Doctrine of corporate estoppel: Legal personality beyond formalities
By: Atty. Xela Leona Laqui on May 22,2025
THE concept of separate legal personality of corporations is foundational in corporate law. A company, upon proper incorporation, acquires a juridical personality distinct from its stockholders and officers, enabling it to transact, sue and be sued in its own name.
However, situations arise where a group of persons misrepresents itself as a corporation, and later attempts to deny its corporate personality to evade liability. This is where the doctrine of corporate estoppel plays a crucial role. It is a safeguard against unjust enrichment and promotes ethical conduct in commercial transactions.
Its basics may be found in Section 20 of Republic Act 11232, or the Revised Corporation Code (RCC) of the Philippines, which provides that corporation by estoppel refers to all persons who, assuming to act as a corporation, knowing it to be without the authority to do so, are liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof.
When any such ostensible corporation is sued for any transaction entered by it as a corporation or for any tort committed by it as such, it shall not be allowed to rely on its lack of corporate personality as a defense.
On the other hand, anyone who assumes an obligation with an ostensible corporation as such cannot later resist performance thereof, on the ground that there was, in fact, no corporation.
Section 20 of the RCC thus captures two critical aspects of corporate estoppel, namely: first, those who act as a corporation without authority are personally liable as general partners; and second, those who transact with an ostensible corporation cannot later deny its existence to avoid their own obligations.
In other words, the doctrine of corporate estoppel prevents a party from denying the existence or capacity of a corporation after having treated it as such in previous dealings. It thus ensures fairness and good faith in contractual relationships.
Cases
In the recent case of Quezon City Government v. Manila Seedling Bank Foundation Inc. (GR 208788 and 228284, July 23, 2024), the Quezon City government attempted to deny the legal personality of Manila Seedling Bank Foundation after the revocation of the latter’s Securities and Exchange Commission registration. Despite the revocation, the city had previously issued business permits, collected taxes and benefited from the foundation’s operations. The Supreme Court held that the city was estopped from questioning the foundation’s personality. It emphasized that a party cannot impugn a corporation’s existence after recognizing it, contracting with it or deriving benefits from it.
The court, citing the case of Magna Ready Mix Concrete Corp. v. Andersen Bjornstad Kane Jacobs Inc. (894 Phil. 286 (2021), ruled that estoppel applies to both domestic and foreign corporations, and a party dealing with a corporation as a legitimate entity cannot later deny its corporate existence to avoid responsibility. This ruling is grounded in the legal maxim commodum ex injuria sua non habere debet — no person ought to derive any advantage from their own wrong. In this case, the wrongdoing was the city’s attempt to shift its stance only when the legal consequences became unfavorable.
Similarly, in the case of Development Bank of the Philippines v. Monsanto Co. (GR 207153, Jan. 25, 2023), Continental Manufacturing Corp. (CMC) acknowledged its obligation, but claimed that Monsanto International Sales Company (Misco) had no legal capacity to sue because it was a foreign corporation doing business in the Philippines without a license, in violation of Section 133 of the Corporation Code. The Supreme Court disagreed, invoked the doctrine of corporate estoppel and ruled that Misco could still sue because CMC had contracted with it and benefited from the transaction. The Supreme Court held that even without a license, a foreign corporation is not barred from suing if the other party dealt with it as a corporation and accepted benefits under the contract.
In the case of Merrill Lynch Futures Inc. v. Court of Appeals (GR 97816, July 24, 1992), the high court held that one who has dealt with a foreign corporation as a legitimate entity is estopped from challenging its capacity to sue, stressing that estoppel prevents parties from invoking technicalities to escape contractual obligations, especially after reaping benefits.
Therefore, the doctrine of corporate estoppel is not just a procedural tool. It reflects deeper public policy interests, protecting legitimate expectations of parties who transact in good faith, preventing fraud and unjust enrichment, upholding fairness in commercial dealings and discouraging opportunism by prohibiting parties from asserting conflicting positions when it suits them.
Xela Leona D. Laqui is an associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). Email her at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.