G.R. No.

L-47673             October 10, 1946 transacted business in the Philippines in the

following manner, with the exception of the
transactions which are described in paragraphs V
KOPPEL (PHILIPPINES), INC., plaintiff-appellant, 
and VI of this stipulation:
vs.
ALFREDO L. YATCO, Collector of Internal
Revenue, defendant-appellee. When a local buyer was interested in the purchase
of railway materials, machinery, and supplies, it
asked for price quotations from plaintiff. Atypical
Padilla, Carlos and Fernando for appellant.
form of such request is attached hereto and made
Office of the Solicitor General Ozaeta, First Assistant
a part hereof as Exhibit A. (Exhibit A represents
Solicitor General Reyes and.
typical transactions arising from written requests
Office of the Solicitor General Reyes and Solicitor
for quotations, while Exhibits B to G, inclusive, are
Cañizanes for appellee.
typical transactions arising from verbal requests
for quotation.) Plaintiff then cabled for the
quotation desired for Koppel Industrial Car and
Equipment Company. A sample of the pertinent
cable is hereto attached and made a part hereof
as Exhibit B. Koppel Industrial Car and Equipment
HILADO, J.: Company answered by cable quoting its cost
price, usually A. C. I. F. Manila cost price, which
was later followed by a letter of confirmation. A
This is an appeal by Koppel (Philippines), Inc., from the
sample of the said cable quotation and of the letter
judgment of the Court of First Instance of Manila in civil case
of confirmation are hereto attached and made a
No. 51218 of said court dismissing said corporation's
part hereof as Exhibits C and C-1. Plaintiff,
complaint for the recovery of the sum of P64,122.51 which it
however, quoted by Koppel Industrial Car and
had paid under protest to the Collector of Internal Revenue
Equipment Company. Copy of the plaintiff's letter
on October 30, 1936, as merchant sales tax. The main facts
to purchaser is hereto attached and made a part
of the case were stipulated in the court below as follows:
hereof as Exhibit D. On the basis of these
quotations, orders were placed by the local
AGREED STATEMENT OF FACTS purchasers, copies of which orders are hereto
attached as Exhibits E and E-1.
Now come the plaintiff by attorney Eulogio P.
Revilla and the defendant by the Solicitor General A cable was then sent to Koppel Industrial Car and
and undersigned Assistant Attorney of the Bureau Equipment company giving instructions to ship the
of Justice and, with leave of this Honorable Court, merchandise to Manila forwarding the customer's
hereby respectfully stipulated and agree to the order. Sample of said cable is hereto attached as
following facts, to wit: Exhibit F. The bills of lading were usually made to
"order" and indorsed in blank with notation to the
effect that the buyer be notified of the shipment of
I. That plaintiff is a corporation duly organized and the goods covered in the bills of lading;
existing under and by virtue of the laws of the commercial invoices were issued by Koppel
Philippines, with principal office therein at the City Industrial Car and Equipment Company in the
of Manila, the capital stock of which is divided into names of the purchasers and certificates of
thousand (1,000) shares of P100 each. The insurance were likewise issued in their names, or
Koppel Industrial Car and Equipment company, a in the name of Koppel Industrial Car and
corporation organized and existing under the laws Equipment Company but indorsed in blank and
of the State of Pennsylvania, United States of attached to drafts drawn by Koppel Industrial Car
America, and not licensed to do business in the and Equipment Company on the purchasers,
Philippines, owned nine hundred and ninety-five which were forwarded through foreign banks to
(995) shares out of the total capital stock of the local banks. Samples of the bills of lading are
plaintiff from the year 1928 up to and including the hereto attached as Exhibits F-1, I-1, I-2 and I-3.
year 1936, and the remaining five (5) shares only Bills of ladings, Exhibits I-1, I-2 and I-3, may
were and are owned one each by officers of the equally have been employed, but said Exhibits I-1,
plaintiff corporation. I-2 and I-3 have no connection with the transaction
covered by Exhibits B to G, inclusive. The
II. That plaintiff, at all times material to this case, purchasers secured the shipping papers by
was and now is duly licensed to engage in arrangement with the banks, and thereupon
business as a merchant and commercial broker in received and cleared the shipments. If the
the Philippines; and was and is the holder of the merchandise were of European origin, and if there
corresponding merchant's and commercial was not sufficient time to forward the documents
broker's privilege tax receipts. necessary for clearance, through foreign banks to
local banks, to the purchasers, the Koppel
Industrial Car and Equipment company did, in
III. That the defendant Collector of Internal many cases, send the documents directly from
revenue is now Mr. Bibiano L. Meer in lieu of Mr. Europe to plaintiff with instructions to turn these
Alfredo L. Yatco. documents over to the purchasers. In many cases,
where sales was effected on the basis of C. I. F.
