Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

HEIRS OF JOSE LIM,

represented by ELENITO LIM,
Petitioners,

G.R. No. 172690

Present:
CORONA, J.,

Chairperson,

VELASCO, JR.,
NACHURA,
DEL CASTILLO,* and
MENDOZA, JJ.

- versus -

Promulgated:
JULIET VILLA LIM,

Respondent.

March 3, 2010

x------------------------------------------------------------------------------------x
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.

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

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

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.

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:

(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 coowners 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;

(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

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

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,

ENGR. EDUARDO PAULE,

ENGR. ALEXANDER COLOMA
and NATIONAL IRRIGATION
ADMINISTRATION (NIA
MUOZ, NUEVA ECIJA),
Respondents.

Chico-Nazario,
Nachura, and
Peralta, JJ.

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 ---------------------------------------------------------------------------------------- x

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 MultiPurpose 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

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.

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.

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:

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;
and

4. Ordering defendant Paule to pay plaintiff the sum of P25,000.00 as for attorneys fees;
5. To pay the cost of suit.[13]

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-

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

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

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 CAG.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.

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 ---------------------------------------------------------------------------------------- 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.

(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.
xxxx
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.
xxxx
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.

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

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:

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.

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

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.

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.

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

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.