Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 108399 July 31, 1997

RAFAEL M. ALUNAN III, in his capacity as Secretary of the Department of Interior and Local
Government (DILG), the BOARD OF ELECTION SUPERVISORS composed of Atty. RUBEN M.
RAMIREZ, Atty. RAFAELITO GARAYBLAS, and Atty. ENRIQUE C. ROA, GUILLERMINA RUSTIA, in
her capacity as Director of the Barangay Bureau, City Treasurer Atty. ANTONIO ACEBEDO, Budget
Officer EUFEMIA DOMINGUEZ, all of the City Government of Manila, petitioners,
vs.
ROBERT MIRASOL, NORMAN NOEL T. SANGUYA, ROBERT DE JOYA, ARNEL R. LORENZO, MARY
GRACE ARIAS, RAQUEL L. DOMINGUEZ, LOURDES ASENCIO, FERDINAND ROXAS, MA.
ALBERTINA RICAFORT, and BALAIS M. LOURICH, and the HONORABLE WILFREDO D. REYES,
Presiding Judge of the Regional Trial Court, Branch 36, Metro Manila, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision dated January 19, 1993 of the Regional Trial Court of
Manila (Branch 36),1 nullifying an order of the Department of Interior and Local Government (DILG), which in
effect cancelled the general elections for the Sangguniang Kabataan (SK) slated on December 4, 1992 in
the City of Manila, on the ground that the elections previously held on May 26, 1990 served the purpose of
the first elections for the SK under the Local Government Code of 1991 (R.A. No. 7160).

Section 423 of the Code provides for a SK in every barangay, to be composed of a chairman, seven (7)
members, a secretary, and a treasurer. Section 532(a) provides that the first elections for the SK shall be
held thirty (30) days after the next local elections. The Code took effect on January 1, 1992.

The first local elections under the Code were held on May 11, 1992. Accordingly, on August 27, 1992, the
Commission on Elections issued Resolution No. 2499, providing guidelines for the holding of the general
elections for the SK on September 30, 1992. The guidelines placed the SK elections under the direct control
and supervision of the DILG, with the technical assistance of the COMELEC.2 After two postponements, the
elections were finally scheduled on December 4, 1992.

Accordingly, registration in the six districts of Manila was conducted. A total of 152,363 youngsters, aged 15
to 21 years old, registered, 15,749 of them filing certificates of candidacies. The City Council passed the
necessary appropriations for the elections.

On September 18, 1992, however, the DILG, through then Secretary Rafael M. Alunan III, issued a letter-
resolution "exemption" the City of Manila from holding elections for the SK on the ground that the elections
previously held on May 26, 1990 were to be considered the first under the newly-enacted Local Government
Code. The DILG acted on a letter of Joshue R. Santiago, acting president of the KB City Federation of
Manila and a member of City Council of Manila, which called attention to the fact that in the City of Manila
elections for the Kabataang Barangay (the precursor of the Sangguniang Kabataan) had previously been
held on May 26, 1990. In its resolution, the DILG stated:

[A] close examination of . . . RA 7160 would readily reveal the intention of the legislature to exempt
from the forthcoming Sangguniang Kabataan elections those kabataang barangay chapters which
may have conducted their elections within the period of January 1, 1988 and January 1, 1992
under BP 337. Manifestly the term of office of those elected KB officials have been correspondingly
extended to coincide with the term of office of those who may be elected under RA 7160.
On November 27, 1992 private respondents, claiming to represent the 24,000 members of the Katipunan ng
Kabataan, filed a petition for certiorari and mandamus in the RTC of Manila to set aside the resolution of the
DILG. They argued that petitioner Secretary of Interior and Local Government had no power to amend the
resolutions of the COMELEC calling for general elections for SKs and that the DILG resolution in question
denied them the equal protection of the laws.

On November 27, 1992, the trial court, through Executive Judge, now COMELEC Chairman, Bernardo P.
Pardo, issued an injunction, ordering petitioners "to desist from implementing the order of the respondent
Secretary dated September 18, 1992, . . . until further orders of the Court." On the same day, he ordered
petitioners "to perform the specified pre-election activities in order to implement Resolution No. 2499 dated
August 27, 1992 of the Commission on Elections providing for the holding of a general election of the
Sangguniang Kabataan on December 4, 1992 simultaneously in every barangay throughout the country."

