KOPPEL (PHILIPPINES), INC. PLAINTIFF AND APPELLANT, VS. ALFREDO L. YATCO, ETC., COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLEE.

HILADO, J.:

This is an appeal by koppel (Philippines), Inc., from the judgment of the
Court of First Instance of Manila in civil case No. 51218 of said court
dismissing said corporation’s complaint for the recovery of the sum of
P64,122.51 which it had paid under protest to the Collector of Internal Revenue
on October 30, 1936, as merchant sales tax. The main facts of the case were
stipulated in the court below as follows”

“AGREED STATEMENT OF FACTS

“Now come the plaintiff by Attorney Eulogio P. Revilla and the defendant by
the Solicitor General and undersigned Assistant Attorney of the Bureau of
Justice and, with leave of this Honorable Court, hereby respectfully stipulated
and agree to the following facts, to wit:

“I. That plaintiff is a corporation duly organized and existing under and by
virtue of the laws of the Philippines, with principal office therein at the city
of Manila, the capital stock of which is divided into one thousand (1,000)
shares of P100 each. The Koppel Industrial Car and Equipment Company, a
corporation organized and existing under the laws of the State of Pennsylvania,
United States of America, and not licensed to do business in the Philippines,
owned nine hundred and ninety-five (995) shares out of the total capital stock
of the plaintiff from the year 1928 up to and including the year 1936, and the
remaining five (5) shares only were and are owned one each by officers of the
plaintiff corporation.

“II. That plaintiff, at all times material to this case, was and now is duly
licensed to engaged in business as a merchant and commercial broker in the
Philippines; and was and is the holder of the corresponding merchant’s and
commercial broker’s privilege tax receipts.

“III. That the defendant Collector of Internal Revenue is now Mr. Bibiano L,
Meer in lieu of Mr. Alfredo L. Yatco.

“IV. That during the period from January 1, 1929, up to and including
December 31, 1932, plaintiff transacted business in the Philippines in the
following manner, with the exception of the transactions which are described in
paragraphs V and VI of this stipulation:

“When a local buyer was interested in the purchase of railway materials)
machinery, and supplies, it asked for price quotations from plaintiff. A typical
form of such request is attached hereto and made a part hereof as Exhibit A.
(Exhibit A represents typical transactions arising from written requests for
quotations, while Exhibit B to G, inclusive, are typical transactions arising
from verbal requests for quotation.) Plaintiff then cabled for the quotation
desired from 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 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 sample of the said cable quotation and of the letter of
confirmation are hereto attached and made a part hereof as Exhibits C and C-l.
Plaintiff, however, quoted to the purchaser a selling price above the figures
quoted by Koppel Industrial Car and Equipment Company. Copy of the plaintiff’s
letter to purchaser is hereto attached and made a part hereof as Exhibit D. On
the basis of these quotations, orders were placed by the local purchasers,
copies of which orders are hereto attached as Exhibit E and E-1.

“‘A cable was then sent to Koppel Industrial Car and Equipment Company giving
instructions to ship the merchandise to Manila forwarding the customer’s order.
Sample of said cable is hereto
attached as 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 the goods covered in the
bills
of lading; commercial invoices were issued by Koppel Industiral Car and
Equipment Company in the names of the purehasers and certificates of insurance
were likewise issued in their names, or in the name of Koppel Industrial Car and
Equipment Company but indorsed in blank and attached to drafts drawn by Koppel
Industrial Car and Equipment Company on the purchasers, which were forwarded
through foreign banks to local banks. Samples of the bills of lading
are
hereto attached as Exhibits F-l, I-l, I-2 and I-3. Bills of lading,
Exhibits I-l, I-2 and I-3, may equally have been employed, but said Exhibits
I-l, I-2, and I-3 have no connection with the transaction covered by Exhibits B
to G, inclusive. The purchasers secured the shipping papers by arrangement with
the banks, and thereupon received and cleared the shipments. If the merchandise
were of European origin, and if there was not sufficient time to forward the
documents necessary for clearance, through foreign banks to local banks, to the
purchasers, the Koppel Industrial Car and Equipment Company did, in many cases,
send the documents directly from Europe to plaintiff with instructions to turn
these documents over to the purchasers. In many cases, where sale was effected
on the basis of C. I. P. Manila, duty paid, plaintiff advanced the sums required
for the payment of the duty, and these sums, so advanced, were in every case
reimbursed to plaintiff by Koppel Industrial Car and Equipment Company. The
price were payable by drafts agreed upon in each case and drawn by Koppel
Industrial Car and Equipment Company on the respective purchasers through local
banks, and payments were made to the banks by the purchasers on presentation and
delivery to them of the above-mentioned shipping documents or copies thereof. A
sample of said drafts is hereto attached as Exhibit G. Plaintiff received by way
of compensation a percentage of the profits realized on the above transactions
as fixed in paragraph 6 of the plaintiff’s contract with Koppel Industrial Car
and Equipment Company, which contract is hereto attached as Exhibit H, and
suffered its corresponding share in the losses resulting from some of the
transactions.

