Partnership

Lim Tong Lim v Philippine Fishing Gear

Panganiban (1999)
Petitioner: Lim Tong Lim
Respondent: Philippine Fishing Gear Industries, Inc.
Synopsis:
Chua and Yao bought nets from Phil Fishing and failed to pay, causing the latter to file a
collection case against the two. Phil Fishing also filed said case against Lim, whom the
two claimed to be in business with. Lim denied being a partner of the two. Trial court all
the way up to the SC found that a partnership existed based on numerous facts, among
them that the three bought boats with money borrowed from Lims brother. Also, and in a
compromise agreement, they agreed: to sell the boats they bought, pay Lims brother,
and divvy up the excess. The SC ruled that 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. [In this case it was the capital of Lims brother
that was used.] 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.
Doctrine:
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.
Facts:
On February 7, 1990, Antonio Chua
and Peter Yao entered into a contract on
behalf
of
Ocean
Quest
Fishing
Corporation for the purchase of fishing
nets of various sizes from the Philippine
Fishing Gear Industries, Inc. They claimed
to be in business with Lim Tong Lim, who
was not a signatory to the agreement.
The total price of the nets amounted to
P532,045.00. Four hundred pieces of
floats worth P68,000.00 were also sold to
the corporation.

The buyers failed to pay, and so

Phil Fishing 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
corporation, as shown by a Certification
from the Securities and Exchange
Commission. The writ of preliminary
attachment was enforced by the sherif
by attaching the fishing nets on board
F/B Lourdes, which was then docked at
the Fisheries Port, Navotas, Metro Manila.

Partnership

Instead
of
answering
the
complaint, Chua filed a Manifestation
admitting his liability and requesting a
reasonable time within which to pay. He
also turned over to Phil Fishing some of
the nets which were in his possession.
Yao filed an Answer, after which he was
deemed to have waived his right to
cross-examine witnesses and to present
evidence on his behalf because of his
failure to appear in subsequent hearings.
Lim filed an Answer with Counterclaim
and Crossclaim and moved for the lifting
of the writ. The trial court maintained the
writ, and upon motion of Phil Fishing,
ordered the sale of the fishing nets at a
public auction, where Phil Fishing was the
highest bidder. The trial court then ruled
that Phil Fishing was entitled to the writ
and that Chua, Yao, and Lim, as general
partners, were jointly liable to pay
respondent. The trial court based its
finding of partnership on the testimonies
of witnesses and on a compromise
agreement executed by the three in a
civil case brought by Chua and Yao
against Lim. In that case the three
agreed to have four vessels sold and the
profits split up equally.
On appeal, the CA affirmed.
Issue: Did a partnership exist between
Lim, Chua, and Yao? YES.
Ratio:
The pertinent provision is as follows
Article 1767 - By the 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.

The trial court and CA based their finding

of partnership on the following grounds:
1. Lim asked Yao, who was engaged in
commercial fishing to join him.
Antonio Chua was already Yaos
partner.
2. The three agreed to acquire two
fishing boats: FB Lourdes and FB
Nelson for the sum of P3.35M.
3. They borrowed money from Lims
brother, Jesus, to finance the
venture.
4. Chua and Yao took care of the
refurbishing, repairing, dry docking,
and other expenses for the boats.
5. Because of the unavailability of
funds Jesus extended another
loan, after which Yao and Chua
entrusted the ownership papers of
two other boats [Chuas FB Lady
Anne Mel and Yaos FB Tracy] to
Lim.
6. Yao and Chua then made the
purchases from Phil Fishing.
7. Before Phil Fishing filed the case
against all three, Yao and Chua
filed a case against Lim which was
then settled in a compromise
agreement between them.
From all these facts, it is clear that the
three decided to engage in a fishing
business, which they started by buying
boats with a loan from Jesus. In their
compromise agreement they agreed to
pay the loan to Jesus 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

Partnership
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.
That 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.
The SC disregarded all of Lims
arguments, among them that he was
merely the lessor of the boats to
Chua and Yao. This in particular ticked
the SC of: His allegation defies logic. In
efect, he would like this Court to believe
that he consented to the sale of his own
boats to pay a debt of Chua and Yao, with
the excess of the proceeds to be divided
among the three of them. No lessor
would do what petitioner did. The sale
of the boats, as well as the division
among the three of the balance
remaining after the payment of their
loans, proved that F/B Lourdes,
though registered in Lims name,
was not his own property but an
asset of the 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 Lim, the brother of the lender.
*Corporation by Estoppel Issue
The SC also pinned Lim with his own
argument, i.e. that under the doctrine of

corporation by estoppel, liability can only

be imputed to Chua and Yao. That
doctrine is simply that 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. Citing Sec. 21 of the
Corporation Code, the SC pointed out
that both the corporation and third party
could be estopped under this doctrine.
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. The only way
out for Lim was for him to prove that Phil
Fishing knew that Ocean Quest was
unincorporatedsomething he failed to
do. Even if the three did not legally form
the corporation, they are all still liable
since under the Corporation Law they will
be held liable as general partners, having
been estopped.
Dispositive:
Petition denied. CA affirmed.
Concurring Opinion of Vitug, more on
partners and agents: When a person by
his act or deed represents himself as a
partner in an existing partnership or with
one or more persons not actual partners,
he is deemed an agent of such persons
consenting to such representation and in
the same manner, if he were a partner,
with respect to persons who rely upon
the representation.