Gaite v.

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

understands that he assumes the risk of receiving nothing for what he
Facts: 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
Gaite was appointed by Fonacier as attorney-in-fact to contract any contingent character of the obligation must clearly appear. Nothing is
party for the exploration and development of mining claims. Gaite found in the record to evidence that Gaite desired or assumed to run
executed a deed of assignment in favor of a single proprietorship the risk of losing his right over the ore without getting paid for it, or
owned by him. For some reasons, Fonacier revoked the agency, that Fonacier understood that Gaite assumed any such risk. This is
which was acceded to by Gaite, subject to certain conditions, one of proved by the fact that Gaite insisted on a bond a to guarantee
which being the transfer of ores extracted from the mineral claims for payment of the P65,000.00, an not only upon a bond by Fonacier, the
P75,000, of which P10,000 has already been paid upon signing of the Larap Mines & Smelting Co., and the company's stockholders, but also
agreement and the balance to be paid from the first letter of credit on one by a surety company; and the fact that appellants did put up
for the first local sale of the iron ores. To secure payment, Fonacier such bonds indicates that they admitted the definite existence of their
delivered a surety agreement with Larap Mines and some of its obligation to pay the balance of P65,000.00.
stockholders, and another one with Far Eastern Insurance. When the
second surety agreement expired with no sale being made on the The appellant have forfeited the right court below that the appellants
ores, Gaite demanded the P65,000 balance. Defendants contended have forfeited the right to compel Gaite to wait for the sale of the ore
that the payment was subject to the condition that the ores will be before receiving payment of the balance of P65,000.00, because of
sold. their failure to renew the bond of the Far Eastern Surety Company or
else replace it with an equivalent guarantee. The expiration of the
Issue: bonding company's undertaking on December 8, 1955 substantially
reduced the security of the vendor's rights as creditor for the unpaid
(1) Whether the sale is conditional or one with a period 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
Held: 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) it is obvious that it only accepted such orders as called for the
employment of such material-moulding, frames, panels-as it ordinarily
Facts: Celestino Co & Company is a duly registered general co- manufactured or was in a position habitually to manufacture. The
partnership doing business under the trade name of “Oriental Sash Oriental Sash Factory does nothing more than sell the goods that it
Factory”. From 1946 to 1951 it paid percentage taxes of 7% on the mass-produces or habitually makes; sash, panels, mouldings, frames,
gross receipts of its sash, door and window factory, in accordance cutting them to such sizes and combining them in such forms as its
with sec. 186 of the National Internal Revenue Code which is a tax on customers may desire.
the original sales of articles by manufacturer, producer or importer. Appellant invokes Article 1467 of the New Civil Code to bolster its
However, in 1952 it began to claim only 3% tax under Sec. 191, contention that in filing orders for windows and doors according to
which is a tax on sales of services. Petitioner claims that it does not specifications, it did not sell, but merely contracted for particular
manufacture ready-made doors, sash and windows for the public, but pieces of work or “merely sold its services”. In our opinion when this
only upon special orders from the customers, hence, it is not engaged Factory accepts a job that requires the use of extraordinary or
in manufacturing under sec 186, but only in sales of services covered additional equipment, or involves services not generally performed by
by sec 191. Having failed to convince BIR, petitioner went to the it-it thereby contracts for a piece of work — filing special orders
Court of Tax Appeal where it also failed. CTA, in its decision, holds within the meaning of Article 1467. The orders herein exhibited were
that the “petitioner has chosen for its tradename and has offered not shown to be special. They were merely orders for work — nothing
itself to the public as a “Factory”, which means it is out to do is shown to call them special requiring extraordinary service of the
business, in its chosen lines on a big scale. As a general rule, sash factory. The thought occurs to us that if, as alleged-all the work of
factories receive orders for doors and windows of special design only appellant is only to fill orders previously made, such orders should not
in particular cases but the bulk of their sales is derived from a ready- be called special work, but regular work. The Supreme Court affirms
made doors and windows of standard sizes for the average home.. the assailed decision by the CTA.
