Lim vs. Philippine Fishing Gear Industries Inc.

(PFGI) FACTS: On behalf of the Ocean Quest Fishing Corporation, Antonio Chua and Peter Yao entered into a contract for the purchase of fishing nets of various sizes and 400 pieces of floats from respondent PFGI. They claimed to be engaged in a business venture with Lim Tong Lim, who however was not a signatory to the agreement. The buyers, however, failed to pay said purchases; hence, PFGI filed a collection suit against Chua, Yao and Lim Tong Lim with a prayer of a Writ of preliminary attachment. The suit was brought against the three in their capacity as partners, on the allegation that Ocean Quest Fishing Corporation was a non-existent 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. Instead of answering the complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to the PFGI some of the nets which were in his possession. Yao filed an Answer but 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 tong Lim, on the other hand, filed an Answer with Counterclaim and Cross-claim and moved for the lifting of the Writ. The trial court maintained the writ and upon motion of the PFGI, ordered the sale of the fishing nets at public auction. PFGI won the bidding and deposited with the said court the sales proceeds of P900, 000. The trial court rendered its decision ruling that PFGI was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay PFGI. It further ruled that the partnership among Lim, Chua and Yao existed based on (1) testimonies of the witnesses presented, (2) the compromise agreement executed by the three in a Civil Case brought by Chua and Yao against Lim for ;(a) a declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (d) an injunction and (e) damages. Lim appealed with the CA which affirmed the RTC. Hence, this petition. Lim argues among others, that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao. ISSUES: Whether partnership exists, and thus, would hold Lim jointly liable with Chua and Yao. HELD: Pursuant to Art. 1767 of the Civil Code, the facts as found by the two lower courts clearly showed that there exist partnership among Chua, Yao and Lim. The three had decided to engage in a fishing business, which they started by buying boats, financed by a loan secured from Jesus Lim who was Lim Tong Lims brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of boats, and to divide equally among them the excess or the loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term common fund under Art. 1767. These circumstances and/ or agreements show that they had indeed formed a partnership. The partnership extended not only to the purchase of the boat, but also to that of nets and the floats. The fishing nets and floats, both essential to fishing, were obviously acquired in furtherance of their business. The sale of boats, as well as the division among the three 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. Hence, negates lessor-lessee relation as alleged by Lim. As to Lims argument that under the doctrine of corporation, liability can be imputed only to Chua and yao, and not to him; Sec. 21 of the Corporation Code provides that all persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof; provided however, that when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation. Thus, even if the ostensible corporate entity is proven to be legally non-existent, a party may be estopped from denying its corporate existence. The reason behind this doctrine is obvious an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representative or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without principal is himself regarded as a principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent. The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits.

On the other hand, 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. In such case, all those who benefited from the transactions 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. There is no dispute that PFGI is entitled to be paid for the nets it sold. Although it is true that Lim did not directly act on behalf of the corporation: however, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationships, he is deemed to be part of said association and is covered by the scope of the doctrine of corporate by estoppel. .

GOQUIOLAY, ET. AL. VS. SYCIP, ET. AL. Facts: Tan Sin An and Antonio Goquiolay entered into a general commercial partnership which was to last for 10 years for the purpose of dealing in real estate. The agreement lodged upon Tan Sin An the sole management of the partnership affairs and his co partner, Goquiolay, has no voice or participation in the management of the affairs of the co partnership. They further agreed upon that in the event of the death of any of the partners at any time before the expiration of the term, the co partnership shall not be dissolved but will have to be continued and the deceased partner shall be represented by his heirs or assigns in the said co partnership. A general power of attorney (GPA) was executed by Goquiolay in favor of Tan Sin An which included buy, sell, alienate and convey properties of the partnership as well as obtain loans as he may deem advisable for the best interest of the co partnership. With the authority of the GPA, the partnership through Tan Sin An purchased 3 parcels of land which was mortgaged to La Urbana Sociedad and another 46 parcels of land which which were purchased by Tan Sin An in his individual capacity, and assumed mortgaged debt thereon. The downpayment for the 46 parcels of land was advanced by Yutivo and Co. The two separate obligations were consolidated in an instrument executed by the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the Banco Hipotecario de Filipinas (as successor to La Urbana). When Tan Sin An died, his wife Kong Chia Pin was appointed administratix of the intestate estate of her deceased husband. Repeated demands for payment were made by Banco Hipotecario on the partnership and on Tan Sin An which was initially paid by Yutivo and Co. and Sing Yee Cuan and Co. (at the request of Yutivo and Co.) The mortgage was eventually cancelled. Now Yutivo and Sing Yee Cuan Company filed their claims in the intestate proceedings of Tan Sin An. Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land to Washington Sycip and Betty Lee for the purpose primarily of settling the aforesaid debts of her husband and the partnership. The court ordered the execution of deed of sale in favor of Sycip and Lee in consideration of P37,000.00 and assuming payment of the claims filed by Yutivo & Co. and Sing Yee Co. Later, Sycip and Lee executed in favor of the Insular Devt. Co. a deed of transfer covering said 49 parcels of land. Upon learning the sale, the surviving partner Goquiolay filed a petition to set aside the decision of the probate court and annul the sale of the parcels of land by Kong Chai Pin in favor of Sycip and Lee and their subsequent conveyance in favor of Insular Devt. Co. in so far as the 3 lots owned by the partnership is concerned. Kong Chai Pin averred the validity of the sale as successor partner, in lieu of the late Tan Sin An. The complaint was dismissed by the lower court and appeal was directly taken to the SC by Goquiolay. Issue: 1. W/N Kong Chai Pin acquired the managerial rights of her late husband Tan Sin An NO. 2. W/N there was a valid sale of property to Sycip and Lee YES. 3. W/N the consent of the other partner was necessary to perfect the sale of the partnership properties to Sycip and Betty NO. Held: 1. The right of exclusive management conferred upon Tan Sin An, being premised upon trust and confidence, was a mere personal right that terminated upon Tans demise. The provision in the articles of partnership stating that the deceased partner shall be represented by his heirs could not have referred to the managerial rights given to Tan Sin An but it more appropriately relates to the succession in the propriety interest of each partner (heir becomes limited partner only). 2. However, consonant with the articles of co partnership providing for the continuation of the firm notwithstanding the death of one of the partners, the heir of the deceased, by never repudiating or refusing to be bound under said provision, became individual partner with Goquiolay upon Tans demise. By allowing Kong Chai Pin to retain control of the partnership properties from 1942 to 1949, Goquiolay is estopped from denying her legal representation of the partnership, with the power to bind it with proper contracts. By authorizing the widow of the managing partner to manage partnership property (which a limited partner could not be authorized to do), the other general partner recognized her as a general partner, and is now in estoppel to deny her position as a general partner, with authority to administer and alienate partnership property. 3. Strangers dealing with a partnership have the right to assume, in the absence of restrictive clauses in the co partnership agreement, that every general partner has the power to bind the partnership and has the requisite authority from his co partners.

