THIRD DIVISION

[G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR

INDUSTRIES, INC., respondent.

DECISION
PANGANIBAN, J.:

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

The Case

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

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

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

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court
on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to
the modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by
the Agreement plus P68,000.00 representing the unpaid price of the floats not covered
by said Agreement;

b. 12% interest per annum counted from date of plaintiffs invoices and computed on
their respective amounts as follows:

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

February 9, 1990;

ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated
February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated
February 19, 1990;

c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per
appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets
counted from September 20, 1990 (date of attachment) to September 12, 1991 (date of
auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the
unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount of P600,045.00, this Court noted that these items
were attached to guarantee any judgment that may be rendered in favor of the plaintiff
but, upon agreement of the parties, and, to avoid further deterioration of the nets
during the pendency of this case, it was ordered sold at public auction for not less
than P900,000.00 for which the plaintiff was the sole and winning bidder. The
proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount
of P900,000.00 replaced the attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the ownership and possession of the
nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in
the public auction sale. It has also been noted that ownership of the nets [was] retained
by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in
effect, the plaintiff attached its own properties. It [was] for this reason also that this
Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to
defendants to be cancelled and for the P900,000.00 cash bidded and paid for by
plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff
may be entitled to in this case will have to be satisfied from the amount
of P900,000.00 as this amount replaced the attached nets and floats. Considering,
however, that the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the
defendants who are not entitled to damages and who did not put up a single centavo to
raise the amount of P900,000.00 aside from the fact that they are not the owners of the
nets and floats. For this reason, the defendants are hereby relieved from any and all
liabilities arising from the monetary judgment obligation enumerated above and for
plaintiff to retain possession and ownership of the nets and floats and for the
reimbursement of the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED. [3]

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory
to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats
worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit was brought against the three in their capacities as
general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent
corporation as shown by a Certification from the Securities and Exchange Commission. [5] On
September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the
Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and
requesting a reasonable time within which to pay. He also turned over to respondent some of the
nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have
waived his right to cross-examine witnesses and to present evidence on his behalf, because of his
failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. [6] The trial
court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing
nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with
the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing
Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent.[8]
 The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the
three[9] in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation
of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages.
[10]
The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in
the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or
Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong
Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency
shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio
Chua; 1/3 Peter Yao.[11]

The trial court noted that the Compromise Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed from the equal distribution of the profit and
loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a
fishing business and may thus be held liable as a such for the fishing nets and floats purchased by
and for the use of the partnership. The appellate court ruled:

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

Hence, petitioner brought this recourse before this Court.[14]

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT
EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING

FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE
NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND

ATTACHMENT OF PETITIONER LIMS GOODS.

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

This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent,
petitioner controverts the CA finding that a partnership existed between him, Peter Yao and
Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement
alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that
the negotiations were conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further argues that he was a lessor, not a
partner, of Chua and Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had
merely leased to the two the main asset of the purported partnership -- the fishing boat F/B
Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the
gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower
courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to
Article 1767 of the Civil Code which provides:

Article 1767 - By the contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
 Specifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings:[15]

