MERRILL LYNCH FUTURES, INC. V.

CA
Facts:
Petitioner ML Futures (A foreign Corporation not licensed to do business in the
Philippines) and respondent spouses Lara entered into a "Futures Customer Agreement",
in virtue of which the former agreed to act as the Lara's broker for the purchase and sale
of future contracts in the U.S. and the latter was well aware that ML Futures was not
licensed to do business in the country. Sps. Lara became indebted to ML Futures which the
latter asked them to pay. However, Sps. Lara refused to pay alleging that the transactions
were null and void because ML Futures had no license to operate as financial future
broker. They further averred that they had not doing business with ML Futures but with
another corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc. (MLPI)
As a consequence of such refusal by Sps. Lara, Ml Futures filed a complaint with the RTC
Quezon for the recovery of a debt and interest thereon. Preliminary attachment issued Ex
Parte and Respondent sps. were duly served with Summons. Respondents sps. then filed a
Motion to Dismiss on the grounds that (1) ML Futures had no leal capacity to sue and (2)
the complaints state no cause of action.
ML Futures filed an Opposition to the respondent's motion to dismiss. However,
Respondent sps. filed a reply reaffirming their lack of awareness that ML Futures had no
license to operate business in the country. ML Futures filed a rejoinder alleging that it had
given the sps. a disclosure statement by which the latter were made aware that the
transactions they were agreeing on would take place outside the Philippines and that all the
funds in the training program must be placed with ML Futures.
Trial Court rendered its decision in favor of sps. Lara by granting their Motion to Dismiss
and denied the Motion for Reconsideration filed by ML Futures.
CA affirmed the decision of the trial court.
Issue:
WON, the court erred in granting the Motion to Dismiss filed by respondent sps.
Ruling:
YES. SC reversed and set aside the decision of the lower court and ruled in favor of
Petitioner.
First, Motion to Dismiss on the ground that petitioner has no legal capacity to sue may be
understood on two senses: one, that the petitioner is prohibited or incapacitated to institute
suit in the Philippine Courts or two, that it is not a real party in interest. In the instant case,
Sps. Lara contended that ML Futures had no capacity to sue them because the transactions

subject of the complaint were had by them with MLPI and not with the ML Futures.
When such a ground is asserted in a Motion to Dismiss, the general rule governing evidence
on motions applies. However, there was no affidavit or deposition attached to the sps.
Lara's Motion to Dismiss or thereafter offered as proof of the averments of their motion.
The motion itself was not verified.
Second, Motion to Dismiss on the ground that the complaint states no cause of action.
Settled doctrine 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, consideration of
other fact being proscribed and any attempt to prove extraneous circumstance not being
allowed. The test of the sufficiency of the facts alleged in the 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 an
error for a judge to conduct preliminary hearing and receive evidence on the affirmative
defense of failure of the complaint to state a cause of action.
Furthermore, the doctrine of estoppel also applies in the instant case. The rule is that a
party is estopped to challenge the personality of a corporation after having acknowledge
the same by entering into a contract with it. In the instant case, there is no question that
respondents sps. benefited a lot from the transactions they had entered into with ML
Futures that lasted for almost 7 years.