G.R. No.

78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents

GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint venture for
income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al.
and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The
first two parcels of land were sold by petitioners in 1968 toMarenir Development
Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and
Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968
in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale
made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and
1974 by availing of the tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana,
petitioners were assessed and required to pay a total amount of P107,101.70 as alleged
deficiency corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they
had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the
years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an
unregistered partnership or joint venture taxable as a corporation under Section 20(b) and
its income was subject to the taxes prescribed under Section 24, both of the National
Internal Revenue Code
1
that the unregistered partnership was subject to corporate income
tax as distinguished from profits derived from the partnership by them which is subject to
individual income tax; and that the availment of tax amnesty under P.D. No. 23, as
amended, by petitioners relieved petitioners of their individual income tax liabilities but did
not relieve them from the tax liability of the unregistered partnership. Hence, the
petitioners were required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as
CTA Case No. 3045. In due course, the respondent court by a majority decision of March 30,
1987,
2
affirmed the decision and action taken by respondent commissioner with costs
against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista
3
an unregistered
partnership was in fact formed by petitioners which like a corporation was subject to
corporate income tax distinct from that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering
the circumstances of this case, although there might in fact be a co-ownership between the
petitioners, there was no adequate basis for the conclusion that they thereby formed an
unregistered partnership which made "hem liable for corporate income tax under the Tax
Code.
Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors
of the respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE
RESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED
AN UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX,
AND THAT THE BURDEN OF OFFERING EVIDENCE IN OPPOSITION THERETO
RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE
TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS
IGNORING THE REQUIREMENTS LAID DOWN BY LAW THAT WOULD
WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA
CASE AND THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA
CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS
FROM PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH
AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court in
Evangelista.
4

In the said case, petitioners borrowed a sum of money from their father which together
with their own personal funds they used in buying several real properties. They appointed
their brother to manage their properties with full power to lease, collect, rent, issue
receipts, etc. They had the real properties rented or leased to various tenants for several
years and they gained net profits from the rental income. Thus, the Collector of Internal
Revenue demanded the payment of income tax on a corporation, among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers' fixed tax. With
respect to the tax on corporations, the issue hinges on the meaning of the
terms corporation and partnership as used in sections 24 and 84 of said
Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed,
collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation organized in,
or existing under the laws of the Philippines, no matter how created or
organized but not including duly registered general co-partnerships
(companies collectives), a tax upon such income equal to the sum of the
following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participation), associations or insurance companies, but does not include
duly registered general co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Pursuant to this article, the essential elements of a partnership are two,
namely: (a) an agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent
in acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage
in real estate transactions for monetary gain and then divide the same
among themselves, because:
1. Said common fund was not something they found already in existence. It
was not a property inherited by them pro indiviso. They created it
purposely. What is more they jointly borrowed a substantial portion thereof
in order to establish said common fund.
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On
April 3, 1944, they purchased 21 lots for P18,000.00. This was soon
followed, on April 23, 1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and transcations undertaken,
as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not
limited to the conservation and preservation of the aforementioned common
fund or even of the property acquired by petitioners in February, 1943. In
other words, one cannot but perceive a character of habituality peculiar to
business transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other
personal uses, of petitioners herein. The properties were leased separately
to several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the
utilization thereof.
4. Since August, 1945, the properties have been under the management of
one person, namely, Simeon Evangelists, with full power to lease, to collect
rents, to issue receipts, to bring suits, to sign letters and contracts, and to
indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or
business enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to
be exact, over fifteen (15) years, since the first property was acquired, and
over twelve (12) years, since Simeon Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence, either on their
purpose in creating the set up already adverted to, or on the causes for its
continued existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and,
hence, those cases are not in point.
5

In the present case, there is no evidence that petitioners entered into an agreement to
contribute money, property or industry to a common fund, and that they intended to divide
the profits among themselves. Respondent commissioner and/ or his representative just
assumed these conditions to be present on the basis of the fact that petitioners purchased
certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four
(24) lots showing that the purpose was not limited to the conservation or preservation of
the common fund or even the properties acquired by them. The character of habituality
peculiar to business transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the
same nor make any improvements thereon. In 1966, they bought another three (3) parcels
of land from one seller. It was only 1968 when they sold the two (2) parcels of land after
which they did not make any additional or new purchase. The remaining three (3) parcels
were sold by them in 1970. The transactions were isolated. The character of habituality
peculiar to business transactions for the purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The business was
under the management of one of the partners. Such condition existed for over fifteen (15)
years. None of the circumstances are present in the case at bar. The co-ownership started
only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new
Civil Code lays down the rule for determining when a transaction should be
deemed a partnership or a co-ownership. Said article paragraphs 2 and 3,
provides;
(2) Co-ownership or co-possession does not itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share any profits made by the use of the property
held in common does not convert their venture into a partnership. Or the
sharing of the gross returns does not of itself establish a partnership
whether or not the persons sharing therein have a joint or common right or
interest in the property. This only means that, aside from the circumstance
of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a
juridical personality different from that of the individual partners, and the
freedom to transfer or assign any interest in the property by one with the
consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I,
1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons
contribute funds to buy certain real estate for profit in the absence of other
circumstances showing a contrary intention cannot be considered a
partnership.
Persons who contribute property or funds for a common enterprise and
agree to share the gross returns of that enterprise in proportion to their
contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common
stock or capital, and no community of interest as principal proprietors in the
business itself which the proceeds derived. (Elements of the Law of
Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in
respect thereto; nor does an agreement to share the profits and losses on
the sale of land create a partnership; the parties are only tenants in
common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a
single tract of realty, holding as tenants in common, and to divide the
profits of disposing of it, the brother and the other not being entitled to
share in plaintiffs commission, no partnership existed as between the three
parties, whatever their relation may have been as to third parties. (Magee
vs. Magee 123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to
form the same; (b) generally participating in both profits and losses; (c) and
such a community of interest, as far as third persons are concerned as
enables each party to make contract, manage the business, and dispose of
the whole property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III
470.)
