1.PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs.

THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA
and JACOB S. LIM, respondents.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner,

vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO.,
INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA,respondents.

The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195 which modified the
decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against
all defendants (respondents in G.R. No. 84197) was dismissed but in all other respects the trial court's decision was affirmed.

The dispositive portion of the trial court's decision reads as follows:

WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff the amount of
P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus 15% of the amount awarded to
plaintiff as attorney's fees from July 2,1966, until full payment is made; plus P70,000.00 moral and exemplary damages.

It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside from
Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required to pay cross party plaintiff,
Bormaheco, the Cervanteses one-half and Maglana the other half, the amount of Pl84,878.74 with interest from the filing
of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P184,878.84
with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in
the amount of P50,000.00 for each of the two Cervanteses.

Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another P20,000.00 to
Constancio B. Maglana as attorney's fees.

xxx xxx xxx

WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants Bormaheco, the Cervanteses
and Constancio B. Maglana, is dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco and the
Cervanteses the amount of P20,000.00 as attorney's fees and the amount of P4,379.21, per year from 1966 with legal
rate of interest up to the time it is paid.

Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as attorney's fees and
costs.

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

No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it only secured the
attachment prayed for by the plaintiff Pioneer. If an insurance company would be liable for damages in performing an act
which is clearly within its power and which is the reason for its being, then nobody would engage in the insurance
business. No further claim or counter-claim for or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp.
15-16)

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a
single proprietorship.

On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract (Exhibit A) for the
sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to
be paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.

On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed and issued its
Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses)
and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare
parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They
executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other jointly
signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and
bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs,
damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become
surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money
which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as
security for the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts.
The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a total sum of
P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. The Cervanteses
and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts,

On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and Maglana.

In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the
contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of
money they advanced to Lim for the purchase of the aircrafts in question.

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other
defendants.

As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all the defendants was
dismissed. In all other respects the trial court's decision was affirmed.

We first resolve G.R. No. 84197.

Petitioner Pioneer Insurance and Surety Corporation avers that:

RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL OF PETITIONER
ON THE SOLE GROUND THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE
ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE
AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No.
84197, p. 10)

The petitioner questions the following findings of the appellate court:

We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of liability under the surety
bond in favor of JDA and subsequently collected the proceeds of such reinsurance in the sum of P295,000.00.

Defendants' alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant action for the recovery of the
amount of P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute
the instant action as it does not stand to be benefited or injured by the judgment.

Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from defendants, hence, it
instituted the action is utterly devoid of merit. Plaintiff did not even present any evidence that it is the attorney-in-fact of
the reinsurance company, authorized to institute an action for and in behalf of the latter. To qualify a person to be a real
party in interest in whose name an action must be prosecuted, he must appear to be the present real owner of the right
sought to be enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has been held that the real
party in interest is the party who would be benefited or injured by the judgment or the party entitled to the avails of the
suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present substantial
interest as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest (Garcia v.
David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424;
Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).

Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in interest as it has already
been paid by the reinsurer the sum of P295,000.00 the bulk of defendants' alleged obligation to Pioneer.

In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, the former was able to
foreclose extra-judicially one of the subject airplanes and its spare engine, realizing the total amount of P37,050.00 from
the sale of the mortgaged chattels. Adding the sum of P37,050.00, to the proceeds of the reinsurance amounting to
P295,000.00, it is patent that plaintiff has been overpaid in the amount of P33,383.72 considering that the total amount it
had paid to JDA totals to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the amount in excess of
P298,666.28 would be tantamount to unjust enrichment as it has already been paid by the reinsurance company of the
amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled is the
rule that no person should unjustly enrich himself at the expense of another (Article 22, New Civil Code). (Rollo-84197,
pp. 24-25).

The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was paid by its reinsurer in the
aforesaid amount, as this matter has never been raised by any of the parties herein both in their answers in the court below and in their
respective briefs with respondent court; (Rollo, p. 11) (2) even assuming hypothetically that it was paid by its reinsurer, still none of the
respondents had any interest in the matter since the reinsurance is strictly between the petitioner and the re-insurer pursuant to section 91
of the Insurance Code; (3) pursuant to the indemnity agreements, the petitioner is entitled to recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust enrichment is not applicable considering that whatever amount he would recover from the coindemnitor will be paid to the reinsurer.

