Lim v Phil Fishing Gear Etc.

7/27/2019 Lim v Phil Fishing Gear Etc.

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THIRD DIVISION

[G.R. No. 136448. November 3, 1999]

LIM TONG LIM,petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

D E C I S I O N

PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to dividethe profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own toa "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Beingpartners, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into onbehalf of an unincorporated association or ostensible corporation may lie in a person who may not have directlytransacted on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certioraribefore us, Lim Tong Lim assails the November 26, 1998 Decision of the Court ofAppeals in CA-GR CV 41477,i[1] which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.ii[2]

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads asfollows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinaftermade by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial ofthis case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus

P68,000.00 representing the unpaid price of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respectiveamounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;

ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13,1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19,1990;

c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted fromSeptember 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats inthe amount of P532,045.00 and P68,000.00, respectively, or for the total amount of P600,045.00, this Court noted thatthese items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreementof the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at publicauction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the salepaid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as aguaranty for any judgment that plaintiff may be able to secure in this case with the ownership and possession of the netsand floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also beennoted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices;hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered theattachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cashbidded and paid for by plaintiff to serve as its bond in favor of defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case willhave to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering,however, that the total judgment obligation as computed above would amount to only P840,216.92, it would beinequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not putup a single centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets andfloats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgmentobligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for thereimbursement of the P900,000.00 deposited by it with the Clerk of Court.


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SO ORDERED. iii[3]

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract datedFebruary 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (hereinrespondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was

not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worthP68,000 were also sold to the Corporation.iv[4]

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suitagainst Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was broughtagainst the three in their capacities as general partners, on the allegation that Ocean Quest Fishing Corporation was anonexistent corporation as shown by a Certification from the Securities and Exchange Commission. v[5] On September 20,1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets onboard F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonabletime within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yaofiled an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidenceon his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer

with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.vi[6]

The trial court maintained theWrit, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine FishingGear Industries won the bidding and deposited with the said court the sales proceeds of P900,000.vii[7]

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries wasentitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent.viii[8]

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of thewitnesses presented and (2) on a Compromise Agreement executed by the three ix[9] in Civil Case No. 1492-MN whichChua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercialdocuments; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e)damages.x[10] The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL HoldingsCorporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be theexcess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall beshouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. xi[11]

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that jointliability could be presumed from the equal distribution of the profit and loss.xii[12]

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and maythus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellatecourt ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnershipfor a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate undertaking of the defendants wasto divide the profits among themselves which is what a partnership essentially is x x x. By a contract of partnership, twoor more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividingthe profits among themselves (Article 1767, New Civil Code).xiii[13]

Hence, petitioner brought this recourse before this Court.xiv[14]

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA,YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED

AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHINGCORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WASUNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.


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III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMSGOODS.

In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, theCourt must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into apartnership.

This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts theCA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its findingon the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets,alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives ofthe respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contractof Lease" dated February 1, 1990, showed that he had merely leased to the two the main asset of the purportedpartnership -- the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed thatthere existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money, property, orindustry to a common fund, with the intention of dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following factualfindings:xv[15]

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, whileAntonio Chua was already Yaos partner;

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FBLourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2)boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expensesfor the boats would be shouldered by Chua and Yao;

(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount ofP1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats,Chuas FB Lady Anne Meland Yaos FB Tracyto Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from RespondentPhilippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua andPeter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c)declaration of ownership of fishing boats; (4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants theterms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishingbusiness, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who waspetitioners brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with theproceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and

the repair of which were financed with borrowed money, fell under the term common fund under Article 1767. Thecontribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the partiesagreed that any loss or profit from the sale and operation of the boats would be divided equally among them also showsthat they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the netsand the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of theirbusiness. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in theacquisition of the aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in thefishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed thatthe proceeds from the sales and operations thereof would be divided among them.


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We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus,the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the presentaction is embraced by one of the exceptions to the rule. xvi[16] In assailing the factual findings of the two lower courts,petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was theCompromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, butnot to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but anembodiment of the relationship extant among the parties prior to its execution.

