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Republic of the Philippines
Supreme Court Manila
THIRD DIVISION
HEIRS OF JOSE LIM, represented by ELENITO LIM,
Petitioners,
- versus - JULIET VILLA LIM,
Respondent.
G.R. No. 172690 Present: CORONA, J., Chairperson, VELASCO, JR.,
NACHURA, DEL CASTILLO,* and MENDOZA, JJ. Promulgated: March 3,
2010
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DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari[1]
under Rule 45 of the Rules of Civil Procedure, assailing the
Court of Appeals (CA) Decision[2] dated June 29, 2005, which
reversed and set aside the decision[3] of the Regional
Trial Court (RTC) of Lucena City, dated April 12, 2004.
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The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely:
Jose's widow Cresencia Palad (Cresencia); and their
children Elenito, Evelia, Imelda, Edelyna and Edison, all
surnamed Lim (petitioners), represented by Elenito Lim
(Elenito). They filed a Complaint[4] for Partition, Accounting
and Damages against respondent Juliet Villa Lim
(respondent), widow of the late Elfledo Lim (Elfledo), who was
the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of
Interwood Sawmill in Cagsiay, Mauban, Quezon. Sometime in
1980, Jose, together with his friends Jimmy Yu (Jimmy) and
Norberto Uy (Norberto), formed a partnership to engage
in the trucking business. Initially, with a contribution of
P50,000.00 each, they purchased a truck to be used in the
hauling and transport of lumber of the sawmill. Jose managed the
operations of this trucking business until his death
on August 15, 1981. Thereafter, Jose's heirs, including Elfledo,
and partners agreed to continue the business under
the management of Elfledo. The shares in the partnership profits
and income that formed part of the estate of Jose
were held in trust by Elfledo, with petitioners' authority for
Elfledo to use, purchase or acquire properties using said
funds.
Petitioners also alleged that, at that time, Elfledo was a fresh
commerce graduate serving as his fathers driver in the
trucking business. He was never a partner or an investor in the
business and merely supervised the purchase of
additional trucks using the income from the trucking business of
the partners. By the time the partnership ceased, it
had nine trucks, which were all registered in Elfledo's name.
Petitioners asseverated that it was also through Elfledos
management of the partnership that he was able to purchase
numerous real properties by using the profits derived
therefrom, all of which were registered in his name and that of
respondent. In addition to the nine trucks, Elfledo
also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole
surviving heir. Petitioners claimed that respondent
took over the administration of the aforementioned properties,
which belonged to the estate of Jose, without their
consent and approval. Claiming that they are co-owners of the
properties, petitioners required respondent to submit
an accounting of all income, profits and rentals received from
the estate of Elfledo, and to surrender the
administration thereof. Respondent refused; thus, the filing of
this case.
Respondent traversed petitioners' allegations and claimed that
Elfledo was himself a partner of Norberto and
Jimmy. Respondent also claimed that per testimony of Cresencia,
sometime in 1980, Jose gave Elfledo P50,000.00
as the latter's capital in an informal partnership with Jimmy
and Norberto. When Elfledo and respondent got married
in 1981, the partnership only had one truck; but through the
efforts of Elfledo, the business flourished. Other than
this trucking business, Elfledo, together with respondent,
engaged in other business ventures. Thus, they were able
to buy real properties and to put up their own car assembly and
repair business. When Norberto was ambushed and
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killed on July 16, 1993, the trucking business started to
falter. When Elfledo died on May 18, 1995 due to a heart
attack, respondent talked to Jimmy and to the heirs of Norberto,
as she could no longer run the business. Jimmy
suggested that three out of the nine trucks be given to him as
his share, while the other three trucks be given to the
heirs of Norberto. However, Norberto's wife, Paquita Uy, was not
interested in the vehicles. Thus, she sold the same
to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no
known assets, and the partnership with Jimmy and
Norberto ceased upon his demise. Respondent also stressed that
Jose left no properties that Elfledo could have held
in trust. Respondent maintained that all the properties involved
in this case were purchased and acquired through
her and her husbands joint efforts and hard work, and without
any participation or contribution from petitioners or
from Jose. Respondent submitted that these are conjugal
partnership properties; and thus, she had the right to
refuse to render an accounting for the income or profits of
their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered
its decision in favor of petitioners, thus: WHEREFORE, premises
considered, judgment is hereby rendered: 1) Ordering the partition
of the above-mentioned properties equally between the plaintiffs
and heirs of Jose Lim and the defendant Juliet Villa-Lim; and 2)
Ordering the defendant to submit an accounting of all incomes,
profits and rentals received by her from said properties. SO
ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's
decision, dismissing petitioners' complaint for lack of
merit. Undaunted, petitioners filed their Motion for
Reconsideration,[5] which the CA, however, denied in its
Resolution[6] dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY
THE PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN
GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON THE ISSUE OF THE
IDENTITY OF THE OTHER PARTNERS IN THE PARTNERSHIP?[7]
In essence, petitioners argue that according to the testimony of
Jimmy, the sole surviving partner, Elfledo was not a
partner; and that he and Norberto entered into a partnership
with Jose. Thus, the CA erred in not giving that
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testimony greater weight than that of Cresencia, who was merely
the spouse of Jose and not a party to the
partnership.[8]
Respondent counters that the issue raised by petitioners is not
proper in a petition for review on certiorari under Rule
45 of the Rules of Civil Procedure, as it would entail the
review, evaluation, calibration, and re-weighing of the
factual findings of the CA. Moreover, respondent invokes the
rationale of the CA decision that, in light of the
admissions of Cresencia and Edison and the testimony of
respondent, the testimony of Jimmy was effectively
refuted; accordingly, the CA's reversal of the RTC's findings
was fully justified.[9]
We resolve first the procedural matter regarding the propriety
of the instant Petition.
Verily, the evaluation and calibration of the evidence
necessarily involves consideration of factual issues an
exercise
that is not appropriate for a petition for review on
certiorariunder Rule 45. This rule provides that the parties
may
raise only questions of law, because the Supreme Court is not a
trier of facts. Generally, we are not duty-bound to
analyze again and weigh the evidence introduced in and
considered by the tribunals below.[10] When supported by
substantial evidence, the findings of fact of the CA are
conclusive and binding on the parties and are not reviewable
by this Court, unless the case falls under any of the following
recognized exceptions:
(1) When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) When the inference made
is manifestly mistaken, absurd or impossible; (3) Where there is a
grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting; (6) When the Court
of Appeals, in making its findings, went beyond the issues of the
case and the same is contrary to the admissions of both appellant
and appellee; (7) When the findings are contrary to those of the
trial court; (8) When the findings of fact are conclusions without
citation of specific evidence on which they are based; (9) When the
facts set forth in the petition as well as in the petitioners' main
and reply briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and contradicted by
the evidence on record.[11]
We note, however, that the findings of fact of the RTC are
contrary to those of the CA. Thus, our review of such
findings is warranted.