The common ownership of property does not itself create a partnership
between the owners, though they may use it for the purpose of making
gains; and they may, without becoming partners, agree among themselves
as to the management, and use of such property and the application of the
proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.)
6

The sharing of returns does not in itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. There must be a
clear intent to form a partnership, the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There
is no adequate basis to support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased properties and sold the
same a few years thereafter did not thereby make them partners. They shared in the gross
profits as co- owners and paid their capital gains taxes on their net profits and availed of the
tax amnesty thereby. Under the circumstances, they cannot be considered to have formed
an unregistered partnership which is thereby liable for corporate income tax, as the
respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to
have been formed, since there is no such existing unregistered partnership with a distinct
personality nor with assets that can be held liable for said deficiency corporate income tax,
then petitioners can be held individually liable as partners for this unpaid obligation of the
partnership p.
7
However, as petitioners have availed of the benefits of tax amnesty as
individual taxpayers in these transactions, they are thereby relieved of any further tax
liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of
Tax Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and another decision is
hereby rendered relieving petitioners of the corporate income tax liability in this case,
without pronouncement as to costs.
SO ORDERED.
Cruz, Grio-Aquino and Medialdea, JJ., concur.
Narvasa, J., took no part.
G.R. No. L-9996 October 15, 1957
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA,
petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali
and Solicitor Felicisimo R. Rosete for Respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca
Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part of
which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax,
real estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive,
in accordance with the respondent's assessment for the same in the total amount of
P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is
hereby dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of P59,1400.00 which
amount together with their personal monies was used by them for the purpose of
buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an
area of 3,713.40 sq. m. including improvements thereon from the sum of
P100,000.00; this property has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land
with an aggregate area of 3,718.40 sq. m. including improvements thereon for
P130,000.00; this property has an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of
4,353 sq. m. including improvements thereon for P108,825.00. This property has an
assessed value of P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq.
m. including improvements thereon for P237,234.34. This property has an assessed
value of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their brother Simeon
Evangelista to 'manage their properties with full power to lease; to collect and
receive rents; to issue receipts therefor; in default of such payment, to bring suits
against the defaulting tenants; to sign all letters, contracts, etc., for and in their
behalf, and to endorse and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the petitioners had
the same rented or leases to various tenants;
8. That from the month of March, 1945 up to an including December, 1945, the total
amount collected as rents on their real properties was P9,599.00 while the expenses
amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out
of which amount was deducted in the sum of P16,288.27 for expenses thereby
leaving them a net rental income of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 out of the which
amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a
net rental income of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of Internal Revenue
demanded the payment of income tax on corporations, real estate dealer's fixed tax and
corporation residence tax for the years 1945-1949, computed, according to assessment
made by said officer, as follows:
INCOME TAXES
1945 14.84
1946 1,144.71
1947 10.34
1948 1,912.30
1949 1,575.90
Total including surcharge and
compromise
P6,157.09
REAL ESTATE DEALER'S FIXED TAX
1946 P37.50
1947 150.00
1948 150.00
1949 150.00
Total including penalty P527.00
RESIDENCE TAXES OF CORPORATION
1945 P38.75
1946 38.75
1947 38.75
1948 38.75
1949 38.75
Total including surcharge P193.75
TOTAL TAXES DUE P6,878.34.
Said letter of demand and corresponding assessments were delivered to petitioners on
December 3, 1954, whereupon they instituted the present case in the Court of Tax Appeals,
with a prayer that "the decision of the respondent contained in his letter of demand dated
September 24, 1954" be reversed, and that they be absolved from the payment of the taxes
in question, with costs against the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for
the respondent, and a petition for reconsideration and new trial having been subsequently
denied, the case is now before Us for review at the instance of the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations provided for
in section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal
Revenue Code, as well as to the residence tax for corporations and the real estate dealers
fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the
terms "corporation" and "partnership," as used in section 24 and 84 of said Code, the
pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and
paid annually upon the total net income received in the preceding taxable year from
all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
general co-partnerships (compaias colectivas), a tax upon such income equal to the
sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance companies, but does not include duly registered general
copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute
money, properly, or industry to a common fund, with the intention of dividing the
profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a) an
agreement to contribute money, property or industry to a common fund; and (b) intent to
divide the profits among the contracting parties. The first element is undoubtedly present in
the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent in acting as they
did. Upon consideration of all the facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not
property inherited by them pro indiviso. They created it purposely. What is more
they jointly borrowed a substantial portion thereof in order to establish said
common fund.
2. They invested the same, not merely not merely in one transaction, but in a series
of transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3,
1944, they purchased 21 lots for P18,000.00. This was soon followed on April 23,
1944, by the acquisition of another real estate for P108,825.00. Five (5) days later
(April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)
acquired and transactions undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by the petitioners
in February, 1943. In other words, one cannot but perceive a character of habitually
peculiar to business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal
uses, of petitioners herein. The properties were leased separately to several
persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way
of rentals. Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one
person, namely Simeon Evangelista, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business and enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be
exact, over fifteen (15) years, since the first property was acquired, and over twelve
(12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose
in creating the set up already adverted to, or on the causes for its continued
existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute
a partnership, the collective effect of these circumstances is such as to leave no room for
doubt on the existence of said intent in petitioners herein. Only one or two of the
aforementioned circumstances were present in the cases cited by petitioners herein, and,
hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in
consequence of the acts performed by them, a legal entity, with a personality independent
of that of its members, did not come into existence, and some of the characteristics of
partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court
of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly
speaking, are distinct and different from "partnerships". When our Internal Revenue Code
includes "partnerships" among the entities subject to the tax on "corporations", said Code
must allude, therefore, to organizations which are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships which constitute precisely one of
the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes partnerships, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual requirements of
the law on partnerships, in order that one could be deemed constituted for purposes of the
tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes,
among other, joint accounts, (cuentas en participation)" and "associations," none of which
has a legal personality of its own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a condition essential to the existence
of the partnerships therein referred to. In fact, as above stated, "duly registered general
copartnerships" which are possessed of the aforementioned personality have been
expressly excluded by law (sections 24 and 84 [b] from the connotation of the term
"corporation" It may not be amiss to add that petitioners' allegation to the effect that their
liability in connection with the leasing of the lots above referred to, under the management
of one person even if true, on which we express no opinion tends to increase the
similarity between the nature of their venture and that corporations, and is, therefore, an
additional argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently
from "partnerships". By specific provisions of said laws, such "corporations" include
"associations, joint-stock companies and insurance companies." However, the term
"association" is not used in the aforementioned laws.
