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Cortez vs.

CA and Villa Ezperanza Development


Facts: For the purchase price of P3,700,000.00, the
Corporation as buyer, and Cortes as seller, entered into
a contract of sale over the lots covered by Transfer
Certificate of Title (TCT) No. 31113-A, TCT No. 31913-A
and TCT No. 32013-A, located at Baclaran, Paraaque,
Metro Manila. On various dates in 1983, the Corporation
advanced to Cortes the total sum of P1,213,000.00.
Sometime in September 1983, the parties executed a
deed of absolute sale containing the following terms:

1. Upon execution of this instrument, the Vendee
shall pay unto the Vendor sum of TWO MILLION
(P2,200,000.00) PESOS, Philippine Currency,
less all advances paid by the Vendee to the
Vendor in connection with the sale;
2. The balance of ONE MILLION AND FIVE
HUNDRED THOUSAND [P1,500,000.00]
PESOS, Phil. Currency shall be payable within
ONE (1) YEAR from date of execution of this
instrument, payment of which shall be secured
by an irrevocable standby letter of credit to be
issued by any reputable local banking institution
acceptable to the Vendor.
x x x x
4. All expense for the registration of this
document with the Register of Deeds
concerned, including the transfer tax, shall be
divided equally between the Vendor and the
Vendee. Payment of the capital gains shall be
exclusively for the account of the

On January 14, 1985, the Corporation filed the instant
for specific performance seeking to compel Cortes
to deliver the TCTs and the original copy of the Deed of
Absolute Sale. According to the Corporation, despite its
readiness and ability to pay the purchase price, Cortes
refused delivery of the sought documents.

Cortes claimed that the owner's duplicate copy of the
three TCTs were surrendered to the Corporation and it is
the latter which refused to pay in full the agreed down
payment. He added that portion of the subject property is
occupied by his lessee who agreed to vacate the
premises upon payment of disturbance fee. However,
due to the Corporation's failure to pay in full the sum of
P2,200,000.00, he in turn failed to fully pay the
disturbance fee of the lessee who now refused to pay
monthly rentals. He thus prayed that the Corporation be
ordered to pay the outstanding balance plus interest and
in the alternative, to cancel the sale and forfeit the
P1,213,000.00 partial down payment, with damages in
either case.

On June 24, 1993, the trial court rendered a decision
rescinding the sale and directed Cortes to return to the
Corporation the amount of P1,213,000.00, plus interest.

On appeal, the Court of Appeals reversed the decision of
the trial court and directed Cortes to execute a Deed of
Absolute Sale conveying the properties and to deliver
the same to the Corporation together with the TCTs,
simultaneous with the Corporation's payment of the
balance of the purchase price of P2,487,000.00. It found
that the parties agreed that the Corporation will fully pay
the balance of the down payment upon Cortes' delivery
of the three TCTs to the Corporation. The records show
that no such delivery was made, hence, the Corporation
was not remiss in the performance of its obligation and
therefore justified in not paying the balance.

1.) Whether or not the parties obligation is reciprocal.
2.) Whether there is delay in the performance of the
parties obligation which would justify the rescission of
the contract.

HELD: There is no doubt that the contract of sale in
question gave rise to a reciprocal obligation of the
Reciprocal obligations are those which arise from the
same cause, and which each party is a debtor and a
creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to
be performed simultaneously, so that the performance of
one is conditioned upon the simultaneous fulfillment of
the other.

Article 1191 of the Civil Code, states:
ART. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

As to when said failure or delay in performance arise,
Article 1169 of the same Code provides that

In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay
by the other begins.

In the case at bar, the stipulation in the Deed of Absolute
Sale was that the Corporation shall pay in full the
P2,200,000.00 down payment upon execution of the
contract. However, as correctly noted by the Court of
Appeals, the transcript of stenographic notes reveal
Cortes' admission that he agreed that the Corporation's
full payment of the sum of P2,200,000.00 would depend
upon his delivery of the TCTs of the three lots. In fact,
his main defense in the Answer is that, he performed
what is incumbent upon him by delivering to the
Corporation the TCTs and the carbon duplicate of the
Deed of Absolute Sale, but the latter refused to pay in
full the down payment.

What further confirmed the agreement to deliver the
TCTs is the testimony of Cortes that the title of the lots
will be transferred in the name of the Corporation upon
full payment of the P2,200,000.00 down payment.

By agreeing to transfer title upon full payment of
P2,200,000.00, Cortes' impliedly agreed to deliver the
TCTs to the Corporation in order to effect said transfer.
Hence, the phrase "execution of this instrument"
appearing in the Deed of Absolute Sale, and which event
would give rise to the Corporation's obligation to pay in
full the amount of P2,200,000.00, cannot be construed
as referring solely to the signing of the deed. The
meaning of "execution" in the instant case is not limited
to the signing of a contract but includes as well the
performance or implementation or accomplishment of
the parties' agreement.
With the transfer of titles as the
corresponding reciprocal obligation of payment, Cortes'
obligation is not only to affix his signature in the Deed,
but to set into motion the process that would facilitate the
transfer of title of the lots, i.e., to have the Deed
notarized and to surrender the original copy thereof to
the Corporation together with the TCTs.

Having established the true agreement of the parties, the
Court must now determine whether Cortes delivered the
TCTs and the original Deed to the Corporation. The
Court of Appeals found that Cortes never surrendered
said documents to the Corporation. Cortes testified that
he delivered the same to Manny Sanchez, the son of the
broker, and that Manny told him that her mother,
Marcosa Sanchez, delivered the same to the

However, Marcosa Sanchez's unrebutted testimony is
that, she did not receive the TCTs. She also denied
knowledge of delivery thereof to her son, Manny.

What further strengthened the findings of the Court of
Appeals that Cortes did not surrender the subject
documents was the offer of Cortes' counsel at the pre-
trial to deliver the TCTs and the Deed of Absolute Sale if
the Corporation will pay the balance of the down
payment. Indeed, if the said documents were already in
the hands of the Corporation, there was no need for
Cortes' counsel to make such offer.

Since Cortes did not perform his obligation to have the
Deed notarized and to surrender the same together with
the TCTs, the trial court erred in concluding that he
performed his part in the contract of sale and that it is
the Corporation alone that was remiss in the
performance of its obligation. Actually, both parties were
in delay. Considering that their obligation was reciprocal,
performance thereof must be simultaneous. The mutual
inaction of Cortes and the Corporation therefore gave
rise to a compensation morae or default on the part of
both parties because neither has completed their part in
their reciprocal obligation. Cortes is yet to deliver the
original copy of the notarized Deed and the TCTs, while
the Corporation is yet to pay in full the agreed down
payment of P2,200,000.00. This mutual delay of the
parties cancels out the effects of default, such that it is
as if no one is guilty of delay.

