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 readymade 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 petitioners claim that it does not manufacture readymade 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 sectionand 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.

Engineering and Machinery Corporation v. CA

Facts:
Pursuant to a contract, petitioner undertook to install air
conditioning system in private respondents building. The
building was later sold to the National Investment and
Development Corporation which took possession of it. Upon
NIDCs failure to comply with certain conditions, the sale was
rescinded. NIDC reported to respondent that there were certain
defects in the air conditioning system. Respondent filed a
complaint against petitioner for non-compliance with the agreed
plans and specifications. Petitioner moved to dismiss the
complaint on the ground of the 6-month prescription of warranty
against hidden defects. Private respondent averred that the
contract was not of sale but for a piece of work, the action for
damages of which prescribes after 10 years.
Issue: Is a contract for the fabrication and installation of a
central air-conditioning system in a building, one of "sale" or
"for a piece of work"?
Held: A contract for a piece of work, labor and materials may
be distinguished from a contract of sale by the inquiry as to
whether the thing transferred is one not in existence and which
would never have existed but for the order, of the person
desiring it. In such case, the contract is one for a piece of work,
not a sale. On the other hand, if the thing subject of the
contract would have existed and been the subject of a sale to
some other person even if the order had not been given, then
the contract is one of sale. The distinction between the two
contracts depends on the intention of the parties. Thus, if the
parties intended that at some future date an object has to be
delivered, without considering the work or labor of the party
bound to deliver, the contract is one of sale. But if one of the
parties accepts the undertaking on the basis of some plan,
taking into account the work he will employ personally or
through another, there is a contract for a piece of work.
Clearly, the contract in question is one for a piece of work. It is
not petitioner's line of business to manufacture air-conditioning
systems to be sold "off-the-shelf." Its business and particular
field of expertise is the fabrication and installation of such
systems as ordered by customers and in accordance with the
particular plans and specifications provided by the customers.
Naturally, the price or compensation for the system
manufactured and installed will depend greatly on the particular

plans and specifications agreed upon with the customers. The

remedy against violations of the warranty against hidden
defects is either to withdraw from the contract (redhibitory
action) or to demand a proportionate reduction of the price
(accion quanti manoris), with damages in either case.
While it is true that Article 1571 of the Civil Code provides for a
prescriptive period of six months for a redhibitory action, a
cursory reading of the ten preceding articles to which it refers
will reveal that said rule may be applied only in case of implied
warranties; and where there is an express warranty in the
contract, as in the case at bench, the prescriptive period is the
one specified in the express warranty, and in the absence of
such period, "the general rule on rescission of contract, which
is four years (Article 1389, Civil Code) shall apply". It would
appear that this suit is barred by prescription because the
complaint was filed more than four years after the execution of
the contract and the completion of the air-conditioning system.
However, a close scrutiny of the complaint filed in the trial court
reveals that the original action is not really for enforcement of
the warranties against hidden defects, but one for breach of the
contract itself. The governing law is Article 1715. However,
inasmuch as this provision does not contain a specific
prescriptive period, the general law on prescription, which is
Article 1144 of the Civil Code, will apply. Said provision
states, inter alia, that actions "upon a written contract"
prescribe in ten (10) years. Since the governing contract was
executed on September 10, 1962 and the complaint was filed
on May 8, 1971, it is clear that the action has not prescribed.
The mere fact that the private respondent accepted the work
does not, ipso facto, relieve the petitioner from liability for
deviations from and violations of the written contract, as the law
gives him ten (10) years within which to file an action based on
breach thereof.
QUIROGA vs. PARSONS HARDWARE CO.
FACTS:
On January 24, 1911, herein plaintiff-appellant AndressQuiroga
and J. Parsons, both merchants, enteredinto a contract, for the
exclusive sale of "Quiroga" Beds in the Visayan Islands. It was
agreed, amongothers, that Andres Quiroga grants the exclusive
right to sell his beds in the Visayan Islands to J.Parsons,
subject to some conditions provided in the contract. Likewise, it
was agreed that. Incompensation for the expenses of
advertisement which, for the benefit of both contracting parties,
Mr.Parsons may find himself obliged to make, Mr.Quiroga
assumes the obligation to offer and give thepreference to Mr.
Parsons in case anyone should apply for the exclusive agency
for any island notcomprised with the Visayan group; and that,
Mr. Parsons may sell, or establish branches of his agency
forthe sale of "Quiroga" beds in all the towns of the Archipelago
where there are no exclusive agents, andshall immediately
report such action to Mr. Quiroga for his approval.Plaintiff filed
a complaint, alleging that the defendant violated the following
obligations: not to sell thebeds at higher prices than those of
the invoices; to have an open establishment in Iloilo; itself to
conductthe agency; to keep the beds on public exhibition, and
to pay for the advertisement expenses for thesame; and to
order the beds by the dozen and in no other manner. He
alleged that the defendant washis agent for the sale of his beds

in Iloilo, and that said obligations are implied in a contract

of commercial agency.
ISSUE: Whether or not the defendant, by reason of the contract
hereinbefore transcribed, was an agent of theplaintiff for the
sale of his beds.
HELD: No. In order to classify a contract, due regard must be
given to its essential clauses. In the contract inquestion, there
was the obligation on the part of the plaintiff to supply the beds,
and, on the part of thedefendant, to pay their price. These
features exclude the legal conception of an agency or order to
sellwhereby the mandatory or agent received the thing to sell it,
and does not pay its price, but delivers tothe principal the price
he obtains from the sale of the thing to a third person, and if he
does not succeedin selling it, he returns it. By virtue of the
contract between the plaintiff and the defendant, the latter,
onreceiving the beds, was necessarily obliged to pay their price
within the term fixed, without any otherconsideration 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 thecontract, the effect of its
breach would only entitle the plaintiff to disregard the orders
which thedefendant might place under other conditions; but if
the plaintiff consents to fill them, he waives his rightand cannot
complain for having acted thus at his own free will.
Ker and Co., LTD vs Lingad
Facts:
CIR assessed the sum of P20,272.33 as the commercial
brokers percentage tax, surcharge, and compromise penalty
against Ker & Co. Ker and Co. requested for the cancellation of
the assessment and filed a petition for review with the Court of
Tax Appeals. The CTA ruled that Ker and Co is liable as a
commercial broker. Ker has a contract with US rubber. Ker is
the distributor of the said company. Ker was precluded from
disposing the products elsewhere unless there has been a
written consent from the company. The prices, discounts, terms
of payment, terms of delivery and other conditions of sale were
subject to change in the discretion of the Company.
Issue: Whether the relationship of Ker and Co and US rubber
was that of a vendor- vendee or principal-broker
Ruling: The relationship of Ker and Co and US rubber was that
of a principal-broker/ agency. Ker and Co is only an agent of
the US rubber because it can dispose of the products of the
Company only to certain persons or entities and within
stipulated limits, unless excepted by the contract or by the
Rubber Company, it merely receives, accepts and/or holds
upon consignment the products, which remain properties of the
latter company, every effort shall be made by petitioner to
promote in every way the sale of the products and that sales
made by petitioner are subject to approval by the company.
Since the company retained ownership of the goods, even as it
delivered possession unto the dealer for resale to customers,
the price and terms of which were subject to the companys
control, the relationship between the company and the dealer is
one of agency.