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
CASE DIGEST: Commissioner on Internal Revenue vs from the deficiency manufacturers sales tax covering the period
Engineering Equipment G.R. No. L-27044 June 30, 1975 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%
Facts: surcharge for the period from 1953 to September 1956. With
·      Engineering Equipment and Supply Co. (Engineering for short), a costs against petitioner.
domestic corporation, is an engineering and machinery firm. As ·      Not satisfied, both appealed before the SC. Since the two cases
operator of an integrated engineering shop, it is engaged, among are similar, both will be tried together.
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, Issue:  W/ON Engineering is a manufacturer of air conditioning units
now Commissioner, of Internal Revenue denouncing Engineering under Section 185(m), supra, in relation to Sections 183(b) and 194
for tax evasion by misdeclaring its imported articles and failing to of the Code, or a contractor under Section 191 of the same Code.
pay the correct percentage taxes due thereon in connivance with
Held:  Contractor.  The distinction between a contract of sale and one
its foreign suppliers. Engineering was likewise denounced to the
for work, labor and materials is tested by the inquiry whether the
Central Bank (CB) for alleged fraud in obtaining its dollar
thing transferred is one not in existence and which never would have
allocations. Acting on these denunciations, a raid and search was
existed but for the order of the party desiring to acquire it, or a thing
conducted by a joint team of Central Bank, (CB), National Bureau
which would have existed and has been the subject of sale to some
of Investigation (NBI) and Bureau of Internal Revenue (BIR)
other persons even if the order had not been given.
agents on September 27, 1956, on which occasion voluminous
records of the firm were seized and confiscated The word "contractor" has come to be used with special reference to
a person who, in the pursuit of the independent business, undertakes
·      On September 30, 1957, revenue examiners Quesada and
to do a specific job or piece of work for other persons, using his own
Catudan reported and recommended to the then Collector, now
means and methods without submitting himself to control as to the
Commissioner, of Internal Revenue that Engineering be assessed
petty details. The true test of a contractor, would seem to be that he
for P480,912.01 as deficiency advance sales tax on the theory
renders service in the course of an independent occupation,
that it misdeclared its importation of air conditioning units and
representing the will of his employer only as to the result of his work,
parts and accessories thereof which are subject to tax under
and not as to the means by which it is accomplished.
Section 185(m)  of the Tax Code,
·      On March 3, 1959. the Commissioner assessed against, and Engineering, in a nutshell, fabricates, assembles, supplies and installs
demanded upon, Engineering payment of the increased amount in the buildings of its various customers the central type air
and suggested that P10,000 be paid as compromise in conditioning system; prepares the plans and specifications therefor
extrajudicial settlement of Engineering's penal liability for violation which are distinct and different from each other; the air conditioning
of the Tax Code. The firm, however, contested the tax units and spare parts or accessories thereof used by petitioner are not
assessment and requested that it be furnished with the details the window type of air conditioner which are manufactured,
and particulars of the Commissioner's assessment assembled and produced locally for sale to the general market; and
the imported air conditioning units and spare parts or accessories
·      Engineering appealed to the Court of Tax Appeals. CTA
rendered  a decision in favor of Engineering, declared exempt
thereof are supplied and installed by petitioner upon previous orders
of its customers conformably with their needs and requirements.
Quiroga vs Parsons 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
Facts: On Jan 24, 1911, plaintiff and the respondent entered into a it. By virtue of the contract between the plaintiff and the defendant,
contract making the latter an “agent” of the former. The contract the latter, on receiving the beds, was necessarily obliged to pay their
stipulates that Don Andres Quiroga, here in petitioner, grants price within the term fixed, without any other consideration and
exclusive rights to sell his beds in the Visayan region to J. Parsons. regardless as to whether he had or had not sold the beds.