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

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the
partnership in the amount of P1 million secured by a check, because of which, Yao
and Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne
Mel and Yaos FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought
nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing
Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration
of nullity of commercial documents; (b) reformation of contracts; (c) declaration of
ownership of fishing boats; (4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim who was petitioners brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the
sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase
and the repair of which were financed with borrowed money, fell under the term common fund
under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also shows that they had indeed
formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but
also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business. It would have been inconceivable for
Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted the
main assets of the partnership, and they agreed that the proceeds from the sales and operations
thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only
questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this
Court, absent any cogent proof that the present action is embraced by one of the exceptions to the
rule.[16] In assailing the factual findings of the two lower courts, petitioner effectively goes
beyond the bounds of a petition for review under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a
partnership was the Compromise Agreement. He also claims that the settlement was entered into
only to end the dispute among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an embodiment of the
relationship extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly
appraise all relevant facts. Both lower courts have done so and have found, correctly, a
preexisting partnership among the parties. In implying that the lower courts have decided on the
basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC
delved into the history of the document and explored all the possible consequential combinations
in harmony with law, logic and fairness. Verily, the two lower courts factual findings mentioned
above nullified petitioners argument that the existence of a partnership was based only on the
Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the boats to
Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the
Contract of Lease and the registration papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.
 His allegation defies logic. In effect, he would like this Court to believe that he consented to
the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be
divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to
the sale proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua
and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of
the vessels which would be used in their fishing business. The sale of the boats, as well as the
division among the three of the balance remaining after the payment of their loans, proves
beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an
asset of the partnership. It is not uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the
brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to
pay a debt he did not incur, if the relationship among the three of them was merely that of lessor-
lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed
only to Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist

performance thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may
be estopped from denying its corporate existence. The reason behind this doctrine is obvious - an
unincorporated association has no personality and would be incompetent to act and appropriate
for itself the power and attributes of a corporation as provided by law; it cannot create agents or
confer authority on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is an elementary
principle of law that a person who acts as an agent without authority or without a principal is
himself regarded as the principal, possessed of all the right and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third
party. In the first instance, an unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in a suit against it by a third
person who relied in good faith on such representation. It cannot allege lack of personality to be
sued to evade its responsibility for a contract it entered into and by virtue of which it received
advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it, may be barred from denying
its corporate existence in a suit brought against the alleged corporation. In such case, all those
who benefited from the transaction made by the ostensible corporation, despite knowledge of its
legal defects, may be held liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be
paid for the nets it sold. The only question here is whether petitioner should be held
jointly[18] liable with Chua and Yao. Petitioner contests such liability, insisting that only those who
dealt in the name of the ostensible corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly transacted with the respondent
corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the
boat which has earlier been proven to be an asset of the partnership. He in fact questions the
attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the
law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to
be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by persons with
whom he previously had an existing relationship, he is deemed to be part of said association and
is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the
Court in Alonso v. Villamor:[19]

A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position , entraps and destroys the other. It
is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done upon
the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no vested
rights in technicalities.
 Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the
nets. We agree with the Court of Appeals that this issue is now moot and academic. As
previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the
name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the
floats were specifically manufactured and tailor-made according to their own design, and were
bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to
assure the payment of the price stipulated in the invoices is proper. Besides, by specific
agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION
G.R. No. 101847 May 27, 1993

LOURDES NAVARRO AND MENARDO NAVARRO, petitioners,

vs.
COURT OF APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial
Court of Bacolod City, Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO
B. YANSON, respondents.

George L. Howard Law Office for petitioners

Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for private respondents.

MELO, J.:

Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals dated
June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses Lourdes and
Menardo Navarro, thusly:

The instant petition for annulment of decision is DISMISSED.

1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as

distinguished from intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such
ground is alleged in the petition.

2. Even if the judgment rendered by the respondent Court were erroneous, it is not
necessarily void (Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the
proceeding sought to be commenced by the petitioners.

3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped
should have been appeal.

SO ORDERED. (pp. 24-25, Rollo.)

The antecedent facts of the case are as follows:

On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against petitioner Lourdes
Navarro for "Delivery of Personal Properties With Damages". The complaint incorporated an application for a
writ of replevin. The complaint was later docketed as Civil Case No. 716 (12562) of the then Court of First
Instance of Bacolod (Branch 55) and was subsequently amended to include private respondent's husband,
Ricardo B. Yanson, as co-plaintiff, and petitioner's husband, as co-defendant.

On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as Presiding
Justice of the Court of Appeals) approved private respondents' application for a writ of replevin. The Sheriff's
Return of Service dated March 3, 1978 affirmed receipt by private respondents of all pieces of personal
property sought to be recovered from petitioners.

