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Case digest · Corporation by estoppel
Albert vs. University Publishing Co., Inc.
A company’s president signed a book deal in 1948. When the author’s estate came to collect in 1961, the SEC’s records did not show the company’s registration.
Facts
July 19, 1948
University Publishing Co., Inc., through Jose M. Aruego as its President, contracted with the author Mariano A. Albert. It would pay ₱30,000.00 for the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his share in previous sales of the book’s first edition, in eight quarterly installments of ₱3,750.00. It failed to pay the second installment.
September 24, 1949
Albert sued. The company admitted its corporate existence and the contract, and claimed that it was Albert who had breached the contract. Albert died before trial, and the administrator of his estate was substituted.
1954 to 1960
The trial court awarded ₱23,000.00 (April 26, 1954). The Supreme Court reduced the award to ₱15,000.00 (April 18, 1958), and later held that the ₱15,000.00 had to be executed in full (October 24, 1960).
July–August 1961
On July 22, 1961, the trial court issued a writ of execution against the company. On August 10, 1961, the estate asked for execution against Aruego instead. Its petition stated that its counsel and the Sheriff of Manila had discovered that “there is no such entity as University Publishing Co., Inc.” It attached an SEC certification dated July 31, 1961, that the Commission’s records “do not show the registration” of the company “either as a corporation or partnership.”
The company’s answer
Through Aruego’s own law firm, the company filed a manifestation that “Jose M. Aruego is not a party to this case.” On September 9, 1961, the trial court denied the estate’s petition, and the estate appealed.
June 16, 1965
After losing in January 1965, the company asked leave to present papers it had never presented at trial: a certificate of registration with the Bureau of Commerce “as early as August 7, 1936,” 1936 articles of incorporation and by-laws, and an SEC certificate of reconstitution. It had reconstituted its records only on April 1, 1965. The Court denied the motion.
Issue
Can the judgment against University Publishing Co., Inc. be enforced against Jose M. Aruego, who signed its contract as President but was never named a party?
Ruling
Yes. The Court set aside the order and remanded the case so that the judgment could be carried into effect against University Publishing Co., Inc. and/or Jose M. Aruego.
Because it was not registered, the company “cannot be considered a corporation, not even a corporation de facto,” and it had no personality separate from Aruego. Aruego could not invoke corporation by estoppel, because “Aruego represented a non-existent entity and induced not only the plaintiff but even the court to believe in such representation.” The Court found that Aruego was the real party to the contract, who reaped its benefits and made the partial payments, and that he was the real defendant: he had answered and litigated through his own law firm, so he had his day in court and due process was substantially observed. Parenthetically, the Court also noted why the company would not want Aruego considered a party: a new action against him would have to reckon with the statute of limitations. In a Resolution of June 16, 1965 (121 Phil. 87, at 94–101), the Court refused to consider the 1936 papers. They had been in the company’s possession all along and were not newly discovered evidence, so for this case the company “must be deemed as unregistered, since by defendant-appellee's choice the record shows it to be so.” The Court added that this does not preclude, in future cases, properly submitted evidence of the company’s corporate existence.
“One who has induced another to act upon his wilful misrepresentation that a corporation was duly organized and existing under the law, cannot thereafter set up against his victim the principle of corporation by estoppel”
Doctrine
On account of its non-registration, the company “cannot be considered a corporation, not even a corporation de facto” (the Court citing Hall vs. Piccio, G.R. No. L-2598, June 29, 1950), so it had no personality separate from the person who acted for it. For the rule that one who induced another to rely on his misrepresentation cannot set up corporation by estoppel against him, the Court cited Vda. de Salvatierra vs. Garlitos, G.R. No. L-11442, May 23, 1958. There, the president of an unregistered corporation was held personally liable: “In acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such transaction.”
Compare: no finding of fraud
In International Express Travel & Tour Services, Inc. vs. Court of Appeals, G.R. No. 119020, October 19, 2000, the Court made no finding of fraud against the federation’s president but still held him personally liable: “As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation.”
Bar tip
Keep two points apart. Whoever acts for an unregistered “corporation” can be held personally liable for its contracts. And the one who misrepresented that a corporation existed cannot invoke corporation by estoppel against the person who relied on it. Today, start with Sec. 20 of the Revised Corporation Code (formerly Sec. 21, B.P. Blg. 68); Albert predates both codes.
Hear it explained
Corporation by Estoppel, Podcast Ep. 3, at 3:29
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This digest is general legal information for education, not legal advice, and it is not a substitute for reading the decision. Quoted passages are taken word for word from the full text.