CIR v ENGINEERING EQUIPMENT AND SUPPLY COMPANY

Facts: Engineering Equipment and Supply Co. is an engineering and machinery firm. As operator of an
integrated engineering shop, it is engaged in the design and installation of central type air conditioning
system, pumping plants and steel fabrications.

The Commissioner of Internal Revenue received an anonymous tip denouncing Engineering for tax
evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon
in connivance with its foreign suppliers. Acting on these denunciations, a raid and search was conducted
by a joint team of CB, NBI and BIR agents. It was recommended that Engineering be assessed for
deficiency of advance sales tax on the theory that it misdeclared its importation of air conditioning units
and parts and accessories. The firm, however, contested the tax assessment and requested that it be
furnished with the details and particulars of the Commissioner's assessment. Engineering appealed the
case to the Court of Tax Appeals and during the pendency of the case the investigating revenue
examiners reduced Engineering's deficiency tax liabilities.

CTA rendered a decision declaring that Engineering is exempt from the deficiency manufacturers sales
tax. The CIR filed an appeal to the SC.

Petitioners contention: Engineering is a manufacturer and seller of air conditioning units and parts or
accessories thereof and, therefore, it is subject to the 30% advance sales tax

Respondents contention: Engineering claims that it is not a manufacturer and setter of air-conditioning
units and spare parts or accessories but a contractor engaged in the design, supply and installation of the
central type of air-conditioning system subject to the 3% tax imposed by Section 191 of the same Code,
which is essentially a tax on the sale of services or labor of a contractor rather than on the sale of articles

Issue: W/N Engineering is a manufacturer of air conditioning units or a contractor

Held: Engineering is a Contractor

We find that Engineering did not manufacture air conditioning units for sale to the general public, but
imported some items which were used in executing contracts entered into by it. Engineering, therefore,
undertook negotiations and execution of individual contracts for the design, supply and installation of air
conditioning units of the central type. , Engineering designed and engineered complete each particular
plant and that no two plants were identical but each had to be engineered separately . The facts and
circumstances aforequoted support the theory that Engineering is a contractor rather than a manufacturer.

The distinction between a contract of sale and one for work, labor and materials is tested by the
inquiry whether the thing transferred is one not in existence and which never would have existed
but for the order of the party desiring to acquire it, or a thing which would have existed and has
been the subject of sale to some other persons even if the order had not been given. If the article
ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to
anyone, and no change or modification of it is made at defendant's request, it is a contract of sale,
even though it may be entirely made after, and in consequence of, the defendants order for it.

The word "contractor" has come to be used with special reference to a person who, in the pursuit of the
independent business, undertakes to do a specific job or piece of work for other persons, using his own
means and methods without submitting himself to control as to the petty details

The argument of CIR that Engineering can mass produce air conditioning units for sale to the public or to
any customer with enough money to buy the same is untenable in the light of the fact that air conditioning
units, packaged, or what we know as self-contained air conditioning units, are distinct from the central
system which Engineering dealt in. It was testified that "the central type air conditioning system is an
engineering job that requires planning and meticulous layout due to the fact that usually architects assign
definite space and usually the spaces they assign are very small and of various sizes. Engineering
definitely did not and was not engaged in the manufacture of air conditioning units but had its services
contracted for the installation of a central system

We see that the supply of air conditioning units to Engineer's various customers, whether the said
machineries were in hand or not, was especially made for each customer and installed in his
building upon his special order. The air conditioning units installed in a central type of air conditioning
system would not have existed but for the order of the party desiring to acquire it and if it existed without
the special order of Engineering's customer, the said air conditioning units were not intended for sale to
the general public.

LO v KJS ECO-FRAMEWORK SYSTEM PHIL INC

Facts: Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of
steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style Sans
Enterprises, is a building contractor. The petitioner ordered scaffolding equipment from respondent. He
paid a downpayment and the balance was made payable in ten monthly installments.

Petitioner was able to pay the first two monthly installments. His business, however, encountered financial
difficulties and he was unable to settle his obligation to respondent despite oral and written demands
made against him. Petitioner and respondent executed a Deed of Assignment whereby petitioner
assigned to respondent his receivables from Jomero Realty Corporation.

