FIRST DIVISION [G.R. No. 119020. October 19, 2000.]

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINES FOOTBALL FEDERATION, respondents.

D E C I S I O N KAPUNAN, J p: On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a travel agency to the latter. 1 The offer was accepted. AaCEDS Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation made two partial payments, both in September of 1989, in the total amount of P176,467.50. 2 On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of P265,894.33. 3 On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00. 4 On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of the Federation. 5Thereafter, no further payments were made despite repeated demands. This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation. 6 Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount P207,524.20, representing the unpaid balance for the plane tickets, he averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of the Federation. He maintained that he did not guarantee payment but merely acted as an

agent of the Federation which has a separate and distinct juridical personality. 7 On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court. 8 In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid obligation of the Federation. In arriving at the said ruling, the trial court rationalized:

Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that "defendant Philippine Football Federation is a sports association . . . ." This has not been denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the plaintiff that it is a mere sports association if it were a domestic corporation. But he did not.

xxx xxx xxx A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable.

xxx xxx xxx 9 The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees. SEHDIC

The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby dismissed. With the costs against defendant Henri Kahn. 10

Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a decision reversing the trial court, the decretal portion of said decision reads:

WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered dismissing the complaint against defendant Henri S. Kahn. 11

In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a separate and distinct personality from its officers. Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation. The same was denied by the appellate court in its resolution of 8 February 1995, where it stated that:

As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine Football Federation (PFF) as liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against the Philippine Football Federation, and the plaintiff did not appeal from this decision. Hence, the Philippine Football Federation is not a party to this appeal and consequently, no judgment may be pronounced by this Court against the PFF without violating the due process clause, let alone the fact that the judgment dismissing the complaint against it, had already become final by virtue of the plaintiff's failure to appeal therefrom. The alternative prayer is therefore similarly DENIED. 12

Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors: 13

A. THE, HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY

AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE, WHO REPRESENTED THE PFF AS HAVING CORPORATE PERSONALITY.

B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AN ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.

C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION.

The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person. In the assailed decision, the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which said Federation derives its existence. As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations. This may be gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides:

SEC. 14. Functions, powers and duties of Associations. The National Sports' Association shall have the following functions, powers and duties:

1. To adopt a constitution and by-laws for their internal organization and government. 2. To raise funds by donations benefits, and other means for their purposes. 3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their purpose;

4. To affiliate with international or regional sports' Associations after due consultation with the executive committee;

xxx xxx xxx 13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with this Act.

Section 8 of P.D. 604, grants similar functions to these sports associations:

SEC. 8. Functions, Powers, and Duties of National Sports Association. The National sports associations shall have the following functions, powers, and duties:

1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department and any amendment hereto shall take effect upon approval by the Department: Provided, however, That no team, school, club, organization or entity shall be admitted as a voting member of an association unless 60 per cent of the athletes composing said team, school, club, organization or entity are Filipino citizens. 2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department; 3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose; 4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of their sport; 5. Affiliate with international or regional sports associations after due consultation with the Department;

xxx xxx xxx 13. Perform such other functions as may be provided by law.

The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality.

The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of these laws. It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the manner by which these entities may acquire juridical personality.Section 11 of R.A. 3135 provides:

SEC. 11. National Sports' Association; organization and recognition. A National Association shall be organized for each individual sports in the Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National Sports' Association shall be filed with the executive committee together with, among others, a copy of the constitution and by-laws and a list of the members of the proposed association, and a filing fee of ten pesos. The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act and particularly section three thereof. No application shall be held pending for more than three months after the filing thereof without any action having been taken thereon by the executive committee. Should the application be rejected, the reasons for such rejection shall be clearly stated in a written communication to the applicant. Failure to specify the reasons for the rejection shall not affect the application which shall be considered as unacted upon: Provided however, That until the executive committee herein provided shall have been formed, applications for recognition shall be passed upon by the duly elected members of the present

executive committee of the Philippine Amateur Athletic Federation. The said executive committee shall be dissolved upon the organization of the executive committee herein provided: Provided, further, That the functioning executive committee is charged with the responsibility of seeing to it that the National Sports' Associations are formed and organized within six months from and after the passage of this Act.

