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Week 2, Case #13 Zosa, G.R. No.

. 136448, Nov 3, 1999 Chua, Yao and Lim undertook a partnership for a specific
Petitioner: Lim Tong Lim undertaking.
Respondent: Philippine Fishing Gear Industries, Inc.
Hence, Lim brought the case before the Supreme Court.
1. A partnership may be deemed to exist among parties who agree Issue:
to borrow money to pursue a business and to divide the profits or By their acts, whether or not Lim, Chua, and Yao could be deemed
losses that may arise therefrom, even if it is shown that they have to have entered into a partnership. Yes, it was a partnership. Idk
not contributed any capital of their own to a common fund. how corporation got in the way
2. The liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a Decision:
person who may not have directly transacted on its behalf, but Supreme Court ruled the Lims petition is without merit.
reaped benefits from that contract.
Lim asserts that the CA findings was only based on the Compromise
Facts: Agreement and that he has no direct participation in the purchase
Antonio Chua and Peter Yao, on behalf of Ocean Quest Fishing Corp, of the nets.
purchased fishing nets of various sizes from the Philippine Fishing
Gear Industries. However, they failed to pay the fishing nets and From the factual findings of both lower courts, it is clear that Chua,
floats hence, Philippine Fishing Gear filed a collection suit against Yao and Lim had decided to engage in a fishing business, which
Chua, Yao and Lim Tong Lim. Lim Tong Lim was sued in his capacity they started by buying boats worth P3.35 million, financed by a
was a general partner of the Ocean Quest, although Ocean Quest loan secured from Jesus Lim who was petitioners brother.
does not appear in SEC list.
In their Compromise Agreement, they subsequently revealed their
The lower court issued a Writ of Preliminary Attachment over the intention to pay the loan with the proceeds of the sale of the boats,
fishing nets on board F/B Lourdes, then docked in Navotas, Manila. and to divide equally among them the excess or loss. These boats,
Chua filed a Manifestation admitting his liability, requesting for a the purchase and the repair of which were financed with borrowed
reasonable time within which to pay. Yao filed an Answer and later money, fell under the term common fund under Article 1767. The
failed to appear in the subsequent hearings. Lim Tong Lim, on the contribution to such fund need not be cash or fixed assets; it could
other hand, filed an Answer with Counterclaim and Crossclaim and be an intangible like credit or industry. That the parties agreed that
moved for the lifting of the Writ of Attachment. any loss or profit from the sale and operation of the boats would be
divided equally among them also shows that they had indeed
The trial court did not lift the Writ and upon motion of Philippine formed a partnership.
Fishing Gear, ordered the sale of the fishing nets at which Philippine
Fishing Gear won the bidding, Further, Lim brought the petition to SC under Rule 45 (Petition for
review), that the present case should only involve questions of law.
Trial court ruled that Philippine Fishing Gear Industries was Therefore, the factual findings of the RTC and CA are binding
entitled to the Writ of Attachement and that Chua, Yao, and Lim, as already, absent any exception to the rule.
general partners were jointly liable to pay Philippine Fishing Gear.
The TCs basis of the partnership relationship were (1) testimonies COMPROMISE AGREEMENT, NOT THE SOLE BASIS OF PARTNERSHIP
of the witnesses presented and (2) on a Compromised Agreement Also, CAs basis was not the Compromise Agreement alone. Lim
executed by the three wherein they agreed that they will be selling fails to recognize that CA and the RTC delved into the history of the
fishing vessel and fishing nets at a higher price and will divide the document and explored all the possible consequential combinations
profits and losses equally among themselves. in harmony with law, logic and fairness.

Lim appealed to the Court of Appeals but CA only affirmed the LIM WAS A PARTNER, NOT A LESSOR
RTC ruling because the evidence presented only established that If he was a lessor, Lim should not have consented to the sale of the
boats to pay a debt of Chua and Yao, with the excess of the may be held liable for contracts they impliedly assented to or took
proceeds to be divided among the three of them. Indeed, his advantage of.
consent to the sale proved that there was a preexisting partnership
among all three. Unquestionably, Lim benefited from the use of the nets found inside
F/B Lourdes, the boat which has earlier been proven to be an asset
CORPORATION BY ESTOPPEL of the partnership. He in fact questions the attachment of the nets,
Sec 21 of the Corporation Code: All persons who assume to act as a because the Writ has effectively stopped his use of the fishing
corporation knowing it to be without authority to do so shall be vessel.
liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when Clearly, under the law on estoppel, those acting on behalf of a
any such ostensible corporation is sued on any transaction entered corporation and those benefited by it, knowing it to be without valid
by it as a corporation or on any tort committed by it as such, it shall existence, are held liable as general partners.
not be allowed to use as a defense its lack of corporate personality.
Technically, it is true that petitioner did not directly act on behalf of
Thus, even if the ostensible corporate entity is proven to be legally the corporation. However, having reaped the benefits of the
nonexistent, a party may be estopped from denying its corporate contract entered into by persons with whom he previously had an
existence. existing relationship, he is deemed to be part of said association
and is covered by the scope of the doctrine of corporation by
The doctrine of corporation by estoppel may apply to the alleged estoppel.
corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a WHEREFORE, the Petition is DENIED and the assailed Decision
corporation, will be estopped from denying its corporate capacity in AFFIRMED. Costs against petitioner.
a suit against it by a third person who relied in good faith on such
representation. SO ORDERED.

On the other hand, a third party who, knowing an association to be

unincorporated, nonetheless treated it as a corporation and
received benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged corporation.

In such case, all those who benefited from the transaction made by
the ostensible corporation, despite knowledge of its legal defects,