Gaite v.

Fonacier can be lawfully subordinated to an uncertain event, so that the other

Facts:
Gaite was appointed by Fonacier as attorney-in-fact to contract any
party for the exploration and development of mining claims. Gaite
executed a deed of assignment in favor of a single proprietorship
owned by him. For some reasons, Fonacier revoked the agency,
which was acceded to by Gaite, subject to certain conditions, one of
which being the transfer of ores extracted from the mineral claims for
P75,000, of which P10,000 has already been paid upon signing of the
agreement and the balance to be paid from the first letter of credit
for the first local sale of the iron ores. To secure payment, Fonacier
delivered a surety agreement with Larap Mines and some of its
stockholders, and another one with Far Eastern Insurance. When the
second surety agreement expired with no sale being made on the
ores, Gaite demanded the P65,000 balance. Defendants contended
that the payment was subject to the condition that the ores will be
sold.
Issue:
(1) Whether the sale is conditional or one with a period
Held:
understands that he assumes the risk of receiving nothing for what he
gives (as in the case of a sale of hopes or expectations, emptio spei),
it is not in the usual course of business to do so; hence, the
contingent character of the obligation must clearly appear. Nothing is
found in the record to evidence that Gaite desired or assumed to run
the risk of losing his right over the ore without getting paid for it, or
that Fonacier understood that Gaite assumed any such risk. This is
proved by the fact that Gaite insisted on a bond a to guarantee
payment of the P65,000.00, an not only upon a bond by Fonacier, the
Larap Mines & Smelting Co., and the company's stockholders, but also
on one by a surety company; and the fact that appellants did put up
such bonds indicates that they admitted the definite existence of their
obligation to pay the balance of P65,000.00.
The appellant have forfeited the right court below that the appellants
have forfeited the right to compel Gaite to wait for the sale of the ore
before receiving payment of the balance of P65,000.00, because of
their failure to renew the bond of the Far Eastern Surety Company or
else replace it with an equivalent guarantee. The expiration of the
bonding company's undertaking on December 8, 1955 substantially
reduced the security of the vendor's rights as creditor for the unpaid
P65,000.00, a security that Gaite considered essential and upon which
he had insisted when he executed the deed of sale of the ore to
Fonacier.

(1) The shipment or local sale of the iron ore is not a condition
precedent (or suspensive) to the payment of the balance of
P65,000.00, but was only a suspensive period or term. What
characterizes a conditional obligation is the fact that its efficacy or
obligatory force (as distinguished from its demandability) is
subordinated to the happening of a future and uncertain event; so
that if the suspensive condition does not take place, the parties would
stand as if the conditional obligation had never existed.

A contract of sale is normally commutative and onerous: not only

does each one of the parties assume a correlative obligation (the
seller to deliver and transfer ownership of the thing sold and the
buyer to pay the price),but each party anticipates performance by the
other from the very start. While in a sale the obligation of one party
Celestino Co vs CIR (G.R. No. L-8506)
Facts: Celestino Co & Company is a duly registered general co-
partnership doing business under the trade name of “Oriental Sash
Factory”. From 1946 to 1951 it paid percentage taxes of 7% on the
gross receipts of its sash, door and window factory, in accordance
with sec. 186 of the National Internal Revenue Code which is a tax on
the original sales of articles by manufacturer, producer or importer.
However, in 1952 it began to claim only 3% tax under Sec. 191,
which is a tax on sales of services. Petitioner claims that it does not
manufacture ready-made doors, sash and windows for the public, but
only upon special orders from the customers, hence, it is not engaged
in manufacturing under sec 186, but only in sales of services covered
by sec 191. Having failed to convince BIR, petitioner went to the
Court of Tax Appeal where it also failed. CTA, in its decision, holds
that the “petitioner has chosen for its tradename and has offered
itself to the public as a “Factory”, which means it is out to do
business, in its chosen lines on a big scale. As a general rule, sash
factories receive orders for doors and windows of special design only
in particular cases but the bulk of their sales is derived from a ready-
made doors and windows of standard sizes for the average home..
Even if we were to believe petitioner’s claim that it does not
manufacture ready-made sash, doors and windows for the public and
that it makes these articles only special order of its customers, that
does not make it a contractor within the purview of section 191 of the
national Internal Revenue Code… there are no less than fifty
occupations enumerated in the aforesaid section…and after reading
carefully each and every one of them, we cannot find under which the
business of manufacturing sash, doors and windows upon special
order of customers fall under the category” mentioned under Sec 191.
it is obvious that it only accepted such orders as called for the
employment of such material-moulding, frames, panels-as it ordinarily
manufactured or was in a position habitually to manufacture. The
Oriental Sash Factory does nothing more than sell the goods that it
mass-produces or habitually makes; sash, panels, mouldings, frames,
cutting them to such sizes and combining them in such forms as its
customers may desire.
Appellant invokes Article 1467 of the New Civil Code to bolster its
contention that in filing orders for windows and doors according to
specifications, it did not sell, but merely contracted for particular
pieces of work or “merely sold its services”. In our opinion when this
Factory accepts a job that requires the use of extraordinary or
additional equipment, or involves services not generally performed by
it-it thereby contracts for a piece of work — filing special orders
within the meaning of Article 1467. The orders herein exhibited were
not shown to be special. They were merely orders for work — nothing
is shown to call them special requiring extraordinary service of the
factory. The thought occurs to us that if, as alleged-all the work of
appellant is only to fill orders previously made, such orders should not
be called special work, but regular work. The Supreme Court affirms
the assailed decision by the CTA.