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On the merits of the case, we find that the instant Petition is
bereft of merit.
A partnership exists when two or more persons agree to place
their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there shall be
a proportionate sharing of the profits and losses
among them. A contract of partnership is defined by the Civil
Code as one where 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.[12]
Undoubtedly, the best evidence would have been the contract of
partnership or the articles of partnership.
Unfortunately, there is none in this case, because the alleged
partnership was never formally organized.
Nonetheless, we are asked to determine who between Jose and
Elfledo was the partner in the trucking business.
A careful review of the records persuades us to affirm the CA
decision. The evidence presented by petitioners falls
short of the quantum of proof required to establish that: (1)
Jose was the partner and not Elfledo; and (2) all the
properties acquired by Elfledo and respondent form part of the
estate of Jose, having been derived from the alleged
partnership.
Petitioners heavily rely on Jimmy's testimony. But that
testimony is just one piece of evidence against respondent. It
must be considered and weighed along with petitioners' other
evidence vis--vis respondent's contrary evidence. In
civil cases, the party having the burden of proof must establish
his case by a preponderance of evidence.
"Preponderance of evidence" is the weight, credit, and value of
the aggregate evidence on either side and is usually
considered synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last
analysis, means probability of the truth. It is evidence that
is more convincing to the court as worthy of belief than that
which is offered in opposition thereto.[13] Rule 133,
Section 1 of the Rules of Court provides the guidelines in
determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil
cases, the party having burden of proof must establish his case by
a preponderance of evidence. In determining where the preponderance
or superior weight of evidence on the issues involved lies, the
court may consider all the facts and circumstances of the case, the
witnesses' manner of testifying, their intelligence, their means
and opportunity of knowing the facts to which they are testifying,
the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of
interest, and also their personal credibility so far as the same
may legitimately appear upon the trial. The court may also consider
the number of witnesses, though the preponderance is not
necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of
Appeals[14] is enlightening. Therein, we cited Article
1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these
rules shall apply:
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(1) Except as provided by Article 1825, persons who are not
partners as to each other are not
partners as to third persons; (2) Co-ownership or co-possession
does not of itself establish a partnership, whether such co-owners
or co-possessors do or do not share any profits made by the use of
the property; (3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property from which
the returns are derived;
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(4) The receipt by a person of a share of the profits of a
business is a prima facie evidence that
he is a partner in the business, but no such inference shall be
drawn if such profits were received in payment:
(a) As a debt by installments or otherwise; (b) As wages of an
employee or rent to a landlord; (c) As an annuity to a widow or
representative of a deceased partner; (d) As interest on a loan,
though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business
or other property by installments or otherwise.
Applying the legal provision to the facts of this case, the
following circumstances tend to prove that Elfledo was
himself the partner of Jimmy and Norberto: 1) Cresencia
testified that Jose gave Elfledo P50,000.00, as share in the
partnership, on a date that coincided with the payment of the
initial capital in the partnership;[15] (2) Elfledo ran the
affairs of the partnership, wielding absolute control, power and
authority, without any intervention or opposition
whatsoever from any of petitioners herein;[16] (3) all of the
properties, particularly the nine trucks of the partnership,
were registered in the name of Elfledo; (4) Jimmy testified that
Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were
shares of the profits of the business;[17] and (5) none of
the petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his
lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,[18] a
demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show
that the real and personal properties acquired and
registered in the names of Elfledo and respondent formed part of
the estate of Jose, having been derived from Jose's
alleged partnership with Jimmy and Norberto. They failed to
refute respondent's claim that Elfledo and respondent
engaged in other businesses. Edison even admitted that Elfledo
also sold Interwood lumber as a
sideline.[19] Petitioners could not offer any credible evidence
other than their bare assertions.Thus, we apply the basic
rule of evidence that between documentary and oral evidence, the
former carries more weight.[20]
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help
but one of the partners in the trucking business, active and
visible in the running of its affairs from day one until this
ceased operations upon his demise. The extent of his control,
administration and management of the
partnership and its business, the fact that its properties were
placed in his name, and that he was not paid salary or other
compensation by the partners, are indicative of the fact that
Elfledo was a partner and a controlling one at that. It is apparent
that the other partners only contributed in the initial capital but
had no say thereafter on how the business was ran. Evidently it was
through Elfredos efforts and hard work that the partnership was
able to acquire more trucks and otherwise prosper. Even the
appellant participated in the affairs of the partnership by acting
as the bookkeeper sans salary. It is notable too that Jose Lim died
when the partnership was barely a year old, and the partnership and
its business not only continued but also flourished. If it were
true that it was Jose Lim and not Elfledo who was the partner, then
upon his death the partnership should have
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been dissolved and its assets liquidated. On the contrary, these
were not done but instead its
operation continued under the helm of Elfledo and without any
participation from the heirs of Jose Lim. Whatever properties
appellant and her husband had acquired, this was through their own
concerted efforts and hard work. Elfledo did not limit himself to
the business of their partnership but engaged in other lines of
businesses as well.
In sum, we find no cogent reason to disturb the findings and the
ruling of the CA as they are amply supported by the
law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of
Appeals Decision dated June 29, 2005
is AFFIRMED. Costs against petitioners.
SO ORDERED.
THIRD DIVISION ZENAIDA G. MENDOZA, G.R. No. 175885 Petitioner,
Present:
Ynares-Santiago, J. (Chairperson), - versus -
Austria-Martinez,
Chico-Nazario, Nachura, and Peralta, JJ.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER COLOMA and NATIONAL
IRRIGATION ADMINISTRATION (NIA MUOZ, NUEVA ECIJA), Respondents. x
------------------------------------------------------ x MANUEL
DELA CRUZ, G.R. No. 176271 Petitioner,
- versus - ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER COLOMA and
NATIONAL IRRIGATION Promulgated:
ADMINISTRATION (NIA MUOZ, NUEVA ECIJA), Respondents. February
13, 2009 x
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x
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DECISION
YNARES-SANTIAGO, J.:
These consolidated petitions assail the August 28, 2006
Decision[1] of the Court of Appeals in CA-G.R. CV
No. 80819 dismissing the complaint in Civil Case No. 18-SD
(2000),[2] and its December 11, 2006
Resolution[3] denying the herein petitioners motion for
reconsideration.
Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M.
Paule Construction and Trading (EMPCT). On
May 24, 1999, PAULE executed a special power of attorney (SPA)
authorizing Zenaida G. Mendoza (MENDOZA) to
participate in the pre-qualification and bidding of a National
Irrigation Administration (NIA) project and to represent
him in all transactions related thereto, to wit:
1. To represent E.M. PAULE CONSTRUCTION & TRADING of which I
(PAULE) am the General
Manager in all my business transactions with National Irrigation
Authority, Muoz, Nueva Ecija.
2. To participate in the bidding, to secure bid bonds and other
documents pre-requisite in the
bidding of Casicnan Multi-Purpose Irrigation and Power Plant
(CMIPPL 04-99), National Irrigation Authority, Muoz, Nueva
Ecija.