“‘That the total gross sales from January 1, 1929, up to and including
Decembar 31, 1932, effected in the foregoing manner and under the above
specified conditions, amount to P3,596,438.84.’

“V. That when a local sugar central was interested in the1 purchase of
railway materials, machinery and supplies, it secured quotations from, and
placed the corresponding orders with, the plaintiff in substantially the same
manner as outlined in paragraph IV of this stipulation, with the only difference
that the purchase orders which were 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 lading covering the herein transaction are
hereto attached and made a part hereto as Exhibit I-1, I-2, and I-3. The value
of the sales carried out in the manner mentioned in this paragraph is
P133,964.98.

“VI. That sometime in February, 1929, Miguel J. Ossorio, of Manila,
Philippines, placed an option with Koppel Industrial Car and Equipment Company,
through plaintiff, to purchase within three months a pair of Atlas-Diesel Marine
Engines. Koppel Industrial Car and Equipment Company purchased said Diesel
engines in 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, which
paid the amount covered by the draft. Later, 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. Ossorio, it in turn drew another draft on
plaintiff for the same
amount at six months sight, with the understanding
that Koppel Industrial Car and Equipment Company would reimburse plaintiff when
said engines were disposed of. Plaintiff honored the draft and debited the said
sum of P16,508.32 to merchandise account. The engines were left stored at
Stockholm, Sweden. On April 1, 1930, a new local buyer, Mr. Cesar Barrios, of
Iloilo, Philippines, was found and the same engines were sold to him for $21,000
(P42,000) C. I. F. Hongkong. The engines where shipped to Hongkong and a draft
for $21,000 was drawn by Koppel Industrial Car and Equipment Company on Mr.
Cesar Barrios. After the draft was fully paid by Mr. Barrios, Koppel Industrial
Car and Equipment Company reimbursed plaintiff with cost price of $16,508.32 and
credited it with $1,152.95 as its share of the profit on the transaction.
Exhibits J and J-1 are herewith attached and made integral parts of this
stipulation with particular reference to paragraph VI hereof.

“VIII. That plaintiff’s share in the profits realized out of these
transactions described in paragraph IV, V, and VI hereof totaling P3,772,403.82,
amounts to P132.201.30; and that plaintiff within the time provided by law
returned the aforesaid amount of P132,201.30 for the purpose of the commercial
broker’s 4 per cent tax and paid thereon the sum of P5,288.05 as such tax.

“VIII. That defendant demanded of the plaintiff the sum of P64,122.51 as the
merchants’ sales tax of 1½ per cent on the
amount of
P3,772,403.82, representing the total gross value of the sales mentioned in
paragraphs IV, V, and VI hereof, including the 25 per cent surcharge for the
late payment of the said tax, which tax and surcharge were determined after the
amount of P5,288.05 mentioned in paragraph VI hereof was deducted.

“IX. That plaintiff, on October 30, 1936, paid under protest said sum of
P64,122.51 in order to avoid further penalties, levy and distraint
proceedings.

“X. That defendant, on November 10, 1936, overruled plaintiff’s protest, and
defendant has failed and refused and still fails and refuses, notwithstanding
demands by plaintiff, to return to the plaintiff said sum of P64,122.51 or any
part thereof.

*          *          *          *          *          *          *

“That the parties hereby reserve the right to present additional evidence in
support of their respective contentions.

“Manila, Philippines, December 26, 1939.