A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all relevantfacts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implyingthat the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CAand the RTC delved into the history of the document and explored all the possible consequential combinations in harmonywith law, logic and fairness. Verily, the two lower courts factual findings mentioned above nullified petitioners argumentthat the existence of a partnership was based only on the Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and Yao, not apartner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papersshowing that he was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale ofhis own boatsto pay a debt ofChua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor woulddo what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debtswere undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishingbusiness. The sale of the boats, as well as the division among the three of the balance remaining after the payment oftheir loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset ofthe partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lendertrusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.

We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did notincur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao,and not to him. Again, we disagree.

Section 21 of the Corporation Code of the Philippines provides:Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without

authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a resultthereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as acorporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporatepersonality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on theground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped fromdenying its corporate existence. The reason behind this doctrine is obvious - an unincorporated association has nopersonality and would be incompetent to act and appropriate for itself the power and attributes of a corporation asprovided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport toact as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle oflaw that a person who acts as an agent without authority or without a principal is himself regarded as the principal,possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of acorporation which has no valid existence assumes such privileges and obligations and becomes personally liable forcontracts entered into or for other acts performed as such agent.xvii[17]

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the firstinstance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying itscorporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allegelack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it receivedadvantages and benefits.


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On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as acorporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against thealleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation,despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold.The only question here is whether petitioner should be held jointlyxviii[18] liable with Chua and Yao. Petitioner contests suchliability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his namedoes not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, hecannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlierbeen proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ haseffectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although itwas never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contractingparties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and thosebenefited by it, knowing it to be without valid existence, are held liable as general partners.

Technically, it is true that petitioner did not directlyacton behalf of the corporation. However, having reaped thebenefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be

part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling ofthe Court inAlonso v. Villamor:xix[19]

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art ofmovement and position , entraps and destroys the other. It is, rather, a contest in which each contending party fully andfairly lays before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections ofform and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be wonby a rapiers thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindranceand chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.

Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with theCourt of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of thepartnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed.The nets and the floats were specifically manufactured and tailor-made according to their own design, and were boughtand used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the pricestipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with RespondentPhilippine Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed DecisionAFFIRMED. Costs against petitioner.

SO ORDERED.

Melo, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.Vitug, J., Pls. see concurring opinion.
http://sc.judiciary.gov.ph/jurisprudence/1999/nov99/136448_vitug.htmhttp://sc.judiciary.gov.ph/jurisprudence/1999/nov99/136448_vitug.htmhttp://sc.judiciary.gov.ph/jurisprudence/1999/nov99/136448_vitug.htm


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Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,vs.THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIOM. 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 HEAVYEQUIPMENT 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 whichmodified the decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitionerin G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but in all other respects the trialcourt'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 theamount of P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus 15% of theamount awarded to plaintiff as attorney's fees from July 2,1966, until full payment is made; plusP70,000.00 moral and exemplary damages.


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It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses asidefrom Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required to pay crossparty plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the amount ofPl84,878.74 with interest from the filing of the cross-complaints until the amount is fully paid; plus moraland exemplary damages in the amount of P184,878.84 with interest from the filing of the cross-complaintsuntil the amount is fully paid; plus moral and exemplary damages in the amount of P50,000.00 for each ofthe two Cervanteses.

Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and anotherP20,000.00 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, theCervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is required to indemnify thedefendants Bormaheco and the Cervanteses the amount of P20,000.00 as attorney's fees and the amountof 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'sfees and costs.

No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith. The factthat the properties of the Bormaheco and the Cervanteses were attached and that they were required tofile a counterbond in order to dissolve the attachment, is not an act of bad faith. When a man tries toprotect his rights, he should not be saddled with moral or exemplary damages. Furthermore, the rightsexercised were provided for in the Rules of Court, and it was the court that ordered it, in the exercise of itsdiscretion.