The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the parties.

A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:

xxx xxx xxx

1. Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA as has been paid
with reinsurance money?

2. If the answer to the preceding question is in the negative, has Pioneer still any claim against defendants, considering
the amount it has realized from the sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No.
84157).

In resolving these issues, the trial court made the following findings:

It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of JDA, collected the
proceeds of such reinsurance in the sum of P295,000, and paid with the said amount the bulk of its alleged liability to
JDA under the said surety bond, it is plain that on this score it no longer has any right to collect to the extent of the said
amount.

On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the amount paid to it by
the reinsurers, notwithstanding that the cause of action pertains to the latter, Pioneer says: The reinsurers opted instead
that the Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety
Corporation is representing the reinsurers to recover the amount.' In other words, insofar as the amount paid to it by the
reinsurers Pioneer is suing defendants as their attorney-in-fact.

But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as attorney-in- fact of the
reinsurers for any amount. Lastly, and most important of all, Pioneer has no right to institute and maintain in its own name
an action for the benefit of the reinsurers. It is well-settled that an action brought by an attorney-in-fact in his own name
instead of that of the principal will not prosper, and this is so even where the name of the principal is disclosed in the
complaint.

Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be prosecuted in the
name of the real party in interest.' This provision is mandatory. The real party in interest is the party
who would be benefitted or injured by the judgment or is the party entitled to the avails of the suit.

This Court has held in various cases that an attorney-in-fact is not a real party in interest, that there is
no law permitting an action to be brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18

Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v.
San Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 from the reinsurers,
the uninsured portion of what it paid to JDA is the difference between the two amounts, or P3,666.28. This is the amount
for which Pioneer may sue defendants, assuming that the indemnity agreement is still valid and effective. But since the
amount realized from the sale of the mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a
spare engine, or a total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more claim
against defendants. (Record on Appeal, pp. 360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this admitted payment, the only
issue that cropped up was the effect of payment made by the reinsurers to the petitioner. Therefore, the petitioner's argument that the
respondents had no interest in the reinsurance contract as this is strictly between the petitioner as insured and the reinsuring company
pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis.

In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired in similar cases
where the original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).

The rules of practice in actions on original insurance policies are in general applicable to actions or contracts of
reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).

Hence the applicable law is Article 2207 of the new Civil Code, to wit:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we
subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals(154 SCRA 650 [1987]):

Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that
the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer
does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this
legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured .
(Emphasis supplied).

It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.

Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the respondents for the
reason that the petitioner was not the real party in interest in the complaint and, therefore, has no cause of action against the respondents.

Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have been dismissed on the premise that
the evidence on record shows that it is entitled to recover from the counter indemnitors. It does not, however, cite any grounds except its
allegation that respondent "Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back up its contention.

On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its finding that the counterindemnitors are not liable to the petitioner. The trial court stated:

Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after the execution of the
chattel mortgage.

Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue the bond provided
that the same would be mortgaged to it, but this was not possible because the planes were still in Japan and could not be
mortgaged here in the Philippines. As soon as the aircrafts were brought to the Philippines, they would be mortgaged to
Pioneer Insurance to cover the bond, and this indemnity agreement would be cancelled.

The following is averred under oath by Pioneer in the original complaint:

The various conflicting claims over the mortgaged properties have impaired and rendered insufficient
the security under the chattel mortgage and there is thus no other sufficient security for the claim
sought to be enforced by this action.

This is judicial admission and aside from the chattel mortgage there is no other security for the claim sought to be
enforced by this action, which necessarily means that the indemnity agreement had ceased to have any force and effect
at the time this action was instituted. Sec 2, Rule 129, Revised Rules of Court.

Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and spare parts, no longer
has any further action against the defendants as indemnitors to recover any unpaid balance of the price. The indemnity
agreement was ipso jure extinguished upon the foreclosure of the chattel mortgage. These defendants, as indemnitors,
would be entitled to be subrogated to the right of Pioneer should they make payments to the latter. Articles 2067 and
2080 of the New Civil Code of the Philippines.

Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes any further action to
recover any unpaid balance of the price.

SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as surety having made
of the payments to JDA, the alternative remedies open to Pioneer were as provided in Article 1484 of the New Civil Code,
known as the Recto Law.

Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and the instant suit.
Such being the case, as provided by the aforementioned provisions, Pioneer shall have no further action against the
purchaser to recover any unpaid balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment &
Finance Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6.