Section 7 of P.D. 604, similarly provides: SEC. 7. National Sports Associations: Application for accreditation or recognition as a national sports association for each individual sport in the Philippines shall be filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the members of the proposed association. The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the objectives of this Decree and has substantially complied with the rules and regulations of the Department: Provided, That the Department may withdraw accreditation or recognition for violation of this Decree and such rules and regulations formulated by it. The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the development and promotion of the particular sport for which they are organized.

Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization, the Philippine, Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule that the Philippine Football

Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own. caCTHI Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principle in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. 14 As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. 15 The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liabilities on a contract from which he has benefited on the irrelevant ground of defective incorporation. 16 In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED. SO ORDERED. Davide, Jr., C.J., Puno, Pardo and Santiago, JJ., concur. ||| (International Express Travel & Tour Services, Inc. v. Court of Appeals, G.R. No. 119020, October 19, 2000)

THIRD DIVISION [G.R. No. 136448. November 3, 1999.]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

Roberto A. Abad for petitioner. Benjamin S. Benito & Associates for private respondent.

SYNOPSIS Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest Fishing Corporation for the purchase of fishing nets from respondent Philippine Fishing Gear Industries, Inc. Chua and Yao claimed that they were engaged in business venture with petitioner Lim Tong Lim, who, however, was not a signatory to the contract. The buyers failed to pay the fishing nets. Respondent filed a collection against Chua, Yao and petitioner Lim in their capacities as general partners because it turned out that Ocean Quest Fishing Corporation is a non-existent corporation. The trial court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets. The trial court rendered its decision ruling that respondent was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. Lim appealed to the Court of Appeals, but the appellate court affirmed the decision of the trial court that petitioner Lim is a partner and may thus be held liable as such. Hence, the present petition. Petitioner claimed that since his name did not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable. cIaCTS The Supreme Court denied the petition. The Court ruled that having reaped the benefits of the contract entered into by Chua and Yao, with whom he had an existing relationship, petitioner Lim is deemed a part of said association and is covered by the doctrine of corporation by estoppel. The Court also ruled that under the principle of 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.

SYLLABUS 1. CIVIL LAW; PARTNERSHIP; AGREEMENT THAT ANY LOSS OR PROFIT FROM THE SALE AND OPERATION OF THE BOATS WOULD BE DIVIDED EQUALLY AMONG THEM SHOWS THAT THE PARTIES HAD INDEED FORMED A PARTNERSHIP. From the factual findings of both lower courts, it is clear that 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. In their Compromise Agreement, they subsequently revealed

their intention to pay the loan 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. Moreover, 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 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. Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, 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. 2. ID.; ID.; COMPROMISE AGREEMENT OF THE PARTIES NOT THE SOLE BASIS OF PARTNERSHIP. Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to its execution. A proper adjudication of claimants' 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 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. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument that the existence of a partnership was based only on the Compromise Agreement. 3. ID.; ID.; PETITIONER WAS A PARTNER, NOT A LESSOR. Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition 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 acquired 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, Jesus Lim. We 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. 4. MERCANTILE LAW; PRIVATE CORPORATIONS; HAVING REAPED THE BENEFITS OF THE CONTRACT ENTERED INTO BY PERSONS WITH WHOM HE PREVIOUSLY HAD AN EXISTING RELATIONSHIP, PETITIONER IS DEEMED TO BE PART OF SAID ASSOCIATION AND IS COVERED BY THE DOCTRINE OF CORPORATION BY ESTOPPEL. 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. 5. REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; ISSUE OF VALIDITY THEREOF, MOOT AND ACADEMIC. Petitioner claims that the Writ of Attachment was improperly issued against the nets. We