The contract only stipulates that J.Parsons should pay Quiroga within
6 months upon the delivery of beds. In respect to the defendant’s obligation to order by the dozen, the
Quiroga files a case against Parsons for allegedly violating the only one expressly imposed by the contract, the effect of its breach
following stipulations: not to sell the beds at higher prices than those would only entitle the plaintiff to disregard the orders which the
of the invoices; to have an open establishment in Iloilo; itself to defendant might place under other conditions; but if the plaintiff
conduct the agency; to keep the beds on public exhibition, and to pay consents to fill them, he waives his right and cannot complain for
for the advertisement expenses for the same; and to order the beds having acted thus at his own free will.
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 For the foregoing reasons, we are of opinion that the contract by and
dozen and in no other manner, none of the obligations imputed to the between the plaintiff and the defendant was one of purchase and
defendant in the two causes of action are expressly set forth in the sale, and that the obligations the breach of which is alleged as a
contract. But the plaintiff alleged that the defendant was his agent for cause of action are not imposed upon the defendant, either by
the sale of his beds in Iloilo, and that said obligations are implied in a agreement or by law.
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.

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, RTC: Contract between Arco Amusement and Gonzalo Puyat was one
vs. of outright purchase and sale.
ARCO AMUSEMENT COMPANY (formerly known as Teatro
CA: Reversed RTC’s ruling; the relation between the two was that of
Arco), respondent.
agent and principal, Gonzalo Puyat acting as agent of Arco
Amusement, and sentenced Gonzalo Puyat to pay the alleged
Facts:
overpayments.
Arco Amusement Company is a business engaged in operating
Issue:
cinematographs. Gonzalo Puyat & Sons, Inc, was acting as exclusive
agents in the Philippines for Starr Piano Company of Indiana, USA, Whether or not the contract between Arco Amusement and Gonzalo
and dealt with cinematographer equipment and company. Puyat was one of purchase and sale, and not agency.
Arco Amusement approached Gonzalo Puyat & Sons entered into an Held:
agreement wherein Gonzalo Puyat will, on behalf of Arco Amusement,
order sound reproducing equipment from Starr Piano Company and Yes. There was a contract of sale between the two.
that Arco Amusement will pay Gonzalo Puyat, in addition to the price In the first place, the contract is the law between the parties and
of equipment, a 10% commission plus all expenses. Starr Piano should include all the things they are supposed to have been agreed
quoted the list price of equipment as $1700 without discount to upon. What does not appear on the face of the contract should be
Gonzalo Puyat, which then told Arco Amusement about it. Being regarded merely as “dealer’s” or “trader’s talk”, which cannot bind
agreeable, the two formalized the transaction and Arco Amusement either party. The letters showing that Arco Amusement accepted the
duly paid $1700 to Gonzalo Puyat. prices of $1700 and $1600 for the sound reproducing equipment
Subsequently, Arco Amusement made another order again to Gonzalo subject of its contract with the petitioner, are clear in their terms and
Puyat for the equipment on the same terms as the first order. The admit no other interpretation that the respondent in question at the
order stated that Gonzalo Puyat would pay for the equipment the prices indicated which are fixed and determinate.
amount of $1600 which was supposed to be the exact price quoted Whatever unforseen events might have taken place unfavorable to
by Starr Piano plus 10% commission and expenses. Arco Amusement Arco Amusement, such as change in prices, mistake in their
duly paid $1600 plus 10% commission plus $160 for the expenses; quotation, loss of the goods not covered by insurance or failure of the
the $160 does not represent actual out-of-pocket expenses but a Starr Piano Company to properly fill the orders as per specifications,
mere flat charge and rough estimate made by Arco Amusement Gonzalo Puyat might still legally hold Arco Amusement to the prices
equivalent to 10% of the $1,600 price. fixed. This is incompatible with the pretended relation of agency
Arco Amusement subsequently discovered that the price quoted to between the petitioner and the respondent, because in agency, the
them with regard to their previous orders were not the net price but agent is exempted from all liability in the discharge of his commission
rather the list price, and that the Gonzalo Puyat had obtained a provided he acts in accordance with the instructions received from his
discount from the Starr Piano Company. Moreover, by reading reviews principal (section 254, Code of Commerce), and the principal must
and literature on prices of machinery and cinematograph equipment, indemnify the agent for all damages which the latter may incur in
Arco Amusement was convinced that the prices charged them were carrying out the agency without fault or imprudence on his
much too high. For these reasons, they sought to obtain a reduction part (article 1729, Civil Code).
