Partnership Bettina

Lim Tong Lim v Philippine Fishing GearPanganiban (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 Lim’s brother. Also, and in a compromise agreement, they agreed: to sell the boats they bought, pay Lim’s 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 Lim’s 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 sheriff by attaching the fishing nets on board F/B Lourdes, which was then docked at the Fisheries Port, Navotas, Metro Manila.

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

Partnership Bettina

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 Yao’s 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 Lim’s 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 [Chua’s FB Lady Anne Mel and Yao’s 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 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 Lim’s arguments, among them that he was merely the lessor of the boats to Chua and Yao. This in particular ticked the SC off: “His allegation defies logic. In effect, 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

Partnership Bettina

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 Lim’s 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 unincorporated—something 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.