Corporation by estoppel

Published October 29, 2020, 6:00 AM

by Atty. Jun De Zuñiga

The Revised Corporation Code governs not only corporations but likewise covers those who pretend to be acting under a corporate license, when the same is not true, and defines their ensuing liabilities as well.  I am referring to what is called as a corporation by estoppel.

Section 20 of said Code is very clear on this point.  All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof; provided, however, that when any such ostensible corporation is sued  on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use its lack of corporate personality as a defense.  Anyone who assumes an obligation to an ostensible corporation as such cannot resist performance thereof on the ground that there was in fact no corporation.

The reason behind this doctrine is obvious – an unincorporated  association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives do so without authority and at their own risk.  And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, and subject to all the liabilities of a principal (Lim Tong Lim vs. Philippine Fishing Gear Industrial, 317 SCRA 728).

In one case, it was held that where a sports association, which is unincorporated, through its president, secured airline tickets for the foreign trips of its athletes and officials and later on failed to pay the obligation, the president shall be personally liable (International Express Travel & Tour Services, Inc. vs. Hon. Court of Appeals, Henri Khan, Philippine Football Federation, G.R. No. 119002, October 19, 2000).

In another case, a newspaper which the plaintiff may have believed as registered with the SEC was sued together with its publisher and editor.  The lawyer of the newspaper company filed a motion to drop such party-defendant because it was not registered with the SEC and, therefore, has no legal personality to be sued.  The court denied the motion and this ruling was sustained by the Supreme Court.  The Supreme Court held that a corporation by estoppel may be sued considering that it possesses the attributes of a juridical person; otherwise, it cannot be held liable for damages and injuries it may inflict to other persons (Macasaet vs. Francisco, G.
R. No. 156759, June 5, 2013).

A corporation by estoppel can never have assets.  That is why those who assume themselves as a corporation when they have no legal authority to do so are made liable as general partners (Divina, Revised Corporation Code, p. 146).  It should be added that if there is no third party involved, the doctrine of corporation by estoppel will not apply.  Thus, in a dispute between the presidents of two associations which agreed to consolidate but were not actually consolidated, the proposed consolidated corporation cannot be considered a corporation by estoppel, since there is no third person involved and the two presidents know the consolidated corporation had not been registered (Lozano vs. Delos Santos, G.R. No. 125221, June 19, 1997).

*        *        *

          The above comments are the personal views of the writer. His email address is [email protected]

 
CLICK HERE TO SIGN-UP
 

YOU MAY ALSO LIKE

["business","columnists","business"]
[2535108,2563013,2562881,2563048,2562864,2562852,2562871]