RepublicofthePhilippines

SUPREMECOURT
Manila
ENBANC
G.R.No.45697November1,1939
MANILAELECTRICCOMPANY,plaintiffappellant,
vs.
A.L.YATCO,CollectorofInternalRevenue,defendantappellee.

MORAN,J.:
In1935,plaintiffManilaElectricCompany,acorporationorganizedandexistingunderthelawsofthe
Philippines,withitsprincipalofficeandplaceofbusinessintheCityofManila,insuredwiththecityof
New York Insurance Company and the United States Guaranty Company, certain real and personal
propertiessituatedinthePhilippines.Theinsurancewasenteredintoinbehalfofsaidplaintiffbyitsbroker
inNewYorkCity.Theinsurancecompaniesareforeigncorporationsnotlicensedtodobusinessinthe
Philippinesandhavingnoagentstherein.Thepoliciescontainedprovisionsforthesettlementandpayment
oflossesupontheoccurenceofanyriskinsuredagainst,asampleofwhichispolicyNo.20oftheNew
YorkinsuranceCompanyattachedtoandmadeanintegralpartoftheagreedstatementoffacts.
Plaintiffthroughitsbrokerpaid,inNewYork,tosaidinsurancecompanypremiumsinthesumofP91,696.
The Collector of Internal Revenue, under the authority of section 192 of act No. 2427, as amended,
assessedandleviedataxofonepercentumonsaidpremiums,whichplaintiffpaidunderprotest.The
protest havingbeenoverruled, plaintiffinstitutedthepresent actiontorecoverthetax.Thetrial court
dismissedthecomplaint,andfromthejudgmentthusrendered,plaintifftooktheinstantappeal.
ThepertinentportionsoftheActhereinvolvedread:
SEC.192.Itshallbeunlawfulforanyperson,companyorcorporation,orforwardapplicationsfor
insuranceinortoissueortodeliveroracceptpoliciesoforforanycompanyorcompaniesnot
havingbeenlegallyauthorizedtotransactbusinessinthePhilippineIslands,asprovidedinthis
chapter;andanysuchperson,companyorcorporationviolatingtheprovisionsofthissectionshall
bedeemedguiltyofapenaloffense,anduponconvictionthereof,shallforeachsuchoffensebe
punished by a fine of two hundred pesos, or imprisonment for two months, or both in the
discretionnotauthorizedtotransactbusinessinthePhilippineIslandmaybeplaceduponterms
andconditionsasfollows:
xxxxxxxxx
....Andprovidedfurther,thattheprohibitionsofthissectionshallnotaffecttherightofan
ownerofpropertytoapplyforandobtainforhimselfpoliciesinforeigncompaniesincaseswere
saidownerdoesnotmakeuseoftheservicesofanyagent,companyorcorporationresidingor
doingbusinessinthePhilippineIslands.Inallcasewhereownersofpropertyobtaininsurance
directlywithforeigncompanies,itshallbethedutyofsaidownerstoreporttotheinsurance
commissionerandtotheCollectorofInternalRevenueeachcasewhereinsurancehasbeenso
effected,andshallpaythetaxofonepercentumonpremiumpaid,inthemannerrequiredbylaw
ofinsurancecompanies,andshallbesubjecttothesamepenaltiesforfailuretodoso.