from Gonzalo Puyat rather than a reimbursement, and failing in this The orders which state that the petitioner was to receive ten per cent
they filed the complaint. (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 NO, he failed to comply with his warranty. In dacion en pago  as
incompatible with the contract of purchase and sale. a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding
SONNY LO vs KJS ECO-FORMWORK SYSTEM PHIL, INC. 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,
Facts: payment for which is to be charged against the debtor’s debt.
Lo, doing business under the name San’s Enterprises, ordered The assignment of credit, which is in the nature of a sale of personal
scaffolding equipments from KJS worth P540,425.80. Lo paid a property, produced the effects of a dation in payment, which may
downpayment of P150,000 and the balance was to be paid in 10 extinguish the obligation. However, as in any other contract of sale,
monthly installments. the vendor or assignor is bound by certain warranties.  Paragraph 1 of
KJS delivered the scaffoldings to Lo, who paid the first two Article 1628 of the Civil Code provides: The vendor in good faith shall
installments. However, his business encountered financial difficulties be responsible for the existence and legality of the credit at the time
and he was unable to settle his obligation despite oral and written of the sale, unless it should have been sold as doubtful; but not for
demands. the solvency of the debtor, unless it has been so expressly stipulated
or unless the insolvency was prior to the sale and of common
Lo and KJS executed a Deed of Assignment, whereby Lo assigned to knowledge.
KJS his receivables in the amount of P335,462.14 from Jomero Realty
Corporation. The agreement also stipulated: “The ASSIGNOR further Lo, as assignor, is bound to warrant the existence and legality of the
agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, credit at the time of the sale or assignment. When Jomero claimed
executors, administrators, or assigns, shall and will at times hereafter, that it was no longer indebted to Lo since the latter also had an
at the request of said ASSIGNEE, its successors or assigns, at his cost unpaid obligation to it, it essentially meant that its obligation to Lo
and expense, execute and do all such further acts and deeds as shall has been extinguished by compensation. As a result, KJS alleged the
be reasonably necessary to effectually enable said ASSIGNEE to non-existence of the credit and asserted its claim to Lo’s warranty
recover whatever collectibles said ASSIGNOR has in accordance with under the assignment. Lo was therefore required to make good its
the true intent and meaning of these presents .” warranty and pay the obligation.

When KJS tried to collect the said credit from Jomero, it refused to Furthermore, Lo breached his obligation under the Deed of
honor the Deed of Assignment because it claimed that Lo was also Assignment as he did not “execute and do all such further acts and
indebted to it. KJS sent a letter to Lo demanding payment but he deeds as shall be reasonably necessary to effectually enable said
refused claiming that his obligation had been extinguished when they ASSIGNEE to recover whatever collectibles said ASSIGNOR has in
executed the Deed of Assignment. accordance with the true intent and meaning of these presents .” By
warranting the existence of the credit, Lo should have ensured its
KJS filed an action for recovery of a sum of money against Lo with the performance in case it is found to be inexistent. He should be held
RTC, which dismissed the complaint on the ground that the liable to pay to KJS the amount of his indebtedness
assignment of credit extinguished the obligation. However, the CA
held that the Deed of Assignment did not extinguish the obligation of Judgment Affirmed.
Lo.
Issue: W/N the Deed of Assignment extinguished Lo’s obligation.
Held: