15_limtonglimvsphilippinefishing

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[ G.R. No. 136448, November 03, 1999 ]

LIM TONG LIM, PETITIONER, VS. PHILIPPINE ISHING GE!R

IN"#STRIES, IN$., RESPON"ENT.

"E$ISION

P!NG!NI%!N, &.'

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.

T(e $)*e

In the Petition for eview on Certioraribefore us, !im Tong !im assails the ovember

#$, %&&' (ecision of the )ourt of Appeals in )A*+ ) -%-, /%0which disposed as

follows1

"2344564, /there being0 no reversible error in the appealed decision, the same is

hereby affirmed."/#0

The decretal portion of the 7ue8on )ity egional Trial )ourt 9T): ruling, which was

affirmed by the )A, reads as follows1

"2344564, the )ourt rules1

%. That plaintiff is entitled to the writ of preliminary attachment issued by this )ourt on

;eptember #ect to the

modifications as hereinafter made by reason of the special and uni?ue facts and

circumstances and the proceedings that transpired during the trial of this case=

a. P@#,


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their respective amounts as follows1

i. Accrued interest of P,##%.udgment the plaintiff

may be entitled to in this case will have to be satisfied from the amount of P&


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not entitled to damages and who did not put up a single centavo to raise the amount of

P&


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The trial court ruled that a partnership among !im, )hua and Eao existed based 9%: on

the testimonies of the witnesses presented and 9#: on a )ompromise Agreement

executed by the three/&0in )ivil )ase o. %-*F which )hua and Eao had brought

against !im in the T) of Falabon, Branch #, for 9a: a declaration of nullity of

commercial documents= 9b: a reformation of contracts= 9c: a declaration of ownership

of fishing boats= 9d: an in>unction and 9e: damages. /%


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In his Petition and Femorandum, !im asDs this )ourt to reverse the assailed (ecision

on the following grounds1

"I T34 )6GT 65 APP4A!; 44( I 36!(I+, BA;4( 6 A )6FP6FI;4

A+44F4T T3AT )3GA, EA6 A( P4TITI64 !IF 4T44( IT6 I A ;4PAAT4

)A;4, T3AT A PAT4;3IP A+44F4T 4HI;T4( AF6+ T34F.

"II ;I)4 IT 2A; 6!E )3GA 236 4P4;4T4( T3AT 34 2A; A)TI+ 56 6)4A

7G4;T 5I;3I+ )6P6ATI6 234 34 B6G+3T T34 4T; 56F P3I!IPPI4

5I;3I+, T34 )6GT 65 APP4A!; 2A; GG;TI5I4( I IFPGTI+ !IABI!ITE T6

P4TITI64 !IF A; 24!!.

"III T34 TIA! )6GT IFP6P4!E 6(44( T34 ;4IJG4 A( ATTA)3F4T 65

P4TITI64 !IFC; +66(;."

In determining whether petitioner may be held liable for the fishing nets and floats

purchased from respondent, the )ourt must resolve this Dey issue1 whether by theiracts, !im, )hua and Eao could be deemed to have entered into a partnership.

T(/* $o-r* R-/

The Petition is devoid of merit.

/r* )5 Se+o5 I**-e*'

Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the e?uipment purchased from

respondent, petitioner controverts the )A finding that a partnership existed between

him, Peter Eao and Antonio )hua. 3e asserts that the )A based its finding on the

)ompromise Agreement alone. 5urthermore, he disclaims any direct participation in the

purchase of the nets, alleging that the negotiations were conducted by )hua and Eao

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 )hua and Eao, for the

")ontract of !ease" dated 5ebruary %, %&&


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;pecifically, both lower courts ruled that a partnership among the three existed based

on the following factual findings1/%@0

9%: That Petitioner !im Tong !im re?uested Peter Eao who was engaged in commercial

fishing to >oin him, while Antonio )hua was already EaoCs partner=

9#: That after convening for a few times, !im )hua, and Eao verbally agreed to ac?uire

two fishing boats, the FB Lourdes and the FB Nelson for the sum of P.@ million=

9: That they borrowed P.#@ million from esus !im, brother of Petitioner !im Tong

!im, to finance the venture.