(Sgd.) ROMAN OZAETA
“Solicitor General

(Sgd.) ANTONIO CAÑIZARES
“Assistant Attorney

(Sgd.) “E. P. REVILLA
“Attorney for the Plaintiff
“3rd
Floor, Perez Samanillo Bldg.,
Manila”

Both parties adduced some oral evidence in clarification of or addition to
their agreed statement of facts. A preponderance of evidence has established,
besides the facts thus stipulated, the
following:

(a) The shares of stock of plaintiff corporation were and are all owned by
Koppel Industrial Car and Equipment Company of Pennsylvania, U. S. A., except
five which were necessary to qualify the Board of Directors of said plaintiff
corporation;

(b) In the transactions involved herein the plaintiff corporation acted as
the representative of Koppel Industrial Car and Equipment Company only, and not
as the agent of both the latter company and the respective local
purchasers-plaintiff’s principal witness, A. H. Bishop, its resident
Vice-President, in his testimony invariably referred to Koppel Industrial Car
snd Equipment Co. as “our principal” (t.s.n. pp. 10, 11, 12, 19, 75), except
that at the bottom of page 10 to the top of page 11, the witness stated that
they had “several principals” abroad but that “our principal abroad was, for the
years in question, Koppel Industrial Car and Equipment Company”, and on page 68,
he testified that what he actually said was “* * * but our principal
principal abroad” and not “our principal abroad”-as to which it is very
significant that neither this witness nor any other gave the name of even a
single other principal abroad of the plaintiff corporation;

(c) The plaintiff corporation bore alone incidental expenses as, for
instance, cable expenses-not only those of its own cables but also those of its
“principal” (t.s.n. pp. 52, 53);

(d) The plaintiff !sl!share in the profits” realized from the transactions in
which it intervened was left vlatfttoalHy in the hands of Koppel Industrial Car
and Equipment Company (t.s.n, p. 51);

(e) Where drafts were not paid by the purchasers, the local banks were
instructed not to protest them but to refer them to plaintiff which was fully
empowered by Koppel Industrial Car and Equipment Company to instruct the banks
with regards to disposition of the drafts and documents (t.s.n., p. 50; Exhibit
G);

(f) Where the goods were of European origin, consular invoices, bills of
lading, and, in general, the documents necessary for clearance were sent
directly to plaintiff (t.s.n., p. 14);

(g) If plaintiff had in stock the merchandise desired by local buyers it
immediately filled the orders of such local buyers and made delivery in the
Philippines without the necessity of cabling its principal in America either for
price quotations or confirmation or rejection of that agreed upon between it and
the buyer (t.s.n., pp. 39-43);

(h) Whenever the deliveries made by Koppel Industrial Car and Equipment
Company were incomplete or insufficient to fill the local buyers’ orders,
plaintiff used to make good the deficiencies by deliveries from its own local
stock, but in such cases it charged its principal only the actual cost of the
merchandise thus delivered by it from its stock and in such transactions
plaintiff did not realize any profit (t.s.n. pp. 53-54);

(i) The contracts of sale involved herein were all perfected in the
Philippines.

Those described in paragraph IV of the Agreed Statement of Pacts went thru
the following process: (1) “When a local buyer was interested in the purchase of
railway materials, machinery, and supplies, it asked for price quotations from
plaintiff”; (2) “Plaintiff then cabled for the quotation desired from Koppel
Industrial Car and Equipment Company”; (3) “Plaintiff, however, quoted to the
purchaser a selling price above the figures quoted by Koppel Industrial Car and
Equipment Company”; (4) “On the basis of these quotations, orders were placed by
the local purchasers * * *.”

Those described in paragraph V of said agreed statement of facts were
transacted “in substantially the same manner as outlined in paragraph IV.”

As to the single transaction described in paragraph 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. Cesar Barrios, of Iloilo,
Philippines, was found and the same engines were sold to him for
$21,000 (P42,000) C. I. F. HongKong.” (Italic supplied.)

(j) Exhibit H contains the following paragraph:

“It is clearly understood that the intent of this contract is that the broker
shall perform only the functions of a broker as set forth above, and shall not
take possession of any of the materials or equipment applying to said, orders or
perform any acts or duties outside the scope of a brokers and in no sense shall
this contract be construed as granting to the broker the power to represent the
principal as its agent or to make commitments on its behalf.”

The Court of First Instance held for the defendant and dismissed plaintiff’s
complaint with cost to it.

