[G.R. No. 119002.

October 19, 2000] WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal
sum of P207,524.20, plus the interest thereon at the legal rate computed from July 5, 1990, the date
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF
the complaint was filed, until the principal obligation is fully liquidated; and another sum of
APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.
P15,000.00 for attorney's fees.
DECISION
The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the
KAPUNAN, J.: defendant Henri Kahn are hereby dismissed.
On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its With the costs against defendant Henri Kahn.[10]
managing director, wrote a letter to the Philippine Football Federation (Federation), through its
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994,
president private respondent Henri Kahn, wherein the former offered its services as a travel agency
the respondent court rendered a decision reversing the trial court, the decretal portion of said
to the latter.[1] The offer was accepted.
decision reads:
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation
WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE
to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's
and another one is rendered dismissing the complaint against defendant Henri S. Kahn. [11]
Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the
tickets received, the Federation made two partial payments, both in September of 1989, in the total In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the
amount of P176,467.50.[2] Federation. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed the
obligation of the Federation, he should not be held liable for the same as said entity has a separate
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand
and distinct personality from its officers.
letter requesting for the amount of P265,894.33. [3] On 30 October 1989, the Federation, through the
Project Gintong Alay, paid the amount of P31,603.00. [4] Petitioner 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
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial
resolution of 8 February 1995, where it stated that:
payment for the outstanding balance of the Federation. [5] Thereafter, no further payments were
made despite repeated demands. As to the alternative prayer for the Modification of the Decision by expressly declaring in the
dispositive portion thereof the Philippine Football Federation (PFF) as liable for the unpaid obligation,
This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner
it should be remembered that the trial court dismissed the complaint against the Philippine Football
sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the
Federation, and the plaintiff did not appeal from this decision. Hence, the Philippine Football
Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid
Federation is not a party to this appeal and consequently, no judgment may be pronounced by this
balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly
Court against the PFF without violating the due process clause, let alone the fact that the judgment
guaranteed the said obligation.[6]
dismissing the complaint against it, had already become final by virtue of the plaintiff's failure to
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the appeal therefrom. The alternative prayer is therefore similarly DENIED. [12]
Federation owed the amount P207,524.20, representing the unpaid balance for the plane tickets, he
Petitioner now seeks recourse to this Court and alleges that the respondent court committed
averred that the petitioner has no cause of action against him either in his personal capacity or in
the following assigned errors:[13]
his official capacity as president of the Federation. He maintained that he did not guarantee
payment but merely acted as an agent of the Federation which has a separate and distinct juridical A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD
personality.[7] DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY
AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE WHO
On the other hand, the Federation failed to file its answer, hence, was declared in default by
REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY.
the trial court.[8]
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT
In due course, the trial court rendered judgment and ruled in favor of the petitioner and
HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED
declared Henri Kahn personally liable for the unpaid obligation of the Federation. In arriving at the
PFF, HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED THE OBLIGATION IN
said ruling, the trial court rationalized:
BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF FULLY
Defendant Henri Kahn would have been correct in his contentions had it been duly established that SETTLING THE OBLIGATION.
defendant Federation is a corporation. The trouble, however, is that neither the plaintiff nor the
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE,
defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant
THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS
Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football
DECISION THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION.
Federation is a sports association xxx." This has not been denied by defendant Henri Kahn in his
Answer. Being the President of defendant Federation, its corporate existence is within the personal The resolution of the case at bar hinges on the determination of the existence of the Philippine
knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the Football Federation as a juridical person. In the assailed decision, the appellate court recognized the
plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not. existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as
the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604
xxx
as the laws from which said Federation derives its existence.
A voluntary unincorporated association, like defendant Federation has no power to enter into, or to
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the
ratify, a contract. The contract entered into by its officers or agents on behalf of such association is
juridical existence of national sports associations. This may be gleaned from the powers and
not binding on, or enforceable against it. The officers or agents are themselves personally liable.
functions granted to these associations. Section 14 of R.A. 3135 provides:
x x x[9]
SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have
The dispositive portion of the trial court's decision reads: the following functions, powers and duties:

CORPORATION LAW: 1.i. corp by estoppel Page 1 of 8

1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes.
3. To purchase, sell, lease or otherwise encumber property both real and personal, for the
accomplishment of their purpose;
4. To affiliate with international or regional sports' Associations after due consultation with the
executive committee;
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of their
purposes and not inconsistent with this Act.
taken thereon by the executive committee. Should the application be rejected, the reasons for such
rejection shall be clearly stated in a written communication to the applicant. Failure to specify the
reasons for the rejection shall not affect the application which shall be considered as unacted
upon: Provided, however, That until the executive committee herein provided shall have been
formed, applications for recognition shall be passed upon by the duly elected members of the
present executive committee of the Philippine Amateur Athletic Federation. The said executive
committee shall be dissolved upon the organization of the executive committee herein
provided:Provided, further, That the functioning executive committee is charged with the
responsibility of seeing to it that the National Sports' Associations are formed and organized within
six months from and after the passage of this Act.
Section 7 of P.D. 604, similarly provides:

Section 8 of P.D. 604, grants similar functions to these sports associations: SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national
sports association for each individual sport in the Philippines shall be filed with the Department
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports together with, among others, a copy of the Constitution and By-Laws and a list of the members of
associations shall have the following functions, powers, and duties: the proposed association.
1. Adopt a Constitution and By-Laws for their internal organization and government which shall be The Department shall give the recognition applied for if it is satisfied that the national sports
submitted to the Department and any amendment thereto shall take effect upon approval by the association to be organized will promote the objectives of this Decree and has substantially complied
Department: Provided, however, That no team, school, club, organization, or entity shall be admitted with the rules and regulations of the Department: Provided, That the Department may withdraw
as a voting member of an association unless 60 per cent of the athletes composing said team, accreditation or recognition for violation of this Decree and such rules and regulations formulated by
school, club, organization, or entity are Filipino citizens; it.
2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of The Department shall supervise the national sports association: Provided, That the latter shall have
the Department; exclusive technical control over the development and promotion of the particular sport for which
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the they are organized.
accomplishment of their purpose; Clearly the above cited provisions require that before an entity may be considered as a
4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, national sports association, such entity must be recognized by the accrediting organization, the
for the promotion of their sport; Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports
Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In
5. Affiliate with international or regional sports associations after due consultation with the attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for
Department; reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football
xxx Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized
and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and
13. Perform such other functions as may be provided by law. Sports Development. Accordingly, we rule that the Philippine Football Federation is not a national
sports association within the purview of the aforementioned laws and does not have corporate
The above powers and functions granted to national sports associations clearly indicate that
existence of its own.
these entities may acquire a juridical personality. The power to purchase, sell, lease and encumber
property are acts which may only be done by persons, whether natural or artificial, with juridical Thus being said, it follows that private respondent Henry Kahn should be held liable for the
capacity. However, while we agree with the appellate court that national sports associations may be unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principal in
accorded corporate status, such does not automatically take place by the mere passage of these corporation law that any person acting or purporting to act on behalf of a corporation which has no
laws. valid existence assumes such privileges and becomes personally liable for contract entered into or
for other acts performed as such agent. [14] As president of the Federation, Henri Kahn is presumed to
It is a basic postulate that before a corporation may acquire juridical personality, the State
have known about the corporate existence or non-existence of the Federation. We cannot subscribe
must give its consent either in the form of a special law or a general enabling act. We cannot agree
to the position taken by the appellate court that even assuming that the Federation was defectively
with the view of the appellate court and the private respondent that the Philippine Football
incorporated, the petitioner cannot deny the corporate existence of the Federation because it had
Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A.
contracted and dealt with the Federation in such a manner as to recognize and in effect admit its
3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely
existence.[15] The doctrine of corporation by estoppel is mistakenly applied by the respondent court
recognized the existence of national sports associations and provided the manner by which these
to the petitioner. The application of the doctrine applies to a third party only when he tries to escape
entities may acquire juridical personality. Section 11 of R.A. 3135 provides:
liability on a contract from which he has benefited on the irrelevant ground of defective
SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be incorporation.[16] In the case at bar, the petitioner is not trying to escape liability from the contract
organized for each individual sports in the Philippines in the manner hereinafter provided to but rather is the one claiming from the contract.
constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the
Sports' Association shall be filed with the executive committee together with, among others, a copy
Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.
of the constitution and by-laws and a list of the members of the proposed association, and a filing
fee of ten pesos. SO ORDERED.
The Executive Committee shall give the recognition applied for if it is satisfied that said association
will promote the purposes of this Act and particularly section three thereof. No application shall be
held pending for more than three months after the filing thereof without any action having been

