B.

BARTER OR EXCHANGE
1. Murphy vs. Trinidad 1923
STREET, J.:
This is an appeal from a decision of the Court of First Instance of the
City of Manila in an action wherein the plaintiff, R. E. Murphy, seeks to
recover of the defendant, Wenceslao Trinidad, as Collector of Internal
Revenue, a sum of money which had been exacted from the plaintiff,
and paid under protest by him, as internal-revenue taxes, upon the
value of certain embroideries exported by the plaintiff from the
Philippine between July 1, 1916, and July 1, 1921. To the amount
involved in the tax proper the statutory penalty, equal to twenty-five
per centum of the tax, and a fine of P200 had been added by the
Collector; and the total amount protested and sought to be recovered
herein is P15,895.93. At the trial in the Court of First Instance his
Honor, Judge Geo. R. Harvey, held that the tax in question was legally
due and had been properly collected. He therefore absolved the
defendant from the complaint, and the plaintiff
appealed.chanroblesvirtualawlibrary chanrobles virtual law library
It appears from the pleadings and admitted facts that the American
Import Company, of San Francisco, California, is extensively engaged
in the exportation of embroideries from the Philippine Islands for sale
in the United States; and the plaintiff, R. E. Murphy, during the period
covered by the transactions now in question, was employed by said
company as its supervising agent in these Islands, upon a commission
of three per centum of the value of the labor expended in the
embroidery work. It further appears that the company has adopted the
plan of causing all its product from the Philippine Islands to be
embroidery here by native workers under the supervision of the
company's agent, and upon material supplied by the company for the
United States. For the purpose of securing a uniform quality of work,
even the thread used in the embroidery is supplied by said company to
the embroideries, but for this a charge is made at cost price. In his
capacity as agent, the plaintiff receives from San Francisco the goods
to be embroidered, supervise the manufacture of the embroidered
product, and returns the same from time to time in a finished state to
the company in San Francisco.chanroblesvirtualawlibrary chanrobles
virtual law library
In respect to the transaction thus conducted by the plaintiff for the
American Import Company of San Francisco during the period of five

years from July 1, 1916, to July 1, 1921, the said plaintiff made
returns to the Collector of Internal Revenue, for the purposes of
taxation under section 1459 of the Administrative Code, showing
taxable transaction to the value of P339,544.59, consisting, first, of
P36,691.94, the value of thread and damaged materials sold by the
plaintiff in the Islands; and, secondly, of P302,852.65 the value of the
labor expended upon the embroidery work prior to September of the
year 1919. Upon these returns he was taxed accordingly and paid the
tax without protest.chanroblesvirtualawlibrary chanrobles virtual law
library
From the foregoing it will be seen that in the returns upon which the
plaintiff was thus taxed, no account was taken of the value of the
goods used in the making of the embroideries, and after September,
1919, no account was taken even of the value of the embroidery
work.chanroblesvirtualawlibrary chanrobles virtual law library
It appears, however, that during the aforesaid period of five years the
plaintiff caused to be embroidered cloth belonging to the American
Import Company of a total value of P597,248.31, upon which there
was expended labor of a total value of P931,823.30, all of which was
returned to the American Import Company from time to time during
the said period at its office in San Francisco, California. The freight and
cartage on said shipment amounted to P670.42; and the plaintiff
earned as his commission during the same time the sum of
P28,785.04.chanroblesvirtualawlibrary chanrobles virtual law library
In view of the facts stated in the preceding paragraph the Collector of
Internal Revenue, evidently assuming that the plaintiff had previously
been underassessed, demanded payment of the tax of one per centum
on the difference between the gross amount of P1,595.219.01 and the
amount upon which the plaintiff had already been taxed
(P339,544.59), that is to say, upon the amount of P1,255,674.41, thus
claiming additional tax to the amount of P12,556.74, together with the
statutory penalty of twenty- five per centum for delinquency, as
prescribed in section 1458 of the Administrative Code, and a fine of
P200, making in all the sum of P15,895.93. This amount the plaintiff
paid under protest, and now sues to recover the same, under the
authority granted in section 1579 of the Administrative
Code.chanroblesvirtualawlibrary chanrobles virtual law library
The principal points of controversy are two, namely, first, whether the
plaintiff Murphy (or his principal, the American Import Company of San
Francisco) is liable in any event for the tax, commonly called the

merchants' tax, imposed by section 1459 of the Administrative Code;

and, secondly, whether, assuming such liability to exist, the value of
the goods upon which the embroidery work is done can be properly
included in the taxable value of the manufactured
product.chanroblesvirtualawlibrary chanrobles virtual law library
At the inception of the discussion we should note the fact that in the
section referred to tax of one per centum is imposed upon the gross
value of goods sold, bartered, exchanged, or cosigned abroad. The
expression "consigned abroad," as here used, means approximately
the same as "exported;" and under the organic law here in force the
Philippine Legislature has no power, without the express approval of
Congress, to make a law imposing a tax on exports. But the provision
now in question has been three times ratified by different Acts of the
Congress of the United States, that is to say, first, as it originally stood
in Act No. 2541, as amended by Act No. 2622 of the Philippine
Legislature; secondly, as it now stands in section 1495 of the
Administrative Code of 1917; and, thirdly and lastly, as it stood in
section 1614 in the Administrative Code of 1916 (Acts of Congress of
July 1, 1916; of June 4, 1918; and of June 5, 1920). There can
therefore be no question as to the validity of said provision as it has
stood at all times upon our statute books since its first enactment; and
we may say that the Congressional Act of ratification of June 5, 1920,
was passed by Congress after this court had decided the case of
Smith, Bell & Co. vs. Rafferty (40 Phil., 691), and said decision was
reversed by the Supreme Court of the United States, in so far as
relates to the efficacy of section 1614 of the Administrative Code of
1916, solely because of said ratification by Congress pending the
appeal.chanroblesvirtualawlibrary chanrobles virtual law library
And now, upon the point of liability for the tax that has been collected,
we note the contention in the appellant's brief that the plaintiff Murphy
himself is not a "merchant." This contention is undoubtedly correct if
the plaintiff is considered without relation to the master that stands
behind him. Individually the plaintiff is no merchant. But he is the
agent and representative in the Philippine Islands of the American
Import Company of San Francisco; and that the latter is a merchant in
the sense intended in section 1459 of the Administrator Code is
obviously.chanroblesvirtualawlibrary chanrobles virtual law library
The term "merchant" is there defined as a person engaged in the sale,
barter, or exchanged of personal property of whatever character, and it
is declared that the term includes manufacturers who sell articles of
their own production. The American Import Company fulfills every