3. To receive and collect payment in check in behalf of E.M.
PAULE CONSTRUCTION & TRADING. 4. To do and perform such acts
and things that may be necessary and/or required to make the
herein authority effective.[4]
On September 29, 1999, EMPCT, through MENDOZA, participated in
the bidding of the NIA-Casecnan Multi-
Purpose Irrigation and Power Project (NIA-CMIPP) and was awarded
Packages A-10 and B-11 of the NIA-CMIPP
Schedule A. On November 16, 1999, MENDOZA received the Notice of
Award which was signed by Engineer
Alexander M. Coloma (COLOMA), then Acting Project Manager for
the NIA-CMIPP. Packages A-10 and B-11 involved
the construction of a road system, canal structures and drainage
box culverts with a project cost of P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that MENDOZA is in need of
heavy equipment for use in the NIA
project, he met up with MENDOZA in Bayuga, Muoz, Nueva Ecija, in
an apartment where the latter was holding office
under an EMPCT signboard. A series of meetings followed in said
EMPCT office among CRUZ, MENDOZA and PAULE.
On December 2 and 20, 1999, MENDOZA and CRUZ signed two Job
Orders/Agreements[5] for the lease of
the latters heavy equipment (dump trucks for hauling purposes)
to EMPCT.
On April 27, 2000, PAULE revoked[6] the SPA he previously issued
in favor of MENDOZA; consequently, NIA
refused to make payment to MENDOZA on her billings.CRUZ,
therefore, could not be paid for the rent of the
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equipment. Upon advice of MENDOZA, CRUZ addressed his demands
for payment of lease rentals directly to NIA but
the latter refused to acknowledge the same and informed CRUZ
that it would be remitting payment only to EMPCT as
the winning contractor for the project.
In a letter dated April 5, 2000, CRUZ demanded from MENDOZA
and/or EMPCT payment of the outstanding
rentals which amounted to P726,000.00 as of March 31, 2000.
On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with
Branch 37 of the Regional Trial Court of
Nueva Ecija, for collection of sum of money with damages and a
prayer for the issuance of a writ of preliminary
injunction against PAULE, COLOMA and the NIA. PAULE in turn
filed a third-party complaint against MENDOZA, who
filed her answer thereto, with a cross-claim against PAULE.
MENDOZA alleged in her cross-claim that because of PAULEs
whimsical revocation of the SPA, she was
barred from collecting payments from NIA, thus resulting in her
inability to fund her checks which she had issued to
suppliers of materials, equipment and labor for the project. She
claimed that estafa and B.P. Blg. 22 cases were filed
against her; that she could no longer finance her childrens
education; that she was evicted from her home; that her
vehicle was foreclosed upon; and that her reputation was
destroyed, thus entitling her to actual and moral damages
in the respective amounts of P3 million and P1 million.
Meanwhile, on August 23, 2000, PAULE again constituted MENDOZA
as his attorney-in-fact
1. To represent me (PAULE), in my capacity as General Manager of
the E.M. PAULE
CONSTRUCTION AND TRADING, in all meetings, conferences and
transactions exclusively for the construction of the projects known
as Package A-10 of Schedule A and Package No. B-11 Schedule B,
which are 38.61% and 63.18% finished as of June 21, 2000, per
attached Accomplishment Reports x x x;
2. To implement, execute, administer and supervise the said
projects in whatever stage
they are in as of to date, to collect checks and other payments
due on said projects and act as the Project Manager for E.M. PAULE
CONSTRUCTION AND TRADING;
3. To do and perform such acts and things that may be necessary
and required to make
the herein power and authority effective.[7]
At the pre-trial conference, the other parties were declared as
in default and CRUZ was allowed to present
his evidence ex parte. Among the witnesses he presented was
MENDOZA, who was impleaded as defendant in
PAULEs third-party complaint.
On March 6, 2003, MENDOZA filed a motion to declare third-party
plaintiff PAULE non-suited with prayer
that she be allowed to present her evidence ex parte.
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However, without resolving MENDOZAs motion to declare PAULE
non-suited, and without granting her the
opportunity to present her evidence ex parte, the trial court
rendered its decision dated August 7, 2003, the
dispositive portion of which states, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
as follows: 1. Ordering defendant Paule to pay the plaintiff the
sum of P726,000.00 by way of actual
damages or compensation for the services rendered by him; 2.
Ordering defendant Paule to pay plaintiff the sum of P500,000.00 by
way of moral
damages; 3. Ordering defendant Paule to pay plaintiff the sum of
P50,000.00 by way of reasonable
attorneys fees; 4. Ordering defendant Paule to pay the costs of
suit; and 5. Ordering defendant National Irrigation Administration
(NIA) to withhold the balance still
due from it to defendant Paule/E.M. Paule Construction and
Trading under NIA-CMIPP Contract Package A-10 and to pay plaintiff
therefrom to the extent of defendant Paules liability herein
adjudged.
SO ORDERED.[8]
In holding PAULE liable, the trial court found that MENDOZA was
duly constituted as EMPCTs agent for
purposes of the NIA project and that MENDOZA validly contracted
with CRUZ for the rental of heavy equipment that
was to be used therefor. It found unavailing PAULEs assertion
that MENDOZA merely borrowed and used his
contractors license in exchange for a consideration of 3% of the
aggregate amount of the project. The trial court
held that through the SPAs he executed, PAULE clothed MENDOZA
with apparent authority and held her out to the
public as his agent; as principal, PAULE must comply with the
obligations which MENDOZA contracted within the
scope of her authority and for his benefit. Furthermore, PAULE
knew of the transactions which MENDOZA entered
into since at various times when she and CRUZ met at the EMPCT
office, PAULE was present and offered no
objections. The trial court declared that it would be unfair to
allow PAULE to enrich himself and disown his acts at the
expense of CRUZ.
PAULE and MENDOZA both appealed the trial courts decision to the
Court of Appeals.
PAULE claimed that he did not receive a copy of the order of
default; that it was improper for MENDOZA, as
third-party defendant, to have taken the stand as plaintiff
CRUZs witness; and that the trial court erred in finding that
an agency was created between him and MENDOZA, and that he was
liable as principal thereunder.
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On the other hand, MENDOZA argued that the trial court erred in
deciding the case without affording her
the opportunity to present evidence on her cross-claim against
PAULE; that, as a result, her cross-claim against
PAULE was not resolved, leaving her unable to collect the
amounts of P3,018,864.04, P500,000.00, and P839,450.88
which allegedly represent the unpaid costs of the project and
the amount PAULE received in excess of payments
made by NIA.
On August 28, 2006, the Court of Appeals rendered the assailed
Decision which dismissed CRUZs complaint,
as well as MENDOZAs appeal. The appellate court held that the
SPAs issued in MENDOZAs favor did not grant the
latter the authority to enter into contract with CRUZ for
hauling services; the SPAs limit MENDOZAs authority to only
represent EMPCT in its business transactions with NIA, to
participate in the bidding of the project, to receive and
collect payment in behalf of EMPCT, and to perform such acts as
may be necessary and/or required to make the said
authority effective. Thus, the engagement of CRUZs hauling
services was done beyond the scope of MENDOZAs
authority.