agree with the Court 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. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof. VITUG, J., concurring: 1. CIVIL LAW; PARTNERSHIP; EXTENT OF LIABILITY OF PARTNERS IN A GENERAL PARTNERSHIP. 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. The association formed by Chua, Yao and Lim, should be, as it has been deemed, a de facto partnership with all the consequent obligations for the purpose of enforcing the rights of third persons. The liability of general partners (in a general partnership as so opposed to a limited partnership) is laid down in Article 1816 which posits that all partners shall be liable pro rata beyond the partnership assets for all the contracts which may have been entered into in its name, under its signature, and by a person authorized to act for the partnership. 2. ID.; ID.; ID.; INSTANCES WHEN THE PARTNERS CAN BE HELD SOLIDARILY LIABLE WITH THE PARTNERSHIP. This rule is to be construed along with other provisions of the Civil Code which postulate that the partners can be held solidarily liable with the partnership specifically in these instances. (1) where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act; (2) where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (3) where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership consistently with the rules on the nature of civil liability in delicts and quasi-delicts.

D E C I S I O N

PANGANIBAN, J p: 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. cda

The Case In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV 41477, 1 which disposed as follows:

"WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed." 2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:

"WHEREFORE, the Court rules: 1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990; cdphil 2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case; a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement; b. 12% interest per annum counted from date of plaintiff's invoices and computed on their respective amounts as follows: i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990; ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990; c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per appearance in court; d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale); cdasia e. Cost of suit. "With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount of P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants. "From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the total

judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court. SO ORDERED." 3 cdasia

The Facts On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). 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 total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation. 4 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 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. 5 On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdeswhich was then docked at the Fisheries Port, Navotas, Metro Manila. LLpr 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 respondent some of the nets which were in his possession. Peter 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 Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of

Attachment. 6 The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of P900,000. 7 On November 18, 1992, 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. 8 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 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages. 10 The Compromise Agreement provided: cdll

"a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;

"b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

"c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao." 11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed from the equal distribution of the profit and loss. 12 Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as such

for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:

"The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for commercial fishing . . . . Obviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a partnership essentially is . . . . By a 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 (Article 1767, New Civil Code)." 13 cdtai

Hence, petitioner brought this recourse before this Court. 14 The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

"I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

"II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

"III THE TRIAL COURT IMPROPERLY ORDERED THE

SEIZURE AND ATTACHMENT OF PETITIONER LIM'S GOODS."

In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership. cdasia

This Court's Ruling The Petition is devoid of merit.

First and Second Issues:

Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, 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, 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 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 the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat. We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

"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." llcd

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yao's partner; (2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million; (3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture. (4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim; (5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and

other expenses for the boats would be shouldered by Chua and Yao; (6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check, because of 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 Tong Lim. cdtai (7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name. (8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages. (9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that 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. In their Compromise Agreement, they subsequently revealed their intention to pay the loan 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. Moreover, 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 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. cdtai Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, 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. We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the exceptions to the rule. 16 In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless.The Agreement was but an embodiment of the relationship extant among the parties prior to its execution. A proper adjudication of claimants' 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 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. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument that the existence of a partnership was based only on the Compromise Agreement. LLphil

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.

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. Indeed, his consent to the sale proved that there was a preexisting partnership among all three. Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition 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 acquired 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, Jesus Lim. prLL We 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 be imputed only to Chua and Yao, and not to him. Again, we disagree. 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." LibLex

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." 17 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. cdrep 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 18 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. We reiterate the ruling of the Court in Alonso v. Villamor: 19 prLL

"A litigation is not a game of technicalities in which one, more deeply schooled and skilled 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, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities."

Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court 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. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. Cdpr SO ORDERED. Melo, Purisima and Gonzaga-Reyes, JJ.,concur.

Vitug, J., pls. see concurring opinion. Separate Opinions

VITUG, J., concurring: I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice Artemio V. Panganiban, particularly the finding that Antonio Chua, Peter Yao and petitioner Lim Tong Lim have incurred the liabilities of general partners. I merely would wish to elucidate a bit, albeit briefly, the liability of partners in a general partnership. 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. 1 The association formed by Chua, Yao and Lim, should be, as it has been deemed, a de facto partnership with all the consequent obligations for the purpose of enforcing the rights of third persons. The liability of general partners (in a general partnership as so opposed to a limited partnership) is laid down in Article 1816 2 which posits that all partners shall be liable pro rata beyond the partnership assets for all the contracts which may have been entered into in its name, under its signature, and by a person authorized to act for the partnership. This rule is to be construed along with other provisions of the Civil Code which postulate that the partners can be held solidarily liable with the partnership specifically in these instances (1) where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act; (2) where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (3) where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership 3 consistently with the rules on the nature of civil liability in delicts and quasi-delicts. LLpr Footnotes

1.Penned by J. Portia Alino-Hormachuelos; with the concurrence of JJ. Buenaventura J. Guerrero, Division chairman, and Presbitero J. Velasco Jr., member.

