3D CORPO CASE DIGESTS
Foreign Corporation AUTHO #94_Go
TOPIC
R
CASE TITLE MERRILL LYNCH FUTURES, INC. vs. CA GR NO 97816
TICKLER Unregistered Foreign Corporation had transaction with Sps. Lara, DATE July 24, 1992
Sps. Lara are estopped from questioning its existence.
DOCTRIN Lara Spouses were aware from the outset that ML FUTURES had no license to do business in this
E 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."
FACTS Nov 23, 1987, Merrill Lynch Futures, Inc. (ML FUTURES) complained with RTC against the Sps. Lara
for the recovery of a debt and interest, damages, and attorney's fees.
a) "a non-resident foreign corporation, not doing business in the PHs, organized & existing under the
state of Delaware, U.S.A.;" and
b) a 'futures commission merchant' duly licensed to act as such in the futures markets and exchanges
in the US, . . . essentially functioning as a broker . . . (executing) orders to buy and sell futures
contracts received from its customers on U.S. futures exchanges."
It is 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."
ML FUTURES complaint the following:
1) that on September 28, 1983 it entered into a Futures Customer Agreement with the defendant
spouses, it agreed to act as the latter's broker for the purchase and sale of futures contracts in the
U.S.;
2) that under 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;"
3) that 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 (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 4
years 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 (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 US
$84,836.27, which the latter asked them to pay;
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6) but Lara Spouses 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.'"
ML FUTURES prayed (1) for a preliminary attachment against defendant spouses' properties
equivalent to P2,267,139.50," and (2) for judgment, after trial, sentencing the spouses to pay ML
FUTURES:
SPS. Lara filed a motion to dismiss, due to the following:
(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."
TC ordered sustaining the motion to dismiss, directing the dismissal of the case and discharging the
writ of preliminary attachment.
ISSUE/S
1) whether the annexes had established 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.
2. whether or not ML FUTURES may sue in Philippine Courts to establish and enforce its rights
against said spouses, because it had transacted business in this country without being licensed to
do so.
2.a whether Lara Spouses are now estopped to impugn ML FUTURES capacity to sue them in the
courts of the forum.
RULING/S 1)Yes The facts here established that ML FUTURES, operating in the US, had indeed done business
with the SPS. LARA in the PHs over several years, had done so at all times through (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.
Laras did transact business with ML FUTURES through its agent corporation organized in PHs, it
being unnecessary to determine whether this domestic firm was MLPI or (MLPI's). 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.
2) Both Ruling in the affirmative
It is undisputed that Laras received benefits generated by their business relations with ML
FUTURES. Those business relations spanned a period of (7) years; and such relations to be of such
profitability as warranted their maintaining them for that not insignificant period of time;
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otherwise, it is reasonably certain that they would have terminated their dealings with ML
FUTURES.
Regarding their last transactions, in which the Laras allegedly suffered a loss of US$160,749.69, the
Laras nonetheless still received some monetary advantage, for ML FUTURES credited them with US
$75,913.42 then due to them, thus reducing their debt to US $84,836.27.
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."
Equity dictates 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.
NOTES 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. And the "doctrine of estoppel to deny
corporate existence applies to foreign as well as to domestic corporations;" "one who has dealt with
a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and
capacity."
The principle "will be applied to prevent a person contracting with a foreign corporations from later
taking advantage of its noncompliance with the statues, chiefly in cases where such person has
received the benefits of the contract, 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. . . ."
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