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

G.R. No. 136448 November 3, 1999

PANGANIBAN, J.:

FACTS:

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao purchased fishing nets from
the respondent. They claimed that Petitioner Lim is their business partner although he is not a signatory
in the contract of purchase.

Later, respondent sued Lim, Chua and Yao for non-payment of the fishing nets and the floats. They were
sued on their individual capacity because the Corporation is found to be non-existent.

The lower courts ruled in favor of the respondent and issued a writ of attachment for the fishing nets on
board F/B Lourdes. They found that Lim, Chua and Yao engaged in fishing business. The three borrowed
money from Lim’s brother to purchase two fishing boats. Although the boats were purchased under the
name of Lim only, Chua and Yao agreed to shoulder the refurbishing, re-equipping and other expenses.
Pursuant to their business agreement, Chua and Yao bought nets from respondent on behalf of the
corporation. Subsequently, a suit was filed by Chua and Yao against Lim. They settled the case through a
Compromise Agreement. The Agreement was silent as to the nature of their obligations. But it was
revealed that they intended to pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss.

Lim asserts that the lower court based its findings on the Compromise Agreement only. He disclaims direct
participation in the negotiation on the purchase of fishing nets. He claims that he was a lessor of the boat
F/B Lourdes and Chua and Lim are the lessees.

ISSUE:

Whether or not Chua, Yao and Lim established a partnership.

HELD:

YES. The Compromise Agreement 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. 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. The partnership
extends not only to the purchase of boats but also that of the nets and floats. Those are essential to the
business of fishing.

The Compromise Agreement is not the sole basis of the partnership. The Agreement was but an
embodiment of the relationship extant among the parties prior to its execution.

Petitioner was a partner, not a lessor. It is illogical 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. Although F/B Lourdes is registered in his name, it 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.

Lim is liable although he did not directly deal in the name of the ostensible corporation. 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.