G.R. No. 84197 July 28, 1989 PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs. THE HON.

COURT OF APPEALS, OR!ER "ACHINERY & HEA#Y E$UIP"ENT, INC., % OR"AHECO&, CONSTANCIO ". "AGLANA '() JACO S. LI", respondents. G.R. No. 841*7 July 28, 1989 JACO S. LI", petitioner, vs. COURT OF APPEALS, PIONEER INSURANCE AN! SURETY CORPORATION, OR!ER "ACHINERY '() HEA#Y E$UIP"ENT CO., INC,, FRANCISCO '() "O!ESTO CER#ANTES '() CONSTANCIO "AGLANA,respondents. Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation. Sycip, Salazar, Hernandez & Gatmaitan for acob S. !im. "enato . "obles for #$"%&HEC$, Inc. and Cer'anteses. !eonardo #. !ucena for Constancio %aglana. GUTIERRE+, JR., J.: The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66 !" #hich modified the decision of the then Court of $irst %nstance of &anila in Civil Case No. 66 '". The plaintiffs complaint (petitioner in G.R. No. )* !+, a-ainst all defendants (respondents in G.R. No. )* !+, #as dismissed but in all other respects the trial court.s decision #as affirmed. The dispositive portion of the trial court.s decision reads as follo#s/ 012R2$3R2, jud-ment is rendered a-ainst defendant 4acob 5. 6im re7uirin- 6im to pa8 plaintiff the amount of 9' ,:"6.:;, #ith interest at the rate of ;< per annum compounded monthl8= plus "< of the amount a#arded to plaintiff as attorne8.s fees from 4ul8 ;, !66, until full pa8ment is made= plus 9+:,:::.:: moral and e>emplar8 dama-es. %t is found in the records that the cross part8 plaintiffs incurred additional miscellaneous e>penses aside from 9l" ,:::.::,,ma?in- a total of 9 )*,)+).+*. @efendant 4acob 5. 6im is further re7uired to pa8 cross part8 plaintiff, Aormaheco, the Cervanteses one-half and &a-lana the other half, the amount of 9l)*,)+).+* #ith interest from the filin- of the cross-complaints until the amount is full8 paid= plus moral and e>emplar8 dama-es in the amount of 9 )*,)+).)* #ith interest from the filin- of the cross-complaints until the amount is full8 paid= plus moral and e>emplar8 dama-es in the amount of 9":,:::.:: for each of the t#o Cervanteses. $urthermore, he is re7uired to pa8 9;:,:::.:: to Aormaheco and the Cervanteses, and another 9;:,:::.:: to Constancio A. &a-lana as attorne8.s fees. >>> >>> >>> 012R2$3R2, in vie# of all above, the complaint of plaintiff 9ioneer a-ainst defendants Aormaheco, the Cervanteses and Constancio A. &a-lana, is dismissed. %nstead, plaintiff is re7uired to indemnif8 the defendants Aormaheco and the Cervanteses the amount of 9;:,:::.:: as attorne8.s fees and the amount of 9*,'+!.; , per 8ear from !66 #ith le-al rate of interest up to the time it is paid. $urthermore, the plaintiff is re7uired to pa8 Constancio A. &a-lana the amount of 9;:,:::.:: as attorne8.s fees and costs. No moral or e>emplar8 dama-es is a#arded a-ainst plaintiff for this action #as filed in -ood faith. The fact that the properties of the Aormaheco and the Cervanteses #ere attached and that the8 #ere re7uired to file a counterbond in order to dissolve the attachment, is not an act of bad faith. 0hen a man tries to protect his ri-hts, he should not be saddled #ith moral or e>emplar8 dama-es. $urthermore, the ri-hts e>ercised #ere provided for in the Rules of Court, and it #as the court that ordered it, in the e>ercise of its discretion. No dama-e is decided a-ainst &ala8an %nsurance Compan8, %nc., the third-part8 defendant, for it onl8 secured the attachment pra8ed for b8 the plaintiff 9ioneer. %f an insurance compan8 #ould be liable for dama-es in performin- an act #hich is clearl8 #ithin its po#er and #hich is the reason for its bein-, then nobod8 #ould en-a-e in the insurance business. No further claim or counterclaim for or a-ainst an8bod8 is declared b8 this Court. (Rollo - G.R. No. ;* !+, pp. "- 6, %n !6", 4acob 5. 6im (petitioner in G.R. No. )* "+, #as en-a-ed in the airline business as o#ner-operator of 5outhern Air 6ines (5A6, a sin-le proprietorship. 3n &a8 +, !6", at To?8o, 4apan, 4apan @omestic Airlines (4@A, and 6im entered into and e>ecuted a sales contract (2>hibit A, for the sale and purchase of t#o (;, @C-'A T8pe aircrafts and one ( , set of

