The indemnity agreements stipulated that the indemnitors principally

Topic Obligations of the Partners to Third Persons; Share in the agree and bind themselves jointly and severally to indemnify and hold
profits/losses – (Arts. 1815 to 1827) and save harmless Pioneer from and against any/all damages, losses, costs,
Case No. G.R. No. 84197 and G.R. No. 84157 July 28, 1989 damages, taxes, penalties, charges and expenses of whatever kind which
Case Name Pioneer Insurance v CA Pioneer may incur in consequence of having become surety upon the
Full Case PIONEER INSURANCE & SURETY CORPORATION, petitioner, bond/note and to pay, reimburse and make good to Pioneer, its successors
Name vs. THE HON. COURT OF APPEALS, and assigns, all sums and amounts of money which it or its representatives
BORDER MACHINERY & HEAVY EQUIPMENT, INC., should or may pay or cause to be paid or become liable to pay on them of
(BORMAHECO), CONSTANCIO M. MAGLANA whatever kind and nature
and JACOB S. LIM, respondents.

JACOB S. LIM, petitioner, vs. COURT OF APPEALS, PIONEER

In 1965, Lim executed a deed of chattel mortgage as a security for the
INSURANCE AND SURETY suretyship. Lim then defaulted in paying subsequent installments,
CORPORATION, BORDER MACHINERY AND HEAVY prompting JDA to collect from Pioneer (as surety). Pioneer paid P298,
EQUIPMENT CO., INC., FRANCISCO and 626.12. Pioneer was also able to extrajudicially foreclose on the chattel
MODESTO CERVANTES and CONSTANCIO MAGLANA, mortgage (in which Lim, as well as Bormaheco, et. al were impleaded).
respondents. Pioneer collected P37,050.00 from the sale of the mortgaged chattels.
Ponente Gutierrez, Jr., J.
Doctrine Persons who attempt, but fail, to form a corporation and who carry on Pioneer, however, had a third-party insurer (not named in the case), from
business under the corporate name occupy the position of partners inter which Pioneer collected P295,000.
se. However, such a relation does not necessarily exist. When no de
facto partnership was actually created among the parties, they do not Bormaheco, et. al., meanwhile, filed a third-party claim alleging they are co-
have the obligation to share in the losses. owners of the aircrafts. They also filed cross claims against Lim, alleging
that they were not privies to the contracts signed by Lim (chattel mortgage
RELEVANT FACTS
over the aircraft) and that they are not liable to Pioneer.
In 1965, Jacob S. Lim was in the airline business as owner-operator of
Southern Air Lines (SAL), a single proprietorship. He entered into a sales
ISSUES
contract with Japan Domestic Airlines (JDA) for sale and purchase of two
WN Lim should reimburse Bormaheco, et. al. (YES)
DC-3A Type aircrafts and one set of spare parts for US$109,000.00 to be
paid in installments.
RATIO DECIDENDI
YES. “Persons who attempt, but fail, to form a corporation and who
Pioneer Insurance and Surety Corporation (Pioneer) executed a Surety Bond
carry on business under the corporate name occupy the position of
in favor of JDA, in behalf of its principal, Lim, for the balance price of the
partners inter se…” (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas.
aircrafts and spare parts.
1913A 1065). Thus, where persons associate themselves together under
articles to purchase property to carry on a business, and their organization is
Border Machinery and Heavy Equipment Company, Inc. (Bormaheco),
so defective as to come short of creating a corporation within the statute, they
Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana
become in legal effect partners inter se, and their rights as members of
contributed the funds used in the purchase of the aircrafts and spare parts.
the company to the property acquired by the company will be
These were supposedly contributions to a new corporation proposed by Lim
recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268, 109 Me. 555;
to expand his airline business. The above parties executed two separate
Whipple v. Parker, 29 Mich. 369).
indemnity agreements in favor of Pioneer. The first signed by Maglana and
the second jointly signed by Lim, Bormaheco, and the Cervanteses.
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.

The relationship between Lim and Bordaheco, Sps. Cervantes and Maglana
does not fall under the definition of “partners inter se,” because there was no
intention on Lim’s part to form a corporation. In fact, he denied having
received any contributions from the Bordaheco, et. al., which was later
disproven by evidence presented in both trial and appellate courts. The Court
gave credence to the respondents’ cross claims that they were merely
“induced and lured by the petitioner to make contributions to a proposed
corporation which was never formed because the petitioner reneged on their
agreement.”

There being no de facto partnership created among the parties, Lim is

therefore not entitled to a reimbursement of the losses of the proposed
corporation. Lim was acting on his own, not on behalf of his would-be
incorporators when he transacted the sale of the airplanes and spare parts.

RULING
WHEREFORE, the instant petitions are DISMISSED. The questioned
decision of the Court of Appeals is AFFIRMED.

NO SEPARATE OPINIONS