The case was subsequently reraffled to Branch 36 of the same court. On January 19, 1993, the new judge,
Hon. Wilfredo D. Reyes, rendered a decision, holding that (1) the DILG had no power to "exempt" the City of
Manila from holding SK elections on December 4, 1992 because under Art. IX, C, 2(1) of the Constitution
the power to enforce and administer "all laws and regulations relative to the conduct of an election, plebiscite,
initiative, referendum, and recall" is vested solely in the COMELEC; (2) the COMELEC had already in effect
determined that there had been no previous elections for KB by calling for general elections for SK officers
in every barangay without exception; and (3) the "exemption" of the City of Manila was violative of the equal
protection clause of the Constitution because, according to the DILG's records, in 5,000 barangays KB
elections were held between January 1, 1988 and January 1, 1992 but only in the City of Manila, where
there were 897 barangays, was there no elections held on December 4, 1992.

Petitioners sought this review on certiorari. They insist that the City of Manila, having already conducted
elections for the KB on May 26, 1990, was exempted from holding elections on December 4, 1992. In
support of their contention, they cite 532(d) of the Local Government Code of 1991, which provides that:

All seats reserved for the pederasyon ng mga sangguniang kabataan in the different sangguniang
shall be deemed vacant until such time that the sangguniang kabataan chairmen shall have been
elected and the respective pederasyon presidents have been selected: Provided, That, elections
for the kabataang barangay conducted under Batas Pambansa Blg. 337 at any time between
January 1, 1988 and January 1, 1992 shall be considered as the first elections provided for in this
Code. The term of office of the kabataang barangay officials elected within the said period shall be
extended correspondingly to coincide with the term of office of those elected under this Code.
(emphasis added)

They maintain that the Secretary of the DILG has authority to determine whether the City of Manila came
within the exception clause of 532(d) so as to be exempt from holding the elections on December 4, 1992.

The preliminary question is whether the holding of the second elections on May 13, 1996 3 rendered this case
moot and academic. There are two questions raised in this case. The first is whether the Secretary of
Interior and Local Government can "exempt" a local government unit from holding elections for SK officers
on December 4, 1992 and the second is whether the COMELEC can provide that "the Department of Interior
and Local Government shall have direct control and supervision over the election of sangguniang kabataan
with the technical assistance by the Commission on Elections."

We hold that this case is not moot and that it is in fact necessary to decide the issues raised by the parties.
For one thing, doubt may be cast on the validity of the acts of those elected in the May 26, 1990 KB
elections in Manila because this Court enjoined the enforcement of the decision of the trial court and these
officers continued in office until May 13, 1996. For another, this case comes within the rule that courts will
decide a question otherwise moot and academic if it is "capable of repetition, yet evading review." 4 For the
question whether the COMELEC can validly vest in the DILG the control and supervision of SK elections is
likely to arise in connection with every SK election and yet the question may not be decided before the date
of such elections.

In the Southern Pacific Terminal case, where the rule was first articulated, appellants were ordered by the
Interstate Commerce Commission to cease and desist from granting a shipper what the ICC perceived to be
preferences and advantages with respect to wharfage charges. The cease and desist order was for a period
of about two years, from September 1, 1908 (subsequently extended to November 15), but the U.S.
Supreme Court had not been able to hand down its decision by the time the cease and desist order expired.
The case was decided only on February 20, 1911, more than two years after the order had expired. Hence,
it was contended that the case had thereby become moot and the appeal should be dismissed. In rejecting
this contention, the Court held:

The question involved in the orders of the Interstate Commerce Commission are usually continuing
(as are manifestly those in the case at bar), and these considerations ought not to be, as they
might be, defeated, by short-term orders, capable of repetition, yet evading review, and at one time
the government, and at another time the carriers, have their rights determined by the Commission
without a chance of redress.5

