Published — April 15, 2021
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
After reading this article about PARTNERSHIP WITHOUT BEING LEGALLY FORMED, proceed to read: WHAT IS A CONTRACT OF PARTNERSHIP?
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A partnership may exist even if not legally formed
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Persons are liable as general partners even when the partnership is not legally formed
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A general partner shares unlimited liability for the debts and obligations of the company
May a partnership exist even without being legally formed?
In our previous article, we wrote about the contract of partnership, that partners agree to contribute capital which may in the form of money, property, or industry to a “common fund”.
What about if it was shown that persons have not contributed any capital of their own to a “common fund’?
For a better understanding, let us take the case of Ling Tong Lim vs. Philippine Fishing Gear Industries, Inc. G.R. No. 136448 November 3, 1999.
In this case, Chua and Yao entered into a Contract dated February 7, 1990 for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (PFGI). Both claimed that they were engaged in the busines venture with Lim, who however was not a signatory to the agreement.
They buyers, however failed to pay for the fishing nets and the floats. Thus, PFGI filed a Complaint for collection suit against Chua, Yao, and Lim with a prayer that the fishing nets be temporarily be in the custody of the court. The case was brought against the three in their capacities as general partners. The lower court was then able to have the fishing nets through the issuance of a Writ of Preliminary Attachment.
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 PFGI some of the nets which were in his possession. Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence in his behalf, because of his failure to appear in subsequent hearings. Lim, on the other hand, filed his Answer and asked the court to lift the Writ of Attachment
The issue here is that, “Is there a partnership among Chua, Yao, and Lim?”
The Supreme Court said:
Yes.
From the 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 which was financed by the brother of Lim. The three executed a Compromise Agreement. 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.
The said boats, the purchase and the repair of which were financed with borrowed money, fell under the term “common fund”. The contribution to the common fund need not be cash or fixed assets; it could be any of those intangible or untouchable such as credit or industry. Also, when persons 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.
In this case, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in the furtherance of their business.
As a consequence, although the partnership was never legally formed, Lim, Chua, and Yao are liable as general partners for the payment of the fishing nets and the floats. Therefore, Lim cannot escape from his obligations by saying that he is not a partner as there is no partnership. As a general partner, Lim shares unlimited liability for the debts and obligations of the company he “built” with Chua and Yao.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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What kind of agreement to prepare on the following scenario-
I have Leased-fishpond from the government and planned to have fishpond contract worker to do Pond preparation ie- grow moss for fish food, to take care of the cultured fish or shrimps , other species and maintenance of the pond dikes and water management.
This contracted worker do not contribute any money, or buy any frys , fingerlings. Their contribution is purely service . The agreement would be thatthe contracted fishpond worker will share on the Profit after deducting expenses .
The contract worker is not an employee