On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as follows :

Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by
virtue of the Writ of Replevin and as listed in the complaint are hereby sustained to belong to
 plaintiff being the owner of these properties; the motor vehicle, particularly that Ford Fiera
Jeep registered in and which had remain in the possession of the defendant is likewise
declared to belong to her, however, said defendant is hereby ordered to reimburse plaintiff the
sum of P6,500.00 representing the amount advanced to pay part of the price therefor; and
said defendant is likewise hereby ordered to return to plaintiff such other equipment[s] as were
brought by the latter to and during the operation of their business as were listed in the
complaint and not recovered as yet by virtue of the previous Writ of Replevin. (p. 12, Rollo.)

Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its rendition) and filed on
January 16, 1991 a "Motion for Extension of Time To File a Motion for Reconsideration". This was granted on
January 18, 1991. Private respondents filed their opposition, citing the ruling in the case of Habaluyas
Enterprises, Inc. vs. Japson (142 SCRA 208 [1986]) proscribing the filing of any motion for extension of time to
file a motion for a new trial or reconsideration. The trial judge vacated the order dated January 18, 1991 and
declared the decision of April 30, 1990 as final and executory. (Petitioners' motion for reconsideration was
subsequently filed on February 1, 1991 or 22 days after the receipt of the decision).

On February 4, 1991, the trial court issued a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's Return of
Service (Annex "6", p. 82, Rollo) declared that the writ was "duly served and satisfied". A receipt for the amount
of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in this case, was likewise submitted by the Sheriff
(Annex "7", p. 83, Rollo).

On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial court's decision,
claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to the evidence on
record.

The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or collateral
fraud, observing further that an appeal was the proper remedy.

In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the parties
"clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the business of Air
Freight Service Agency in Bacolod"; and that the decision sustaining the writ of replevin is void since the
properties belonging to the partnership do not actually belong to any of the parties until the final disposition and
winding up of the partnership" (p. 15, Rollo). These issues, however, were extensively discussed by the trial
judge in her 16-page, single-spaced decision.

We agree with respondents that the decision in this case has become final. In fact a writ of execution had been
issued and was promptly satisfied by the payment of P6,500.00 to private respondents.

Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial
review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners failed
to cite extrinsic or collateral fraud to warrant the setting aside of the trial court's decision. We respect the
appellate court's finding in this regard.

Petitioners have come to us in a petition for review. However, the petition is focused solely on factual issues
which can no longer be entertained. Petitioners' arguments are all directed against the decision of the regional
trial court; not a word is said in regard to the appellate's court disposition of their petition for annulment of
judgment. Verily, petitioners keeps on pressing that the idea of a partnership exists on account of the so-called
admissions in judicio. But the factual premises of the trial court were more than enough to suppress and negate
petitioners submissions along this line:

To be resolved by this Court factually involved in the issue of whether there was a partnership
that existed between the parties based on their verbal contention; whether the properties that
were commonly used in the operation of Allied Air Freight belonged to the alleged partnership
business; and the status of the parties in this transaction of alleged partnership. On the other
hand, the legal issues revolves on the dissolution and winding up in case a partnership so
existed as well as the issue of ownership over the properties subject matter of recovery.
As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote:

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

xxx xxx xxx

Corollary to this definition is the provision in determining whether a partnership exist as so

provided under Article 1769, to wit:

xxx xxx xxx

Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be
constituted in any form, a public instrument is necessary where immovables or any rights is
constituted. Likewise, if the partnership involves a capitalization of P3,000.00 or more in
money or property, the same must appear in a public instrument which must be recorded in
the Office of the Securities and Exchange Commission. Failure to comply with these
requirements shall only affect liability of the partners to third persons.

