G.R. No. L-47412; May 9, 1941
WARNER, BARNES & CO., LTD., plaintiff and appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant and appellee.

FACTS

Warner, Barnes & Co., Ltd., an English corporation authorized to do business in the Philippines, filed a civil case to recover P5,851.47 paid under protest on July 20, 1936, for sales taxes on rice sold to the National Rice & Corn Corporation (NARIC) in May and June 1936. The Court of First Instance of Manila ruled against the plaintiff, upholding the tax assessment. The plaintiff appealed, assigning errors that the trial court failed to declare that: (1) a commission agent must have possession and dominion over the goods sold and ordinarily receives the price; (2) the appellant acted as a commission agent; (3) the appellant acted as a mere mercantile broker; and (4) it failed to order a refund.
The undisputed facts are: NARIC solicited bids for 100,000 sacks of Saigon No. 2 rice. The appellant, after telegraphically inquiring about prices and terms with the Compagnie de Commerce & D’Exportation D’Indochine (CCEI) of Saigon, submitted a bid in its own name on May 5, 1936, stating it would receive the rice from its suppliers and requesting letters of credit be issued in CCEI’s name. NARIC accepted the bid on May 11, 1936, and the appellant signed the corresponding contract as “Agent of Compagnie de Commerce & D’Exportation D’Indochine, Saigon” and posted the required P20,000 bond with its own check.
Shipments were made in two lots (49,997 sacks on May 27 and 50,000 sacks on June 8). The payment mechanism, as stipulated, involved NARIC opening a letter of credit with the Philippine National Bank in favor of CCEI. Upon shipment, CCEI would deliver the shipping documents (bill of lading, invoice, insurance policy) to the Banque de L’Indochine in Saigon, which would pay CCEI and forward the documents to the Philippine National Bank in Manila. NARIC would then pay the bank and receive the documents. Upon arrival in Manila, the appellant handled the customs formalities and delivery to NARIC’s warehouse.
Some sacks were of inferior quality or underweight. The appellant settled these deficiencies directly with NARIC by reimbursing P5,700 and P930.26, respectively, but CCEI refused to accept responsibility for these reimbursements. The total paid by NARIC was 290,000 piastres (equivalent to P390,098.33). The appellant received from CCEI a 2% commission on this amount (5,788.56 piastres or P7,575.77), which it declared and paid a broker’s tax of P303.03 on. The Collector of Internal Revenue, upon review, assessed an additional tax of P5,851.47, contending the appellant acted as a commission merchant, not a mere broker. The appellant paid this under protest and sued for a refund.

ISSUE

Whether the appellant, Warner, Barnes & Co., Ltd., acted as a mercantile broker or as a commission merchant in the transaction with NARIC for the supply of rice, which determines the applicable sales tax rate.

RULING

The Supreme Court affirmed the trial court’s decision with modification. The appellant acted as a commission merchant, not a mere mercantile broker. The Court defined a mercantile broker under the Revised Administrative Code as one who negotiates sales or purchases for others or brings buyers and sellers together, without receiving or having possession or dominion of the goods and without receiving the selling price unless expressly authorized. A commission merchant, as a type of “merchant” under the law, is engaged in selling goods.
The facts demonstrated the appellant’s role exceeded that of a mere intermediary. It bid in its own name, signed the contract as an agent (though for a disclosed principal), posted a bond with its own funds, handled customs clearance and delivery in Manila, and directly settled quality and weight deficiencies with NARIC without recourse to CCEI. Furthermore, the invoices and consular certificate from Saigon indicated a buyer-seller relationship between the appellant and CCEI. These acts showed the appellant intervened at least as a commission agent.
Therefore, under the relevant tax laws (Article 1459 of the Administrative Code and Act No. 3243 ), the proper tax on the acts of a commission merchant was 1½ percent of the gross value of the merchandise sold. The assessment of P5,851.47 at this rate was valid. However, the appellant was entitled to a credit for the P303.03 it had previously paid in error as a broker’s tax. The appealed decision was modified to order this credit/refund and was affirmed in all other respects, with costs against the appellant.