524 SUPREME COURT REPORTS ANNOTATED

Ker & Co., Ltd. vs. Lingad

No. L-20871. April 30, 1971.

KER & Co., LTD., petitioner, vs. JOSE B. LINGAD, as

Acting Commissioner of Internal Revenue, respondent.

Taxation; Tax Code; Where dealer held a commercial broker

liable to tax under Section 194(t) of the Tax Code; Ride for
distinguishing between contracts of sale and of an agency to sell.
The difficulty in distinguishing between the contracts of sale and
the creation of an agency to sell has led to the establishment of
rules by the application of which this difficulty may be solved. The
decisions say the transfer of title or agreement to transfer it for a
price paid or promised is the essence of sale. If such transfer puts
the tranferee in the attitude or position of an owner and makes
him liable to the transferor as a debtor for the agreed price, and
not merely as an agent who must account for the proceeds of a
resale, the transaction is a sale; while the essence of an agency to
sell is the delivery to an agent, not as his property, but as the
property of the principal, who remains the owner and has the
right to control sales, fix the price, and terms, demand and receive
the proceeds less the agent’s commission upon sales made.
Same; Same; Same; Case at bar.—The mere disclaimer in a
contract that an entity like petitioner is not “the agent or legal
representative x x x for any purpose whatsoever” does not suffice
to yield the conclusion that it is an independent merchant if the
control over the goods for resale of the goods consigned is
pervasive in character.

PETITION for review of a decision of the Court of Tax

Appeals.
The facts are stated in the opinion of the Court.
     Ross, Selph & Carrascoso for petitioner.
          Solicitor General Arturo A. Alafriz, Solicitor
Alejandro B. Afurong and Special Atty. Balbino Gatdula,
Jr. for respondent.

FERNANDO, J.:

Petitioner Ker & Co., Ltd. would have us reverse a deci-

525

VOL. 38, APRIL 30, 1971 525

Ker & Co., Ltd. vs. Lingad

sion of the Court of Tax Appeals, holding it liable as a

commercial broker under Section 194(t) of the National
Internal Revenue Code. Its plea, notwithstanding the
vigorous effort of its counsel, is not sufficiently persuasive.
An obstacle, well-nigh insuperable, stands in the way. The
decision under review conforms to and is in accordance
with the controlling doctrine announced in the recent1 case
of Commissioner of Internal Revenue v. Constantino. The
decisive test, as therein set forth, is the retention of the
ownership of the goods delivered to the possession of the
dealer, like herein petitioner, for resale to customers, the
price and terms remaining subject to the control of the firm
consigning such goods. The facts, as found by respondent
Court, to which we defer, unmistakably indicate that such
a situation does exist. The juridical consequences must
inevitably follow. We affirm.
It was shown that petitioner was assessed by the then
Commissioner of Internal Revenue Melecio R. Domingo the
sum of P20,272.33 as the commercial broker’s percentage
tax, surcharge, and compromise penalty for the period from
July 1, 1949 to December 31, 1953. There was a request on
the part of petitioner for the cancellation of such
assessment, which request was turned down. As a result, it
filed a petition for review with the Court of Tax Appeals. In
its answer, the then Commissioner Domingo maintained
his stand that petitioner should be taxed in such amount as
a commercial broker. In the decision now under review,
promulgated on October 19, 1962, the Court of Tax Appeals
held petitioner taxable except as to the compromise penalty
of P500.00, the amount due from it being fixed at
P19,-772.33.
Such liability arose from a contract of petitioner with
the United States Rubber International, the former being
referred to as the Distributor and the latter specifically
designated as the Company. The contract was to apply to
transactions between the former and petitioner, as
Distributor, from July 1, 1948 to continue in force until
terminated