Issue: Whether the petitioner company provides special services or is

engaged in manufacturing.

Held: The important thing to remember is that Celestino Co &

Company habitually makes sash, windows and doors, as it has
represented in its stationery and advertisements to the public. That it
“manufactures” the same is practically admitted by appellant itself.
The fact that windows and doors are made by it only when customers
place their orders, does not alter the nature of the establishment, for
CASE DIGEST: Commissioner on Internal Revenue vs
Engineering Equipment G.R. No. L-27044 June 30, 1975
Facts:
·      Engineering Equipment and Supply Co. (Engineering for short), a
domestic corporation, is an engineering and machinery firm. As
operator of an integrated engineering shop, it is engaged, among
others, in the design and installation of central type air
conditioning system, pumping plants and steel fabrications.
·      On July 27, 1956, one Juan de la Cruz, wrote the then Collector,
now Commissioner, of Internal Revenue 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. Engineering was likewise denounced to the
Central Bank (CB) for alleged fraud in obtaining its dollar
allocations. Acting on these denunciations, a raid and search was
conducted by a joint team of Central Bank, (CB), National Bureau
of Investigation (NBI) and Bureau of Internal Revenue (BIR)
agents on September 27, 1956, on which occasion voluminous
records of the firm were seized and confiscated
·      On September 30, 1957, revenue examiners Quesada and
Catudan reported and recommended to the then Collector, now
Commissioner, of Internal Revenue that Engineering be assessed
for P480,912.01 as deficiency advance sales tax on the theory
that it misdeclared its importation of air conditioning units and
parts and accessories thereof which are subject to tax under
Section 185(m)  of the Tax Code,
·      On March 3, 1959. the Commissioner assessed against, and
demanded upon, Engineering payment of the increased amount
and suggested that P10,000 be paid as compromise in
extrajudicial settlement of Engineering's penal liability for violation
of the Tax Code. 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 to the Court of Tax Appeals. CTA
rendered  a decision in favor of Engineering, declared exempt
from the deficiency manufacturers sales tax covering the period
from June 1, 1948. to September 2, 1956. However, petitioner is
ordered to pay respondent, or his duly authorized collection
agent, the sum of P174,141.62 as compensating tax and 25%
surcharge for the period from 1953 to September 1956. With
costs against petitioner.
·      Not satisfied, both appealed before the SC. Since the two cases
are similar, both will be tried together.
Issue:  W/ON Engineering is a manufacturer of air conditioning units
under Section 185(m), supra, in relation to Sections 183(b) and 194
of the Code, or a contractor under Section 191 of the same Code.
Held:  Contractor.  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.
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 true test of a contractor, would seem to be that he
renders service in the course of an independent occupation,
representing the will of his employer only as to the result of his work,
and not as to the means by which it is accomplished.
Engineering, in a nutshell, fabricates, assembles, supplies and installs
in the buildings of its various customers the central type air
conditioning system; prepares the plans and specifications therefor
which are distinct and different from each other; the air conditioning
units and spare parts or accessories thereof used by petitioner are not
the window type of air conditioner which are manufactured,
assembled and produced locally for sale to the general market; and
the imported air conditioning units and spare parts or accessories
thereof are supplied and installed by petitioner upon previous orders
of its customers conformably with their needs and requirements.
Quiroga vs Parsons
Facts: On Jan 24, 1911, plaintiff and the respondent entered into a
contract making the latter an “agent” of the former. The contract
stipulates that Don Andres Quiroga, here in petitioner, grants
exclusive rights to sell his beds in the Visayan region to J. Parsons.
The contract only stipulates that J.Parsons should pay Quiroga within
6 months upon the delivery of beds.
Quiroga files a case against Parsons for allegedly violating the
following stipulations: not to sell the beds at higher prices than those
of the invoices; to have an open establishment in Iloilo; itself to
conduct the agency; to keep the beds on public exhibition, and to pay
for the advertisement expenses for the same; and to order the beds
by the dozen and in no other manner. With the exception of the
obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the
defendant in the two causes of action are expressly set forth in the
contract. But the plaintiff alleged that the defendant was his agent for
the sale of his beds in Iloilo, and that said obligations are implied in a
contract of commercial agency. The whole question, therefore,
reduced itself to a determination as to whether the defendant, by
reason of the contract hereinbefore transcribed, was a purchaser or
an agent of the plaintiff for the sale of his beds.
delivers to the principal the price he obtains from the sale of the thing
to a third person, and if he does not succeed in selling it, he returns
it. By virtue of the contract between the plaintiff and the defendant,
the latter, on receiving the beds, was necessarily obliged to pay their
price within the term fixed, without any other consideration and
regardless as to whether he had or had not sold the beds.
In respect to the defendant’s obligation to order by the dozen, the
only one expressly imposed by the contract, the effect of its breach
would only entitle the plaintiff to disregard the orders which the
defendant might place under other conditions; but if the plaintiff
consents to fill them, he waives his right and cannot complain for
having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and
between the plaintiff and the defendant was one of purchase and
sale, and that the obligations the breach of which is alleged as a
cause of action are not imposed upon the defendant, either by
agreement or by law.