The Court of Appeals therefore correctly ordered the
parties to perform their respective obligation in the
contract of sale, i.e., for Cortes to, among others, deliver
the necessary documents to the Corporation and for the
latter to pay in full, not only the down payment, but the
entire purchase price. And since the Corporation did not
question the Court of Appeal's decision and even prayed
for its affirmance, its payment should rightfully consist
not only of the amount of P987,000.00, representing the
balance of the P2,200,000.00 down payment, but the
total amount of P2,487,000.00, the remaining balance in
the P3,700,000.00 purchase price. WHEREFORE, the
petition is DENIED.
Almocera vs. Ong


Johnny Ong tried to acquire from the defendants a
townhome described as Unit No. 4 of Atrium
Townhomes in Cebu City. As reflected in a Contract to
Sell, the selling price of the unit was P3,400,000.00
pesos - to which Johnny Ong was able to pay = 1.060M

Prior to full payment, Respondent alleged that
petitioner and First Builders concealed the fact that
before and at the time of the perfection:
property was mortgaged and encumbered to
Land Bank
construction of the house has long been delayed
and remains unfinished

Petitioner asserts that on March 20, 1995, First Builders
Multi-purpose Coop. Inc., borrowed money in the
amount of P500,000.00 from Tommy Ong, respondents
brother. This money will be used to finance the
documentation requirements of the LBP for the funding
of the Atrium Town Homes. This loan will be applied in
payment of one (1) town house unit which Tommy Ong
may eventually purchase from the project.

When the project was under way, Tommy Ong wanted to
buy another townhouse for his brother, Johnny Ong,
respondent herein, which then, the amount of
P150,000.00 was given as additional partial payment.

On January 10, 1997 - Tommy Ong identified Unit No. 4
as respondents chosen unit and again tendered
P350,000.00 as his third partial payment.

When the contract to sell for Unit 4 was being drafted,
Tommy Ong requested that another contract to sell
covering Unit 5 be made so as to give Johnny Ong
another option to choose whichever unit he might decide
to have. Later, Tommy Ong informed then that he will
go with Unit 5, but upon knowing that Unit 4 will be sold
to another person for 4 million pesos, then the latter
informed petitioners that he will choose Unit 4 again.

In trying to recover his downpayment, Tommy Ong filed
a complaint for damaged with the RTC of Cebu City.

Petitioners acted in bad faith and did not comply fully
with their obligations
Petitioners failed to complete the construction of, as
well as deliver to respondent, the townhouse within
six months from the signing of the contract.
Respondent was not informed by petitioners at the
time of the perfection of their contract that the subject
townhouse was already mortgaged to LBP.

Petitioners incurred delay when they failed to deliver
the townhouse unit to the respondent within six
months from the signing of the contract to sell.
nonpayment of the balance of P2.4M by respondent
to defendants was proper in light of such delay and
the fact that the property subject of the case was
foreclosed and auctioned.

WON petitioner has incurred delay in the fulfilment of
his obligation.
WON it was proper for respondent not to pay the
remaining balance.

The Contract was a CONTRACT TO SELL - ownership
of the townhouse has not passed to respondent.

Serrano v. Caguiat - contract to sell is akin to a
conditional sale where the efficacy or obligatory force of
the vendors obligation to transfer title 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. The suspensive condition is commonly full
payment of the purchase price.

It is clear that petitioner and FBMC had the obligation to
complete the townhouse unit within six months from the
signing of the contract. Upon compliance therewith, the
obligation of respondent to pay the balance of
P2,400,000.00 arises.

The evidence adduced shows that petitioner and FBMC
failed to fulfill their obligation -- to complete and deliver
the townhouse within the six-month period.

The contract subject of this case contains reciprocal
obligations which were to be fulfilled by the parties, i.e.,
to complete and deliver the townhouse within six months
from the execution of the contract to sell on the part of
petitioner and FBMC, and to pay the balance of the
contract price upon completion and delivery of the
townhouse on the part of the respondent.

The obligation of petitioner and FBMC which is to
complete and deliver the townhouse unit within the
prescribed period, is determinative of the respondents
obligation to pay the balance of the contract price
therefore they cannot insist that respondent comply with
his obligation. Where one of the parties to a contract did
not perform the undertaking to which he was bound by
the terms of the agreement to perform, he is not entitled
to insist upon the performance of the other party.

Demand is not necessary in the instant case. Demand
by the respondent would be useless because the
impossibility of complying with their (petitioner and
FBMC) obligation was due to their fault.

Respondent is justified in refusing to pay the balance of
the contract price.

He was never in possession of the townhouse unit and
he can no longer be its owner since ownership thereof
has been transferred to a third person who was not a
party to the proceedings below.

To allow this would result in the unjust enrichment of
petitioner and FBMC.

What is worse is the fact that petitioner and FBMC
intentionally failed to inform respondent that the subject
townhouse which he was going to purchase was already
mortgaged to LBP at the time of the perfection of their
Gaite vs. Fonacier

Defendant-appellant Fonacier was the owner and/or
holder of 11 iron lode mineral claims, known as the
Dawahan Group.

By a "Deed of Assignment," Fonacier constituted and
appointed Gaite as his true and lawful attorney-in-fact to
enter into a contract with any individual or juridical
person for the exploration and development of the
mining claims.

Gaite in turn executed a general assignment conveying
the development and exploitation of said mining claims
into the Larap Iron Mines, a single proprietorship owned
solely by and belonging to him. Thereafter, Gaite
embarked upon the development and exploitation of the
mining claims in question, opening and paving roads
within and outside their boundaries, making other
improvements and installing facilities therein for use in
the development of the mines, and in time extracted
therefrom what he claim and estimated to be
approximately 24,000 metric tons of iron ore.

Fonacier decided to revoke the authority granted by him
to Gaite to exploit and develop the mining claims in
question, and Gaite assented thereto subject to certain
conditions. As a result, a document entitled "Revocation
of Power of Attorney and Contract" was executed,
wherein Gaite transferred to Fonacier, for the
consideration of P20,000.00, plus 10% of the royalties
that Fonacier would receive from the mining claims, all
his rights and interests on all the roads, improvements,
and facilities in or outside said claims, the right to use
the business name "Larap Iron Mines" and its goodwill,
and all the records and documents relative to the mines.

In the same document, Gaite transferred to Fonacier all
his rights and interests over the "24,000 tons of iron ore,
more or less" that the former had already extracted from
the mineral claims, in consideration of the sum of
P75,000.00, P10,000.00 of which was paid upon the
signing of the agreement, and the balance of SIXTY-
FIVE THOUSAND PESOS (P65,000.00) will be paid
from and out of the first letter of credit covering the first
shipment of iron ores and of the first amount derived
from the local sale of iron ore made by the Larap Mines
& Smelting Co. Inc., its assigns, administrators, or
successors in interests.