As for CRUZ, the Court of Appeals held that he knew the limits
of MENDOZAs authority under the SPAs yet
he still transacted with her. Citing Manila Memorial Park
Cemetery, Inc. v. Linsangan,[9] the appellate court declared
that the principal (PAULE) may not be bound by the acts of the
agent (MENDOZA) where the third person (CRUZ)
transacting with the agent knew that the latter was acting
beyond the scope of her power or authority under the
agency.
With respect to MENDOZAs appeal, the Court of Appeals held that
when the trial court rendered judgment,
not only did it rule on the plaintiffs complaint; in effect, it
resolved the third-party complaint as well;[10] that the trial
court correctly dismissed the cross-claim and did not unduly
ignore or disregard it; that MENDOZA may not claim, on
appeal, the amounts of P3,018,864.04, P500,000.00, and
P839,450.88 which allegedly represent the unpaid costs of
the project and the amount PAULE received in excess of payments
made by NIA, as these are not covered by her
cross-claim in the court a quo, which seeks reimbursement only
of the amounts of P3 million and P1 million,
respectively, for actual damages (debts to suppliers, laborers,
lessors of heavy equipment, lost personal property)
and moral damages she claims she suffered as a result of PAULEs
revocation of the SPAs; and that the revocation of
the SPAs is a prerogative that is allowed to PAULE under Article
1920[11] of the Civil Code.
CRUZ and MENDOZAs motions for reconsideration were denied;
hence, these consolidated petitions:
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G.R. No. 175885 (MENDOZA PETITION)
a) The Court of Appeals erred in sustaining the trial courts
failure to resolve her motion
praying that PAULE be declared non-suited on his third-party
complaint, as well as her motion seeking that she be allowed to
present evidence ex parte on her cross-claim;
b) The Court of Appeals erred when it sanctioned the trial
courts failure to resolve her
cross-claim against PAULE; and, c) The Court of Appeals erred in
its application of Article 1920 of the Civil Code, and in
adjudging that MENDOZA had no right to claim actual damages from
PAULE for debts incurred on account of the SPAs issued to her.
G.R. No. 176271 (CRUZ PETITION)
CRUZ argues that the decision of the Court of Appeals is
contrary to the provisions of law
on agency, and conflicts with the Resolution of the Court in
G.R. No. 173275, which affirmed the Court of Appeals decision in
CA-G.R. CV No. 81175, finding the existence of an agency relation
and where PAULE was declared as MENDOZAs principal under the
subject SPAs and, thus, liable for obligations (unpaid construction
materials, fuel and heavy equipment rentals) incurred by the latter
for the purpose of implementing and carrying out the NIA project
awarded to EMPCT.
CRUZ argues that MENDOZA was acting within the scope of her
authority when she hired his services as
hauler of debris because the NIA project (both Packages A-10 and
B-11 of the NIA-CMIPP) consisted of construction
of canal structures, which involved the clearing and disposal of
waste, acts that are necessary and incidental to
PAULEs obligation under the NIA project; and that the decision
in a civil case involving the same SPAs, where PAULE
was found liable as MENDOZAs principal already became final and
executory; that in Civil Case No. 90-SD filed by
MENDOZA against PAULE,[12] the latter was adjudged liable to the
former for unpaid rentals of heavy equipment and
for construction materials which MENDOZA obtained for use in the
subject NIA project. On September 15, 2003,
judgment was rendered in said civil case against PAULE, to
wit:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
(MENDOZA) and
against the defendant (PAULE) as follows: 1. Ordering defendant
Paule to pay plaintiff the sum of P138,304.00 representing the
obligation incurred by the plaintiff with LGH Construction; 2.
Ordering defendant Paule to pay plaintiff the sum of P200,000.00
representing the
balance of the obligation incurred by the plaintiff with Artemio
Alejandrino; 3. Ordering defendant Paule to pay plaintiff the sum
of P520,000.00 by way of moral
damages, and further sum of P100,000.00 by way of exemplary
damages; 4. Ordering defendant Paule to pay plaintiff the sum of
P25,000.00 as for attorneys fees;
and 5. To pay the cost of suit.[13]
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PAULE appealed[14] the above decision, but it was dismissed by
the Court of Appeals in a Decision[15] which
reads, in part:
As to the finding of the trial court that the principle of
agency is applicable in this case,
this Court agrees therewith. It must be emphasized that
appellant (PAULE) authorized appellee (MENDOZA) to perform any and
all acts necessary to make the business transaction of EMPCT with
NIA effective. Needless to state, said business transaction
pertained to the construction of canal structures which
necessitated the utilization of construction materials and
equipments. Having given said authority, appellant cannot be
allowed to turn its back on the transactions entered into by
appellee in behalf of EMPCT.
The amount of moral damages and attorneys fees awarded by the
trial court being
justifiable and commensurate to the damage suffered by appellee,
this Court shall not disturb the same.It is well-settled that the
award of damages as well as attorneys fees lies upon the
discretion
of the court in the context of the facts and circumstances of
each case. WHEREFORE, the appeal is DISMISSED and the appealed
Decision is AFFIRMED. SO ORDERED.[16]
PAULE filed a petition to this Court docketed as G.R. No. 173275
but it was denied with finality on
September 13, 2006.
MENDOZA, for her part, claims that she has a right to be heard
on her cause of action as stated in her
cross-claim against PAULE; that the trial courts failure to
resolve the cross-claim was a violation of her constitutional
right to be apprised of the facts or the law on which the trial
courts decision is based; that PAULE may not revoke
her appointment as attorney-in-fact for and in behalf of EMPCT
because, as manager of their partnership in the NIA
project, she was obligated to collect from NIA the funds to be
used for the payment of suppliers and contractors with
whom she had earlier contracted for labor, materials and
equipment.
PAULE, on the other hand, argues in his Comment that MENDOZAs
authority under the SPAs was for the
limited purpose of securing the NIA project; that MENDOZA was
not authorized to contract with other parties with
regard to the works and services required for the project, such
as CRUZs hauling services; that MENDOZA acted
beyond her authority in contracting with CRUZ, and PAULE, as
principal, should not be made civilly liable to CRUZ
under the SPAs; and that MENDOZA has no cause of action against
him for actual and moral damages since the
latter exceeded her authority under the agency.
We grant the consolidated petitions.
