Facts:

Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for the former to manage the latter’s mining claim known 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 P 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 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 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Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it or the mutual interest of both principal and agent.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.