CORPORATION LAW: 1.i. corp by estoppel Page 2 of 8

 [G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
DECISION
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who 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 "common fund." Their contribution may be in the
form of credit or industry, not necessarily cash or fixed assets. Being partners, they are all liable for
debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of
an unincorporated association or ostensible corporation may lie in a person who may not have
directly transacted on its behalf, but reaped benefits from that contract.
The Case
hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court
earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be
cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor
of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled
to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the
attached nets and floats. Considering, however, that the total judgment obligation as computed
above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the
excess to the defendants who are not entitled to damages and who did not put up a single centavo
to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and
floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the
monetary judgment obligation enumerated above and for plaintiff to retain possession and
ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with
the Clerk of Court.

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 SO ORDERED. [3]
Decision of the Court of Appeals in CA-GR CV 41477, [1] which disposed as follows: The Facts
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed. On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
[2]
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business
the CA, reads as follows: venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total
price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold
WHEREFORE, the Court rules: to the Corporation.[4]
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September The buyers, however, failed to pay for the fishing nets and the floats; hence, private
20, 1990; respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the writ of preliminary attachment. The suit was brought against the three in their capacities as general
modifications as hereinafter made by reason of the special and unique facts and circumstances and partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as
the proceedings that transpired during the trial of this case; shown by a Certification from the Securities and Exchange Commission. [5] On September 20, 1990,
the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro
Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said Manila.
Agreement;
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and
b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective
requesting a reasonable time within which to pay. He also turned over to respondent some of the
amounts as follows: nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990; 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
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990; Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. [6] The trial court
maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;
public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in the sales proceeds of P900,000.[7]
court;
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners,
September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale); were jointly liable to pay respondent.[8]
e. Cost of suit. The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of [9]
three in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of
nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of
of P600,045.00, this Court noted that these items were attached to guarantee any judgment that contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages. [10] The
may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further Compromise Agreement provided:
deterioration of the nets during the pendency of this case, it was ordered sold at public auction for
not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount
the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment
the attached property as a guaranty for any judgment that plaintiff may be able to secure in this for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
case with the ownership and possession of the nets and floats awarded and delivered by the sheriff
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00
to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of
whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices;