necessar8 spare parts for the total a-reed price of B5 C :!,:::.:: to be paid in installments. 3ne @C-' Aircraft #ith Re-istr8 No. 9%C-+ ), arrived in &anila on 4une +, !6" #hile the other aircraft, arrived in &anila on 4ul8 ), !6". 3n &a8 ;;, !6", 9ioneer %nsurance and 5uret8 Corporation (9ioneer, petitioner in G.R. No. )* !+, as suret8 e>ecuted and issued its 5uret8 Aond No. 66'! (2>hibit C, in favor of 4@A, in behalf of its principal, 6im, for the balance price of the aircrafts and spare parts. %t appears that Aorder &achiner8 and 1eav8 27uipment Compan8, %nc. (Aormaheco,, $rancisco and &odesto Cervantes (Cervanteses, and Constancio &a-lana (respondents in both petitions, contributed some funds used in the purchase of the above aircrafts and spare parts. The funds #ere supposed to be their contributions to a ne# corporation proposed b8 6im to e>pand his airline business. The8 e>ecuted t#o (;, separate indemnit8 a-reements (2>hibits @- and @-;, in favor of 9ioneer, one si-ned b8 &a-lana and the other jointl8 si-ned b8 6im for 5A6, Aormaheco and the Cervanteses. The indemnit8 a-reements stipulated that the indemnitors principall8 a-ree and bind themselves jointl8 and severall8 to indemnif8 and hold and save harmless 9ioneer from and a-ainst an8Dall dama-es, losses, costs, dama-es, ta>es, penalties, char-es and e>penses of #hatever ?ind and nature #hich 9ioneer ma8 incur in conse7uence of havin- become suret8 upon the bondDnote and to pa8, reimburse and ma?e -ood to 9ioneer, its successors and assi-ns, all sums and amounts of mone8 #hich it or its representatives should or ma8 pa8 or cause to be paid or become liable to pa8 on them of #hatever ?ind and nature. 3n 4une :, !6", 6im doin- business under the name and st8le of 5A6 e>ecuted in favor of 9ioneer as deed of chattel mort-a-e as securit8 for the latter.s suret8ship in favor of the former. %t #as stipulated therein that 6im transfer and conve8 to the suret8 the t#o aircrafts. The deed (2>hibit @, #as dul8 re-istered #ith the 3ffice of the Re-ister of @eeds of the Cit8 of &anila and #ith the Civil Aeronautics Administration pursuant to the Chattel &ort-a-e 6a# and the Civil Aeronautics 6a# (Republic Act No. ++6,, respectivel8. 6im defaulted on his subse7uent installment pa8ments promptin- 4@A to re7uest pa8ments from the suret8. 9ioneer paid a total sum of 9;!),6;6. ;. 9ioneer then filed a petition for the e>trajudicial foreclosure of the said chattel mort-a-e before the 5heriff of @avao Cit8. The Cervanteses and &a-lana, ho#ever, filed a third part8 claim alle-in- that the8 are co-o#ners of the aircrafts, 3n 4ul8 !, !66, 9ioneer filed an action for judicial foreclosure #ith an application for a #rit of preliminar8 attachment a-ainst 6im and respondents, the Cervanteses, Aormaheco and &a-lana. %n their Ans#ers, &a-lana, Aormaheco and the Cervanteses filed cross-claims a-ainst 6im alle-in- that the8 #ere not privies to the contracts si-ned b8 6im and, b8 #a8 of counterclaim, sou-ht for dama-es for bein- e>posed to liti-ation and for recover8 of the sums of mone8 the8 advanced to 6im for the purchase of the aircrafts in 7uestion. After trial on the merits, a decision #as rendered holdin- 6im liable to pa8 9ioneer but dismissed 9ioneer.s complaint a-ainst all other defendants. As stated earlier, the appellate court modified the trial court.s decision in that the plaintiffs complaint a-ainst all the defendants #as dismissed. %n all other respects the trial court.s decision #as affirmed. 0e first resolve G.R. No. )* !+. 9etitioner 9ioneer %nsurance and 5uret8 Corporation avers that/ R2593N@2NT C3BRT 3$ A992A65 GR%2V3B56E 2RR2@ 012N %T @%5&%552@ T12 A992A6 3$ 92T%T%3N2R 3N T12 5362 GR3BN@ T1AT 92T%T%3N2R 1A@ A6R2A@E C3662CT2@ T12 9R3C22@5 3$ T12 R2%N5BRANC2 3N %T5 A3N@ %N $AV3R 3$ T12 4@A AN@ T1AT %T CANN3T R29R252NT A R2%N5BR2R T3 R2C3V2R T12 A&3BNT $R3& 12R2%N 9R%VAT2 R2593N@2NT5 A5 @2$2N@ANT5 %N T12 TR%A6 C3BRT. (Rollo - G. R. No. )* !+, p. :, The petitioner 7uestions the follo#in- findin-s of the appellate court/ 0e find no merit in plaintiffs appeal. %t is undisputed that plaintiff 9ioneer had reinsured its ris? of liabilit8 under the suret8 bond in favor of 4@A and subse7uentl8 collected the proceeds of such reinsurance in the sum of 9;!",:::.::. @efendants. alle-ed obli-ation to 9ioneer amounts to 9;!",:::.::, hence, plaintiffs instant action for the recover8 of the amount of 9;!),666.;) from defendants #ill no lon-er prosper. 9laintiff 9ioneer is not the real part8 in interest to institute the instant action as it does not stand to be benefited or injured b8 the jud-ment. 9laintiff 9ioneer.s contention that it is representinthe reinsurer to recover the amount from defendants, hence, it instituted the action is utterl8 devoid of merit. 9laintiff did not even present an8 evidence that it is the attorne8-in-fact of the reinsurance compan8, authoriFed to institute an action for and in behalf of the latter. To 7ualif8 a person to be a real part8 in interest in #hose name an action must be prosecuted, he must appear to be the present real o#ner of the ri-ht sou-ht to be enforced (&oran, Vol. %, Comments on the Rules