Upon this appeal, seven errors are assigned to said judgment as follows:

“1. That the court a quo erred in not holding that appellant is a
domestic corporation distinct and separate from, and not a mere branch of Koppel
Industrial Car and Equipment Co.;

“2. The court a quo erred in ignoring the ruling of the Secretary of
Finance, dated January 31, 1931, Exhibit M;

“3. The court a quo erred in not holding that the character of a
broker is determined by the nature of the transaction and not by the basis or
measure of his compensation;

“4. The court a quo erred in not holding that appellant acted as a commercial
broker in the transactions covered under paragraph IV of the agreed statement of
facts;

“5. The court a quo erred in not holding that appellant acted as a
commercial broker in the transactions covered under paragraph V of the agreed
statement of facts;

“6. The court a quo erred in not holding that appellant acted as a
commercial broker in the sole transaction covered under paragraph VI of the
agreed statement of facts;

“7. The court a quo erred in dismissing appellant’ s
complaint.”

The lower court found and held that Koppel (Philippines) Inc. is a mere dummy
or branch (“hechura”) of Koppel Industrial Car and Equipment Company. The lower
court did not deny legal personality to Koppel (Philippines) Inc. for any and
all purposes, but in effect its conclusion was that, in the transactions
involved herein, the public interest and convenience would be defeated and what
would amount to a tax evasion perpetrated, unless resort is had to the doctrine
of “disregard, of the corporate fiction.”

1. In its first assignment of error appellant submits that the trial court erred
   in not holding that it is a domestic corporation distinct and separate from and
   not a mere branch of Koppel Industrial Car and Equipment Company. It contends
   that its corporate existence as a Philippine corporation can not be collaterally
   attacked and that the Government is estopped from so doing. As stated above, the
   lower court did not deny legal personality to appellant for any and all purpose,
   but held in effect that in the transactions involved in this case the public
   interest and convenience would be defeated and what would amount to a tax
   evasion perpetrated, unless resort is had to the doctrine of “disregard of the
   corporate fiction.” In other words, in looking through the corporate form to the
   ultimate person or corporation behind that form, in the particular transactions
   which were involved in the case submitted to its determination and judgment, the
   court did so in order to prevent the contravention of the local internal revenue
   laws, and the 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 or agency or dummy (“hechura”) of Koppel Industrial Car
   and Equipment Co. The Court aid not hold that the corporate personality of
   Koppel (Philippines) Inc. would also be disregarded in other cases or for other
   purposes. It would have had no power to so hold.. The courts’ action in this
   regard must be confined to the transactions involved in the case at bar “for the
   purpose of adjudging the rights and liabilities of the parties in the ease. They
   have no jurisdiction to do more.” (1 Fletcher, Cyclopedia of Corporation,
   Permanent ed., p. 134, section 41.)

   A leading and much cited case puts it as follows:

   “If any general rule can be laid down, in the present state of authority, it
   is that a corporation will be 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 defeat public convenience, justify wrong, protect fraud,
   or defend crime, the law will regard the corporation as an association of
   persons.” (1 Fletcher Cyclopedia of Corporations [Permanent Edition], pp. 135,
   136; United States vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255,
   per Sanborn, J.)

   In his second special defense appellee alleges “that the plaintiff was and is
   in fact a branch or subsidiary of Koppel Industrial Car and Equipment Co., a
   Pennsylvania corporation not licensed to do business in the Philippines but
   actually doing business here thru the plaintiff; that the said foreign
   corporation holds 995 of the 1,000 shares of the plaintiff’s capital stoc).c,
   the remaining five shares being held by the officers of the plaintiff herein in
   order to permit the incorporation thereof and to enable its aforesaid officers
   to act as directors of the plaintiff corporation; and
   that plaintiff was
   organized as a Philippine corporation for the purpose of evading the payment by
   its parent foreign corporation of merchants’ sales tax on the transactions
   involved in this case and others of similar nature.”

   “By most courts the entity is normally regarded but is disregarded to prevent
   injustice, or the distortion or hiding of the truth, or to let in a just
   defense.” (1 Fletcher, Cyclopedia of Corporation, Permanent Edition, pp.
   139-140; italics supplied).

   “Another rule is that, when the corporation is the mere1 alter ego, or
   business conduit of a person, it may be disregarded.” (1 Fletcher., Cyclopedia
   of Corporation, Permanent Edition, p. 136).

   Manifestly, the principle is the same whether the “person” be natural or
   artificial.

   “A very numerous and growing class of cases wherein the corporate entity is
   disregarded is that wherein (it is so organized and controlled, and its affairs
   are so conducted, as to make it merely an instrumentality, agency, conduit or
   adjunct of another corporation).” (1 Fletcher, Cyclopedia Corporation Permanent
   ed., pp 154, 155.)