To secure the payment of the said balance of
P65,000.00, Fonacier promised to execute in favor of
Gaite a surety bond, and Fonacier delivered to Gaite a
surety bond with himself (Fonacier) as principal and the
Larap Mines and Smelting Co. and its stockholders as
sureties. Gaite testified, however, that when this bond
was presented to him by Fonacier together with the
"Revocation of Power of Attorney and Contract", Exhibit
"A", he refused to sign said Exhibit "A" unless another
bond written by a bonding company was put up. Hence,
a second bond was executed with the Far Eastern
Surety and Insurance Co. as additional surety, but it
provided that the liability of the surety company would
attach only when there had been an actual sale of iron
ore by the Larap Mines & Smelting Co. for an amount of
not less than P65,000.00, and that, furthermore, the
liability of said surety company would automatically
expire on December 8, 1955.

Fonacier entered into a "Contract of Mining Operation",
conveying unto the Larap Mines and Smelting Co., Inc.
the right to develop, exploit, and explore the mining
claims in question, together with the improvements
therein and the use of the name "Larap Iron Mines" and
its good will, in consideration of certain royalties.
Fonacier likewise transferred, in the same document, the
complete title to the approximately 24,000 tons of iron
ore which he acquired from Gaite, to the Larap &
Smelting Co., in consideration for the signing by the
company and its stockholders of the surety bonds
delivered by Fonacier to Gaite.

There was no sale of the approximately 24,000 tons of
iron ore by the Larap Mines & Smelting Co., Inc., nor
had the P65,000.00 balance of the price of said ore been
paid to Gaite by Fonacier and his sureties payment of
said amount, on the theory that they had lost right to
make use of the period given them when their bond
automatically expired. And when Fonacier and his
sureties failed to pay as demanded by Gaite, the latter
filed the present complaint for the payment of the
P65,000.00 balance of the price of the ore.

All the defendants except Francisco Dante set up the
uniform defense that the obligation sued upon by Gaite
was subject to a condition that the amount of P65,000.00
would be payable out of the first letter of credit covering
the first shipment of iron ore and/or the first amount
derived from the local sale of the iron ore by the Larap
Mines & Smelting Co., Inc.; that up to the time of the
filing of the complaint, no sale of the iron ore had been
made, hence the condition had not yet been fulfilled; and
that consequently, the obligation was not yet due and
demandable. Defendant Fonacier also contended that
only 7,573 tons of the estimated 24,000 tons of iron ore
sold to him by Gaite was actually delivered, and
counterclaimed for more than P200,000.00 damages.

WON the obligation of appellant Fonacier to pay
appellee Gaite the P65,000.00 (balance of the price of
the iron ore in question)is one with a period or term and
not one with a suspensive condition, and that the term
expired on December 8, 1955.

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.

The issue involves an interpretation of the following
provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby
transfers to Isabelo F. Fonacier all his rights and
interests over the 24,000 tons of iron ore, more or less,
above-referred to together with all his rights and
interests to operate the mine in consideration of the sum
which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid
upon the signing of this agreement.

(P65,000.00)will be paid from and out of the first letter of
credit covering the first shipment of iron ore made by the
Larap Mines & Smelting Co., Inc., its assigns,
administrators, or successors in interest.

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. That the
parties to the contract Exhibit "A" did not intend any such
state of things to prevail is supported by several

1) The words of the contract express no contingency in
the buyer's obligation to pay. There is no uncertainty that
the payment will have to be made sooner or later; what
is undetermined is merely the exact date at which it will
be made. By the very terms of the contract, therefore,
the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.

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

3) To subordinate the obligation to pay the remaining
P65,000.00 to the sale or shipment of the ore as a
condition precedent, would be tantamount to leaving the
payment at the discretion of the debtor, for the sale or
shipment could not be made unless the appellants took
steps to sell the ore. Appellants would thus be able to
postpone payment indefinitely. The desireability of
avoiding such a construction of the contract Exhibit "A"
needs no stressing.

4) Assuming that there could be doubt whether by the
wording of the contract the parties indented a
suspensive condition or a suspensive period (dies ad
quem) for the payment of the P65,000.00, the rules of
interpretation would incline the scales in favor of "the
greater reciprocity of interests", since sale is essentially
onerous. The Civil Code of the Philippines, Article 1378,
paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in
favor of the greatest reciprocity of interests.

There can be no question that greater reciprocity obtains
if the buyer' obligation is deemed to be actually existing,
with only its maturity (due date) postponed or deferred,
that if such obligation were viewed as non-existent or not
binding until the ore was sold.

The only rational view that can be taken is that the sale
of the ore to Fonacier was a sale on credit, and not an
aleatory contract where the transferor, Gaite, would
assume the risk of not being paid at all; and that the
previous sale or shipment of the ore was not a
suspensive condition for the payment of the balance of
the agreed price, but was intended merely to fix the
future date of the payment.

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
substantially reduced the security of the vendor's rights
as creditor for the unpaid P65,000.00. The case squarely
comes under paragraphs 2 and 3 of Article 1198 of the
Civil Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make
use of the period:
(1) . . .
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised.
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, and
when through fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory.

Appellants' failure to renew or extend the surety
company's bond upon its expiration plainly impaired the
securities given to the creditor (appellee Gaite), unless
immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's
acceptance of the surety company's bond with full
knowledge that on its face it would automatically expire
within one year was a waiver of its renewal after the
expiration date. No such waiver could have been
intended, for Gaite stood to lose and had nothing to gain
barely; and if there was any, it could be rationally
explained only if the appellants had agreed to sell the
ore and pay Gaite before the surety company's bond
expired on December 8, 1955. But in the latter case the
defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to
Fonacier by virtue of the deed Exhibit "A."

All the alternatives, therefore, lead to the same result:
that Gaite acted within his rights in demanding payment
and instituting this action one year from and after the
contract (Exhibit "A") was executed, either because the
appellant debtors had impaired the securities originally
given and thereby forfeited any further time within which
to pay; or because the term of payment was originally of
no more than one year, and the balance of P65,000.00
became due and payable thereafter.
Buenaventura vs. CA

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 of real property 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 deeds of sale are simulated as
they are, are NULL AND VOID AB INITIO because
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 (JOAQUIN), on the other hand aver (1) that
plaintiffs (BUENAVENTURA) 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.

Before the trial, the trial court ordered the dismissal of
the case against defendant spouses Gavino Joaquin and
Lea Asis. Instead of filing an Answer with their co-
defendants, Gavino Joaquin and Lea Asis filed a Motion
to Dismiss. In granting the dismissal to Gavino Joaquin
and Lea Asis, the trial court noted that compulsory heirs
have the right to a legitime but such right is contingent
since said right commences only from the moment of
death of the decedent pursuant to Article 777 of the Civil
Code of the Philippines.

