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G.R. No. 136448 – 317 SCRA 728 – 376 Phil. 76 – Civil Law – Partnership – Liabilities of Partners – Corporation by Estoppel
It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not have the money, they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again borrowed money and they agreed to purchase fishing nets and other fishing equipment. Now, Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing Corporation” (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names because apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong Lim however argued that he’s not liable because he was not aware that Chua and Yao represented themselves as a corporation; that the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. 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. 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.
Lim Tong Lim cannot argue that the principle of corporation by estoppel can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boat, the boat which has earlier been proven to be an asset of the partnership. 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.