requirement of this definition because it is engaged in the manufacture

of Philippine embroideries and exports the finished product for sale in
the United States. The fact that the production and export of these
embroideries is effect through the agency of the plaintiff Murphy and
that the operations of the company in these Islands are conducted in
his name in no wise alters the case. Nor is the further circumstance
here material that the consignor or shipper of the goods from these
Islands is Murphy and the consignee in the United States in the
American Import Company. Where a consignment of goods is
otherwise taxable, the tax should be assessed and collected regardless
of the personality of the consignor or consignee. A shipment of goods
abroad is no less taxable under this section, though consigned to the
order of the shipper himself.chanroblesvirtualawlibrary chanrobles
virtual law library
Upon the question whether the value of the material used as a base for
the embroidery work should be taken into account in estimating the
value of the finished product for the purpose of taxation under section
1459, we are clearly of the opinion that the proper answer is in the
affirmative, and the Collector of Internal Revenue made no mistake in
including said item in his estimate. The merchant's tax, when paid by a
manufacture, should be computed upon all the elements of value in
the finished product; and it would be singular indeed if a person
residing in a foreign country could send his raw materials to his agent
in this country to be here manufactured and then export the finished
product free of tax on the basic material in competition with local
manufacturers who are required to pay tax on the entire value. The
possibility of so unjust a discrimination against local capital was
foreseen by the lawmaker and defeated by the use of carefully chosen
words in section 1459, for it is there declared that the tax shall be paid
on the gross value of the goods, "whether consisting of raw material or
of manufactured or partially manufactured products, and whether of
domestic or foreign origin." (Emphasis supplied.) chanrobles virtual
law library
It is hardly necessary to observe that in every case of manufacture the
value of the basic or law material represent an investment of capital
which must be carried by someone, usually the manufacturer himself,
during the process of manufacture; and there is no reason why a
foreign company, buying its material in a foreign market, should not be
required to carry the weight of the investment, when such material is
sent to this country to be converted into a finished product, the same
as a local manufacture who buys his material here, or in any
market.chanroblesvirtualawlibrary chanrobles virtual law library

Besides, as already pointed out, the case of the American Import

Company, of California, falls squarely within the letter of the statute;
and in this connection we desire to quote a passage from an opinion of
Lord Cairns, speaking in the House of Lords in Partington vs. AttorneyGeneral (Law Reports, 4 H. L., 100, 122), in which the principle by
which the courts should be guided in interpreting revenue laws is
stated with notable force and perspicacity. Said his Lordship: . . . "As I
understand the principle of all fiscal legislation, it is this: If the person
sought to be taxed comes within the letter of the law he must be
taxed, however great the hardship may appear to the judicial mind to
be. On the other hand, if the Crown, seeking to recover the tax,
cannot bring the subject within the letter of the law, the subject is
free, however apparently within the spirit of the law the case might
otherwise appear to be. In other word, if there be admissible, in any
statute, what is called an equitable construction, certainly such a
construction is not admissible in a taxing statute, where you can
simply adhere the words of the statute." chanrobles virtual law library
From any point of view the tax which was collected in this case was
due to the Philippine Government from the American Import Company
of San Francisco; and the circumstance that it has been collected
nominally from the plaintiff Murphy should mislead no one. He has
acted throughout as agent, and it is to be assumed, in the absence of
proof to the contrary, that the money which went into the public
confers belonged to his principal. Besides, as consignor of the exported
product, the plaintiff was apparently the person directly responsible to
the Collector for the taxes due on the several
consignments.chanroblesvirtualawlibrary chanrobles virtual law library
We note that in his estimate of the value of the exported embroideries,
the Collector adopted the gross costs of production, including the value
of material, work done, commissions of plaintiff, freight, and cartage.
The last three of these items are of course merely incidental expenses
and are not per se contributory to value. The value assessed by the
Collector, however, cannot be said to be excessive, since all the
elements entering into the cost of production are merely items of proof
upon which the Collector based his estimate, and the true value of the
exported articles cannot be supposed to be less than the sum of all the
elements of cost going into production and
exportation.chanroblesvirtualawlibrary chanrobles virtual law library
Upon one point alone do we consider that error has been committed.
This relates to the fine of P200 imposed on the plaintiff by the
Collector and included in the amount which was paid by the plaintiff