The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not the vendor
but JDA. The reason is that Pioneer is actually exercising the rights of JDA as vendor, having subrogated it in such rights.
Nor may the application of the provision be validly opposed on the ground that these defendants and defendant Maglana
are not the vendee but indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61
SCRA 124.

The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged these defendants
from any liability as alleged indemnitors. The change of the maturity dates of the obligations of Lim, or SAL extinguish the
original obligations thru novations thus discharging the indemnitors.

The principal hereof shall be paid in eight equal successive three months interval installments, the first
of which shall be due and payable 25 August 1965, the remainder of which ... shall be due and payable
on the 26th day x x x of each succeeding three months and the last of which shall be due and payable
26th May 1967.

However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA, modifying the
maturity dates of the obligations, as follows:

The principal hereof shall be paid in eight equal successive three month interval installments the first of
which shall be due and payable 4 September 1965, the remainder of which ... shall be due and payable
on the 4th day ... of each succeeding months and the last of which shall be due and payable 4th June
1967.

Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates different from that fixed in
the aforesaid memorandum; the due date of the first installment appears as October 15, 1965, and those of the rest of
the installments, the 15th of each succeeding three months, that of the last installment being July 15, 1967.

These restructuring of the obligations with regard to their maturity dates, effected twice, were done without the
knowledge, much less, would have it believed that these defendants Maglana (sic). Pioneer's official Numeriano
Carbonel would have it believed that these defendants and defendant Maglana knew of and consented to the
modification of the obligations. But if that were so, there would have been the corresponding documents in the form of a
written notice to as well as written conformity of these defendants, and there are no such document. The consequence of
this was the extinguishment of the obligations and of the surety bond secured by the indemnity agreement which was
thereby also extinguished. Applicable by analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar
Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.

Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty The mere failure on the part of the creditor to demand payment after the debt
has become due does not of itself constitute any extension time referred to herein, (New Civil Code).'

Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36
O.G. 1571.

Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. Consequently, Pioneer has no
more cause of action to recover from these defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an
express stipulation in the surety bond, the failure of JDA to present its claim to Pioneer within ten days from default of Lim
or SAL on every installment, released Pioneer from liability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.

Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if
such payment is made after the obligation has prescribed or became illegal.

These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by reason of the filing
of the instant case against them and the attachment and garnishment of their properties. The instant action is clearly
unfounded insofar as plaintiff drags these defendants and defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of
G.R. No. 84157).

We find no cogent reason to reverse or modify these findings.

Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.

We now discuss the merits of G.R. No. 84157.

Petitioner Jacob S. Lim poses the following issues:

l. What legal rules govern the relationship among co-investors whose agreement was to do business through the
corporate vehicle but who failed to incorporate the entity in which they had chosen to invest? How are the losses to be
treated in situations where their contributions to the intended 'corporation' were invested not through the corporate form?
This Petition presents these fundamental questions which we believe were resolved erroneously by the Court of Appeals
('CA'). (Rollo, p. 6).

These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and that as a consequence of such
relationship all must share in the losses and/or gains of the venture in proportion to their contribution. The petitioner, therefore, questions
the appellate court's findings ordering him to reimburse certain amounts given by the respondents to the petitioner as their contributions to
the intended corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amount of P184,878.74
as correctly found by the trial court, with interest from the filing of the cross-complaints until the amount is fully paid.
Defendant Lim should pay one-half of the said amount to Bormaheco and the Cervanteses and the other one-half to
defendant Maglana. It is established in the records that defendant Lim had duly received the amount of Pl51,000.00 from
defendants Bormaheco and Maglana representing the latter's participation in the ownership of the subject airplanes and
spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred additional expenses, hence, the total sum of P
184,878.74.

We first state the principles.

While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association
should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing
partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who
attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position of
partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons associate
themselves together under articles to purchase property to carry on a business, and their organization is so defective as
to come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as
members of the company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond Packing
Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a
corporation for the development of land for irrigation purposes, and each conveyed land to the corporation, and two of
them contracted to pay a third the difference in the proportionate value of the land conveyed by him, and no stock was

ever issued in the corporation, it was treated as a trustee for the associates in an action between them for an accounting,
and its capital stock was treated as partnership assets, sold, and the proceeds distributed among them in proportion to
the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not
necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves,
when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461,
472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thus, one who takes
no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner
with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such
in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership
relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence
of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter
(Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).

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

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

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business.
Lim was to procure two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as
well as the required permits for the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of
P75,000.00 for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered
his share of the undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to incorporate his
airline in accordance with their agreement and proceeded to acquire the planes on his own account. Since then up to the
filing of this answer, Lim has refused, failed and still refuses to set up the corporation or return the money of Maglana.
(Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third party complaint:

Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two airplanes and spare
parts from Japan which the latter considered as their lawful contribution and participation in the proposed corporation to
be known as SAL. Arrangements and negotiations were undertaken by defendant Lim. Down payments were advanced
by defendants Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among
the defendants, defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage and
surety bond agreement in his personal capacity as the alleged proprietor of the SAL. The answering defendants learned
for the first time of this trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel mortgage
(sic) allegedly executed by defendant Lim, thereby forcing them to file an adverse claim in the form of third party claim.
Notwithstanding repeated oral demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to
surrender the possession of the two planes and their accessories and or return the amount advanced by the former
amounting to an aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted
and refused to comply with them. (Record on Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was created among the
parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare
parts.

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

2. CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant, vs.TEODORO SANDIKO, defendant-appellee.

This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the plaintiff's complaint.

Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri, Province of Cagayan, as
evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which is in evidence as Exhibit 1. To guarantee
the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National Bank a first
mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same bank was in April of 1930 executed by
Tabora over the same lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the same lands was
executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000. These mortgages were
registered and annotations thereof appear at the back of transfer certificate of title No. 217.

On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of
which the four parcels of land owned by him was sold to the plaintiff company, said to under process of incorporation, in consideration of
one peso (P1) subject to the mortgages in favor of the Philippine National Bank and Severina Buzon and, to the condition that the
certificate of title to said lands shall not be transferred to the name of the plaintiff company until the latter has fully and completely paid
Tabora's indebtedness to the Philippine National Bank.

The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on October 22, 1930 (Exhibit 2). A year later,
on October 28, 1931, the board of directors of said company adopted a resolution (Exhibit G) authorizing its president, Jose Ventura, to sell
the four parcels of lands in question to Teodoro Sandiko for P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is
a deed of sale executed before a notary public by the terms of which the plaintiff sold ceded and transferred to the defendant all its right,
titles, and interest in and to the four parcels of land described in transfer certificate in turn obligated himself to shoulder the three mortgages
hereinbefore referred to. Exhibit C is a promisory note for P25,300. drawn by the defendant in favor of the plaintiff, payable after one year
from the date thereof. Exhibit D is a deed of mortgage executed before a notary public in accordance with which the four parcels of land
were given a security for the payment of the promissory note, Exhibit C. All these three instrument were dated February 15, 1932.

The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought this action in the Court of
First Instance of Manila praying that judgment be rendered against the defendant for the sum of P25,300, with interest at legal rate from the
date of the filing of the complaint, and the costs of the suits. After trial, the court below, on December 18, 1934, rendered judgment
absolving the defendant, with costs against the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which motion was
denied by the trial court on January 19 of the same year. After due exception and notice, plaintiff has appealed to this court and makes an
assignment of various errors.

In dismissing the complaint against the defendant, the court below, reached the conclusion that Exhibit B is invalid because of vice in
consent and repugnancy to law. While we do not agree with this conclusion, we have however voted to affirm the judgment appealed from
the reasons which we shall presently state.

The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on May 31, 1930 (Exhibit A) and
the actual incorporation of said company was affected later on October 22, 1930 (Exhibit 2). In other words, the transfer was made almost
five months before the incorporation of the company. Unquestionably, a duly organized corporation has the power to purchase and hold
such real property as the purposes for which such corporation was formed may permit and for this purpose may enter into such contracts
as may be necessary (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). But before a corporation may be said to be lawfully organized,
many things have to be done. Among other things, the law requires the filing of articles of incorporation (secs. 6 et seq., Act. No. 1459).
Although there is a presumption that all the requirements of law have been complied with (sec. 334, par. 31 Code of Civil Procedure), in the
case before us it can not be denied that the plaintiff was not yet incorporated when it entered into a contract of sale, Exhibit A. The contract
itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even a de facto corporation at the time. Not being in
legal existence then, it did not possess juridical capacity to enter into the contract.

Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has already been
stated, general law authorizing the formation of corporations are general offers to any persons who may bring themselves within
their provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to be done, they are terms of
the offer, and must be complied with substantially before legal corporate existence can be acquired. (14 C. J., sec. 111, p. 118.)

That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a
contract or transact any business, would seem to be self evident. . . . A corporation, until organized, has no being, franchises or
faculties. Nor do those engaged in bringing it into being have any power to bind it by contract, unless so authorized by the charter
there is not a corporation nor does it possess franchise or faculties for it or others to exercise, until it acquires a complete
existence. (Gent vs. Manufacturers and Merchant's Mutual Insurance Company, 107 Ill., 652, 658.)

Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel Tabora and a non-existent corporation
but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora, his wife and others, as
mere promoters of a corporations on the other hand. For reasons that are self-evident, these promoters could not have acted as agent for a
projected corporation since that which no legal existence could have no agent. A corporation, until organized, has no life and therefore no
faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the acts of promoters of a
corporation be ratified by the corporation if and when subsequently organized. There are, of course, exceptions (Fletcher Cyc. of Corps.,
permanent edition, 1931, vol. I, secs. 207 et seq.), but under the peculiar facts and circumstances of the present case we decline to extend
the doctrine of ratification which would result in the commission of injustice or fraud to the candid and unwary.(Massachusetts rule, Abbott
vs. Hapgood, 150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases; Koppel vs. Massachusetts
Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It should be
observed that Manuel Tabora was the registered owner of the four parcels of land, which he succeeded in mortgaging to the Philippine
National Bank so that he might have the necessary funds with which to convert and develop them into fishery. He appeared to have met
with financial reverses. He formed a corporation composed of himself, his wife, and a few others. From the articles of incorporation, Exhibit
2, it appears that out of the P48,700, amount of capital stock subscribed, P45,000 was subscribed by Manuel Tabora himself and P500 by
his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on subscription, P42,100 is made to appear as paid by Tabora and
P200 by his wife. Both Tabora and His wife were directors and the latter was treasurer as well. In fact, to this day, the lands remain
inscribed in Tabora's name. The defendant always regarded Tabora as the owner of the lands. He dealt with Tabora directly. Jose Ventura,
president of the plaintiff corporation, intervened only to sign the contract, Exhibit B, in behalf of the plaintiff. Even the Philippine National
Bank, mortgagee of the four parcels of land, always treated Tabora as the owner of the same. ( SeeExhibits E and F.) Two civil suits (Nos.
1931 and 38641) were brought against Tabora in the Court of First Instance of Manila and in both cases a writ of attachment against the
four parcels of land was issued. The Philippine National Bank threatened to foreclose its mortgages. Tabora approached the defendant
Sandiko and succeeded in the making him sign Exhibits B, C, and D and in making him, among other things, assume the payment of
Tabora's indebtedness to the Philippine National Bank. The promisory note, Exhibit C, was made payable to the plaintiff company so that it
may not attached by Tabora's creditors, two of whom had obtained writs of attachment against the four parcels of land.

If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did not possess any resultant
right to dispose of them by sale to the defendant, Teodoro Sandiko.

Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan Fishing Development
Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent (condicion suspensiva), namely, the payment

of the mortgage debt of said Tabora to the Philippine National Bank, and that this condition not having been complied with by the Cagayan
Fishing Development Company, Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696;
Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing
Development Company, Inc. was null because at the time it was affected the corporation was non-existent, we deem it unnecessary to
discuss this point.lawphil.net

The decision of the lower court is accordingly affirmed, with costs against the appellant. So Ordered.

3. INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs.

HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.

On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the
Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as
a travel agency to the latter.1 The offer was accepted.

Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to
P449,654.83. For the tickets received, the Federation made two partial payments, both in September of 1989, in the total amount of
P176,467.50.2

On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of
P265,894.33.3 On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00.4

On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of
the Federation.5 Thereafter, no further payments were made despite repeated demands.

