Philex Mining Corporation vs. CIR [G.R. No.

148187 (April
16, 2008)]

Facts: Petitioner Philex entered into an agreement with

Baguio Gold Mining Corporation for the former to manage
the latters mining claim know as the Sto. Mine. The
parties agreement was denominated as Power of
Attorney. The mine suffered continuing losses over the
years, which resulted in petitioners withdrawal as
manager of the mine. The parties executed a
Compromise Dation in Payment, wherein the debt of
Baguio
amounted
to
Php.
112,136,000.00.
Petitioner deducted said amount from its gross income in
its annual tax income return as loss on the settlement of
receivables from Baguio Gold against reserves and
allowances. BIR disallowed the amount as deduction
for bad debt. Petitioner claims that it entered a contract of
agency evidenced by the power of attorney executed by
them and the advances made by petitioners is in the
nature of a loan and thus can be deducted from its gross
income. Court of Tax Appeals (CTA) rejected the claim and
held that it is a partnership rather than an agency. CA
affirmed CTA
Issue: Whether or not it is an agency.
Held: No. The lower courts correctly held that the Power
of Attorney (PA) is the instrument material that is material
in determining the true nature of the business
relationship between
petitioner
and
Baguio.
An
examination of the said PA reveals that a partnership or

joint venture was indeed intended by the parties. While a

corporation like the petitioner cannot generally enter into
acontract 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 PA
indicates that the parties had intended to create a PAT and
establish a common fund for the purpose. They also had a
joint interest in the profits of the business as shown by the
50-50 sharing of income of the mine.
Moreover, 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agency that cannot be revoked or withdrawn by the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.
In this case the non-revocation or non-withdrawal under
the PA applies to the advances made by the petitioner who
is the agent and not the principal under the contract. Thus,
it cannot be inferred from the stipulation that it is an
agency.