under protest. The question of liability for this fine seems not to have
been called to the attention of the trial judge, and for the reason was
evidently overlooked by him.chanroblesvirtualawlibrary chanrobles
virtual law library
The imposition of this fine by the Collector serves as a reminder of a
practice sanctioned by the Internal Revenue Law of 1904 (Act No.
1189), and the Collector no doubt supposed the same practice to be
permissible under the Internal Revenue Law now in force. The history
of the legislation on the subject is this: Under various provisions of the
Internal Revenue Law of 1904 (Act No. 1189), the Collector had
authority to impose administrative fines of varying proportions for
sundry delinquencies on the part of persons liable for internal-revenue
taxes; and although the person subjected to such a fine had a right of
appeal to the Court of First Instance (Act No. 1189, sec. 54), the Code
Committee, when engaged in the revival of that Act for incorporation
in the Administrative Code did not look with favor on this feature of the
law. Accordingly the Code Committee proposed to the Collector of
Internal Revenue to eliminate the administrative fine altogether and in
lieu thereof to insert a general provision, such as is contained in
section 2741 of the Administrative Code of 1917, imposing a penalty,
to be enforced by the courts, for the violation of any provision of the
Internal Revenue Law or of any lawful regulation of the Bureau of
Internal Revenue for which no specific penalty was provided by law.
This proposal met the approval of the Collector; and the administrative
fine disappeared from our fiscal system with the adoption of the
Internal Revenue Law of 1914, and Act prepared by the Code
Committee and embodying the feature we have mentioned. The
individuals responsible for this change in the law were of the opinion
that the practice of allowing the Collector to impose fines in his
discretion, even though within moderate limits, was objectionable. It
certainly was not in harmony with legislation in the United States and
is said to have been originally here adopted from the fiscal practice of
the Government of Mexico. However that may be, the administrative
fine has clearly ceased to be imposable in this country, and the judge
appealed from must be corrected to the extent of allowing a recovery
for the amount paid as such fine.chanroblesvirtualawlibrary chanrobles
virtual law library
For the reasons stated, the judgment appealed from will be affirmed
with respect to the tax and penalty thereon paid under protest, and
reversed to the extent of the fine; and judgment will be entered for
the plaintiff to recover of the defendant the sum of P200, but without
interest, pursuant to section 1579 of the Administrative Code, and

without costs. So ordered.

Araullo, C. J., Malcolm, Avancea, Ostrand, and Romualdez, JJ.,
concur.

Separate Opinions
JOHNS, J., dissenting: chanrobles virtual law library
Although standing alone, I vigorously
dissent.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff is a resident of the City of Manila and engaged in
supervising the manufacture of embroidered cloth within the Philippine
Islands under a contract with the American Import Company. The
defendant is the duly appointed and acting Collector of Internal
Revenue of the Philippine Islands.chanroblesvirtualawlibrary
chanrobles virtual law library
Omitting the formal parts, for cause of action the plaintiff alleges:
II. That the plaintiff is engaged in the business of supervising the
manufacture of embroidered cloth within the Philippine Islands, all of
the cloth utilized in the said business being the exclusive property of
the American Import Company, a California corporation with its
principal office in the City of San Francisco, State of California, United
States of America.chanroblesvirtualawlibrary chanrobles virtual law
library
III. That the said American Import Company pays the plaintiff for his
services the sum of three per cent of the value of the labor expended
upon the said cloth.chanroblesvirtualawlibrary chanrobles virtual law
library
IV. That the plaintiff upon causing the said cloth to be embroidered
returns the same to the said American Import Company at San
Francisco, California.chanroblesvirtualawlibrary chanrobles virtual law
library
V. That the plaintiff during the period from July 1, 1916 to July 1,
1921, caused to be manufactured into embroidered cloth, cloth
belonging to the American Import Company of San Francisco of a a

total value of P597,248.31 upon which there was expended labor of a

total value of P931,823.30, all of which was forwarded to the American
Import Company from time to time during the said period at its office
in San Francisco, California, the freight and cartage on the said
shipments amounting to the sum of P670.42; that during the same
period plaintiff sold on behalf of the said American Import Company
within the Philippine Islands thread and damaged materials of a total
value of P36,691.94; that plaintiff received as his commission during
the said period the sum of P28,785.04.chanroblesvirtualawlibrary
chanrobles virtual law library
VI. That plaintiff declared for the purpose of taxation the sum of
P339,544.59 and duly paid to the defendant as Collector of Internal
Revenue the taxes due on the said sum.chanroblesvirtualawlibrary
chanrobles virtual law library
VII. That the defendant in his capacity as Collector of Internal Revenue
and under the pretended authority of section 1459 of Act No. 2711 of
the Philippine Legislature demanded of the plaintiff a tax of 1 per
centum of P1,255,674.41, which sum is the total of the sums alleged
in paragraph five hereof after deducting therefrom the sum of
P339,544.59 alleged in paragraph six hereof.chanroblesvirtualawlibrary
chanrobles virtual law library
VIII. That in addition to the sum of P12,556.74 demanded of the
plaintiff by the defendant as is alleged in the preceding paragraph the
defendant as a penalty for the late payment of the said tax imposed a
further tax of 25 per centum of the said sum, or the sum of P3,139.19
and a fine of P200 or a total of P15,895.93.chanroblesvirtualawlibrary
chanrobles virtual law library
IX. That the plaintiff involuntarily and to avoid the summary seizure
and sale of his property paid the said defendant the sum of
P15,895.93 under written protest upon the ground that the tax was
improperly levied, the said goods not having been consigned abroad
within the meaning of section 1459 of Act No.
2711.chanroblesvirtualawlibrary chanrobles virtual law library
X. That the defendant overruled the said protest of plaintiff and
refused and continues to refuse to return to the plaintiff the sum of
P15,895.93 or any part thereof.
Wherefore, plaintiff prays for judgment against the defendant for