IV. That during the period from January 1, 1929, Manila, duty paid, plaintiff advanced the sums
up to and including December 31, 1932, plaintiff required for the payment of the duty, and these
sums, so advanced, were in every case Mr. Cesar Barrios. After the draft was fully paid by
reimbursed to plaintiff by Koppel Industrial Car and Mr. Barrios, Koppel Industrial Car and Equipment
Equipment Company. The price were payable by Company reimbursed plaintiff with cost price of
drafts agreed upon in each case and drawn by $16,508.32 and credited it with $1,152.95 as its
Koppel Industrial Car and Equipment Company on share of the profit on the transaction. Exhibits J
respective purchasers through local banks, and and J-1 are herewith attached and made integral
payments were made to the banks by the parts of this stipulation with particular reference to
purchasers on presentation and delivery to them of paragraph VI hereof.
the above-mentioned shipping documents or
copies thereof. A sample of said drafts is hereto
VII. That plaintiff's share in the profits realized out
attached as Exhibit G. Plaintiff received by way of
of these transactions described in paragraphs IV,
compensation a percentage of the profits realized
V and VI hereof totaling P3,772,403.82, amounts
on the above transactions as fixed in paragraph 6
to P132,201.30; and that plaintiff within the time
of the plaintiff's contract with Koppel Industrial Car
provided by law returned the aforesaid amount
and Equipment Company, which contract is hereto
P132,201.30 for the purpose of the commercial
attached as Exhibit H, and suffered its
broker's 4 per cent tax and paid thereon the sum
corresponding share in the losses resulting from
P5,288.05 as such tax.
some of the transactions.

VIII. That defendant demanded of the plaintiff the

That the total gross sales from January 1, 1929,
sum of P64,122.51 as the merchants' sales tax of
up to and including December 31, 1932, effected
1% per cent on the amount of P3,772,403.82,
in the foregoing manner and under the above
representing the total gross value of the sales
specified conditions, amount to P3, 596,438.84.
mentioned in paragraphs IV, V and VI hereof,
including the 25 per cent surcharge for the late
V. That when a local sugar central was interested payment of the said tax, which tax and surcharge
in the purchase of railway materials, machinery were determined after the amount of P5,288.05
and supplies, it secured quotations from, and mentioned in paragraph VI hereof was deducted.
placed the corresponding orders with, the plaintiff
in substantially the same manner as outlined in
IX. That plaintiff, on October 30, 1936, paid under
paragraph IV of this stipulation, with the only
protest said sum of P64,122.51 in order to avoid
difference that the purchase orders which were
further penalties, levy and distraint proceedings.
agreed to by the central and the plaintiff are similar
to the sample hereto attached and made a part
hereof as Exhibit I. Typical samples of the bills of X. That defendant, on November 10, 1936,
lading covering the herein transaction are hereto overruled plaintiff's protest, and defendant has
attached and made a part hereto as Exhibits I-1, I- failed and refused and still fails and refuses,
2 and I-3. The value of the sales carried out in the notwithstanding demands by plaintiff, to return to
manner mentioned in this paragraph is the plaintiff said sum of P64,122.51 or any part
P133,964.98. thereof.

VI. That sometime in February, 1929, Miguel J. xxx     xxx     xxx

Ossorio, of Manila, Philippines, placed an option
with Koppel Industrial Car and Equipment
That the parties hereby
Company, through plaintiff, to purchase within
reserve the right to present
three months a pair of Atlas-Diesel Marine
additional evidence in support
Engines. Koppel Industrial Car and Equipment
of their respective
Company purchased said Diesel Engines in
contentions.
