Effects of corporations by estoppel

[1] Section 21. Corporation by estoppel. - 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. (Corporation Code) As to liability, those who assume to act as a corporation are liable as general partners. Thus, there is a partnership created among them and all obligations they have incurred shall be chargeable against them.

[2] Section 21. Corporation by estoppel. - [W]hen 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 as a defense its lack of corporate personality. (Corporation Code) In the Philippines, only those who have juridical personality can sue and be sued. When a pretended corporation is sued, lack of such personality cannot be raised as a defense especially against complainants who have relied in good faith on the representation of those who have assumed to act as a corporation. This is also especially true if such persons who have assumed to act as a corporation have benefited from a transaction with third parties who are now suing them as a corporation.

[3] Section 21. Corporation by estoppel. - One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation. (Corporation Code) A third person may also be estopeed from raising lack of juridical personality as a defense. After benefiting from a transaction with person who assume to act as a corporation, a third person can no longer say, in defense, that he cannot be sued or he has no obligation simply because there is no actual corporation.

The doctrine of estoppel applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation. (G.R. No. 119002. October 19, 2000)

CASE: Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation. 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. (G.R. No. 119002. October 19, 2000)

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