P15,895.93, with interest and costs.chanroblesvirtualawlibrary

chanrobles virtual law library
For answer, the defendant alleges:
1. That the plaintiff consigned abroad embroidered cloth of the value
of P1,255,674.41.chanroblesvirtualawlibrary chanrobles virtual law
library
2. That upon said sum the defendant in his capacity as Collector of
Internal Revenue levied, assessed, and collected from the plaintiff the
amount of P12,556.74, as one per cent tax under the authority of
section 1459 of Act No. 2711, plus 25 per cent as penalty for delay in
payment, amounting to P3,139.19 and a fine of P200, making a total
of P15,895.93.chanroblesvirtualawlibrary chanrobles virtual law library
3. That said total sum was paid by the plaintiff to the defendant under
protest which was duly overruled by the defendant.
Wherefore, defendant prays judgment for
costs.chanroblesvirtualawlibrary chanrobles virtual law library
Upon such issues the parties entered into the following stipulation of
facts:
It is stipulated and agreed by and between the parties to the above
entitled action that the facts alleged in paragraphs 1, 2, 3, 4, 5, 6, 8,
and 10 of the complaint are true.chanroblesvirtualawlibrary chanrobles
virtual law library
It is further stipulated and agreed that the defendant, in his capacity
as Insular Collector of Internal Revenue, demanded that the plaintiff
pay a tax of 1 per cent of P1,255,674.41, which sum is the total of the
sums alleged in paragraph 5 of the complaint after deducting
therefrom the sum of P339,544.59 alleged in paragraph 6 of the
complaint; and that the plaintiff involuntarily and to avoid the
summary seizure and sale of his property paid the defendant the sum
of P15,895.93 alleged in paragraph 8 of the complaint under written
protest upon the ground that the tax was improperly
levied.chanroblesvirtualawlibrary chanrobles virtual law library
It is further stipulated and agreed that the sum of P339.544.59
declared by the plaintiff for taxation as alleged in paragraph 6 of the

complaint is made up of the sum of P36,691.94 covering sales of

thread and damaged materials and the sum of P302,852.65 the value
of labor expended on the cloth belonging to the American Import
Company of San Francisco, California, up to and including the month of
September, 1919; and that since the month of October, 1919, the
plaintiff has declared for the purpose of taxation only the amount
received by him for the sale of thread and damaged materials within
the Philippine Islands.chanroblesvirtualawlibrary chanrobles virtual law
library
It is further stipulated and agreed that the American Import Company
of San Francisco, California, is engaged in the business of selling the
embroidered cloth forwarded to it by the plaintiff as alleged in
paragraph 4 of the complaint.
Upon such pleadings and stipulation the case was submitted to the
trial court, which dismissed the complaint and rendered judgment in
favor of the defendant for costs.chanroblesvirtualawlibrary chanrobles
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The plaintiff appeals, claiming that the judgment is contrary to law and
the evidence.chanroblesvirtualawlibrary chanrobles virtual law library
The question presented involves the construction of section to law and
the evidence.chanroblesvirtualawlibrary chanrobles virtual law library
The question presented involves the construction of section 1459 of
Act No. 2711, known as the Administrative Code.
SEC. 1459. Percentage tax on merchants' sales. - All merchants not
herein specially exempted shall pay a tax of one per centum on the
gross value in money of the commodities, goods, wares, and
merchandise sold, bartered, exchanged, or consigned abroad by them,
such tax to be based on the actual selling price or value of the things
in question at the time they are disposed of or consigned, whether
consisting of raw material or of manufactured or partially
manufactured products, and whether of domestic or foreign origin. The
tax upon things consigned abroad shall be refunded upon satisfactory
proof of the return thereof to the Philippine Islands
unsold.chanroblesvirtualawlibrary chanrobles virtual law library
"Merchant," as here used, means a person engaged in the sale, barter,
or exchanged of personal property of whatever character. Except as

specially provided, the term includes manufacturers who sell articles of

their own production and commission merchants having
establishments of their own for the keeping and disposal of goods of
which sales or exchanged are effected, but does not include
merchandise brokers.
It appears from an analysis of the pleadings and stipulated facts that
the American Import Company is a California corporation with its
principal office in the City of San Francisco, and that it was the
exclusive owner of the cloth before and after it was embroidered, and
that it furnished all of the material necessary and used in the work.
That at all the times alleged the plaintiff was the agent and in the
employ of the company under a contract in and by which he was to
received for his services 3 per cent for supervising the embroidering of
the cloth, and that after the cloth was embroidered, the cloth in its
finished condition was returned to the company at its home office at
San Francisco. That between July 1, 1916 and July 1, 1920, the value
of the cloth used in the work was P597,248.31, and the value of labor
which was expended the embroidering the cloth was P931,823.30
upon which freight and cartage was paid amounting to P670.42.
During the times alleged, and acting for, and representing, the
company, the plaintiff sold within the Philippine Islands thread and
damaged materials of the value of P36,691.94, upon which the tax
was voluntarily paid, and, hence, the amount of any "sales tax" on the
goods sold in the Philippine Islands is not in controversy. The only
question involved here is whether a sales tax should be paid on the
value of the cloth imported by the American Import Company and the
value of the labor expended upon embroidering of it within the
Philippine Islands.chanroblesvirtualawlibrary chanrobles virtual law
library
I will frankly conceded that if either the plaintiff or the American
Import Company is a merchant within the meaning and definition of
section 1459 of the Administrative Code that tax should be paid. The
majority opinion says that, individually, the plaintiff is not a merchant,
"but he is the agent and representative in the Philippine Islands of the
American Import Company of San Francisco; and that the latter is a
merchant in the sense intended in section 1459 of the Administrative
Code is obvious." chanrobles virtual law library
As I construe the record, although the American Import Company is a
merchant doing business in San Francisco, California, it is not a
merchant doing business in the Philippine Islands within the meaning
of section 1459 of the Administrative Code, and, hence, should not be

