LIM CHAI SENG, PLAINTIFF AND APPELLANT, VS. WENCESLAO TRINIDAD, COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLANT.

It thus happened that during the years 1917 and 1918, one Cu Chiat
was the agent and intermediary of the plaintiff, Lim Chai Seng, in
making reports to the Collector of Internal Revenue of business done by
Lim Chai Seng as well as in the making of payments for the taxes due
from the latter. In the performance of these services the books of Lim
Chai Seng were consulted in order to discover the amount due to the
Bureau of Internal Revenue, and either the proper amount of money or a
check was delivered by the merchant to Cu Chiat, whose duty it then
became to repair to the office of the collector, to make the proper
report of business done by Lim Chai Seng, and to make payment
accordingly.

It appears, however, that instead of fulfilling this duty
punctually, Cu Chiat, upon five different occasions, submitted false
reports of the business of Lim Chai Seng, showing business to have
transacted for five particular quarters in amounts much lower than was
really the case. By this means Cu Chiat contrived to make it appear
that the taxes due from Lim Chai Seng were considerably less than were
in fact due, and he misappropriated the excess that had been confided
to him. Upon the three occasions when checks had been given to him by
Lim Chai Seng for the exact amount really due, the misappropriation was
accomplished by causing the Collector of Internal Revenue to apply the
excess contained in those checks” to the payment of similar taxes due
from other Chinese firms, of whom Cu Chiat was also the representative.
The amounts thus misappropriated by Cu Chiat were as follows:

In time these peculations were found out, and the Internal Revenue
Collector required Lim Chai Seng to make good the deficiency in the tax
and to pay in addition thereto an additional 25 per cent surcharge
thereon under the authority of the second paragraph of section 1458 of
the Administrative Code. This payment having been made under protest
the present action was instituted by Lim Chai Seng to recover the
entire amount paid, or P1,875. The trial judge decided that the amount
of P375, collected in the character of surcharge, was properly due, on
account of the failure of Cu Chiat to submit correct returns for the
five periods with which his peculations’ were concerned. As to this
amount the trial judge held that there could be no recovery. The same
was true, so he decided, in regard to those transactions in connection
with which Lim Chai Seng had delivered money to Cu Chiat to be applied
to the taxes due. In regard, however, to the three payments when checks
were delivered by Lim Chai Seng for the exact amount due, the trial
judge held that the Collector of Internal Revenue had no right to apply
the excess to the taxes due from other merchants. He accordingly gave
judgment in favor of the plaintiff for the excess, amounting to P1,200,
carried in these checks over the amount shown to be due on the face of
the reports submitted by Cu Chiat and which the collector had, as the
trial judge held, improperly applied to other accounts. From this
judgment both parties appealed; and for the plaintiff it is assigned as
error that the trial judge erroneously refused to allow recovery by the
plaintiff of the sum of P300 which had been exacted as a surcharge upon
the P1,200 above-mentioned. For the defendant it is assigned as error
that the trial judge allowed recovery of the P1,200 as above stated.

It will be convenient first to discuss the point presented by the
assignment of error of the defendant as appellant; that is, whether the
Collector of Internal Revenue has made himself liable to account to the
plaintiff for the P1,200, which represents the excess of the
plaintiff’s three checks over the amount apparently due upon the
returns made, and which the collector applied, under the directions of
Cu Chiat, to the payment of the taxes due from other persons.

The point is simple enough and we think it is to be solved with
reference to the general rule that a principal is bound by the acts of
his agent in the scope of the agency. In this connection it is
undeniable that Cu Chiat had full authority to make returns to the
Collector of Internal Revenue of the business done each quarter by Lim
Chai Seng and to make payment of the proper amount of the taxes due by
those returns. This being undeniable, it follows that when Cu Chiat
made returns, as he did, showing a certain amount of business
transacted and the taxes due were computed according to those returns,
the Collector of Internal Revenue could not legitimately collect a
greater amount. Furthermore, in view of the authority which, as the
Collector of Internal Revenue knew, had been confided to Cu Chiat by
Lim Chai Seng it was entirely proper for him to allow the check of Lim
Chai Seng to be applied not only to the taxes of the latter but under
the directions of Cu Chiat to the similar taxes of other merchants—the
more so as according to the proof it was not unusual for checks’ drawn
by one firm to be thus applied to the taxes of another.

It cannot be overlooked that in the commercial world the checks of
persons of known solvency are customarily received as money; and that
this check was received and applied by the Collector of Internal
Revenue in entire good faith in the usual course of business and
without any knowledge whatever that the check, or part thereof, was
being misapplied, is shown by the testimony. Nor can it be maintained
that the mere fact that the three checks in questions were made payable
to the Collector of Internal Revenue and not to Cu Chiat, is a
circumstance from which it could be argued that the Collector was put
upon notice that the check was applicable only to the taxes of the
plaintiff. Even if the Collector had refunded the excess in money to Cu
Chiat, the latter could have at once applied it to other taxes; and no
question could have been made as to the propriety of the Collector’s
then receiving it. A check when received and treated as money is the
same as money so far as legal consequences are concerned.

We hold the case to be one where the plaintiff, as principal, is
bound by the act of his agent, and the effects of the dishonesty of the
latter must be borne by the principal, not by an innocent third party
who has dealt with the dishonest agent in good faith.

It
results that the action of the trial judge in allowing the plaintiff to
recover the sum of P1,200, representing the amount misappropriated from
said checks by Cu Chiat, must be reversed. In view of this result it is
obvious that the error assigned in the brief of the plaintiff as
appellant, with reference to the P300, collected as a surcharge upon
this sum of P1,200, is untenable, and said assignment need not be
discussed.

The judgment appealed from is affirmed in so far as it absolves the
defendant from liability for the amount of P375, collected as surcharge
upon the delinquent taxes, and is reversed in so far as it concedes to
the plaintiff a recovery of the amount of P1,200 from the defendant;
and the defendant will be wholly absolved from the complaint. It is so
ordered, without express pronouncement as to costs.

Mapa, C. J., Araullo, Malcolm, and Villamor, JJ., concur.