2.CA Decision, p. 12; rollo, p. 36.

3.RTC Decision penned by Judge Maximiano C. Asuncion, pp. 11-12; rollo, pp. 48-49.

4.CA Decision, pp. 1-2; rollo, pp. 25-26. 5.Ibid., p. 2; rollo, p. 26. 6.RTC Decision, p. 2; rollo, p. 39. 7.Petition, p. 4; rollo, p. 11. 8.Ibid. 9.RTC Decision, pp. 6-7; rollo, pp. 43-44. 10.Respondent's Memorandum, pp. 5, 8; rollo, pp. 107, 109. 11.CA Decision, pp. 9-10; rollo, pp. 33-34. 12.RTC Decision, p. 10; rollo, p. 47. 13.Ibid. 14.This case was deemed submitted for resolution on August 10, 1999,

when this Court received petitioner's Memorandum signed by Atty. Roberto A. Abad. Respondent's Memorandum signed by Atty. Benjamin S. Benito was filed earlier on July 27, 1999.

15.Nos. 1-7 are from CA Decision, p. 9 (rollo, p. 33); No. 8 is from RTC Decision, p. 5 (rollo, p. 42); and No. 9 is from CA Decision, pp. 9-10 (rollo, pp. 33-34).

16.See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997. 17.Salvatierra v. Garlitos, 103 SCRA 757, May 23, 1958, per Felix, J.;

citing Fay v. Noble, 7 Cushing [Mass.] 188. 18."The liability is joint if it is not specifically stated that it is

solidary," Maramba v. Lozano, 126 Phil 833, June 29, 1967, per Makalintal, J. See also Article 1207 of the Civil Code, which provides: "The concurrence of two or more creditors or of two or more debtors in one [and] the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity."

19.16 Phil. 315, July 26, 1910, per Moreland, J. VITUG, J.: 1.Article 1825. When a person, by words spoken or written or by

conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has

made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:

(1) When a partnership liability results, he is liable as though he were an actual member of the partnership;

(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.

When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation.

2.All partners, including industrial ones, shall be liable pro rata with all

their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract.

3.Article 1824 in relation to Article 1822 and Article 1823, New Civil Code.

||| (Lim Tong Lim v. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, November 03, 1999)

SECOND DIVISION [G.R. No. 125221. June 19, 1997.]

REYNALDO M. LOZANO, petitioner, vs. HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and ANTONIO ANDA,respondents.

Willie B. Rivera for petitioner. Yabut Law Office for respondents.

SYLLABUS 1. COMMERCIAL LAW; SECURITIES AND EXCHANGE COMMISSION; JURISDICTION; DETERMINATION THEREOF. The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. This jurisdiction is determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy. The first element requires that the controversy must arise out of intracorporate or partnership relations between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in so far as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation, partnership or association or deal with the internal affairs of the corporation, partnership or association. After all, the principal function of the SEC is the supervision and control of corporations, partnerships and associations with the end in view that investments in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development. DaScAI 2. ID.; ID.; ID.; DISPUTE BETWEEN MEMBERS OF TWO SEPARATE AND DISTINCT CORPORATIONS WHO HAVE NO INTRACORPORATE RELATION, DOES NOT FALL WITHIN THE JURISDICTION OF SECURITIES AND EXCHANGE COMMISSION; CASE AT BAR. The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but these associations are two separate entities. The dispute between petitioner and private respondent is not within the KAMAJDA nor the SAMAJODA. It is between members of separate and distinct associations. Petitioner and private respondent have no intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has no jurisdiction over the complaint.

