J. M. TUASON & CO., INC., PETITIONER, VS. COLLECTOR OF INTERNAL REVENUE, RESPONDENT.

On November 6, 1951 the Varsity Hills, Inc., owner of five parcels
of residential land in Quezon City, entered into a contract with
petitioner J. M. Tuason & Co., Inc., a corporation engaged in the
business of developing subdivisions and promoting sales therein,
whereby it ceded to the latter its five parcels of residential land
above described generally for the purpose of having it surveyed,
platted, monumented and otherwise developed into a subdivision. The
contract is Exhibit “A” and the principal terms and conditions thereof
are as follows:

“That the administrator, at the owner’s expense,
shall undertake to laying out of parks, playgrounds, the construction
of streets, culverts, pavements, sewage system, drainage, the
installation of utilities which in the judgment of the administrator
may be necessary or convenient and in general the physical preparation
of the property for sale or lease in lots, in accordance with the
requirements of government regulations.

3. That the ADMINISTRATOR shall recommend to the
   OWNER the sales prices of the lots of the subdivision based upon the
   desired ability of the location and other similar factors that enter
   into sales value, according to their location in the subdivision plan,
   as well as the terms of payment of the purchase price of said lots, and
   upon the approval thereof by the OWNER, the same shall immediately be
   put in force, provided, however, that the same shall be subject to
   change by the OWNER at any time.

4. That the
   ADMINISTRATOR is hereby granted the authority to sign for and in the
   name of the OWNER, contracts of lease, contracts of sale, as well as
   contracts to sell involving the lots into which the property which is
   the object of this contract is subdivided, and releases of mortgage and
   such other documents as may be deemed necessary for the purpose of
   carrying out and facilitating the administration of the OWNER’S
   property; and for that purpose the OWNER shall execute a power of
   attorney in favor of the ADMINISTRATOR; provided, however, that deeds
   of donation to the government, province, city or municipality of lots,
   destined for parks, playgrounds, roads, community counters, etc.

* * * * * * *

7. That the Administrator shall take charge of the
   collection of all accounts due to the Owner either for the sale of lots
   or otherwise, and the expenses in connection therewith, shall be for
   the account of the Administrator, except attorney’s fees and judicial
   expenses which shall be decided and borne by the Owner; subject to the
   Administrator’s right to choose its counsel, after consultations with
   the Owner.

8. That all administrative
   expenses incurred in the administration of the OWNER’S subdivision such
   as salaries of permanent personnel, office, rent, telephone and light
   bills, commissions for sales agents or sub-agents, and other similar
   expenses shall be borne by the ADMINISTRATOR, provided, however, that
   should the OWNER deem it necessary that the ADMINISTRATOR employ
   checkers, inspectors, supervisors or technical men, their aggregate
   salaries in excess of P600.00 monthly shall be borne by the OWNER.

10. All extraordinary expenses of the ADMINISTRATOR shall first be approved by the OWNER before they are incurred.
11. That advertising the sales of lots of this property shall
    be undertaken by the ADMINISTRATOR upon approval by the OWNER, but the
    expenses for the same shall be for the account of the OWNER.

* * * * * * *

13. That the OWNER shall pay the ADMINISTRATOR a
    selling commission of 10% on all sales of lots of the subdivision
    whether or not effected by the ADMINISTRATOR, which shall be payable in
    full immediately and in preference to all other obligations of the
    OWNER, from the collections on said dates, but if the down payment made
    be not sufficient to cover the commission, subsequent payments shall be
    first utilized to complete said commission; and, if for any reason
    whatsoever the sale of any lot be discontinued or cancelled the
    commission due the ADMINISTRATOR shall in no case exceed the total
    amount collected at the time of such discontinuance or cancellation;
    provided, however, that the posterior cancellation or rescission of
    such sales shall in no wise entitle the OWNER to ask for a
    proportionate refund of said commission and, provided finally, that
    should any repossessed lots be subsequently sold, the ADMINISTRATOR
    shall be entitled to its commission of 10% on the subsequent sales
    thereof as though they had been original sales. The same provisions
    shall apply to contracts of lease.

14. That
    the OWNER shall pay the ADMINISTRATOR an administration fee of 8% on
    the gross sums collected and received by the latter in connection with
    the discharge by the ADMINISTRATOR of its duties, it being understood
    that this administration fee shall be in addition to the 10% commission
    above referred to * * *.”

