G.R. Nos. 84197, 28 July 1989
FACTS:
Jacob S. Lim was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract for the sale and purchase of two (aircrafts and one set of necessary spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and ConstancioMaglana 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.
Lim doing business under the name and style of SAL executed in favor of Pioneer a 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 was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration.
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage. The Cervanteses and Maglana, however, filed a third-party claim alleging that they are co-owners of the aircrafts.
ISSUE:
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?
RULING:
It has been 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. 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.
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, 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. A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, to make the former liable to contribute for payment of debts illegally contracted by the latter.
Applying therefore the principles of law earlier cited, 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.
*Case digest by Teonilo M. Bagalanon Jr., JD-IV, Andres Bonifacio Law School, SY 2019-2020