No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it onlysecured the attachment prayed for by the plaintiff Pioneer. If an insurance company would be liable fordamages in performing an act which is clearly within its power and which is the reason for its being, thennobody would engage in the insurance business. No further claim or counter-claim for or against anybodyis 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 AirLines (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 totalagreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila onJune 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 andissued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircraftsand 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 toexpand his airline business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor ofPioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. Theindemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnifyand hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, chargesand expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety upon thebond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of moneywhich it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind andnature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattelmortgage as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and convey tothe surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City ofManila 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 atotal 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. TheCervanteses 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 attachmentagainst Lim and respondents, the Cervanteses, Bormaheco and Maglana.


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In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not priviesto the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and forrecovery 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 againstall other defendants.

As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all thedefendants 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 OFPETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY COLLECTED THEPROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOTREPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTSAS 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 liabilityunder the surety bond in favor of JDA and subsequently collected the proceeds of such reinsurance in thesum of P295,000.00. Defendants' alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffsinstant 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 bebenefited 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 isthe attorney-in-fact of the reinsurance company, authorized to institute an action for and in behalf of thelatter. To qualify a person to be a real party in interest in whose name an action must be prosecuted, hemust 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 wouldbe benefited or injured by the judgment or the party entitled to the avails of the suit (Salonga v. WarnerBarnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present substantial interest asdistinguished from a mere expectancy or a future, contingent, subordinate or consequential interest (Garciav. 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 ithas already been paid by the reinsurer the sum of P295,000.00 the bulk of defendants' allegedobligation to Pioneer.

In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, theformer was able to foreclose extra-judicially one of the subject airplanes and its spare engine, realizing thetotal 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 theamount of P33,383.72 considering that the total amount it had paid to JDA totals to only P298,666.28. Toallow plaintiff Pioneer to recover from defendants the amount in excess of P298,666.28 would betantamount to unjust enrichment as it has already been paid by the reinsurance company of the amountplaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled isthe rule that no person should unjustly enrich himself at the expense of another (Article 22, New CivilCode). (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 itsreinsurer in the aforesaid amount, as this matter has never been raised by any of the parties herein both in their answers inthe court below and in their respective briefs with respondent court; (Rollo, p. 11) (2) even assuming hypothetically that it waspaid by its reinsurer, still none of the respondents had any interest in the matter since the reinsurance is strictly between thepetitioner and the re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity agreements, thepetitioner is entitled to recover from respondents Bormaheco and Maglana; and (4) the principle of unjust enrichment is notapplicable 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 ashas been paid with reinsurance money?


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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 bulkof its alleged liability to JDA under the said surety bond, it is plain that on this score it no longer has anyright 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 theamount paid to it by the reinsurers, notwithstanding that the cause of action pertains to the latter, Pioneersays: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall pursue alone thecase.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to recover the amount.' Inother words, insofar as the amount paid to it by the reinsurers Pioneer is suing defendants as theirattorney-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 instituteand 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 soeven 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 beprosecuted in the name of the real party in interest.' This provision is mandatory. Thereal party in interest is the party who would be benefitted or injured by the judgment or isthe 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 SCRA706, 710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 fromthe reinsurers, the uninsured portion of what it paid to JDA is the difference between the two amounts, orP3,666.28. This is the amount for which Pioneer may sue defendants, assuming that the indemnityagreement is still valid and effective. But since the amount realized from the sale of the mortgaged chattelsare 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. (Recordon Appeal, pp. 360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this admittedpayment, the only issue that cropped up was the effect of payment made by the reinsurers to the petitioner. Therefore, thepetitioner's argument that the respondents had no interest in the reinsurance contract as this is strictly between the petitioneras 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 insimilar 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 orcontracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7Ann. 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 insurancecompany for the injury or loss arising out of the wrong or breach of contract complained of, the insurancecompany shall be subrogated to the rights of the insured against the wrongdoer or the person who hasviolated 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 insaid article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and ifthe amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled torecover 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).


