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Municipality of Malabang v.

Pangandapun Benito corporation, as, independently of the Administrative Code


provision in question, there is no other valid statute to give
FACTS: color of authority to its creation.
Petitioner Amer Balindong is the mayor of Malabang, Lanao del
Sur while the respondents include the mayor and councilors of An unconstitutional act is not a law; it confers no rights; it
Balabagan, Lanao del Sur. On March 15, 1960, Balabagan was imposes no duties; it affords no protection; it creates no office;
created under EO 386 by then President Carlos Garcia. it is, in legal contemplation, as inoperative as though it had
Petitioners, however, brought an action for prohibition to nullify never been passed." Accordingly, bonds issued by a board of
said executive order and to restrain respondents from commissioners created under an invalid statute are
performing the functions of their respective office. unenforceable.

Respondents countered that the municipality of Balabagan is at Executive Order 386 "created no office." This is not to say,
least a however, that the acts done by the municipality of Balabagan in
de facto corporation, having been organized under color of a the exercise of its corporate powers are a nullity because the
statute before this was declared unconstitutional, its officers executive order "is, in legal contemplation, as inoperative as
having been either elected or appointed, and the municipality though it had never been passed."
itself having discharged its corporate functions for the past 5
years before the institution of this action. It contended that as a
de facto corporation, its existence cannot be collaterally Pioneer Insurance vs. CA
attacked, althought it may be inquired into directly in an action G.R. No. 84197; July 28, 1989
for quo warranto at the instance of the State and not of an
individual, like Balindong. FACTS:
Lim is an owner-operator of Southern Airlines (SAL). Japan
The method of challenging the existence of a municipal Domestic Airlines (JDA) and Lim entered into a sales contract.
corporation is reserved to the State in a proceeding for quo Pioneer Insurance and Surety Corp. as surety executed its
warranto or other direct proceeding. But the rule disallowing surety bond in favor of JDA on behalf of its principal Lim. Border
collateral attacks applies only where the municipal corporation Machinery and Heacy Equipment Co, Inc., Francisco and
is at least a de facto corporation. For where it is neither a Modesto Cervantes, and Constancio Maglana contributed funds
corporation de jure nor de facto, but a nullity, the rule is that its based on the misrepresentation of Lim that they will form a new
existence may be questioned collaterally or directly in any corporation to expand his business. They executed two
action or proceeding by anyone whose rights or interests are separate indemnity agreements in favor of Pioneer, one signed
affected thereby, including the citizens of the territory by Maglana and the other jointly signed by Lim for SAL,
incorporated unless they are estopped by their conduct from Bormaheco and the Cervanteses. The indemnity agreements
doing so. stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save
ISSUE: WON the municipality of Balabagan is a de facto Pioneer from and against any/all damages, losses, etc. of
corporation considering that it was organized under a statute whatever kind and nature may incur in consequence of having
subsequently declared void. become surety.

HELD: Lim executed in favor of Pioneer a deed of chattel mortgage as


No. A corporation organized under a statute subsequently security. Upon default on the payments, Pioneer paid for him
declared invalid cannot acquire the status of a de facto and filed a petition for the foreclosure of chattel mortgage as
corporation unless there is some other statute under which the security. Maglana, Bormaheco and the Cervantess filed cross
supposed corporation may be validly organized. The mere fact -claims against Lim alleging that they were not privies to the
that Balabagan was organized at a time when the statute had contracts signed by Lim and for recovery of the sum of money
not been invalidated cannot conceivably make it a de facto
they advanced to Lim for the purchase of the aircrafts. The Commissioner, for the issuance of the corresponding certificate
decision was rendered holding Lim liable to pay. of incorporation.

ISSUE: (4) On March 22, 1948, pending action on the articles of


Whether failure to incorporate automatically resulted to de incorporation by the aforesaid governmental office, the
facto partnership. respondents Fred Brown, Emma Brown, Hipolita D. Chapman
and Ceferino S. Abella filed before the Court of First Instance of
HELD: Leyte the civil case numbered 381, entitled "Fred Brown et al.
NO. Partnership inter se does not necessarily exist, for ordinarily vs. Arnold C. Hall et al.", alleging among other things that the
persons cannot be made to assume the relation of partners as Far Eastern Lumber and Commercial Co. was an unregistered
between themselves, when their purpose is that no partnership partnership; that they wished to have it dissolved because of
shall exist and it should be implied only when necessary to do bitter dissension among the members, mismanagement and
justice between the parties; thus, one who takes no part except fraud by the managers and heavy financial losses.
to subscribe for stock in a proposed corporation which is never
legally formed does not become a partner with other (5) The defendants in the suit, namely, C. Arnold Hall and
subscribers who engage in business under the name of the Bradley P. Hall, filed a motion to dismiss, contesting the court's
pretended corporation, so as to be liable as such in an action for jurisdiction and the sufficiently of the cause of action.
settlement of the alleged partnership and contribution.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered
the dissolution of the company; and at the request of plaintiffs,
HALL vs. PICCIO appointed of the properties thereof, upon the filing of a P20,000
(FULL TEXT) bond.

This is petition to set aside all the proceedings had in civil case (7) The defendants therein (petitioners herein) offered to file a
No. 381 of the Court of First Instance of Leyte and to enjoin the counter-bond for the discharge of the receiver, but the
respondent judge from further acting upon the same. respondent judge refused to accept the offer and to discharge
the receiver. Whereupon, the present special civil action was
Facts: instituted in this court. It is based upon two main propositions,
(1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley to wit:
P. Hall, and the respondents Fred Brown, Emma Brown, Hipolita
D. Chapman and Ceferino S. Abella, signed and acknowledged (a) The court had no jurisdiction in civil case No. 381 to decree
in Leyte, the article of incorporation of the Far Eastern Lumber the dissolution of the company, because it being a de facto
and Commercial Co., Inc., organized to engage in a general corporation, dissolution thereof may only be ordered in a quo
lumber business to carry on as general contractors, operators warranto proceeding instituted in accordance with section 19 of
and managers, etc. Attached to the article was an affidavit of the Corporation Law.
the treasurer stating that 23,428 shares of stock had been
subscribed and fully paid with certain properties transferred to (b) Inasmuch as respondents Fred Brown and Emma Brown had
the corporation described in a list appended thereto. signed the article of incorporation but only a partnership.