In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife
made admission to have entered into an agreement of operating this Allied Air Freight Agency
of which the plaintiff personally constituted with the Manila Office in a sense that the plaintiff
did supply the necessary equipments and money while her brother Atty. Rodolfo Villaflores
was the Manager and the defendant the Cashier. It was also admitted that part of this
agreement was an equal sharing of whatever proceeds realized. Consequently, the plaintiff
brought into this transaction certain chattels in compliance with her obligation. The same has
been done by the herein brother and the herein defendant who started to work in the
business. A cursory examination of the evidences presented no proof that a partnership,
whether oral or written had been constituted at the inception of this transaction. True it is that
even up to the filing of this complaint those movables brought by the plaintiff for the use in the
operation of the business remain registered in her name.

While there may have been co-ownership or co-possession of some items and/or any sharing
of proceeds by way of advances received by both plaintiff and the defendant, these are not
indicative and supportive of the existence of any partnership between them. Article 1769 of
the New Civil Code is explicit. Even the books and records retrieved by the Commissioner
appointed by the Court did not show proof of the existence of a partnership as conceptualized
by law. Such that if assuming that there were profits realized in 1975 after the two-year deficits
were compensated, this could only be subject to an equal sharing consonant to the
agreement to equally divide any profit realized. However, this Court cannot overlook the fact
that the Audit Report of the appointed Commissioner was not highly reliable in the sense that
it was more of his personal estimate of what is available on hand. Besides, the alleged profits
was a difference found after valuating the assets and not arising from the real operation of the
business. In accounting procedures, strictly, this could not be profit but a net worth.

In view of the above factual findings of the Court it follows inevitably therefore that there being
no partnership that existed, any dissolution, liquidation or winding up is beside the point. The
plaintiff himself had summarily ceased from her contract of agency and it is a personal
prerogative to desist. On the other hand, the assumption by the defendant in negotiating for
herself the continuance of the Agency with the principal in Manila is comparable to plaintiff's.
Any account of plaintiff with the principal as alleged, bore no evidence as no collection was
ever demanded of from her. The alleged P20,000.00 assumption specifically, as would have
been testified to by the defendant's husband remain a mere allegation.
 As to the properties sought to be recovered, the Court sustains the possession by plaintiff of
all equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other
vehicle which appeared registered in the name of the defendant, and to which even she
admitted that part of the purchase price came from the business claimed mutually operated,
although the Court have not as much considered all entries in the Audit Report as totally
reliable to be sustained insofar as the operation of the business is concerned, nevertheless,
with this admission of the defendant and the fact that as borne out in said Report there has
been disbursed and paid for in this vehicle out of the business funds in the total sum of
P6,500.00, it is only fitting and proper that validity of these disbursements must be sustained
as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and taking into account the
earlier agreement that only profits were to be shared equally, the plaintiff must be reimbursed
of this cost if only to allow the defendant continuous possession of the vehicle in question. It is
a fundamental moral, moral and civil injunction that no one shall enrich himself at the expense
of another. (pp. 71-75, Rollo.)

Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the issue raised
therein having been directly litigated in, and passed upon by, the trial court.

WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991 is
AFFIRMED in all respects.

No special pronouncement is made as to costs.

SO ORDERED.

THIRD DIVISION

[G.R. No. 144214. July 14, 2003]

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO
JOSE, petitioners, vs. DONALDO EFREN C. RAMIREZ and
Spouses CESAR G. RAMIREZ JR. and CARMELITA C.
RAMIREZ, respondents.

DECISION
PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the

latters dissolution, liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23,
2000 Decision and the July 26, 2000 Resolution of the Court of
[1] [2]

Appeals (CA) in CA-GR CV No. 41026.The assailed Decision disposed as

[3]

follows:

WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992
rendered by the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE
and NULLIFIED and in lieu thereof a new decision is rendered ordering the
[petitioners] jointly and severally to pay and reimburse to [respondents] the amount
of P253,114.00. No pronouncement as to costs. [4]

Reconsideration was denied in the impugned Resolution.