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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 therespondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore, has no causeof 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 thecounter-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 theexecution 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 werestill in Japan and could not be mortgaged here in the Philippines. As soon as the aircrafts were brought tothe Philippines, they would be mortgaged to Pioneer Insurance to cover the bond, and this indemnityagreement 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 andrendered insufficient the security under the chattel mortgage and there is thus no othersufficient 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 claimsought to be enforced by this action, which necessarily means that the indemnity agreement had ceased tohave 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 spareparts, no longer has any further action against the defendants as indemnitors to recover any unpaidbalance of the price. The indemnity agreement was ipso jure extinguished upon the foreclosure of thechattel mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the right ofPioneer should they make payments to the latter. Articles 2067 and 2080 of the New Civil Code of thePhilippines.

Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes anyfurther 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 suretyhaving made of the payments to JDA, the alternative remedies open to Pioneer were as provided in Article1484 of the New Civil Code, known as the Recto Law.

Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure andthe instant suit. Such being the case, as provided by the aforementioned provisions, Pioneer shall have nofurther action against the purchaser to recover any unpaid balance and any agreement to the contrary isvoid.' 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 notthe vendor but JDA. The reason is that Pioneer is actually exercising the rights of JDA as vendor, havingsubrogated it in such rights. Nor may the application of the provision be validly opposed on the ground thatthese defendants and defendant Maglana are not the vendee but indemnitors. Pascual, et al. v. UniversalMotors 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 thesedefendants from any liability as alleged indemnitors. The change of the maturity dates of the obligations ofLim, or SAL extinguish the original obligations thru novations thus discharging the indemnitors.

The principal hereof shall be paid in eight equal successive three months intervalinstallments, the first of which shall be due and payable 25 August 1965, the remainderof which ... shall be due and payable on the 26th day x x x of each succeeding threemonths 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:


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The principal hereof shall be paid in eight equal successive three month intervalinstallments the first of which shall be due and payable 4 September 1965, theremainder of which ... shall be due and payable on the 4th day ... of each succeedingmonths 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 differentfrom 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 lastinstallment being July 15, 1967.

These restructuring of the obligations with regard to their maturity dates, effected twice, were done withoutthe knowledge, much less, would have it believed that these defendants Maglana (sic). Pioneer's officialNumeriano Carbonel would have it believed that these defendants and defendant Maglana knew of andconsented to the modification of the obligations. But if that were so, there would have been thecorresponding documents in the form of a written notice to as well as written conformity of thesedefendants, and there are no such document. The consequence of this was the extinguishment of theobligations and of the surety bond secured by the indemnity agreement which was thereby alsoextinguished. Applicable by analogy are the rulings of the Supreme Court in the case of Kabankalan SugarCo. 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 todemand payment after the debt has become due does not of itself constitute anyextension 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 etal. (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 ithas paid to JDA. By virtue of an express stipulation in the surety bond, the failure of JDA to present itsclaim to Pioneer within ten days from default of Lim or SAL on every installment, released Pioneer fromliability 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 hisco-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 byreason of the filing of the instant case against them and the attachment and garnishment of theirproperties. The instant action is clearly unfounded insofar as plaintiff drags these defendants anddefendant 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 businessthrough 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' wereinvested not through the corporate form? This Petition presents these fundamental questions which webelieve 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, SpousesCervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and thatas a consequence of such relationship all must share in the losses and/or gains of the venture in proportion to theircontribution. The petitioner, therefore, questions the appellate court's findings ordering him to reimburse certain amountsgiven 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 ofP184,878.74 as correctly found by the trial court, with interest from the filing of the cross-complaints untilthe amount is fully paid. Defendant Lim should pay one-half of the said amount to Bormaheco and theCervanteses and the other one-half to defendant Maglana. It is established in the records that defendantLim had duly received the amount of Pl51,000.00 from defendants Bormaheco and Maglana representingthe 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.


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We first state the principles.