Records show that PAULE (or, more appropriately, EMPCT) and
MENDOZA had entered into a partnership in
regard to the NIA project. PAULEs contribution thereto is his
contractors license and expertise, while MENDOZA
would provide and secure the needed funds for labor, materials
and services; deal with the suppliers and sub-
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contractors; and in general and together with PAULE, oversee the
effective implementation of the project. For this,
PAULE would receive as his share three per cent (3%) of the
project cost while the rest of the profits shall go to
MENDOZA. PAULE admits to this arrangement in all his
pleadings.[17]
Although the SPAs limit MENDOZAs authority to such acts as
representing EMPCT in its business
transactions with NIA, participating in the bidding of the
project, receiving and collecting payment in behalf of
EMPCT, and performing other acts in furtherance thereof, the
evidence shows that when MENDOZA and CRUZ met
and discussed (at the EMPCT office in Bayuga, Muoz, Nueva Ecija)
the lease of the latters heavy equipment for use in
the project, PAULE was present and interposed no objection to
MENDOZAs actuations. In his pleadings, PAULE does
not even deny this. Quite the contrary, MENDOZAs actions were in
accord with what she and PAULE originally agreed
upon, as to division of labor and delineation of functions
within their partnership. Under the Civil Code, every partner
is an agent of the partnership for the purpose of its
business;[18] each one may separately execute all acts of
administration, unless a specification of their respective
duties has been agreed upon, or else it is stipulated that any
one of them shall not act without the consent of all the
others.[19] At any rate, PAULE does not have any valid cause
for opposition because his only role in the partnership is to
provide his contractors license and expertise, while the
sourcing of funds, materials, labor and equipment has been
relegated to MENDOZA.
Moreover, it does not speak well for PAULE that he reinstated
MENDOZA as his attorney-in-fact, this time
with broader powers to implement, execute, administer and
supervise the NIA project, to collect checks and other
payments due on said project, and act as the Project Manager for
EMPCT, even after CRUZ has already filed his
complaint.Despite knowledge that he was already being sued on
the SPAs, he proceeded to execute another in
MENDOZAs favor, and even granted her broader powers of
administration than in those being sued upon. If he truly
believed that MENDOZA exceeded her authority with respect to the
initial SPA, then he would not have issued
another SPA. If he thought that his trust had been violated,
then he should not have executed another SPA in favor
of MENDOZA, much less grant her broader authority.
Given the present factual milieu, CRUZ has a cause of action
against PAULE and MENDOZA. Thus, the Court
of Appeals erred in dismissing CRUZs complaint on a finding of
exceeded agency. Besides, that PAULE could be held
liable under the SPAs for transactions entered into by MENDOZA
with laborers, suppliers of materials and services for
use in the NIA project, has been settled with finality in G.R.
No. 173275. What has been adjudged in said case as
regards the SPAs should be made to apply to the instant case.
Although the said case involves different parties and
transactions, it finally disposed of the matter regarding the
SPAs specifically their effect as among PAULE, MENDOZA
and third parties with whom MENDOZA had contracted with by
virtue of the SPAs a disposition that should apply to
CRUZ as well. If a particular point or question is in issue in
the second action, and the judgment will depend on the
determination of that particular point or question, a former
judgment between the same parties or their privies will
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be final and conclusive in the second if that same point or
question was in issue and adjudicated in the first
suit. Identity of cause of action is not required but merely
identity of issues.[20]
There was no valid reason for PAULE to revoke MENDOZAs SPAs.
Since MENDOZA took care of the funding
and sourcing of labor, materials and equipment for the project,
it is only logical that she controls the finances, which
means that the SPAs issued to her were necessary for the proper
performance of her role in the partnership, and to
discharge the obligations she had already contracted prior to
revocation. Without the SPAs, she could not collect
from NIA, because as far as it is concerned, EMPCT and not the
PAULE-MENDOZA partnership is the entity it had
contracted with. Without these payments from NIA, there would be
no source of funds to complete the project and
to pay off obligations incurred. As MENDOZA correctly argues, an
agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and his
removal from the management is unjustifiable.[21]
PAULEs revocation of the SPAs was done in evident bad faith.
Admitting all throughout that his only
entitlement in the partnership with MENDOZA is his 3% royalty
for the use of his contractors license, he knew that
the rest of the amounts collected from NIA was owing to MENDOZA
and suppliers of materials and services, as well
as the laborers. Yet, he deliberately revoked MENDOZAs authority
such that the latter could no longer collect from
NIA the amounts necessary to proceed with the project and settle
outstanding obligations.
From the way he conducted himself, PAULE committed a willful and
deliberate breach of his contractual
duty to his partner and those with whom the partnership had
contracted. Thus, PAULE should be made liable for
moral damages.
Bad faith does not simply connote bad judgment or negligence; it
imputes a dishonest
purpose or some moral obliquity and conscious doing of a wrong;
a breach of a sworn duty through some motive or intent or ill-will;
it partakes of the nature of fraud (Spiegel v. Beacon
Participation, 8 NE 2nd Series, 895, 1007). It contemplates a state
of mind affirmatively operating with furtive design or some motive
of self-interest or ill will for ulterior purposes (Air France v.
Carrascoso, 18 SCRA 155, 166-167). Evident bad faith connotes a
manifest deliberate intent on the part of the accused to do wrong
or cause damage.[22]
Moreover, PAULE should be made civilly liable for abandoning the
partnership, leaving MENDOZA to fend for
her own, and for unduly revoking her authority to collect
payments from NIA, payments which were necessary for
the settlement of obligations contracted for and already owing
to laborers and suppliers of materials and equipment
like CRUZ, not to mention the agreed profits to be derived from
the venture that are owing to MENDOZA by reason
of their partnership agreement. Thus, the trial court erred in
disregarding and dismissing MENDOZAs cross-claim
which is properly a counterclaim, since it is a claim made by
her as defendant in a third-party complaint against
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PAULE, just as the appellate court erred in sustaining it on the
justification that PAULEs revocation of the SPAs was
within the bounds of his discretion under Article 1920 of the
Civil Code.
Where the defendant has interposed a counterclaim (whether
compulsory or permissive) or is seeking
affirmative relief by a cross-complaint, the plaintiff cannot
dismiss the action so as to affect the right of the
defendant in his counterclaim or prayer for affirmative relief.
The reason for that exception is clear. When the answer
sets up an independent action against the plaintiff, it then
becomes an action by the defendant against the plaintiff,
and, of course, the plaintiff has no right to ask for a
dismissal of the defendants action. The present rule embodied
in
Sections 2 and 3 of Rule 17 of the 1997 Rules of Civil Procedure
ordains a more equitable disposition of the
counterclaims by ensuring that any judgment thereon is based on
the merit of the counterclaim itself and not on the
survival of the main complaint. Certainly, if the counterclaim
is palpably without merit or suffers jurisdictional flaws
which stand independent of the complaint, the trial court is not
precluded from dismissing it under the amended
rules, provided that the judgment or order dismissing the
counterclaim is premised on those defects. At the same
time, if the counterclaim is justified, the amended rules now
unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the
complaint.[23]
Notwithstanding the immutable character of PAULEs liability to
MENDOZA, however, the exact amount
thereof is yet to be determined by the trial court, after
receiving evidence for and in behalf of MENDOZA on her
counterclaim, which must be considered pending and
unresolved.