Stockholm, Sweden, for $16,508.32. The suppliers
drew a draft for the amount of $16,508.32 on the
Koppel Industrial Car and Equipment Company, Manila, Philippines, December
which paid the amount covered by the draft. Later, 26, 1939
Miguel J. Ossorio definitely called the deal off, and
as Koppel Industrial Car and Equipment Company
could not ship to or draw on said Mr. Miguel J. (Sgd.) ROMAN OZAETA           
Ossorio, it in turn drew another draft on plaintiff for
the same amount at six months sight, with the Solicitor General          
understanding that Koppel Industrial Car and
Equipment Company would reimburse plaintiff           (Sgd.) ANTONIO
when said engines were disposed of. Plaintiff CAÑIZARES
honored the draft and debited the said sum of           Assistant Attorney
$16,508.32 to merchandise account. The engines
were left stored at Stockholm, Sweden. On April 1,
1930, a new local buyer, Mr. Cesar Barrios, of (Sgd.) E. P. REVILLA           
Iloilo, Philippines, was found and the same Attorney for the Plaintiff           
engines were sold to him for $21,000 (P42,000) C.
I. F. Hongkong. The engines were shipped to 3rd Floor, Perez Samanillo
Hongkong and a draft for $21,000 was drawn by Bldg., Manila          
Koppel Industrial Car and Equipment Company on
Both parties adduced some oral evidence in (g) If the plaintiff had in stock the
clarification of or addition to their agreed statement merchandise desired by local buyers, it
of facts. A preponderance of evidence has immediately filled the orders of such
established, besides the facts thus stipulated, the local buyers and made delivery in the
following: Philippines without the necessity of
cabling its principal in America either for
price quotations or confirmation or
(a) The shares of stock of plaintiff
rejection of that agreed upon between it
corporation were and are all owned by
and the buyer (t.s.n., pp. 39-43);
Koppel Industries Car and Equipment
Company of Pennsylvania, U. S. A.,
exceptive which were necessary to (h) Whenever the deliveries made by
qualify the Board of Directors of said Koppel Industrial Car and Equipment
plaintiff corporation; Company were incomplete or insufficient
to fill the local buyer's orders, plaintiff
used to make good the deficiencies by
(b) In the transactions involved herein
deliveries from its own local stock, but in
the plaintiff corporation acted as the
such cases it charged its principal only
representative of Koppel Industrial Car
the actual cost of the merchandise thus
and Equipment Company only, and not
delivered by it from its stock and in such
as the agent of both the latter company
transactions plaintiff did not realize any
and the respective local purchasers —
profit (t.s.n., pp. 53-54);
plaintiff's principal witness, A.H. Bishop,
its resident Vice-President, in his
testimony invariably referred to Koppel (i) The contract of sale involved herein
Industrial Car and Equipment Co. as were all perfected in the Philippines.
"our principal" 9 t. s. n., pp. 10, 11, 12,
19, 75), except that at the bottom of
Those described in paragraph IV of the agreed
page 10 to the top of page 11, the
statement of facts went through the following
witness stated that they had "several
process: (1) "When a local buyer was interested in
principal" abroad but that "our principal
the purchase of railway materials, machinery, and
abroad was, for the years in question,
supplies, it asked for price quotations from
Koppel Industrial Car and Equipment
plaintiff"; (2) "Plaintiff then cabled for the quotation
Company," and on page 68, he testified
desired from Koppel Industrial Car and Equipment
that what he actually said was ". . . but
Company"; (3) "Plaintiff, however, quoted to the
our principal abroad" and not "our
purchaser a selling price above the figures quoted
principal abroad" — as to which it is very
by Koppel Industrial Car and Equipment
significant that neither this witness nor
Company"; (4) "On the basis of these quotations,
any other gave the name of even a
orders were placed by the local purchasers . . ."
single other principal abroad of the
plaintiff corporation;
Those described in paragraph V of said agreed
statement of facts were transacted "in substantially
(c) The plaintiff corporation bore alone
the same manner as outlined in paragraph IV."
incidental expenses — as, for instance,
cable expenses-not only those of its own
cables but also those of its "principal" As to the single transaction described in paragraph
(t.s.n., pp. 52, 53); VI of the same agreed statement of facts,
discarding the Ossorio option which anyway was
called off, "On April 1, 1930, a new local buyer, Mr.