The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose
formed a partnership with a capital of P750,000 for the operation of a
restaurant and catering business under the name Aquarius Food House and
Catering Services. Villareal was appointed general manager and Carmelito
[5]

Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business
on September 5, 1984. His capital contribution of P250,000 was paid by his
parents, Respondents Cesar and Carmelita Ramirez. [6]
 After Jesus Jose withdrew from the partnership in January 1987, his
capital contribution of P250,000 was refunded to him in cash by agreement of
the partners. [7]

In the same month, without prior knowledge of respondents, petitioners

closed down the restaurant, allegedly because of increased rental. The
restaurant furniture and equipment were deposited in the respondents house
for storage.[8]

On March 1, 1987, respondent spouses wrote petitioners, saying that they

were no longer interested in continuing their partnership or in reopening the
restaurant, and that they were accepting the latters offer to return their capital
contribution. [9]

On October 13, 1987, Carmelita Ramirez wrote another letter informing

petitioners of the deterioration of the restaurant furniture and equipment
stored in their house. She also reiterated the request for the return of their
one-third share in the equity of the partnership. The repeated oral and written
requests were, however, left unheeded. [10]

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents
subsequently filed a Complaint dated November 10, 1987, for the collection
[11]

of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a
desire to withdraw from the partnership and had called for its dissolution under
Articles 1830 and 1831 of the Civil Code; that respondents had been paid,
upon the turnover to them of furniture and equipment worth over P400,000;
and that the latter had no right to demand a return of their equity because their
share, together with the rest of the capital of the partnership, had been spent
as a result of irreversible business losses. [12]

In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation were
true, then the loans incurred by petitioners should be regarded as purely
personal and, as such, not chargeable to the partnership. The former further
averred that they had not received any regular report or accounting from the
latter, who had solely managed the business. Respondents also alleged that
they expected the equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better location for the
restaurant.[13]

Respondents filed an Urgent Motion for Leave to Sell or Otherwise

Dispose of Restaurant Furniture and Equipment on July 8, 1988. The
[14]

furniture and the equipment stored in their house were inventoried and
appraised at P29,000. The display freezer was sold for P5,000 and the
[15]

proceeds were paid to them. [16]

After trial, the RTC ruled that the parties had voluntarily entered into a
[17]

partnership, which could be dissolved at any time. Petitioners clearly intended

to dissolve it when they stopped operating the restaurant. Hence, the trial
court, in its July 21, 1992 Decision, held them liable as follows: [18]

WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the

[petitioners] ordering the [petitioners] to pay jointly and severally the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorneys fee in the amount of P30,000.00

(c) Costs of suit.

The CA Ruling

The CA held that, although respondents had no right to demand the return
of their capital contribution, the partnership was nonetheless dissolved when
petitioners lost interest in continuing the restaurant business with
them. Because petitioners never gave a proper accounting of the partnership
accounts for liquidation purposes, and because no sufficient evidence was
presented to show financial losses, the CA computed their liability as follows:

Consequently, since what has been proven is only the outstanding obligation of the
partnership in the amount of P240,658.00, although contracted by the partnership
before [respondents] have joined the partnership but in accordance with Article 1826
of the New Civil Code, they are liable which must have to be deducted from the
remaining capitalization of the said partnership which is in the amount
of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share
of [respondents], this amount of P759,342.00 must be divided into three (3) shares or
in the amount of P253,114.00 for each share and which is the only amount which
[petitioner] will return to [respondents] representing the contribution to the
partnership minus the outstanding debt thereof. [19]

Hence, this Petition. [20]

Issues
 In their Memorandum, petitioners submit the following issues for our
[21]

consideration:

9.1. Whether the Honorable Court of Appeals decision ordering the distribution of the
capital contribution, instead of the net capital after the dissolution and liquidation of a
partnership, thereby treating the capital contribution like a loan, is in accordance with
law and jurisprudence;

9.2. Whether the Honorable Court of Appeals decision ordering the petitioners to
jointly and severally pay and reimburse the amount of [P]253,114.00 is supported by
the evidence on record; and

9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs. [22]

On closer scrutiny, the issues are as follows: (1) whether petitioners are
liable to respondents for the latters share in the partnership; (2) whether the
CAs computation of P253,114 as respondents share is correct; and (3)
whether the CA was likewise correct in not assessing costs.