of Court, !+! ed., p. "",. %t has been held that the real part8 in interest is the part8 #ho #ould be benefited or injured b8 the jud-ment or the part8 entitled to the avails of the suit (5alon-a v. 0arner Aarnes G Co., 6td., )) 9hil. ;", ' ,. A8 real part8 in interest is meant a present substantial interest as distin-uished from a mere e>pectanc8 or a future, contin-ent, subordinate or conse7uential interest (Garcia v. @avid, 6+ 9hil. ;+= 3-lleab8 v. 5prin-field &arine Aan?, "; N.2. ;d 6::, ')" %%%, * *= $lo#ers v. Germans, N0 ;d *;*= 0eber v. Cit8 of Che8e, !+ 9. ;d 66+, 66!, 7uotin- *+ C.V. '",. Aased on the fore-oin- premises, plaintiff 9ioneer cannot be considered as the real part8 in interest as it has alread8 been paid b8 the reinsurer the sum of 9;!",:::.:: H the bul? of defendants. alle-ed obli-ation to 9ioneer. %n addition to the said proceeds of the reinsurance received b8 plaintiff 9ioneer from its reinsurer, the former #as able to foreclose e>tra-judiciall8 one of the subject airplanes and its spare en-ine, realiFin- the total amount of 9'+,:":.:: from the sale of the mort-a-ed chattels. Addin- the sum of 9'+,:":.::, to the proceeds of the reinsurance amountin- to 9;!",:::.::, it is patent that plaintiff has been overpaid in the amount of 9'',')'.+; considerin- that the total amount it had paid to 4@A totals to onl8 9;!),666.;). To allo# plaintiff 9ioneer to recover from defendants the amount in e>cess of 9;!),666.;) #ould be tantamount to unjust enrichment as it has alread8 been paid b8 the reinsurance compan8 of the amount plaintiff has paid to 4@A as suret8 of defendant 6im vis-avis defendant 6im.s liabilit8 to 4@A. 0ell settled is the rule that no person should unjustl8 enrich himself at the e>pense of another (Article ;;, Ne# Civil Code,. (Rollo-)* !+, pp. ;*-;",. The petitioner contends that-( , it is at a loss #here respondent court based its findin- that petitioner #as paid b8 its reinsurer in the aforesaid amount, as this matter has never been raised b8 an8 of the parties herein both in their ans#ers in the court belo# and in their respective briefs #ith respondent court= (Rollo, p. , (;, even assumin- h8potheticall8 that it #as paid b8 its reinsurer, still none of the respondents had an8 interest in the matter since the reinsurance is strictl8 bet#een the petitioner and the re-insurer pursuant to section ! of the %nsurance Code= (', pursuant to the indemnit8 a-reements, the petitioner is entitled to recover from respondents Aormaheco and &a-lana= and (*, the principle of unjust enrichment is not applicable considerin- that #hatever amount he #ould recover from the coindemnitor #ill be paid to the reinsurer. The records belie the petitioner.s contention that the issue on the reinsurance mone8 #as never raised b8 the parties. A cursor8 readin- of the trial court.s len-th8 decision sho#s that t#o of the issues threshed out #ere/ >>> >>> >>> . 1as 9ioneer a cause of action a-ainst defendants #ith respect to so much of its obli-ations to 4@A as has been paid #ith reinsurance mone8I ;. %f the ans#er to the precedin- 7uestion is in the ne-ative, has 9ioneer still an8 claim a-ainst defendants, considerin- the amount it has realiFed from the sale of the mort-a-ed propertiesI (Record on Appeal, p. '"!, Anne> A of G.R. No. )* "+,. %n resolvin- these issues, the trial court made the follo#in- findin-s/ %t appearin- that 9ioneer reinsured its ris? of liabilit8 under the suret8 bond it had e>ecuted in favor of 4@A, collected the proceeds of such reinsurance in the sum of 9;!",:::, and paid #ith the said amount the bul? of its alle-ed liabilit8 to 4@A under the said suret8 bond, it is plain that on this score it no lon-er has an8 ri-ht to collect to the e>tent of the said amount. 3n the 7uestion of #h8 it is 9ioneer, instead of the reinsurance (sic,, that is suin- defendants for the amount paid to it b8 the reinsurers, not#ithstandin- that the cause of action pertains to the latter, 9ioneer sa8s/ The reinsurers opted instead that the 9ioneer %nsurance G 5uret8 Corporation shall pursue alone the case.. . . . 9ioneer %nsurance G 5uret8 Corporation is representin- the reinsurers to recover the amount.. %n other #ords, insofar as the amount paid to it b8 the reinsurers 9ioneer is suin- defendants as their attorne8-in-fact. Aut in the first place, there is not the sli-htest indication in the complaint that 9ioneer is suin- as attorne8-in- fact of the reinsurers for an8 amount. 6astl8, and most important of all, 9ioneer has no ri-ht to institute and maintain in its o#n name an action for the benefit of the reinsurers. %t is #ell-

