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Lim Tong Lim v. Philippine Fishing Gear Industries

1. Lim, Chua, and Yao formed a de facto partnership to operate a fishing business despite not complying with legal formalities. They purchased boats together, secured loans to finance the business, and agreed to split any profits or losses. 2. As partners of the de facto partnership, Lim, Chua, and Yao are each liable for the partnership's debts, even though Lim was not a signatory to the agreement. They benefited from treating the partnership as a valid corporation and cannot now deny its existence. 3. The court ruled that a partnership existed between the three based on their actions and agreements to jointly conduct business and share in profits/losses, making each party liable for the partnership's

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85 views2 pages

Lim Tong Lim v. Philippine Fishing Gear Industries

1. Lim, Chua, and Yao formed a de facto partnership to operate a fishing business despite not complying with legal formalities. They purchased boats together, secured loans to finance the business, and agreed to split any profits or losses. 2. As partners of the de facto partnership, Lim, Chua, and Yao are each liable for the partnership's debts, even though Lim was not a signatory to the agreement. They benefited from treating the partnership as a valid corporation and cannot now deny its existence. 3. The court ruled that a partnership existed between the three based on their actions and agreements to jointly conduct business and share in profits/losses, making each party liable for the partnership's

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FranzMordeno
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© © All Rights Reserved
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17. Lim Tong Lim v. Philippine Fishing Gear Industries  What constitutes a partnership?

317 SCRA 728 (1998)


Art. 1767 NCC. - By the contract of partnership,
DE FACTO PARTNERSHIP two or more persons bind themselves to
contribute money, property, or industry to a
FACTS: common fund, with the intention of dividing the
profits among themselves.
On behalf of "Ocean Quest Fishing Corporation," Antonio
Chua and Peter Yao entered into a Contract for the  How is a partnership created?
purchase of fishing nets from the Philippine Fishing Gear
Industries, Inc. claiming that they were engaged in a Article 1767. The contribution to such fund need
business venture with Lim Tong Lim, who however was not be cash or fixed assets; it could be an
not a signatory to the agreement. intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and
Buyers failed to pay for the fishing nets and the floats operation of the boats would be divided equally
hence the Philippines Fishing Gear Industries filed a among them also shows that they had indeed
collection suit against Chua, Yao, and Lim in their formed a partnership.
capacities are general partners on the allegation that
"Ocean Quest Fishing Corporation" was a nonexistent Issue #2:
corporation as shown by a Certification from the Securities
and Exchange Commission. Lim was a partner and not a lessor. The court was not
convinced with his petition that he consented the sale of
Lim filed a counterclaim and crossclaim. his own boats to pay the debt of Chua and Yao, with the
excess of the proceeds to be divided among the three of
The trial court ruled that a partnership among Lim, Chua them.
and Yao existed.
No lessor would do such act. His consent to the sale proved
Court of appeals held Lim a partner of Chua and Yao after that there was a preexisting partnership among all three.
they had agreed to divide the profits among themselves.
Further, the debts were undertaken in order to finance the
ISSUE(S): acquisition and the upgrading of the vessels which would
be used in their fishing business.
1. W/N a contract of partnership has existed
between Lim, Chua, and Yao. The sale of the boats, as well as the division among the
three of the balance remaining after the payment of their
2. W/N Lim could be held liable when he is not a loans, proves beyond cavil that F/B Lourdes, though
signatory to the agreement and claiming that he is registered in his name, was not his own property but an
only a lessor and not a partner asset of the partnership.

HELD:
TEACHINGS OF THE CASE/DOCTRINES:
Issue #1: W/N a contract of partnership has existed
between Lim, Chua, and Yao.  Corporation by Estoppel

Sec. 21. Corporation by estoppel. — All persons


Yes. who assume to act as a corporation knowing it to
be without authority to do so shall be liable as
A partnership has existed between Chua, Yao, and Lim. general partners for all debts, liabilities and
damages incurred or arising as a result
The parties decided to engage in a fishing business by thereof: Provided however, That when any such
buying boats and by securing a loan to finance such and ostensible corporation is sued on any transaction
revealed their intentions to pay the loan with the proceeds entered by it as a corporation or on any tort
of the sales of boats and to divide equally among committed by it as such, it shall not be allowed to
themselves the excess or loss. use as a defense its lack of corporate personality.

Given the preceding facts, it is clear that there was, among One who assumes an obligation to an ostensible
petitioner, Chua and Yao, a partnership engaged in the corporation as such, cannot resist performance
fishing business. thereof on the ground that there was in fact no
corporation.
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.
In relation to Lim’s contention that he’s not a partner since SEPARATE OPINION OF JUSTICE VITUG
he’s not a signatory to the agreement:
 De Facto Partnership
1. Knowing an association to be unincorporated,
nonetheless treated it as a corporation and The association formed by Chua, Yao and Lim, should be,
received benefits from it, may be barred from as it has been deemed, a de facto partnership.
denying its corporate existence in a suit brought
against the alleged corporation.   Who is a de facto partner?

2. All those who benefited from the transaction A person not a partner in the partnership
made by the ostensible corporation, despite performs all acts of the partnership for the benefit
knowledge of its legal defects, may be held liable of the partners.
for contracts they impliedly assented to or took
advantage of.  Liability of partners in a general partnership

3. Under the law on estoppel, those acting on behalf 1. Art. 1816 NCC. - All partners, including
of a corporation and those benefited by it, industrial ones, shall be liable pro rata with
knowing it to be without valid existence, are held all their property and after all the partnership
liable as general partners. assets have been exhausted, for the contracts
which may be entered into in the name and
 Partnership by Estoppel (Notes from the book for the account of the partnership, under its
of Paras) signature and by a person authorized to act
for the partnership
When two or more persons attempt to create a
partnership but fail to comply with the legal  Partner by Estoppel
formalities essential for juridical personality, the
law considers them as partners, and the Art. 1825. When a person, by words spoken or
association is a partnership insofar as it is written or by conduct, represents himself, or
favorable to third persons, by equitable principle consents to another representing him to anyone,
of estoppel. 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

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