In Roe v. Wade,6 petitioner, a pregnant woman, brought suit in 1970 challenging anti-abortion statutes of
Texas and Georgia on the ground that she had a constitutional right to terminate her pregnancy at least
within the first trimester. The case was not decided until 1973 when she was no longer pregnant. But the
U.S. Supreme Court refused to dismiss the case as moot. It was explained: "[W]hen, as here, pregnancy is a
significant fact the litigation, the normal 266-day human gestation period is so short that the pregnancy will
come to term before the usual appellate process is complete. If that termination makes a case moot,
pregnancy litigation seldom will survive. Our laws should not be that rigid. Pregnancy provides a classic
justification for a conclusion of nonmootness. It truly could be 'capable of repetition, yet evading review.'" 7

We thus reach the merits of the questions raised in this case. The first question is whether then DILG
Secretary Rafael M. Alunan III had authority to determine whether under 532(d) of the Local Government
Code, the City of Manila was required to hold its first elections for SK. As already stated, petitioners sustain
the affirmative side of the proposition. On the other hand, respondents argue that this is a power which Art.
IX, C, 2(1) of the Constitution vests in the COMELEC. Respondents further argue that, by mandating that
elections for the SK be held on December 4, 1992 "in every barangay," the COMELEC in effect determined
that there had been no elections for the KB previously held in the City of Manila.

We find the petition to be meritorious.

First. As already stated, by 4 of Resolution No. 2499, the COMELEC placed the SK elections under the
direct control and supervision of the DILG. Contrary to respondents' contention, this did not contravene Art.
IX, C, 2(1) of the Constitution which provides that the COMELEC shall have the power to "enforce and
administer all laws and regulations relative to the conduct of an election, plebiscite, initiative, referendum,
and recall." Elections for SK officers are not subject to the supervision of the COMELEC in the same way
that, as we have recently held, contests involving elections of SK officials do not fall within the jurisdiction of
the COMELEC. In Mercado v. Board of Election Supervisors,8 it was contended that

COMELEC Resolution No. 2499 is null and void because: (a) it prescribes a separate set of rules
for the election of the SK Chairman different from and inconsistent with that set forth in the
Omnibus Election Code, thereby contravening Section 2, Article 1 of the said Code which explicitly
provides that "it shall govern all elections of public officers", and, (b) it constitutes a total, absolute,
and complete abdication by the COMELEC of its constitutionally and statutorily mandated duty to
enforce and administer all election laws as provided for in Section 2(1), Article IX-C of the
Constitution; Section 52, Article VIII of the Omnibus Election Code; and Section 2, Chapter 1,
Subtitle C, Title 1, Book V of the 1987 Administrative Code.9

Rejecting this contention, this Court, through Justice Davide, held:

Section 252 of the Omnibus Election Code and that portion of paragraph (2), Section 2, Article IX-C
of the Constitution on the COMELEC's exclusive appellate jurisdiction over contest involving
elective barangay officials refer to the elective barangay officials under the pertinent laws in force at
the time the Omnibus Election Code was enacted and upon the ratification of the Constitution. That
law was B.P. Blg. 337, otherwise known as the Local Government Code, and the elective barangay
officials referred to were the punong barangay and the six sangguniang bayan members. They
were to be elected by those qualified to exercise the right of suffrage. They are also the same
officers referred to by the provisions of the Omnibus Election Code of the Philippines on election of
barangay officials. Metropolitan and municipal trial courts had exclusive original jurisdiction over
 contests relating to their election. The decisions of these courts were appealable to the Regional
Trial Courts.

xxx xxx xxx

In the light of the foregoing, it is indisputable that contests involving elections of SK (formerly KB)
officials do not fall within Section 252 of the Omnibus Election Code and paragraph 2, Section 2,
Article IX-C of the Constitution and that no law in effect prior to the ratification of the Constitution
had made the SK chairman an elective barangay officials. His being an ex-officio member of the
sangguniang barangay does not make him one for the law specifically provides who are its elective
members, viz., the punong barangay and the seven regular sangguniang barangay members who
are elected at large by those who are qualified to exercise the right of suffrage under Article V of
the Constitution and who are duly registered voters of the barangay. 10

