Pioneer Insurance & Surety Corporation vs Court of

Appeals

FACTS- Jacob Lim was the owner of Southern Air Lines, a

single proprietorship. In 1965, Lim convinced Constancio
Maglana, Modesto Cervantes, Francisco Cervantes, and
Border Machinery and Heavy Equipment Company
(BORMAHECO) to contribute funds and to buy two aircrafts
which would form part a corporation which will be the
expansion of Southern Air Lines. Maglana et al then
contributed and delivered money to Lim. But instead of using
the money given to him to pay in full the aircrafts, Lim,
without the knowledge of Maglana et al, made an agreement
with Pioneer Insurance for the latter to insure the two aircrafts
which were brought in installment from Japan Domestic
Airlines (JDA) using said aircrafts as security. So when Lim
defaulted from paying JDA, the two aircrafts were foreclosed
by Pioneer Insurance. It was established that no corporation
was formally formed between Lim and Maglana et al.

ISSUE: Whether or not Maglana et al must share in the loss as

general partners.

HELD: No. There was no de facto partnership. Ordinarily,

when co-investors agreed to do business through a corporation
but failed to incorporate, a de facto partnership would have
been formed, and as such, all must share in the losses and/or
gains of the venture in proportion to their contribution. But in
this case, it was shown that Lim did not have the intent to
form a corporation with Maglana et al. This can be inferred
from acts of unilaterally taking out a surety from Pioneer
Insurance and not using the funds he got from Maglana et al.
The record shows that Lim 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.