CELESTINO CO & COMPANY, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.

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, sash, and windows for the public.
He claims that they only do Special Orders for customers, thus, contending they are not
manufacturers. To support his contention that his client is an ordinary contractor . . . counsel
presented . . . duplicate copies of letters, sketches of doors and windows and price quotations
supposedly sent by the manager of the Oriental Sash Factory to four customers who allegedly made
special orders to doors and window from the said factory. The conclusion that counsel would like us
to deduce from these few exhibits is that the Oriental Sash Factory does not manufacture ready-made
doors, sash and windows for the public but only upon special order of its select customers. 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 their 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 (sale of articles- taxable under sec. 186)

Held: Yes. The company habitually 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.
The argument rests on a false foundation. Any builder or homeowner, with sufficient money, may
order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it
serves special customers only or confines its services to them alone. And anyone who sees, and likes,
the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the
same kind, provided he pays the price. Surely, the appellant will not refuse, for it can easily duplicate
or even mass-produce the same doors-it is mechanically equipped to do so.

SPOUSES BUENAVENTURA, petitioners vs. COURT OF APPEALS, respondents

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. The married Joaquin children are joined in this action
by their respective spouses. Sought to be declared null and void ab initio are certain deeds of sale
covering 6 parcels of land executed by defendant parents Leonardo Joaquin and Feliciana Landrito in
favor of their co-defendant children and the corresponding certificates of title issued in their names.
In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in
their complaint, aver that 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.
Trial court -> Dismissed
Court of Appeals -> Affirmed

Issue: W/ON petitioners have a legal interest over the properties subject of the Deeds of Sale

HELD: Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As
the appellate court stated, petitioners’ right to their parents’ properties is merely inchoate and vests
only upon their parents’ death. While still living, the parents of petitioners are free to dispose of their
properties. In their overzealousness to safeguard their future legitime, petitioners forget that
theoretically, the sale of the lots to their siblings does not affect the value of their parents’
estate. While the sale of the lots reduced the estate, cash of equivalent value replaced the lots taken
from the estate.

FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA
VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.

FACTS
Fonacier, owner of mining claims, constituted Gaite as his attorney-in-fact. Gaite was authorized to
enter into a contract with other persons with respect to the mining claims.
Gaite then entered into a contract with Larap Iron Mines, a company Gaite solely owned, to
develop the mining claims. Later, Fonacier abruptly decided to revoke Gaite’s authority as attorney-
in-fact.

Afterwards, Gaite sold the developments his company made in the mining claims areas and the
ore already mined for a sum of money to Fonacier. Fonacier secured the sale with a surety company.
Part of the money was paid upon sale while the other part was payable out of the first loan of
credit covering the first shipment of iron ore and the first amount derived from the local sale of the
iron ore.

After the surety expired, Gaite demanded payment of the remainder of the purchase price but
Fonacier refused arguing no sale of iron ore had yet taken place yet.

Court of First Instance of Manila the lower court held that the obligation of the defendants to pay
plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with
a term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be
effected within one year or before December 8, 1955; that the giving of security was a condition
precedent to Gait's giving of credit to defendants; and that as the latter failed to put up a good and
sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8,
1955, the obligation became due and demandable under Article 1198 of the New Civil Code.

ISSUE
WHETHER OR NOT THE SELLING OF THE IRON ORES IS A SUSPENSIVE CONDITION FOR PAYING GAITE
HELD: NO.
The sale isn’t a suspensive condition but is only a suspensive period or term. This interpretation
is supported by:
1. 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

2. Gaite never desired or assumed to run the risk of losing his right over the ore without getting paid
for it as shown by his insistence on a surety

3. Treating the condition as a suspensive condition would leave payment at the debtor’s
discretion because the ore will be sold only when the debtor wants it to be sold.

4. In onerous contracts the rules of 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 compared to such obligation non-existing until the ore was sold.

GEORGE LO, petitioner vs. KJS ECO-FORMWORK SYSTEM PHIL. INC., respondent

FACTS:

Respondent KJS Eco-Formwork System is a corporation engaged in the sale of steel scaffoldings, while
petitioner Sonny Lo, doing business under the name of San’s Enterprises, is a building contractor.

1. In February 1990, petitioner ordered scaffolding equipment from the respondent amounting to
P540, 425.80. He paid a down payment of P150,000 and the balance was to be paid in 10 monthly
installments

2. However, Lo was only able to pay the first 2 monthly installments due to financial difficulties
despite demands from the respondent

3. In October 1990, petitioner and respondent executed a deed of assignment whereby petitioner
assigned to respondent his receivables of P335,462.14 from Jomero Realty Corp

4. But when respondent tried to collect the said credit from Jomero Realty Corp, the latter refused
to honor the deed of assignment because it claimed that the petitioner was also indebted to it. As
such, KJS sent Lo a demand letter but the latter refused to pay, claiming that his obligation had been
extinguished when they executed the deed of assignment

5. Subsequently, respondent filed an action for recovery of sum of money against petitioner.

6. Petitioner argued that his obligation was extinguished with the execution of the deed of
assignment of credit. Respondent alleged that Jomero Realty Corp refused to honor the deed of
assignment because it claimed that the petitioner had outstanding indebtedness to it

7. The trial court dismissed the complaint on the ground that the assignment of credit extinguished
the obligation

8. Upon appeal, CA reversed the trial court decision and held in favor of KJS. CA held that

a. Petitioner failed to comply with his warranty under the deed

b. The object of the deed did not exist at the time of the transaction, rendering it void under Art 1409
NCC

c. Petitioner violated the terms of the deed of assignment when he failed to execute and do all acts
necessary to effectually enable the respondent to recover the collectibles

ISSUE: WON the deed of assignment extinguished the petitioner’s obligation

HELD: No, the petitioner’s 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 debtor’s 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 petitioner’s 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.