(d) the plaintiff's "share in the profits"
Cesar Barrios, of Iloilo, Philippines, was found and
realized from the transactions in which it
the same engines were sold to him for
intervened was left virtually in the hands
$21,000(P42,000) C.I.F. Hongkong." (Emphasis
of Koppel Industrial Car and Equipment
supplied.).
Company (t.s.n., p. 51);

(j) Exhibit H contains the following

(e) Where drafts were not paid by the
paragraph:
purchasers, the local banks were
instructed not to protest them but to
refer them to plaintiff which was fully It is clearly understood that the intent of this
empowered by Koppel Industrial Car contract is that the broker shall perform only the
and Equipment company to instruct the functions of a broker as set forth above, and shall
banks with regards to disposition of the not take possession of any of the materials or
drafts and documents (t.s.n., p. 50; equipment applying to said orders or perform any
Exhibit G);lawphil.net acts or duties outside the scope of a broker; and in
no sense shall this contract be construed as
granting to the broker the power to represent the
(f) Where the goods were European
principal as its agent or to make commitments on
origin, consular invoices, bill of lading,
its behalf.
and, in general, the documents
necessary for clearance were sent
directly to plaintiff (t.s.n., p. 14);
The Court of First Instance held for the defendant and contravention of the local internal revenue laws, and the
dismissed plaintiff's complaint with costs to it. perpetration of what would amount to a tax evasion,
inasmuch as it considered — and in our opinion, correctly —
that appellant Koppel (Philippines), Inc. was a mere branch
Upon this appeal, seven errors are assigned to said
or agency or dummy ("hechura") of Koppel Industrial Car
judgment as follows:.
and Equipment Co. The court did not hold that the corporate
personality of Koppel (Philippines), Inc., would also be
1. That the court a quo erred in not holding that disregarded in other cases or for other purposes. It would
appellant is a domestic corporation distinct and have had no power to so hold. The courts' action in this
separate from, and not a mere branch of Koppel regard must be confined to the transactions involved in the
Industrial Car and Equipment Co.; case at bar "for the purpose of adjudging the rights and
liabilities of the parties in the case. They have no jurisdiction
to do more." (1 Flethcer, Cyclopedia of Corporation,
2. the court a quo erred in ignoring the ruling Permanent ed., p. 124, section 41.)
of the Secretary of Finance, dated January 31,
1931, Exhibit M;
A leading and much cited case puts it as follows:
3. the court a quo erred in not holding that a
character of a broker is determined by the nature If any general rule can be laid down, in the present
of the transaction and not by the basis or measure state of authority, it is that a corporation will be
of his compensation; looked upon as a legal entity as a general rule,
and until sufficient reason to the contrary appears;
but, when the notion of legal entity is used to
4. The court a quo erred in not holding that defeat public convenience, justify wrong, protect
appellant acted as a commercial broker in the fraud, or defend crime, the law will regard the
transactions covered under paragraph VI of the corporation as an association of persons. (1
agreed statement of facts; Fletcher Cyclopedia of Corporation [Permanent
Edition], pp. 135, 136; United States vs.
5. The court a quo erred in not holding that Milwaukee Refrigeration Transit Co., 142 Fed.,
appellant acted as a commercial broker in the 247, 255, per Sanborn, J.)
transactions covered under paragraph v of the
agreed statement of facts; In his second special defense appellee alleges "that the
plaintiff was and is in fact a branch or subsidiary of Koppel
6. The court a quo erred in not holding that Industrial Car and Equipment Co., a Pennsylvania
appellant acted as a commercial broker in the sole corporation not licensed to do business in the Philippines but
transaction covered under paragraph VI of the actually doing business here through the plaintiff; that the
agreed statement of facts; said foreign corporation holds 995 of the 1,000 shares of the
plaintiff's capital stock, the remaining five shares being held
by the officers of the plaintiff herein in order to permit the
7. the court a quo erred in dismissing appellant's incorporation thereof and to enable its aforesaid officers to
complaint. act as directors of the plaintiff corporation; and that plaintiff
was organized as a Philippine corporation for the purpose of
The lower court found and held that Koppel (Philippines), evading the payment by its parent foreign corporation of
Inc. is a mere dummy or brach ("hechura") of Koppel merchants' sales tax on the transactions involved in this
industrial Car and Equipment Company. The lower court did case and others of similar nature."
not deny legal personality to Koppel (Philippines), Inc. for
any and all purposes, but in effect its conclusion was that, in By most courts the entity is normally regarded but
the transactions involved herein, the public interest and is disregarded to prevent injustice, or the distortion
convenience would be defeated and what would amount to a or hiding of the truth, or to let in a just defense. (1
tax evasion perpetrated, unless resort is had to the doctrine Fletcher, Cyclopedia of Corporation, Permanent
of "disregard of the corporate fiction." Edition, pp. 139,140; emphasis supplied.)

