G.R. No. 119002 – 397 Phil. 751 – 343 SCRA 674 – Mercantile Law – Corporation Law – Corporation by Estoppel – When Applied
In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the Philippine Football Federation (PFF) its travel services for the South East Asian Games. PFF, through Henri Kahn, its president, agreed. IETTI then delivered the plane tickets to PFF, PFF in turn made a down payment. However, PFF was not able to complete the full payment in subsequent installments despite repeated demands from IETTI. IETTI then sued PFF and Kahn was impleaded as a co-defendant.
Kahn averred that he should not be impleaded because he merely acted as an agent of PFF which he averred is a corporation with separate and distinct personality from him. The trial court ruled against Kahn and held him personally liable for the said obligation (PFF was declared in default for failing to file an answer). The trial court ruled that Kahn failed to prove that PFF is a corporation. The Court of Appeals however reversed the decision of the trial court. The Court of Appeals took judicial notice of the existence of PFF as a national sports association; that as such, PFF is empowered to enter into contracts through its agents; that PFF is therefore liable for the contract entered into by its agent Kahn. The CA further ruled that IETTI is in estoppel; that it cannot now deny the corporate existence of PFF because it had contracted and dealt with PFF in such a manner as to recognize and in effect admit its existence.
ISSUE: Whether or not the Court of Appeals is correct.
HELD: No. PFF, upon its creation, is not automatically considered a national sports association. It must first be recognized and accredited by the Philippine Amateur Athletic Federation and the Department of Youth and Sports Development. This fact was never substantiated by Kahn. As such, PFF is considered as an unincorporated sports association. And under the law, 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. Kahn is therefore personally liable for the contract entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI is in estoppel. The application of the doctrine of corporation by 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. In the case at bar, IETTI is not trying to escape liability from the contract but rather is the one claiming from the contract.
