FACTS:

1. PHILEX MINING v CIR

(page 13)

1. PHILEX entered into an agreement with Baguio Mining Company for the
former to manage and operate the latters claim in Bengut.
2. In the course of managing and operating its project PHILEX made
advances of cash and property in accordance with par. 5 of the
Agreement.
3. The mine suffered lossess which resulted to PHILEX withdrawal as a
manager of the mine and the eventual cessation of the mine operations.
4. The parties constituted a dation in payment where Baguio Gold admitted
indebtedness to PHILEX and agreed to pay the same in three segments:
(1) Assigning Baguio Golds tangible assets to petitioner; (2) Transferring
to PHILEX Baguio Golds Equitable title in its Philodrill assets ; (3)
Settling the remaining liability through properties that may be acquired
by Baguio Gold in the future.
5. The parties constituted an Ammendment in the Compromise Dation in
Payment where the parties determined indebtedness of Baguio Gold to
other creditors where PHILEX assumed as a guarantor.
6. PHILEX wrote of the remaining outstanding indebtedness of Baguio Gold
by charging to allownaces and reserves that were set up.
7. PHILEX deducted from the income of Baguio Gold as loss on settlement
receivables from Baguio Gold.
8. BIR disallowed the amout as deduction for bad debt and assessed the
petitioner a deficiency income tax
9. PHILEX protested the disallowance but the BIR rejected the protest
10. CTA rejected Philexs argument on the grount that the advances made for
the Sto. Nino mine were in the nature of a loan and ruled it as an
investment in a partnership with Baguio Gold for the development and
exploitation of the Sto. Nino mine.
o CTA held that the PA that executed by PHILEX and BAGUIO gold
was in the nature of a partnership agreement because the
advanced amout partook in the nature of an investment and
cannot be deducted as bad debt from PHILEXs gross income.
11. CA affirmed CTAs ruling
ISSUE: WHETHER THE POWER OF ATTORNEY IS IN THE NATURE OF
ESTABLISHING A PARTNERSHIP
HELD: YES.
1. The Power of Attorney was the instrument material in determining the
nature of business between PHILEX and Baguio Gold,.
2. The Power of Attorney PHILEX and Baguio Gold undertook to contribute
money, property and industry to a common fund known as the Sto. Nino
Mine.
3. The PHILEXs contention that it could not have entered into a partnership
agreement with Baguio Gold because it did not bind itself to contribute
money under par 5 of the agreement.
o Under par.5 it was only optional for PHILEX to transafer fuds or
property to the Sto. Nino project whenever the Mangers shall
deem it necessary.
o The contention is untenable.

Although the language of the contract does not bind a party to

contribute, the fact of actual contribution is deemed by the Court
as sufficient compliance for purposes of the formaton of
partnership.
4. 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.
5.
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.
o 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.
o 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 correspondingproportion of the entire
assets of the STO. NINO MINE, excluding the claims" shall be
transferred to petitioner.As pointed out by the Court of Tax
Appeals, petitioner was merely entitled to a proportionate
return of the mines assets upon dissolution of the parties
business relations. There was nothing in the agreement that
would require Baguio Gold to make payments of the advances
to petitioner as would be recognized as an item of obligation or
"accounts payable" for Baguio Gold.
o