ii. Corporation by Estoppel

Can a defective corporation result into a partnership? (Two Views)

No Partnership: When investors intended only to invest in a corporate venture with no intention of participating in its corporate affairs, and the corporation was not formed, no partnership relation is established by the failure to incorporate, such investors cannot even be held liable for the contracts and transactions sued upon. (Pioneer Insurance & Surety Corporation v. Court of Appeals, G.R. No. 84197, 28 July 1989)¹

Partnership Exists: However, failure to incorporate does not automatically create a partnership. A partnership may nevertheless be found when the parties’ agreement and conduct establish a joint venture; a partner need not personally enter into each partnership transaction to be liable for partnership obligations. (Lim v. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, 3 November 1999)²

Corporation by estoppel (Sec. 20);

A person who assumes an obligation to an ostensible corporation as such cannot resist performance on the ground that it lacked corporate existence; the estoppel does not itself make the entity a corporation.

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.

When 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.