3. ID.; ID.; ID.; DOCTRINE OF CORPORATION BY ESTOPPEL CANNOT OVERRIDE JURISDICTIONAL REQUIREMENTS. The doctrine of corporation by estoppel advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot be acquired through or waived, enlarged or diminished by, any act or omission of the parties, neither can it be conferred by the acquiescence of the court. 4. ID.; ID.; ID.; WHERE THERE IS NO THIRD PERSON INVOLVED AND THE CONFLICT ARISES ONLY AMONG THOSE ASSUMING THE FORM OF A CORPORATION, THERE IS NO CORPORATION BY ESTOPPEL. Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by estoppel. EATcHD

D E C I S I O N PUNO, J p: This petition for certiorari seeks to annul and set aside the decision of the Regional Trial Court, Branch 58, Angeles City which ordered the Municipal Circuit Trial Court, Mabalacat and Magalang, Pampanga to dismiss Civil Case No. 1214 for lack of jurisdiction. The facts are undisputed. On December 19, 1995, petitioner Reynaldo M. Lozano filed Civil Case No. 1214 for damages against respondent Antonio Anda before the Municipal Circuit Trial Court (MCTC), Mabalacat and Magalang, Pampanga. Petitioner alleged that he was the president of the Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Inc. (KAMAJDA) while respondent Anda was the president of the Samahang Angeles-Mabalacat Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA); in August 1995, upon the request of the Sangguniang Bayan of Mabalacat, Pampanga, petitioner and private respondent agreed to consolidate their respective associations and form the Unified Mabalacat-Angeles Jeepney Operators' and Drivers' Association, Inc. (UMAJODA); petitioner and private respondent also agreed to elect one set of officers who shall be given the sole authority to collect the daily dues from the members of the consolidated association; elections were held on October 29, 1995 and both petitioner and private respondent ran for president; petitioner won; private respondent protested and, alleging fraud, refused to recognize the results of the election; private respondent also refused to abide by their agreement

and continued collecting the dues from the members of his association despite several demands to desist. Petitioner was thus constrained to file the complaint to restrain private respondent from collecting the dues and to order him to pay damages in the amount of P25,000.00 and attorney's fees of P500.00. 1 Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was lodged with the Securities and Exchange Commission (SEC). The MCTC denied the motion on February 9, 1996. 2 It denied reconsideration on March 8, 1996. 3 Private respondent filed a petition for certiorari before the Regional Trial Court, Branch 58, Angeles City. 4 The trial court found the dispute to be intracorporate, hence, subject to the jurisdiction of the SEC, and ordered the MCTC to dismiss Civil Case No. 1214 accordingly. 5 It denied reconsideration on May 31, 1996. 6 Hence this petition. Petitioner claims that:

"THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND SERIOUS ERROR OF LAW IN CONCLUDING THAT THE SECURITIES AND EXCHANGE COMMISSION HAS JURISDICTION OVER A CASE OF DAMAGES BETWEEN HEADS/PRESIDENTS OF TWO (2) ASSOCIATIONS WHO INTENDED TO CONSOLIDATE/MERGE THEIR ASSOCIATIONS BUT NOT YET [SIC] APPROVED AND REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION." 7

The jurisdiction of the Securities and Exchange Commission (SEC) is set forth in Section 5 of Presidential Decree No. 902-A.. Section 5 reads as follows:

"Section 5. . . . [T]he Securities and Exchange Commission [has] original and exclusive jurisdiction to hear and decide cases involving: (a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission. cdtai (b) Controversies arising out of intracorporate or partnership relations, between and among stockholders, members or associates; between any or

all of them and the corporation, partnership or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity. (c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnerships or associations. (d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree."