After trial, the trial court ruled in favor of the defendants
(JOAQUIN), and dismissed the complaint. The trial
court stated:

In the first place, the testimony of the defendants,
particularly that of the xxx father will show that the
Deeds of Sale were all executed for valuable
consideration. This assertion must prevail over the
negative allegation of plaintiffs.

And then there is the argument that plaintiffs
(BUENAVENTURA) do not have a valid cause of action
against defendants since there can be no legitime to
speak of prior to the death of their parents. The court
finds this contention tenable. In determining the
legitime, the value of the property left at the death of the
testator shall be considered (Art. 908 of the New Civil
Code). Hence, the legitime of a compulsory heir is
computed as of the time of the death of the decedent.
Plaintiffs therefore cannot claim an impairment of their
legitime while their parents live.

CA affirmed decision of RTC.


1. NO.
Petitioners Complaint betrays their motive for filing this
case. In their Complaint, petitioners asserted 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. Petitioners strategy was to have the Deeds of
Sale declared void so that ownership of the lots would
eventually revert to their respondent parents. If their
parents die still owning the lots, petitioners and their
respondent siblings will then co-own their parents estate
by hereditary succession.

It is evident from the records that petitioners
(BUENAVENTURA) are interested in the properties
subject of the Deeds of Sale, but they have failed to
show any legal right to the properties. The trial and
appellate courts should have dismissed the action for
this reason alone. An action must be prosecuted in the
name of the real party-in-interest.

[T]he question as to real party-in-interest is whether he
is the party who would be benefitted or injured by the
judgment, or the party entitled to the avails of the suit.
In actions for the annulment of contracts, such as this
action, the real parties are those who are parties to the
agreement or are bound either principally or subsidiarily
or are prejudiced in their rights with respect to one of the
contracting parties and can show the detriment which
would positively result to them from the contract even
though they did not intervene in it..

These are parties with a present substantial interest, as
distinguished from a mere expectancy or future,
contingent, subordinate, or consequential interest. The
phrase present substantial interest more concretely is
meant such interest of a party in the subject matter of
the action as will entitle him, under the substantive law,
to recover if the evidence is sufficient, or that he has the
legal title to demand and the defendant will be protected
in a payment to or recovery by him.

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.

2. NO.
Petitioners assert that their respondent siblings did not
actually pay the prices stated in the Deeds of Sale to
their respondent father. Thus, petitioners ask the court
to declare the Deeds of Sale void.

A contract of sale is not a real contract, but a consensual
contract. As a consensual contract, a contract of sale
becomes a binding and valid contract upon the meeting
of the minds as to price. If there is a meeting of the
minds of the parties as to the price, the contract of sale
is valid, despite the manner of payment, or even the
breach of that manner of payment. If the real price is not
stated in the contract, then the contract of sale is valid
but subject to reformation. If there is no meeting of the
minds of the parties as to the price, because the price
stipulated in the contract is simulated, then the contract
is void. Article 1471 of the Civil Code states that if the
price in a contract of sale is simulated, the sale is void.

It is not the act of payment of price that determines the
validity of a contract of sale. Payment of the price has
nothing to do with the perfection of the contract.
Payment of the price goes into the performance of the
contract. Failure to pay the consideration is different
from lack of consideration. The former results in a right
to demand the fulfillment or cancellation of the obligation
under an existing valid contract while the latter prevents
the existence of a valid contract.

Petitioners (BUENAVENTURA) failed to show that the
prices in the Deeds of Sale were absolutely simulated.
To prove simulation, petitioners presented Emma
Joaquin Valdozs testimony stating that their father,
respondent Leonardo Joaquin, told her that he would
transfer a lot to her through a deed of sale without need
for her payment of the purchase price. The trial court did
not find the allegation of absolute simulation of price
credible. Petitioners failure to prove absolute simulation
of price is magnified by their lack of knowledge of their
respondent siblings financial capacity to buy the
questioned lots. On the other hand, the Deeds of Sale
which petitioners presented as evidence plainly showed
the cost of each lot sold. Not only did respondents
minds meet as to the purchase price, but the real price
was also stated in the Deeds of Sale. As of the filing of
the complaint, respondent siblings have also fully paid
the price to their respondent father.

Petitioners asked that assuming that there is
consideration, the same is grossly inadequate as to
invalidate the Deeds of Sale.

Articles 1355 of the Civil Code states:
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence.
(Emphasis supplied)

Article 1470 of the Civil Code further provides:
Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as may indicate a defect in the
consent, or that the parties really intended a donation or
some other act or contract. (Emphasis supplied)

Petitioners (BUENAVENTURA) 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 (JOAQUIN) believed that
they received the commutative value of what they

As we stated in Vales v. Villa:

Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise
investments, relieve him from one-sided contracts, or
annul the effects of foolish acts. Courts cannot
constitute themselves guardians of persons who are not
legally incompetent. Courts operate not because one
person has been defeated or overcome by another, but
because he has been defeated or overcome illegally.
Men may do foolish things, make ridiculous contracts,
use miserable judgment, and lose money by them
indeed, all they have in the world; but not for that alone
can the law intervene and restore. There must be, in
addition, a violation of the law, the commission of what
the law knows as an actionable wrong, before the courts
are authorized to lay hold of the situation and remedy it.
(Emphasis in the original)

Moreover, the factual findings of the appellate court are
conclusive on the parties and carry greater weight when
they coincide with the factual findings of the trial court.
This Court will not weigh the evidence all over again
unless there has been a showing that the findings of the
lower court are totally devoid of support or are clearly
erroneous so as to constitute serious abuse of
discretion. In the instant case, the trial court found that
the lots were sold for a valid consideration, and that the
defendant children actually paid the purchase price
stipulated in their respective Deeds of Sale. Actual
payment of the purchase price by the buyer to the seller
is a factual finding that is now conclusive upon us.
San Lorenzo Development Corp. vs. CA

In 1986, Spouses Lu purportedly sold 2 parcels of land
to Pablo Babasanta for P15/square meter. Babasanta
made downpayment of 50K as evidenced by
memorandum receipt issued by the wife. Several other
payment of 200K in total were made.

In 1989, Babantasa through a latter demanded for
execution of final deed of sale in his favor so that he
could effect full payment of purchase price, and asked
for them to cancel the second sale made by Spouses
Lu to San Lorenzo Dev Corp of the same parcels of

Wife Lu claims that Babasanta backed out of the sale
when they refused to give the parcels of land in a
reduced price which is P12/square meter.