(2) Immediately after the execution of said articles of Discussion: The second proposition may at once be dismissed.
incorporation, the corporation proceeded to do business with All the parties are informed that the Securities and Exchange
the adoption of by-laws and the election of its officers. Commission has not, so far, issued the corresponding certificate
of incorporation. All of them know, or sought to know, that the
(3) On December 2, 1947, the said articles of incorporation personality of a corporation begins to exist only from the
were filed in the office of the Securities and Exchange moment such certificate is issued not before (sec. 11,
Corporation Law). The complaining associates have not
represented to the others that they were incorporated any more There might be room for argument on the right of minority
than the latter had made similar representations to them. And stockholders to sue for dissolution;1 but that question does not
as nobody was led to believe anything to his prejudice and affect the court's jurisdiction, and is a matter for decision by the
damage, the principle of estoppel does not apply. Obviously this judge, subject to review on appeal. Which brings us to one
is not an instance requiring the enforcement of contracts with principal reason why this petition may not prosper, namely: the
the corporation through the rule of estoppel. petitioners have their remedy by appealing the order of
dissolution at the proper time.
The first proposition above stated is premised on the theory
that, inasmuch as the Far Eastern Lumber and Commercial Co., There is a secondary issue in connection with the appointment
is a de facto corporation, section 19 of the Corporation Law of a receiver. But it must be admitted that receivership is proper
applies, and therefore the court had not jurisdiction to take in proceedings for dissolution of a company or corporation, and
cognizance of said civil case number 381. Section 19 reads as it was no error to reject the counter-bond, the court having
follows: declared the dissolution. As to the amount of the bond to be
demanded of the receiver, much depends upon the discretion of
. . . The due incorporation of any corporations claiming in good the trial court, which in this instance we do not believe has
faith to be a corporation under this Act and its right to exercise been clearly abused.
corporate powers shall not be inquired into collaterally in any
private suit to which the corporation may be a party, but such Judgment: The petition will, therefore, be dismissed, with
inquiry may be had at the suit of the Insular Government on costs. The preliminary injunction heretofore issued will be
information of the Attorney-General. dissolved.

There are least two reasons why this section does not govern
the situation. Not having obtained the certificate of
incorporation, the Far Eastern Lumber and Commercial Co. CAGAYAN FISHING vs. SANDIKO
even its stockholders may not probably claim "in good faith"
to be a corporation. FACTS:
Manuel Tabora is the registered owner of four parcels of land. To
Under our statue it is to be noted (Corporation Law, sec. 11) guarantee the payment of two loans, Manuel Tabora, executed
that it is the issuance of a certificate of incorporation by the in favor of PNB two mortgages over the four parcels of land
Director of the Bureau of Commerce and Industry which calls a between August, 1929, and April 1930. Later, a third mortgage
corporation into being. The immunity if collateral attack is on the same lands was executed also on April, 1930 in favor of
granted to corporations "claiming in good faith to be a Severina Buzon to whom Tabora was indebted.
corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or On May, 1930, Tabora executed a public document entitled
substantial disregard of the law. Unless there has been an "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by
evident attempt to comply with the law the claim to be a virtue of which the four parcels of land owned by him was sold
corporation "under this act" could not be made "in good faith." to the plaintiff company, said to under process of incorporation.
(Fisher on the Philippine Law of Stock Corporations, p. 75. The plaintiff company filed its article incorporation with the
Bureau of Commerce and Industry only on October, 1930
Second, this is not a suit in which the corporation is a party. This (Exhibit 2).
is a litigation between stockholders of the alleged corporation,
for the purpose of obtaining its dissolution. Even the existence A year later, the board of directors of said company adopted a
of a de jure corporation may be terminated in a private suit for resolution authorizing its president to sell the four parcels of
its dissolution between stockholders, without the intervention of lands in question to Teodoro Sandiko. Exhibits B, C and D were
the state. thereafter made and executed. Exhibit B is a deed of sale where
the plaintiff sold ceded and transferred to the defendant all its
right, titles, and interest in and to the four parcels of land. his wife and others, as mere promoters of a corporations on the
Exhibit C is a promissory note drawn by the defendant in favor other hand.
of the plaintiff, payable after one year from the date thereof.
Exhibit D is a deed of mortgage executed where the four parcels For reasons that are self-evident, these promoters could not
of land were given a security for the payment of the promissory have acted as agent for a projected corporation since that
note, Exhibit C. which no legal existence could have no agent. A corporation,
until organized, has no life and therefore no faculties.
The defendant having failed to pay the sum stated in the
promissory note, plaintiff, brought this action in the Court of This is not saying that under no circumstances may the acts of
First Instance of Manila praying that judgment be rendered promoters of a corporation be ratified by the corporation if and
against the defendant for the sum stated in the promissory when subsequently organized.
note. After trial, the court rendered judgment absolving the
defendant. Plaintiff presented a motion for new trial, which There are, of course, exceptions, but under the peculiar facts
motion was denied by the trial court. After due exception and and circumstances of the present case we decline to extend the
notice, plaintiff has appealed to this court and makes an doctrine of ratification which would result in the commission of
assignment of various errors. injustice or fraud to the candid and unwary.

ISSUE: Corporations are creatures of the law, and can only come into
Whether or not the sale made by the corporation is valid. existence in the manner prescribed by law. A corporation should
have a full and complete organization and existence as an
HELD: entity before it can enter into any kind of a contract or transact
NO. The transfer made by Tabora to the Cagayan fishing any business, would seem to be self-evident. A corporation,
Development Co., Inc., plaintiff herein, was affected on May 31, until organized, has no being, franchises or faculties. Nor do
1930 (Exhibit A) and the actual incorporation of said company those engaged in bringing it into being have any power to bind
was affected later on October 22, 1930 (Exhibit 2). In other it by contract, unless so authorized by the charter there is not a
words, the transfer was made almost five months before the corporation nor does it possess franchise or faculties for it or
incorporation of the company. others to exercise, until it acquires a complete existence.