During the period from the fourth quarter of 1951 to the second
quarter of 1953, inclusive, Tuason & Co., Inc. received as
compensation for its services the following amounts: P282,862.70 as 10
per cent commission for sales and P116,331.21 as “administration fee.”
On August 22, 1953, the respondent Collector of Internal Revenue
assessed against the petitioner the broker’s tax on the 8 per cent
received by the latter as “administration fee” in the amount of
P8,724.84, representing the broker’s percentage tax and surcharge
thereon. Petitioner contested this assessment, although it paid the
respondent under protest P9,024.84 and thereafter filed a claim for its
refund. As respondent refused to grant the refund, petitioner
instituted an action in the Court of Tax Appeals for the review of the
assessment. After trial the Court of Tax Appeals sustained the
assessment and denied the refund prayed for. It is against this refusal
to grant the refund that the appeal to this Court has been presented.

The ruling of the Court of Tax Appeals which is disputed is as follows:

“This test of indivisibility of consideration giving
rise to an indivisibles contract applies equally to commercial
contracts such as sale, as well as to contracts involving services as
the case at bar.

‘The question of
indivisibility is difficult, and this difficulty has resulted in a
direct conflict of decisions. The contract may be entire or severable,
according to the circumstances of its particular case it has been said
in speaking of contracts of sale, and the criterion is to be found in
the question whether the whole quantity— all of the things as a
whole—is of the essence of the contract. If it appears that the purpose
was to take the whole or none, then the contract would be entire;
otherwise, it would be severable . . . Though this was said in reference to a contract of sale, the reason applies to other contracts as well.’ (3rd. Ed. Clark on Contracts, p. 569, citing:

Wootem vs. Walters, 110 M. C. 251, 14 SE. 734; Erouner vs. Raynar, 88 Md. 47, 11 Atl. 833) (Italics supplied.)

“In the present case, as we see it the consideration is single,
entire and indivisible. As far as Varsity Hills, Inc. is concerned, the
property in question must be sold or leased as subdivided lots. Until
and unless the sale or lease of the property in question as subdivided
lots is effected, the Varsity Hills, Inc., is not liable to pay any
compensation to petitioner in any form as the same is based on the
proceed derived from the sale or lease thereof. Hence, the mere
completion of the subdivision of the property in question does not
entitle the petitioner to the compensation agreed and the same does not
attach unless and until a sale or lease of a subdivided lot is first
effected. Neither will compensation be due the petitioner for the sale
or lease of the whole or part of the property in question, unless the
same be first subdivided into lots by petitioner. Stated otherwise, in
order that petitioner would be entitled to compensation under the terms
of the contract Exhibit ‘A’ there must first be a subdivision of the
property into lots, followed by a sale or lease of the same. Because of
this “oneness’ or indivisibility of the consideration of the contract
Exhibit ‘A’, we are of the opinion that the activities of the
petitioner of subdividing the property or collecting accounts, which
petitioner denominated ‘acts of administration’ are not in fact
detached, distinct, nor transcendental to the brokerage relationship
created by aforesaid contract, but rather acts which are merely
incidental to the primary purpose for which the agreement was entered
into.”

In this Court petitioner claims that its duties as administrator
under the contract are not acts of brokerage subject to the brokerage
tax. We cannot accept this contention. We will start showing the
weakness of this contention by stating that the only duty imposed on
the petitioner which may be conceded to be distinct and separate from
those of a broker is that of subdividing the lands into lots and laying
out the streets, parks, playgrounds, and constructing the streets,
culverts, pavements, sewage systems, drainage installation of
utilities, all of which is set forth in Section 2 of the contract
Exhibit “A”. All the others, such as recommending sales prices of lots
(Sec. 3), signing contracts of sale or lease, or contracts to sell,
releases of mortgage (Sec. 4), collecting sales prices or other
accounts due the Owner (Sec. 7), organizing offices and personnel to
attend to the work relating to all the above (Sec. 8), although
apparently paid for under the term “administration fee”—these are also
necessary parts of the work of a broker as defined by law, thus:

“(s) ‘Real estate broker’ includes any
person, other than a real estate salesman as hereinafter defined, who
for another, and for a compensation or in the expectation or promise of
receiving compensation, (1) sells or offers for sale, buys or offers to
buy, lists, or solicits for prospective purchasers, or negotiates the
purchase, sale or exchange of real estate or interests therein; (2) or
negotiates loans on real estate; (3) or leases or offers to lease or
negotiates the sale, purchase or exchange of a lease, or rents or
places for rent or collects rent. from real estate or improvements
thereon; (4) or shall be employed by or on behalf of the owner or
owners of lots or other parcels of real estate at a stated salary, on
commission, or otherwise, to sell such real estate or any parts thereof
in lots or parcels. * * * But the foregoing definitions do not include
a person who shall directly perform any of the acts aforesaid with
reference to his own property, where such acts are performed in the
regular course of or as an incident to the management of such property;
nor shall they apply to persons acting pursuant to a duly executed
power of attorney from the owner authorizing final consummation by
performance of a contract conveying real estate sale, mortgage or
lease; * * *.”

A broker engaged in the sale of real estate is not limited to
bringing vendor and vendee together and arranging the terms and
conditions of a sale of real estate. As sales of real estate must be in
writing the preparation of the documents is part of the functions of
the broker. So the only function entrusted to petitioner under the
contract Exhibit “A” which may not be embraced in those of a broker, is
that of constructing the subdivision, as above explained and detailed
out. It follows, therefore, that the parties have agreed on giving
compensation denominated administration fees for services which may
well be included in the duties of a broker.

But the duty of developing the subdivision, with its lots, streets,
playgrounds, sewage, etc. is also a necessary incident to the duty of
selling the lands subject of the contract. The lands must be subdivided
into residential lots, with streets laid out, before said lots can be
sold. And while this work may be entrusted to another, the parties have
seen fit to have the same entrusted to the petitioner. It would be
reasonable that this work or duty be considered distinct and separate
from the duties or incidents of the brokerage, and not subject to the
tax on brokers. But the parties have by their contract rendered it
impossible to separate the amount due petitioner for such duty and
obligation (of developing a subdivision) from those due petitioner as
“administration fees.” Petitioner may well be a contractor, in so far
as the developing of the subdivision is concerned. But neither
petitioner nor the owner has shown which portion of the fee mentioned
in the contract as “administration fee” is given petitioner as its
compensation for developing the subdivision. The reason for all this
must be the fact that the parties have considered their contract as one
whole, indivisible contract, especially as the corresponding fees for
the different prestations therein undertaken by petitioner are grouped
into two, “brokerage” and “administration”, without it being possible
to separate and identify what portion is due petitioner for developing
the subdivision and what portion for the supposed acts of
administration, which may also be considered acts of brokerage. It is
in the above sense that the Court of Tax Appeals has held that the
consideration for all the different prestations is simple, entire and
indivisible, for which reason the contract must be considered as one
indivisible contract of brokerage, the developing of the subdivision
being considered as a necessary incident to, and preparatory for, the
sales of the lots of the subdivision, and the documentation and
collection also an integral part of the sales or negotiations therefor.

“Entrando ya en la otra cuestion, no puede perderse
de vista que, procediendo, sobre todo en estas obligaciones, de un solo
acreedor y de un solo deudor, la indivisibilidad, mas que de la
naturaleza misma de los actos o cosas, de la voluntad y de la ley, sera
muy frecuente el caso de una obligacion que abarque multiples objetos
de posible division real, y aun entre si distintos, pero que, afectados
por la obligacion, forman para los fines y efectos de esta, un todo
indivisible.” (8 Manresa, p. 214).

Considering, therefore, that the parties to the contract evidently
made a single, indivisible contract because of indivisibility of
consideration, for the reason that the parties fixed a so-called
administration fee for developing the subdivision and for executing all
necessary documentation and collection for the consummation of the
sales of the lots in the subdivision, without possibility of
determining the fees for each of the distinct prestation, we are
constrained to find that the court below committed no error in
confirming the assessment subject of the petition for review.

Wherefore the decision of the Court of Tax Appeals should be, as it hereby is, affirmed, with costs against petitioner.

Paras, C. J., Bengzon, Bautista Angelo, Concepcion, Reyes, J. B. L., Barrera, and Gutierrez David, JJ., concur.
Montemayor, J., reserves his vote.
Padilla and Endencia, JJ., took no part.