settled that an action brou-ht b8 an attorne8-infact in his o#n name instead of that of the principal #ill not prosper, and this is so even #here the name of the principal is disclosed in the complaint. 5ection ; of Rule ' of the 3ld Rules of Court provides that .2ver8 action must be prosecuted in the name of the real part8 in interest.. This provision is mandator8. The real part8 in interest is the part8 #ho #ould be benefitted or injured b8 the jud-ment or is the part8 entitled to the avails of the suit. This Court has held in various cases that an attorne8-in-fact is not a real part8 in interest, that there is no la# permittinan action to be brou-ht b8 an attorne8-in-fact. Arro8o v. Granada and Gentero, ) 9hil. Rep. *)*= 6uchauco v. 6imjuco and GonFalo, ! 9hil. Rep. ;= $ilipinos %ndustrial Corporation v. 5an @ie-o G.R. No. 6- ;;'*+, !6), ;' 5CRA +:6, + :-+ *. The total amount paid b8 9ioneer to 4@A is 9;!!,666.;!. 5ince 9ioneer has collected 9;!",:::.:: from the reinsurers, the uninsured portion of #hat it paid to 4@A is the difference bet#een the t#o amounts, or 9',666.;). This is the amount for #hich 9ioneer ma8 sue defendants, assumin- that the indemnit8 a-reement is still valid and effective. Aut since the amount realiFed from the sale of the mort-a-ed chattels are 9'",:::.:: for one of the airplanes and 9;,:":.:: for a spare en-ine, or a total of 9'+,:":.::, 9ioneer is still overpaid b8 9'',')'.+;. Therefore, 9ioneer has no more claim a-ainst defendants. (Record on Appeal, pp. '6:'6',. The pa8ment to the petitioner made b8 the reinsurers #as not disputed in the appellate court. Considerin- this admitted pa8ment, the onl8 issue that cropped up #as the effect of pa8ment made b8 the reinsurers to the petitioner. Therefore, the petitioner.s ar-ument that the respondents had no interest in the reinsurance contract as this is strictl8 bet#een the petitioner as insured and the reinsurin- compan8 pursuant to 5ection ! (should be 5ection !), of the %nsurance Code has no basis. %n -eneral a reinsurer, on pa8ment of a loss ac7uires the same ri-hts b8 subro-ation as are ac7uired in similar cases #here the ori-inal insurer pa8s a loss (Bniversal %ns. Co. v. 3ld Time &olasses Co. C.C.A. 6a., *6 $ ;nd !;",. The rules of practice in actions on ori-inal insurance policies are in -eneral applicable to actions or contracts of reinsurance. (@ela#are, %ns. Co. v. 9enns8lvania $ire %ns. Co., "" 5.2. '':, ;6 GA. '):, + Ann. Con. '*,. 1ence the applicable la# is Article ;;:+ of the ne# Civil Code, to #it/ Art. ;;:+. %f the plaintiffs propert8 has been insured, and he has received indemnit8 from the insurance compan8 for the injur8 or loss arisinout of the #ron- or breach of contract complained of, the insurance compan8 shall be subro-ated to the ri-hts of the insured a-ainst the #ron-doer or the person #ho has violated the contract. %f the amount paid b8 the insurance compan8 does not full8 cover the injur8 or loss, the a--rieved part8 shall be entitled to recover the deficienc8 from the person causin- the loss or injur8. %nterpretin- the aforesaid provision, #e ruled in the case of P(il. &ir !ines, Inc. '. Heald !umber Co. ( : 9hil. :' J !"+K, #hich #e subse7uentl8 applied in %anila %a(ogany %anufacturing Corporation '. Court of &ppeals( "* 5CRA 6": J !)+K,/ Note that if a propert8 is insured and the o#ner receives the indemnit8 from the insurer, it is provided in said article that the insurer is deemed subro-ated to the ri-hts of the insured a-ainst the #ron-doer and if the amount paid b8 the insurer does not full8 cover the loss, then the a--rieved part8 is the one entitled to recover the deficienc8. E'idently, under t(is legal pro'ision, t(e real party in interest )it( regard to t(e portion of t(e indemnity paid is t(e insurer and not t(e insured. (2mphasis supplied,. %t is clear from the records that 9ioneer sued in its o#n name and not as an attorne8-in-fact of the reinsurer. Accordin-l8, the appellate court did not commit a reversible error in dismissin- the petitioner.s complaint as a-ainst the respondents for the reason that the petitioner #as not the real part8 in interest in the