liable for a sales tax on the value of cloth which it imported here to
have embroidered, or for the value of the labor used in embroidering
the cloth.chanroblesvirtualawlibrary chanrobles virtual law library
The caption of section 1459 is "Percentage tax on merchants' sales,"
and the section provides that all merchants not specifically exempt
shall pay a tax of one per centum on the gross value in money of the
commodities, goods, wares and merchandise sold, bartered,
exchanged or consigned abroad by them to be based on the actual
selling price or the value of the things in question at the time they are
disposed of or consigned, whether consisting of raw material, or of
manufactured or partially manufacture products, or whether of
domestic or foreign origin.chanroblesvirtualawlibrary chanrobles virtual
law library
It must be conceded that the law was intended to apply to merchants
doing business as such within the Philippine Islands, and that it does
not apply to a merchant in San Francisco, unless he does business as a
merchant in the Philippine Islands.chanroblesvirtualawlibrary
chanrobles virtual law library
It is true that plaintiff sold some damaged thread and materials within
the Philippine Islands. But the sales tax was paid in full upon all of the
property sold, and the question of a sales tax upon any property which
was sold is not involved in this case, an important distinction which the
majority opinion apparently overlooks. That opinion is founded upon
the fact that, because at one time the plaintiff sold some damaged
materials and thread upon which the sales tax was paid, therefore, the
American Import Company during the whole period of five years was
doing business here as a merchant when it imported its own material
and employed labor within the Philippine Islands upon that material. I
frankly concede that for any sale of goods, wares and merchandise
made by either the plaintiff or the American Import Company within
the Philippine Islands that the tax would be valid. But the record shows
that the sales tax was paid upon all of the goods sold, hence, the only
question here involved is the right to levy and collect a sales tax on
the goods which have been imported and the value of the labor
employed upon those goods within the Philippine
Islands.chanroblesvirtualawlibrary chanrobles virtual law library
Hence, the question here involved is whether the importing of goods
and the employment of labor upon those goods within the Philippine
Islands makes and constitutes the importer a merchant within section
1459. That section was intended to apply to merchants within the

Philippine Islands and to commodities, goods, wares and merchandise

sold, bartered, exchanged or consigned abroad by persons doing
business as merchants within the Philippine
Islands.chanroblesvirtualawlibrary chanrobles virtual law library
It must be conceded that the Legislature of the Philippine Islands could
not enact a law which would require a merchant doing business as
such in California to pay a sales tax on goods, wares and merchandise
which he sells in California. The existing law only applies to a California
merchant who comes here and does business as a merchant within the
Philippine Islands. The section itself defines the word "merchant" and
says that, as here used, the word "means a person engaged in the sale
barter or exchange of personal property of whatever character." Here,
again, the meaning of the word should be confined and limited to a
person who does business as a merchant within the Philippine Islands
as defined by the legislative act, and it does not apply to a person who
does business as a merchant in the State of California. If it is a fact
that the plaintiff or the American Import Company is a person who is
engaged "in the sale, barter or exchange or personal property of
whatever character" within the Philippine Islands, then the sales tax
should be paid, otherwise not. The word "sale" has a well defined legal
meaning.chanroblesvirtualawlibrary chanrobles virtual law library
In Words and Phrases, vol. 7, page 6291, it is said:
A sale, as defined by Blackstone, is a transmutation of property from
one man to another in consideration of some price or recompense in
value.chanroblesvirtualawlibrary chanrobles virtual law library
A sale is a transfer of the absolute or general property in a thing for
money or anything of value.chanroblesvirtualawlibrary chanrobles
virtual law library
A sale is a contract for the transfer of property from one person to
another for a valuable consideration.chanroblesvirtualawlibrary
chanrobles virtual law library
The word "sale" has a fixed legal signification, and means an
exchanged of goods or property for money paid or to be
paid.chanroblesvirtualawlibrary chanrobles virtual law library
A sale, in the ordinary sense of the word, is a transfer of property for a
fixed priced in money or its equivalent.chanroblesvirtualawlibrary

chanrobles virtual law library

"To constitute a valid sale, there must be a concurrence of the
following elements, viz.: (1) Parties competent to contract; (2) mutual
consent; (3) a thing, the absolute or general property in which is
transferred from the seller to the buyer; and (4) a price in money paid
or promised."
The books are full of such definitions.chanroblesvirtualawlibrary
chanrobles virtual law library
The same authority, volume 1, page 715, defining the word "barter,"
says that:
A barter is the exchange of goods of one character for goods of
another; any sale of one character of merchandise where any transfer
of merchandise is taken in exchange instead of
money.chanroblesvirtualawlibrary chanrobles virtual law library
* * * means the exchange of one commodity or article of property for
another, and has about the same meaning as "exchanged."
The same authority says in volume 3, page 2546, that:
Exchange is a contract by which the parties mutually give or agree to
give one thing for another, whatever it be, except money, for in that
case it would be a sales.chanroblesvirtualawlibrary chanrobles virtual
law library
An exchange is a transfer of certain good for other goods received
therefor.chanroblesvirtualawlibrary chanrobles virtual law library
The transfer of goods and chattels for other goods and chattels of
equal value. This is more commonly called
barter.chanroblesvirtualawlibrary chanrobles virtual law library
The distinction between a sale and exchange of property is rather one
of shadow than of substance. In both cases the title to property is
absolutely transferred, and the same rules of law are applicable to the
transaction, whether the consideration of the contract is money or by
way of barter.
All of such definitions are undisputed, standard and authentic. Upon