_______________

1 L-25926, February 27, 1970, 31 SCRA 779.

526

526 SUPREME COURT REPORTS ANNOTATED

Ker & Co., Ltd. vs. Lingad

2
by either party giving to the other sixty days’ notice. The
shipments would cover products “for consumption in Cebu,
Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao
except [the] province of Davao”, petitioner, as Distributor,
being precluded from disposing such products elsewhere
than in the above places unless 3written consent would first
be obtained from the Company. Petitioner, as Distributor,
is required to exert every effort to have the shipment of the
products in the maximum 4
quantity and to promote in every
way the sale thereof. The prices, discounts, terms of
payment, terms of delivery and other conditions of sale 5
were subject to change in the discretion of the Company.
Then came this crucial stipulation: “The Company shall
from time to time consign to the Distributor and the
Distributor will receive, accept and/or hold upon
consignment the products specified under the terms of this
agreement in such quantities as in the judgment of the
Company may be necessary for the successful solicitation
and maintenance of business in the territory, and the
Distributor agrees that responsibility for the final sale of
all goods delivered shall rest with him. All goods on
consignment shall remain the property of the Company
until sold by the Distributor to the purchaser or
purchasers, but all sales made by the Distributor shall be
in his name, in which case the sale price of all goods sold
less the discount given to the Distributor by the Company
in accordance with the provision of paragraph 13 of this
agreement, whether or not such sale price shall have been
collected by the Distributor from the purchaser or
purchasers, shall immediately be paid and remitted by the
Distributor to the Company. It is further agreed that this
agreement does not constitute Distributor the agent or
legal representative of the Company for any purpose
whatsoever. Distributor is not granted any right or
authority to assume or to create

_______________

2 Contract between the United States Rubber International and

petitioner, par. 1 quoted in the Decision of the Court of Tax Appeals,
Annex A to Petition, p. 2.
3 Ibid., par. 2, p. 2.
4 Ibid., par. 3, p. 2.
5 Ibid., par. 7, p. 3.

527

VOL. 38, APRIL 30, 1971 527

Ker & Co., Ltd. vs. Lingad

any obligation or responsibility, express or implied, in

behalf of or in the name of the Company, or6 to bind the
Company in any manner or thing whatsoever.”
All specifications for the goods ordered were subject to
acceptance by the Company with petitioner, as Distributor,
required to accept such goods shipped as well as to clear
the same through customs and to arrange for delivery in its
warehouse in Cebu City. Moreover, orders are to be filled in
whole or in part from the stocks carried by the Company’s
neighboring branches,7
subsidiaries or other sources of
Company’s brands. Shipments were to be invoiced at
prices to be agreed upon, with the customs duties being
paid by petitioner, as Distributor, for account of the
8
 8
Company. Moreover, all resale prices, lists, discounts and
general terms and conditions of local resale were to be
subject to the approval of the9 Company and to change from
time to time in its discretion. The dealer, as Distributor, is
allowed a discount of ten percent on the net amount 10
of
sales of merchandise made under such agreement. On a
date to be determined by the Company, the petitioner, as
Distributor, was required to report to it data showing in
detail all sales during the month immediately preceding,
specifying therein the quantities, sizes and types together
with such information as may be required for accounting
purposes, with the Company rendering an invoice on sales
as described to be dated as of the date of inventory and
sales report. As Distributor, petitioner had to make
payment on such invoice or invoices on due date with the
Company being privileged at its option to terminate and
cancel the agreement11forthwith upon the failure to comply
with this obligation.” The Company, at its own expense,
was to keep the consigned stock fully insured against loss
or damage by fire or as a result of fire, the policy of such
insurance to be payable to it in the event of loss. Petitioner,
as Distributor, assumed full

_______________

6 Ibid., par. 8, pp. 3 and 4.

7 Ibid., par. 9, to 4.
8 Ibid., par. 10, p. 4.
9 Ibid., par. 12, p. 4.
10 Ibid., par. 13, p. 4.
11 Ibid., par. 14, p. 5.

528

528 SUPREME COURT REPORTS ANNOTATED

Ker & Co., Ltd. vs. Lingad

responsibility with reference to the stock and its safety at

all times; and upon request of the Company at any time, it
was to render inventory
12
of the existing stock which could
be subject to change. There was furthermore this equally
tell-tale covenant: “Upon the termination or any
cancellation of this agreement all goods held on
consignment shall be held by the Distributor for the
account of the Company, without expense to the Company,
until such time 13as provision can be made by the Company
for disposition.”
The issue with the Court of Tax Appeals, as with us
now, is whether the relationship thus created is one of
vendor and vendee or of broker and principal. Not that
there would have been the slightest doubt were it not for
the categorical denial in the contract that petitioner was
not constituted as “the agent or legal representative of the
Company for any purpose whatsoever.” It would be,
however, to impart to such an express disclaimer a
meaning it should not possess to ignore what is manifestly
the role assigned to petitioner considering the instrument
as a whole. That would be to lose sight altogether of what
has been agreed upon. The Court of Tax Appeals was not
misled. In the language of the decision now on appeal:
“That the petitioner Ker & Co., Ltd. is, by contractual
stipulation, an agent of U.S. Rubber International is borne
out by the facts that petitioner can dispose of the products
of the Company only to certain persons or entities and
within stipulated limits, unless excepted by the contract or
by the Rubber Company (Par. 2); that it merely receives,
accepts and/or holds upon consignment the products, which
remain properties of the latter company (Par. 8); that every
effort shall be made by petitioner to promote in every way
the sale of the products (Par. 3); that sales made by
petitioner are subject to approval by the company (Par. 12);
that on dates determined by the rubber company,
petitioner shall render a detailed report showing sales
during the month (Par. 14); that the rubber company shall
invoice the sales as of the dates of inventory and sales
report (Par. 14); that the