This Courts Ruling

The Petition has merit.

First Issue:
Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed
existed, and that it was dissolved on March 1, 1987. They found that the
dissolution took place when respondents informed petitioners of the intention
to discontinue it because of the formers dissatisfaction with, and loss of trust
in, the latters management of the partnership affairs. These findings were
amply supported by the evidence on record. Respondents consequently
demanded from petitioners the return of their one-third equity in the
partnership.
We hold that respondents have no right to demand from petitioners the
return of their equity share. Except as managers of the partnership, petitioners
did not personally hold its equity or assets. The partnership has a juridical
personality separate and distinct from that of each of the partners. Since the[23]
capital was contributed to the partnership, not to petitioners, it is the
partnership that must refund the equity of the retiring partners.
[24]

Second Issue:
What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must

refund the shares of the partners, the amount to be refunded is necessarily
limited to its total resources. In other words, it can only pay out what it has in
its coffers, which consists of all its assets. However, before the partners can
be paid their shares, the creditors of the partnership must first be
compensated. After all the creditors have been paid, whatever is left of the
[25]

partnership assets becomes available for the payment of the partners shares.
Evidently, in the present case, the exact amount of refund equivalent to
respondents one-third share in the partnership cannot be determined until all
the partnership assets will have been liquidated -- in other words, sold and
converted to cash -- and all partnership creditors, if any, paid. The CAs
computation of the amount to be refunded to respondents as their share was
thus erroneous.
First, it seems that the appellate court was under the misapprehension
that the total capital contribution was equivalent to the gross assets to be
distributed to the partners at the time of the dissolution of the partnership. We
cannot sustain the underlying idea that the capital contribution at the
beginning of the partnership remains intact, unimpaired and available for
distribution or return to the partners. Such idea is speculative, conjectural and
totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does not
remain static and unaffected by the changing fortunes of the business. In the
present case, the financial statements presented before the trial court showed
that the business had made meager profits. However, notable therefrom is
[26]

the omission of any provision for the depreciation of the furniture and the
[27]

equipment. The amortization of the goodwill (initially valued at P500,000) is

[28]

not reflected either.Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses, which
consequently decreased the capital of the partnership.Both the trial and the
appellate courts in fact recognized the decrease of the partnership assets to
almost nil, but the latter failed to recognize the consequent corresponding
decrease of the capital.
 Second, the CAs finding that the partnership had an outstanding obligation
in the amount of P240,658 was not supported by evidence. We sustain the
contrary finding of the RTC, which had rejected the contention that the
obligation belonged to the partnership for the following reason:

x x x [E]vidence on record failed to show the exact loan owed by the partnership to its
creditors. The balance sheet (Exh. 4) does not reveal the total loan. The Agreement
(Exh. A) par. 6 shows an outstanding obligation of P240,055.00 which the partnership
owes to different creditors, while the Certification issued by Mercator Finance (Exh.
8) shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former
being the nominal party defendant in the instant case, who obtained a loan
of P355,000.00 on Oct. 1983, when the original partnership was not yet formed.

Third, the CA failed to reduce the capitalization by P250,000, which was

the amount paid by the partnership to Jesus Jose when he withdrew from the
partnership.
Because of the above-mentioned transactions, the partnership capital was
actually reduced. When petitioners and respondents ventured into business
together, they should have prepared for the fact that their investment would
either grow or shrink. In the present case, the investment of respondents
substantially dwindled. The original amount of P250,000 which they had
invested could no longer be returned to them, because one third of the
partnership properties at the time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties from
the effects of unwise, foolish or disastrous contracts they have entered into
with all the required formalities and with full awareness of what they were
doing. Courts have no power to relieve them from obligations they have
voluntarily assumed, simply because their contracts turn out to be disastrous
deals or unwise investments. [29]

Petitioners further argue that respondents acted negligently by permitting

the partnership assets in their custody to deteriorate to the point of being
almost worthless. Supposedly, the latter should have liquidated these sole
tangible assets of the partnership and considered the proceeds as payment of
their net capital. Hence, petitioners argue that the turnover of the remaining
partnership assets to respondents was precisely the manner of liquidating the
partnership and fully settling the latters share in the partnership.
We disagree. The delivery of the store furniture and equipment to private
respondents was for the purpose of storage. They were unaware that the
restaurant would no longer be reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored items to recover their capital
investment.