CORPORATION LAW: 1.i. corp by estoppel Page 3 of 8

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute
shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 money, property, or industry to a common fund, with the intention of dividing the profits among
Peter Yao.[11] themselves.
The trial court noted that the Compromise Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed from the equal distribution of the profit and
loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a
fishing business and may thus be held liable as a such for the fishing nets and floats purchased by
and for the use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook
a partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a
partnership essentially is x x x. By a contract of partnership, two or more persons bind themselves
to contribute money, property or industry to a common fund with the intention of dividing the profits
among themselves (Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court. [14]
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA,
YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT
EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS
WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS
GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats purchased
from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao
could be deemed to have entered into a partnership.
This Courts Ruling
The Petition is devoid of merit.
First and Second Issues: Existence of a Partnership and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent,
petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio
Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore,
he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even met the representatives of the
respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao,
for the "Contract of Lease" dated February 1, 1990, showed that he had merely leased to the two the
main asset of the purported partnership -- the fishing boat F/B Lourdes. The lease was for six
months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower
courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article
1767 of the Civil Code which provides:
CORPORATION LAW: 1.i. corp by estoppel
Specifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join
him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing
boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance
the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over
these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan
extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and
other expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in
the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the
ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio
Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e)
damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the
parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a
loan secured from Jesus Lim who was petitioners brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and
to divide equally among them the excess or loss. These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term common fund under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but
also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted the main
assets of the partnership, and they agreed that the proceeds from the sales and operations thereof
would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only
questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court,
absent any cogent proof that the present action is embraced by one of the exceptions to the rule.
[16]
In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the
bounds of a petition for review under Rule 45.
Page 4 of 8
Compromise Agreement Not the Sole Basis of Partnership the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting
or purporting to act on behalf of a corporation which has no valid existence assumes such privileges
Petitioner argues that the appellate courts sole basis for assuming the existence of a
and obligations and becomes personally liable for contracts entered into or for other acts performed
partnership was the Compromise Agreement. He also claims that the settlement was entered into
as such agent.[17]
only to end the dispute among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship The doctrine of corporation by estoppel may apply to the alleged corporation and to a third
extant among the parties prior to its execution. party. In the first instance, an unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in a suit against it by a third
A proper adjudication of claimants rights mandates that courts must review and thoroughly
person who relied in good faith on such representation. It cannot allege lack of personality to be
appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting
sued to evade its responsibility for a contract it entered into and by virtue of which it received
partnership among the parties. In implying that the lower courts have decided on the basis of one
advantages and benefits.
piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the
history of the document and explored all the possible consequential combinations in harmony with On the other hand, a third party who, knowing an association to be unincorporated,
law, logic and fairness. Verily, the two lower courts factual findings mentioned above nullified nonetheless treated it as a corporation and received benefits from it, may be barred from denying
petitioners argument that the existence of a partnership was based only on the Compromise its corporate existence in a suit brought against the alleged corporation. In such case, all those who
Agreement. benefited from the transaction made by the ostensible corporation, despite knowledge of its legal
defects, may be held liable for contracts they impliedly assented to or took advantage of.
Petitioner Was a Partner, Not a Lessor
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be
We are not convinced by petitioners argument that he was merely the lessor of the boats to
paid for the nets it sold. The only question here is whether petitioner should be held jointly [18] liable
Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the
with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name
Contract of Lease and the registration papers showing that he was the owner of the boats,
of the ostensible corporation should be held liable. Since his name does not appear on any of the
including F/B Lourdes where the nets were found.
contracts and since he never directly transacted with the respondent corporation, ergo, he cannot
His allegation defies logic. In effect, he would like this Court to believe that he consented to be held liable.
the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the
divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the
boat which has earlier been proven to be an asset of the partnership. He in fact questions the
sale proved that there was a preexisting partnership among all three.
attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the
corporation. Although it was never legally formed for unknown reasons, this fact alone does not
vessels which would be used in their fishing business. The sale of the boats, as well as the division
preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the
among the three of the balance remaining after the payment of their loans, proves beyond cavil
law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be
that F/B Lourdes, though registered in his name, was not his own property but an asset of the
without valid existence, are held liable as general partners.
partnership. It is not uncommon to register the properties acquired from a loan in the name of the
person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the Technically, it is true that petitioner did not directly act on behalf of the corporation. However,
creditor, Jesus Lim. having reaped the benefits of the contract entered into by persons with whom he previously had an
existing relationship, he is deemed to be part of said association and is covered by the scope of the
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay
doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]
a debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee,
instead of partners. A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the
subtle art of movement and position , entraps and destroys the other. It is, rather, a contest in which
Corporation by Estoppel
each contending party fully and fairly lays before the court the facts in issue and then, brushing
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks
only to Chua and Yao, and not to him. Again, we disagree. that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers
thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great
Section 21 of the Corporation Code of the Philippines provides: hindrance and chief enemy, deserves scant consideration from courts. There should be no vested
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be rights in technicalities.
without authority to do so shall be liable as general partners for all debts, liabilities and damages Third Issue: Validity of Attachment
incurred or arising as a result thereof: Provided however, That when any such ostensible corporation
is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it Finally, petitioner claims that the Writ of Attachment was improperly issued against the
shall not be allowed to use as a defense its lack of corporate personality. nets. We agree with the Court of Appeals that this issue is now moot and academic. As previously
discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of
One who assumes an obligation to an ostensible corporation as such, cannot resist performance petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats
thereof on the ground that there was in fact no corporation. were specifically manufactured and tailor-made according to their own design, and were bought and
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment
be estopped from denying its corporate existence. The reason behind this doctrine is obvious - an of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the
unincorporated association has no personality and would be incompetent to act and appropriate for nets remained with Respondent Philippine Fishing Gear, until full payment thereof.
itself the power and attributes of a corporation as provided by law; it cannot create agents or confer WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
authority on another to act in its behalf; thus, those who act or purport to act as its representatives petitioner.
or agents 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 without authority or without a principal is himself regarded as SO ORDERED.

