidence is quite obviously
needed in this situation, for it is not to be expected that said ground, or any facts from
which its existence may be inferred, will be found in the averments of the complaint.
When such a ground is asserted in a motion to dismiss, the general rule governing
evidence on motions applies. The rule is embodied in Section 7, Rule 133 of the Rules of
Court.
"SEC. 7. Evidence on motion. When 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 Lara Spouses' motion to
dismiss or thereafter proffered in proof of the averments of their motion. The motion
itself was not verified. What the spouses did do was to refer in their motion to documents
which purported to establish that it was not with ML FUTURES that they had therefore
been dealing, but another, distinct entity, Merril Lynch, Pierce, Fenner & Smith, Inc.,
copies of which documents were attached to the motion. It is significant that ML
FUTURES raised no issue relative to the authenticity of the documents thus annexed to
the Laras' motion. In fact, its arguments subsumed the genuineness thereof and even
adverted to one or two of them. Its objection was centered on the propriety of taking
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 i.e., the prohibition on suits
in Philippine Courts by foreign corporations doing business in the country without
license it would have been a superfluity for the Court to require prior proof of their
authenticity, and no error may be ascribed to the Trial Court in taking account of them in
the determination of the motion on the ground, not that the complaint fails to state a
cause of action as regards which evidence is improper and impermissible but that
the plaintiff has no legal capacity to sue respecting which proof may and should be
presented. cdll
Neither may ML FUTURES argue with any degree of tenability that it had been denied
due process in the premises. As just pointed out, it was very clear from the outset that the
claim of lack of its capacity to sue was being made to rest squarely on the documents
annexed thereto, and ML FUTURES 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 Court pursuant to the rules of evidence would be to give
unwarranted importance to technicality and make it prevail over the substance of the
issue.
The first question then, is, as ML FUTURES formulates it, whether or not the annexes,
assuming them to be admissible, establish that (a) ML FUTURES is prohibited from suing
in Philippine Courts because doing business in the country without a license, and that (b)
it is not a real party in interest since the Lara Spouses had not been doing business with
it, but with another corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc.
The Court is satisfied that the facts on record adequately establish that ML FUTURES,
operating in the United States, had indeed done business with the Lara Spouses in the
Philippines over several years, had done so at all times through Merrill Lynch Philippines,
Inc. (MLPI), a corporation organized in this country, and had executed all these
transactions without ML FUTURES being licensed to so transact business here, and
without MLPI being authorized to operate as a commodity futures trading advisor. These
are the factual findings of both the Trial Court and the Court of Appeals. These, too, are
the conclusions of the Securities & Exchange Commission which denied MLPI's
application to operate as a commodity futures trading advisor, a denial subsequently
affirmed by the Court of Appeals. Prescinding from the proposition that factual findings
of the Court of Appeals are generally conclusive, this Court has been cited to no
circumstance of substance to warrant reversal of said Appellate Court's findings or
conclusions in this case.
The Court is satisfied, too, that the Laras did transact business with ML FUTURES
through its agent corporation organized in the Philippines, it being unnecessary to
determine whether this domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or
Merrill Lynch Pierce Fenner & Smith (MLPI's alleged predecessor). The fact is that ML
FUTURES did deal with futures contracts in exchanges in the United States in behalf and
for the account of the Lara Spouses, and that on several occasions the latter received
account documents and money in connection with those transactions.
Given these facts, if indeed the last transaction executed by ML FUTURES in the Laras's
behalf had resulted in a loss amounting to US $160,749.69; that in relation to this loss,
ML FUTURES had credited the Laras with the amount of US $ 75,913.42 which it (ML
FUTURES) then admittedly owed the spouses and thereafter sought to collect the
balance, US $84,836.27, but the Laras had refused to pay (for the reasons already above
stated), the crucial question is whether or not ML FUTURES may sue in Philippine Courts
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. In other words,
if it be true that during all the time that they were transacting with ML FUTURES, the
Laras were fully aware of its lack 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 Lara Spouses are now estopped to
impugn ML FUTURES 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 acknowledged the same by entering into a contract with it. 16 And the "doctrine
of estoppel to deny corporate existence applies to foreign as well as to domestic
corporations;" 17 "one who has dealt with a corporation of foreign origin as a corporate
entity is estopped to deny its corporate existence and capacity." 18 The principle "will be
applied to prevent a person contracting with a foreign corporations from later taking
advantage of its noncompliance with the statutes, 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. . . ." 19
The doctrine was adopted by this Court as early as 1924 in Asia Banking Corporation v.
Standard Products Co., 20 in which the following pronouncement was made: 21
"The general rule that in the absence of fraud a person who has contracted or otherwise
dealt with an association in such a way as to recognize and in effect admit its legal
existence as corporate body is thereby estopped to deny its corporate existence in any
action leading out of or involving such contract or dealing, unless its existence is attacked
for causes which have arisen since making the contract or other dealing relied on as an
estoppel and this applies to foreign as well as domestic corporations. (14 C.J. 227;
Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil. 222)."
There would seem to be no question that the Laras received benefits generated by their
business relations with ML FUTURES. Those business relations, according to the Laras
themselves, spanned a period of seven (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 FUTURES much, much earlier. In fact, even as regards their last
transaction, in which the Laras allegedly suffered a loss in the sum of US$160,749.69, the
Laras nonetheless still received some monetary advantage, for ML FUTURES credited
them with the amount of US $75,913.42 then due to them, thus reducing their debt to US
$84,836.27. Given these facts, and assuming that the Lara Spouses were aware from the
outset that ML FUTURES had no license to do business in this country and MLPI, no
authority to act as broker for it, it would appear quite inequitable for the Laras to evade
payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon
the plea that it should not have done business in this country in the first place, or that its
agent in this country, MLPI, had no license either to operate as a "commodity and/or
financial futures broker." Cdpr

Considerations of equity dictate that, at the very least, the issue of whether the Laras are
in truth liable to ML FUTURES 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 FUTURES and its
Philippine correspondent, MLPI, as to be estopped from alleging that fact as a defense to
such liability, should be ventilated and adjudicated on the merits by the proper trial
court.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 16478 dated
November 27, 1990 and its Resolution of March 7, 1991 are REVERSED and SET ASIDE,
and the Regional Trial Court at Quezon City, Branch 84, is ORDERED to reinstate Civil
Case No. Q-52360 and forthwith conduct a hearing to adjudicate the issues set out in the
preceding paragraph on the merits.
SO ORDERED.