In 1990, San Lorenzo Dev Corp filed its complaint- in-
intervention alleging legal interest in the subject matter
because such were already sold to them May 1989 in a
Deed of Absolute Sales with Mortgage. They allege that
they are buyers in good faith, the cert of titles delivered
to them were clean and free from adverse claims and/or
notice of lis pendens and thus has better rights over
such property,

RTC upheld the sale of property to San Lorenzo and
ordered Spouses Lu to pay back Babasanta of what he
paid them. Plus cancel notice of lis pendens annotated
on the original of the TCT.

CA however declared that the sale between Babasanta
and the Spouses Lu was valid and subsisting and
ordered the spouses to execute the necessary deed of
conveyance in favor of Babasanta, and latter pay the
balance of the purchase price because Deed of Sale
with San Lorenzo was null and void because they were
not buyers in good faith. Hence, this petition.

WON Babasanta has a better right over the subject
property in view of the successive transactions executed
by Spouses Lu.

(Who is the owner, SDLC or Babasanta)

An analysis of the facts obtaining in this case, as well as
the evidence presented by the parties, irresistibly leads
to the conclusion that the agreement between
Babasanta and the Spouses Lu is a contract to sell
and not a contract of sale.

Contracts, in general, are perfected by mere consent,
which is manifested by the meeting of the offer and the
acceptance upon the thing which are to constitute the
contract. The offer must be certain and the acceptance
absolute. Moreover, contracts shall be obligatory in
whatever form they may have been entered into,
provided all the essential requisites for their validity are

The receipt signed by Pacita Lu merely states that she
accepted the sum of fifty thousand pesos (P50,000.00)
from Babasanta as partial payment of 3.6 hectares of
farm lot situated in Sta. Rosa, Laguna. While there is
no stipulation that the seller reserves the ownership
of the property until full payment of the price which
is a distinguishing feature of a contract to sell, the
subsequent acts of the parties convince us that the
Spouses Lu never intended to transfer ownership to
Babasanta except upon full payment of the purchase

Babasantas letter in 1989 was quite telling. He stated
therein that despite his repeated requests for the
execution of the final deed of sale in his favor so that he
could effect full payment of the price, Pacita Lu allegedly
refused to do so. In effect, Babasanta himself
recognized that ownership of the property would not be
transferred to him until such time as he shall have
effected full payment of the price. Moreover, had the
sellers intended to transfer title, they could have easily
executed the document of sale in its required form
simultaneously with their acceptance of the partial
payment, but they did not. Doubtlessly, the receipt
signed by Pacita Lu should legally be considered as a
perfected contract to sell. The distinction between a
contract to sell and a contract of sale is quite germane.

Contract of Sale vs. Contract to Sell
In a contract of sale, title passes to the vendee upon the
delivery of the thing sold; whereas in a contract to sell,
by agreement the ownership is reserved in the vendor
and is not to pass until the full payment of the price. In a
contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or
rescinded; whereas in a contract to sell, title is retained
by the vendor until the full payment of the price, such
payment being a positive suspensive condition and
failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from
becoming effective.

The perfected contract to sell imposed upon Babasanta
the obligation to pay the balance of the purchase price.
There being an obligation to pay the price, Babasanta
should have made the proper tender of payment and
consignation of the price in court as required by law.
Mere sending of a letter by the vendee expressing the
intention to pay without the accompanying payment is
not considered a valid tender of payment.

Consignation of the amounts due in court is essential in
order to extinguish Babasantas obligation to pay the
balance of the purchase price. Glaringly absent from the
records is any indication that Babasanta even attempted
to make the proper consignation of the amounts due,
thus, the obligation on the part of the sellers to convey
title never acquired obligatory force.

Even if the contract was a contract of sale, still it
was not perfected.

Assuming arguendo that transaction was a contract of
sale and not a contract to sell, Babasantas claim of
ownership should nevertheless fail. Sale, being a
consensual contract, is perfected by mere consent and
from that moment, the parties may reciprocally demand

The essential elements of a contract of sale, to wit: (1)
consent or meeting of the minds, that is, to transfer
ownership in exchange for the price; (2) object certain
which is the subject matter of the contract; (3) cause of
the obligation which is established.

The perfection of a contract of sale should not, however,
be confused with its consummation. In relation to the
acquisition and transfer of ownership, it should be noted
that sale is not a mode, but merely a title. A mode is the
legal means by which dominion or ownership is created,
transferred or destroyed, but title is only the legal basis
by which to affect dominion or ownership. Under Article
712 of the Civil Code, "ownership and other real rights
over property are acquired and transmitted by law, by
donation, by testate and intestate succession, and in
consequence of certain contracts, by tradition."
Contracts only constitute titles or rights to the transfer or
acquisition of ownership, while delivery or tradition is the
mode of accomplishing the same.

Consummation of Sale (Delivery)
Therefore, sale by itself does not transfer or affect
ownership; the most that sale does is to create the
obligation to transfer ownership. It is tradition or delivery,
as a consequence of sale, that actually transfers
ownership. Explicitly, the law provides that the
ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways
specified in Article 1497 to 1501. The word "delivered"
should not be taken restrictively to mean transfer of
actual physical possession of the property.

The law recognizes two principal modes of delivery,
to wit: (1) actual delivery; and (2) legal or
constructive delivery. Actual delivery consists in
placing the thing sold in the control and possession of
the vendee. Legal or constructive delivery, on the other
hand, may be had through any of the following ways: the
execution of a public instrument evidencing the sale;
symbolical tradition such as the delivery of the keys of
the place where the movable sold is being kept; traditio
longa manu or by mere consent or agreement if the
movable sold cannot yet be transferred to the
possession of the buyer at the time of the sale; traditio
brevi manu if the buyer already had possession of the
object even before the sale; and traditio constitutum
possessorium , where the seller remains in possession
of the property in a different capacity. Following the
above disquisition, respondent Babasanta did not
acquire ownership by the mere execution of the receipt
by Pacita Lu acknowledging receipt of partial payment
for the property. For one, the agreement between
Babasanta and the Spouses Lu, though valid, was not
embodied in a public instrument. Hence, no
constructive delivery of the lands could have been

For another, Babasanta had not taken possession of the
property at any time after the perfection of the sale in his
favor or exercised acts of dominion over it despite his
assertions that he was the rightful owner of the lands.
Simply stated, there was no delivery to Babasanta,
whether actual or constructive, which is essential to
transfer ownership of the property. Thus, even on the
assumption that the perfected contract between the
parties was a sale, ownership could not have passed
to Babasanta in the absence of delivery, since in a
contract of sale ownership is transferred to the
vendee only upon the delivery of the thing sold.
Norkis Distributors, Inc. vs. CA & Alberto Nepales

Petitioner Norkis Distributors, Inc. is the distributor of
Yamaha motorcycles in Negros Occidental. On
September 20, 1979, private respondent Alberto
Nepales bought from the Norkis Bacolod branch a brand
new Yamaha Wonder bike motorcycle Model YL2DX.