This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal capacity
and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable
for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.6

Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount P207,524.20,
representing the unpaid balance for the plane tickets, he averred that the petitioner has no cause of action against him either in his
personal capacity or in his official capacity as president of the Federation. He maintained that he did not guarantee payment but merely
acted as an agent of the Federation which has a separate and distinct juridical personality.7

On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court. 8

In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid
obligation of the Federation. In arriving at the said ruling, the trial court rationalized:

Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation.
The trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence
of the defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports
association xxx." This has not been denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation, its
corporate existence is within the personal knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the
plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not.

xxx

A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered
into by its officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves
personally liable.

x x x9

The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest
thereon at the legal rate computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and
another sum of P15,000.00 for attorney's fees.

The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby
dismissed.

With the costs against defendant Henri Kahn.10

Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a decision
reversing the trial court, the decretal portion of said decision reads:

WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered
dismissing the complaint against defendant Henri S. Kahn.11

In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed
to prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a
separate and distinct personality from its officers.

Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation.
The same was denied by the appellate court in its resolution of 8 February 1995, where it stated that:

As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine
Football Federation (PFF) as liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against
the Philippine Football Federation, and the plaintiff did not appeal from this decision. Hence, the Philippine Football Federation is not a
party to this appeal and consequently, no judgment may be pronounced by this Court against the PFF without violating the due process
clause, let alone the fact that the judgment dismissing the complaint against it, had already become final by virtue of the plaintiff's failure to
appeal therefrom. The alternative prayer is therefore similarly DENIED.12

Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors:13

A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE PHILIPPINE
FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI
KAHN WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY.

B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY
LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF
FULLY SETTLING THE OBLIGATION.

C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE HONORABLE COURT
OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE
OBLIGATION.

The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person. In
the assailed decision, the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135,
otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from
which said Federation derives its existence.

As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports
associations. This may be gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides:

SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the following functions, powers and
duties:

1. To adopt a constitution and by-laws for their internal organization and government;

2. To raise funds by donations, benefits, and other means for their purposes.

3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their purpose;

4. To affiliate with international or regional sports' Associations after due consultation with the executive committee;

xxx

13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with
this Act.

Section 8 of P.D. 604, grants similar functions to these sports associations:

SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations shall have the following functions,
powers, and duties:

1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department
and any amendment thereto shall take effect upon approval by the Department: Provided, however, That no team, school, club,
organization, or entity shall be admitted as a voting member of an association unless 60 per cent of the athletes composing said
team, school, club, organization, or entity are Filipino citizens;

2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department;

3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose;

4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of their
sport;

5. Affiliate with international or regional sports associations after due consultation with the Department;

xxx

13. Perform such other functions as may be provided by law.

The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical
personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or
artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded
corporate status, such does not automatically take place by the mere passage of these laws.

It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a
special law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine
Football Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision
creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the
manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135 provides:

SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each individual sports in
the Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition as a
National Sports' Association shall be filed with the executive committee together with, among others, a copy of the constitution and by-laws
and a list of the members of the proposed association, and a filing fee of ten pesos.

The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act
and particularly section three thereof. No application shall be held pending for more than three months after the filing thereof without any
action having been taken thereon by the executive committee. Should the application be rejected, the reasons for such rejection shall be
clearly stated in a written communication to the applicant. Failure to specify the reasons for the rejection shall not affect the application
which shall be considered as unacted upon: Provided, however, That until the executive committee herein provided shall have been
formed, applications for recognition shall be passed upon by the duly elected members of the present executive committee of the Philippine
Amateur Athletic Federation. The said executive committee shall be dissolved upon the organization of the executive committee herein
provided: Provided, further, That the functioning executive committee is charged with the responsibility of seeing to it that the National
Sports' Associations are formed and organized within six months from and after the passage of this Act.

Section 7 of P.D. 604, similarly provides:

SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for each individual sport
in the Philippines shall be filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the
members of the proposed association.

The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the
objectives of this Decree and has substantially complied with the rules and regulations of the Department: Provided, That the Department
may withdraw accreditation or recognition for violation of this Decree and such rules and regulations formulated by it.

The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the
development and promotion of the particular sport for which they are organized.

Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be
recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and
Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical

existence of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution and bylaws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and
accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule
that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have
corporate existence of its own.

Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated
Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts
performed as such agent.14 As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or nonexistence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was
defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the
Federation in such a manner as to recognize and in effect admit its existence. 15 The doctrine of corporation by estoppel is mistakenly
applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability
on a contract from which he has benefited on the irrelevant ground of defective incorporation. 16 In the case at bar, the petitioner is not trying
to escape liability from the contract but rather is the one claiming from the contract.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila, Branch 35,
in Civil Case No. 90-53595 is hereby REINSTATED.