Unquestionably, a duly organized corporation has the power to


purchase and hold such real property as the purposes for which HARILL vs. DAVIS
such corporation was formed may permit and for this purpose
may enter into such contracts as may be necessary. But before 4 Defendants, after having agreed to form a corporation
a corporation may be said to be lawfully organized, many things ordered goods from the plaintiff even before they filed their AOI.
have to be done. Among other things, the law requires the filing And after they filed such AOI in one of the two public offices
of articles of incorporation. required by law, they ordered additional goods. This is an action
to recover the purchase price of said goods form the defendants
In the case before us it can not be denied that the plaintiff was as partners. Lower court held for defendants, plaintiff appeals
not yet incorporated when it entered into a contract of sale,
Exhibit A. Not being in legal existence then, it did not possess FACTS:
juridical capacity to enter into the contract. From June 1902December 22, 1902, 4 defendants associated
themselves and engaged in the following activities:
Boiled down to its naked reality, the contract here (Exhibit A)
was entered into not between Manuel Tabora and a non-existent purchased lumber, material and labor from Harill
corporation but between the Manuel Tabora as owner of the four construct cotton gin under The Coweta Gin Company
parcels of lands on the one hand and the same Manuel Tabora,
buying, selling and ginning cotton for profit under The Elements of estoppels in pais not present (ignorance of
Coweta Cotton and Milling Company the truth
incurred more than $4,700 of the indebtedness of and absence of equal means of knowledge of it by the
$5,145.48 party who claims the estoppel and action y the latter
induced by the misrepresentation of a party against
Dec 22, 1902, made first real attempt to incorporate and first whom the estoppel is invoked. Defendants represented
time took color of a corporation They filed AOI with clerk of themselves as a corporation and had better knowledge
Court of Appeals but never filed any duplicate with the clerk of than Harill.
judicial district in which their place of business was located as
required by the statutes. Court held that corporators or stockeholders remain
individually liable under statute unless and until their
Defendants argue that they became corporation de facto but AOI are filed in
cited authorities where AOI had been filed under a general both offices
enabling act or charter issued and had been using a franchise.

ISSUE: WON there is a corporation de facto.


