COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. CADWALLADER PACIFIC COMPANY, RESPONDENT.

Disputed by Cadwallader Pacific Company^[1] before the Court of Tax Appeals,^[2] is the assessment made by the Commissioner
of In- ternal Revenue^[3] in the amount of
P3,651.23 covering fixed and percentage taxes and surcharges, as commercial
broker for the years 1955 to 1957. The Commissioner’s alternative defense is
that Cadwallader “is a commercial broker because it brought about sales or
purchases of merchandise between its local customers in the Philippines and its
branch office at Arcadia, California, or through its intervention brought about
proposed buyers and foreign sellers together by executing the contract in the
Philippines between the buyers and the petitioner” below, Cadwallader.^[4]

The judgment below declared that the assessment against Cadwallader
“concerning the fixed and percentage taxes and surcharge as commercial broker in
the sum of p3,651.23 must be, as the same is hereby, set aside”. The
Commissioner appealed.

Cadwallader is a Philippine corporation with branch office at Arcadia,
California, United States of America, Cadwallader’s primary purpose, as stated
in its Articles of Incorporation, is “[T]o buy, manufacture, produce, or
otherwise sell, import, export, trade and deal in general merchandise, goods,
wares, food products and commodities of every kind and description,” and, as one
of its secondary purposes, “to act as financial, commercial, general agent or
factor of, or to undertake management of any person, partnership, corporation,
or association carrying on any transaction or negotiation or any business of
manufacturing or dealing in all kinds of goods, wares, merchandise, food
products and commodities of every kind and description, and, while acting as
such agent, factor or manager, to perform such acts, enter into such obligations
and carry on such transactions as shall tend to promote the interests that the
corporation shall represent”.

The branch of the company in the United States serves as its buying
office.

We now come to the transactions for which the Commissioner holds Cadwallader
liable for the commercial broker’s fixed and percentage taxes. A written
contract is executed in Manila between Cadwallader and its local customers, a
sample of which follows:

“CADWALLADER PACIFIC COMPANY
IMPORTERS – DISTRIBUTORS – EXPORTERS
MANILA

Ref. 5939

Order No. 55/267

C O N T R A C T

BUYER: Balañga Hardware and Supply, Balañga,
Bataan (SENG LEE HARDWARE), hereby orders and agrees to purchase the merchandise
specified below from

SELLER: Cadwallader Pacific Company — P. O. Box 565, Arcadia, California,
U.S.A., subject to the terms and conditions written hereon and printed on the
reverse side hereof:

(Here follows the description of the articles).

ALL PRICES SUBJECT TO CHANGE
UP TO TIME OF SHIPMENT
Estimated C. I. F.
Manila
Total Value $1,915.00

TERMS: Irrevocable Letter of Credit in favor of the SELLER for the above
total amount.

SHIPMENT: Prompt. Subject to U.S. Export Regulations.

INSURANCE: Ordinary risks.

MARKINGS: BHS/MANILA.

Signed in the City of Manila, Philippines, on this 18th day of October,
1955.

CONFIRMED:
CADWALLADER PACIFIC COMPANY
By: (SGD): MAURICE NAFTALY
General Manager
	ACCEPTED:
	BALANGA HARDWARE & SUPPLY
	Buyer
	(SGD) DOMINGO JAVIER”

The contract as executed in Manila is forwarded to the California branch
which procures the goods described therein, ships them direct to the buyer on
its own invoice. Title to the goods passes from the seller to the buyer from the
time goods are shipped in California. The merchandise is shipped, travels and is
insured for the account and risk of the buyer. Taxes and duties are also for the
buyer’s account.

Our problem is to ascertain whether or not Cadwallader is within the reach of
the term commercial broker or commission merchant set out in Section
194(t) of the Tax Code, viz:

“(t) ‘Commercial broker’ includes all persons, other than importers,
manufacturers, producers, or bona fide employees, who, for compensation
or profit, sell or bring about sales or purchases of merchandise for other
persons, or bring pro- posed buyers and sellers together, or negotiate freights
or other business for owners of vessels, or other means of transportation, or
for the shippers, or consignors or consignees of freight carried by vessels or
other means of transportation. The term includes commission
merchants.”