AppellantmaintainsthatthesecondparagraphoftheprovisionsoftheActaforecitedisunconstitutional,
andhasbeensodeclaredbytheSupremeCourtoftheUnitedStatesinthecaseof CompaniaGeneralde
Tabacosv.CollectorofInternalRevenue,275U.S.,87,48Sup.Ct.Rep.,100,72Law.ed.,177.
ThecaserelieduponinvolvesasuittorecoverfromtheCollectorofInternalRevenuecertaintaxesin
connectionwithinsurancepremiumswhichtheTobaccoBarcelona,Spain,paidtotheGuardianInsurance
CompanyofLondon,England,andtoLeComitedesAssurancesMaritimesdeParis,ofParis,France.The
TobaccoCompany,throughitsheadofficeinBarcelona,insuredagainstfirewiththeLondonCompanythe
merchandiseithadindepositinthewarehouseinthePhilippines.Asthemerchandisewerefromtimeto
timeshippedtoEurope,theheadofficeatBarcelonainsuredthesamewiththeParisCompanyagainst
marineriskswhilesuchmerchandisewereintransitfromthePhilippinestoSpain.TheLondonCompany,
unliketheParisCompany,waslicensedtodoinsurancebusinessinthePhilippinesandhadanagent
therein.Losses,ifany,onpoliciesweretobepaidtotheTobaccoCompanyinParis.Thetaxassessedand
levied by the Collector of Internal Revenue, under the same law now involved, was challenged as
unconstitutional.TheSupremeCourtoftheunitedStatessustainedthetaxwithrespecttopremiumspaidto
the London Company and held it erroneous with respect to premiums paid to the Paris
Company.lawphi1.net
Thefactual basisuponwhichtheimpositionofthetaxonpremiumspaidtotheParisCompanywas
declarederroneous,isstatedbytheSupremeCourtoftheUnitedStatesthus:
ComingthentothetaxonthepremiumspaidtotheParisCompanythecontractofinsuranceon
whichthepremiumwaspaidwasmadeatBarcelonainSpain,theheadquartersoftheTobacco
Company between the Tobacco Company and the Paris Company, and any losses arising
thereunderweretobepaidinParis.TheParisCompanyhadnocommunicationwhateverwith
anyoneinthePhilippineIslands.Thecollectionofthistaxinvolvesanexactionuponacompany
ofSpainlawfullydoingbusinessinthePhilippineIslandseffectedbyreasonofacontractmadeby
thatcompanywithacompanyinParisonmerchandiseshippedfromthePhilippineIslandsfor
deliveryinBarcelona.ItisanimpositionuponacontractnotmadeinthePhilippinesandhaving
nositusthereandtobemeasuredbymoneypaidaspremiumsinParis,withtheplaceofpayment
ofloss,ifany,inParis.Weareveryclearthatthecontractandthepremiumspaidunderitarenot
withinthejurisdictionofthegovernmentofthePhilippineIslands.
And,upontheauthorityofthecasesofAllgeyerv.Lousiana,165U.S.,578,41Law.ed.,832,andSt.Louis
CottonCompressCompanyv.Arkansas,250U.S.,346,677Law.ed.,279,theSupremeCourtofthe
UnitedStatesheldthat"asthestateisforbiddentodepriveapersonofhislibertywithoutdueprocessof
law,itmaynotcompelanyonewithinitsjurisdictiontopaytributetoitforcontractsormoneypaidto
securethebenefitsofcontractmadeandtobeperformedoutsideofthestate."
Ontheotherhand,theSupremeCourtoftheUnitedStates,insustainingtheimpositionofthetaxupon
premiumspaidbytheassuredtotheLondonCompany,says:
....DoesthefactthatwhiletheTobaccoCompanyandtheLondonCompanywerewithinthe
jurisdiction of the Philippines they made a contract outside of the Philippines, prevent the
impositionupontheassuredofataxof1percentuponthemoneypaidbyitasapremiumtothe
LondonCompany?Wemayproperlyassumethatthistaxplacedupontheassuredmustultimately
bepaidbytheinsurer,andtreatingitsrealincidenceassuch,thequestionariseswhethermaking
and carrying out the policy does not involve an exercise or use of the right of the London
CompanytodobusinessinthePhilippineIslandsunderitslicense,becausethepolicycoversfire
risksnopropertywithinthePhilippineIslandswhichmayrequireadjustmentandtheactivitiesof
agentsinthePhilippineIslandswithrespecttosettlementoflossesarisingthereunder.Thiswe
thinkmustbeansweredaffirmativelyunderEquitableLifeAssur.Soc.v.Pennsylvania,238U.S.,
143Law.ed.,1239,35Sup.Ct.Rep.,829.Thecase isacloseone,but indeference tothe

