07 Pioneer Insurance v.

CA
GR No. 84197 & 84157 (28 July 1989)
Gutierrez, Jr., J./ tita k
SUBJECT MATTER: The SEC; de facto corporation
CASE SUMMARY:
Lim purchased 2 aircrafts and a set of spare parts from Japan Domestic Airlines. Allegedly, Bormaheco, Maglana and Sps.
Cervantes contributed some funds used in the said purchase. Pioneer Insurance then issued a surety bond in favor of Japan
Domestic Airlines, in behalf of Lim for the balance price of the aircrafts and spare parts. A chattel mortage was also executed
over the 2 aircrafts in favor of Pioneer Insurance, so when Lim defaulted, Pioneer Insurance filed for a judicial foreclosure with
an application for writ of preliminary attachment against Lim, Maglana, Sps. Cervantes and Bormaheco. In their answers,
Maglana, Sps. Cervantes and Bormaheco filed cross claims against Lim seeking for the recovery of the sums of money they
advanced to Lim for the purchase of the aircrafts and spare parts. Ruling on the issue WON a de facto corporation was formed
among the parties such that, as a consequence of such relationship, all must share in the losses and/or gains of the venture in
proportion to their contribution, the SC ruled that no de facto partnership was created among the parties which would entitle
the petitioner to a reimbursement of the supposed losses of the proposed corporation. The SC explained that while persons
who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position of
partners inter se, such a relation (partnership) does not necessarily exist, for persons cannot be made to assume the relation of
partners as between themselves when their purpose is that no partnership shall exist. In this case, Lim never intended to form a
corporation with the respondents despite the representation to them.
DOCTRINES:
Persons who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position
of partners inter se.
Such a relation (partnership) does not necessarily exist, however, for ordinarily persons cannot be made to assume the relation
of partners as between themselves when their purpose is that no partnership shall exist.
PARTIES:
GR No. 84197 (The ruling in this case will not be discussed here b/c it’s about Insurance.)

Petitioner Pioneer Insurance & Surety Corporation

Court of Appeals, Border Machinery & Heavy Equipment,
Respondent
Inc. (BORMAHECO), Constancio Maglana
GR No. 84157

Petitioner Jacob S. Lim

Court of Appeals, Pioneer Insurance And Surety
Corporation, Border Machinery and Heavy Equipment Co.,
Respondent
Inc. (BORMAHECO), Francisco and Modesto Cervantes, and
Constancio Maglana

FACTS:
Jacob Lim was the owner-operator of Southern Airlines (SAL), a single proprietorship.
Lim purchased 2 aircrafts and 1 set of necessary spare parts from Japan Domestic Airlines (JDA) for the total agreed price of
US $109,000.00 to be paid in installments.
Allegedly, it appears that BORMAHECO, Sps. Cervantes, and Maglana contributed some funds used in the purchase of the
above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to
expand his airline business.
Pioneer Insurance and Surety Corporation as surety executed and issued a surety bond in favor of JDA, in behalf of its
principal, Lim, for the balance price of the aircrafts and spare parts.
Furthermore, Lim doing business under the name of SAL executed in favor of Pioneer a deed of chattel mortgage over the 2
aircrafts as security for the latter’s suretyship in favor of the former.
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety.
Pioneer paid a total sum of P298,626.12.
Pioneer filed an action for judicial foreclosure with an application for writ of preliminary attachment against Lim and the
respondents, the Cervanteses, BORMAHECO, and Maglana.
In their answer, Sps. Cervanteses, BORMAHECO, and Maglana filed cross claims against Lim for the recovery of the sums of
money they advanced to Lim for the purchase of the aircrafts.
TC held Lim liable to pay Pioneer but dismissed Pioneer’s complaint against all other defendants. TC ordered Lim to pay P311K
(amount paid by Pioneer to JDA) plus damages to Pioneer and P184K to BORMAHECO, Cervanteses and Maglana (their
contribution in buying the aircrafts).
However, the CA dismissed the plaintiff’s complaint against all the defendants. In all other respects the trial court’s decision
was affirmed. (In other words, Lim no longer has to pay Pioneer, but still has to reimburse certain amounts given by
BORMAHECO, Cervanteses and Maglana.)
Both Pioneer and Lim filed their respective petitions before the SC.
**Pioneer’s petition (GR 84197) is about Insurance which will not be discussed here.

ISSUE/S:
1. WON a de facto partnership among respondents BORMAHECO, Sps. Cervantes, Maglana and petitioner Lim was
created such that, as a consequence of such relationship, all must share in the losses and/or gains of the venture in
proportion to their contribution. (NO)

HOLDING/RATIO:
1. No de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of
the supposed losses of the proposed corporation. Petitioner was acting on his own and not on behalf of his other
would-be incorporators in transacting the sale of airplanes and spare parts.

Persons who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the
position of partners inter se. However, such relationship does not necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall
exist.

It should be implied only when necessary to do justice between the parties. Thus, one who takes no part except to
subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other
subscribers who engage in the business under he name of the pretended corporation, so as to be liable as such in an
action for settlement of the alleged partnership and contribution (e.g. making them liable to pay for debts).

In this case, Petitioner Lim received P151K from BORMAHECO and Maglana, and P75K from Sps. Cervantes. Lim,
however, denied this fact. Therefore, it is clear that Lim never intended to form a corporation with the respondents
despite the representation to them. Respondents were induced and lured by Petitioner Lim to make contributions to a
proposed corporation which was never formed because Lim reneged on their agreement.

WHEREFORE, the instant petitions are dismissed. The question decision of the CA is affirmed.