10. Liwanag vs. Court of Appeals, G.R. No.

114398, October 24, 1997

Facts:
Petitioner Carmen Liwanag and a certain Tabligan asked complainant Isidora Rosales to
join them in the business of buying and selling cigarettes.  Convinced of the feasibility of the
venture, Rosales agreed.  In their agreement, Rosales would give the money needed to buy the
cigarettes while Liwanag and Tabligan would act as her agents, with a corresponding 40%
commission to her if the goods are sold; otherwise the money would be returned to Rosales.
Rosales gave several cash advances to Liwanag and Tabligan amounting to P633,650.00. During
the first two months, Liwanag and Tabligan reports to Rosasles on the progress of the
transactions.  However, it suddenly stopped, and all efforts by Rosales to obtain information
regarding their business proved futile. Alarmed and believing that the amounts she advanced
were being misappropriated, Rosales filed a case of estafa against Liwanag.
The trial court convicted Liwanag of the crime charged. Liwanag advances the theory
that the intention of the parties was to enter into a contract of partnership, wherein Rosales would
contribute the funds while she would buy and sell the cigarettes, and later divide the profits
between them. She also argues that the transaction can also be interpreted as a simple loan, with
Rosales lending to her the amount stated on an installment basis. However, the Court of Appeals
affirmed with the trial court. Hence, this appeal.
Issue:
Whether or not the contract that exist between petitioner and complainant is either that of
a simple loan or that of a partnership hence the non-return of the money of the complainant is
purely civil in nature and not criminal.
Held:
The Court of Appeals correctly rejected Liwanag’s pretenses. The language of the receipt
could not be any clearer. It indicates that the money delivered to Liwanag was for a specific
purpose, that is, for the purchase of cigarettes, and in the event the cigarettes cannot be sold, the
money must be returned to Rosales. Thus, even assuming that a contract of partnership was
indeed entered into by and between the parties, we have ruled that when money or property have
been received by a partner for a specific purpose (such as that obtaining in the instant case) and
he later misappropriated it, such partner is guilty of estafa.
Neither can the transaction be considered a loan, since in a contract of loan once the
money is received by the debtor, ownership over the same is transferred. 8 Being the owner, the
borrower can dispose of it for whatever purpose he may deem proper.
In the instant petition, however, it is evident that Liwanag could not dispose of the money
as she pleased because it was only delivered to her for a single purpose, namely, for the purchase
of cigarettes, and if this was not possible then to return the money to Rosales. Since in this case
there was no transfer of ownership of the money delivered, Liwanag is liable for conversion
under Art. 315, par. 1(b) of the Revised Penal Code.
11. Liwanag and Reyes vs. Workmen's Compensation Commission, et al., No. L-12164,
May 22, 1959
Facts:
Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto
Supply. They employed Roque Balderama as security guard who, while in line of duty, was
killed by criminal hands. His widow and minor children filed a claim for compensation with the
Workmen's Compensation Commission (WCC), which was granted. The referee ordered the co-
owners to pay jointly and severally.
On appeal to this Tribunal, appellants do not question the right of appellees to
compensation nor the amount awarded. They only claim that, under the Workmen's
Compensation Act, the compensation is divisible, hence the Commission erred in ordering
appellants to pay jointly and severally the amount awarded.
Issue:
Whether or not the order of the WCC is proper.
Held:
Yes. At first blush, appellants' contention would seem to be well taken, for, ordinarily,
the liability of the partners in a partnership is not solidary; but the law governing the liability of
partners is not applicable to the case at bar wherein a claim for compensation by dependents of
an employee who died in line of duty is involved.
Although the Workmen's Compensation Act does not contain any provision expressly
declaring that the obligation of business partners arising from compensable injury or death of an
employee should be solidary, however, there are other provisions of law from which it could be
gathered that their liability must be solidary. Arts. 1711 and 1712 of the New Civil Code and
Section 2 of the Workmen's Compensation Act, reasonably indicate that in compensation cases,
the liability of business partners should be solidary.
If the responsibility of the partners were to be merely joint and not solidary, and one of
them happens to be insolvent, the amount awarded to the dependents of the deceased employee
would only be partially satisfied, which is evidently contrary to the intent and purpose of the law
to give full protection to the employee.
12. Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, November
3, 1999
Facts:
Petitioner Lim Tong Lim joined Peter Yao and Antonio Chua in commercial fishing.
Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB
Nelson. They borrowed P3.25 million from Jesus Lim, brother of Lim Tong Lim, to finance the
venture.
On behalf of “Ocean Quest Fishing Corporation,” Chua and Yao entered into a Contract,
for the purchase of fishing nets from the Philippine Fishing Gear Industries, Inc. (respondent).
They claimed that they were engaged in a business venture with Lim Tong Lim, who however
was not a signatory to the agreement.
The buyers, however, failed to pay. Hence, private respondent filed a collection suit
against Chua, Yao and Lim with a prayer for a writ of preliminary attachment. The suit was
brought against the three in their capacities as general partners, on the allegation that “Ocean
Quest Fishing Corporation” was a nonexistent.
The Trial Court ruled that respondent was entitled to the Writ of Attachment and that
Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. Court of Appeals
affirmed.
Petitioner contests such liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. Since his name does not appear on any of the
contracts and since he never directly transacted with the respondent corporation, ergo, he cannot
be held liable. Petitioner argues that under the doctrine of corporation by estoppel, liability can
be imputed only to Chua and Yao, and not to him.
Issue:
Whether or not under the doctrine of corporation by estoppel, petitioner is liable.
Held:
Yes. Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact
questions the attachment of the nets, because the Writ has effectively stopped his use of the
fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to
form a corporation. Although it was never legally formed for unknown reasons, this fact alone
does not preclude the liabilities of the three as contracting parties in representation of it. Clearly,
under the law on estoppel, those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation.
However, 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 doctrine of corporation by estoppel.
__________________________________
Full ruling (medyo mahaba para sulatin)
Yes. Section 21 of the Corporation Code of the Philippines provides:

“Sec. 21. Corporation by estoppel. - 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: 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 shall not be allowed to use as a defense its lack of
corporate personality.

“One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on
the ground that there was in fact no corporation.”

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped
from denying its corporate existence. “The reason behind this doctrine is obvious—an unincorporated association
has no personality and would be incompetent to act and appropriate for itself the power and attributes of a
corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those
who act or purport to act as its representatives 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 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 and obligations
and becomes personally liable for contracts entered into or for other acts performed as such agent.”

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third 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 person who relied in good faith on such representation. It
cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of
which it received advantages and benefits.

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, may be held liable for contracts they impliedly assented to or
took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets
it sold. The only question here is whether petitioner should be held jointly liable with Chua and Yao. Petitioner
contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held
liable. Since his name does not appear on any of the contracts and since he never directly transacted with the
respondent corporation, ergo, he cannot be held liable. Unquestionably, petitioner benefited from the use of the nets
found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact
questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation.
Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the
three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners.
 Technically, it is true that petitioner did not directly act on behalf of the corporation. However, 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 doctrine of corporation by estoppel.

13. Pioneer Insurance & Surety Corporation vs. Court of Appeals, G.R. No. 84197, July 28,
1989 ; JACOB S. LIM, petitioner, vs. COURT OF APPEALS, PIONEER INSURANCE AND
SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC.,
FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.
(consolidated petitions ito)
Facts:
Jacob Lim was the owner of Southern Air Lines (SAL), a single proprietorship. In 1965,
Lim convinced Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border
Machinery and Heavy Equipment Company (BORMAHECO) to contribute funds and to buy two
aircrafts which would form part a corporation which will be the expansion of Southern Air Lines.
Maglana et al then contributed and delivered money to Lim. Lim, in his personal capacity,
without the knowledge of Maglana et al, connived with Pioneer Insurance for the latter to insure
the two aircrafts which were brought in installment from Japan Domestic Airlines (JDA) using
said aircrafts as security. So when Lim defaulted from paying JDA, the two aircrafts were
foreclosed by Pioneer Insurance.
Petitioner Lim, claimed that as a result of the failure of Maglana et. al., and Lim to
incorporate, a de facto partnership among them was created, and that as a consequence of such
relationship all must share in the losses and/or gains of the venture in proportion to their
contribution.
Issue:
Whether or not there is a de facto partnership formed.
Held:
No de facto partnership was created among the parties which would entitle the petitioner
to a reimbursement of the supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own behalf and not on behalf of his other would-be incorporators
on transacting the sale of the airplanes and spare parts.
_____________________________________________________________________________
Detailed Ruling:
It is ordinarily held that persons who attempt, but fail, to form a corporation and who
carry on business under the corporate name occupy the position of partners inter se.
However, such a relation does not necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners, as between themselves, when their purpose is that no
partnership shall exist, and it should be implied only when necessary to do justice between the
parties; thus, one who takes no part except to subscribe for stock in a proposed corporation
which is never legally formed does not become a partner with other subscribers who engage in
business under the name of the pretended corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution. A partnership relation between certain
stockholders and other stockholders, who were also directors, will not be implied in the absence
of an agreement, so as to make the former liable to contribute for payment of debts illegally
contracted by the latter.
In the instant case, it is to be noted that the petitioner was declared non-suited for his
failure to appear during the pretrial despite notification. In his answer, the petitioner denied
having received any amount from respondents Bormaheco, the Cervanteses and Maglana.
It is therefore clear that the petitioner never had the intention to form a corporation with
the respondents despite his representations to them. This gives credence to the cross-claims of
the respondents to the effect that they were induced and lured by the petitioner to make
contributions to a proposed corporation which was never formed because the petitioner reneged
on their agreement.
Applying therefore the principles of law earlier cited to the facts of the case, necessarily,
no de facto partnership was created among the parties which would entitle the petitioner to a
reimbursement of the supposed losses of the proposed corporation. The record shows that the
petitioner was acting on his own and not in behalf of his other would be incorporators in
transacting the sale of the airplanes and spare parts.