complaint and, therefore, has no cause of action a-ainst the respondents. Nevertheless, the petitioner ar-ues that the appeal as re-ards the counter indemnitors should not have been dismissed on the premise that the evidence on record sho#s that it is entitled to recover from the counter indemnitors. %t does not, ho#ever, cite an8 -rounds e>cept its alle-ation that respondent L&a-lanas defense and evidence are certainl8 incredibleL (p. ;, Rollo, to bac? up its contention. 3n the other hand, #e find the trial court.s findin-s on the matter replete #ith evidence to substantiate its findin- that the counterindemnitors are not liable to the petitioner. The trial court stated/ Apart from the fore-oin- proposition, the indemnit8 a-reement ceased to be valid and effective after the e>ecution of the chattel mort-a-e. Testimonies of defendants $rancisco Cervantes and &odesto Cervantes. 9ioneer %nsurance, ?no#in- the value of the aircrafts and the spare parts involved, a-reed to issue the bond provided that the same #ould be mort-a-ed to it, but this #as not possible because the planes #ere still in 4apan and could not be mort-a-ed here in the 9hilippines. As soon as the aircrafts #ere brou-ht to the 9hilippines, the8 #ould be mort-a-ed to 9ioneer %nsurance to cover the bond, and this indemnit8 a-reement #ould be cancelled. The follo#in- is averred under oath b8 9ioneer in the ori-inal complaint/ The various conflictin- claims over the mort-a-ed properties have impaired and rendered insufficient the securit8 under the chattel mort-a-e and there is thus no other sufficient securit8 for the claim sou-ht to be enforced b8 this action. This is judicial admission and aside from the chattel mort-a-e there is no other securit8 for the claim sou-ht to be enforced b8 this action, #hich necessaril8 means that the indemnit8 a-reement had ceased to have an8 force and effect at the time this action #as instituted. 5ec ;, Rule ;!, Revised Rules of Court. 9rescindin- from the fore-oin-, 9ioneer, havinforeclosed the chattel mort-a-e on the planes and spare parts, no lon-er has an8 further action a-ainst the defendants as indemnitors to recover an8 unpaid balance of the price. The indemnit8 a-reement #as ipso jure e>tin-uished upon the foreclosure of the chattel mort-a-e. These defendants, as indemnitors, #ould be entitled to be subro-ated to the ri-ht of 9ioneer should the8 ma?e pa8ments to the latter. Articles ;:6+ and ;:): of the Ne# Civil Code of the 9hilippines. %ndependentl8 of the precedin- proposition 9ioneer.s election of the remed8 of foreclosure precludes an8 further action to recover an8 unpaid balance of the price. 5A6 or 6im, havin- failed to pa8 the second to the ei-ht and last installments to 4@A and 9ioneer as suret8 havin- made of the pa8ments to 4@A, the alternative remedies open to 9ioneer #ere as provided in Article *)* of the Ne# Civil Code, ?no#n as the Recto 6a#. 9ioneer e>ercised the remed8 of foreclosure of the chattel mort-a-e both b8 e>trajudicial foreclosure and the instant suit. 5uch bein- the case, as provided b8 the aforementioned provisions, 9ioneer shall have no further action a-ainst the purchaser to recover an8 unpaid balance and an8 a-reement to the contrar8 is void.. CruF, et al. v. $ilipinas %nvestment G $inance Corp. No. 6;*++;, &a8 ;+, !6), ;' 5CRA +! , +!"-6. The operation of the fore-oin- provision cannot be escaped from throu-h the contention that 9ioneer is not the vendor but 4@A. The reason is that 9ioneer is actuall8 e>ercisin- the ri-hts of 4@A as vendor, havin- subro-ated it in such ri-hts. Nor ma8 the application of the provision be validl8 opposed on the -round that these defendants and defendant &a-lana are not the vendee but indemnitors. 9ascual, et al. v. Bniversal &otors Corporation, G.R. No. 6- ;+)6;, Nov. ;:, !+*, 6 5CRA ;*. The restructurin- of the obli-ations of 5A6 or 6im, thru the chan-e of their maturit8 dates dischar-ed these defendants from an8 liabilit8 as alle-ed indemnitors. The chan-e of the maturit8 dates of the obli-ations of 6im, or 5A6 e>tin-uish the ori-inal obli-ations thru novations thus dischar-inthe indemnitors.