_______________

12 Ibid., par. 15, p. 5.

13 Ibid., par. 19, p. 6.

529
 VOL. 38, APRIL 30, 1971 529
Ker & Co., Ltd. vs. Lingad

rubber company agrees to keep the consigned goods

fullyinsured under insurance policies payable to it in case
of loss (Par. 15); that upon request of the rubber company
at any time, petitioner shall render an inventory of the
existing stock which may be checked by an authorized
representative of the former (Par. 15); and that upon
termination or cancellation of the Agreement, all goods
held on consignment shall be held by petitioner for the
account of the rubber company until their disposition is
provided for by the latter (Par. 19). All these circumstances
are irreconcilably antagonistic
14
to the idea of an
independent merchant.” Hence its conclusion: “However,
upon analysis of the contract, as a whole, together with the
actual conduct of the parties in respect thereto, we have
arrived at the conclusion that the 15relationship between
them is one of brokerage or agency.” We find ourselves in
agreement, notwithstanding the able brief filed on behalf of
petitioner by its counsel. As noted at the outset, we cannot
heed petitioner’s plea for reversal.
1. According to the National Internal Revenue Code, a
commercial broker “includes all persons, other than
importers, manufacturers, producers, or bona fide
employees, who, for compensation ox profit, sell or bring
about sales or purchases of merchandise for other persons
or bring proposed 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.
16
The term includes commission
merchants.” The controlling decision as to the test to be
followed as to who falls within the above definition of a
commercial broker is that 17
of Commissioner of Internal
Revenue v. Constantino. In the language of Justice J. B.
L. Reyes, who penned the opinion: “Since the company
retained ownership of the goods, even as it delivered
possession unto the dealer for resale to customers, the price

_______________
 14 Decision, Annex A to the Petition, pp. 10-11.
15 Ibid., p. 10.
16 Section 194(t).
17 L-25926, February 27, 1970, 31 SCRA 779.

530

530 SUPREME COURT REPORTS ANNOTATED

Ker & Co., Ltd. vs. Lingad

and terms of which were subject to the company’s control,

the relationship between
18
the company and the dealer is one 19
of agency, * * *.” An excerpt from Salisbury v. Brooks
cited in support of such a view follows: “ ‘The difficulty in
distinguishing between contracts of sale and the creation of
an agency to sell has led to the establishment of rules by
the application of which this difficulty may be solved. The
decisions say the transfer of title or agreement to transfer
it for a price paid or promised is the essence of sale. If such
transfer puts the transferee in the attitude or position of an
owner and makes him liable to the transferor as a debtor
for the agreed price, and not merely as an agent who must
account for the proceeds of a resale, the transaction is a
sale; while the essence of an agency to sell is the delivery to
an agent, not as his property, but as the property of the
principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and receive
the
20
proceeds less the agent’s commission upon sales made.’
” The opinion relied on the work of Mechem on Sales as
well as Mechem on Agency. Williston and Tiedman, both of
whom wrote treatises on Sales, were likewise referred to.
Equally relevant is this portion of the Salisbury opinion:
“It is difficult to understand or appreciate the necessity or
presence of these mutual requirements and obligations on
any theory other than that of a contract of agency.
Salisbury was to furnish the mill and put the timber owned
by him into a marketable condition in the form of lumber;
Brooks was to furnish the funds necessary for that purpose,
sell the manufactured product, and account therefor to
Salisbury upon the specific terms of the agreement, less the
compensation fixed by the parties in lieu of interest on the
money advanced and for services as agent. These
requirements and stipulations are inconsistent with any
other conception of the contract. If it constitutes an
agreement to sell, they are meaningless. But they cannot
be ignored. They were placed there for some purpose,
doubtless as the result of definite antecedent