While it has been held that as between themselves the rights of the stockholders in a defectivelyincorporated association should be governed by the supposed charter and the laws of the state relatingthereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a corporation and who carryon 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 underarticles to purchase property to carry on a business, and their organization is so defective as to come shortof creating a corporation within the statute, they become in legal effect partners inter se, and their rights asmembers of the company to the property acquired by the company will be recognized (Smith v. SchoodocPond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain personsassociated themselves as a corporation for the development of land for irrigation purposes, and eachconveyed land to the corporation, and two of them contracted to pay a third the difference in theproportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it wastreated as a trustee for the associates in an action between them for an accounting, and its capital stockwas treated as partnership assets, sold, and the proceeds distributed among them in proportion to thevalue of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation doesnot necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as betweenthemselves, 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 justicebetween 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 businessunder the name of the pretended corporation, so as to be liable as such in an action for settlement of thealleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation betweencertain stockholders and other stockholders, who were also directors, will not be implied in the absence ofan agreement, so as to make the former liable to contribute for payment of debts illegally contracted by thelatter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italicssupplied).

In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrialdespite notification. In his answer, the petitioner denied having received any amount from respondents Bormaheco, theCervanteses and Maglana. The trial court and the appellate court, however, found through Exhibit 58, that the petitionerreceived the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in theownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitionerJacob Lim thru the Cervanteses.

It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite hisrepresentations to them. This gives credence to the cross-claims of the respondents to the effect that they were induced andlured by the petitioner to make contributions to a proposed corporation which was never formed because the petitionerreneged on their agreement. Maglana alleged in his cross-claim:

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand hisairline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates of publicconvenience and necessity as well as the required permits for the operation thereof. Maglana sometime inMay 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Limacknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim in anundertaking sometime on or about August 9,1965, promised to incorporate his airline in accordance withtheir agreement and proceeded to acquire the planes on his own account. Since then up to the filing of thisanswer, 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 partycomplaint:

Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase twoairplanes and spare parts from Japan which the latter considered as their lawful contribution andparticipation in the proposed corporation to be known as SAL. Arrangements and negotiations wereundertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and theCervanteses 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 andsurety bond agreement in his personal capacity as the alleged proprietor of the SAL. The answeringdefendants learned for the first time of this trickery and misrepresentation of the other, Jacob Lim, whenthe 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 bydefendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two planesand their accessories and or return the amount advanced by the former amounting to an aggregate sum ofP 178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted and refused to complywith 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 createdamong 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 intransacting the sale of the airplanes and spare parts.


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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.

xviii


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xixRepublic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-68118 October 29, 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and sisters,petitionersvs.COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

Demosthenes B. Gadioma for petitioners.

AQUINO, J.:

This case is about the income tax liability of four brothers and sisters who sold two parcels of land which they had acquired

from their father.

On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963 squaremeters located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the petitioners, toenable them to build their residences. The company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A andB, p. 44, Rollo). Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots.

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City SecuritiesCorporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived from the sale a total profit ofP134,341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax on one-halfthereof or of P16,792.

In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenuerequired the four petitioners to pay corporate income taxon the total profit of P134,336 in addition to individual income tax on

their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as42% accumulated interest, or a total ofP71,074.56.

Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a merecapital gain of which is taxable) and required them to pay deficiency income taxes aggregating P56,707.20 including the50% fraud surcharge and the accumulated interest.

Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit ofP134,336, in addition to the tax on capital gains already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture withinthe meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil.822).

The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented.Hence, the instant appeal.

We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simplybecause they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit amongthemselves.

To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirmthe dictum that the power to tax involves the power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them aspartners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in anyjoint venture by reason of that isolated transaction.

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build theirresidences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve theco-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the natureof things a temporary state. It had to be terminated sooner or later. Castan Tobeas says:

Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedadpresupone necesariamente la convencion, mentras que la comunidad puede existir y existe


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ordinariamente sin ela; y por razon del fin objecto, en que el objeto de la sociedad es obtener lucro,mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer suconservacion.

Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestroDerecho positive se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad debienes y contrato de sociedad, la moderna orientacion de la doctrina cientifica seala como nota

fundamental de diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la finalidadperseguida por los interesados: lucro comun partible en la sociedad, y mera conservacion yaprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whetheror not the persons sharing them have a joint or common right or interest in any property from which the returns are derived".There must be an unmistakable intention to form a partnership or joint venture.*

Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed smallamounts to purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize The ticket won thethird prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership.