   “While we recognize the legal principle that a corporation does not lose its
   entity by the ownership of the bulk or ever; the whole of its stock, by another
   corporation (Monongahela Co. vs. Pittsburg Co., 196 Pa. 25; 46 Atl. 99,
   79 Am. St. Rep. 685) yet it is equally well settilad’courts will look beyond the
   mere artificial personality which incorporation confers, and if necessary to
   work out equitable ends, will ignore corporate forms.” (Colonial Trust Co.
   vs. Montello Brick Works, 172 Fed. 310.)

   Where it appears that two business enterprises are owned, conducted and
   controlled by the same parties, both law and equity vail, when necessary to
   protect the rights of third persons, disregard the legal fiction that two
   corporations are distinct entities, and treat them as identical.” (Abney vs.
   Belmont Country Club Properties, Inc., 279 Pac. 829).

   “* * * the legal fiction of distinct corporate existence will be disregarded
   in a case where a corporation is so organized and controlled and its affairs are
   so conducted, as to make it merely an instrumentality or adjunct of another
   corporation.” (Hanter vs. Baker Motor Vehicle Co., 190 Fed.
   665.)

   In United States vs. Lehigh Valley R. Co. (220 U. S. 257, 55 Law ed., 458,
   464), the Supreme Court of the United States disregarded the artificial
   personality of the subsidiary coal company in order to avoid that the parent
   corporation, the Lehigh Valley R. Co., should be able, through the!fiction of
   that personality, to evade the prohibition of the Hepburn Act against
   the
   transportation by railroad companies of the articles and commodities
   described therein.

   Chief Justice White, speaking for the court, said:

   “* * *. Coming to discharge this duty it follows, in view of the express
   prohibitions of the commodities clause, it must be held that while the right of
   a railroad company as a stock-holder to use its; stock ownership for the purpose
   of a bona fide separate administration of the affairs of a corporation
   in which it has a stock interest may not be denied, the use of such stock
   ownership in substance for the purpose of destroying the entity of a producing,
   etc., corporation, and of commingling its affairs in administration with the
   affairs of the railroad company, so as to make the two corporations virtually
   one, brings the railroad company so voluntarily acting as to such producing,
   etc., corporation within the prohibitions of the commodities clause. In other
   words, that by operation at effect of the commodities clause there is a duty
   cast upon a railroad company proposing to carry in interestate commerce the
   product of a producing, etc., corporation in which it has a stock interest, not
   to abuse such power so as virtually to do by indirection that which the
   commodities clause prohibits-a duty which plainly would be violated by the
   unnecessary commingling of the affairs of the producing company with its own, so
   as to cause
   them to be one and inseparable.”

   Corroborative authorities can be cited in support of the same proposition,
   which we deem unnecessary to mention here.

   From the facts hereinabove stated, as established by a preponderance of the
   evidence, particularly those narrated in paragraphs; (a), (b), (c), (d),
   (e), (f), (h), (i), and (j) after the agreed statement of
   facts, we find that, in so far as the sales involved herein are concerned,
   Koppel (Philippines) Inc., and Koppel Industrial Car and Equipment Company are
   to all intents and purposes one and the same; or, to use another 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 fact, among others, that the amount of the
   so-called “share in the profits” of Koppel (Philippines) Inc. was ultimately
   left to the sole, unbridled control of Koppel Industrial Car and Equipment
   Company. If, in their relations with each other, Koppel (Philippines) Inc. was
   considered and intended to function as a bona fide separate
   corporation, we can not conceive how this arrangement could have been adopted,
   for it there was any factor in its business as to which it would, in that case
   naturally have been opposed to being thus controlled, it must have been
   precisely the amount of profit which it could endeavor and hope to
   earn. No group of businessmen could be expected to organize a mercantile
   corporation-the ultimate end of which could only be profit-if the amount of that
   profit were to be subjected to such a unilateral control of another corporation,
   unless indeed the former has previously been designed by the incprporators to
   serve as a mere subsidiary, branch or agency of the latter. Evidently, Koppel
   Industrial Car and Equipment Company made use of its ownership of the
   overwhelming majority-99.5%-of the capital stock of the local corporation to
   control the operations of the latter to such an extent that it had the final say
   even as to how much should be allotted to said local entity in the so-called
   sharing in the profits. We can not overlook the fact that in the practical
   working of corporate organizations of the class to which these two entities
   belong, the holder or holders of the controlling part of the capital stock of
   the corporation, particularly where the 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 board,
   applying this to the instant case, we can not conceive how the Philippine
   corporation could effectively go against the policies, decisions, and desires of
   the American corporation with regard to the scheme which was devised through the
   instrumentality of the contract Exhibit H, as well as all the other details of
   the system, which wels adopted in order to avoid paying the per cent merchants’
   sales tax. Neither
   can we conceive how the Philippine corporation could avoid
   following the directions of the American, corporation in every other transaction
   where they had both to intervene, in view of the fact that the American
   corporation held 99.5 per cent of the capital stock of the Philippine
   corporation. In the present instance, we note that Koppel (Philippines) Inc. was
   represented in the Philippines by its “resident Vice-President.” This fact
   necessarily leads to the inference that the corporation had at least a
   Vice-Presidents and presumably also a President, who were not resident in the
   Philippines but in America, where the parent corporation is domiciled. If Koppel
   (Philippines) Inc. had been intended to operate as a regular domestic
   corporation in the Philippines, where it was formed, the record and the evidence
   do not disclose any reason why all its officers should not reside and perform
   their functions in the Philippines.