The choice of the DILG for the task in question was appropriate and was in line with the legislative policy
evident in several statutes. Thus, P.D. No. 684 (April 15, 1975), in creating Kabataang Barangays in every
barangay throughout the country, provided in 6 that the "Secretary of Local Government and Community
Development shall promulgate such rules and regulations as may be deemed necessary to effectively
implement the provisions of this Decree." Again, in 1985 Proclamation No. 2421 of the President of the
Philippines, in calling for the general elections of the Kabataang Barangay on July 13-14, 1985, tasked the
then Ministry of Local Government, the Ministry of Education, Culture and Sports, and the Commission on
Elections to assist the Kabataang Barangay in the conduct of the elections. On the other hand, in a
Memorandum Circular dated March 7, 1988, President Corazon C. Aquino directed the Secretary of Local
Government to issue the necessary rules and regulations for effecting the representation of the Kabataang
Barangay, among other sectors, in the legislative bodies of the local government units.

The role of the COMELEC in the 1992 elections for SK officers was by no means inconsequential. DILG
supervision was to be exercised within the framework of detailed and comprehensive rules embodied in
Resolution No. 2499 of the COMELEC. What was left to the DILG to perform was the enforcement of the
rules.

Second. It is contended that, in its resolution in question, the COMELEC did not name the barangays which,
because they had conducted kabataang barangay elections between January 1, 1988 and January 1, 1992,
were not included in the SK elections to be held on December 4, 1992. That these barangays were precisely
to be determined by the DILG is, however, fairly inferable from the authority given to the DILG to supervise
the conduct of the elections. Since 532(d) provided for kabataang barangay officials whose term of office
was extended beyond 1992, the authority to supervise the conduct of elections in that year must necessarily
be deemed to include the authority to determine which kabataang barangay would not be included in the
1992 elections.

The authority granted was nothing more than the ascertainment of a fact, namely, whether between January
1, 1988 and January 1, 1992 elections had been held in a given kabataang barangay. If elections had been
conducted, then no new elections had to be held on December 4, 1992 since by virtue of 532(d) the term of
office of the kabataang barangay officials so elected was "extended correspondingly to coincide with the
term of office of those elected under [the Local Government Code of 1991]." In doing this, the Secretary of
Interior and Local Government was to act merely as the agent of the legislative department, to determine
and declare the event upon which its expressed will was to take effect. 11 There was no undue delegation of
legislative power but only of the discretion as to the execution of a law. That this is constitutionally
permissible is the teaching of our cases.12

Third. Respondents claim, however, that the May 26, 1990 KB elections in Manila were void because (a)
they were called at the instance of then Mayor Gemiliano C. Lopez who did not have authority to do so and
(b) it was not held under COMELEC supervision.

The 1990 elections for the Kabataang Barangay were called by then Manila Mayor Gemiliano C. Lopez, Jr.,
who in his Executive Order No. 21 dated April 25, 1990 stated:

WHEREAS, the Kabataang Barangay as an organization provided for under Batas Pambansa
Bilang 337, has been practically dormant since the advent of the present national administration;
 WHEREAS, there is an urgent need to involve the youth in the affairs and undertaking of the
government to ensure the participation of all sectors of our population in the task of nation building;

WHEREAS, the last elections for the Kabataang Barangay officers were held in November 1985
yet, which is over their three years term of office;

WHEREAS, most of the present crop of KB officers are way past the age limit provided for under
the law;

xxx xxx xxx

The elections were actually held on May 26, 1990 in the 897 barangays of Manila. Later, on June 30, 1990,
KB City Federation elections were conducted.

It was precisely to foreclose any question regarding the validity of KB elections held in the aftermath of the
EDSA revolution and upon the effectivity of the new Local Government Code that the exception clause of
532(d) was inserted. The proceedings of the Bicameral Conference Committee which drafted the Code
show the following:13

CHAIRMAN DE PEDRO: Isa-cite na lang ko ano iyong title o chapter o section, ha!

HON. LINA: . . .