Issue: Whether the contract is a contract of agency or of sale.

Held: In order to classify a contract, due attention must be given to

its essential clauses. In the contract in question, what was essential,
as constituting its cause and subject matter, is that the plaintiff was
to furnish the defendant with the beds which the latter might order,
at the price stipulated, and that the defendant was to pay the price in
the manner stipulated. Payment was to be made at the end of sixty
days, or before, at the plaintiff’s request, or in cash, if the defendant
so preferred, and in these last two cases an additional discount was
to be allowed for prompt payment. These are precisely the essential
features of a contract of purchase and sale. There was the obligation
on the part of the plaintiff to supply the beds, and, on the part of the
defendant, to pay their price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or
agent received the thing to sell it, and does not pay its price, but
GONZALO PUYAT & SONS, INC., petitioner,
vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro
Arco), respondent.
Facts:
Arco Amusement Company is a business engaged in operating
cinematographs. Gonzalo Puyat & Sons, Inc, was acting as exclusive
agents in the Philippines for Starr Piano Company of Indiana, USA,
and dealt with cinematographer equipment and company.
Arco Amusement approached Gonzalo Puyat & Sons entered into an
agreement wherein Gonzalo Puyat will, on behalf of Arco Amusement,
order sound reproducing equipment from Starr Piano Company and
that Arco Amusement will pay Gonzalo Puyat, in addition to the price
of equipment, a 10% commission plus all expenses. Starr Piano
quoted the list price of equipment as $1700 without discount to
Gonzalo Puyat, which then told Arco Amusement about it. Being
agreeable, the two formalized the transaction and Arco Amusement
duly paid $1700 to Gonzalo Puyat.
Subsequently, Arco Amusement made another order again to Gonzalo
Puyat for the equipment on the same terms as the first order. The
order stated that Gonzalo Puyat would pay for the equipment the
amount of $1600 which was supposed to be the exact price quoted
by Starr Piano plus 10% commission and expenses. Arco Amusement
duly paid $1600 plus 10% commission plus $160 for the expenses;
the $160 does not represent actual out-of-pocket expenses but a
mere flat charge and rough estimate made by Arco Amusement
equivalent to 10% of the $1,600 price.
Arco Amusement subsequently discovered that the price quoted to
them with regard to their previous orders were not the net price but
rather the list price, and that the Gonzalo Puyat had obtained a
discount from the Starr Piano Company. Moreover, by reading reviews
and literature on prices of machinery and cinematograph equipment,
Arco Amusement was convinced that the prices charged them were
much too high. For these reasons, they sought to obtain a reduction
from Gonzalo Puyat rather than a reimbursement, and failing in this
they filed the complaint.
RTC: Contract between Arco Amusement and Gonzalo Puyat was one
of outright purchase and sale.
CA: Reversed RTC’s ruling; the relation between the two was that of
agent and principal, Gonzalo Puyat acting as agent of Arco
Amusement, and sentenced Gonzalo Puyat to pay the alleged
overpayments.
Issue:
Whether or not the contract between Arco Amusement and Gonzalo
Puyat was one of purchase and sale, and not agency.
Held:
Yes. There was a contract of sale between the two.
In the first place, the contract is the law between the parties and
should include all the things they are supposed to have been agreed
upon. What does not appear on the face of the contract should be
regarded merely as “dealer’s” or “trader’s talk”, which cannot bind
either party. The letters showing that Arco Amusement accepted the
prices of $1700 and $1600 for the sound reproducing equipment
subject of its contract with the petitioner, are clear in their terms and