The principal hereof shall be paid in ei-ht e7ual successive three months interval installments, the first of #hich shall be due and pa8able ;" Au-ust !6", the remainder of #hich ... shall be due and pa8able on the ;6th da8 > > > of each succeedin- three months and the last of #hich shall be due and pa8able ;6th &a8 !6+. 1o#ever, at the trial of this case, 9ioneer produced a memorandum e>ecuted b8 5A6 or 6im and 4@A, modif8in- the maturit8 dates of the obli-ations, as follo#s/ The principal hereof shall be paid in ei-ht e7ual successive three month interval installments the first of #hich shall be due and pa8able * 5eptember !6", the remainder of #hich ... shall be due and pa8able on the *th da8 ... of each succeedinmonths and the last of #hich shall be due and pa8able *th 4une !6+. Not onl8 that, 9ioneer also produced ei-ht purported promissor8 notes bearin- maturit8 dates different from that fi>ed in the aforesaid memorandum= the due date of the first installment appears as 3ctober ", !6", and those of the rest of the installments, the "th of each succeedin- three months, that of the last installment bein- 4ul8 ", !6+. These restructurin- of the obli-ations #ith re-ard to their maturit8 dates, effected t#ice, #ere done #ithout the ?no#led-e, much less, #ould have it believed that these defendants &a-lana (sic,. 9ioneer.s official Numeriano Carbonel #ould have it believed that these defendants and defendant &a-lana ?ne# of and consented to the modification of the obli-ations. Aut if that #ere so, there #ould have been the correspondindocuments in the form of a #ritten notice to as #ell as #ritten conformit8 of these defendants, and there are no such document. The conse7uence of this #as the e>tin-uishment of the obli-ations and of the suret8 bond secured b8 the indemnit8 a-reement #hich #as thereb8 also e>tin-uished. Applicable b8 analo-8 are the rulin-s of the 5upreme Court in the case of Maban?alan 5u-ar Co. v. 9acheco, "" 9hil. ""', "6', and the case of Asiatic 9etroleum Co. v. 1iFon @avid, *" 9hil. "';, "'). Art. ;:+!. An e>tension -ranted to the debtor b8 the creditor #ithout the consent of the -uarantor e>tin-uishes the -uarant8 The mere failure on the part of the creditor to demand pa8ment after the debt has become due does not of itself constitute an8 e>tension time referred to herein, (Ne# Civil Code,.. &anresa, *th ed., Vol. ;, pp. ' 6-' +, Vol. V%, pp. "6;-"6', &.$. 5tevenson G Co., 6td., v. Climacom et al. (C.A., '6 3.G. "+ . 9ioneer.s liabilit8 as suret8 to 4@A had alread8 prescribed #hen 9ioneer paid the same. Conse7uentl8, 9ioneer has no more cause of action to recover from these defendants, as supposed indemnitors, #hat it has paid to 4@A. A8 virtue of an e>press stipulation in the suret8 bond, the failure of 4@A to present its claim to 9ioneer #ithin ten da8s from default of 6im or 5A6 on ever8 installment, released 9ioneer from liabilit8 from the claim. Therefore, 9ioneer is not entitled to e>act reimbursement from these defendants thru the indemnit8. Art. ' ). 9a8ment b8 a solidar8 debtor shall not entitle him to reimbursement from his co-debtors if such pa8ment is made after the obli-ation has prescribed or became ille-al. These defendants are entitled to recover dama-es and attorne8.s fees from 9ioneer and its suret8 b8 reason of the filin- of the instant case a-ainst

them and the attachment and -arnishment of their properties. The instant action is clearl8 unfounded insofar as plaintiff dra-s these defendants and defendant &a-lana.. (Record on Appeal, pp. '6''6!, Rollo of G.R. No. )* "+,. 0e find no co-ent reason to reverse or modif8 these findin-s. 1ence, it is our conclusion that the petition in G.R. No. )* !+ is not meritorious. 0e no# discuss the merits of G.R. No. )* "+. 9etitioner 4acob 5. 