The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oa vs.

** This view is supported by the following rulings of respondent Commissioner:

Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to theDe Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in question pro-indiviso from their deceased parents; they did not contribute or invest additional ' capital to increase orexpand the inherited properties; they merely continued dedicating the property to the use to which it hadbeen put by their forebears; they individually reported in their tax returns their corresponding shares in theincome and expenses of the 'hacienda', and they continued for many years the status of co-ownership inorder, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue the existingcontractual relations with the Central Azucarera de Bais for milling purposes. Longa vs. Aranas, CTA CaseNo. 653, July 31, 1963).

All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own properties whichproduce income should not automatically be considered partners of an unregistered partnership, or acorporation, within the purview of the income tax law. To hold otherwise, would be to subject the income ofallco-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does notproduce an income at all, it is not subject to any kind of income tax, whether the income tax on individualsor the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited inAraas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirsused the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves, it was held thatthey were taxable as an unregistered partnership.

It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased alot and building, entrusted the administration of the building to an administrator and divided equally the net income, and fromEvangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought four pieces of realproperty which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in these two cases hadformed an unregistered partnership.

In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to thepetitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It might havealready prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs.

SO ORDERED.

Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.

Concepcion, Jr., is on leave.


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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-19342 May 25, 1972

LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B. OA, LUZ B. OA,

VIRGINIA B. OA and LORENZO B. OA, JR., petitioners,vs.THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Orlando Velasco for petitioners.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete, and Special AttorneyPurificacion Ureta for respondent.

BARREDO, J.:p

Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above, holding thatpetitioners have constituted an unregistered partnership and are, therefore, subject to the payment of the deficiencycorporate income taxes assessed against them by respondent Commissioner of Internal Revenue for the years 1955 and1956 in the total sum of P21,891.00, plus 5% surcharge and 1% monthly interest from December 15, 1958, subject to theprovisions of Section 51 (e) (2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and thecosts of the suit, 1as well as the resolution of said court denying petitioners' motion for reconsideration of said decision.

The facts are stated in the decision of the Tax Court as follows:

Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her fivechildren. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for thesettlement of her estate. Later, Lorenzo T. Oa the surviving spouse was appointed administrator of theestate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted theproject of partition, which was approved by the Court on May 16, 1949 (See Exhibit K). Because three of

the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oa, were still minors when the project ofpartition was approved, Lorenzo T. Oa, their father and administrator of the estate, filed a petition in CivilCase No. 9637 of the Court of First Instance of Manila for appointment as guardian of said minors. OnNovember 14, 1949, the Court appointed him guardian of the persons and property of the aforenamedminors (See p. 3, BIR rec.).

The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a totalassessed value of P17,590.00 and an undetermined amount to be collected from the War DamageCommission. Later, they received from said Commission the amount of P50,000.00, more or less. Thisamount was not divided among them but was used in the rehabilitation of properties owned by them incommon (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were acquired after the death of thedecedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00 (t.s.n., p.24; Exhibit 3, pp. 31-34 BIR rec.).

The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the administratorthereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with the approval of theCourt (see p. 3 of Exhibit K; or see p. 74, BIR rec.).

Although the project of partition was approved by the Court on May 16, 1949, no attempt was made todivide the properties therein listed. Instead, the properties remained under the management of Lorenzo T.Oa who used said properties in business by leasing or selling them and investing the income derivedtherefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners'properties and investments gradually increased from P105,450.00 in 1949 to P480,005.20 in 1956 as canbe gleaned from the following year-end balances:


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YearInvestmentLandBuilding AccountAccountAccount 1949P87,860.00P17,590.001950P24,657.65128,566.7296,076.26195151,301.31120,349.28110,605.11195267,927.5287,065.28152,674.39195361,258.2784,925.68161,463.83195463,623.3799,001.20167,962.041955100,786.00120,249.78169,262.521956175,028.68135,714.68169,262.52(See Exhibits 3 & K t.s.n., pp. 22,25-26, 40, 50, 102-104)