The price of P7,500 was payable by means of a Letter of
Guaranty from the DBP, which Norkis agreed to accept.
Credit was extended to Nepales for the price of the
motorcycle payable by DBP upon release of his
motorcycle loan. As security for the loan, Nepales would
execute a chattel mortgage on the motorcycle in favor of
DBP. Petitioner issued a sales invoice which Nepales
signed in conformity with the terms of the sale.
In the meantime, however, the motorcycle remained in
Norkis' possession. On January 22, 1980, the
motorcycle was delivered to a certain Julian Nepales,
allegedly the agent of Alberto Nepales. The motorcycle
met an accident on February 3, 1980 at Binalbagan,
Negros Occidental. An investigation conducted by the
DBP revealed that the unit was being driven by a certain
Zacarias Payba at the time of the accident. The unit was
a total wreck when returned.

On March 20, 1980, DBP released the proceeds of
private respondent's motorcycle loan to Norkis in the
total sum of P7,500. As the price of the motorcycle later
increased to P7,828 in March, 1980, Nepales paid the
difference of P328 and demanded the delivery of the

When Norkis could not deliver, he filed an action for
specific performance with damages against Norkis in the
RTC of Negros Occidental. He alleged that Norkis failed
to deliver the motorcycle which he purchased, thereby
causing him damages. Norkis answered that the
motorcycle had already been delivered to private
respondent before the accident, hence, the risk of loss or
damage had to be borne by him as owner of the unit.

ISSUE: Whether or not there has been a transfer of
ownership of the motorcycle to Alberto Nepales. NO.

The issuance of a sales invoice does not prove transfer
of ownership of the thing sold to the buyer. An invoice is
nothing more than a detailed statement of the nature,
quantity and cost of the thing sold and has been
considered not a bill of sale. In all forms of delivery, it is
necessary that the act of delivery whether constructive
or actual, be coupled with the intention of delivering the
thing. The act, without the intention, is insufficient. When
the motorcycle was registered by Norkis in the name of
private respondent, Norkis did not intend yet to transfer
the title or ownership to Nepales, but only to facilitate the
execution of a chattel mortgage in favor of the DBP for
the release of the buyer's motorcycle loan. The Letter of
Guarantee issued by the DBP reveals that the execution
in its favor of a chattel mortgage over the purchased
vehicle is a pre-requisite for the approval of the buyer's
loan. If Norkis would not accede to that arrangement,
DBP would not approve private respondent's loan
application and, consequently, there would be no sale.

(Article 1496 of the Civil Code which provides that "in the
absence of an express assumption of risk by the buyer,
the things sold remain at seller's risk until the ownership
thereof is transferred to the buyer," is applicable to this
case, for there was neither an actual nor constructive
delivery of the thing sold, hence, the risk of loss should
be borne by the seller, Norkis, which was still the owner
and possessor of the motorcycle when it was wrecked.
This is in accordance with the well-known doctrine of res
perit domino.)
Aznar vs. Yapdiangco

Sometime in May, 1959, Teodoro Santos advertised in
two metropolitan papers the sale of his FORD
FAIRLANE 500. In the afternoon of May 28, 1959, a
certain L. De Dios, claiming to be a nephew of Vicente
Marella, went to the Santos residence to answer the ad.
However, Teodoro Santos was out during this call and
only the latter's son, Irineo Santos, received and talked
with De Dios. The latter told the young Santos that he
had come in behalf of his uncle, Vicente Marella, who
was interested to buy the advertised car.

On being informed of the above, Teodoro Santos
instructed his son to see the said Vicente Marella the
following day at his given address. And so, in the
morning of May 29, 1959, Irineo Santos went. At this
meeting, Marella agreed to buy the car for P14,700.00
on the understanding that the price would be paid only
after the car had been registered in his name.

Irineo Santos then fetched his father who, together with
L. De Dios, went to the office of a certain Atty. Jose
Padolina where the deed of the sale for the car was
executed in Marella's favor. The parties to the contract
thereafter proceeded to the Motor Vehicles Office in
Quezon City where the registration of the car in Marella's
name was effected. Up to this stage of the transaction,
the purchased price had not been paid.

From the Motor Vehicles Office, Teodoro Santos
returned to his house. He gave the registration papers
and a copy of the deed of sale to his son, Irineo, and
instructed him not to part with them until Marella shall
have given the full payment for the car. Irineo Santos
and L. De Dios then proceeded to Marella's place where
the former demanded the payment from Vicente Marella.
Marella said that the amount he had on hand then was
short by some P2,000.00 and begged off to be allowed
to secure the shortage from a sister. Thereafter, he
ordered L. De Dios to go to the said sister and
suggested that Irineo Santos go with him. At the same
time, he requested the registration papers and the deed
of sale from Irineo Santos on the pretext that he would
like to show them to his lawyer. Trusting the good faith of
Marella, Irineo handed over the same to the latter and
thereupon, in the company of L. De Dios and another
unidentified person, proceeded to the alleged house of
Marella's sister.

At a place on Azcarraga, Irineo Santos and L. De Dios
alighted from the car and entered a house while their
unidentified companion remained in the car. Once
inside, L. De Dios asked Irineo Santos to wait at the sala
while he went inside a room. That was the last that Irineo
saw of him. For, after a considerable length of time
waiting in vain for De Dios to return, Irineo went down to
discover that neither the car nor their unidentified
companion was there anymore. Going back to the
house, he inquired from a woman he saw for L. De Dios
and he was told that no such name lived or was even
known therein. Whereupon, Irineo Santos rushed to
1642 Crisostomo to see Marella. He found the house
closed and Marella gone. Finally, he reported the matter
to his father who promptly advised the police authorities.

That very same day, or on the afternoon of May 29,
1959 Vicente Marella was able to sell the car in question
to the plaintiff-appellant herein, Jose B. Aznar, for
P15,000.00. While the car in question was thus in the
possession of Jose B. Aznar and while he was attending
to its registration in his name, agents of the Philippine
Constabulary seized and confiscated the same in
consequence of the report to them by Teodoro Santos
that the said car was unlawfully taken from him. In due
time, Jose B. Aznar filed a complaint for replevin against
Captain Rafael Yapdiangco, the head of the Philippine
Constabulary unit which seized the car in question
Claiming ownership of the vehicle, he prayed for its
delivery to him.

Between Teodoro Santos and the plaintiff-appellant,
Jose B. Aznar, who has a better right to the possession
of the disputed automobile?

Held: Teodoro Santos.

While the plaintiff-appellant accepts that the car in
question originally belonged to and was owned by the
intervenor-appellee, Teodoro Santos, and that the latter
was unlawfully deprived of the same by Vicente Marella,
the appellant contends that upon the facts of this case,
the applicable provision of the Civil Code is Article 1506
that states: Where the seller of goods has a voidable
title thereto, but his, title has not been voided at the time
of the sale, the buyer acquires a good title to the goods,
provided he buys them in good faith, for value, and
without notice of the seller's defect of title.