I. In its first assignment of error appellant submits that the Another rule is that, when the corporation is the
trial court erred in not holding that it is a domestic mere alter ego, or business conduit of a person, it
corporation distinct and separate from and not a mere may de disregarded." (1 Fletcher, Cyclopedia of
branch of Koppel Industrial Car and Equipment Company. It Corporation, Permanent Edition, p. 136.)
contends that its corporate existence as Philippine
corporation can not be collaterally attacked and that the
Government is estopped from so doing. As stated above, the Manifestly, the principle is the same whether the "person" be
lower court did not deny legal personality to appellant for any natural or artificial.
and all purposes, but held in effect that in the transaction
involved in this case the public interest and convenience A very numerous and growing class of cases
would be defeated and what would amount to a tax evasion wherein the corporate entity is disregarded is that
perpetrated, unless resort is had to the doctrine of "disregard (it is so organized and controlled, and its affairs
of the corporate fiction." In other words, in looking through are so conducted, as to make it merely an
the corporate form to the ultimate person or corporation instrumentality, agency, conduit or adjunct of
behind that form, in the particular transactions which were another corporation)." (1 Fletcher, Cyclopedia of
involved in the case submitted to its determination and Corporation, Permanent ed., pp. 154, 155.)
judgment, the court did so in order to prevent the
 While we recognize the legal principle that a From the facts hereinabove stated, as established by a
corporation does not lose its entity by the preponderance of the evidence , particularly those narrated
ownership of the bulk or even the whole of its in paragraph (a), (b), (c), (d), (e),(f), (h), (i), and (j) after the
stock, by another corporation (Monongahela Co. agreed statement of facts, we find that, in so far as the sales
vs. Pittsburg Co., 196 Pa., 25; 46 Atl., 99; 79 Am. involved herein are concerned, Koppel (Philippines), Inc.,
St. Rep., 685) yet it is equally well settled and and Koppel Industrial Car and Equipment company are to all
ignore corporate forms." (Colonial Trust Co. vs. intents and purposes one and the same; or, to use another
Montello Brick Works, 172 Fed., 310.) mode of expression, that, as regards those transactions, the
former corporation is a mere branch, subsidiary or agency of
the latter. To our mind, this is conclusively borne out by the
Where it appears that two business enterprises
fact, among others, that the amount of he so-called "share in
are owned, conducted and controlled by the same
the profits" of Koppel (Philippines), Inc., was ultimately left to
parties, both law and equity will, when necessary
the sole, unbridled control of Koppel Industrial Car and
to protect the rights of third persons, disregard the
Equipment Company. If, in their relations with each other,
legal fiction that two corporations are distinct
Koppel (Philippines), Inc., was considered and intended to
entities, and treat them as identical. (Abney vs.
function as a bona fide separate corporation, we can not
Belmont Country Club Properties, Inc., 279 Pac.,
conceive how this arrangement could have been adopted,
829.)
for if there was any factor in its business as to which it would
in that case naturally have been opposed to being thus
. . . the legal fiction of distinct corporate existence controlled, it must have been precisely the amount
will be disregarded in a case where a corporation of profit which it could endeavor and hope to earn. No group
is so organized and controlled and its affairs are of businessmen could be expected to organize a mercantile
so conducted, as to make it merely an corporation — the ultimate end of which could only be profit
instrumentality or adjunct of another corporation. — if the amount of that profit were to be subjected to such a
(Hanter vs. Baker Motor Vehicle Co., 190 Fed., unilateral control of another corporation, unless indeed the
665.) former has previously been designed by the incorporators to
serve as a mere subsidiary, branch or agency of the latter.