9-: That they bought the boats from )F5 5ishing )orporation, which executed a (eed

of ;ale over these two 9#: boats in favor of Petitioner !im Tong !im only to serve as

security for the loan extended by esus !im=

9@: That !im, )hua and Eao agreed that the refurbishing , re*e?uipping, repairing, drydocDing and other expenses for the boats would be shouldered by )hua and Eao=

9$: That because of the "unavailability of funds," esus !im again extended a loan to

the partnership in the amount of P% million secured by a checD, because of which, Eao

and )hua entrusted the ownership papers of two other boats, )huaCs FB Lady Anne

Mel and EaoCs FB racy to !im Tong !im.

9: That in pursuance of the business agreement, Peter Eao and Antonio )hua bought

nets from espondent Philippine 5ishing +ear, in behalf of "6cean 7uest 5ishing

)orporation," their purported business name.

9': That subse?uently, )ivil )ase o. %-*F was filed in the Falabon T), Branch #

by Antonio )hua and Peter Eao against !im Tong !im for 9a: declaration of nullity of

commercial documents= 9b: reformation of contracts= 9c: declaration of ownership of

fishing boats= 9-: in>unction= and 9e: damages.

9&: That the case was amicably settled through a )ompromise Agreement executed

between the parties*litigants the terms of which are already enumerated above.

5rom the factual findings of both lower courts, it is clear that )hua, Eao and !im had

decided to engage in a fishing business, which they started by buying boats worthP.@ million, financed by a loan secured from esus !im who was petitionerCs brother.

In their )ompromise Agreement, they subse?uently revealed their intention to pay the

loan with the proceeds of the sale of the boats, and to divide e?ually 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 %$. The

contribution to such fund need not be cash or fixed assets= it could be an intangible liDe

credit or industry. That the parties agreed that any loss or profit from the sale and


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operation of the boats would be divided e?ually among them also shows that they had

indeed formed a partnership.

Foreover, 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 ac?uired in furtherance of their business. It would have been

inconceivable for !im to involve himself so much in buying the boat but not in the

ac?uisition of the aforesaid e?uipment, without which the business could not have

proceeded.

+iven the preceding facts, it is clear that there was, among petitioner, )hua and Eao, 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.

2e stress that under ule -@, a petition for review liDe the present case should involveonly ?uestions of law. Thus, the foregoing factual findings of the T) and the )A are

binding on this )ourt, absent any cogent proof that the present action is embraced by

one of the exceptions to the rule./%$0In assailing the factual findings of the two lower

courts, petitioner effectively goes beyond the bounds of a petition for review under ule

-@.

Co!pro!ise A"ree!ent Not the #ole Basis of Partnership

Petitioner argues that the appellate courtCs sole basis for assuming the existence of a

partnership was the )ompromise Agreement. 3e also claims that the settlement wasentered into only to end the dispute among them, but not to ad>udicate their

preexisting rights and obligations. 3is arguments are baseless. he A"ree!ent $as but

an e!bodi!ent of the relationship extant a!on" the parties prior to its execution.

A proper ad>udication of claimantsC rights mandates that courts must review and

thoroughly appraise all relevant facts. 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 )A and the T) delved into the history of the document and explored all the

possible conse?uential combinations in harmony with law, logic and fairness. erily, the

two lower courtsC factual findings mentioned above nullified petitionerCs argument that

the existence of a partnership was based only on the )ompromise Agreement.

Petitioner %as a Partner& Not a Lessor

2e are not convinced by petitionerCs argument that he was merely the lessor of the

boats to )hua and Eao, not a partner in the fishing venture. 3is argument allegedly


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finds support in the )ontract of !ease and the registration papers showing that he was

the owner of the boats, including F/B Lourdeswhere the nets were found.

3is allegation defies logic. In effect, he would liDe this )ourt to believe that he

consented to the sale of his o$nboats to pay a debt of Chua and ao, with the excess

of the proceeds to be divided among the three of the!. o lessor would do what

petitioner did. Indeed, his consent to the sale proved that there was a preexisting

partnership among all three.

erily, as found by the lower courts, petitioner entered into a business agreement with

)hua and Eao, in which debts were undertaDen in order to finance the ac?uisition and

the upgrading of the vessels which would be used in their fishing business. The sale of

the boats, as well as the division among the three of the balance remaining after the

payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his

name, was not his own property but an asset of the partnership. It is not uncommon to

register the properties ac?uired 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 creditor,

esus !im.