From said investments and properties petitioners derived such incomes as profits from installment sales ofsubdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32,

BIR rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of account kept by Lorenzo T. Oawhere the corresponding shares of the petitioners in the net income for the year are also known. Everyyear, petitioners returned for income tax purposes their shares in the net income derived from saidproperties and securities and/or from transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26).However, petitioners did not actually receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98,100). The income was always left in the hands of Lorenzo T. Oa who, as heretofore pointed out, investedthem in real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104).

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided thatpetitioners formed an unregistered partnership and therefore, subject to the corporate income tax, pursuantto Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against thepetitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956,respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested againstthe assessment and asked for reconsideration of the ruling of respondent that they have formed anunregistered partnership. Finding no merit in petitioners' request, respondent denied it (See Exhibit 17, p.

86, BIR rec.). (See pp. 1-4, Memorandum for Respondent, June 12, 1961).

The original assessment was as follows:

1955

Net income as per investigation ................ P40,209.89

Income tax due thereon ............................... 8,042.0025% surcharge .............................................. 2,010.50Compromise for non-filing .......................... 50.00Total ............................................................... P10,102.50

1956

Net income as per investigation ................ P69,245.23

Income tax due thereon ............................... 13,849.0025% surcharge .............................................. 3,462.25Compromise for non-filing .......................... 50.00Total ............................................................... P17,361.25

(See Exhibit 13, page 50, BIR records)

Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of theSupreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that thequestioned assessment refers solely to the income tax proper for the years 1955 and 1956 and the"Compromise for non-filing," the latter item obviously referring to the compromise in lieu of the criminalliability for failure of petitioners to file the corporate income tax returns for said years. (See Exh. 17, page86, BIR records). (Pp. 1-3, Annex C to Petition)

Petitioners have assigned the following as alleged errors of the Tax Court:

I.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED ANUNREGISTERED PARTNERSHIP;

II.

THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM TRANSACTIONSTHEREFROM (sic);

III.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FORCORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;

IV.


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ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTEREDPARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERSWERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THEPROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS RECEIVED USING THEINHERITED PROPERTIES AS COLLATERALS;

V .

ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF TAXAPPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS ASINDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUING FROMTHE PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF THE UNREGISTEREDPARTNERSHIP.

In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of TaxAppeals, should petitioners be considered as co-owners of the properties inherited by them from the deceased Julia Bualesand the profits derived from transactions involving the same, or, must they be deemed to have formed an unregisteredpartnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code? (2) Assuming they haveformed an unregistered partnership, should this not be only in the sense that they invested as a common fund the profitsearned by the properties owned by them in common and the loans granted to them upon the security of the said properties,with the result that as far as their respective shares in the inheritance are concerned, the total income thereof should be

considered as that of co-owners and not of the unregistered partnership? And (3) assuming again that they are taxable as anunregistered partnership, should not the various amounts already paid by them for the same years 1955 and 1956 asindividual income taxes on their respective shares of the profits accruing from the properties they owned in common bededucted from the deficiency corporate taxes, herein involved, assessed against such unregistered partnership by therespondent Commissioner?

Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in interest diedway back on March 23, 1944 and the project of partition of her estate was judicially approved as early as May 16, 1949, andpresumably petitioners have been holding their respective shares in their inheritance since those dates admittedly under theadministration or management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in questionrefers to the later years 1955 and 1956. We believe this point to be important because, apparently, at the start, or in theyears 1944 to 1954, the respondent Commissioner of Internal Revenue did treat petitioners as co-owners, not liable tocorporate tax, and it was only from 1955 that he considered them as having formed an unregistered partnership. At least,there is nothing in the record indicating that an earlier assessment had already been made. Such being the case, and Wesee no reason how it could be otherwise, it is easily understandable why petitioners' position that they are co-owners and notunregistered co-partners, for the purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners shouldfind comfort in the fact that they were not similarly assessed earlier by the Bureau of Internal Revenue.

