Академический Документы
Профессиональный Документы
Культура Документы
- 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.
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.
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;
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.
ANTONIO EDUARDO B. NACHURA
Associate Justice
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
(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:
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.
CONSUELO YNARES-SANTIAGO
Associate Justice
Mendoza v Paule
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 ---------------------------------------------------------------------------------------- x
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 prerequisite 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 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-infact
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 A10 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 nonsuited 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:
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 thirdparty 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:
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 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.
CONSUELO YNARES-SANTIAGO
Associate Justice