. . . in any narrow or technical sense. It includes any organization, created for the
transaction of designed affairs, or the attainment of some object, which like a
corporation, continues notwithstanding that its members or participants change,
and the affairs of which, like corporate affairs, are conducted by a single individual,
a committee, a board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a declaration of
trust, a statute, or otherwise. It includes a voluntary association, a joint-stock
corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law'
trust, and 'investment' trust (whether of the fixed or the management type), an
interinsuarance exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name known) which is
not, within the meaning of the Code, a trust or an estate, or a partnership. (7A
Mertens Law of Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it
includes not only a partnership as known at common law but, as well, a syndicate,
group, pool, joint venture or other unincorporated organizations which carries on
any business financial operation, or venture, and which is not, within the meaning of
the Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal Income
taxation, p. 789; emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income Taxation,
p. 562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue Code, includes these
partnerships with the exception only of duly registered general copartnerships within
the purview of the term "corporation." It is, therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said Code is concerned and are subject to the
income tax for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465
provides in part:
Entities liable to residence tax.-Every corporation, no matter how created or
organized, whether domestic or resident foreign, engaged in or doing business in
the Philippines shall pay an annual residence tax of five pesos and an annual
additional tax which in no case, shall exceed one thousand pesos, in accordance
with the following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock company, partnership,
joint account (cuentas en participacion), association or insurance company, no
matter how created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section 24 and
84 (b) of our National Internal Revenue Code (commonwealth Act No. 466), and that the
latter was approved on June 15, 1939, the day immediately after the approval of said
Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms "corporation" and
"partnership" are used in both statutes with substantially the same meaning. Consequently,
petitioners are subject, also, to the residence tax for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the properties
above mentioned for a period of over twelve years, and that the yearly gross rentals of said
properties from June 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to
the tax provided in section 193 (q) of our National Internal Revenue Code, for "real estate
dealers," inasmuch as, pursuant to section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding
himself out as a full or part time dealer in real estate or as an owner of rental
property or properties rented or offered to rent for an aggregate amount of three
thousand pesos or more a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs
against the petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.

BAUTISTA ANGELO, J., concurring:
I agree with the opinion that petitioners have actually contributed money to a common fund
with express purpose of engaging in real estate business for profit. The series of transactions
which they had undertaken attest to this. This appears in the following portion of the
decision:
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000. On April 3, 1944,
they purchase 21 lots for P18,000. This was soon followed on April 23, 1944, by the
acquisition of another real state for P108,825. Five (5) days later (April 28, 1944),
they got a fourth lot for P237,234.14. The number of lots (24) acquired and
transactions undertaken, as well as the brief interregnum between each,
particularly the last three purchases, is strongly indicative of a pattern or common
design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by the petitioner in
February, 1943, In other words, we cannot but perceive a character of habitually
peculiar to business transactions engaged in for purposes of gain.
I wish however to make to make the following observation:
Article 1769 of the new Civil Code lays down the rule for determining when a transaction
should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3,
provides:
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits made by
the use of the property;
(3) The sharing of gross returns does not of itself establish partnership, whether or
not the person sharing them have a joint or common right or interest in any
property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co-ownership shared
or do not share any profits made by the use of property held in common does not convert
their venture into a partnership. Or the sharing of the gross returns does not of itself
establish a partnership whether or not the persons sharing therein have a joint or common
right or interest in the property. This only means that, aside from the circumstance of profit,
the presence of other elements constituting partnership is necessary, such as the clear
intent to form a partnership, the existence of a judicial personality different from that of the
individual partners, and the freedom to transfer or assign any interest in the property by
one with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I,
1953 ed., pp. 635- 636).
It is evident that an isolated transaction whereby two or more persons contribute funds to
buy certain real estate for profit in the absence of other circumstances showing a contrary
intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but
who severally retain the title to their respective contribution, are not thereby
rendered partners. They have no common stock or capital, and no community of
interest as principal proprietors in the business itself which the proceeds derived.
(Elements of the law of Partnership by Floyd R. Mechem, 2n Ed., section 83, p. 74.)
A joint venture purchase of land, by two, does not constitute a copartnership in
respect thereto; nor does not agreement to share the profits and loses on the sale
of land create a partnership; the parties are only tenants in common. (Clark vs.
Sideway, 142 U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract
of reality, holding as tenants in common, and to divide the profits of disposing of it,
the brother and the other not being entitled to share in plaintiff's commissions, no
partnership existed as between the parties, whatever relation may have been as to
third parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form
the same; (b) generally a participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property.
(Municipal Paving Co. vs Herring, 150 P. 1067, 50 Ill. 470.)
The common ownership of property does not itself create a partnership between
the owners, though they may use it for purpose of making gains; and they may,
without becoming partners, agree among themselves as to the management and
use of such property and the application of the proceeds therefrom. (Spurlock vs.
Wilson, 142 S. W. 363, 160 No. App. 14.)
This is impliedly recognized in the following portion of the decision: "Although, taken singly,
they might not suffice to establish the intent necessary to constitute a partnership, the
collective effect of these circumstances (referring to the series of transactions) such as to
leave no room for doubt on the existence of said intent in petitioners herein."
G.R. No. L-47045 November 22, 1988
NOBIO SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.
Y.G. Villaruz & Associates for petitioner.
Pelagio R. Lachica for private respondent.

REGALADO, J.:
The extensive discussion and exhaustive disquisition in the decision 1 of the respondent
Court 2 should have written finis to this case without further recourse to Us. The assignment
of errors and arguments raised in the respondent Court by herein private respondent, as the
petitioner therein, having been correctly and justifiedly sustained by said court without any
reversible error in its conclusions, the present petition must fail.