   Other facts appearing from the evidence, and presently to be stated,
   strengthen our conclusion, because they can only be 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
   cost-without profit whatsoever-for merchandise allegedly of its own to complete
   deficiencies of shipments made by said parent corporation (t.s.n., pp. 53-54-)-a
   fact which could not conceivably have been the case if plairtiff had acted in
   such transactions as an entirely independent entity doing business-for profit,
   of course-with the American concern. There has been no attempt even to explain,
   if the latter situation really obtained, why these two corporations should have
   thus departed from the ordinary course of business. Plaintiff was charged by the
   American corporation with the cost even of the letter’s cable quotations-from
   aught that appears from the evidence, this can only be comprehended by
   considering plaintiff as such a subsidiary, branch or agency of the parent
   entity, in which case it would be perfectly understandable that for convenient
   accounting purposes and the easy determination of the profits or losses of the
   parent corporation’s Philippine business, all expenses of its business in the
   Philippines should be charged against the, Philippine office and set off against
   its receipts, thus separating the accounts of said branch from those, which the
   central organization might have, for instance, in Sweden, and those which it
   might have in other countries. The reference to plaintiff by local banks, under
   a standing instruction of the parent corporation, of unpaid drafts drawn on
   Philippine customers by said parent corporation, whenever said customers
   dishonored thejdrafts, and the fact that the American corporation had previously
   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 absence of any other satisfactory explanation, naturally
   give rise to the inference1 that plaintiff was a subsidiary, branch or agency of
   the American, concern, rather than an independent corporation acting as a
   broker. For, without such positive explanation, this delegation of power is
   indicative of the relations between central and branch offices of the same
   business enterprise, with the latter acting under instructions already given by
   the former. Far from disclosing a real separation between the two entities,
   particularly in regard to the transactions in question, the evidence reveals
   such a commingling and interlacing of their activities as to render even
   incomprehensible certain accounting operations between them, except upon the
   basis that the Philippine corporation was to all intents and purposes a mere
   subsidiary, branch, or agency of the American parent entity. Only upon this
   basis can it be comprehended why it seems not to matter at all how much profit
   would be allocated to plaintiff, or even that no profit at all be so allocated
   to it, at any given time or after any given period.

   As already stated above, under the evidence the sales in the Philippines of
   the railway materials, machinery and supplies imported here by Koppel Industrial
   Car and Equipment Company could have been as conveniently and efficiently
   transacted and handled-if not more so-had said corporation merely established a
   branch or agency in the Philippines and obtained license to do business locally;
   and if it had done so and said sales had been effected by such branch or agency,
   there seems to be no dispute that the per cent merchants’ sales tax then in
   force would have been collectible. So far as we can discover, there would be
   only one, but very important, difference between the two schemes a difference in
   tax liability amounting to the respectable sum of P64,122.51 in this
   case. To allow the taxpayer now to deny this tax liability on the ground that
   the sales were made through another and distinct corporation, as alleged broker,
   when we have seen that this latter corporation is virtually owned by
   the former, or that they are practically one and the same, is to sanction a
   circumvention of our tax laws, and permit a tax evasion of no mean proportions
   and the consequent commission of a grave injustice to the Government. Not only
   this; it would allow the taxpayer to do by indirection what the tax
   laws prohibited to be done directly (non-payment of legitimate taxes),
   paraphrasing the United States Supreme Court in United States vs. Lehigh Valley
   R. Co., supra.

