CASE DIGEST: CORPORATION LAW

Case Title: LIM TONG LIM, petitioner, v. PHILIPPINE FISHING

GEAR INDUSTRIES, INC., respondent.
Docket Number: G.R. No. 136448 (1999)
Ponente: J. Panganiban

FACTS:
(Illustration)

PHILIPPINE
LIM TONG PETER YAO, FISHING GEAR
LIM ANTONIO INDUSTRIES
(petitioner) requested Peter Yao CHUA Peter Yao and Antonio (PFGI)
and Antonio Chua to Chua purchased fishing
engage in commercial equipment to PFGI,
fishing with him under their so-called
corporation named
OCEAN FISHING
QUEST

Finding that OCEAN

LIM TONG LIM invokes that he is FISHING QUEST is not
not aware of the existence of a registered PFGI demands
OCEAN FISHING QUEST since corporation, PFGI files payment against
YAO and CHUA formed it without a claim against YAO, OCEAN FISHING
his consent, hence, he is not liable CHUA and LIM in their QUEST
for the debts. individual capacities.

Issue: Is Lim Tong Lim also liable for the debts incurred? Is Ocean Fishing Quest a corporation by
estoppel?

Supreme Court says YES based on the following:

An unincorporated association, who represented itself as a corporation, is estopped from denying

its corporate capacity in a suit by a third person who relied on good faith on such representation.
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 this case, Ling Tong Lim, herein petitioner, requested Peter Yao and
Antonio Chua to engage in commercial fishing with him. They agreed to purchase two
fishing boats; but since they do not have the money, they borrowed from Lim Tong
Lims brother, Jesus Lim.
 CASE DIGEST: CORPORATION LAW

Peter Yao and Antonio Chua then represented themselves in behalf of a so-
called corporation called Ocean Quest Fishing Corporation (Ocean Quest) and
contracted with respondent Philippine Fishing Gear Industries, Inc. (PFGI) for the
purchase of fishing nets and other fishing equipment amounting to more than
P500,000.00

Unable to pay PFGI, respondent PFGI sued Antonio Chua, Peter Yao and Lim
Tong Lim in their own names because as confirmed by the Securities and Exchange
Commission, it turned out that Ocean Quest is a non-existent corporation. Petitioner
Lim alleged that he is not liable for the debts because he was not even aware that Chua
and Yao represented themselves as a corporation, and the two acted without his
knowledge and consent.

ISSUE:

Is Lim Tong Lim liable for the debts incurred against respondent PFGI? Is the
Ocean Quest Fishing Corporation considered corporation by estoppel?

COURT RULING

Yes, and yes.

The Court ruled that even if the ostensible corporate entity is proven to be
legally non-existent, a party may be estopped from denying its corporate existence.

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 benefit.
Conversely, 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 benefit 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. 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 still held liable as general partners.