The assailed decision details the facts and proceedings which spawned the present
controversy as follows:
Petitioner brought an action in the City Court of Dipolog for collection of a
sum of P5,217.25 based on promissory notes executed by the herein private
respondent Nobio Sardane in favor of the herein petitioner. Petitioner bases
his right to collect on Exhibits B, C, D, E, F, and G executed on different dates
and signed by private respondent Nobio Sardane. Exhibit B is a printed
promissory note involving Pl,117.25 and dated May 13, 1972. Exhibit C is
likewise a printed promissory note and denotes on its face that the sum
loaned was Pl,400.00. Exhibit D is also a printed promissory note dated May
31, 1977 involving an amount of P100.00. Exhibit E is what is commonly
known to the layman as 'vale' which reads: 'Good for: two hundred pesos
(Sgd) Nobio Sardane'. Exhibit F is stated in the following tenor: 'Received
from Mr. Romeo Acojedo the sum Pesos: Two Thousand Two Hundred
(P2,200.00) ONLY, to be paid on or before December 25, 1975. (Sgd) Nobio
Sardane.' Exhibit G and H are both vales' involving the same amount of one
hundred pesos, and dated August 25, 1972 and September 12, 1972
respectively.
It has been established in the trial court that on many occasions, the
petitioner demanded the payment of the total amount of P5,217.25. The
failure of the private respondent to pay the said amount prompted the
petitioner to seek the services of lawyer who made a letter (Exhibit 1)
formally demanding the return of the sum loaned. Because of the failure of
the private respondent to heed the demands extrajudicially made by the
petitioner, the latter was constrained to bring an action for collection of
sum of money.
During the scheduled day for trial, private respondent failed to appear and
to file an answer. On motion by the petitioner, the City Court of Dipolog
issued an order dated May 18, 1976 declaring the private respondent in
default and allowed the petitioner to present his evidence ex-parte. Based
on petitioner's evidence, the City Court of Dipolog rendered judgment by
default in favor of the petitioner.
Private respondent filed a motion to lift the order of default which was
granted by the City Court in an order dated May 24, 1976, taking into
consideration that the answer was filed within two hours after the hearing
of the evidence presented ex-parte by the petitioner.
After the trial on the merits, the City Court of Dipolog rendered its decision
on September 14, 1976, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the
plaintiff and against the defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of Five
Thousand Two Hundred Seventeen Pesos and Twenty-five centavos
(P5,217.25) plus legal interest to commence from April 23, 1976 when this
case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as
attorney's fee and to pay the cost of this proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte
which reversed the decision of the lower court by dismissing the complaint and ordered the
plaintiff-appellee Acojedo to pay said defendant-appellant P500.00 each for actual damages,
moral damages, exemplary damages and attorney's fees, as well as the costs of suit.
Plaintiff-appellee then sought the review of said decision by petition to the respondent
Court.
The assignment of errors in said petition for review can be capsulized into two decisive
issues, firstly, whether the oral testimony for the therein private respondent Sardane that a
partnership existed between him and therein petitioner Acojedo are admissible to vary the
meaning of the abovementioned promissory notes; and, secondly, whether because of the
failure of therein petitioner to cross-examine therein private respondent on his sur-rebuttal
testimony, there was a waiver of the presumption accorded in favor of said petitioner by
Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the pleadings of the parties
herein put in issue the imperfection or ambiguity of the documents in question", hence "the
appellant can avail of the parol evidence rule to prove his side of the case, that is, the said
amount taken by him from appellee is or was not his personal debt to appellee, but
expenses of the partnership between him and appellee."
Consequently, said trial court concluded that the promissory notes involved were merely
receipts for the contributions to said partnership and, therefore, upheld the claim that there
was ambiguity in the promissory notes, hence parol evidence was allowable to vary or
contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.When the terms of an agreement
have been reduced to writing, it is to be considered as containing all such
terms, and, therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other
than the contents of the writing except in the following cases:
(a) Where a mistake or imperfection of the writing or its failure to express
the the true intent and agreement of the parties, or the validity of the
agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the exceptions to the rule do not apply in
this case as there is no ambiguity in the writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory notes
containing a promise to pay a sum certain in money, payable on demand
and the promise to bear the costs of litigation in the event of the private
respondent's failure to pay the amount loaned when demanded
extrajudicially. Likewise, the vales denote that the private respondent is
obliged to return the sum loaned to him by the petitioner. On their face,
nothing appears to be vague or ambigous, for the terms of the promissory
notes clearly show that it was incumbent upon the private respondent to
pay the amount involved in the promissory notes if and when the petitioner
demands the same. It was clearly the intent of the parties to enter into a
contract of loan for how could an educated man like the private respondent
be deceived to sign a promissory note yet intending to make such a writing
to be mere receipts of the petitioner's supposed contribution to the alleged
partnership existing between the parties?
It has been established in the trial court that, the private respondent has
been engaged in business for quite a long period of time--as owner of the
Sardane Trucking Service, entering into contracts with the government for
the construction of wharfs and seawall; and a member of the City Council of
Dapitan (TSN, July 20, 1976, pp. 57-58).<re||an1w> It indeed puzzles us
how the private respondent could have been misled into signing a
document containing terms which he did not mean them to be. ...
xxx xxx xxx
The private respondent admitted during the cross-examination made by
petitioner's counsel that he was the one who was responsible for the
printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How could he
purportedly rely on such a flimsy pretext that the promissory notes were
receipts of the petitioner's contribution? 4
The Court of Appeals held, and We agree, that even if evidence aliunde other than the
promissory notes may be admitted to alter the meaning conveyed thereby, still the evidence
is insufficient to prove that a partnership existed between the private parties hereto.
As manager of the basnig Sarcado naturally some degree of control over the operations and
maintenance thereof had to be exercised by herein petitioner. The fact that he had received
50% of the net profits does not conclusively establish that he was a partner of the private
respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a
person of a share of the profits of a business is prima facie evidence that he is a partner in
the business, no such inference shall be drawn if such profits were received in payment as
wages of an employee. Furthermore, herein petitioner had no voice in the management of
the affairs of the basnig. Under similar facts, this Court in the early case of Fortis vs.