Evidently, Koppel Industrial Car and Equipment Company
In United States vs. Lehigh Valley R. Co. 9220 U.S., 257; 55 made us of its ownership of the overwhelming majority —
Law. ed., 458, 464), the Supreme Court of the United States 99.5% — of the capital stock of the local corporation to
disregarded the artificial personality of the subsidiary coal control the operations of the latter to such an extent that it
company in order to avoid that the parent corporation, the had the final say even as to how much should be allotted to
Lehigh Valley R. Co., should be able, through the fiction of said local entity in the so-called sharing in the profits. We
that personality, to evade the prohibition of the Hepburn Act can not overlook the fact that in the practical working of
against the transportation by railroad companies of the corporate organizations of the class to which these two
articles and commodities described therein. entities belong, the holder or holders of the controlling part of
the capital stock of the corporation, particularly where the
Chief Justice White, speaking for the court, said: control is determined by the virtual ownership of the totality
of the shares, dominate not only the selection of the Board of
Directors but, more often than not, also the action of that
. . . Coming to discharge this duty it follows, in Board. Applying this to the instant case, we can not conceive
view of the express prohibitions of the how the Philippine corporation could effectively go against
commodities clause, it must be held that while the the policies, decisions, and desires of the American
right of a railroad company as a stockholder to use corporation with regards to the scheme which was devised
its stock ownership for the purpose of a bona through the instrumentality of the contract Exhibit H, as well
fide separate administration of the affairs of a as all the other details of the system which was adopted in
corporation in which it has a stock interest may not order to avoid paying the 1½ per cent merchants sales tax.
be denied, the use of such stock ownership in Neither can we conceive how the Philippine corporation
substance for the purpose of destroying the entity could avoid following the directions of the American
of a producing, etc., corporation, and commingling corporation held 99.5 per cent of the capital stock of the
its affairs in administration with the affairs of the Philippine corporation. In the present instance, we note that
railroad company, so as to make the two Koppel (Philippines), Inc., was represented in the Philippines
corporations virtually one, brings the railroad by its "resident Vice-President." This fact necessarily leads
company so voluntarily acting as to such to the inference that the corporation had at least a Vice-
producing, etc., corporation within the prohibitions President, and presumably also a President, who were not
of the commodities clause. In other words, that by resident in the Philippines but in America, where the parent
operation and effect of the commodities clause corporation is domiciled. If Koppel (Philippines), Inc., had
there is duty cast upon a railroad company been intended to operate as a regular domestic corporation
proposing to carry in interstate commerce the in the Philippines, where it was formed, the record and the
product of a producing, etc., corporation in which it evidence do not disclose any reason why all its officers
has a stock interest, not to abuse such power so should not reside and perform their functions in the
as virtually to do by indirection that which the Philippines.
commodities clause prohibits, — a duty which
plainly would be violated by the unnecessary
commingling of the affairs of the producing Other facts appearing from the evidence, and presently to be
company with its own, so as to cause them to be stated, strengthen our conclusion, because they can only be
one and inseparable. explained if the local entity is considered as a mere
subsidiary, branch or agency of the parent organization.
Plaintiff charged the parent corporation no more than actual
Corrobarative authorities can be cited in support of the same cost — without profit whatsoever — for merchandise
proposition, which we deem unnecessary to mention here.
allegedly of its own to complete deficiencies of shipments paraphrasing the United States Supreme Court in United
made by said parent corporation (t.s.n., pp. 53, 54) — a fact States vs. Lehigh Valley R. Co., supra.
which could not conceivably have been the case if plaintiff
had acted in such transactions as an entirely independent
The act of one corporation crediting or debiting the other for
entity doing business — for profit, of course — with the
certain items, expenses or even merchandise sold or
American concern. There has been no attempt even to
disposed of, is perfectly compatible with the idea of the
explain, if the latter situation really obtained, why these two
domestic entity being or acting as a mere branch, agency or
corporations should have thus departed from the ordinary
subsidiary of the parent organization. Such operations were
course of business. Plaintiff was charged by the American
called for any way by the exigencies or convenience of the
corporation with the cost even of the latter's cable quotations
entire business. Indeed, accounting operation such as these
— from ought that appears from the evidence, this can only
are invitable, and have to be effected in the ordinary course
be comprehended by considering plaintiff as such a
of business enterprise extends its trade to another land
subsidiary, branch or agency of the parent entity, in which
through a branch office, or through another scheme
case it would be perfectly understandable that for convenient
amounting to the same thing.