Page 436, lines 13 to 14 delete within eighteen months prior to December 31, 1990, and in lieu
thereof, insert from 1988 up to the effectivity of the Code. The rationale. . . .

CHAIRMAN DE PEDRO: How should it be read?

HON. LINA: It will read as follows: "Provided however, that the Local Government Units which have
conducted elections for the Kabataang Barangay as provided for, in Batas Pambansa Bilang 337,
up to the effectivity. . . ."

CHAIRMAN DE PEDRO: So, any deletion from the word "within," ha, up to. . . .

HON. LINA: Remove the words, the phrase, "within eighteen months prior to December 31, 1990,
and insert from 1988 up to the effectivity of this Code."

CHAIRMAN DE PEDRO: From?

HON. LINA: From 1988 up to the effectivity of this Code. Kasi meron nang mga election, eh, na
ginawa, eh. There are five thousand barangays, based on the record of the DILG, out of forty
thousand, imaging that, na nag-conduct na ng election nila based on the KB Constitution and By-
Laws, and they're sitting already, now if we do not recognize that, mag[ka]karoon sila ng question.

CHAIRMAN DE PEDRO: Accepted, Mr. Chairman.

Section 532(d) may thus be deemed to be a curative law. Curative laws, which in essence are
retrospective in effect, are enacted to validate acts done which otherwise would be invalid under existing
laws, by considering them as having complied with the existing laws. Such laws are recognized in this
jurisdiction.14

Fourth. It is finally contended that the exemption of the barangays of the City of Manila from the requirement
to hold elections for SK officers on December 4, 1992 would deny the youth voters in those barangays of the
equal protection of laws. Respondent claim that only in barangays in the City of Manila, which then
numbered 897, were elections for SK not held in 1992 on the ground that between January 1, 1988 and
January 1, 1992 there had already been SK elections held, when, according to petitioners' own evidence,
during that period, SK elections had actually been conducted in 5,000 barangays.

Whether this claim is true cannot be ascertained from the records of this case. Merely showing that there
were 5,000 barangays which similarly held KB elections between January 1, 1988 and January 1, 1992 does
not prove that despite that fact these same barangays were permitted to hold elections on December 4,
1992. For one thing, according to the Manila Bulletin issue of November 18, 1992 (p. 9), 568 barangays in
the Province of Bulacan did not have SK elections on December 4, 1992 either, because they already had
elections between January 1, 1988 and January 1, 1992. For another, even assuming that only barangays in
Manila were not permitted to hold SK elections on December 4, 1992 while the rest of the 5,000 barangays
were allowed even if KB elections had already been held there before, this fact does not give the youth
voters in the 897 Manila barangays ground for complaint because what the other barangays did was
contrary to law. There is no discrimination here.

In People v. Vera15 this Court struck down the Probation Law because it permitted unequal application of its
benefits by making its applicability depend on the decision of provincial governments to appropriate or not to
appropriate funds for the salaries of probation officers, with the result that those not disposed to allow the
benefits of probations to be enjoyed by their inhabitants could simply omit to provide for the salaries of
probation officers. The difference between that case and the one at bar lies in the fact that what youth voters
in the other barangays might have been allowed was not a right which was denied to youth voters in Manila.
If those barangays were not entitled to have SK elections on December 4, 1992 but nevertheless were
allowed to have such elections, that fact did not mean those in Manila should similarly have been allowed to
conduct elections on December 4, 1992 because the fact was that they already had their own, just two years
before on May 26, 1990. Respondents' equal protection argument violates the dictum that one wrong does
not make another wrong right.

WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 36 is REVERSED and the case
filed against petitioner by private respondents is DISMISSED.

SO ORDERED.

Padilla, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Francisco, Hermosisima, Jr.
and Panganiban, JJ., concur.

Narvasa, C.J. and Torres, Jr., J., are on leave.