Gutierrez Hermanos, 5 in denying the claim of the plaintiff therein that he was a partner in
the business of the defendant, declared:
This contention cannot be sustained. It was a mere contract of employment.
The plaintiff had no voice nor vote in the management of the affairs of the
company. The fact that the compensation received by him was to be
determined with reference to the profits made by the defendant in their
business did not in any sense make him a partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved the
same factual and legal milieu.
There are other considerations noted by respondent Court which negate herein petitioner's
pretension that he was a partner and not a mere employee indebted to the present private
respondent. Thus, in an action for damages filed by herein private respondent against the
North Zamboanga Timber Co., Inc. arising from the operations of the business, herein
petitioner did not ask to be joined as a party plaintiff. Also, although he contends that
herein private respondent is the treasurer of the alleged partnership, yet it is the latter who
is demanding an accounting. The advertence of the Court of First Instance to the fact that
the casco bears the name of herein petitioner disregards the finding of the respondent
Court that it was just a concession since it was he who obtained the engine used in the
Sardaco from the Department of Local Government and Community Development. Further,
the use by the parties of the pronoun "our" in referring to "our basnig, our catch", "our
deposit", or "our boseros" was merely indicative of the camaraderie and not evidentiary of a
partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid promissory
notes do not express the true intent and agreement of the parties, are binding on Us since
there is no showing that they fall within the exceptions to the rule limiting the scope of
appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for ready
reference, reads:
Sec. 8. How to contest genuineness of such documents.When an action or
defense is founded upon a written instrument, copied in or attached to the
corresponding pleading as provided in the preceding section, the
genuineness and due execution of the instrument shall be deemed admitted
unless the adverse party, under oath, specifically denies them, and sets
forth what he claims to be the facts; but this provision does not apply when
the adverse party does not appear to be a party to the instrument or when
compliance with an order for the inspection of the original instrument is
refused.
The record shows that herein petitioner did not deny under oath in his answer the
authenticity and due execution of the promissory notes which had been duly pleaded and
attached to the complaint, thereby admitting their genuineness and due execution. Even in
the trial court, he did not at all question the fact that he signed said promissory notes and
that the same were genuine. Instead, he presented parol evidence to vary the import of the
promissory notes by alleging that they were mere receipts of his contribution to the alleged
partnership.
His arguments on this score reflect a misapprehension of the rule on parol evidence as
distinguished from the rule on actionable documents. As the respondent Court correctly
explained to herein petitioner, what he presented in the trial Court was testimonial
evidence that the promissory notes were receipts of his supposed contributions to the
alleged partnership which testimony, in the light of Section 7, Rule 130, could not be
admitted to vary or alter the explicit meaning conveyed by said promissory notes. On the
other hand, the presumed genuineness and due execution of said promissory notes were
not affected, pursuant to the provisions of Section 8, Rule 8, since such aspects were not at
all questioned but, on the contrary, were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which was
reiterated in Central Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does not sustain his
thesis that the herein private respondent had "waived the mantle of protection given him by
Rule 8, Sec. 8". It is true that such implied admission of genuineness and due execution may
be waived by a party but only if he acts in a manner indicative of either an express or tacit
waiver thereof. Petitioner, however, either overlooked or ignored the fact that, as held in Yu
Chuck, and the same is true in other cases of Identical factual settings, such a finding of
waiver is proper where a case has been tried in complete disregard of the rule and the
plaintiff having pleaded a document by copy, presents oral evidence to prove the due
execution of the document and no objections are made to the defendant's evidence in
refutation. This situation does not obtain in the present case hence said doctrine is
obviously inapplicable.
Neither did the failure of herein private respondent to cross-examine herein petitioner on
the latter's sur-rebuttal testimony constitute a waiver of the aforesaid implied admission. As
found by the respondent Court, said sur-rebuttal testimony consisted solely of the denial of
the testimony of herein private respondent and no new or additional matter was introduced
in that sur-rebuttal testimony to exonerate herein petitioner from his obligations under the
aforesaid promissory notes.
On the foregoing premises and considerations, the respondent Court correctly reversed and
set aside the appealed decision of the Court of First Instance of Zamboanga del Norte and
affirmed in full the decision of the City Court of Dipolog City in Civil Case No. A-1838, dated
September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent Court, herein
petitioner, as the private respondent therein, raised a third unresolved issue that the
petition for review therein should have been dismissed for lack of jurisdiction since the
lower Court's decision did not affirm in full the judgment of the City Court of Dipolog, and
which he claimed was a sine qua non for such a petition under the law then in force. He
raises the same point in his present appeal and We will waive the procedural technicalities
in order to put this issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative relief
from the respondent Court praying that it sustain the decision of the trial Court, thereby
invoking and submitting to its jurisdiction which he would now assail. Furthermore, the
objection that he raises is actually not one of jurisdiction but of procedure. 9
At any rate, it will be noted that petitioner anchors his said objection on the provisions of
Section 29, Republic Act 296 as amended by Republic Act 5433 effective September 9, 1968.
Subsequently, the procedure for appeal to the Court of Appeals from decisions of the then
courts of first instance in the exercise of their appellate jurisdiction over cases originating
from the municipal courts was provided for by Republic Act 6031, amending Section 45 of
the Judiciary Act effective August 4, 1969. The requirement for affirmance in full of the
inferior court's decision was not adopted or reproduced in Republic Act 6031. Also, since
Republic Act 6031 failed to provide for the procedure or mode of appeal in the cases therein
contemplated, the Court of Appeals en banc provided thereof in its Resolution of August 12,
1971, by requiring a petition for review but which also did not require for its availability that
the judgment of the court of first instance had affirmed in full that of the lower court. Said
mode of appeal and the procedural requirements thereof governed the appeal taken in this
case from the aforesaid Court of First Instance to the Court of Appeals in 1977. 10 Herein
petitioner's plaint on this issue is, therefore, devoid of merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs
against herein petitioner.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER
MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES
and CONSTANCIO MAGLANA, respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.

GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of the Court of Appeals in
CA-G.R. CV No. 66195 which modified the decision of the then Court of First Instance of
Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against
all defendants (respondents in G.R. No. 84197) was dismissed but in all other respects the
trial court's decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring
Lim to pay plaintiff the amount of P311,056.02, with interest at the rate of
12% per annum compounded monthly; plus 15% of the amount awarded to
plaintiff as attorney's fees from July 2,1966, until full payment is made; plus
P70,000.00 moral and exemplary damages.
It is found in the records that the cross party plaintiffs incurred additional
miscellaneous expenses aside from Pl51,000.00,,making a total of
P184,878.74. Defendant Jacob S. Lim is further required to pay cross party
plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half,
the amount of Pl84,878.74 with interest from the filing of the cross-
complaints until the amount is fully paid; plus moral and exemplary
damages in the amount of P184,878.84 with interest from the filing of the
cross-complaints until the amount is fully paid; plus moral and exemplary
damages in the amount of P50,000.00 for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the
Cervanteses, and another P20,000.00 to Constancio B. Maglana as
attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against
defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is
dismissed. Instead, plaintiff is required to indemnify the defendants
Bormaheco and the Cervanteses the amount of P20,000.00 as attorney's
fees and the amount of P4,379.21, per year from 1966 with legal rate of
interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the
amount of P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action
was filed in good faith. The fact that the properties of the Bormaheco and
the Cervanteses were attached and that they were required to file a
counterbond in order to dissolve the attachment, is not an act of bad faith.
When a man tries to protect his rights, he should not be saddled with moral
or exemplary damages. Furthermore, the rights exercised were provided for
in the Rules of Court, and it was the court that ordered it, in the exercise of
its discretion.
No damage is decided against Malayan Insurance Company, Inc., the third-
party defendant, for it only secured the attachment prayed for by the
plaintiff Pioneer. If an insurance company would be liable for damages in
performing an act which is clearly within its power and which is the reason
for its being, then nobody would engage in the insurance business. No
further claim or counter-claim for or against anybody is declared by this
Court. (Rollo - G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as
owner-operator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and
executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type
aircrafts and one (1) set of necessary spare parts for the total agreed price of US
$109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived
in Manila on June 7,1965 while the other aircraft, arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No.
84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in
behalf of its principal, Lim, for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco),
Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in
both petitions) 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. They executed two (2) separate indemnity
agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other
jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements
stipulated that the indemnitors principally agree and bind themselves jointly and severally
to indemnify and hold and save harmless Pioneer from and against any/all damages, losses,
costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which
Pioneer may incur in consequence of having become surety upon the bond/note and to pay,
reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of
money which it or its representatives should or may pay or cause to be paid or become
liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of
Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the
former. It was stipulated therein that Lim transfer and convey to the surety the two
aircrafts. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of
the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel
Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776), respectively.
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 then filed a petition for the extrajudicial foreclosure of the said chattel mortgage
before the Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party
claim alleging that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ
of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and
Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim
alleging that they were not privies to the contracts signed by Lim and, by way of
counterclaim, sought for damages for being exposed to litigation and for recovery of the
sums of money they advanced to Lim for the purchase of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but
dismissed Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs
complaint against all the defendants was dismissed. In all other respects the trial court's
decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED
THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD
ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN
FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A REINSURER TO
RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS
DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer
had reinsured its risk of liability under the surety bond in favor of JDA and
subsequently collected the proceeds of such reinsurance in the sum of
P295,000.00. Defendants' alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the recovery of the amount
of P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is
not the real party in interest to institute the instant action as it does not
stand to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to recover
the amount from defendants, hence, it instituted the action is utterly devoid
of merit. Plaintiff did not even present any evidence that it is the attorney-
in-fact of the reinsurance company, authorized to institute an action for and
in behalf of the latter. To qualify a person to be a real party in interest in
whose name an action must be prosecuted, he must appear to be the
present real owner of the right sought to be enforced (Moran, Vol. I,
Comments on the Rules of Court, 1979 ed., p. 155). It has been held that the
real party in interest is the party who would be benefited or injured by the
judgment or the party entitled to the avails of the suit (Salonga v. Warner
Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a
present substantial interest as distinguished from a mere expectancy or a
future, contingent, subordinate or consequential interest (Garcia v. David,
67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III,
414; Flowers v. Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d
667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be considered as
the real party in interest as it has already been paid by the reinsurer the
sum of P295,000.00 the bulk of defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by plaintiff
Pioneer from its reinsurer, the former was able to foreclose extra-judicially
one of the subject airplanes and its spare engine, realizing the total amount
of P37,050.00 from the sale of the mortgaged chattels. Adding the sum of
P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00,
it is patent that plaintiff has been overpaid in the amount of P33,383.72
considering that the total amount it had paid to JDA totals to only
P298,666.28. To allow plaintiff Pioneer to recover from defendants the
amount in excess of P298,666.28 would be tantamount to unjust
enrichment as it has already been paid by the reinsurance company of the
amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis
defendant Lim's liability to JDA. Well settled is the rule that no person
should unjustly enrich himself at the expense of another (Article 22, New
Civil Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based its finding that
petitioner was paid by its reinsurer in the aforesaid amount, as this matter has never been
raised by any of the parties herein both in their answers in the court below and in their
respective briefs with respondent court; (Rollo, p. 11) (2) even assuming hypothetically that
it was paid by its reinsurer, still none of the respondents had any interest in the matter since
the reinsurance is strictly between the petitioner and the re-insurer pursuant to section 91
of the Insurance Code; (3) pursuant to the indemnity agreements, the petitioner is entitled
to recover from respondents Bormaheco and Maglana; and (4) the principle of unjust
enrichment is not applicable considering that whatever amount he would recover from the
co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance money was
never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the issues threshed
out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect to so much
of its obligations to JDA as has been paid with reinsurance money?