admit no other interpretation that the respondent in question at the
prices indicated which are fixed and determinate.
Whatever unforseen events might have taken place unfavorable to
Arco Amusement, such as change in prices, mistake in their
quotation, loss of the goods not covered by insurance or failure of the
Starr Piano Company to properly fill the orders as per specifications,
Gonzalo Puyat might still legally hold Arco Amusement to the prices
fixed. This is incompatible with the pretended relation of agency
between the petitioner and the respondent, because in agency, the
agent is exempted from all liability in the discharge of his commission
provided he acts in accordance with the instructions received from his
principal (section 254, Code of Commerce), and the principal must
indemnify the agent for all damages which the latter may incur in
carrying out the agency without fault or imprudence on his
part (article 1729, Civil Code).
The orders which state that the petitioner was to receive ten per cent
(10%) commission does not necessarily make Gonzalo Puyat an agent
of Arco Amusement as this provision is only an additional price which
Arco Amusement bound itself to pay, and which stipulation is not
incompatible with the contract of purchase and sale.
SONNY LO vs KJS ECO-FORMWORK SYSTEM PHIL, INC.
Facts:
Lo, doing business under the name San’s Enterprises, ordered
scaffolding equipments from KJS worth P540,425.80. Lo paid a
downpayment of P150,000 and the balance was to be paid in 10
monthly installments.
KJS delivered the scaffoldings to Lo, who paid the first two
installments. However, his business encountered financial difficulties
and he was unable to settle his obligation despite oral and written
demands.
Lo and KJS executed a Deed of Assignment, whereby Lo assigned to
KJS his receivables in the amount of P335,462.14 from Jomero Realty
Corporation. The agreement also stipulated: “The ASSIGNOR further
agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs,
executors, administrators, or assigns, shall and will at times hereafter,
at the request of said ASSIGNEE, its successors or assigns, at his cost
and expense, 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 .”
When KJS tried to collect the said credit from Jomero, it refused to
honor the Deed of Assignment because it claimed that Lo was also
indebted to it. KJS sent a letter to Lo demanding payment but he
refused claiming that his obligation had been extinguished when they
executed the Deed of Assignment.
KJS filed an action for recovery of a sum of money against Lo with the
RTC, which dismissed the complaint on the ground that the
assignment of credit extinguished the obligation. However, the CA
held that the Deed of Assignment did not extinguish the obligation of
Lo.
Issue: W/N the Deed of Assignment extinguished Lo’s obligation.
Held:
NO, he failed to comply with his warranty. 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. The undertaking really partakes in one sense of the nature of
sale – the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor’s debt.
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.  Paragraph 1 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.
Lo, as 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 Lo since the latter also had an
unpaid obligation to it, it essentially meant that its obligation to Lo
has been extinguished by compensation. As a result, KJS alleged the
non-existence of the credit and asserted its claim to Lo’s warranty
under the assignment. Lo was therefore required to make good its
warranty and pay the obligation.
Furthermore, Lo breached his obligation under the Deed of
Assignment as he did not “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 .” By
warranting the existence of the credit, Lo should have ensured its
performance in case it is found to be inexistent. He should be held
liable to pay to KJS the amount of his indebtedness
Judgment Affirmed.