G.R. No. 47587, June 17, 1941
VICENTE DIAZ, plaintiff and appellant, vs. A. L. YATCO, Collector of Internal Revenue, defendant and appellee.

FACTS

The plaintiff, Vicente Diaz, filed an action against the defendant, the Collector of Internal Revenue, to recover the sum of P435.06 which he paid under protest as a merchant’s tax and surcharge on his sales of copra in the municipality of Caibiran, Province of Leyte, from June 11, 1932, to September 29, 1934. The Court of First Instance of Leyte dismissed his complaint without costs. On appeal, the Court of Appeals elevated the case to the Supreme Court because it involves the legality of a tax assessment under the Revised Administrative Code. The plaintiff was a merchant engaged in buying and selling copra in Leyte. When his business began to decline and he faced financial difficulties, he devised a plan to reduce the taxes he paid to the government. To carry out this plan, he proposed to the Philippine Refining Co., Inc., in Cebu that it appoint him as its purchasing agent for copra in Caibiran, Leyte. The corporation did not directly accept his proposal in its reply but invited him to a conference. As a result, an agency contract (Exhibit A) was executed. During the period the merchant’s tax was collected, the plaintiff purchased all the copra with his own money; he stored it in a warehouse owned by him, for which the corporation never paid any rent; the plaintiff suffered losses in his business in which the corporation did not participate; the plaintiff’s accounting books were not closed after the alleged agency contract was executed; and according to the entries on pages 22 to 23 of his ledger, which contained the current account of Philippine Refining Co., Inc., the plaintiff acted as a merchant in all the copra purchases he made, and not as an agent of the corporation.

ISSUE

Whether the plaintiff acted as a merchant or as a mere agent in relation to the sales of copra he made during the period in question.

RULING

The Supreme Court ruled that the plaintiff acted as a merchant. According to the last paragraph of section 1459 of the Revised Administrative Code, the term “merchant” includes a commission merchant who has establishments of his own for the storage and disposal of goods. The plaintiff falls under this definition because it was proven that he stored the copra he sold to Philippine Refining Co., Inc., in a warehouse owned by him and for which the corporation paid no rent. This, in addition to the circumstances that he did not act as an agent but as a merchant with his own capital. The appealed decision was in accordance with law and was therefore affirmed, with costs against the plaintiff-appellant.