Lim Tong Lim vs Philippine Fishing Gear Industries, Inc.

Business Organization Partnership, Agency, Trust 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 equipments. 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
hes 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 estoppels can only
be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of
the nets found in his boats, 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.