2. If the answer to the preceding question is in the negative, has Pioneer still
any claim against defendants, considering the amount it has realized from
the sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of
G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety bond
it had executed in favor of JDA, collected the proceeds of such reinsurance
in the sum of P295,000, and paid with the said amount the bulk of its
alleged liability to JDA under the said surety bond, it is plain that on this
score it no longer has any right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is
suing defendants for the amount paid to it by the reinsurers,
notwithstanding that the cause of action pertains to the latter, Pioneer says:
The reinsurers opted instead that the Pioneer Insurance & Surety
Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety
Corporation is representing the reinsurers to recover the amount.' In other
words, insofar as the amount paid to it by the reinsurers Pioneer is suing
defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in the complaint
that Pioneer is suing as attorney-in- fact of the reinsurers for any amount.
Lastly, and most important of all, Pioneer has no right to institute and
maintain in its own name an action for the benefit of the reinsurers. It is
well-settled that an action brought by an attorney-in-fact in his own name
instead of that of the principal will not prosper, and this is so even where
the name of the principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that
'Every action must be prosecuted in the name of the real
party in interest.' This provision is mandatory. The real party
in interest is the party who would be benefitted or injured
by the judgment or is the party entitled to the avails of the
suit.
This Court has held in various cases that an attorney-in-fact
is not a real party in interest, that there is no law permitting
an action to be brought by an attorney-in-fact. Arroyo v.
Granada and Gentero, 18 Phil. Rep. 484; Luchauco v.
Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial
Corporation v. San Diego G.R. No. L- 22347,1968, 23 SCRA
706, 710-714.
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has
collected P295,000.00 from the reinsurers, the uninsured portion of what it
paid to JDA is the difference between the two amounts, or P3,666.28. This is
the amount for which Pioneer may sue defendants, assuming that the
indemnity agreement is still valid and effective. But since the amount
realized from the sale of the mortgaged chattels are P35,000.00 for one of
the airplanes and P2,050.00 for a spare engine, or a total of P37,050.00,
Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more
claim against defendants. (Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in the appellate
court. Considering this admitted payment, the only issue that cropped up was the effect of
payment made by the reinsurers to the petitioner. Therefore, the petitioner's argument that
the respondents had no interest in the reinsurance contract as this is strictly between the
petitioner as insured and the reinsuring company pursuant to Section 91 (should be Section
98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires the same rights by
subrogation as are acquired in similar cases where the original insurer pays
a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in general
applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald
Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany
Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity
from the insurer, it is provided in said article that the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the
amount paid by the insurer does not fully cover the loss, then the aggrieved
party is the one entitled to recover the deficiency. Evidently, under this legal
provision, the real party in interest with regard to the portion of the
indemnity paid is the insurer and not the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact
of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the
petitioner's complaint as against the respondents for the reason that the petitioner was not
the real party in interest in the complaint and, therefore, has no cause of action against the
respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors
should not have been dismissed on the premise that the evidence on record shows that it is
entitled to recover from the counter indemnitors. It does not, however, cite any grounds
except its allegation that respondent "Maglanas defense and evidence are certainly
incredible" (p. 12, Rollo) to back up its contention.
On the other hand, we find the trial court's findings on the matter replete with evidence to
substantiate its finding that the counter-indemnitors are not liable to the petitioner. The
trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to
be valid and effective after the execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare parts
involved, agreed to issue the bond provided that the same would be
mortgaged to it, but this was not possible because the planes were still in
Japan and could not be mortgaged here in the Philippines. As soon as the
aircrafts were brought to the Philippines, they would be mortgaged to
Pioneer Insurance to cover the bond, and this indemnity agreement would
be cancelled.
The following is averred under oath by Pioneer in the original complaint:
The various conflicting claims over the mortgaged
properties have impaired and rendered insufficient the
security under the chattel mortgage and there is thus no
other sufficient security for the claim sought to be enforced
by this action.
This is judicial admission and aside from the chattel mortgage there is no
other security for the claim sought to be enforced by this action, which
necessarily means that the indemnity agreement had ceased to have any
force and effect at the time this action was instituted. Sec 2, Rule 129,
Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel
mortgage on the planes and spare parts, no longer has any further action
against the defendants as indemnitors to recover any unpaid balance of the
price. The indemnity agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These defendants, as indemnitors,
would be entitled to be subrogated to the right of Pioneer should they make
payments to the latter. Articles 2067 and 2080 of the New Civil Code of the
Philippines.
Independently of the preceding proposition Pioneer's election of the
remedy of foreclosure precludes any further action to recover any unpaid
balance of the price.
SAL or Lim, having failed to pay the second to the eight and last installments
to JDA and Pioneer as surety having made of the payments to JDA, the
alternative remedies open to Pioneer were as provided in Article 1484 of
the New Civil Code, known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both
by extrajudicial foreclosure and the instant suit. Such being the case, as
provided by the aforementioned provisions, Pioneer shall have no further
action against the purchaser to recover any unpaid balance and any
agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment &
Finance Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through
the contention that Pioneer is not the vendor but JDA. The reason is that
Pioneer is actually exercising the rights of JDA as vendor, having subrogated
it in such rights. Nor may the application of the provision be validly opposed
on the ground that these defendants and defendant Maglana are not the
vendee but indemnitors. Pascual, et al. v. Universal Motors Corporation,
G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their
maturity dates discharged these defendants from any liability as alleged
indemnitors. The change of the maturity dates of the obligations of Lim, or
SAL extinguish the original obligations thru novations thus discharging the
indemnitors.
The principal hereof shall be paid in eight equal successive
three months interval installments, the first of which shall
be due and payable 25 August 1965, the remainder of which
... shall be due and payable on the 26th day x x x of each
succeeding three months and the last of which shall be due
and payable 26th May 1967.
However, at the trial of this case, Pioneer produced a memorandum
executed by SAL or Lim and JDA, modifying the maturity dates of the
obligations, as follows:
The principal hereof shall be paid in eight equal successive
three month interval installments the first of which shall be
due and payable 4 September 1965, the remainder of which
... shall be due and payable on the 4th day ... of each
succeeding months and the last of which shall be due and
payable 4th June 1967.