ASIA BANKING CORP vs. STANDARD PRODUCTS CO.
RATIO: (FULLTEXT)
Parties who actively engage in business for profit under
the name and pretense of a corporation which they know This action is brought to recover the sum of P24,736.47, the
neither exists nor has any color of existence may not balance due on promissory notes.
escape individual liability because strangers are led by
their pretense to contract with their pretended entity as The court below rendered judgment in favor of the plaintiff for
a corporation. the sum demanded in the complaint, with interest on the sum of
P24,147.34 from November 1, 1923, at the rate of 10 per cent
Neither the hope, the belief, nor the statement by per annum, and the costs. From this judgment the defendant
parties that they were incorporated, nor the signing of appeals to this court.
AOI which were not filed, where filing is requisite to
create the corporation, nor the user of the pretended At the trial of the case the plaintiff failed to prove affirmatively
franchise of such a nonexistent corporation, will the corporate existence of the parties and the appellant insists
constitute such a corpo de facto as will exempt those that under these circumstances the court erred in finding that
who actively and knowingly use its name to incur the parties were corporations with juridical personality and
obligations from their individual liability to pay them. assigns same as reversible error.
COLOR of LEGALORGANIZATION as a corporation under
such charter or law and user of the supposed corporate There is no merit whatever in the appellant's contention. The
franchise in good faith are indispensable to such general rule is that in the absence of fraud a person who has
exemption. contracted or otherwise dealt with an association in such a way
as to recognize and in effect admit its legal existence as a
General Law of Arkansas: Filing of AOI with CA was a sine corporate body is thereby estopped to deny its corporate
qua non of any color of Legal Corporation. existence in any action leading out of or involving such contract
or dealing, unless its existence is attacked for cause which have
On the argument that Harill is stopped, not applicable arisen since making the contract or other dealing relied on as
since it means stopped from denying its existence on an estoppel and this applies to foreign as well as to domestic
the ground that it was not legally incorporated . corporations. (14 C. J., 227; Chinese Chamber of Commerce vs.
Pua Te Ching, 14 Phil., 222.)
2. Corporation by Estoppel employed where the person
The defendant having recognized the corporate existence of the seeking to hold
plaintiff by making a promissory note in its favor and making the officer personally liable has contracted or otherwise dealt
partial payments on the same is therefore estopped to deny with the
said plaintiff's corporate existence. It is, of course, also association in such a manner as to recognize and in effect admit
estopped from denying its own corporate existence. Under its
these circumstances it was unnecessary for the plaintiff to existence as a corporate body
present other evidence of the corporate existence of either of requires someone to treat you as if you were validly
the parties. It may be noted that there is no evidence showing incorporated;
circumstances taking the case out of the rules stated. correspondence or checks addressed to incorporated
Frequently invoked in contracts cases because outside
The judgment appealed from is affirmed, with the costs against party has
the appellant. So ordered. capacity for self help
Almost never works in tort (in contrast to self-help)
Cranson v. IBM p. 84-95: Appellee was granted summary Refection of how cherished doctrine is for inspiring
judgment in the lower court on the theory that a defectively-
economic activity
formed corporation was neither a de jure nor a de facto
Corporations inspire employment, higher levels of
corporation, and that appellant, as a partner, was personally
economic development
liable for its debts, namely, the balance due on electric
Corporations are often validly incorporated and they
typewriters purchased by the corporation. After examining the
doctrine of de facto corporations, the court reversed, holding will be
that, even though one or more of the requisites of a de facto challenged
corporation were absent, application of the estoppel doctrine
was not precluded. Neglect in defective formation could not be
used by a corporation as a defense to an action to enforce its
liabilities, and, since estoppel was based upon the inequity of SALVATIERRA vs. GARLITOS
permitting the denial of corporate existence by those dealing
with it as such, appellee was estopped from denying the legality FACTS:
of that which was not even a corporation de facto. Judgment Manuela T. Vda. de Salvatierra appeared to be the owner of a
reversed because, although appellant lacked one of the parcel of land located at Maghobas, Poblacion, Burauen, Teyte.
requisite factors of a de facto corporation, appellee, who had The said landholder entered into a contract of lease with the
dealt with the corporation as such, was estopped from denying Philippine Fibers Producers Co., Inc., allegedly a corporation
its existence. "duly organized and existing under the laws of the Philippines,
domiciled at Burauen, Leyte, Philippines, and with business
1. De Facto Corporation address therein, represented in this instance by Mr. Segundino
Q. Refuerzo, the President". It was provided in said contract
Existence of law authorizing incorporation
among other things:
lease would be for a period of 10 years
Good Faith Effort - to incorporate under the existing law
that the land would be planted to kenaf, ramie or other
Failure to file papers all together is not good faith, would
be if you left off seal or forgot to pay a fee. crops suitable to the soil
that the lessor would be entitled to 30 per cent of the
Actual Use or exercise of Corporation Powers would not net income accruing from the harvest of any, crop
occur if before a corporation began to operate there was without being responsible for the cost of production
a lawsuit of some sort to prohibit its incorporation (?) thereof
and that after every harvest, the lessee was bound to
declare at the earliest possible time the income derived
therefrom and to deliver the corresponding share due RULING:
the lessor. (The remedy allowed by Rule 38 to a party adversely affected
by a decision or order is certainly an alert of grace or
obligations imposed on the alleged corporation were not benevolence intended to afford said litigant a penultimate
complied with because on April 5, 1955, Alanuela T. Vda, de opportunity to protect his interest. Considering the nature of
Salvatierra filed with the Court of First Instance of Leyte a such relief and the purpose behind it, the periods fixed by said
complaint against the Philippine Fibers Producers Co., Inc., and rule are not non-extendible and never interrupted; nor could it
Segundino Q. Refuerzo, for accounting, rescission and damages. be subjected to any condition or contingency because it is of
itself devised to meet a condition or contingency. The petition
She averred that sometime in April, 1954, defendants planted for a writ of certiorari filed herein may be granted.)
kenaf on 3 hectares of the leased property which crop was, at
the time of the commencement of the action, already Decision on the merits of the case:
harvested, processed and sold by defendants; that
notwithstanding that fact, defendants refused to render an Refuerzo, in praying for his exoneration from any liability
accounting of the income derived therefrom and to deliver the resulting from the non-fulfillment of the obligation imposed on
lessor's share; that the estimated gross income was P4,500, and defendant Philippine Fibers Producers Co., Inc., interposed the
the deductible expenses amounted to P1,000; that as defense that the complaint filed with the lower court contained
defendants' refusal to undertake such task was in violation of no allegation which would hold him liable personally, for while it
the terms of the covenant entered into between the plaintiff was stated therein that he was a signatory to the lease
and defendant corporation, a rescission was but proper. contract, he did so in his capacity as president of the
corporation. And this allegation was found by the Court a quo to
As defendants apparently failed to file their answer to the be supported by the records. Plaintiff on the other hand tried to
complaint, of which they were allegedly notified, the Court refute this averment by contending that her failure to specify
declared them in default and proceeded to receive plaintiff's defendant's personal liability was due to the fact that all the
evidence. The lower Court rendered judgment granting time she was under the impression that the Philippine Fibers
plaintiff's prayer. Producers Co., Inc., represented by Refuerzo was a duly
registered corporation as appearing in the contract, but a
No appeal therefrom having been perfected within the subsequent inquiry from the Securities and Exchange
reglementary period, the Court, upon motion of plaintiff, issued Commission yielded otherwise. While as a general rule a person
a writ of execution, in virtue of which the Provincial Sheriff of who has contracted or dealt with an association in such a way
Leyte caused the attachment of 3 parcels of land registered in as to recognize its existence as a corporate body is estopped
the name of Segundino Refuerzo. No property of the Philippine from denying the same in an action arising out of such
Fibers Producers Co., Inc., was found available for attachment. transaction or dealing, yet this doctrine may not be held to be
applicable where fraud takes a part in the said transaction.
Defendant Segundino Refuerzo filed a motion (beyond the
reglementary period) claiming that the decision rendered in In the instant case, on plaintiff's charge that she was unaware
said Civil Case was null and void with respect to him, there of the fact that the Philippine Fibers Producers Co., Inc., had no
being no allegation in the complaint pointing to his personal juridical personality, defendant Refuerzo gave no confirmation
liability and thus prayed that an order be issued limiting such or denial and the circumstances surrounding the execution of
liability to Defendant Corporation. the Court a quo granted the the contract lead to the inescapable conclusion that plaintiff
same and ordered the Provincial Sheriff of Leyte to release all Manuela T. Vda. de Salvatierra was really made to believe that
properties belonging to the movant that might have already such corporation was duly organized in accordance with law.
been attached, after finding that the evidence on record made
no mention or referred to any fact which might hold movant There can be no question that a corporation with registered has
personally liable therein. a juridical personality separate and distinct from its component
members or stockholders and officers such that a corporation
cannot be held liable for the personal indebtedness of a under the laws of the Philippines; that on July 19, 1948,
stockholder even if he should be its president and conversely, a defendant, through Jose M. Aruego, its President, entered into a
stockholder or member cannot be held personally liable for any contract with plaintifif; that defendant had thereby agreed to
financial obligation be, the corporation in excess of his unpaid pay plaintiff P30,000.00 for the exclusive right to publish his
subscription. But this rule is understood to refer merely to revised Commentaries on the Revised Penal Code and for his
registered corporations and cannot be made applicable to the share in previous sales of the book's first edition; that
liability of members of an unincorporated association. The defendant had undertaken to pay in eight quarterly installments
reason behind this doctrine is obvious-since an organization of P3,750.00 starting July 15, 1948; that per contract failure to
which before the law is non-existent has no personality and pay one installment would render the rest due; and that
would be incompetent to act and appropriate for itself the defendant had failed to pay the second installment.
powers and attribute of a corporation as provided by law; it
cannot create agents or confer authority on another to act in its Defendant admitted plaintiff's allegation of defendant's
behalf; thus, those who act or purport to act as its corporate existence; admitted the execution and terms of the
representatives or agents do so without authority and at their contract dated July 19, 1948; but alleged that it was plaintiff
own risk. And as it is an elementary principle of law that a who breached their contract by failing to deliver his manuscript.
person who acts as an agent without authority or without a Furthermore, defendant counterclaimed for
principal is himself regarded as the principal, possessed of all damages.1wph1.t
the rights and subject to all the liabilities of a principal, a person
acting or purporting to act on behalf of a corporation which has Plaintiff died before trial and Justo R. Albert, his estate's
no valid existence assumes such privileges and obligations and administrator, was substituted for him.
comes personally liable for contracts entered into or for other
acts performed as such, agent. CFI of MANILA: the Court renders judgment in favor of the
plaintiff and against the defendant the University Publishing Co.,
Considering that defendant Refuerzo, as president of the Inc.
unregistered corporation Philippine Fibers Producers Co., Inc.,
was the moving spirit behind the consummation of the lease Thereafter, on July 22, 1961, the court a quo ordered issuance
agreement by acting as its representative, his liability cannot be of an execution writ against University Publishing Co., Inc.
limited or restricted that imposed upon corporate shareholders. Plaintiff, however, on August 10, 1961, petitioned for a writ of
In acting on behalf of a corporation which he knew to be execution against Jose M. Aruego, as the real defendant,
unregistered, he assumed the risk of reaping the consequential stating, "plaintiff's counsel and the Sheriff of Manila discovered
damages or resultant rights, if any, arising out of such that there is no such entity as University Publishing Co., Inc."
transaction. Plaintiff annexed to his petition a certification from the
Wherefore, the order of the lower Court of March 21, 1956, securities and Exchange Commission dated July 31, 1961,
amending its previous decision on this matter and ordering the attesting: "The records of this Commission do not show the
Provincial Sheriff of Leyte to release any and all properties of registration of UNIVERSITY PUBLISHING CO., INC., either as a
movant therein which might have been attached in the corporation or partnership." "University Publishing Co., Inc."
execution of such judgment, is hereby set aside and nullified as countered by filing, through counsel (Jose M. Aruego's own law
if it had never been issued. With costs against respondent firm), a "manifestation" stating that "Jose M. Aruego is not a
Segundino Refuerzo. It is so ordered. party to this case," and that, therefore, plaintiff's petition should
be denied.
ALBERT vs. University Publishing Co., Inc.
(MEJO FULLTEXT) Parenthetically, it is not hard to decipher why "University
Publishing Co., Inc.," through counsel, would not want Jose M.
Fifteen years ago, on September 24, 1949, Mariano A. Albert Aruego to be considered a party to the present case: should a
sued University Publishing Co., Inc. Plaintiff alleged inter alia separate action be now instituted against Jose M. Aruego, the
that defendant was a corporation duly organized and existing plaintiff will have to reckon with the statute of limitations.
It must be realized that parties to a suit are "persons who have
a right to control the proceedings, to make defense, to adduce
The court a quo denied the petition by order of September 9, and cross-examine witnesses, and to appeal from a decision"
1961, and from this, plaintiff has appealed. and Aruego was, in reality, the person who had and exercised
these rights. Clearly, then, Aruego had his day in court as the
The fact of non-registration of University Publishing Co., Inc. in real defendant; and due process of law has been substantially
the Securities and Exchange Commission has not been observed.
disputed. Defendant would only raise the point that "University
Publishing Co., Inc.," and not Jose M. Aruego, is the party The evidence is patently clear that Jose M. Aruego, acting as
defendant; thereby assuming that "University Publishing Co., representative of a non-existent principal, was the real party to
Inc." is an existing corporation with an independent juridical the contract sued upon; that he was the one who reaped the
personality. Precisely, however, on account of the non- benefits resulting from it, so much so that partial payments of
registration it cannot be considered a corporation, not even a the consideration were made by him; that he violated its terms,
corporation de facto. It has therefore no personality separate thereby precipitating the suit in question; and that in the
from Jose M. Aruego; it cannot be sued independently. litigation he was the real defendant. Perforce, in line with the
ends of justice, responsibility under the judgment falls on him.
The corporation-by-estoppel doctrine has not been invoked. At
any rate, the same is inapplicable here. Aruego represented a PREMISES CONSIDERED, the order appealed from is hereby set
non-existent entity and induced not only the plaintiff but even aside and the case remanded ordering the lower court to hold
the court to believe in such representation. He signed the supplementary proceedings for the purpose of carrying the
contract as "President" of "University Publishing Co., Inc.," judgment into effect against University Publishing Co., Inc.
stating that this was "a corporation duly organized and existing and/or Jose M. Aruego. So ordered.
under the laws of the Philippines," and obviously misled plaintiff
(Mariano A. Albert) into believing the same. One who has
induced another to act upon his wilful misrepresentation that a CHIANG KAI SHEK vs. CA
corporation was duly organized and existing under the law,
cannot thereafter set up against his victim the principle of FACTS:
corporation by estoppel.
An unpleasant surprise awaited Fausta F. Oh when she reported
"University Publishing Co., Inc." purported to come to court, for work at the Chiang Kai Shek School in Sorsogon on the first
answering the complaint and litigating upon the merits. But as week of July, 1968. She was told she had no assignment for the
stated, "University Publishing Co., Inc." has no independent next semester. Oh was shocked. She had been teaching in the
personality; it is just a name. Jose M. Aruego was, in reality, the school since 1932 for a continuous period of almost 33 years.
one who answered and litigated, through his own law firm as And now, out of the blue, and for no apparent or given reason,
counsel. He was in fact, if not, in name, the defendant. this abrupt dismissal.