_______________

18 Ibid., p. 785.
19 94 SE 117 (1917).
20 L-25926, February 27, 1970, 31 SCRA 779, 785.

531

VOL. 38, APRIL 30, 1971 531

Ker & Co., Ltd. vs. Lingad

negotiations therefore, consummated21

by the final written
expression of the agreement.” Hence the Constantino
opinion could categorically affirm that the mere disclaimer
in a contract that an entity like petitioner is not “the agent
or legal representative * * * for any purpose whatsoever”
does not suffice to yield the conclusion that it is an
independent merchant if the control over the goods for
resale of the goods consigned is pervasive in character. The
Court of Tax Appeals decision now under review pays
fealty to such an applicable doctrine.
2. No merit therefore attaches to the first error imputed
by petitioner to the Court of Tax Appeals. Neither did such
Court fail to appreciate in its true significance the act and
conduct pursued in the implementation of the contract by
both the United States Rubber International and
petitioner, as was contended in the second assignment of
error. Petitioner ought to have been aware that there was
no need for such an inquiry. The terms of the contract, as
noted, speak quite clearly. There is lacking that degree of
ambiguity sufficient to give rise to serious doubt as to what
was contemplated by the parties. A reading thereof
discloses that the relationship arising therefrom was not
one of seller and purchaser. If it were thus intended, then it
would not have included covenants which in their totality
would negate the concept of a firm acquiring as vendee
goods from another. Instead, the stipulations were so
worded as to lead to no other conclusion than that the
control by the United States Rubber International over the
goods in question is, in the language of the Constantino
opinion, “pervasive”. The insistence on a relationship
opposed to that apparent from the language employed
might even yield the impression that such a mode of
construction was resorted to in order that the applicability
of a taxing statute might be rendered nugatory. Certainly,
such a result is to be avoided. Nor is it to be lost sight of
that on a matter left to the discretion of the Court of Tax
Appeals which has developed an expertise in view of its
function being limited solely to the interpretation of
revenue laws, this Court is not

_______________

21 94 SE 117, 118 (1917).

532

532 SUPREME COURT REPORTS ANNOTATED

Ker & Co., Ltd. vs. Lingad

prepared to substitute its own judgment unless a grave

abuse of discretion is manifest. It would be to frustrate the
objective for which administrative tribunals are created if
the judiciary, absent such a showing, is to ignore their
appraisal on a matter that forms the staple of their
specialized competence. While it is to be admitted that
counsel for petitioner did scrutinize with care the decision
under review with a view to exposing what was considered
its flaws, it cannot be said that there was such a failure to
apply what the law commands as to call for its reversal.
Instead, what cannot be denied is that the Court of Tax
Appeals reached a result to which the Court in the recent
Constantino decision gave the imprimatur of its approval.
WHEREFORE, the Court of Tax Appeals decision of
October 19, 1962 is affirmed. With costs against petitioner.
      Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal,
Zaldivar, Castro, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.

Decision affirmed.

Notes.—(a) When one is or is not a commercial broker.—

The duty assumed by the broker is to bring the minds of
the buyer and the seller to an agreement for a sale, and the
price and terms on which it is to be made (Danon vs. Brimo
& Co., 42 Phil. 133, 139; Rocha vs. Pratts & Co., 43 Phil.
397, 398; Reyes vs. Mosqueda, 99 Phil. 241, 245). Where a
company does not act as negotiator or middleman to close a
deal between one person and another and does work or
contract in the name of another, it is not a commercial
broker; hence it is not liable for the payment of the fixed
and percentage taxes on commercial brokers
(Commissioner of Internal Revenue vs. Cadwallader Pacific
Company, L-18297, Nov. 29, 1966, 18 SCRA 827).
(b) Distinction between commercial broker and
commission merchant.—A commission merchant is a
commercial agent to whom the possession of personalty is
entrusted by or for the owner, to be sold, for compensation,
in pursuance of the agent’s usual trade or business, with
title to goods remaining in the principal, as distinguished
from a person who purchases merchandise with his own
capital,

533

VOL. 38, APRIL 30, 1971 533

Gonzalo L. Manuel & Co., Inc. vs. Central Bank

takes title in his own name, and sells for his own account
at whatever price he may deem advisable. A commission
merchant differs from a broker in that he may buy or sell
in his own name without closing his principal, while the
broker can only buy or sell in the name of his principal
(Commissioner of Internal Revenue vs. Cadwallader Pacific
Company, supra).

——————