any of the question involved in the instant case, there is no claim or

pretense that either the plaintiff or the American Import Company has
ever sold, bartered or exchanged any personal property within the
Philippine Islands. Yet within the express provisions of the statute the
word "merchant" is confined and limited to "a person engaged in the
sale, barter or exchanged of personal property of whatever character."
If neither the plaintiff nor his company has sold, bartered or
exchanged personal property, then they are not merchants within the
meaning of the word, as defined by the statute, and it expressly
provides that "all merchants not herein specifically exempted shall pay
a tax of one per centum, etc." If the plaintiff or his company is not
doing business here as a merchant within the definition of the
legislative act, how and upon what theory should they be subject to a
"sales tax?" But it is said that the word "merchant," as defined in the
act, "includes manufactures who sell articles of their own production
and commission merchants having establishments of their own for the
keeping and disposal of goods of which sales or exchanges are
affected, but does not include merchandise brokers." But here, again,
"articles of their own production" are not sold, bartered or exchange
within the Philippine Islands. The title to the cloth in both its original
and manufactured form remained in the American Import Company
from the time of its shipment from San Francisco to its return in the
form of finished product.chanroblesvirtualawlibrary chanrobles virtual
law library
It is admitted that the American Import Company imports the cloth
from itself to itself in the Philippine Islands; that while here it is
embroidered with Filipino labor, after which in its manufactured form
the goods are again shipped from the Philippine Islands by the
American Import Company to itself in California; and that no sales of
the embroidered finished work have ever or at any time been made by
the plaintiff or any one else within the Philippine Islands. All sales of
the embroidered work are made by the American Import Company
within the United State after its return shipment from the Philippine
Islands.chanroblesvirtualawlibrary chanrobles virtual law library
This action is brought by the plaintiff in his own proper person. It is
alleged in the complaint and admitted by the answer "that the plaintiff
involuntarily and to avoid the summary seizure and sale of his
property, paid the said defendant the sum of P15,895.93 under written
protest upon the ground that the tax was improperly levied," and the
case was brought by the plaintiff to obtain the return of the money
which it is alleged and admitted that he personally
paid.chanroblesvirtualawlibrary chanrobles virtual law library

The majority opinion admits that the plaintiff is not personally a

merchant, and that he is not personally liable for the tax. In legal
effect, it holds that the American Import Company is a merchant
within the meaning of section 1459, and, as such, is liable for the tax,
and assumes that the sales tax was paid by the plaintiff as the agent
and for the use and benefit of the American Import Company. That
assumption is a flat contradiction of the pleadings and stipulated facts.
There is no allegations or proof that the plaintiff paid the "sales tax" as
the agent of, or for, or on account of, the American Import Company,
and the assumption is in direct conflict with the pleadings and
stipulated facts, and, yet, the majority opinion is founded upon that
assumption.chanroblesvirtualawlibrary chanrobles virtual law library
Section 1459 provides for a "Percentage tax on merchants' sales," and
that merchants within the meaning of the act "shall pay a tax of one
per centum, etc." Such a tax is confined and limited to persons who
are doing business as merchants within the Philippine Islands, and the
act itself defines the word "merchant" as "a person engaged in the
sale, barter or exchange of personal property of whatever character."
chanrobles virtual law library
Upon the questions here involved, there is no allegation or proof that
either the plaintiff or the American Import Company was ever engaged
in the sale, barter or exchange of personal property within the
Philippine Islands. Under the admitted facts, their business is confined
and limited to the importing of cloth to have it embroidered here and
then returned to the place of its origin as a finished product. There is
no claim or pretense that either of them ever sold, bartered, or
exchanged any of the plain or embroidered cloth within the Philippine
Islands. The statute has specially defined the word "merchant" to
mean a person who sells, barters or exchanges personal property, and
was intended to apply to persons doing business as merchants within
the Philippine Islands, and it should not be given any extraterritorial
jurisdiction. Here, there is no claim or pretense that the cloth in its
original or finished form was ever bartered, sold or exchanged within
the Philippine Islands, and, yet, the majority opinion holds that it is
liable to a sales tax. The very nature of a sales tax carries with it and
legally implies that something has been sold, and a tax is levied
because it is sold. Here, you are levying a tax upon property which it is
admitted has not been sold. If the American Import Company is liable
for a sales tax upon its property which has not been sold, and the
State of California was to levy a sales tax, which it would have a legal
right to do, then under the majority opinion the American Import
Company would be required to pay a sales tax on its property before it

is sold, and a sales tax on the same property after it is sold, or a

double sales tax on one sale only of the
property.chanroblesvirtualawlibrary chanrobles virtual law library
In the final analysis, the majority opinion requires the payment of a
sales tax for the privilege of employing labor in the Philippine Islands.
It is not legally sound, and violates every rule of statutory
construction.
2. Biagtan vs. Oller 1936
DIAZ, J.:
The subject matter of this suit is the ownership and possession of the land or lot
described in paragraph II of the amended complaint and more particularly
described in transfer certificate of title No. 3429, with the improvements thereon
consisting of a house and a camarin of strong materials, situated in the center of
the town of the municipality of San Jacinto of the Province of Pangasinan.
The lower court declared said lot and its improvements as the property of the
plaintiff and ordered the defendants to turn them over to him, and the plaintiff in
turn, to surrender to the defendants the ownership and possession of two parcels
of land that he received from Rafael Oller, predecessor in interest of the
defendants, by virtue of a contract or barter formerly entered into between the
two and declared null and void by the court. No pronouncement was made as to
costs.
From this judgment of the lower court, the defendants appealed to this court,
attributing to it the seven alleged errors relied upon in their brief as follows:
I. The trial court erred: (a) In computing Rafael Oller's one year period of
repurchase from the date of the public auction sale of the properties mortgaged
to the Philippine National Bank; (b) in not computing the one year period of
repurchase, at least from the date when the order of confirmation of the public
auction sale became final; (c) in not computing the one year period of repurchase
from the notation of the order of confirmation, inasmuch as the case involves real
estate registered under Act No. 496.
II. The lower erred in not holding that the sale or the negotiations for the sale of
the lands to Biagtan by the bank took place during Oller's period of repurchase. It
likewise erred in not holding that the exclusive, or at least principal consideration
of the transfer of the lot, house and camarin by Biagtan to Oller was the latter's
cession or renunciation of his right or repurchase from the bank in favor of
Biagtan.
III. The lower court erred in not declaring that Biagtan is already in possession of

