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Corporation Law Jurisprudence · Podcast Episode 3 · 16:05
Corporation by Estoppel: Hindi Rehistrado, Sino ang Magbabayad?
A “corporation” that was never registered signs a contract. Who answers for it?
A company’s president signed a book deal in 1948. When the author’s estate came to collect, the SEC’s records did not show the company’s registration. Atty. Jeric Dave Gallardo and Sweet Zel Grace Porras walk through four Supreme Court decisions on corporation by estoppel: who answers for an unregistered corporation’s contracts, and when estoppel does not work.
Four cases, three answers
Same question. Different facts. Different results.
The rule
A corporation exists only from the day the SEC issues its certificate of incorporation.
Under Sec. 20 of the Revised Corporation Code, those who act as a corporation knowing it has no authority are liable as general partners. The ostensible corporation cannot use its lack of personality as a defense when sued, and one who assumes an obligation to it cannot refuse to perform on the ground that there was no corporation.
Recap
- A corporation exists from the day the SEC issues its certificate of incorporation. Before that, it has no personality of its own.
- Whoever acts for a “corporation” with no valid existence can be held personally liable, as Aruego and Kahn were. Under Sec. 20 today, those who act as a corporation knowing it has no authority are liable as general partners.
- Estoppel stops a party from escaping an obligation. It is not a weapon against a creditor who is claiming under the contract, not escaping it.
- Without a certificate of incorporation, there is no de facto corporation. The Sisters’ donation stood through estoppel and ratification; the Bayugan donation, to a group that never even attempted to organize, was void.
Bar tip
Asked who answers for the contract of an unregistered “corporation”? Start with Sec. 20 of the Revised Corporation Code (formerly Sec. 21 of the old Corporation Code). Then the two limits: one who misrepresented that a corporation existed cannot invoke estoppel against the person who relied on it (Albert), and estoppel cannot be used against a creditor who is not escaping the contract (International Express).
The law
Revised Corporation Code (R.A. No. 11232, February 20, 2019)
“A private corporation organized under this Code commences its corporate existence and juridical personality from the date the Commission issues the certificate of incorporation under its official seal…”Sec. 18
“The due incorporation of any corporation claiming in good faith to be a corporation under this Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto proceeding.”Sec. 19
“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.”Sec. 20 (formerly Sec. 21, B.P. Blg. 68)
Chapters
- 0:00Cold open: no SEC record. Who pays?
- 1:17When does a corporation begin? Sec. 20, corporation by estoppel
- 3:29Case 1: Albert vs. University Publishing Co., Inc. (the president liable)
- 6:56Case 2: International Express Travel & Tour Services vs. Court of Appeals (the president liable)
- 9:28Case 3A: Missionary Sisters of Our Lady of Fatima vs. Alzona (donation valid)
- 11:59Case 3B: Seventh Day Adventist vs. Northeastern Mindanao Mission (donation void)
- 13:09Why the different results? Three questions
- 14:25Recap and bar tip
Cases cited
Full text on LawPhil. Where we have written a case digest, the card opens it.
Next episode
A president signed a contract, but there was no board resolution. Can the corporation refuse to honor it?
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