The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to theproject of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oa who used saidproperties in business by leasing or selling them and investing the income derived therefrom and the proceed from the salesthereof in real properties and securities," as a result of which said properties and investments steadily increased yearly fromP87,860.00 in "land account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account,"P135.714.68 in "land account" and P169,262.52 in "building account" in 1956. And all these became possible because,admittedly, petitioners never actually received any share of the income or profits from Lorenzo T. Oa and instead, theyallowed him to continue using said shares as part of the common fund for their ventures, even as they paid thecorresponding income taxes on the basis of their respective shares of the profits of their common business as reported bythe said Lorenzo T. Oa.

It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the propertiesinherited by them. Indeed, it is admitted that during the material years herein involved, some of the said properties were soldat considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale ofcorporate securities. It is likewise admitted that all the profits from these ventures were divided among petitionersproportionately in accordance with their respective shares in the inheritance. In these circumstances, it is Our consideredview that from the moment petitioners allowed not only the incomes from their respective shares of the inheritance but eventhe inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several transactions orin business, with the intention of deriving profit to be shared by them proportionally, such act was tantamonut to actuallycontributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within thepurview of the above-mentioned provisions of the Tax Code.

It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners ratherthan unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the partition anddistribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs, obviously, without

them becoming thereby unregistered co-partners, but it does not necessarily follow that such status as co-owners continuesuntil the inheritance is actually and physically distributed among the heirs, for it is easily conceivable that after knowing theirrespective shares in the partition, they might decide to continue holding said shares under the common management of theadministrator or executor or of anyone chosen by them and engage in business on that basis. Withal, if this were to beallowed, it would be the easiest thing for heirs in any inheritance to circumvent and render meaningless Sections 24 and84(b) of the National Internal Revenue Code.

It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants therein tobe unregistered co-partners for tax purposes, that their common fund "was not something they found already in existence"and that "it was not a property inherited by them pro indiviso," but it is certainly far fetched to argue therefrom, as petitionersare doing here, that ergo, in all instances where an inheritance is not actually divided, there can be no unregistered co-


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partnership. As already indicated, for tax purposes, the co-ownership of inherited properties is automatically converted intoan unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as acommon fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance asdetermined in a project partition either duly executed in an extrajudicial settlement or approved by the court in thecorresponding testate or intestate proceeding. The reason for this is simple. From the moment of such partition, the heirs areentitled already to their respective definite shares of the estate and the incomes thereof, for each of them to manage anddispose of as exclusively his own without the intervention of the other heirs, and, accordingly he becomes liable individually

for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under asingle management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that,even if no document or instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership isformed. This is exactly what happened to petitioners in this case.

In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing of grossreturns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right orinterest in any property from which the returns are derived," and, for that matter, on any other provision of said code onpartnerships is unavailing. In Evangelista, supra, this Court clearly differentiated the concept of partnerships under the CivilCode from that of unregistered partnerships which are considered as "corporations" under Sections 24 and 84(b) of theNational Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point thus:

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinctand different from "partnerships". When our Internal Revenue Code includes "partnerships" among theentities subject to the tax on "corporations", said Code must allude, therefore, to organizations which arenot necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of saidCode exempts from the aforementioned tax "duly registered general partnerships," which constituteprecisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." Thisqualifying expression clearly indicates that a joint venture need not be undertaken in any of the standardforms, or in confirmity with the usual requirements of the law on partnerships, in order that one could bedeemed constituted for purposes of the tax on corporation. Again, pursuant to said section 84(b),the term"corporation" includes, among others, "joint accounts,(cuentas en participacion)" and "associations", noneof which has a legal personality of its own, independent of that of its members. Accordingly, the lawmakercould not have regarded that personality as a condition essential to the existence of the partnershipstherein referred to. In fact, as above stated, "duly registered general co-partnerships" which arepossessed of the aforementioned personality have been expressly excluded by law (sections

Lim v Phil Fishing Gear Etc.

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