CORPORATION LAW: 1.i. corp by estoppel Page 5 of 8

CORPORATION LAW: 1.i. corp by estoppel Page 6 of 8
G.R. No. L-19118 January 30, 1965 The fact of non-registration of University Publishing Co., Inc. in the Securities and Exchange
Commission has not been disputed. Defendant would only raise the point that "University Publishing
MARIANO A. ALBERT, plaintiff-appellant, vs. UNIVERSITY PUBLISHING CO., INC., defendant-
Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming that "University
appellee.
Publishing Co., Inc." is an existing corporation with an independent juridical personality. Precisely,
Uy & Artiaga and Antonio M. Molina for plaintiff-appellant. however, on account of the non-registration it cannot be considered a corporation, not even a
Aruego, Mamaril & Associates for defendant-appellees. corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose
M. Aruego; it cannot be sued independently.
BENGZON, J.P., J.:
The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is inapplicable
No less than three times have the parties here appealed to this Court. here. Aruego represented a non-existent entity and induced not only the plaintiff but even the court
In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to to believe in such representation. He signed the contract as "President" of "University Publishing Co.,
damages (for breach of contract) but reduced the amount from P23,000.00 to P15,000.00. Inc.," stating that this was "a corporation duly organized and existing under the laws of the
Philippines," and obviously misled plaintiff (Mariano A. Albert) into believing the same. One who has
Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the induced another to act upon his wilful misrepresentation that a corporation was duly organized and
judgment for P15,000.00 which had become final and executory, should be executed to its full existing under the law, cannot thereafter set up against his victim the principle of corporation by
amount, since in fixing it, payment already made had been considered. estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069).
Now we are asked whether the judgment may be executed against Jose M. Aruego, supposed "University Publishing Co., Inc." purported to come to court, answering the complaint and litigating
President of University Publishing Co., Inc., as the real defendant. upon the merits. But as stated, "University Publishing Co., Inc." has no independent personality; it is
Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc. just a name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own law
Plaintiff alleged inter alia that defendant was a corporation duly organized and existing under the firm as counsel. He was in fact, if not, in name, the defendant.
laws of the Philippines; that on July 19, 1948, defendant, through Jose M. Aruego, its President, Even with regard to corporations duly organized and existing under the law, we have in many a case
entered into a contract with plaintifif; that defendant had thereby agreed to pay plaintiff P30,000.00 pierced the veil of corporate fiction to administer the ends of justice. * And in Salvatiera vs.
for the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on behalf of a corporation
share in previous sales of the book's first edition; that defendant had undertaken to pay in eight which has no valid existence assumes such privileges and obligations and becomes personally
quarterly installments of P3,750.00 starting July 15, 1948; that per contract failure to pay one liable for contracts entered into or for other acts performed as such agent." Had Jose M. Aruego been
installment would render the rest due; and that defendant had failed to pay the second installment. named as party defendant instead of, or together with, "University Publishing Co., Inc.," there would
Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution be no room for debate as to his personal liability. Since he was not so named, the matters of "day in
and terms of the contract dated July 19, 1948; but alleged that it was plaintiff who breached their court" and "due process" have arisen.
contract by failing to deliver his manuscript. Furthermore, defendant counterclaimed for In this connection, it must be realized that parties to a suit are "persons who have a right to control
damages.1wph1.t the proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a
Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for him. decision" (67 C.J.S. 887) and Aruego was, in reality, the person who had and exercised these