Under the aforequoted provision, it is essential that the
seller should have a voidable title at least. It is very
clearly inapplicable where, as in this case, the seller had
no title at all. Vicente Marella did not have any title to the
property under litigation because the same was never
delivered to him. He sought ownership or acquisition of it
by virtue of the contract. Vicente Marella could have
acquired ownership or title to the subject matter thereof
only by the delivery or tradition of the car to him.

Ownership is not transferred by contract merely but by
tradition or delivery. Contracts only constitute titles or
rights to the transfer or acquisition of ownership, while
delivery or tradition is the mode of accomplishing the
same. In the case on hand, the car in question was
never delivered to the vendee by the vendor as to
complete or consummate the transfer of ownership by
virtue of the contract. It should be recalled that while
there was indeed a contract of sale between Vicente
Marella and Teodoro Santos, the former, as vendee,
took possession of the subject matter thereof by stealing
the same while it was in the custody of the latter's son.

There is no adequate evidence on record as to whether
Irineo Santos voluntarily delivered the key to the car to
the unidentified person who went with him and L. De
Dios to the place on Azcarraga where a sister of Marella
allegedly lived. But even if Irineo Santos did, it was not
the delivery contemplated by Article 712 of the Civil
Code. For then, it would be indisputable that he turned it
over to the unidentified companion only so that he may
drive Irineo Santos and De Dios to the said place on
Azcarraga and not to vest the title to the said vehicle to
him as agent of Vicente Marella. Article 712 above
contemplates that the act be coupled with the intent of
delivering the thing.
Equatorial Realty vs. Mayfair Theater, Inc.

Carmelo and Bauerman Inc. owned a parcel of land,
together with two 2-storey buildings constructed thereon
located at Claro M. Recto Avenue, Manila

On June 1, 1967 Carmelo entered into a contract of
lease with Mayfair for the latters lease of a portion of
Carmelos property particularly described, namely the
second floor and mezzanine of the building to be used
as a movie theater. Two years later, they entered in
another contract containing the same terms good for
twenty years.

A noteworthy provision in this contract is PARAGRAPH
8 which states that:

That if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30-days exclusive
option to purchase the same.

In the event, however, that the leased premises is sold
to someone other than the LESSEE, the LESSOR is
bound and obligated, as it hereby binds and obligates
itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all
the terms and conditions thereof.

Sometime later, Henry Pascal (of Carmelo Inc.) phoned
Henry Yang (of Mayfair) informing that a certain Mr.
Araneta was interested in buying the property. Through
a letter, Yang reminded Pascal of Paragraph 8 contained
within the contract but Pascal did not reply.

Mayfair expressed its intentions to Carmelo to buy the
property. However, Carmelo sold the property to
Equatorial. This prompted Mayfair to file an action for
specific performance and annulment of sale of the
leased premises against Carmelo and Equatorial based
on the right of first refusal contained within the contract.
Carmelo and Equatorial now contend that: First, the right
of first refusal found in Paragraph 8 is void since it does
not have any consideration and second, Specific
performance is impossible since the leased premises
could not be sold separately from the other portions of
the land and building.

(Just to Clarify: Carmelo-owner of the property, Mayfair-
lessees who claim to have the right of first refusal,
Equatorial-buyer of the property)

Whether or nor Paragraph 8 contains a valid right of
first refusal?

YES. We agree with the respondent Court of Appeals
that the aforecited contractual stipulation provides for a
right of first refusal in favor of Mayfair. It is not an option
clause or an option contract. It is a contract of a right of
first refusal.

Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

A deed of option or the option clause in a contract, in
order to be valid and enforceable, must, among other
things, indicate the definite price at which the person
granting the option, is willing to sell.

The said paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. The requirement of
a separate consideration for the option, has no
applicability in the instant case.

There is nothing in the identical Paragraphs 8 of the
June 1, 1967 and March 31, 1969 contracts which would
bring them into the ambit of the usual offer or option
requiring an independent consideration.

An option is a contract granting a privilege to buy or sell
within an agreed time and at a determined price. It is a
separate and distinct contract from that which the parties
may enter into upon the consummation of the option. It
must be supported by consideration. In the instant case,
the right of first refusal is an integral part of the contracts
of lease. The consideration is built into the reciprocal
obligations of the parties.

What is the status of the sale?

RESCISSIBLE. The contract of sale between Equatorial
and Carmelo is characterized by bad faith, since it was
knowingly entered into in violation of the rights of and to
the prejudice of Mayfair. In fact, as correctly observed by
the Court of Appeals, Equatorial admitted that its lawyers
had studied the contract of lease prior to the sale.
Equatorials knowledge of the stipulations therein should
have cautioned it to look further into the agreement to
determine if it involved stipulations that would prejudice
its own interests.

Rescission is a relief allowed for the protection of one of
the contracting parties and even third persons from all
injury and damage the contract may cause or to protect
some incompatible and preferred right by the contract.
The sale of the subject real property by Carmelo to
Equatorial should now be rescinded considering that
Mayfair, which had substantial interest over the subject
property, was prejudiced by the sale of the subject
property to Equatorial without Carmelo conferring to
Mayfair every opportunity to negotiate within the 30-day
stipulated period

In connection with the concept of Sales is Title and
not Mode

Article 1458, Par. 3 : When the sale is not absolute but
conditional, such as in a Contract to Sell where
invariably the ownership of the thing sold is retained until
the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force.

The sale made by Carmelo to Equatorial is not a mode
of transferring ownership to Equatorial given that
Mayfairs right of first refusal still could have been

Inchausti vs. Cromwell

Inchausti has been engaged in the business of buying
and selling wholesale hemp, both for its own account
and on commission. It is customary to sell hemp in bales
which are made by compressing the loose fiber by
means of presses, covering two sides of the bale with
matting, and fastening it by means of strips of rattan.
This operation of bailing hemp is familiar to merchants
by the word prensaje.

In all sales of hemp by Inchausti, the price is given to the
buyer at a rate of per picul, without mention of bailing,
but with the tacit understanding that the hemp will be
delivered in bales, and that a charge is to be made
against the buyer for the prensaje. The charge varies
depending upon the then prevailing rate. At that time, the
prevailing rate was P1.75 per bale.

Inchausti, in estimating the amount due it as
commissions on sales of hemp made by it for its
principals, has always based the said amount on the
total sum collected from the purchasers of the hemp,
including the charge made in each case under the
denomination of prensaje. It has always paid to
Cromwell, Collector of Internal Revenue, the tax
collectibles upon the selling price expressly agreed upon
for all hemp it has sold. It has not however, paid tax
upon sums received under the denomination of

Cromwell, in his official capacity as Collector of Internal
Revenue, made demand in writing upon Inchausti the
payment within 5 days of the sum of P1,370.68 as tax
upon the said sums of money collected from purchasers
of hemp under the denomination of prensaje. Inchausti
paid but under protest, contending that the tax assessed
by the CIR is illegal upon the ground that the said charge
does not constitute a part of the selling price of the help
but is a charge made for the service of baling the hemp.