1. We canvass the facts and circumstances. These are: The contract ) through
   and through names Cadwallader as the seller, the customer its buyer. The
   irrevocable letters of credit are drawn by the buyer in favor of the seller —
   not of anybody else. No payment is made by the local customer to any
   manufacturer or supplier abroad. Cadwallader exclusively owns the price paid by
   the customer, Cadwallader is not accountable to the manufacturer or supplier for
   the amount represented by the letters of credit. The California branch office
   buys the goods ordered. This is a fact confirmed by the report of the
   Commissioner’s examiner, dated February 8, 1957.^[5] The list of goods sold and prices charged
   is sent by the California branch, as shipper, direct to the buyer. In the
   invoice,^[6] the “shipper” is
   Cadwallader’s California branch, not the manufacturer or supplier. That invoice
   bears the certification by the California branch as to “the person from whom the
   same [merchandise] was purchased”.^[7] No
   privity of contract exists between Cadwallader’s buyer and the foreign
   manufacturer or supplier. In fact, nowhere in the transaction do we find any
   mention of a foreign manufacturer or supplier who is unknown to the buyer,
   Cadwallader assumes the risk of non-payment by the buyer; the latter is
   responsible to Cadwallader alone for its failure to comply with the contract. So
   it is, that in case of suit, the buyer’s action is direct against Cadwallader
   and the latter’s, against the former. Cadwallader does not act as negotiator or
   middleman to close a deal between one person and another, does not work or
   contract in the name of another. In this factual environment, Cadwallader if^* not a commercial broker. Because, as we have
   said “[l]n all the cases, under all and varying forms of expression, the
   fundamental and correct doctrine is, that the duty assumed by the broker is
   to bring the minds of the buyer and seller to an agreement for a salef and the
   price and terms on which it is to be made x x x”.^[8]
   Even in those cases where a contract of
   sale like the one before us was executed, but merchandise was to be shipped by a
   definite supplier abroad contracted by the seller and known to the buyer,
   this Court held that the former (seller) did not come within the legal concept
   of broker.[9]

2. We find less than persuasive the Commissioner’s argument that Cadwallader
   never acquired title to the goods it sold to the buyer. The position he takes is
   that said title was transferred directly from the foreign manufacturer to the
   local buyer. Reliance he places on the provisions of paragraphs 2 and 4 of the
   contract of sale, viz;

   “2.—The SELLER may ship any portion of the
   merchandise as soon as completed at the manufacturer’s works, and/or made ready
   for shipment, and payment for any portion of the goods as shipped shall become
   due in accordance with the terms of payment specified on the reverse side
   hereof.”

   “4.—Title to merchandise shall pass to BUYER at time of
   shipment. The merchandise called for in this contract shall be shipped, traveled
   and be insured for account and risk of the BUYER, and the responsibility of the
   SELLER shall cease once the shipping documents have been signed by the steamship
   company and delivered to the forwarding Bank”.

   We do not read in the
   above-quoted stipulations any statement which would as much as induce belief
   that Cadwallader did not acquire title to the goods it sold to the local buyer.
   Paragraph 2 merely fixes the time when the seller shall ship a portion of the
   merchandise to the buyer. Paragraph 4 specifies when title to the goods shall
   pass to the buyer. Petitioner offered no evidence to prove that Cadwallader had
   no title to the goods it sold, whereas there is testimonial evidence that
   Cadwallader’s branch in the United States buys the goods ordered by local
   customers and ships the same to the latter. At all events, “[T]he fact that the
   subject matter of the sale is not in the actual possession of the seller does
   not affect his general right to sell it and transfer the title.”^[10]

3. Of course, the Commissioner is correct in the statement that, by statute,
   the term, “commercial broker” includes commission merchant. But not as correct
   is the Commissioner’s claim^[11] that
   Cadwallader is a commission merchant. For, a commission merchant is defined
   thus: “A ‘commission merchant’ x x x as he is generally known x x x is a
   commercial agent to whom the possession of personalty is entrusted by or for the
   owner, to be sold, for a compensation, in pursuance of the agent’s usual trade
   or business, with title to goods remaining in principal – x x x as distinguished
   from person who purchases merchandise with his own capital, takes title in his
   own name, and sells for his own account at whatever price he may deem
   advisable.”^[12]

   And, “[A]
   ‘commission merchant’ differs from a broker in that he may buy and sell in his
   own name without disclosing his principal, while the broker can only buy or sell
   in the name of his principal.”^[13]

   Needless to repeat, Cadwallader
   does not come within the coverage of either of these two concepts.

For the reasons given, the appealed judgment must be, as it is hereby,
affirmed. No pronouncement as to costs.

SO ORDERED.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon,
Regala, Makalintal, Bengzon, J.P., Zaldivar and Ruiz Castro, JJ., concur.

^[2] CTA Case No.
536.

^[3] Hereinafter referred to
as Commissioner.

^[4] In the Court
of Tax Appeals, the Commissioner abandoned the theory that Cadwallader and its
California branch office are two distinct and separate entities. Decision, Court
of Tax Appeals, pp. 31-32 of Commissioner’s brief.

^[5] Exhibit 1 [BIR Examiner’s Report of
February 8, 1957] reads as follows: “x x x In this connection, it should be
borne in mind that the Los Angeles branch acts and makes purchases only upon previous order, that
is, upon receipt of the copy of the contract executed between the BUYER and the
main office and the irrevocable letter of credit drawn in its favor. Said branch
office merely operates as a purchasing
office and is maintained in the United States to facilitate the fulfillment of
the order called for in the contract. x x x” Italics supplied.

^[6] An invoice “might be an incident to a sale
of personalty”. Federal Insurance Company vs. Munden, 203 S.W. 917, 918. And, it
is “relevant testimony to be considered in determining what the contract was.”
Garner Mfg. Co. vs. Cornelius Lumber Co., 262 S.W. 1011, 1014.

^[7] See Exhibits C, C-1 to C-4, C-6 to C-12,
C-14, and p. 151, Record below.

^[8] Danon vs. Brimo & Co., 42 Phil. 133,
139, quoting Sibbald vs. Bethlehem Iron Co., 38 Am. Rep. 441; reiterated in
Rocha vs. Prats & Co., 43 Phil. 397, 399. In Reyes, et al; vs. Mosqueda, et
al., 99 Phil. 241, 245, citing from Danon, supra, the language employed
is: “The broker must be the efficient agent or the procuring cause of
the sale. The means employed by him and his efforts must result in the sale. He
must find the purchaser, and the sale must proceed from his efforts acting
as a broker. ” Emphasis supplied. See also: Behn Meyer & Co., Ltd. vs.
Nolting & Garcia, 35 Phil. 274, 279-280, where a broker is defined as “an
agent employed to make bargains and contracts between other persons, in matters
of trade, commerce or navigation for a compensation commonly called brokerage. ”
See likewise: Republic vs. Litton & Co., et al., 94 Phil. 52, 63.

^[9] Kerr & Company, Ltd. vs.
Collector of Internal Revenue, 70 Phil. 36, 37, 41; Far Eastern Export &
Import Co. vs. Lim Teck Suan, 97 Phil. 171, 173-178, citing Velasco vs.
Universal Trading Co., Inc., 45 O. G. 4504; Collector of Internal Revenue vs.
Tan Eng Hong, L-16893, October 22, 1966.

^[10] 48 Am. Jur., p. 218. See also
Articles 1461, 1462, 1467, Civil Code.

^[11] First advanced in his motion for
reconsideration in the Court of Tax Appeals, Commissioner’s brief, pp. 44-45,
Cadwallader’s brief, p. 16.

^[12]
7-A Words and Phrases, Perm. Ed., p. 571.

^[13] Id., p. 572.