CASE DIGEST: Celestino Co vs Collector G.R. No.

L-8506
(99 PHIL 841) (Yellow Pad Digest)
Celestino Co vs Collector

Facts:
      Celestino Co doing business under the name of “Oriental Sash Factory”. From 1956-1951 it paid
percentage tax of 7% (National Revenue Code sec. 186) on the gross receipts of its sash, door, and
window factory. However on 1952 it began to claim liability only to contractor’s 3% tax (Instead of 7%)
under sec. 191.
      Celestino claims that they do not manufacture ready made doors, sah, and windows for the public. He
claims hat they only do Special Orders for customers, thus, contending they are not manufacturers.  This
did not convince the BIR and the Court of Tax Appeals.
      CTA said that their tradename gives an impression they do engage in manufacturing and their records
suggest that their huge earnings (P188, 754.69) cannot be from special orders from ther few customers,
but because it was from ready made products.  They also offered themselves as a “factory” to the public.

Issue: W/ON Petitioner is in engaged in manufacturing

Held: Yes. The company habitualy makes Sash, windows, and doors as it has been represented to the
public. The fact that the windows and doors are made only when customers place their orders, does not
alter the nature of the establishment, for it is obvious that they accept special orders other than making
ready made products. The factory does nothing more than sell the goods that it mass produces or
habitually makes.

Celestino Co vs CIR (G.R. No. L-8506)

Subject: Sales
Doctrine: Contract for Piece-of-work
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.
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 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.

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. 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 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”. Said article reads as follows: Article 1467. A contract for the
delivery at a certain price of an article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same is on hand at the time or not, is a
contract of sale, but if the goods are to be manufactured specially for the customer and upon his special
order, and not for the general market, it is contract for a piece of work. 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.

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. Petitioner’s 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 Respondent’s 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. Engineering4
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.

QUIROGA VS PARSONS

Facts: A contract was entered into between Andres Quiroga and J. Parsons, who were both merchants,
which granted the exclusive right to sell his beds in the Visayan Islands to Parsons under the certain
conditions. Respondent was obligated to pay for the price of the beds after delivery even when not yet
sold. However, Mr. Quiroga rescinded the contract claiming that Parsons as his agent violated his
obligation by selling the beds in higher prices.

Plaintiff contended that the defendant was his agent for the sale of his bed in Iloilo and that said
obligations were implied in a contract of commercial agency.

Issue: w/n Parsons is, by reason of the contract, was a purchaser or an agent of the plaintiff for the sale
of his beds.
Held. No. The Court took cognizance that in the contract there was an obligation on the part of the
plaintiff to supply the beds and on the part of defendant to pay the price which are precisely the
essential features of a contract to purchase and sale. The said features were on the otherhand, what
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 the price but is obliged to deliver the price of the he obtains from the
sale to the third person to the principal and if he fails to sell them, he returns the item. Thus, Parsons is
said to be a purchaser not an agent of plaintiff.

Gonzalo Puyat&Sons,Inc. vs Arco Amusement Company

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 can not 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.

In addition, the Court also held that to hold petitioner Gonzalo puyat an agent of the Arco in the
purchase of equipment and machinery from the Starr Piano Company is incompatible with the admitted
fact that the petitioner is the exclusive agent of the same company in the Philippines. It is out of the
ordinary for one to be the agent of both the vendor and the purchaser. The facts and circumstances all
points out to plain ordinary transaction where the respondent enters into a contract of purchase and
sale with the petitioner, the latter as the exclusive agent of the Starr Piano Company in the US.

Lo vs. KJS Eco-Formwork System Phil., Inc (2003) – “Dacionenpago case”

Facts: Lo is building contractor doing business under the name “San’s Enterprises”. On February 1990, Lo
ordered P540,425.80 worth of scaffolding equipments from KJS. Lo paid P150,000 as downpayment and
the balance was made payable in 10 monthly installments. KJS delivered the scaffoldings to the Lo, but
Lo was only able to pay the first 2 monthly installments as his business encountered financial difficulties
and he was unable to settle his obligation to respondent despite oral and written demands made against
him. On, October 1990 petitioner and respondent executed a Deed of Assignment where Lo assigned to
KJS his receivables in the amount of P335,462.14 from Jomero Realty Corporation. However, when KJS
tried to collect the credit from Jomero Realty, the latter refused to honor the DOA because it claimed
that petitioner was also indebted to it. When KJS demanded from Lo the payment of his obligation, Lo
refused to pay claiming that his obligation have been extinguished when they executed the DOA.

Issue: Was the obligation to pay extinguished by the DOA?