2e stress that it is unreasonable * indeed, it is absurd ** for petitioner to sell his

property to pay a debt he did not incur, if the relationship among the three of them was

merely that of lessor*lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can beimputed only to )hua and Eao, and not to him. Again, we disagree.

;ection #% of the )orporation )ode of the Philippines provides1

";ec. #%. Corporation by estoppel. * All persons who assume to act as a corporation

Dnowing 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 thereof1 Pro(ided

ho$e(er& 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 lacD of corporate personality.

"6ne 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,


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those who act or purport to act as its representatives or agents do so without authority

and at their own risD. 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 sub>ect 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."/%0

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 lacD 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.

6n the other hand, a third party $ho& )no$in" an association to be unincorporated&nonetheless treated it as a corporation and recei(ed benefits fro! it& !ay be barred

fro! denyin" its corporate existence in a suit brou"ht a"ainst the alle"ed

corporation.In such case, all those who benefited from the transaction made by the

ostensible corporation, despite Dnowledge of its legal defects, may be held liable for

contracts they impliedly assented to or tooD advantage of.

There is no dispute that the respondent, Philippine 5ishing +ear Industries, is entitled to

be paid for the nets it sold. The only ?uestion here is whether petitioner should be held

>ointly/%'0liable with )hua and Eao. Petitioner contests such liability, insisting that only

those who dealt in the name of the ostensible corporation should be held liable. ;incehis 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.

Gn?uestionably, 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. 3e in

fact ?uestions the attachment of the nets, because the 2rit has effectively stopped his

use of the fishing vessel.

It is difficult to disagree with the T) and the )A that !im, )hua and Eao decided to

form a corporation. Although it was never legally formed for unDnown reasons, this factalone does not preclude the liabilities of the three as contracting parties in

representation of it. )learly, under the law on estoppel, those acting on behalf of a

corporation and those benefited by it, Dnowing it to be without valid existence, are held

liable as general partners.

Technically, it is true that petitioner did not directlyacton behalf of the

corporation. *o$e(er& ha(in" reaped the benefits of the contract entered into by


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persons $ith $ho! he pre(iously had an existin" relationship& he is dee!ed to be part

of said association and is co(ered by the scope of the doctrine of corporation by

estoppel. 2e reiterate the ruling of the )ourt inAlonso (. +illa!or1/%&0

"A litigation is not a game of technicalities in which one, more deeply schooled and

sDilled in the subtle art of movement and position , entraps and destroys the other. It

is, rather, a contest in which each contending party fully and fairly lays before the court

the facts in issue and then, brushing aside as wholly trivial and indecisive all

imperfections of form and technicalities of procedure, asDs that >ustice be done upon

the merits. !awsuits, unliDe duels, are not to be won by a rapierCs thrust. Technicality,

when it deserts its proper office as an aid to >ustice and becomes its great hindrance

and chief enemy, deserves scant consideration from courts. There should be no vested

rights in technicalities."

T(/r5 I**-e'

+alidity of Attach!ent

5inally, petitioner claims that the 2rit of Attachment was improperly issued against thenets. 2e agree with the )ourt 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 petitioner, only to assure payment of the debt he and his partners

owed. The nets and the floats were specifically manufactured and tailor*made according

to their own design, and were bought and used in the fishing venture they agreed upon.

3ence, the issuance of the 2rit to assure the payment of the price stipulated in the

invoices is proper. Besides, by specific agreement, ownership of the nets remained with

espondent Philippine 5ishing +ear, until full payment thereof.

2344564, the Petition is ,EN-E, and the assailed (ecisionAFF-ME,. )osts againstpetitioner.

;6 6(44(.

Melo& Chair!an0& Purisi!a&and 1on2a"a3eyes& 44.&concur.

+itu"& 4.&Pls. see concurring opinion.

15_limtonglimvsphilippinefishing

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