CD: Commissioner of Internal Revenue v. Constantino
CIR v. CONSTANTINO
G.R. No. L-25926 February 27, 1970
Reyes, J.B.L., J.
Doctrine:
• 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 proceeds less the agent’s commission upon sales made.
• That the dealer issues his own sales invoice to the customer is neither a means of acquiring ownership nor is it proof of ownership.
Facts:
Petitioner Commissioner of Internal Revenue (CIR) assessed against and demanded from respondent Constantino the commercial broker’s percentage tax of 6% on his gross compensation for 1956, as dealer or distributor of the products of International Harvester, Macleod, Inc. (IHM).
Respondent is designated as the exclusive dealer of the products IHM within a prescribed territory. In classifying himself as an independent merchant instead of a commercial broker, respondent Constantino cites that he may buy IHM products for Resale to his customers; that he is granted trade discounts and a cash discount under certain conditions; that he may purchase service parts on open credit account or on a 30-day term; and that he sold service parts to his customers on cash basis. Constantino also cited the fact that his purchases are covered by IHM’s sales invoices, and when he re-sells he issues his own sales invoice.
Constantino protested the assessment on the ground that he is not a commercial broker. On his protest being overruled, he filed a petition for review with the Court of Tax Appeals, which, after trial, found for him. Upon his reversal by the tax court, the CIR interposed the present appeal.
Issue:
Whether or not the relationship between the respondent and IHM is that of a vendor and a vendee
Held:
No. A casual examination of respondent’s evidence may give the impression that this relationship with the company is that of vendor and vendee, but a closer look into the actual legal effect of the terms and conditions embodied, rather than the names of the contracts used or the terminologies employed, in the chain of documents shows that the relation between the company and the respondent is one of principal and agent.
Respondent failed to state or notice, however, the condition in his agreement with IHM, which is in small print, that the title of the goods delivered under this order shall remain in IHM until the full purchase price shall have been paid in cash or acceptable security. That the dealer should issue his own sales invoice to the customer is neither a means of acquiring ownership nor is it proof of ownership.
Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company’s control, the relationship between the company and the dealer is one of agency, tested under the following criterion:
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 proceeds less the agent’s commission upon sales made (Salisbury v. Brooks, 94 SE 117, 118-119).
The control by the company of the resale made, or agreed upon to be made, by the dealer is so pervasive as to exclude the idea of the latter being an independent merchant. As respondent is not an independent merchant, but an agent, the discount of 16% that he receives is not a “trade discount” but a compensation or profit for selling or bringing about sales or purchases of merchandise for the company.
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