The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. 8 This jurisdiction is determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy. 9 The first element requires that the controversy must arise out of intracorporate or partnership relations between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in so far as it concerns their individual franchises. 10 The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation, partnership or association or deal with the internal affairs of the corporation, partnership or association. 11 After all, the principal function of the SEC is the supervision and control of corporations, partnerships and associations with the end in view that investments in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development. 12 There is no intracorporate nor partnership relation between petitioner and private respondent. The controversy between them arose out of

their plan to consolidate their respective jeepney drivers' and operators' associations into a single common association. This unified association was, however, still a proposal. It had not been approved by the SEC, neither had its officers and members submitted their articles of consolidation in accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation by the SEC. 13 When the SEC, upon processing and examining the articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of consolidation which makes the reorganization official. 14 The new consolidated corporation comes into existence and the constituent corporations dissolve and cease to exist. 15 The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but these associations are two separate entities. The dispute between petitioner and private respondent is not within the KAMAJDA nor the SAMAJODA. It is between members of separate and distinct associations. Petitioner and private respondent have no intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has no jurisdiction over the complaint. The doctrine of corporation by estoppel 16 advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. 17 It cannot be acquired through or waived, enlarged or diminished by, any act or omission of the parties, neither can it be conferred by the acquiescence of the court. 18 Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. 19 It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered there is no corporation by estoppel. 20 IN VIEW WHEREOF, the petition is granted and the decision dated April 18, 1996 and the order dated May 31, 1996 of the Regional Trial Court, Branch 58, Angeles City are set aside. The Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga is ordered to proceed with dispatch in resolving Civil Case No. 1214. No costs.

SO ORDERED. Regalado, Romero, Mendoza and Torres, Jr., JJ ., concur. ||| (Lozano v. De los Santos, G.R. No. 125221, June 19, 1997)

THIRD DIVISION [G.R. No. 101897. March 5, 1993.]

LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN, LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC., respondents.

Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner. Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for respondents. Froilan Siobal for Western Pangasinan Lyceum.

SYLLABUS 1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME WHICH IS IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF ANY EXISTING CORPORATION, PROHIBITED; CONFUSION AND DECEPTION EFFECTIVELY PRECLUDED BY THE APPENDING OF GEOGRAPHIC NAMES TO THE WORD "LYCEUM". The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned: "Section 18. Corporate name. No corporate name may be allowed by the Securities an Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of the

petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. 2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED WITH EXCLUSIVITY. It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that word, although originally a generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents herein. The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been extended to corporate names sine the right to use a corporate name to the exclusion of others is based upon the same principle which underlies the right to use a particular trademark or tradename. In Philippine Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary meaning was elaborated in the following terms: " . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producerwith reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product." The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of timeand with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at least that portion of the general public which has to do with schools). The Court of Appeals recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with reference to an article in the market, because geographical or otherwise descriptive might nevertheless have been used so long and so exclusively by one producer with reference to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time. . . . No

evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the appellant had been using the disputed word for a long period of time. . . . In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because the appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that confusion will surely arise if the same word were to be used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned errors must necessarily fail." We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little later with other private respondent institutions which registered with the SEC using "Lyceum" as part of their corporation names. There may well be other schools using Lyceum or Liceo in their names, but not registered with the SEC because they have not adopted the corporate form of organization. 3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY ARE CONFUSINGLY OR DECEPTIVELY SIMILAR TO ANOTHER CORPORATE ENTITY'S NAME. petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.

D E C I S I O N FELICIANO, J p:

Petitioner is an educational institution duly registered with the Securities and Exchange Commission ("SEC"). When it first registered with the SEC on 21 September 1950, it used the corporate

name Lyceum of the Philippines, Inc. and has used that name ever since.

On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private respondents, which are also educational institutions, to delete the word "Lyceum" from their corporate names and permanently to enjoin them from using "Lyceum" as part of their respective names. prLL

Some of the private respondents actively participated in the proceedings before the SEC. These are the following, the dates of their original SEC registration being set out below opposite their respective names:

Western Pangasinan Lyceum 27 October 1950 Lyceum of Cabagan 31 October 1962 Lyceum of Lallo, Inc. 26 March 1972 Lyceum of Aparri 28 March 1972 Lyceum of Tuao, Inc. 28 March 1972 Lyceum of Camalaniugan 28 March 1972

The following private respondents were declared in default for failure to file an answer despite service of summons:

Buhi Lyceum; Central Lyceum of Catanduanes; Lyceum of Eastern Mindanao, Inc.; and Lyceum of Southern Philippines

Petitioner's original complaint before the SEC had included three (3) other entities:

1. The Lyceum of Malacanay; 2. The Lyceum of Marbel; and 3. The Lyceum of Araullo

The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum of Marbel, for failure to serve summons upon these two (2) entities. The case against the Liceum of Araullo was dismissed when that school motu proprio change its corporate name to "Pamantasan ng Araullo."