accounting purposes and the easy determination of the
profits or losses of the parent corporation's Philippines
should be charged against the Philippine office and set off If plaintiff were to act as broker in the Philippines for any
against its receipts, thus separating the accounts of said other corporation, entity or person, distinct from Koppel
branch from those which the central organization might have Industrial Car and Equipment company, an entirely different
in other countries. The reference to plaintiff by local banks, question will arise, which, however, we are not called upon,
under a standing instruction of the parent corporation, of nor in a position, to decide.
unpaid drafts drawn on Philippine customers by said parent
corporation, whenever said customers dishonored the drafts,
As stated above, Exhibit H contains to the following
and the fact that the American corporation had previously
paragraph:
advised said banks that plaintiff in those cases was "fully
empowered to instruct (the banks) with regard to the
disposition of the drafts and documents" (t.s.n., p. 50), in the It is clearly understood that the intent of this
absence of any other satisfactory explanation naturally give contract is that the broker shall perform only the
rise to the inference that plaintiff was a subsidiary, branch or functions of a broker as set forth above, and shall
agency of the American concern, rather than an independent not take possession of any of the materials or
corporation acting as a broker. For, without such positive equipment applying to said orders or perform any
explanation, this delegation of power is indicative of the acts or duties outside the scope of a broker; and in
relations between central and branch offices of the same no sense shall this contract be construed as
business enterprise, with the latter acting under instructions granting to the broker the power to represent the
already given by the former. Far from disclosing a real principal as its agent or to make commitments on
separation between the two entities, particularly in regard to its behalf.
the transactions in question, the evidence reveals such
commongling and interlacing of their activities as to render
even incomprehensible certain accounting operations The foregoing paragraph, construed in the light of other facts
between them, except upon the basis that the Philippine noted elsewhere in this decision, betrays, we think a
corporation was to all intents and purposes a mere deliberate intent, through the medium of a scheme devised
subsidiary, branch, or agency of the American parent entity. with great care, to avoid the payment of precisely the 1½ per
Only upon this basis can it be comprehended why it seems cent merchants' sales tax in force in the Philippines before,
not to matter at all how much profit would be allocated to at the time of, and after, the making of the said contract
plaintiff, or even that no profit at all be so allocated to it, at Exhibit H. If this were to be allowed, the payment of a tax,
any given time or after any given period. which directly could not have been avoided, could be
evaded by indirection, consideration being had of the
aforementioned peculiar relations between the said
As already stated above, under the evidence the sales in the American and local corporations. Such evasion, involving as
Philippines of the railway materials, machinery and supplies it would, a violation of the former Internal Revenue Law,
imported here by Koppel Industrial Car and Equipment would even fall within the penal sanction of section 2741 of
Company could have been as conviniently and efficiently the Revised Administrative Code. Which only goes to show
transacted and handled — if not more so — had said the illegality of the whole scheme. We are not here
corporation merely established a branch or agency in the concerned with the impossibility of collecting the merchants'
Philippines and obtained license to do business locally; and sales tax, as a mere incidental consequence of transactions
if it had done so and said sales had been effected by such legal in themselves and innocent in their purpose. We are
branch or agency, there seems to be no dispute that the 1½ dealing with a scheme the primary, not to say the sole,
per cent merchants' sales tax then in force would have been object of which the evasion of the payment of such tax. It is
collectible. So far as we can discover, there would be only this aim of the scheme that makes it illegal.
one, but very important, difference between the two schemes
— a difference in tax liability on the ground that the sales
were made through another and distinct corporation, as We have said above that the contracts of sale involved
alleged broker, when we have seen that this latter herein were all perfected in the Philippines. From the facts
corporation is virtually owned by the former, or that they stipulated in paragraph IV of the agreed statement of facts, it
practically one and the same, is to sanction a circumvention clearly appears that the Philippine purchasers had to wait for
of our tax laws, and permit a tax evasion of no mean Koppel Industrial Car and Equipment Company to
proportions and the consequent commission of a grave communicate its cost prices to Koppel (Philippines), Inc.,
injustice to the Government. Not only this; it would allow the were perfected in the Philippines. In those cases where no
taxpayer to do by indirection what the tax laws prohibited to such price quotations from the American corporation were
be done directly (non-payment of legitimate taxes), needed, of course, the sales effected in those cases
described in paragraph V of the agreed statement of facts
were, as expressed therein, transacted "in substantially the A contract is as a rule considered as entered into
same manner as outlined in paragraph VI." Even the single at the place where the place it is performed. So
transaction described in paragraph VI of the agreed where delivery is regarded as made at the place of
statement of facts was also perfected in the Philippines, delivery." (13 C. J., 580-81, section 581.)
because the contracting parties were here and the consent
of each was given here. While it is true that when the
(In the consensual contract of sale delivery is not
contract was thus perfected in the Philippines the pair of
needed for its perfection.)