6im poses the follo#in- issues/ l. 0hat le-al rules -overn the relationship amonco-investors #hose a-reement #as to do business throu-h the corporate vehicle but #ho failed to incorporate the entit8 in #hich the8 had chosen to investI 1o# are the losses to be treated in situations #here their contributions to the intended .corporation. #ere invested not throu-h the corporate formI This 9etition presents these fundamental 7uestions #hich #e believe #ere resolved erroneousl8 b8 the Court of Appeals (.CA.,. (Rollo, p. 6,. These 7uestions are premised on the petitioner.s theor8 that as a result of the failure of respondents Aormaheco, 5pouses Cervantes, Constancio &a-lana and petitioner 6im to incorporate, a de facto partnership amon- them #as created, and that as a conse7uence of such relationship all must share in the losses andDor -ains of the venture in proportion to their contribution. The petitioner, therefore, 7uestions the appellate court.s findin-s orderin- him to reimburse certain amounts -iven b8 the respondents to the petitioner as their contributions to the intended corporation, to #it/ 1o#ever, defendant 6im should be held liable to pa8 his co-defendants. cross-claims in the total amount of 9 )*,)+).+* as correctl8 found b8 the trial court, #ith interest from the filin- of the crosscomplaints until the amount is full8 paid. @efendant 6im should pa8 one-half of the said amount to Aormaheco and the Cervanteses and the other one-half to defendant &a-lana. %t is established in the records that defendant 6im had dul8 received the amount of 9l" ,:::.:: from defendants Aormaheco and &a-lana representinthe latter.s participation in the o#nership of the subject airplanes and spare parts (2>hibit "),. %n addition, the cross-part8 plaintiffs incurred additional e>penses, hence, the total sum of 9 )*,)+).+*. 0e first state the principles. 0hile it has been held that as bet#een themselves the ri-hts of the stoc?holders in a defectivel8 incorporated association should be -overned b8 the supposed charter and the la#s of the state relatin- thereto and not b8 the rules -overnin- partners (Cannon v. Arush 2lectric Co., "* A. ; , !6 &d. **6, !* Am. 5.R. ")*,, it is ordinaril8 held that persons #ho attempt, but fail, to form a corporation and #ho carr8 on business under the corporate name occup8 the position of partners inter se (68nch v. 9err8man, ! 9. ;;!, ;! 3?l. 6 ", Ann. Cas. ! 'A :6",. Thus, #here persons associate themselves to-ether under articles to purchase propert8 to carr8 on a business, and their or-aniFation is so defective as to come short of creatin- a corporation #ithin the statute, the8 become in le-al effect partners inter se, and their ri-hts as members of the compan8 to the propert8 ac7uired b8 the compan8 #ill be reco-niFed (5mith v. 5choodoc 9ond 9ac?in- Co., )* A. ;6), :! &e. """= 0hipple v. 9ar?er, ;! &ich. '6!,. 5o, #here certain persons associated themselves as a corporation for the development of land for irri-ation purposes, and each conve8ed land to the corporation, and t#o of them contracted to pa8 a third the difference in the proportionate value of the land conve8ed b8 him, and no stoc? #as ever issued in the corporation, it #as treated as a trustee for the associates in an action bet#een them for an accountin-, and its capital stoc? #as treated as partnership assets, sold, and the proceeds distributed amon- them in proportion to the value of the propert8 contributed b8 each (5horb v. Aeaudr8, "6 Cal. **6,. Ho)e'er, suc( a relation does not necessarily e*ist, for ordinarily persons cannot be made to assume t(e relation of partners, as bet)een t(emsel'es, )(en t(eir purpose is t(at no partners(ip s(all e*ist (6ondon Assur. Corp. v. @rennen, &inn., 6 5.Ct. **;, 6 B.5. *6 , *+;, ;! 6.2d. 6)),, and it s(ould be implied only )(en necessary to do +ustice bet)een t(e parties, t(us, one )(o ta-es no part e*cept to subscribe for stoc- in a proposed corporation )(ic( is ne'er legally formed does not become a partner )it( ot(er subscribers )(o engage in business under

