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.

FACTS

On November 23, 1987, Merrill Lynch Futures, Inc. (ML FUTURES), a non-resident foreign corporation organized under Delaware, USA, and a licensed futures commission merchant, filed a complaint in the Regional Trial Court of Quezon City against spouses Pedro and Elisa Lara to recover a debt. ML FUTURES alleged that on September 28, 1983, it entered into a Futures Customer Agreement with the spouses, acting as their broker for trading futures contracts on U.S. exchanges. Orders were transmitted through Merrill Lynch Philippines, Inc. (MLPI), a Philippine corporation servicing ML FUTURES’s customers. The spouses actively traded from 1983 to 1987. After incurring losses in certain transactions, a net balance of US$84,836.27 was owed to ML FUTURES, which the spouses refused to pay, arguing the transactions were void because MLPI had no license to operate as a commodity/futures broker in the Philippines. ML FUTURES obtained a preliminary attachment. The spouses moved to dismiss on grounds that ML FUTURES had no legal capacity to sue and the complaint stated no cause of action, alleging ML FUTURES had been doing business in the Philippines without a license for about four years. They attached documents showing dealings with “Merrill Lynch Pierce Fenner & Smith Inc.” ML FUTURES opposed, arguing the trading occurred in the U.S., and highlighted a disclosure form signed by the spouses acknowledging MLPI was not licensed and that all funds must be placed with ML FUTURES. The Trial Court granted the motion to dismiss. The Court of Appeals affirmed, finding ML FUTURES was doing business in the Philippines through MLPI as a conduit, thus barred under Section 133 of the Corporation Code from maintaining suit.

ISSUE

Whether the petitioner, Merrill Lynch Futures, Inc., a foreign corporation, has the legal capacity to sue in the Philippines despite allegations that it is doing business in the country without the required license.

RULING

The Supreme Court REVERSED the Court of Appeals’ decision. The Court held that the ground invoked by the respondents in their motion to dismiss was “plaintiff has no legal capacity to sue,” which pertains to a party’s authority to litigate (e.g., minority, insanity, lack of juridical personality). The issue of a foreign corporation doing business without a license, which bars it from maintaining suit under Section 133 of the Corporation Code, is a matter of capacity to sue. However, the facts alleged in the complaint do not show that ML FUTURES is doing business in the Philippines. The complaint describes ML FUTURES as a non-resident foreign corporation not doing business in the Philippines, acting as a broker for trades executed on U.S. exchanges, with MLPI merely servicing its customers. The respondents’ claim that ML FUTURES is doing business in the Philippines relies on evidence outside the complaint, which is not permissible for a motion to dismiss based on failure to state a cause of action or lack of legal capacity to sue where the complaint’s allegations are sufficient on their face. The Court also noted the doctrine of estoppel: a party contracting with a foreign corporation cannot later deny its corporate existence or capacity to sue to avoid contractual obligations. The case was remanded to the Trial Court for further proceedings.