Atlas-Diesel Marine Engines were in Sweden and the
agreement was to deliver them C.I.F. Hongkong, the contract
of sale being consensual — perfected by mere consent — II. Appellant's second assignment of error can be summarily
(Civil Code, article 1445; 10 Manresa, 4th ed., p. 11), the disposed of. It is clear that the ruling of the Secretary of
location of the property and the place of delivery did not Finance, Exhibit M, was not binding upon the trial court,
matter in the question of where the agreement was much less upon this tribunal, since the duty and power of
perfected. interpreting the laws is primarily a function of the judiciary.
(Ortua vs. Singson Encarnacion, 59 Phil., 440, 444.) Plaintiff
cannot be excused from abiding by this legal principle, nor
In said paragraph VI, we read the following, as indicating
can it properly be heard to say that it relied on the
where the contract was perfected, considering beforehand
Secretary's ruling and that, therefore, the courts should not
that one party, Koppel (Philippines),Inc., which in
now apply an interpretation at variance therewith. The rule
contemplation of law, as to that transaction, was the same
of stare decisis is undoubtedly entitled to more respect in the
Koppel Industrial Car Equipment Co., was in the Philippines:
construction of statutes than the interpretations given by
officers of the administrative branches of the government,
. . . on April 1, 1930, a new local buyer Mr. Cesar even those entrusted with the administration of particular
Barrios, of Iloilo, Philippines, was found and the laws. But this court, in Philippine Trust Company and Smith,
same engines were sold to him for $21,000 Bell and Co. vs. Mitchell(59 Phil., 30, 36), said:
(P42,000) C.I.F. Hongkong . . . (Emphasis
supplied.)
. . . The rule of stare decisis is entitled to respect.
Stability in the law, particularly in the business
Under the revenue law in force when the sales in question field, is desirable. But idolatrous reverence for
took place, the merchants' sales tax attached upon the precedent, simply as precedent, no longer rules.
happening of the respective sales of the "commodities, More important than anything else is that court
goods, wares, and merchandise" involved, and we are should be right. . . .
clearly of opinion that such "sales" took place upon the
perfection of the corresponding contracts. If such perfection
III. In the view we take of the case, and after the disposition
took place in the Philippines, the merchants' sales tax then in
made above of the first assignment of error, it becomes
force here attached to the transactions.
unnecessary to make any specific ruling on the third, fourth,
fifth, sixth, and seventh assignments of error, all of which are
Even if we should consider that the Philippine buyers in the necessarily disposed of adversely to appellant's contention.
cases covered by paragraph IV and V of the agreed
statement of facts, contracted with Koppel Industrial Car and
Wherefore, he judgment appealed from is affirmed, with
Equipment company, we will arrive at the same final result. It
costs of both instances against appellant. So ordered.
can not be denied in that case that said American
corporation contracted through Koppel (Philippines), Inc.,
which was in the Philippines. The real transaction in each
case of sale, in final effect, began with an offer of sale from
the seller, said American corporation, through its agent, the
local corporation, of the railway materials, machinery, and
supplies at the prices quoted, and perfected or completed by
the acceptance of that offer by the local buyers when the
latter, accepting those prices, placed their orders. The offer
could not correctly be said to have been made by the local
buyers when they asked for price quotations, for they could
not rationally be taken to have bound themselves to
.buy before knowing the prices. And even if we should take
into consideration the fact that the american corporation
contracted, at least partly, through correspondence,
according to article 54 of the Code of Commerce, the
respective contracts were completed from the time of the
acceptance by the local buyers, which happened in the
Philippines.

Contracts executed through correspondence shall

be completed from the time an answer is
made accepting the proposition or the conditions
by which the latter may be modified." (Code of
Commerce, article 54; emphasis supplied.)