the lands described in taxes Nos. 10915 and 10916 (Exhibits 12 and 11), in
addition to those described in taxes No. 10911, 10913 and 10914 which he had
already received and are now in his possession.
IV. The lower court clearly erred in holding that one of the parcels of land which
Oller promised to give to Biagtan contained an area of five hectares situated on
the western side of the land bought by Biagtan from the Bank.
V. Granting, without admitting, that Biagtan is not yet in possession of the lands
described in Exhibits 11 and 12, the lower court erred in not ordering Biagtan to
accept the transfer in his name of the Torrens titles of said two parcels of land.
VI. The lower court erred in not considering Oller at least as an agent or broker
when Biagtan bought the parcel of 45 hectares from the bank at an enormous
profit, and in not considering said concept and other parcels of land belonging to
Oller as sufficient consideration for the transfer of the lot, house and camarin by
Biagtan to Oller.
VII. The lower court erred in not absolving the defendant from the complaint and
in not entering judgment against the plaintiff-cross-defendant in conformity with
the prayer of the cross-complaint.
The pertinent facts of the case which have not been disputed by the parties my
be summarized as follows:
Rafael Oller, father of the defendant Carmen Oller who is the defendant Telesforo
Sipin's wife; husband, in life, of the other defendant Concepcion or Consuelo
Pasana Viuda de Oller with whom he head four children who are the defendants
Rafael, Jr., Juanita, Zuraida and Emiliano Oller; and grandfather of the other
defendant Miguel Oller, was originally the owner of the two parcels of land
described in transfer of certificate of title No. 3429 of the registry of deeds of
Pangasinan (Exhibit I). He mortgage them to the Philippine National Bank for the
sum of P10,000, on November 29, 1919 (Exhibit A), and as he had failed to pay
his obligation to the bank, the latter brought civil case No. 3942 (Exhibit C) to
foreclose the mortgage in its favor. Inasmuch as Rafael Oller was unable to pay
his obligation within the period of three months granted him in the court's
decision and judgment which, by the way, was adverse to him, the order of the
court in said judgment was executed and the two parcels of land in question were
sold at public auction to the Philippine National Bank as the highest bidder. The
sale took place on July 28, 1924, and the price paid for said property was P8,210
(Exhibits E, F, F-1 and F-2). The sale was not confirmed by the court until April
13, 1926, but it was expressly provided in order confirming that it said sale would
be considered effective from July 28, 1924, the date on which the public auction
sale was made (Exhibit G).
Nine months later, or on January 3, 1927, the Philippine National Bank

succeeded in registering transfer certificate of title No. 3166 in its name in the
registry of deeds of Pangasinan after cancellation of original certificate of title No.
604 (Exhibit J), which covered the very properties in question; and on June 1st of
said year, it sold said properties to the plaintiffs for the sum of P12,000 (Exhibit
K). On the 28th of said month and year transfer of certificate of title No. 3429
(Exhibit I) was issued to the plaintiff.
The defendants alleged and attempted to prove that while Rafael Oller's right of
repurchase was yet subsisting, he consented to the purchase of the two
properties in question from the Philippine National Bank by the plaintiff because
the two had agreed that the plaintiff should keep only in one of the properties,
that described as parcel No. 1 in transfer certificate of title No. 3429 (Exhibit I),
and that he would turn over the other, or that described as parcel No. 2 in said
certificate, to Rafael Oller.
They furthermore alleged and attempted to prove that when the plaintiff had
already obtained the complete transfer to him by the two parcels of land in
question through the execution of the necessary document in his favor by the
Philippine National Bank, he then not only refused to acknowledge his verbal
contract with Rafael Oller but imposed the condition that in order that he might
transfer the second parcel to Oller it was necessary for the latter to convey to him
the other lands which Oller had in the barrio of San Jose of the municipality of
San Jacinto, Pangasinan; and that under such circumstances, Rafael Oller was
compelled to convey the lands described in Exhibits 8, 9, 10, 11 and 12 to the
plaintiff.
The plaintiff, in turn, attempted to prove that the only contract entered into by him
and Rafael Oller was that whereby he bound himself to convey to Oller parcel
No. 2 of transfer of certificate of title No. 3429, provided Oller, in the barrio of San
Jose, described in said documents Exhibits 8, 9, 10, 11, and 12; and that he
received two of said five parcels of land those described in Exhibits 9 and 10
from Rafael Oller, but to date the remaining three those described in Exhibits
8. 11 and 12 have not yet been delivered to him either by said Rafael Oller or
his heirs.
It is true that neither Rafael Oller nor the plaintiff had executed any formal
document to prove the existence of the contract of barter entered into by them
but it is a fact that such contract existed. The parties have admitted it impliedly,;
and furthermore it is shown by the very documentary evidence presented by the
defendants and appellants, consisting in the letters written by the plaintiff to
Rafael Oller during the period of May 17th to August 12, 1929 (Exhibits 1 to 7).
This documentary evidence proves not only this but something more. It shoes, in
addition, to the testimony of the defendants and their witnesses, that while said
plaintiff complied with his obligation under the terms of their contract of title No.
3429 (Exhibit I) to Rafael Oller, the latter failed to do the same, much less his
heirs or the defendants. They have not yet delivered to him the land described in