t(e name of t(e pretended corporation, so as to be liable as suc( in an action for settlement of t(e alleged partners(ip and contribution (0ard v. Ari-ham, ;+ &ass. ;*,. A partnership relation bet#een certain stoc?holders and other stoc?holders, #ho #ere also directors, #ill not be implied in the absence of an a-reement, so as to ma?e the former liable to contribute for pa8ment of debts ille-all8 contracted b8 the latter (1eald v. 3#en, ** N.0. ; :, +! %o#a ;',. (Corpus 4uris 5ecundum, Vol. 6), p. *6*,. (%talics supplied,. %n the instant case, it is to be noted that the petitioner #as declared non-suited for his failure to appear durin- the pretrial despite notification. %n his ans#er, the petitioner denied havin- received an8 amount from respondents Aormaheco, the Cervanteses and &a-lana. The trial court and the appellate court, ho#ever, found throu-h 2>hibit "), that the petitioner received the amount of 9 " ,:::.:: representin- the participation of Aormaheco and Att8. Constancio A. &a-lana in the o#nership of the subject airplanes and spare parts. The record sho#s that defendant &a-lana -ave 9+",:::.:: to petitioner 4acob 6im thru the Cervanteses. %t is therefore clear that the petitioner never had the intention to form a corporation #ith the respondents despite his representations to them. This -ives credence to the cross-claims of the respondents to the effect that the8 #ere induced and lured b8 the petitioner to ma?e contributions to a proposed corporation #hich #as never formed because the petitioner rene-ed on their a-reement. &a-lana alle-ed in his cross-claim/ ... that sometime in earl8 !6", 4acob 6im proposed to $rancisco Cervantes and &a-lana to e>pand his airline business. 6im #as to procure t#o @C-'.s from 4apan and secure the necessar8 certificates of public convenience and necessit8 as #ell as the re7uired permits for the operation thereof. &a-lana sometime in &a8 !6", -ave Cervantes his share of 9+",:::.:: for deliver8 to 6im #hich Cervantes did and 6im ac?no#led-ed receipt thereof. Cervantes, li?e#ise, delivered his share of the underta?in-. 6im in an underta?insometime on or about Au-ust !, !6", promised to incorporate his airline in accordance #ith their a-reement and proceeded to ac7uire the planes on his o#n account. 5ince then up to the filin- of this ans#er, 6im has refused, failed and still refuses to set up the corporation or return the mone8 of &a-lana. (Record on Appeal, pp. ''+''),. #hile respondents Aormaheco and the Cervanteses alle-ed in their ans#er, counterclaim, cross-claim and third part8 complaint/ 5ometime in April !6", defendant 6im lured and induced the ans#erin- defendants to purchase t#o airplanes and spare parts from 4apan #hich the latter considered as their la#ful contribution and participation in the proposed corporation to be ?no#n as 5A6. Arran-ements and ne-otiations #ere underta?en b8 defendant 6im. @o#n pa8ments #ere advanced b8 defendants Aormaheco and the Cervanteses and Constancio &a-lana (2>h. 2- ,. Contrar8 to the a-reement amon- the defendants, defendant 6im in connivance #ith the plaintiff, si-ned and e>ecuted the alle-ed chattel mort-a-e and suret8 bond a-reement in his personal capacit8 as the alle-ed proprietor of the 5A6. The ans#erin- defendants learned for the first time of this tric?er8 and misrepresentation of the other, 4acob 6im, #hen the herein plaintiff chattel mort-a-e (sic, alle-edl8 e>ecuted b8 defendant 6im, thereb8 forcin- them to file an adverse claim in the form of third part8 claim. Not#ithstandin- repeated oral demands made b8 defendants Aormaheco and Cervanteses, to defendant 6im, to surrender the possession of the t#o planes and their accessories and or return the amount advanced b8 the former amountin- to an a--re-ate sum of 9 +),!!+. * as evidenced b8 a statement of accounts, the latter i-nored, omitted and refused to compl8 #ith them. (Record on Appeal, pp. '* '*;,. Appl8in- therefore the principles of la# earlier cited to the facts of the case, necessaril8, no de facto partnership #as created amon- the parties #hich #ould entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record sho#s that the petitioner #as actin- on his o#n and not in behalf of his other #ould-be incorporators in transactin- the sale of the airplanes and spare parts. 012R2$3R2, the instant petitions are @%5&%552@. The 7uestioned decision of the Court of Appeals is A$$%R&2@. 53 3R@2R2@.