conclusionwereachedinthelattercase,weaffirmthejudgmentofthecourtbelowinrespectto
thetaxuponthepremiumpaidtotheLondonCompany.
TherulingintheParisCompanycaseisobviouslynotapplicableintheinstantone,forthere,notonlywas
thecontractexecutedinaforeigncountry,butthemerchandiseinsuredwasintransitfromthePhilippines
toSpain,andnothingwastobedoneinthePhilippinesinpursuanceofthecontract.However,therulelaid
down in connection with the London Company may, by analogy, be applied in the present case, the
essentialfactsofbothcasesbeingsimilar.Here,theinsuredisacorporationorganizedunderthelawsof
thePhilippines,itsprincipalofficeandplaceofbusinessbeingintheCityofManila.TheNewYork
InsuranceCompanyandtheUnitedStatesGuarantyCompanymaybesaidtobedoingpoliciesissuedby
themcoverrisksonpropertieswithinthePhilippines,whichmayrequireadjustmentandtheactivitiesof
agentsinthePhilippineswithrespecttothesettlementoflossesarisingthereunder.Forinstance,itis
thereinstipulatedthat"theinsured,asoftenasmaybereasonablyrequired,shallexhibittoanyperson
designatedbythecompanyalltheremainsofanypropertythereindescribedandsubmittoexamination
underoathbyanypersonnamedbythecompany,andasoftenasmaybereasonablyrequired,shallexhibit
toanypersondesignatedbythecompanyalltheremainsofanypropertythereindescribedandsubmittoan
examinationallbooksofaccounts...atsuchreasonabletimeandplaceasmaybedesignatedbythe
companyoritsrepresentative."And,incaseofdisagreementastotheamountoflossesordamagesasto
requiretheappointmentofappraisers,theinsurancecontractprovidesthat"theappraisersshallfirstselecta
competentumpire;andfailureforfifteendaystoagreetosuchumpire,then,onrequestoftheinsuredorof
thecompany,suchumpireshallbeselectedbyajudgeofthecourtofrecordinthestateinwhichthe
propertyinsuredislocated.".
TrueitisthattheLondonCompanyhadalicensetodobusinessinthePhilippines,butthisfactwasnota
decisivefactorinthedecisionofthatcase,forreliancewasthereinplacedontheEquitableLifeAssurance
Societyv.Pennsylvania,238U.S.,143,59Law.ed.,1239,35Sup.Ct.Rep.,829,whereinitwassaidthat
"theEquitableSocietywasdoingbusinessinPennsylvaniawhenitwasannuallypayingthedividendsin
Pennsylvania or sending an adjuster into the state in case of dispute or making proof of death," and
therefore"thetaxpayerhadsubjecteditselftothejurisdictionofPennsylvaniaindoingbusinessthere."
(SeeCompaiaGeneraldeTabacosv.CollectorofInternalRevenue,275U.S.,87,72Law.ed.,177,182.)
The controlling consideration, therefore, in the decision of the London Company case was that said
company,bymakingandcarryingoutpoliciescoveringriskslocatedinthiscountrywhichmightrequire
adjustmentorthemakingofproofoflosstherein,didbusinessinthePhilippinesandsubjecteditselftoits
jurisdiction,arulethatcanperfectlybeappliedinthepresentcasetothenewYorkInsuranceCompanyand
theUnitedStatesGuarantyCompany.
Itisargued,however,thatthesendingofanunjustertothePhilippinestofixtheamountoflosses,isa
merecontingencyandnotanactualfact,assuch,itcannotbeagroundforholdingthattheinsurance
companiessubjectedthemselvestothetaxingjurisdictionofthePhilippines.Thisargumentcouldhave
been made in the London Company case where no adjuster appears to have ever been sent to the
Philippinesnoranyadjustmentevermade,andyetthestipulationstothateffectwereheldtobesufficient
tobringtheforeigncorporationwithinthetaxingjurisdictionofthePhilippines.
Inepitome,then,thewholequestioninvolvedinthisappeal iswhetherornotthedisputedtaxisone
imposedbytheCommonwealthofthePhilippinesuponacontractbeyonditsjurisdiction.Weareofthe
opinionandsoholdthatwheretheinsuredagainstalsowithinthePhilippines,theriskinsuredagainstalso
withinthePhilippines,andcertainincidentsofthecontractaretobeattendedtointhePhilippines,suchas,
paymentofdividendswhenreceivedincash,sendingofanunjusterintothePhilippinesincaseofdispute,
ormakingofproofofloss,theCommonwealthofthePhilippineshasthepowertoimposethetaxuponthe
insured,regardlessofwhetherthecontractisexecutedinaforeigncountryandwithaforeigncorporation.
Under such circumstances, substantial elements of the contract may be said to be so situated in the
Philippinesastogiveitsgovernmentthepowertotax.And,evenifitbeassumedthatthetaximposed
upontheinsuredwillultimatelybepassedontheinsurer,thusconstitutinganindirecttaxupontheforeign

corporation,itwouldstillbevalid,becausetheforeigncorporation,bythestipulationsofitscontract,has
subjecteditselftothetaxingjurisdictionofthePhilippines.Afterall,CommonwealthofthePhilippines,by
protectingthepropertiesinsured,benefitstheforeigncorporation,anditisbutreasonablethatthelatter
shouldpayajustcontributiontherefor.Itwouldcertainlybeadiscriminationagainstdomesticcorporations
toholdthetaxvalidwhenthepolicyisgivenbythemandinvalidwhenissuedbyforeigncorporations.
Judgmentaffirmed,withcostsagainstappellant.