WHEREFORE, the petitions are GRANTED. The August 28, 2006
Decision of the Court of Appeals in CA-
G.R. CV No. 80819 dismissing the complaint in Civil Case No.
18-SD (2000) and its December 11, 2006 Resolution
denying the motion for reconsideration are REVERSED and SET
ASIDE. The August 7, 2003 Decision of the
Regional Trial Court of Nueva Ecija, Branch 37 in Civil Case No.
18-SD (2000) finding PAULE liable is REINSTATED,
with the MODIFICATION that the trial court isORDERED to receive
evidence on the counterclaim of petitioner
Zenaida G. Mendoza.
SO ORDERED.
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THIRD DIVISION
PHILEX MINING G.R. No. 148187 CORPORATION, Petitioner,
Present:
Ynares-Santiago, J. (Chairperson), - versus - Carpio Morales,
*
Chico-Nazario, Nachura, and, Reyes, JJ.
COMMISSIONER OF INTERNAL REVENUE, Promulgated:
Respondent. April 16, 2008
x
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x
DECISION YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000
Decision[1] of the Court of Appeals in CA-G.R. SP No.
49385, which affirmed the Decision[2] of the Court of Tax
Appeals in C.T.A. Case No. 5200. Also assailed is the April
3, 2001 Resolution[3] denying the motion for
reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex
Mining), entered into an agreement[4] with
Baguio Gold Mining Company (Baguio Gold) for the former to
manage and operate the latters mining claim, known as
the Sto. Nino mine, located in Atok and Tublay, Benguet
Province. The parties agreement was denominated as Power
of Attorney and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL
(Baguio Gold) shall make available to the MANAGERS (Philex Mining)
up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as
from time to time may be required by the MANAGERS within the said
3-year period, for use in the MANAGEMENT of the STO. NINO MINE. The
said ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for
internal audit purposes, as the owners account in the Sto. Nino
PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO
MINE, which is left with the Sto. Nino PROJECT, shall be added to
such owners account. 5. Whenever the MANAGERS shall deem it
necessary and convenient in connection with the MANAGEMENT of the
STO. NINO MINE, they may transfer their own funds or property to
the Sto. Nino PROJECT, in accordance with the following
arrangements: (a) The properties shall be appraised and, together
with the cash, shall be carried by the Sto. Nino PROJECT as a
special fund to be known as the MANAGERS account. (b) The total of
the MANAGERS account shall not exceed P11,000,000.00, except with
prior approval of the PRINCIPAL; provided, however, that if the
compensation of the MANAGERS as herein provided cannot be paid in
cash from the Sto. Nino PROJECT, the amount not so paid in cash
shall be added to the MANAGERS account.
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(c) The cash and property shall not thereafter be withdrawn from
the Sto. Nino PROJECT until termination of this Agency. (d) The
MANAGERS account shall not accrue interest. Since it is the desire
of the PRINCIPAL to extend to the MANAGERS the benefit of
subsequent appreciation of property, upon a projected termination
of this Agency, the ratio which the MANAGERS account has to the
owners account will be determined, and the corresponding proportion
of the entire assets of the STO. NINO MINE, excluding the claims,
shall be transferred to the MANAGERS, except that such transferred
assets shall not include mine development, roads, buildings, and
similar property which will be valueless, or of slight value, to
the MANAGERS. The MANAGERS can, on the other hand, require at their
option that property originally transferred by them to the Sto.
Nino PROJECT be re-transferred to them. Until such assets are
transferred to the MANAGERS, this Agency shall remain
subsisting.
x x x x 12. The compensation of the MANAGER shall be fifty per
cent (50%) of the net profit of the Sto. Nino PROJECT before income
tax. It is understood that the MANAGERS shall pay income tax on
their compensation, while the PRINCIPAL shall pay income tax on the
net profit of the Sto. Nino PROJECT after deduction therefrom of
the MANAGERS compensation.
x x x x 16. The PRINCIPAL has current pecuniary obligation in
favor of the MANAGERS and, in the future, may incur other
obligations in favor of the MANAGERS. This Power of Attorney has
been executed as security for the payment and satisfaction of all
such obligations of the PRINCIPAL in favor of the MANAGERS and as a
means to fulfill the same. Therefore, this Agency shall be
irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS account. After
all obligations of the PRINCIPAL in favor of the MANAGERS have been
paid and satisfied in full, this Agency shall be revocable by the
PRINCIPAL upon 36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice to the
PRINCIPAL. The MANAGERS shall not in any manner be held liable to
the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d)
hereof shall be operative in case of the MANAGERS withdrawal.
x x x x[5]
In the course of managing and operating the project, Philex
Mining made advances of cash and property in
accordance with paragraph 5 of the agreement. However, the mine
suffered continuing losses over the years which
resulted to petitioners withdrawal as manager of the mine on
January 28, 1982 and in the eventual cessation of mine
operations onFebruary 20, 1982.[6]
Thereafter, on September 27, 1982, the parties executed a
Compromise with Dation in Payment[7] wherein Baguio
Gold admitted an indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three
segments by first assigning Baguio Golds tangible assets to
petitioner, transferring to the latter Baguio Golds
equitable title in its Philodrill assets and finally settling
the remaining liability through properties that Baguio Gold may
acquire in the future.
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On December 31, 1982, the parties executed an Amendment to
Compromise with Dation in Payment[8] where the
parties determined that Baguio Golds indebtedness to petitioner
actually amounted to P259,137,245.00, which sum
included liabilities of Baguio Gold to other creditors that
petitioner had assumed as guarantor. These liabilities
pertained to long-term loans amounting to US$11,000,000.00
contracted by Baguio Gold from the Bank of America
NT & SA and Citibank N.A. This time, Baguio Gold undertook
to pay petitioner in two segments by first assigning its
tangible assets for P127,838,051.00 and then transferring its
equitable title in its Philodrill assets for
P16,302,426.00. The parties then ascertained that Baguio Gold
had a remaining outstanding indebtedness to
petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account
the remaining outstanding indebtedness of Baguio
Gold by charging P112,136,000.00 to allowances and reserves that
were set up in 1981 and P2,860,768.00 to the
1982 operations.
In its 1982 annual income tax return, petitioner deducted from
its gross income the amount of P112,136,000.00 as
loss on settlement of receivables from Baguio Gold against
reserves and allowances.[9] However, the Bureau of
Internal Revenue (BIR) disallowed the amount as deduction for
bad debt and assessed petitioner a deficiency income
tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction
must be allowed since all requisites for a bad debt
deduction were satisfied, to wit: (a) there was a valid and
existing debt; (b) the debt was ascertained to be
worthless; and (c) it was charged off within the taxable year
when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid
management contract it entered into with Baguio Gold. The
bad debt deduction represented advances made by petitioner
which, pursuant to the management contract, formed
part of Baguio Golds pecuniary obligations to petitioner. It
also included payments made by petitioner as guarantor of
Baguio Golds long-term loans which legally entitled petitioner
to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible
losses, it became evident that it would not be
able to recover the advances and payments it had made in behalf
of Baguio Gold. For a debt to be considered
worthless, petitioner claimed that it was neither required to
institute a judicial action for collection against the debtor
nor to sell or dispose of collateral assets in satisfaction of
the debt. It is enough that a taxpayer exerted diligent
efforts to enforce collection and exhausted all reasonable means
to collect.