said documents Exhibits 8, 11 and 12. They could not deliver them to him
because they then were in the hands of third persons and now they are in the
possession of Miguel Oller in whose name transfer certificate of title No. 5860 of
the registry of deeds of Pangasinan was issued on November 26, 1930 (Exhibit
31), some months after Rafael Oller's death. Parcels Nos. 3 and 4 referred to
said transfer certificate of title are the same lands described in Exhibits 11 and
12. It does not appear that the land described in Exhibit 8 has been delivered to
the plaintiff by Rafael Oller or his heirs, or that the plaintiff already has it in his
possession, because the testimony of some of the witnesses for the defendants,
affirming that it had already been actually delivered to him, did not state when it
was delivered, what the nature of the land is and where it is situated. It cannot be
believed to be included in the land described as parcel No. 1 in transfer
certificate of title No. 3429 because, taking into consideration its boundaries, it
appears to he impossible. In order to be considered as included therein, it must
necessarily abut on all sides on Rafael Oller's land, that is, the one described in
said certificate as parcel No. 1, but it is at once noticeable that it adjoins said land
only at its southern side and partly as its eastern side.
The foregoing is a summary of the salient facts which we consider as clearly
established at the trial. It follows therefore that it is necessary to discuss
assignments of error I, II, III and IV relied upon by the applicants; because
whether the period within which Rafael Oller could repurchase his lands bought
by the Philippine National Bank at public auction, by virtue of a judicial order, had
expired or not when said bank resold the lands to the appellee, a question now
altogether unimportant because he did not exercise said right when he should
have done so, and whether or not there has been an understanding or a contract
between him and the appellee that in purchasing the lands in question the
plaintiff bound himself to convey to Oller the land described as parcel No. 2 in
transfer certificate of title No. 3429 (Exhibit I) which is no other than the land in
question; the existence of such understanding or contract is of no avail to him
because another thing was later stipulated between the two thus novating the
former; inasmuch as it is inferred from said Exhibits 1 to 7 and also from the
testimony of the appellee that the two agreed that for Rafael Oller again to
become the owner of the land in question, he should bind himself, a he so did in
fact, to give to the plaintiff his five parcels of land situated in the barrio of San
Jose, in addition to the land described as parcel No. 1 in said transfer certificate
of title No. 3429. It is a fact that although Oller received the land promised him in
exchange, he delivered only two of the five parcels which he, in turn, had
promised, he did not deliver the three parcels to the appellee was he was still
alive, nor did his heirs do so after his death, because they did not belong to him.
They were in the hands of the other persons and the transfer certificate of title
covering them is in the name of Miguel Oller since November 26, 1930.
Barter, for such is the contract lastly entered into between Rafael Oller,
predecessor in interest of the appellants, and the appellee, is a contract
conveying ownership for the consummation of which the mutual delivery by the

contracting parties of the things which they promised in barter is necessary.

When Rafael Oller entered into it, he was not the owner of all the land promised
by him and, if he were, he would not have the free disposal thereof. He owned
only two of them which are those actually in the possession of the appellee and
described in Exhibits 9 and 10. Therefore, the contract as to him could not be
effective for lack of one of the requisites essential to its validity; the under taking
or promise to give entirely five parcels of land in the barrio of San Jose, which
promise could not be fulfilled and in fact it was not fulfilled by him. Under such
circumstances, the appellee can not be compelled to fulfill his promise. On the
contrary he cannot resolve his obligation created by his contract of barter with
Rafael Oller. The provisions of articles 1539 and 1541, in connection of those of
articles 1503 and 1124 of the Civil Code, support the appellee in all the
improvements thereon. Said article read, respectively, as follows:
ART. 1539. If one of the contracting parties should have received the thing
promised to him in barter, and should prove that it did not belong to the person
who gave it, he cannot be compelled to deliver the thing he offered in exchange,
and shall be discharged of his obligation upon returning the thing received by
him.
ART. 1541. Barter shall be governed by the provisions relating to sales as to all
matters not specially provided for in this title.
ART. 1503. Should the vendee have reasonable grounds to fear the loss of any
real properties, sold and of its price he may immediately sue for a rescission of
the sale.
Should such grounds not exist, the provisions of article 1124 shall be applicable.
ART. 1124. The right to resolve reciprocal obligations, in the case of the obligors
should fail to comply with that which is incumbent upon him is deemed to be
implied.
The person prejudiced may choose between exacting the fulfillment of the
obligation or its resolution with indemnity for damages and payment of interest in
either the case. he may also demand the resolution of the obligations even after
having requested its fulfillment, should the latter be found impossible. . . .
The court shall decree the resolution demanded, unless there should be grounds
which justify the allowance of a term of the performance of the obligation. . . .
Inasmuch as Rafael Oller has failed to comply with the terms of his contract of
barter, and as the appellee has chosen to resolve his obligation created by the
contract in question, it is but just that he be granted the remedy correctly granted
him by the lower court. The fact that Miguel Oller, one of the appellants, has
offered to convey to him the two parcels of land described in said Exhibits 11 and

12, or as parcels Nos. 3 and 4 in transfer certificate of title No. 5860, because
such step is out of time and it is the appellee to whom the law grants the right to
choose. On the other hand, he has not, as already stated, been given the fifth
parcel of, that is, the one described in Exhibit 8.
Having arrived at this conclusion, it becomes unnecessary to discuss or to pass
upon the other three last assignments of error relied upon by the appellants
because it clearly appears from the foregoing that they are not entitled to any
indemnity particularly of it is borne in mind that they have been occupying and
taking advantage of the lot, house and camarin, in question.
Wherefore, the appealed judgment of the lower court been in accordance with
law and supported by the evidence, it is hereby affirmed, with the costs of both
instances to the appellants. So ordered.
Villa-Real, Abad Santos, Vickers, and Recto, JJ., concur.