The background of the case at bar needs some recounting. Petitioner had sometime before commenced in the SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt another name not "similar [to] or identical" with that of petitioner. In an Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the corporate name of petitioner and that of the Lyceum of Baguio, Inc. were substantially identical because of the presence of a "dominant" word,

i.e., "Lyceum," the name of the geographical location of the campus being the only word which distinguished one from the other corporate name. The SEC also noted that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to change its name to another name "not similar or identical [with]" the names of previously registered entities. cdrep

The Lyceum of Baguio, Inc. assailed the Order of the SEC

before the Supreme Court in a case docketed as G.R. No. L-46595. In a Minute Resolution dated 14 September 1977, the Court denied the Petition for Review for lack of merit. Entry of judgment in that case was made on 21 October 1977. 2

Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational institutions it could find using the word "Lyceum" as part of their corporate name, and advised them to discontinue such use of "Lyceum." When, with the passage of time, it became clear that this recourse had failed, petitioner instituted before the SEC SEC-Case No. 2579 to enforce what petitioner claims as its proprietary right to the word "Lyceum." The SEC hearing officer rendered a decision sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was capable of appropriation and that petitioner had acquired an enforceable exclusive right to the use of that word.

On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer was reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to have become so identified with petitioner as to render use thereof by other institutions as productive of confusion about the identity of the schools concerned in the mind of the general public. Unlike its hearing officer, the SEC En Banc held that the attaching of geographical names to the word "Lyceum" served sufficiently to distinguish the schools from one another, especially in view of the fact that the campuses of petitioner and those of the private respondents were physically quite remote from each other. 3

Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the Court of Appeals affirmed the questioned Orders of the SEC En Banc. 4 Petitioner filed a motion for reconsideration, without success.

Before this Court, petitioner asserts that the Court of Appeals committed the following errors:

1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L-46595 did not constitute stare decisis as to apply to this case and in not holding that said Resolution bound subsequent determinations on the right to exclusive use of the word Lyceum.

2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was incorporated earlier than petitioner.

3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in favor of petitioner.

4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the petitioner to the exclusion of others. 5 We will consider all the foregoing ascribed errors, though not

necessarily seriatim. We begin by noting that the Resolution of the Court in G.R. No. L-46595 does not, of course, constitute res adjudicata in respect of the case at bar, since there is no identity of parties. Neither is stare decisis pertinent, if only because the SEC En Banc itself has re-examined Associate Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute Resolution of the Court in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling.

The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. 6 Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned:

"SECTION 18. Corporate name. No corporate name may be allowed by the Securities an Exchange Commission if the proposed name isidentical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." (Emphasis supplied)

The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or

confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. 7

We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. LLphil

Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his followers for teaching." 8 In time, the word "Lyceum" became associated with schools and other institutions providing public lectures and concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an institution of learning. While the Latin word "lyceum" has been incorporated into the English language, the word is also found in Spanish (liceo) and in French (lycee). As the Court of Appeals noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as generic in character as the word "university." In the name of the petitioner, "Lyceum" appears to be a substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently denotes a secondary school or a college. It may be (though this is a question of fact which we need not resolve) that the use of the word "Lyceum" may not yet be as widespread as the use of "university," but it is clear that a not inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as part of their corporate names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this word to

designate an entity which is organized and operating as an educational institution.

It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that that word, although originally a generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents herein.

The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been extended to corporate names sine the right to use a corporate name to the exclusion of others is based upon the same principle which underlies the right to use a particular trademark or tradename. 10 In Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary meaning was elaborated in the following terms:

" . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the arti