rights. Clearly, then, Aruego had his day in court as the real defendant; and due process of law has
The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954, stating in the been substantially observed.
dispositive portion
By "due process of law" we mean " "a law which hears before it condemns; which proceeds upon
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and inquiry, and renders judgment only after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or, as this Court has
against the defendant the University Publishing Co., Inc., ordering the defendant to pay the said, " "Due process of law" contemplates notice and opportunity to be heard before judgment is
administrator Justo R. Albert, the sum of P23,000.00 with legal [rate] of interest from the rendered, affecting one's person or property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)." (Sicat
date of the filing of this complaint until the whole amount shall have been fully paid. The vs. Reyes, L-11023, Dec. 14, 1956.) And it may not be amiss to mention here also that the "due
defendant shall also pay the costs. The counterclaim of the defendant is hereby dismissed process" clause of the Constitution is designed to secure justice as a living reality; not to sacrifice it
for lack of evidence. by paying undue homage to formality. For substance must prevail over form. It may now be trite, but
As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full. Thereafter, none the less apt, to quote what long ago we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:
on July 22, 1961, the court a quo ordered issuance of an execution writ against University Publishing A litigation is not a game of technicalities in which one, more deeply schooled and skilled in
Co., Inc. Plaintiff, however, on August 10, 1961, petitioned for a writ of execution against Jose M. the subtle art of movement and position, entraps and destroys the other. It is, rather, a
Aruego, as the real defendant, stating, "plaintiff's counsel and the Sheriff of Manila discovered contest in which each contending party fully and fairly lays before the court the facts in
that there is no such entity as University Publishing Co., Inc." Plaintiff annexed to his petition a issue and then, brushing side as wholly trivial and indecisive all imperfections of form and
certification from the securities and Exchange Commission dated July 31, 1961, attesting: "The technicalities of procedure, asks that Justice be done upon the merits. Lawsuits, unlike
records of this Commission do not show the registration of UNIVERSITY PUBLISHING CO., INC., either duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office
as a corporation or partnership." "University Publishing Co., Inc." countered by filing, through as an aid to justice and becomes its great hindrance and chief enemy, deserves scant
counsel (Jose M. Aruego's own law firm), a "manifestation" stating that "Jose M. Aruego is not a party consideration from courts. There should be no vested rights in technicalities.
to this case," and that, therefore, plaintiff's petition should be denied.
The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent
Parenthetically, it is not hard to decipher why "University Publishing Co., Inc.," through counsel, principal, was the real party to the contract sued upon; that he was the one who reaped the benefits
would not want Jose M. Aruego to be considered a party to the present case: should a separate resulting from it, so much so that partial payments of the consideration were made by him; that he
action be now instituted against Jose M. Aruego, the plaintiff will have to reckon with the statute of violated its terms, thereby precipitating the suit in question; and that in the litigation he was the real
limitations. defendant. Perforce, in line with the ends of justice, responsibility under the judgment falls on him.
The court a quo denied the petition by order of September 9, 1961, and from this, plaintiff has
appealed.

CORPORATION LAW: 1.i. corp by estoppel Page 7 of 8

We need hardly state that should there be persons who under the law are liable to Aruego for PREMISES CONSIDERED, the order appealed from is hereby set aside and the case remanded
reimbursement or contribution with respect to the payment he makes under the judgment in ordering the lower court to hold supplementary proceedings for the purpose of carrying the
question, he may, of course, proceed against them through proper remedial measures. judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego. So ordered.

CORPORATION LAW: 1.i. corp by estoppel Page 8 of 8