However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter
refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it.
Respondent sent a letter to petitioner demanding payment of his obligation, but petitioner refused to pay
claiming that his obligation had been extinguished when they executed the Deed of Assignment.

Respondent filed an action for recovery of a sum of money against the petitioner. Petitioner argued that
his obligation was extinguished with the execution of the Deed of Assignment of credit. Trial court
rendered a decision dismissing the complaint on the ground that the assignment of credit extinguished the
obligation. CA reversed the decision

The CA, in finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the
respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under the
Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void pursuant to
Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment when he
failed to execute and do all acts and deeds as shall be necessary to effectually enable the respondent to
recover the collectibles

Issue: W/N the deed of assignment extinguished the petitioners obligation

Held: No, the petitioners obligation was not extinguished with the execution of the deed of assignment.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it
against the debtor.

In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who
accepts it as equivalent of payment of an outstanding debt. In order that there be a valid dation in
payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of
payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit
against the third person; (2) There must be some difference between the prestation due and that which is
given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that
the obligation is immediately extinguished by reason of the performance of a prestation different from that
due. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is
really buying the thing or property of the debtor, payment for which is to be charged against the
debtors debt. As such, the vendor in good faith shall be responsible, for the existence and legality of
the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances.

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal
property, produced the effects of a dation in payment which may extinguish the obligation.
However, as in any other contract of sale, the vendor or assignor is bound by certain warranties. More
specifically, the first paragraph of Article 1628 of the Civil Code provides:

The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the
sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has
been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge.

From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality
of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted
to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to
petitioner has been extinguished by compensation. In other words, respondent alleged the non-existence
of the credit and asserted its claim to petitioners warranty under the assignment. Therefore, it necessary
for the petitioner to make good its warranty and pay the obligation.

Furthermore, the petitioner breached his obligation under the Deed of Assignment, to execute and do all
such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to
recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of
these presents.

Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the
performance thereof in case the same is later found to be inexistent. He should be held liable to pay to
respondent the amount of his indebtedness.

PHILIPPINE TRUST CO. V. ROLDAN

Facts: Mariano L. Bernardo, a minor, inherited from his father 17 parcels of land. . In view of his minority,
guardianship proceedings were instituted, wherein Socorro Roldan was appointed his guardian. She was
the surviving spouse of Marcelo Bernardo, and the stepmother of said Mariano L. Bernardo.

Socorro filed in a motion asking for authority to sell as guardian the parcels of land to Dr. Fidel Ramos for
the purpose of investing the money in a house which Mariano wanted, which was granted. Subsequently,
Dr. Ramos executed in favor of Socorro, personally, a deed of conveyance covering the parcels of land.
Socorro, then sold 4 parcels of land to Emilio Cruz.

Philippine Trust Co replaced Socorro as guardian and sought to undo what the previous guardian had
done. Socorro, in effect, sold to herself the properties of her ward and such sale should be annulled
because it violated Art 1459 of the Civil Code prohibiting the guardian from purchasing either in person or
through the mediation of another the property of her ward.

The CFI held the article was not controlling, because there was no proof that Fidel C. Ramos was a mere
intermediary or that the latter had previously agreed with Socorro Roldan to buy the parcels for her
benefit. The CA affirmed the judgment.

Issue: W/N the 2 contracts of sale made by Socorro was valid

Held: No, contracts are not valid. The court held the sale was not valid even if there was no proof of
connivance between Socorro and Ramos.
Remembering the general doctrine that guardianship is a trust of the highest order, and the
trustee cannot be allowed to have any inducement to neglect his wards interest and in line with the
courts suspicion whenever the guardian acquires the wards property, we have no hesitation to declare
that in this case, Socorro took by purchase her wards parcels thru Dr. Ramos, and that Article 1459 of the
Civil Code applies. It may be true that there was no previous agreement, but the fact remains that she
acquired the properties, through her brother-in-law. That she planned to get them for herself at the time of
selling them to Dr. Ramos, may be deduced from the very short time between the two sales (one week).
The temptation which naturally besets a guardian so circumstanced, necessitates the annulment of the
transaction.

Hence, from both the legal and equitable standpoints these three sales should not be sustained: the first
two for violation of article 1459 of the Civil Code, and the third because Socorro Roldan could pass no title
to Emilio Cruz.