   The act of one corporation crediting or debiting the other for certain
   itec.s, expenses or even merchandise sold or disposed of, is perfectly
   compatible with the idea of the domestic entity being or acting as a mere
   branch, agency or subsidiary of the parent organisation. Such operations were
   called for any way by the exigencies or convenience of the entire business.
   Indeed, accounting operations such as these are inevitable, and have to be
   effected in the ordinary course of business, wherever the home office of a
   business enterprise extends its trade to another land through a branch office,
   or thru another scheme amounting to the same thing.

   If plaintiff were to act as broker in the Philippines for any other
   corporation, entity or person, distinct from Koppel Industrial Car and Equipment
   Company, an entirely different question will arise,
   which,however, we are not
   called upon, nor in a position, to decide.

   As stated above, Exhibit H contains the following paragraphs:

   “It is clearly understood that the intent of this contract is that the broker
   shall perform only the functions of a broker as set forth above, and shall not
   take possession of any of the materials or equipment applying to said orders or
   perform any acts or duties cutside the scope of a brokers and in no sense shall
   this contract be construed as granting to the broker the power to represent the
   principal as its agent or to make commitments on its behalf.”

   The foregoing paragraph, construed in the light of other facts noted
   elsewhere in this decision, betrays, we think, a deliberate intent,
   through
   the medium of a scheme devised with great care, to avoid the payment of
   precisely the per cent merchants’ sales tax in force in the Philippines before,
   at the time of, and after, the making of the said contract Exhibit H. If this
   were to be allowed, the payment of a tax, which directly could not have been
   avoided, could he evaded by indirection, consideration being had of the
   aforementioned peculiar relations between the said American and local
   corporations. Such evasion, involving as it would, a violation of the former
   Internal Revenue Law, would even fall within the penal sanction of section 2741
   of the Revised Administrative Code. Which only goes to show the illegality of
   the whole scheme. We are not here concerned with the impossibility of collecting
   the merchants’ sales tax, as a mere incidental consequence of transactions legal
   in themselves and innocent in their purpose. We are dealing with a scheme the
   primary, not to say the sole, object of which is the evasion of the payment of
   such tax.
   It is this aim of the scheme that makes it illegal.

   We have said above that the contracts of sale involved herein were fell
   perfected in the Philippines. From the fects stipulated in paragraph IV of the
   agreed statement of facts, it clearly appears that the Philippine purchasers had
   to wait for Koppel Industrial Car
   and Equipment Company to communicate its
   cost prices to Koppel (Philippines) Inc., and for the latter to make the
   definite price quotations, before placing their orders, wherever such price
   quotations from the American corporation were required. It is obvious that in
   those cases the contracts involved in the orders thus placed by the said
   purchasers with Koppel (Philippines) Inc.,
   were perfected in the Philippines.
   In those cases where no such price quotations from the American corporation were
   needed of course, the sales were immediately perfected, locally. The sales
   effected in those cases described in paragraph V of the agreed statement of
   facts were, as expressed therein, transacted “in substantially the same manner
   as outlined in paragraph IV.” Even the single transaction described in paragraph
   VI of the agreed statement of facts was also perfected in the Philippines,
   because the contracting parties were here and the consent of each was given
   here. While it is true that when the contract was thus perfected in the
   Philippines the pair of 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-(Civil Code, Article 1445; 10 Manresa, 4th
   ed. p. 11), the location of the property and the place of delivery did not
   matter in the question of where the agreement was perfected.

   In said paragraph VI, we read the following, as indicating where the contract
   was perfected, considering beforehand that one party, Koppel (Philippines) Inc.
   which in contemplation of law, as to that transaction, was the same Koppel
   Industrial Car and Equipment Co., was in the Philippines:

   “* * * on April 1, 1930 a new local buyer, Mr. Cesar, Barrios, of Iloilo,
   Philippines was found and the same engines were sold to him for
   $21,000 (P42,000) C. I. F. Hongkong * * * (Italics supplied).