in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person Oh sued. She demanded separation pay, social security
acting or purporting to act on behalf of a corporation which has benefits, salary differentials, maternity benefits and moral and
no valid existence assumes such privileges and obligations and exemplary damages.
becomes personally liable for contracts entered into or for other
acts performed as such agent." Had Jose M. Aruego been The Court of First Instance of Sorsogon dismissed the complaint.
named as party defendant instead of, or together with, On appeal, its decision was set aside by the respondent court,
"University Publishing Co., Inc.," there would be no room for which held the school suable and liable while absolving the
debate as to his personal liability. Since he was not so named, other defendants. The motion for reconsideration having been
the matters of "day in court" and "due process" have arisen. denied, the school then came to this Court in this petition for
review on certiorari.
The issues raised in the petition are: As the school itself may be sued in its own name, there is no
need to apply Rule 3, Section 15, under which the persons
1. Whether or not a school that has not been incorporated may joined in an association without any juridical personality may be
be sued by reason alone of its long continued existence and sued with such association. Besides, it has been shown that the
recognition by the government, individual members of the board of trustees are not liable,
having been appointed only after the private respondent's
2. Whether or not a complaint filed against persons associated dismissal.
under a common name will justify a judgment against the
association itself and not its individual members. It is clear now that a charitable institution is covered by the
labor laws. While it may be that the petitioner was engaged in
We hold against the petitioner on the first question. It is true charitable works, it would not necessarily follow that those in its
that Rule 3, Section 1, of the Rules of Court clearly provides that employ were as generously motivated. Obviously, most of them
"only natural or juridical persons may be parties in a civil would not have the means for such charity. The private
action." It is also not denied that the school has not been respondent herself was only a humble school teacher receiving
incorporated. However, this omission should not prejudice the a meager salary of Pl80. 00 per month.
private respondent in the assertion of her claims against the
school. At that, it has not been established that the petitioner is a
charitable institution, considering especially that it charges
As a school, the petitioner was governed by Act No. 2706 as tuition fees and collects book rentals from its students.
amended by C.A. No. 180, which provided as follows:
The petitioner says the private respondent had not been
Unless exempted for special reasons by the Secretary of Public illegally dismissed because her teaching contract was on a
Instruction, any private school or college recognized by the yearly basis and the school was not required to rehire her in
government shall be incorporated under the provisions of Act 1968. The argument is that her services were terminable at the
No. 1459 known as the Corporation Law, within 90 days after end of each year at the discretion of the school. Significantly, no
the date of recognition, and shall file with the Secretary of explanation was given by the petitioner, and no advance notice
Public Instruction a copy of its incorporation papers and by- either, of her relief after teaching year in and year out for all of
laws. thirty-two years, the private respondent was simply told she
could not teach any more.
Having been recognized by the government, it was under
obligation to incorporate under the Corporation Law within 90 The Court holds, after considering the particular circumstance
days from such recognition. It appears that it had not done so at of Oh's employment that she had become a permanent
the time the complaint was filed notwithstanding that it had employee of the school and entitled to security of tenure at the
been in existence even earlier than 1932. The petitioner cannot time of her dismissal. Since no cause was shown and
now invoke its own non-compliance with the law to immunize it established at an appropriate hearing, and the notice then
from the private respondent's complaint. required by law had not been given, such dismissal was invalid.

