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Case digest · Corporation by estoppel
International Express Travel & Tour Services, Inc. vs. Court of Appeals
A travel agency booked SEA Games tickets for a football federation, and the bill was not fully paid. Who answers for it: the federation, or its president?
Facts
June 30, 1989
International Express Travel & Tour Services, through its managing director, offered its services to the Philippine Football Federation through its president, Henri Kahn. The Federation accepted.
The tickets
The agency secured airline tickets for the Federation’s athletes and officials for the South East Asian Games in Kuala Lumpur and for trips to the People’s Republic of China and Brisbane. The total cost was ₱449,654.83.
September to December 1989
The Federation made two partial payments in September 1989, totaling ₱176,467.50. On October 4, 1989, the agency demanded ₱265,894.33. On October 30, 1989, the Federation paid ₱31,603.00 through the Project Gintong Alay, and on December 27, 1989, Kahn issued a personal check for ₱50,000 as partial payment of the Federation’s outstanding balance. No further payments were made.
July 5, 1990
The agency sued Kahn in his personal capacity and as President of the Federation, and impleaded the Federation as an alternative defendant. Kahn did not deny that the Federation owed ₱207,524.20, but argued that he was only an agent of an entity with a personality of its own. The Federation was declared in default.
The trial court
The Regional Trial Court of Manila held Kahn personally liable for ₱207,524.20, with legal interest from July 5, 1990, plus ₱15,000.00 in attorney’s fees. It dismissed the complaint against the Federation.
December 21, 1994
The Court of Appeals reversed. It recognized the Federation’s juridical existence under R.A. No. 3135 and P.D. No. 604, and held that the agency, having dealt with the Federation, could not deny its existence. On February 8, 1995, it refused the agency’s alternative prayer to hold the Federation liable, because the dismissal of the complaint against the Federation had not been appealed.
Issue
Is the Federation’s president personally liable for the unpaid tickets, or was the travel agency estopped from denying the Federation’s corporate existence?
Ruling
The president is personally liable. The Court reversed the Court of Appeals and reinstated the trial court’s decision.
R.A. No. 3135 and P.D. No. 604 do not by themselves create a national sports association; an entity becomes one only when the accrediting body recognizes it, and Kahn failed to prove that the Federation had been recognized. The Federation therefore had no corporate existence of its own. Whoever acts for an entity without valid existence becomes personally liable, and “As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation.” The Court of Appeals erred in turning corporation by estoppel against the agency: “The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner.” The doctrine binds a third party who tries to escape liability on a contract from which he has benefited, not a creditor who is claiming under the contract. The Court made no finding of fraud against Kahn; his liability arose from the rule and the presumption of his knowledge. (LawPhil’s copy of this decision is headed G.R. No. 119002. The official Philippine Reports, 397 Phil. 751, and the SC E-Library print G.R. No. 119020.)
“In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract.”
Doctrine
“It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act.” For the personal liability of one who acts for an entity without valid existence, the Court cited Albert vs. University Publishing Co., Inc., G.R. No. L-19118, January 30, 1965, which had relied on Vda. de Salvatierra vs. Garlitos, G.R. No. L-11442, May 23, 1958.
Compare: when the other party is estopped
In Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, November 3, 1999: “On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation.”
Bar tip
Ask who is trying to escape the contract. Corporation by estoppel stops a party from avoiding a contract it benefited from by pointing to a defective incorporation. It did not apply against a creditor that was claiming under the contract, not escaping it. And as president, the officer was presumed to know whether the entity he acted for had corporate existence.
Hear it explained
Corporation by Estoppel, Podcast Ep. 3, at 6:56
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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.