On October 28, 1994, the BIR denied petitioners protest for lack
of legal and factual basis. It held that the
alleged debt was not ascertained to be worthless since Baguio
Gold remained existing and had not filed a petition for
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bankruptcy; and that the deduction did not consist of a valid
and subsisting debt considering that, under the
management contract, petitioner was to be paid fifty percent
(50%) of the projects net profit.[10]
Petitioner appealed before the Court of Tax Appeals (CTA) which
rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for
Review is hereby DENIED
for lack of merit. The assessment in question, viz:
FAS-1-82-88-003067 for deficiency income tax in the amount of
P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby
ORDERED to PAY
respondent Commissioner of Internal Revenue the amount of
P62,811,161.39, plus, 20% delinquency interest due computed from
February 10, 1995, which is the date after the 20-day grace period
given by the respondent within which petitioner has to pay the
deficiency amount x x x up to actual date of payment.
SO ORDERED.[11]
The CTA rejected petitioners assertion that the advances it made
for the Sto. Nino mine were in the nature
of a loan. It instead characterized the advances as petitioners
investment in a partnership with Baguio Gold for the
development and exploitation of the Sto. Nino mine. The CTA held
that the Power of Attorney executed by petitioner
and Baguio Gold was actually a partnership agreement. Since the
advanced amount partook of the nature of an
investment, it could not be deducted as a bad debt from
petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the
long-term loan obligations of Baguio Gold
could not be allowed as a bad debt deduction. At the time the
payments were made, Baguio Gold was not in default
since its loans were not yet due and demandable. What petitioner
did was to pre-pay the loans as evidenced by the
notice sent by Bank of America showing that it was merely
demanding payment of the installment and interests
due. Moreover, Citibank imposed and collected a pre-termination
penalty for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.[12]
Hence, upon denial of its motion for
reconsideration,[13] petitioner took this recourse under Rule 45
of the Rules of Court, alleging that:
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I.
The Court of Appeals erred in construing that the advances made
by Philex in the management of the Sto. Nino Mine pursuant to the
Power of Attorney partook of the nature of an investment rather
than a loan.
II. The Court of Appeals erred in ruling that the 50%-50%
sharing in the net profits of the Sto. Nino Mine indicates that
Philex is a partner of Baguio Gold in the development of the Sto.
Nino Mine notwithstanding the clear absence of any intent on the
part of Philex and Baguio Gold to form a partnership.
III. The Court of Appeals erred in relying only on the Power of
Attorney and in completely disregarding the Compromise Agreement
and the Amended Compromise Agreement when it construed the nature
of the advances made by Philex.
IV. The Court of Appeals erred in refusing to delve upon the
issue of the propriety of the bad debts write-off.[14]
Petitioner insists that in determining the nature of its
business relationship with Baguio Gold, we should not
only rely on the Power of Attorney, but also on the subsequent
Compromise with Dation in Payment and Amended
Compromise with Dation in Payment that the parties executed in
1982. These documents, allegedly evinced the
parties intent to treat the advances and payments as a loan and
establish a creditor-debtor relationship between
them.
The petition lacks merit.
The lower courts correctly held that the Power of Attorney is
the instrument that is material in determining
the true nature of the business relationship between petitioner
and Baguio Gold. Before resort may be had to the two
compromise agreements, the parties contractual intent must first
be discovered from the expressed language of the
primary contract under which the parties business relations were
founded. It should be noted that the compromise
agreements were mere collateral documents executed by the
parties pursuant to the termination of their business
relationship created under the Power of Attorney. On the other
hand, it is the latter which established the juridical
relation of the parties and defined the parameters of their
dealings with one another.
The execution of the two compromise agreements can hardly be
considered as a subsequent or
contemporaneous act that is reflective of the parties true
intent. The compromise agreements were executed eleven
years after the Power of Attorney and merely laid out a plan or
procedure by which petitioner could recover the
advances and payments it made under the Power of Attorney. The
parties entered into the compromise agreements
as a consequence of the dissolution of their business
relationship. It did not define that relationship or indicate
its
real character.
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An examination of the Power of Attorney reveals that a
partnership or joint venture was indeed intended by
the parties. Under 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.[15] While a corporation, like
petitioner, cannot generally enter into a contract of
partnership unless authorized by law or its charter, it has
been
held that it may enter into a joint venture which is akin to a
particular partnership:
The legal concept of a joint venture is of common law origin. It
has no precise legal
definition, but it has been generally understood to mean an
organization formed for some temporary purpose. x x x It is in fact
hardly distinguishable from the partnership, since their elements
are similar community of interest in the business, sharing of
profits and losses, and a mutual right of control. x x x The main
distinction cited by most opinions in common law jurisdictions is
that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary
nature. x x x This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for
its object a specific undertaking. x x x It would seem therefore
that under Philippine law, a joint venture is a form of partnership
and should be governed by the law of partnerships. The Supreme
Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint
venture with others. x x x (Citations omitted) [16]
Perusal of the agreement denominated as the Power of Attorney
indicates that the parties had intended to
create a partnership and establish a common fund for the
purpose.They also had a joint interest in the profits of the
business as shown by a 50-50 sharing in the income of the
mine.
Under the Power of Attorney, petitioner and Baguio Gold
undertook to contribute money, property and
industry to the common fund known as the Sto. Nio mine.[17] In
this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to
the development and operation of the mine. Pursuant to
paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold
were to contribute equally to the joint venture
assets under their respective accounts. Baguio Gold would
contribute P11Munder its owners account plus any of
its income that is left in the project, in addition to its
actual mining claim. Meanwhile, petitioners contribution
would consist of itsexpertise in the management and operation of
mines, as well as the managers account which is
comprised of P11M in funds and property and petitioners
compensation as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into
a partnership agreement with Baguio Gold
because it did not bind itself to contribute money or property
to the project; that under paragraph 5 of the
agreement, it was only optional for petitioner to transfer funds
or property to the Sto. Nio project (w)henever the
MANAGERS shall deem it necessary and convenient in connection
with the MANAGEMENT of the STO. NIO MINE.[18]
The wording of the parties agreement as to petitioners
contribution to the common fund does not detract
from the fact that petitioner transferred its funds and property
to the project as specified in paragraph 5, thus
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rendering effective the other stipulations of the contract,
particularly paragraph 5(c) which prohibits petitioner from
withdrawing the advances until termination of the parties
business relations. As can be seen, petitioner became
bound by its contributions once the transfers were made. The
contributions acquired an obligatory nature as soon as
petitioner had chosen to exercise its option under paragraph
5.