   Under the revenue law in force when the sales in question took place, the
   merchants’ sales tax attached upon the happening of the respective sales of the
   “commodities, goods, wares, and merchandise” involved, and we are clearly of
   opiinion that such “sales” took place upon the perfection of the corresponding
   contracts. If such perfection took place in the Philippines, the merchants;
   sales tax
   then in force here attached to the transactions.

   Even if we should consider that the Philippine buyers in the cases covered by
   paragraphs IV and V of the agreed atatement of facts, contracted with Koppel
   Industrial Car and Equipment Company, we will arrive at the same final result.
   It 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, begar with an offer of sale
   from the seller, said American corporation, thru 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, italics supplied).

   “A contract is as a rule considered as entered into at the place where the
   offer is accepted, or where the last act necessary to complete it is performed.
   So where delivery is regarded as essential to the completion of the contract, it
   is regarded as made at the place of delivery.” (13 C. J. 580-81, section
   581.)

   “(In the consensual contract of sale delivery is not needed for its
   perfection.)”

2. Appellant’s second assignment of error can be summarily disposed of. It is
   clear that the ruling of the Secretary of Finance, Exhibit M, was not
   binding upon the trial court, much less upon this tribunal, since the duty and
   power of 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 can it properly be heard to say that it
   relied on the Secretary’s ruling and that, therefore, the courts should not now
   apply an interpretation at variance therewith. The rule of stare decisis is
   undoubtedly entitled to more respect in the construction of statutes than the
   interpretations given by officers of the administrative branches of the
   government, even those entrusted with the administration of particular laws. But
   this court, in Philippine Trust Company vs. Mitchell (59 Phil., 30, 36), said:

   “* * * The rule of stare decisis is entitled to respect. Stability
   in the law, particularly in the business field, is desirable. But idolatrous
   reverence for precedent, simply as precedent, no longer rules. More important
   than anything else is that the court should be right. * * *”

3. In the view we take of the case, and after the disposition made above of the
   first assignment of error, it becomes unnecessary to make any specific ruling on
   the third, fourth, fifth, sixth, and seventh assignments of error, all of which
   are necessarily disposed of adversely to appellant’s contention.

Wherefore, the judgment appealed from is affirmed, with costs of both
instances against appellant. So ordered.

Moran, C. J., Paras, Feria,
Pablo, Bengzon, Briones, and Tuason, JJ., concur.

CONCURRING

PERFECTO, J.:

We fully agree with the well-written decision penned by Mr. Justice Hilado in
this case. We only wish to add that the ingenious device of organizing a
subsidiary corporation, with the purpose of evading the payment of taxes, is not
a new one. It is only one of the manifold manifestations of the shrewdness of
the masterminds behind some powerful corporations who, without any oompuinction,
do not stop at adopting any scheme by which the controlling capitalists may get
even richer and richer, sometimes at government expense, sometimes by squeezing
credulous or ignorant small shareholders, sometimes with the exploitation of the
helpless public at large, and sometimes at great sacrifice of all the three
entities.

The system of corporation combines, of holding and subsidiary corporations,
of spreading and interlooking companies, has so well developed and has grown so
powerful that even the wisest government had been unable to defend itself and
protect the people from the
crushing tentacles of the moneyed octopuses. It
is true that in the United States of America antitrusts laws were enacted but,
notwithstanding their ability and wisdom, the Americans were unable to stave off
the effects of the bankruptcy of the pyramid of holding and interlocking
complies built around the tragic figure of Samuel Insull.

That Philippine Government, that Filipino consumers, that Filipino public at
large, had already been victims of the evil effects of such a system has been
conclusively proved in the scandalous illegalities and irregularities disclosed
in the investigation made by the First National Assembly, through its Committee
on Rate Reducing of Public Utilities. In said investigation, it was revealed
that, by a system of holding and interlocking companies, by their manipulation
of books of accounts, our government was defrauded of enormous amounts in taxes
and millions of pesos were unjustly squeezed from the public.

It is high time that alarm be sounded so that our government and our public
may avoid being further victimized and this country turned into a puppet at the
mercy of moneyed tycoons who are not stopped by any scruple to attain their
unquenchable thirstiness for more money and for power and domination. All
liberal-minded people must fight not only against political imperialism, but
also against economic or financial imperialism, in fact, against any kind of
imperialism. The call for eternal vigilance must be heeded by all, including
tribunals, if the survival of our people must not be jeopardized by artful
corporations and unscrupulous financiers.