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

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

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR
CV
41477, 1 which disposed as follows:

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

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

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 hereinafter made
by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this
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 plaintiff's invoices and computed on their respective
amounts as follows:

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

February 9, 1990;

ii. Accrued interest for 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 attorney's 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 from
September 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
in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount P600,045.00, this Court
noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff
but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this
case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and
winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of
P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure

in this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to
plaintiff as the highest bidder in the public auction sale. It has also been noted 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 the attachment bond filed
by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded 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
will have 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 be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages
and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact that they are not
the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities
arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and
ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of
Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). 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 worth P68,000 were also sold to the Corporation.

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit against Chua, Yao
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as
general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from
the Securities and Exchange Commission. 5 On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the
sheriff enforced by attaching the fishing nets on board 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 reasonable time within which to pay.
He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed
to have waived his right to cross-examine witnesses and to present evidence on 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.6 The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of P900,000.

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

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2)
on a Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC
of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages.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
P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation 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 the excess 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
be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao. 11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be
presumed from the equal distribution of the profit and loss. 21

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 may thus be held liable as a
such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:

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

Hence, petitioner brought this recourse before this Court. 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 FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S GOODS.

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

This Court's 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 the CA finding that a
partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on 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 of the respondent company. Petitioner further argues that he was a lessor,
not a partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two the main
asset of the purported partnership the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25
percent 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 that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

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

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: 15

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

(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB
Lourdes 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 expenses for 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 of P1
million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats,
Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine
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 and Peter 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 the
terms 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 fishing business, which they
started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds 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. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or

industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also
shows that 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 nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition 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 the fishing business. They
purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.

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 present action is embraced by one of the
exceptions to the rule. 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 court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He also
claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an embodiment 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 relevant facts. Both lower courts
have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on the
basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and
explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings
mentioned above nullified petitioner's argument that the existence of a partnership was based only on the Compromise Agreement.

Petitioner Was a Partner,

Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing
venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing 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 of his own boats to pay a debt of Chua
and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do 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 debts were undertaken in
order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as
well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes,
though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender trusts, 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 not incur, 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.

Sec. 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 result
thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground
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 from denying its corporate
existence. "The reason behind this doctrine is obvious an unincorporated association has no personality and would be incompetent to
act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on
another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own

risk. And as it is an elementary principle of law 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 a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent. 17

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

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged 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 jointly 18 liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in
the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never
directly transacted with the respondent corporation, ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an
asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively 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 it was never legally
formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits 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 of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement
and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays
before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a

rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and
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 the Court of Appeals that this
issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership 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 bought and used in the fishing venture they agreed upon. Hence, the issuance of the
Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained
with Respondent Philippine Fishing Gear, until full payment thereof.

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

5. REYNALDO M. LOZANO, petitioner, vs.HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and
ANTONIO ANDA,respondents.

This petition for certiorari seeks to annul and set aside the decision of the Regional Trial Court, Branch 58, Angeles City which ordered the
Municipal Circuit Trial Court, Mabalacat and Magalang, Pampanga to dismiss Civil Case No. 1214 for lack of jurisdiction.

The facts are undisputed. On December 19, 1995, petitioner Reynaldo M. Lozano filed Civil Case No. 1214 for damages against
respondent Antonio Anda before the Municipal Circuit Trial Court (MCTC), Mabalacat and Magalang, Pampanga. Petitioner alleged that he
was the president of the Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Inc. (KAMAJDA) while respondent Anda was the
president of the Samahang Angeles-Mabalacat Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA); in August 1995, upon the
request of the Sangguniang Bayan of Mabalacat, Pampanga, petitioner and private respondent agreed to consolidate their respective
associations and form the Unified Mabalacat-Angeles Jeepney Operators' and Drivers Association, Inc. (UMAJODA); petitioner and private
respondent also agreed to elect one set of officers who shall be given the sole authority to collect the daily dues from the members of the
consolidated association; elections were held on October 29, 1995 and both petitioner and private respondent ran for president; petitioner
won; private respondent protested and, alleging fraud, refused to recognize the results of the election; private respondent also refused to
abide by their agreement and continued collecting the dues from the members of his association despite several demands to desist.
Petitioner was thus constrained to file the complaint to restrain private respondent from collecting the dues and to order him to pay
damages in the amount of P25,000.00 and attorney's fees of P500.00.1

Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was lodged with the Securities and
Exchange Commission (SEC). The MCTC denied the motion on February 9, 1996. 2 It denied reconsideration on March 8, 1996. 3

Private respondent filed a petition for certiorari before the Regional Trial Court, Branch 58, Angeles City. 4 The trial court found the dispute
to be intracorporate, hence, subject to the jurisdiction of the SEC, and ordered the MCTC to dismiss Civil Case No. 1214 accordingly. 5 It
denied reconsideration on May 31, 1996. 6

Hence this petition. Petitioner claims that:

THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION AND SERIOUS ERROR OF LAW IN CONCLUDING THAT THE SECURITIES AND EXCHANGE
COMMISSION HAS JURISDICTION OVER A CASE OF DAMAGES BETWEEN HEADS/PRESIDENTS OF TWO (2)
ASSOCIATIONS WHO INTENDED TO CONSOLIDATE/MERGE THEIR ASSOCIATIONS BUT NOT YET [SIC]
APPROVED AND REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION. 7

The jurisdiction of the Securities and Exchange Commission (SEC) is set forth in Section 5 of Presidential Decree No. 902-A. Section 5
reads as follows:

Sec. 5. . . . [T]he Securities and Exchange Commission [has] original and exclusive jurisdiction to hear and decide cases
involving:

(a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners,
amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the
stockholders, partners, members of associations or organizations registered with the Commission.

(b) Controversies arising out of intracorporate or partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders,
members, or associates, respectively; and between such corporation, partnership or association and the state insofar as
it concerns their individual franchise or right to exist as such entity.

(c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations,
partnerships or associations.

(d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases
where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to over its liabilities, but is under the management of a Rehabilitation Receiver or
Management Committee created pursuant to this Decree.

The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. 8This jurisdiction is
determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is
the subject of their controversy. 9

The first element requires that the controversy must arise out of intracorporate or partnership relations between and among stockholders,
members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership or association and the State in so far as it concerns their
individual franchises. 10 The second element requires that the dispute among the parties be intrinsically connected with the regulation of the
corporation, partnership or association or deal with the internal affairs of the corporation, partnership or association.

11

After all, the principal

function of the SEC is the supervision and control of corporations, partnership and associations with the end in view that investments in
these entities may be encouraged and protected, and their entities may be encouraged and protected, and their activities pursued for the
promotion of economic development. 12

There is no intracorporate nor partnership relation between petitioner and private respondent. The controversy between them arose out of
their plan to consolidate their respective jeepney drivers' and operators' associations into a single common association. This unified
association was, however, still a proposal. It had not been approved by the SEC, neither had its officers and members submitted their
articles of consolidation is accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes effective not upon mere
agreement of the members but only upon issuance of the certificate of consolidation by the SEC.

13

When the SEC, upon processing and

examining the articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions of the
Corporation Code and existing laws, it issues a certificate of consolidation which makes the reorganization official.

14

The new consolidated

corporation comes into existence and the constituent corporations dissolve and cease to exist. 15

The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but these associations
are two separate entities. The dispute between petitioner and private respondent is not within the KAMAJDA nor the SAMAJODA. It is
between members of separate and distinct associations. Petitioner and private respondent have no intracorporate relation much less do
they have an intracorporate dispute. The SEC therefore has no jurisdiction over the complaint.

The doctrine of corporation by estoppel

16

advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed

by law and is not subject to the agreement of the parties.

17

It cannot be acquired through or waived, enlarged or diminished by, any act or

omission of the parties, neither can it be conferred by the acquiescence of the court.18

Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness.

19

It applies when persons

assume to form a corporation and exercise corporate functions and enter into business relations with third person. Where there is no third
person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been
registered, there is no corporation by estoppel. 20

IN VIEW WHEREOF, the petition is granted and the decision dated April 18, 1996 and the order dated May 31, 1996 of the Regional Trial
Court, Branch 58, Angeles City are set aside. The Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga is ordered to
proceed with dispatch in resolving Civil Case No. 1214. No costs.