There is no merit to petitioners claim that the prohibition in
paragraph 5(c) against withdrawal of advances
should not be taken as an indication that it had entered into a
partnership with Baguio Gold; that the stipulation only
showed that what the parties entered into was actually a
contract of agency coupled with an interest which is not
revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot
be revoked or withdrawn by the
principal due to an interest of a third party that depends upon
it, or the mutual interest of both principal and
agent.[19] In this case, the non-revocation or non-withdrawal
under paragraph 5(c) applies to the advances made by
petitioner who is supposedly the agent and not the principal
under the contract. Thus, it cannot be inferred from the
stipulation that the parties relation under the agreement is one
of agency coupled with an interest and not a
partnership.
Neither can paragraph 16 of the agreement be taken as an
indication that the relationship of the parties
was one of agency and not a partnership. Although the said
provision states that this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the MANAGERS
is outstanding, inclusive of the MANAGERS account,
it does not necessarily follow that the parties entered into an
agency contract coupled with an interest that cannot be
withdrawn by Baguio Gold.
It should be stressed that the main object of the Power of
Attorney was not to confer a power in favor of
petitioner to contract with third persons on behalf of Baguio
Gold but to create a business relationship between
petitioner and Baguio Gold, in which the former was to manage
and operate the latters mine through the
parties mutual contribution of material resources and industry.
The essence of an agency, even one that is coupled
with interest, is the agents ability to represent his principal
and bring about business relations between the latter and
third persons.[20] Where representation for and in behalf of the
principal is merely incidental or necessary for the
proper discharge of ones paramount undertaking under a contract,
the latter may not necessarily be a contract of
agency, but some other agreement depending on the ultimate
undertaking of the parties.[21]
In this case, the totality of the circumstances and the
stipulations in the parties agreement indubitably lead
to the conclusion that a partnership was formed between
petitioner and Baguio Gold.
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First, it does not appear that Baguio Gold was unconditionally
obligated to return the advances made by
petitioner under the agreement. Paragraph 5 (d) thereof provides
that upon termination of the parties business
relations, the ratio which the MANAGERS account has to the
owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO
MINE, excluding the claims shall be transferred to
petitioner.[22] As pointed out by the Court of Tax Appeals,
petitioner was merely entitled to a proportionate return of
the mines assets upon dissolution of the parties business
relations. There was nothing in the agreement that would
require Baguio Gold to make payments of the advances to
petitioner as would be recognized as an item of obligation
or accounts payable for Baguio Gold.
Thus, the tax court correctly concluded that the agreement
provided for a distribution of assets of the Sto.
Nio mine upon termination, a provision that is more consistent
with a partnership than a creditor-debtor
relationship. It should be pointed out that in a contract of
loan, a person who receives a loan or money or any
fungible thing acquires ownership thereof and is bound to pay
the creditor an equal amount of the same kind and
quality.[23] In this case, however, there was no stipulation for
Baguio Gold to actually repay petitioner the cash and
property that it had advanced, but only the return of an amount
pegged at a ratio which the managers account had
to the owners account.
In this connection, we find no contractual basis for the
execution of the two compromise agreements in
which Baguio Gold recognized a debt in favor of petitioner,
which supposedly arose from the termination of their
business relations over the Sto. Nino mine. The Power of
Attorney clearly provides that petitioner would only be
entitled to the return of a proportionate share of the mine
assets to be computed at a ratio that the managers
account had to the owners account. Except to provide a basis for
claiming the advances as a bad debt deduction,
there is no reason for Baguio Gold to hold itself liable to
petitioner under the compromise agreements, for any
amount over and above the proportion agreed upon in the Power of
Attorney.
Next, the tax court correctly observed that it was unlikely for
a business corporation to lend hundreds of
millions of pesos to another corporation with neither security,
or collateral, nor a specific deed evidencing the terms
and conditions of such loans. The parties also did not provide a
specific maturity date for the advances to become
due and demandable, and the manner of payment was unclear. All
these point to the inevitable conclusion that the
advances were not loans but capital contributions to a
partnership.
The strongest indication that petitioner was a partner in the
Sto Nio mine is the fact that it would receive
50% of the net profits as compensation under paragraph 12 of the
agreement. The entirety of the parties contractual
stipulations simply leads to no other conclusion than that
petitioners compensation is actually its share in the income
of the joint venture.
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Article 1769 (4) of the Civil Code explicitly provides that the
receipt by a person of a share in the profits of a
business is prima facie evidence that he is a partner in the
business. Petitioner asserts, however, that no such
inference can be drawn against it since its share in the profits
of the Sto Nio project was in the nature of
compensation or wages of an employee, under the exception
provided in Article 1769 (4) (b).[24]
On this score, the tax court correctly noted that petitioner was
not an employee of Baguio Gold who will be
paid wages pursuant to an employer-employee relationship. To
begin with, petitioner was the manager of the project
and had put substantial sums into the venture in order to ensure
its viability and profitability. By pegging its
compensation to profits, petitioner also stood not to be
remunerated in case the mine had no income. It is hard to
believe that petitioner would take the risk of not being paid at
all for its services, if it were truly just an ordinary
employee.
Consequently, we find that petitioners compensation under
paragraph 12 of the agreement actually
constitutes its share in the net profits of the partnership.
Indeed, petitioner would not be entitled to an equal share in
the income of the mine if it were just an employee of Baguio
Gold.[25] It is not surprising that petitioner was to
receive a 50% share in the net profits, considering that the
Power of Attorney also provided for an almost equal
contribution of the parties to the St. Nino mine. The
compensation agreed upon only serves to reinforce the notion
that the parties relations were indeed of partners and not
employer-employee.
All told, the lower courts did not err in treating petitioners
advances as investments in a partnership known
as the Sto. Nino mine. The advances were not debts of Baguio
Gold to petitioner inasmuch as the latter was under
no unconditional obligation to return the same to the former
under the Power of Attorney. As for the amounts that
petitioner paid as guarantor to Baguio Golds creditors, we find
no reason to depart from the tax courts factual finding
that Baguio Golds debts were not yet due and demandable at the
time that petitioner paid the same. Verily,
petitioner pre-paid Baguio Golds outstanding loans to its bank
creditors and this conclusion is supported by the
evidence on record.[26]
In sum, petitioner cannot claim the advances as a bad debt
deduction from its gross income. Deductions for
income tax purposes partake of the nature of tax exemptions and
are strictly construed against the taxpayer, who
must prove by convincing evidence that he is entitled to the
deduction claimed.[27] In this case, petitioner failed to
substantiate its assertion that the advances were subsisting
debts of Baguio Gold that could be deducted from its
gross income. Consequently, it could not claim the advances as a
valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 49385 dated June
30, 2000, which affirmed the decision of the Court of Tax
Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner
Philex Mining Corporation is ORDERED to PAY the deficiency tax
on its 1982 income in the amount of
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P62,811,161.31, with 20% delinquency interest computed from
February 10, 1995, which is the due date given for
the payment of the deficiency income tax, up to the actual date
of payment.
SO ORDERED.
.