Munasque v. CA Doctrine: Article 1816 must be construed together with Article 1824. While the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 and 1823. Facts: Munasque entered in behalf of the partnership with Galan under the duly registered name Galan and Associates as Contractor entered into a written contract with respondent Tropical for remodeling the respondents Cebu branch building. Under the contract, the project was for the total of P25,000 to be paid in installments- 7, 000 upon signing and 6, 000 every 15 working days. Tropical made the first payment in the form of a check in the name of Munasque. Munasque indorsed the check in favor of Galan to enable Galan to deposit it in the bank and pay for the materials and labor used in the project. However, Galan allegedly spent P6, 183.37 for his personal use. When the second check came, refused to indorse it again to Galan. Galan informed Tropical of the misunderstanding between him and Munasque. Tropical changed the name of the payee in the second check from Munasque to Galan and Associates which enabled Galan to encash the second check. Meanwhile, the construction was continued through Munasques sole efforts. The construction work was finished ahead of schedule with the total expenditure reaching P 34, 000. Munasque filed a complaint for payment of sum of money and damages against Galan, Tropical, and Tropicals Cebu branch manager Pons. Cebu Southern Hardware Company and Blue Diamond Glass Palace intervened in the case for the credit which they extended to the partnership of Munasque and Galan for the construction project. Both trial court and Court of Appeals absolved respondents Tropical and its Cebu manager, Pons, from any liability but they also held that Munasque and Galan liable to the intervenors. Issues: Whether the obligation of Munasque and Galan is joint or solidary? Held: Solidary. While it is true that under Article 1816 of CC, All partners, including industrial ones, shall be liable pro rate with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and for account of the partnership, under its signature and by a person authorized to act for the partnership. xxx, this provision should be construed together with Article 1824 which provides that: All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. While the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 and 1823. The obligation is solidary because the law protects him, who in good faith relied upon the authority of a partner, whether such authority is real or apparent. Tropical had every reason to believe that a partnership existed between Munasque and Galan and no fault or error can be imputed against it for making payments to Galan and Associates because as far as it was concerned, Galan was a true partner with real authority to transact in behalf of the partnership it was dealing with. This is even more true in the cases of the intervenors who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole. However, as between Munasque and Galan, Galan must reimburse Munasque for the payments made to the intervenors as it was satisfactorily established that Galan acted in bad faith in his dealings with Munasque as a partner.

TOCAO vs. CA Marjorie Tocao and William T. Belo maintain that there was no partnership between petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the other hand; and that the latter being merely an employee of petitioner Tocao. The court found out that petitioner Belo acted merely as guarantor of Geminesse Enterprise. This was categorically affirmed by respondent's own witness, Elizabeth Bantilan, during her cross-examination. It should be recalled that the business relationship created between petitioner Tocao and respondent Anay was an informal partnership, which was not even recorded with the Securities and Exchange Commission. As such, it was understandable that Belo, who was after all petitioner Tocao's good friend and confidante, would occasionally participate in the affairs of the business, although never in a formal or official capacity. Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the business enterprise. Respondent herself professed lack of knowledge that petitioner Belo received any share in the net income of the partnership. With no participation in the profits, petitioner Belo cannot be deemed a partner since the essence of a partnership is that the partners share in the profits and losses. Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of action against him and her complaint against him should accordingly be dismissed.