Footnotes

1 Per Judge Wilfredo D. Reyes, Rollo, pp. 72-80.

2 Resolution No. 2499, 2 and 4.

3 The second elections were held pursuant to R.A. No. 7808, approved on September 2,
1994 which provided that "the regular elections for the sangguniang kabataan shall be
held on the first Monday of May 1996: Provided, further. That the succeeding regular
elections for the sangguniang kabataan shall be held every three (3) years
thereafter: Provided, finally, that the national, special metropolitan, provincial, city, and
municipal federations of the sangguniang kabataan shall conduct the election of their
respective officers thirty (30) days after the May 1996 sangguniang kabataan elections on
dates to be scheduled by the Commission on Elections."

4 Southern Pac. Terminal Co. v. ICC, 219 U.S. 498, 55 L.Ed. 310 (1911): Moore v. Ogilvie,
394 U.S. 814, 23 L.Ed.2d 1 (1969) (challenge to signature requirement on nominating
petitions, election had been held before the U.S. Supreme Court could decide case); Dunn
v. Blumstein, 405 U.S. 330, 31 L.Ed.2d 274 (1972) (U.S. Supreme Court decided merits of
a challenge to durational residency requirement for voting even though Blumstein had in
the meantime satisfied that requirement).
5 Id. at 515, 55 L.Ed. at 316.

6 410 U.S. 113, 35 L.Ed.2d 147 (1973).

7 Id. at 125, 35 L.Ed.2d at 161.

8 243 SCRA 422 (1995).

9 Id, at 426.

10 Id, at 434.

11 Panama Refining Co. v. Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).

12 Cruz v. Youngberg, 56 Phil. 234 (1931): Edu v. Ericta, 146 Phil. 469 (1970).

13 Records of Deliberations of the Bicameral Conference Committee on Local

Government, May 31, 1991, pp. 4-5 (emphasis added).

14 Municipality of San Narciso, Quezon v. Mendez, Sr., 239 SCRA 11 (1994).

15 65 Phil. 56 (1937).
ALUNAN III VS MIRASOL

GR NO 108399

JULY 31 1997

J MENDOZA

FACTS

Under the Local Govt Code, Sec 532(a), election for SK shall be held thirty days after the next
local elections. The local elections were held on May 11 1992. On Aug 27 1992, COMELEC issued
Res 2499 providing guidelines for the holding of the general elections of SK on Sept 30 1992. The
guidelines placed SK elections under direct control of DILG. After two postponements, the
elections were finally scheduled on Dec 4 1992. On Sept 18 1992, DILG issued a res. exempting
Manila from holding such elections on the ground that the elections previously held last May 26
1990 were to be considered the first election under the LGC, Sec 532(d).

ISSUE

W/N the Court may still resolve the case notwithstanding its mootness because officers elected
last May 26 1990 continued in office until May 13 1996

RULING

YES.

Nothwithstanding its mootness, the Court may nonetheless resolve the case and construe the
applicable law "if it is capable of repetition, yet evading review," specially where public interest
requires its resolution.

This case comes within the rule that courts will decide a question otherwise moot and academic
if it is "capable of repetition, yet evading review." For the question whether the COMELEC can
validly vest in the DILG the control and supervision of SK elections is likely to arise in connection
with every SK election and yet the question may not be decided before the date of such
elections.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-47673 October 10, 1946

KOPPEL (PHILIPPINES), INC., plaintiff-appellant,

vs.
ALFREDO L. YATCO, Collector of Internal Revenue, defendant-appellee.

Padilla, Carlos and Fernando for appellant.

Office of the Solicitor General Ozaeta, First Assistant Solicitor General Reyes and.
Office of the Solicitor General Reyes and Solicitor Caizanes for 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 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
engage 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. Atypical 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 Exhibits B to G,
inclusive, are typical transactions arising from verbal requests for quotation.) Plaintiff
then cabled for the quotation desired for 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-1.
Plaintiff, however, 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 Exhibits 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 Industrial Car and Equipment Company in the
names of the purchasers 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-
1, I-1, I-2 and I-3. Bills of ladings, Exhibits I-1, I-2 and I-3, may equally have been
employed, but said Exhibits I-1, 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 sales was effected
on the basis of C. I. F. 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 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 December 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 the 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
Exhibits 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 $16,508.32 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 were
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.

