Lim Vs Phil Fishing Gear

G.R. No. 136448. November 3, 1999.
Case Flow:
LIM TONG LIM, petitioner, vs.
PHILIPPINE FISHING GEAR INDUSTRIES,
INC., respondent.
FACTS:
 On behalf of “Ocean Quest Fishing Corporation,” Antonio Chua and Peter Yao entered into a Contract for the
purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement.
 The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit
against Chua, Yao and Petitioner Lim Tong Lim
 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
 the lower court issued a Writ of Preliminary Attachment on the nets
 Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay
 Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the
Writ of Attachment. The trial court maintained the Writ.
 The trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent.
 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 three
 CA affirmed RTC’s ruling
 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
 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
Issue: 1.) Whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
2. WON Corporation by Estoppel is applicable in this case
Ruling 1st issue:
 Yes. 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 petitioner’s brother.
 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. 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.
 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.
 Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying
that the lower courts have decided on the basis of one 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 law, logic and fairness.
 Petitioner 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.
Indeed, his consent to the sale proved that there was a preexisting partnership among all three.
Ruling 2nd issue:
 Yes. Even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from
denying its corporate existence
 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
 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
 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.
 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.
 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.

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G.R. No. 136448. November 3, 1999.

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