There should also be no question that having contracted with Parenthetically, R.A. No. 4670, otherwise known as the Magna
the private respondent every year for thirty two years and thus Carta for Public School Teachers, confers security of tenure on
represented itself as possessed of juridical personality to do so, the teacher upon appointment as long as he possesses the
the petitioner is now estopped from denying such personality to required qualification
defeat her claim against it. According to Article 1431 of the Civil
Code, "through estoppel an admission or representation is It is easy to imagine the astonishment and hurt she felt when
rendered conclusive upon the person making it and cannot be she was fatly and without warning told she was dismissed.
denied or disproved as against the person relying on it." There was not even the amenity of a formal notice of her
replacement, with perhaps a graceful expression of thanks for enforced by attaching the fishing nets on board F/B Lourdes
her past services. She was simply informed she was no longer in docked in Manila.
the teaching staff. To put it bluntly, she was fired.
Instead of answering the Complaint, Chua filed a Manifestation
For the wrongful act of the petitioner, the private respondent is admitting his liability and requesting a reasonable time within
entitled to moral damages. which to pay. He also turned over to respondent some of the
nets which were in his possession. Peter Yao filed an Answer,
WHEREFORE, the petition is DENIED. after which he was deemed to have waived his right to cross-
examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim
Tong Lim, on the other hand, filed an Answer with Counterclaim
and Crossclaim and moved for the lifting of the Writ of
Attachment. The trial court maintained the Writ, and upon
LIM TONG LIM vs. Phil. Fishing Gear Industries Inc. motion of private respondent, ordered the sale of the fishing
nets at a public auction. Philippine Fishing Gear Industries won
A partnership may be deemed to exist among parties who the bidding.
agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown
that they have not contributed any capital of their own to a The trial court rendered its Decision, ruling that Philippine
"common fund." Their contribution may be in the form of credit Fishing Gear Industries was entitled to the Writ of Attachment
or industry, not necessarily cash or fixed assets. Being partners, and that Chua, Yao and Lim, as general partners, were jointly
they are all liable for debts incurred by or on behalf of the liable to pay respondent.
partnership. The liability for a contract entered into on behalf of
an unincorporated association or ostensible corporation may lie The trial court ruled that a partnership among Lim, Chua and
in a person who may not have directly transacted on its behalf, Yao existed based on: TESTIMONIES, Compromise Agreement
but reaped benefits from that contract. executed by the three which Chua and Yao had brought against
Lim in the RTC of Malabon.

FACTS: The trial court noted that the Compromise Agreement was silent
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua as to the nature of their obligations, but that joint liability could
and Peter Yao entered into a Contract for the purchase of fishing be presumed from the equal distribution of the profit and loss.
nets of various sizes from the Philippine Fishing Gear Industries,
Inc. They claimed that they were engaged in a business venture CA: affirmed RTC decision.
with Petitioner Lim Tong Lim, who however was not a signatory
to the agreement. The total price of the nets amounted to The evidence establishes that all the defendants including
P532,045. Four hundred pieces of foats worth P68,000 were herein appellant Lim Tong Lim undertook a partnership for a
also sold to the Corporation. specific undertaking, that is for commercial fishing. Obviously,
the ultimate undertaking of the defendants was to divide the
The buyers, however, failed to pay for the fishing nets and the profits among themselves which is what a partnership
foats; hence, private respondent filed a collection suit against essentially is.
Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought against the three ISSUE: Whether by their acts, Lim, Chua and Yao could be
in their capacities as general partners, on the allegation that deemed to have entered into a partnership.
Ocean Quest Fishing Corporation was a nonexistent corporation
as shown by a Certification from the SEC. The lower court RULING: PETITION WITHOUT MERIT.
issued a Writ of Preliminary Attachment, which the sheriff
Whether Partnership existed: shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof: Provided
We are not persuaded by the arguments of petitioner. The facts however, That when any such ostensible corporation is sued on
as found by the two lower courts clearly showed that there any transaction entered by it as a corporation or on any tort
existed a partnership among Chua, Yao and him. committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing business, One who assumes an obligation to an ostensible corporation as
which they started by buying boats worth P3.35 million, such, cannot resist performance thereof on the ground that
financed by a loan secured from Jesus Lim who was petitioners there was in fact no corporation.
brother. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the Thus, even if the ostensible corporate entity is proven to be
sale of the boats, and to divide equally among them the excess legally nonexistent, a party may be estopped from denying its
or loss. These boats, the purchase and the repair of which were corporate existence. The reason behind this doctrine is obvious
financed with borrowed money, fell under the term common - an unincorporated association has no personality and would
fund under Article 1767. The contribution to such fund need not be incompetent to act and appropriate for itself the power and
be cash or fixed assets; it could be an intangible like credit or attributes of a corporation as provided by law; it cannot create
industry. That the parties agreed that any loss or profit from the agents or confer authority on another to act in its behalf; thus,
sale and operation of the boats would be divided equally among those who act or purport to act as its representatives or agents
them also shows that they had indeed formed a partnership. 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
Moreover, it is clear that the partnership extended not only to without authority or without a principal is himself regarded as
the purchase of the boat, but also to that of the nets and the the principal, possessed of all the right and subject to all the
foats. The fishing nets and the foats, both essential to fishing, liabilities of a principal, a person acting or purporting to act on
were obviously acquired in furtherance of their business. It behalf of a corporation which has no valid existence assumes
would have been inconceivable for Lim to involve himself so such privileges and obligations and becomes personally liable
much in buying the boat but not in the acquisition of the for contracts entered into or for other acts performed as such
aforesaid equipment, without which the business could not have agent.
proceeded.
The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first instance, an
Given the preceding facts, it is clear that there was, among unincorporated association, which represented itself to be a
petitioner, Chua and Yao, a partnership engaged in the fishing corporation, will be estopped from denying its corporate
business. They purchased the boats, which constituted the main capacity in a suit against it by a third person who relied in good
assets of the partnership, and they agreed that the proceeds faith on such representation. It cannot allege lack of personality
from the sales and operations thereof would be divided among to be sued to evade its responsibility for a contract it entered
them. into and by virtue of which it received advantages and benefits.