Third Issue:
Costs

Section 1, Rule 142, provides:

SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in

these rules, costs shall be allowed to the prevailing party as a matter of course, but the
court shall have power, for special reasons, to adjudge that either party shall pay the
costs of an action, or that the same be divided, as may be equitable. No costs shall be
allowed against the Republic of the Philippines unless otherwise provided by law.

Although, as a rule, costs are adjudged against the losing party, courts
have discretion, for special reasons, to decree otherwise. When a lower court
is reversed, the higher court normally does not award costs, because the
losing party relied on the lower courts judgment which is presumed to have
been issued in good faith, even if found later on to be erroneous.Unless
shown to be patently capricious, the award shall not be disturbed by a
reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and
Resolution SET ASIDE. This disposition is without prejudice to proper
proceedings for the accounting, the liquidation and the distribution of the
remaining partnership assets, if any. No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 148187 April 16, 2008

PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

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
agreement4 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 x5

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 on February 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,13petitioner 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 P11M under 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
its expertise 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. 22As 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.

Republic of the Philippines

Supreme Court
Manila
 THIRD DIVISION

HEIRS OF JOSE LIM, G.R. No. 172690

represented by ELENITO LIM,
Petitioners, Present:

CORONA, J.,
Chairperson,
VELASCO, JR.,
- versus - NACHURA,
DEL CASTILLO,* and
MENDOZA, JJ.

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 co-owners or co-possessors do or do not
share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a

partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are
derived;

(4) The receipt by a person of a share of the profits of a business is a

prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary with
the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.

Applying the legal provision to the facts of this case, the following circumstances
tend to prove that Elfledo was himself the partner of Jimmy and
Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the
partnership, on a date that coincided with the payment of the initial capital in the
partnership;[15] (2) Elfledo ran the affairs of the partnership, wielding absolute
control, power and authority, without any intervention or opposition whatsoever
from any of petitioners herein;[16] (3) all of the properties, particularly the nine
trucks of the partnership, were registered in the name of Elfledo; (4) Jimmy
testified that Elfledo did not receive wages or salaries from the partnership,
indicating that what he actually received were shares of the profits of the business;
[17]
and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime. As repeatedly stressed
in Heirs of Tan Eng Kee,[18] a demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and
personal properties acquired and registered in the names of Elfledo and respondent
formed part of the estate of Jose, having been derived from Jose's alleged
partnership with Jimmy and Norberto. They failed to refute respondent's claim that
Elfledo and respondent engaged in other businesses. Edison even admitted that
Elfledo also sold Interwood lumber as a sideline.[19] Petitioners could not offer any
credible evidence other than their bare assertions. Thus, we apply the basic rule of
evidence that between documentary and oral evidence, the former carries more
weight.[20]

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired help but
one of the partners in the trucking business, active and visible in the
running of its affairs from day one until this ceased operations upon his
demise. The extent of his control, administration and management of the
partnership and its business, the fact that its properties were placed in his
name, and that he was not paid salary or other compensation by the
partners, are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only
contributed in the initial capital but had no say thereafter on how the
business was ran. Evidently it was through Elfredos efforts and hard
work that the partnership was able to acquire more trucks and otherwise
prosper. Even the appellant participated in the affairs of the partnership
by acting as the bookkeeper sans salary.

It is notable too that Jose Lim died when the partnership was barely a
year old, and the partnership and its business not only continued but
also flourished. If it were true that it was Jose Lim and not Elfledo
who was the partner, then upon his death the partnership should have
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.