Held: NO. 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 contract of sale,
the vendor or assignor is bound by certain warranties. The petitioner, as vendor/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 because of debt compensation, Lo have breached his
obligation under the DOA in warranting the existence of the credit. NOTES An assignment by virtue of
which the owner of a credit, known as the assignor, by legal cause, such as sale, dacionenpago,
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 as the assignor could
enforce it against the debtor.Dacionenpago, as a special mode of payment, the debtor offers another
thing to the creditor who accepts it as equivalent payment of an outstanding debt. The undertaking
really partakes in one sense the nature of sale, that is, the creditor is really buying the thing or property
of the debtor as payment for which to be charged against the debtor’s debt. Requisites of a valid dation
in payment there must be: 1. performance of the prestation in lieu of payment (animosolvendi) which
may consist in the delivery of a corporeal thing or a real right or a credit against the third person 2. some
difference between the prestation due and that which is given in substitution (aliud pro alio) 3. an
agreement between the creditor that the obligation is immediately extinguished by reason of a
prestation different from that due.

Gaite vs Fonacier
Facts: Fonacier, owner of 11 iron lode mineral claims (Dawahan Group) in Camarines Norte, constituted
a "Deed of Assignment”, and appointed Gaite as his true and lawful attorney-in-fact to enter into a
contract for its exploration and development on a royalty basis. Gaite executed a general assignment to
the Larap Iron Mines owned solely by him. However, Fonacier decided to revoke the authority granted
which he assented. Said revocation included the transfer to Fonacier the rights and interests over the
"24,000 tons of iron ore, more or less" already extracted for a certain consideration. A balance has to be
paid. To secure it, Fonacier delivered to Gaite a surety bond. When it expired, no payment had been
made by Fonacier on the theory that they had lost right to make use of the period when their bond
expired. Gaite filed a complaint in court for its payment. The lower court ruled the obligation was one
with a term and that the obligation became due and demandable under Article 1198 of the New Civil
Code. Hence, the defendants jointly filed an appeal.

ISSUES: 1. WON the lower court erred in holding that the obligation of Fonacier to pay Gaite is one with
a period or term and that the term has already expired.

HELD: No. The Court affirms the findings of the lower court that the shipment of the 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. The interpretation is supported by:

a. The contract expresses no contingency in the buyer’s obligation to pay. The contract recognizes
the existence of an obligation to pay and only the maturity is deferred.
b. Gaite never desired to run the risk of losing his right over the ore without getting paid for it was
shown by his insistence on a surety.

Treating the condition as a suspensive condition would leave the payment at the debtor’s discretion
because the ore will be sold only when the debtor wants it to be sold. In onerous contract the rules
of the interpretation favor the greater reciprocity of interest and because sale is onerous this rule
applies. Greater reciprocity is obtained if the buyer’s obligation to pay is deemed existing.

Sps.Buenaventura vs CA

BUENAVENTURA VS CA 416 SCRA 263 FACTS: Defendant spouses Leonardo Joaquin and Feliciana
Landrito are the parents of plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants
Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. (Note: So there are two
sets of children here.) Sought to be declared null and void ab initio are certain deeds of sale of real
property executed by Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children
and the corresponding certificates of title issued in their names. The plaintiffs in this case sought for the
declaration of nullity of the six deeds of sale and certificates of title in favor of the defendants. They
alleged that certain deed of sale were null and void ab initio because they are simulated. They said that:
a. Firstly, there was no actual valid consideration for the deeds of sale xxx over the properties in litis; b.
Secondly, assuming that there was consideration in the sums reflected in the questioned deeds, the
properties are more than three-fold times more valuable than the measly sums appearing therein; c.
Thirdly, the deeds of sale do not reflect and express the true intent of the parties (vendors and
vendees); and d. Fourthly, the purported sale of the properties in litis was the result of a deliberate
conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their
legitime.Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action against
them as well as the requisite standing and interest to assail their titles over the properties in litis; (2)
that the sales were with sufficient considerations and made by defendants parents voluntarily, in good
faith, and with full knowledge of the consequences of their deeds of sale; and (3) that the certificates of
title were issued with sufficient factual and legal basis. RTC ruled in favor of the defendants
(respondents in this case) and dismissed the complaint. Upon appeal, the CA upheld RTC’s ruling.

ISSUES: Whether the Deeds of Sale are void for gross inadequacy of price.

Held: NO. The Court held that the petitioners failed to prove any of the instances mentioned in Articles
1355 and 1470 of the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there
is no requirement that the price be equal to the exact value of the subject matter of sale. All the
respondents believed that they received the commutative value of what they gave.