CORPORATION BY ESTOPPEL: On the other hand, a third party who, knowing an association to
be unincorporated, nonetheless treated it as a corporation and
Petitioner argues that under the doctrine of corporation by received benefits from it, may be barred from denying its
estoppel, liability can be imputed only to Chua and Yao, and not corporate existence in a suit brought against the alleged
to him. Again, we disagree. corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite
Sec. 21. Corporation by estoppel. - All persons who assume to knowledge of its legal defects, may be held liable for contracts
act as a corporation knowing it to be without authority to do so they impliedly assented to or took advantage of.
IETTSI wrote the Federation, through Kahn a demand letter
There is no dispute that the respondent, Philippine Fishing Gear requesting for the amount of P265,894.33. On 30 October 1989,
Industries, is entitled to be paid for the nets it sold. The only the Federation, through the Project Gintong Alay, paid the
question here is whether petitioner should be held jointly[18] amount of P31,603.00. On 27 December 1989, Henri Kahn
liable with Chua and Yao. Petitioner contests such liability, issued a personal check in the amount of P50,000 as partial
insisting that only those who dealt in the name of the ostensible payment for the outstanding balance of the Federation.
corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly Thereafter, no further payments were made despite repeated
transacted with the respondent corporation, ergo, he cannot be demands. This prompted IETTSI to file a civil case before the
held liable. Regional Trial Court of Manila. IETTSI sued Henri Kahn in his
personal capacity and as President of the Federation and
Unquestionably, petitioner benefited from the use of the nets impleaded the Federation as an alternative defendant. IETTSI
found inside F/B Lourdes, the boat which has earlier been sought to hold Henri Kahn liable for the unpaid balance for the
proven to be an asset of the partnership. He in fact questions tickets purchased by the Federation on the ground that Henri
the attachment of the nets, because the Writ has effectively Kahn allegedly guaranteed the said obligation. Kahn filed his
stopped his use of the fishing vessel. answer with counterclaim, while the Federation failed to file its
answer and was declared in default by the trial court. In due
Technically, it is true that petitioner did not directly act on course, the trial court rendered judgment and ruled in favor of
behalf of the corporation. However, having reaped the benefits IETTSI and declared Henri Kahn personally liable for the unpaid
of the contract entered into by persons with whom he obligation of the Federation. The complaint of IETTSI against the
previously had an existing relationship, he is deemed to be part Philippine Football Federation and the counterclaims of Henri
of said association and is covered by the scope of the doctrine Kahn were dismissed, with costs against Kahn. Only Henri Kahn
of corporation by estoppel. elevated the decision to the Court of Appeals. On 21 December
1994, the appellate court rendered a decision reversing the trial
PETITION DENIED. court. IETTSI filed a motion for reconsideration and as an
alternative prayer pleaded that the Federation be held liable for
the unpaid obligation. The same was denied by the appellate
court in its resolution of 8 February 1995. IETTSI filed the
petition with the Supreme Court.

