G.R. No. L-9976; November 22, 1915
Oquiñena & Company, plaintiff-appellee, vs. Jose Muertegui, et al., defendants-appellants.

FACTS:
The plaintiff, Oquiñena & Company, a commission merchant firm in Cebu, filed a complaint to recover the sum of P3,120.81 from the defendant partnership, Muertegui & Aboitiz, based on a balance of accounts. The defendants shipped hemp and copra to the plaintiff for sale on commission under a verbal agreement. The plaintiff was to receive a one percent commission, and the defendants were to bear all expenses related to the shipment and sale. Upon termination of their business relations in March 1910, an account settlement showed the stated balance due. The defendants refused to pay, contending that the amount represented internal revenue taxes paid by the plaintiff on its commission merchant business, which the defendants neither authorized nor were obligated to pay.

ISSUE:
Whether the defendants (principals) are liable to reimburse the plaintiff (commission agent) for the internal revenue tax the plaintiff paid on its gross sales as a commission merchant, pursuant to their agreement that the defendants would bear all expenses of the shipment and sale.

RULING:
No. The Supreme Court reversed the trial court’s judgment and absolved the defendants from the complaint. The Court held that the tax paid by the plaintiff was a tax on its own business or occupation as a commission merchant, imposed by Section 140 of the Internal Revenue Law (Act No. 1189). This tax was distinct from the tax on the sale of the goods themselves, which was the liability of the principals under Section 139 of the same law. The agreement for the defendants to pay “all expenses” related to the shipment and sale did not encompass the plaintiff’s personal occupation tax. The defendants’ prior approval of accounts where such tax was erroneously included did not create an obligation, as such consent was given under a mistake of fact regarding the nature of the charge. Under Articles 1265 and 1266 of the Civil Code, consent given by error is void. Consequently, the plaintiff had no right to charge this tax to the defendants, and the sum claimed was not a valid debt.