VII. That plaintiff's share in the profits realized out of these transactions described in
paragraphs 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
P132,201.30 for the purpose of the commercial broker's 4 per cent tax and paid
thereon the sum 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 1% 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.

xxx xxx xxx

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 CAIZARES

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 Industries Car and Equipment Company of Pennsylvania, U. S. A.,
exceptive 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 and
Equipment Co. as "our principal" 9 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 principal" 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 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's "share in the profits" realized from the transactions in which
it intervened was left virtually 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);law phil.net

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

(g) If the 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 buyer's 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 contract of sale involved herein were all perfected in the Philippines.

Those described in paragraph IV of the agreed statement of facts went through 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." (Emphasis
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 broker; 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
costs 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 a 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 VI 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 brach
("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."

I. 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 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 purposes, but held in effect that in the transaction 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 did 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 case. They have no jurisdiction to do more." (1 Flethcer, Cyclopedia of
Corporation, Permanent ed., p. 124, 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 convinience, justify wrong, protect fraud, or defend crime, the law will regard
the corporation as an association of persons. (1 Fletcher Cyclopedia of Corporation
[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 through the
plaintiff; that the said foreign corporation holds 995 of the 1,000 shares of the plaintiff's
capital stock, 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; emphasis supplied.)

Another rule is that, when the corporation is the mere alter ego, or business conduit
of a person, it may de 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 (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 of 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 even 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 settled and 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 will, 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. 9220 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
stockholder 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 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 and effect of the commodities clause there is duty cast
upon a railroad company proposing to carry in interstate 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.

Corrobarative 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 paragraph (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 he 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 if 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
incorporators to serve as a mere subsidiary, branch or agency of the latter. Evidently, Koppel
Industrial Car and Equipment Company made us 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 regards 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
was adopted in order to avoid paying the 1 per cent merchants sales tax. Neither can we
conceive how the Philippine corporation could avoid following the directions of 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-President, 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 plaintiff 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 latter's cable quotations from ought 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 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 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 the drafts, 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 inference 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 commongling
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 conviniently 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 1 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 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 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 items, 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 organization. Such
operations were called for any way by the exigencies or convenience of the entire business.
Indeed, accounting operation such as these are invitable, and have to be effected in the
ordinary course of business enterprise extends its trade to another land through a branch
office, or through 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 to 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 broker; 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 1 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 be 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 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 all perfected in the
Philippines. From the facts 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., were
perfected in the Philippines. In those cases where no such price quotations from the
American corporation were needed, of course, 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 VI." 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 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 . . . (Emphasis 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 opinion 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 paragraph IV
and V of the agreed statement 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, began with an offer of
sale from the seller, said American corporation, through 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; emphasis supplied.)

A contract is as a rule considered as entered into at the place where the place it is
performed. So where delivery 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.)

II. 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 and Smith, Bell and Co. 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 court should be
right. . . .

III. 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, he 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.

Separate Opinions

PERFECTO, J., concurring:

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 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 ay compunction, 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 interlocking companies, has no 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 anti trusts
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
companies 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 thristiness 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.
KOPPEL VS YATCO

GR NO L 47673

OCT 10 1946

J HILADO

FACTS

Koppel Industrial Car and Equipment Co. (KICE), a foreign company not doing business in the
Philippines, owned 99.5% shares of the 1000 shares that comprise the capital stock of the
petitioner, a domestic corporation licensed as the former's broker in the Philippines. The
remaining .5% was owned by the officers of KPI. KICE is in the business of selling railway
materials. When a buyer is interested in buying such, they asked KPI for the prices and KPI
telegraphs this to KICE. However, KPI quoted to the purchaser a higher selling price. KICE
controls how much share of the profits goes to KPI. For these transactions, BIR treated KPI as a
subsidiary of KICE and collected the merchants' sales tax from KPI.

ISSUE

W/N the ruling of the Secretary of Finance is binding upon the courts

RULING

NO.

The Supreme Court may abandon or overrule its earlier decision construing a statute whenever
it is right and proper to do so. For more important than anything else is that courts should be
right.

It is clear that the ruling of the Secretary of Finance was not binding upon the courts since the
duty and power of interpreting the laws is primarily a function of the judiciary. 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.