International Express Travel & Tour Services, Inc. vs. Court of Issue
Appeals Whether the Philippine Football Federation has a corporate
[GR 119002, 19 October 2000] existence of its own.
Whether Kahn should be made personally liable for the unpaid
Facts: On 30 June 1989, the International Express Travel and obligations of the Philippine Football Federation.
Tour Services, Inc. (IETTSI), through its managing director, wrote Whether the appellate court properly applied the doctrine of
a letter to the Philippine Football Federation (Federation), corporation by estoppel.
through its president, Henri Kahn, wherein the former offered its Held
services as a travel agency to the latter. The offer was
accepted. IETTSI secured the airline tickets for the trips of the 1. Both RA 3135 (the Revised Charter of the Philippine Amateur
athletes and officials of the Federation to the South East Asian Athletic Federation) and PD 604 recognized the juridical
Games in Kuala Lumpur as well as various other trips to the existence of national sports associations. This may be gleaned
People's Republic of China and Brisbane. The total cost of the from the powers and functions granted to these associations
tickets amounted to P449,654.83. For the tickets received, the (See Section 14 of RA 3135 and Section 8 of PD 604). The
Federation made two partial payments, both in September of powers and functions granted to national sports associations
1989, in the total amount of P176,467.50. On 4 October 1989, indicate that these entities may acquire a juridical personality.
The power to purchase, sell, lease and encumber property are defectively incorporated, IETTSI cannot deny the corporate
acts which may only be done by persons, whether natural or existence of the Federation because it had contracted and dealt
artificial, with juridical capacity. However, while national sports with the Federation in such a manner as to recognize and in
associations may be accorded corporate status, such does not effect admit its existence. The doctrine of corporation by
automatically take place by the mere passage of these laws. It estoppel is mistakenly applied by the appellate court to IETTSI.
is a basic postulate that before a corporation may acquire The application of the doctrine applies to a third party only
juridical personality, the State must give its consent either in when he tries to escape liabilities on a contract from which he
the form of a special law or a general enabling act. The has benefited on the irrelevant ground of defective
Philippine Football Federation did not come into existence upon incorporation. Herein, IETTSI is not trying to escape liability from
the passage of these laws. Nowhere can it be found in RA 3135 the contract but rather is the one claiming from the contract.
or PD 604 any provision creating the Philippine Football
Federation. These laws merely recognized the existence of
national sports associations and provided the manner by which
these entities may acquire juridical personality. Section 11 of RA PRISCILO B. PAZ,* Petitioner, vs. NEW INTERNATIONAL
3135 and Section 8 of PD 604 require that before an entity may ENVIRONMENTAL UNIVERSALITY, INC., Respondent.
be considered as a national sports association, such entity must
be recognized by the accrediting organization, the Philippine, Principles:
Amateur Athletic Federation under RA 3135, and the
Department of Youth and Sports Development under PD 604. Commercial Law: Section 21 of the Corporation Code explicitly
This fact of recognition, however, Henri Kahn failed to provides that one who assumes an obligation to an ostensible
substantiate. A copy of the constitution and by-laws of the corporation, as such, cannot resist performance thereof on the
Philippine Football Federation does not prove that said ground that there was in fact no corporation. (Doctrine of
Federation has indeed been recognized and accredited by either Estoppel)
the Philippine Amateur Athletic Federation or the Department of
Youth and Sports Development. Accordingly, the Philippine Facts:
Football Federation is not a national sports association within
the purview of the aforementioned laws and does not have Petitioner, as officer-in-charge of the Aircraft Hangar at the
corporate existence of its own. Davao International Airport, Davao City, entered into a MOA
with Captain Allan J. Clarke, President of International
2. Henry Kahn should be held liable for the unpaid obligations of Environmental University, whereby for a period of 4 years,
the unincorporated Philippine Football Federation. It is a settled unless pre-terminated by both parties with 6 months advance
principal in corporation law that any person acting or purporting notice, the former shall allow the latter to use the aircraft
to act on behalf of a corporation which has no valid existence hangar space at the said Airport "exclusively for company
assumes such privileges and becomes personally liable for aircraft/helicopter."
contract entered into or for other acts performed as such agent.
As president of the Federation, Henri Kahn is presumed to have About five months thereafter, petitioner sent a letter to Capt.
known about the corporate existence or non-existence of the Clarke complaining that the hangar space was being used "for
Federation. We cannot subscribe to the position taken by the trucks and equipment, vehicles maintenance and fabrication,"
appellate court that even assuming that the Federation was and threatened to cancel the MOA if such were not stopped
defectively incorporated, the petitioner cannot deny the immediately. In another letter, he reiterated his threat and
corporate existence of the Federation because it had contracted offered a vacant space along the airport road that was available
and dealt with the Federation in such a manner as to recognize for Capt. Clarkes operations. Unsatisfied, he again sent three
and in effect admit its existence. letters demanding respondent to vacate the premises otherwise
the company will apply for immediate electrical disconnection.
3. The Court cannot subscribe to the position taken by the
appellate court that even assuming that the Federation was
Respondent then filed a complaint against petitioner for breach which belied his claim of contracting with Capt. Clarke in the
of contract before the RTC claiming that: (a) petitioner had latters personal capacity.
disconnected its electric and telephone lines; (b) upon
petitioners instruction, security guards prevented its MR: Petitioner raised an additional issue stating that the death
employees from entering the leased premises by blocking the of Capt. Clarke allegedly warranted the dismissal of the case.
hangar space with barbed wire; and (c) petitioner violated the Motion is denied. Capt. Clark is merely an agent of respondent,
terms of the MOA when he took over the hangar space without thus, his death extinguished only the agency between him and
giving respondent the requisite six (6)-month advance notice of respondent.
termination.
Issues:
In his defense, petitioner alleged that: (a) respondent had no 1. Whether or not Capt. Clarke is an indispensable party. NO
cause of action against him as the MOA was executed between 2. Whether or not respondent is liable for breach of contract.
him and Capt. Clarke in the latters personal capacity; (b) there -YES
was no need to wait for the expiration of the MOA because
Capt. Clarke performed highly risky works in the leased Ruling: The petition lacks merit.
premises that endangered other aircrafts within the vicinity; and
(c) the six (6)-month advance notice of termination was already 1. The CA is correct in denying the motion to dismiss the case
given in the letters he sent to Capt. Clarke. for lack of jurisdiction. Failure to implead Capt. Clarke does not
divest the court of jurisdiction since he is merely an agent of
The RTC issued a Writ of Preliminary Injunction ordering respondent. While Capt. Clarkes name and signature appeared
petitioner to immediately remove all his aircrafts parked within on the MOA, his participation was, nonetheless, limited to being
the leased premises; allow entry of respondent by removing the a representative of respondent. As a mere representative, Capt.
steel gate installed thereat; and desist and refrain from Clarke acquired no rights whatsoever, nor did he incur any
committing further acts of dispossession and/or interference in liabilities, arising from the contract between petitioner and
respondents occupation of the hangar space. For failure to respondent. Therefore, he was not an indispensable party to the
comply, respondent filed a petition for indirect contempt case at bar.
against petitioner.
2. From the very language itself of the MOA entered into by
RTC: Petitioner is guilty of indirect contempt and liable for petitioner whereby he obligated himself to allow the use of the
breach of contract for illegally terminating the MOA even before hangar space "for company aircraft/helicopter," petitioner
the expiration of the term thereof. The MOA was executed by cannot deny that he contracted with respondent. Petitioner
the parties not only in their personal capacities but also in further acknowledged this fact in his final letter dated July 23,
representation of their respective corporations or entities. 2002, where he reiterated and strongly demanded the former to
immediately vacate the hangar space his "company is
CA: Affirmed RTCs finding of petitioners liability for breach of occupying/utilizing."
contract.
Section 21 of the Corporation Code explicitly provides that one
The CA ruled that, while there was no corporate entity at the who assumes an obligation to an ostensible corporation, as
time of the execution of the MOA on March 1, 2000 when Capt. such, cannot resist performance thereof on the ground that
Clarke signed as "President of International Environmental there was in fact no corporation. Clearly, petitioner is bound by
University," petitioner is nonetheless estopped from denying his obligation under the MOA not only on estoppel but by
that he had contracted with respondent as a corporation, express provision of law. As aptly raised by respondent in its
having recognized the latter as the "Second Party" in the MOA Comment to the instant petition, it is futile to insist that
that "will use the hangar space exclusively for company petitioner issued the receipts for rental payments in
aircraft/helicopter." Petitioner was likewise found to have issued respondents name and not with Capt. Clarkes, whom
checks to respondent from May 3, 2000 to October 13, 2000, petitioner allegedly contracted in the latters personal capacity,
only because it was upon the instruction of an employee.
Indeed, it is disputably presumed that a person takes ordinary The lower courts, therefore, did not err in finding petitioner
care of his concerns, and that all private transactions have been liable for breach of contract for effectively evicting respondent
fair and regular. Hence, it is assumed that petitioner, who is a from the leased premises even before the expiration of the term
pilot, knew what he was doing with respect to his business with of the lease. The Court reiterates with approval the ratiocination
respondent. of the RTC that, if it were true that respondent was violating the
terms and conditions of the lease, "[petitioner] should have
Be that as it may, it is settled that courts have no power to gone to court to make the [former] refrain from its 'illegal'
relieve parties from obligations they voluntarily assumed, activities or seek rescission of the [MOA], rather than taking the
simply because their contracts turn out to be disastrous deals or law into his own hands."
unwise investments.