Not only that, Pioneer also produced eight purported promissory notes
bearing maturity dates different from that fixed in the aforesaid
memorandum; the due date of the first installment appears as October 15,
1965, and those of the rest of the installments, the 15th of each succeeding
three months, that of the last installment being July 15, 1967.
These restructuring of the obligations with regard to their maturity dates,
effected twice, were done without the knowledge, much less, would have it
believed that these defendants Maglana (sic). Pioneer's official Numeriano
Carbonel would have it believed that these defendants and defendant
Maglana knew of and consented to the modification of the obligations. But
if that were so, there would have been the corresponding documents in the
form of a written notice to as well as written conformity of these
defendants, and there are no such document. The consequence of this was
the extinguishment of the obligations and of the surety bond secured by the
indemnity agreement which was thereby also extinguished. Applicable by
analogy are the rulings of the Supreme Court in the case of Kabankalan
Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum
Co. v. Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the
creditor without the consent of the guarantor extinguishes
the guaranty The mere failure on the part of the creditor to
demand payment after the debt has become due does not
of itself constitute any extension time referred to herein,
(New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson
& Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid
the same. Consequently, Pioneer has no more cause of action to recover
from these defendants, as supposed indemnitors, what it has paid to JDA.
By virtue of an express stipulation in the surety bond, the failure of JDA to
present its claim to Pioneer within ten days from default of Lim or SAL on
every installment, released Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these
defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him
to reimbursement from his co-debtors if such payment is
made after the obligation has prescribed or became illegal.
These defendants are entitled to recover damages and attorney's fees from
Pioneer and its surety by reason of the filing of the instant case against
them and the attachment and garnishment of their properties. The instant
action is clearly unfounded insofar as plaintiff drags these defendants and
defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No.
84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who failed
to incorporate the entity in which they had chosen to invest? How are the
losses to be treated in situations where their contributions to the intended
'corporation' were invested not through the corporate form? This Petition
presents these fundamental questions which we believe were resolved
erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the failure of
respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to
incorporate, a de facto partnership among them was created, and 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 petitioner, therefore, questions the appellate court's findings
ordering him to reimburse certain amounts given by the respondents to the petitioner as
their contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants'
cross-claims in the total amount of P184,878.74 as correctly found by the
trial court, with interest from the filing of the cross-complaints until the
amount is fully paid. Defendant Lim should pay one-half of the said amount
to Bormaheco and the Cervanteses and the other one-half to defendant
Maglana. It is established in the records that defendant Lim had duly
received the amount of Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the ownership of the
subject airplanes and spare parts (Exhibit 58). In addition, the cross-party
plaintiffs incurred additional expenses, hence, the total sum of P
184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be governed
by the supposed charter and the laws of the state relating thereto and not
by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96
Md. 446, 94 Am. S.R. 584), it is ordinarily held that 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 (Lynch v. Perryman,
119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons
associate themselves together under articles to purchase property to carry
on a business, and their organization is so defective as to come short of
creating a corporation within the statute, they become in legal effect
partners inter se, and their rights as members of the company to the
property acquired by the company will be recognized (Smith v. Schoodoc
Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369).
So, where certain persons associated themselves as a corporation for the
development of land for irrigation purposes, and each conveyed land to the
corporation, and two of them contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and no stock was ever
issued in the corporation, it was treated as a trustee for the associates in an
action between them for an accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds distributed among them in
proportion to the value of the property contributed by each (Shorb v.
Beaudry, 56 Cal. 446). However, such a relation 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
(London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29
L.Ed. 688), and 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 business under the
name of the pretended corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution (Ward v. Brigham,
127 Mass. 24). A partnership relation between certain stockholders and
other stockholders, who were also directors, will not be implied in the
absence of an agreement, so as to make the former liable to contribute for
payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W.
210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for his
failure to appear during the pretrial despite notification. In his answer, the petitioner denied
having received any amount from respondents Bormaheco, the Cervanteses and Maglana.
The trial court and the appellate court, however, found through Exhibit 58, that the
petitioner received the amount of P151,000.00 representing the participation of Bormaheco
and Atty. Constancio B. Maglana in the ownership of the subject airplanes and spare parts.
The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the
Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation with
the respondents despite his representations to them. This gives credence to the cross-claims
of the respondents to the effect that they were induced and lured by the petitioner to make
contributions to a proposed corporation which was never formed because the petitioner
reneged on their agreement. Maglana alleged in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes
and Maglana to expand his airline business. Lim was to procure two DC-3's
from Japan and secure the necessary certificates of public convenience and
necessity as well as the required permits for the operation thereof. Maglana
sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery
to Lim which Cervantes did and Lim acknowledged receipt thereof.
Cervantes, likewise, delivered his share of the undertaking. Lim in an
undertaking sometime on or about August 9,1965, promised to incorporate
his airline in accordance with their agreement and proceeded to acquire the
planes on his own account. Since then up to the filing of this answer, Lim
has refused, failed and still refuses to set up the corporation or return the
money of Maglana. (Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim,
cross-claim and third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering
defendants to purchase two airplanes and spare parts from Japan which the
latter considered as their lawful contribution and participation in the
proposed corporation to be known as SAL. Arrangements and negotiations
were undertaken by defendant Lim. Down payments were advanced by
defendants Bormaheco and the Cervanteses and Constancio Maglana (Exh.
E- 1). Contrary to the agreement among the defendants, defendant Lim in
connivance with the plaintiff, signed and executed the alleged chattel
mortgage and surety bond agreement in his personal capacity as the alleged
proprietor of the SAL. The answering defendants learned for the first time of
this trickery and misrepresentation of the other, Jacob Lim, when the herein
plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby
forcing them to file an adverse claim in the form of third party claim.
Notwithstanding repeated oral demands made by defendants Bormaheco
and Cervanteses, to defendant Lim, to surrender the possession of the two
planes and their accessories and or return the amount advanced by the
former amounting to an aggregate sum of P 178,997.14 as evidenced by a
statement of accounts, the latter ignored, omitted and refused to comply
with them. (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case, necessarily, 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 record shows that
the petitioner was acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.