LIM TONG LIM v.

PHILIPPINE FISHING GEAR INDUSTRIES,

INC.
G.R. No. 136448 / NOV. 3, 1999 / PANGANIBAN, J. /PARTNERSHIP Common Fund /
IOSANTOS

5.

NATURE
Petition for Review on Certiorari
PETITIONERS Lim Tong Lim
RESPONDENTS Philippine Fishing Gear Industries, Inc.
SUMMARY: Chua and Yao, on behalf of Ocean Quest Fishing Corp,
purchased nets from Philippine Fishing Gears. The 2 claimed that they
were engaged in a business venture with Lim, who was not a signatory
to the agreement. When they failed to pay for the nets, a suit was
brought against the 3 of them. Lim denied liability and argues that he is
not a partner of Chua and Yao. Based on factual findings, RTC and CA
ruled that there existed a partnership among the 3 of them. Even though
the main asset of the partnership (the boat) was bought through
proceeds from a loan, it still fell under the term common fund under Art.
1767.
DOCTRINE: 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.
FACTS.
1. On behalf of Ocean Quest Fishing Corporation Antonio Chua and Peter
Yao entered into a contract for the purchase of fishing nets of various
sizes from the Philippine Fishing Gear Industries, Inc. They claimed that
they were engaged in a business venture with Lim Tong Lim, who
however was not a signatory to the agreement.
2. However, the buyers failed to pay for the fishing nets and the floats;
hence, private respondent filed a collection suit against Chua, Yao and
Lim with a prayer for a writ of preliminary attachment. The suit was
brought against the 3 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 SEC. The lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by
attaching the fishing nets on board F/B Lourdes.
3. 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. Yao filed an answer,
after which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his failure
to appear in subsequent hearings. Lim filed an answer with
counterclaim and crossclaim and moved for the lifting of the Writ of
Attachment.
4. The trial court maintained the Writ, and upon motion of private
respondent, ordered the sale of the fishing nets at a public auction.

6.

7.

Philippine Fishing Gear won the bidding and deposited with the court
the sales proceeds of P900,000.
In its decision, the trial court ruled that Philippine Fishing Gear was
entitled to the Writ of Attachment and that Chua, Yao and Lim, as
general partners, were jointly liable to pay respondent. It found that
that a partnership among Lim, Chua and Yao existed based on:
(1) the testimonies of the witnesses presented
(2) a Compromise Agreement executed by the three in a civil case
which Chua and Yao had brought against Lim in the RTC of
Malabon for declaration of nullity of commercial documents,
reformation of contracts, declaration of ownership of fishing
boats, injunction, and damages.
* 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.
On appeal, CA affirmed RTC. It held that Lim was a partner of Chua and
Yao in a fishing business and may thus be held liable as a such for the
fishing nets and floats purchased by and for the use of the partnership.
It held that the ultimate undertaking of the 3 was to divide the profits
among themselves which is what a partnership essentially is.
Lims arguments:
o he does not have any direct participation in purchase of nets
and it was only Chua and Yao who conducted the negotiations
o he has not even met the representatives of the respondent
company
o he was a lessor, not a partner, of Chua and Yao, for the
contract of lease wherein he merely leased to the 2 the main
asset of the purported partnership (fishing boat F/B Lourdes)

ISSUES & RATIO.

WON a partnership agreement existed among Chua, Yao and Lim. YES.
1. The factual findings of RTC and CA clearly showed that there existed a
partnership among Chua, Yao and Lim, pursuant to Art. 1767, CC:
o Lim requested Yao, who was engaged in commercial fishing, to
join him, while Chua was already Yaos partner
o after convening for a few times, the 3 verbally agreed to
acquire 2 fishing boats; they borrowed P3.5M from Lims
brother to finance the venture and thereafter bought the
boats and executed a Deed of Sale
o the 3 agreed that the refurbishing, re-equipping, repairing, dry
docking and other expenses for the boats would be
shouldered by Chua and Yao
o because of unavailability of funds, Lims brother again
extended a loan (P1M) to the partnership, because of which,
Yao and Chua entrusted the ownership papers of the 2 boats
to Lim
o in pursuance of the business agreement, Yao and Chua bought
nets from Philippine Fishing Gear, in behalf of Ocean Quest
Fishing Corp their purported business name

subsequently, a civil case was filed by Chua and Yao against

Lim, and the case was amicably settled through a compromise
agreement
In their Compromise Agreement, the 3 revealed their intention to pay
the loan from Lims brother with the proceeds of the sale of the boats,
and to divide equally among them the excess or loss.
o These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term common
fund under Article 1767.
o The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry.
o 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 these facts, it was clear that there was partnership among
Chua, Yao and Lim. 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.
Under Rule 45, a petition for review like the present case should
involve only questions of law. Thus, the factual findings of the RTC and
the CA are binding on SC, absent any cogent proof that the present
action is embraced by one of the exceptions to the rule.
On Lims argument that he was a mere lessor, the Court ruled that the
allegation defies logic. In effect, he would like the 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 3 of
them. The Court said that no lessor would do what Lim did. Indeed, his
consent to the sale proved that there was a preexisting partnership
among all 3 of them.
o The sale of the boats, as well as the division among the 3 of
the balance remaining after the payment of their loans,
proves beyond cavil that F/B Lourdes, though registered in
Lims name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender
trusts, who in this case is Lim himself. After all, he is the
brother of the creditor, Jesus Lim.
o Court said that it is absurd for Lim to sell his property to pay a
debt he did not incur, if the relationship among the 3 of them
was merely that of lessor-lessee, instead of partners.
o

2.

3.

4.

5.

6.

DECISION
Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
NOTES
o Lim argued that under the doctrine of corporation by estoppel,
liability can be imputed only to Chua and Yao, and not to him. The
Court disagreed.

Corporation by estoppel: 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 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

Lim: since his name does not appear on any of the

contracts and since he never directly transacted with
Philippine Fishing Gears, he cannot be held liable.

Court: Lim benefited from the use of the nets found inside
the boat, which was proven to be an asset of the
partnership. 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. Having reaped the benefits of the contract
entered into by persons with whom he previously had an
existing relationship, Lim is deemed to be part of said
association and is covered by the scope of the doctrine of
corporation by estoppel.
o Lim claims that the Writ of Attachment was improperly issued
against the nets.
o Court: agrees with CA that the issue now moot and
academic.
o 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.
o Besides, by specific agreement, ownership of the nets
remained with Philippine Fishing Gear, until full payment
thereof.