CIR argues that the charge made under the
denomination of prensaje is part of the gross value of
the hemp sold and of its actual selling price.

Whether or not the baled hemp constitutes a contract of
sale or a contract for a piece of work

The baled hemp constitutes a contract of sale.

It is one of the stipulations that it is customary to sell
hemp in bales, and that the price quoted in the market
for every picul is the price for the baled hemp. The fact is
that among large dealers like Inchausti, it is practically
impossible to handle hemp without its being baled.
Indeed, at the time of such sales it was unknown to the
purchaser whether the hemp was then actually baled or
not. All that he knew was that the hemp would be
delivered to him baled. He did not ask Inchausti to
perform services for him, nor did Inchausti agree to do
so. The contract was single and consisted solely in the
sale and purchase of hemp. In such case, Inchausti
performed no service whatsoever for the purchaser.

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 no 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 been the subject of
sale to some other person, even if the order had not
been given.

It is clear that in the case at bar the hemp was in
existence in baled form before the agreements of sale
were made, or, at least, would have been in existence
even if none of the individual sales here in question had
been consummated. It would have been baled,
nevertheless, for sale to someone else, since, according
to the agreed statement of facts, it is customary to sell
hemp in bales. When a person stipulates for the future
sale of articles which he is habitually making, and which
at the time are not made or finished, it is essentially a
contract of sale and not a contract for labor. It is
otherwise when the article is made pursuant to

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
the defendant's request, it is a contract of sale, even
though it may be entirely made after, and in
consequence of, the defendant's order for it. But if the
goods are to be manufactured especially for the
purchaser and upon his special order, and not for the
general market, the case is not within the statute.
Celestino Co vs. Collector

Celestino Co & Company is a duly registered general
copartnership engaged in the business doing business
under the trade name of "Oriental Sash Factory". It is
engaged in the manufacture of sash, door and window.
From 1946 to 1951, it paid percentage taxes of 7% on
the gross receipts of its sash, door and window factory,
in accordance with Section 186 of the National Revenue
Code, imposing taxes on sale of manufactured articles.

However in 1952, it began to claim liability only to the
contractor's 3% tax (instead of 7 per cent) under section
191 of the same Code; and having failed to convince the
Bureau of Internal Revenue, it brought the matter to the
Court of Tax Appeals, where it also failed.
The petitioner claims that it does not manufacture ready-
made sash, doors and windows for the public and that it
makes these articles only as special order of its
customers. Therefore, it should not be taxed as a seller
of its manufactured articles under section 186 of the
National Revenue Code, but as a contractor under
Section 191 of the same Code.

Whether the petitioner could be taxed as a seller or as a

That it manufactures ready-made sash, doors and
windows only as special orders does not make petitioner
a contractor within the purview of section 191 of the
national Internal Revenue Code. The business of
manufacturing sash, doors and windows upon special
order of customers does not fall under any of the
categories enumerated in the aforesaid section.
Section 191 of the Internal Revenue Code provides:
Percentage tax on road, building irrigation, artesian well,
waterworks, and other construction work contractors,
proprietors or operators of dockyards, and others.
Road, building, irrigation, artesian well, waterworks, and
other construction work contractors; filling contractors; ...
shall pay a tax equivalent to two (now three, as
amended by Rep. Act No. 588) per centum of their gross

The percentage tax imposed in section 191 of our Tax
Code is generally a tax on the sales of services, in
contradiction with the tax imposed in section 186 of the
same Code which is a tax on the original sales of articles
by the manufacturer, producer or importer. The fact that
the articles sold are manufactured by the seller does not
exchange the contract from the purview of section 186 of
the National Internal Revenue Code as a sale of articles.
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.

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 the people
ordering from them alone.

Petitioner 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".

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.

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.
CIR vs. Arnoldus Carpentry Shop

Arnoldus Carpentry Shop, Inc. is a domestic corporation
which has been in existence since 1960 which has for its
purpose the preparing, processing, buying, selling,
exporting, importing, manufacturing, trading and dealing
in cabinet shop products, wood and metal home and
office furniture, cabinets, doors, windows, etc., including
their component parts and materials, of any and all
nature and description. The company kept samples or
models of its woodwork on display from where its
customers may refer to when placing their orders.
On March 1979, the examiners from BIR who conducted
an investigation on the companys tax liabilities reported
that subject corporation should be considered a
contractor and not a manufacturer since the corporation
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. Hence, in the computation of
the percentage tax, the 3% contractors tax should be
imposed instead of the 7% manufacturers tax. However,
responded company holds that the carpentry shop is a
manufacturer and therefore entitled to tax exemption on
its gross export sales under Section 202 (e) of the
National Internal Revenue Code. CIR rendered its
decision classifying the respondent as contractor which
was in turn reversed by the CTA. Hence, this appeal.

Whether or not the Court of Tax Appeals erred in holding
that private respondent is a manufacturer and not a

The Supreme Court holds that the private respondent is
a manufacturer as defined in the Tax Code and not a
contractor under Section 205(e) of the Tax Code.

Petitioner CIR wants to impress upon this Court that
under Article 1467, the true test of whether or not the
contract is a piece of work (and thus classifying private
respondent as a contractor) or a contract of sale (which
would classify private respondent as a manufacturer) is
the mere existence of the product at the time of the
perfection of the contract such that if the thing already
exists, the contract is of sale, if not, it is work. This is not
the test followed in this jurisdiction. Based on Art. 1467,
what determines whether the contract is one of work or
of sale is whether the thing has been manufactured
specially for the customer and upon his special order.
Thus, if the thing is specially done at the order of
another, this is a contract for a piece of work. If, on the
other hand, the thing is manufactured or procured for the
general market in the ordinary course of ones business,
it is a contract of sale. 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 one who has ready for the sale to the
general public finished furniture is a manufacturer, and
the mere fact that he did not have on hand a particular
piece or pieces of furniture ordered does not make him a
contractor only.

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 a contract for a piece
of work. The facts show that the company had a ready
stock of its shop products for sale to its foreign and local
buyers. As a matter of fact, the purchase orders from its
foreign buyers showed that they ordered by referring to
the models designated by petitioner. Even purchases by
local buyers for television cabinets were by orders for
existing models except only for some adjustments in
sizes and accessories utilized.

The Court finds itself in agreement with CTA and as the
CTA did not err in holding that private respondent is a
manufacturer, then private respondent is entitled to the
tax exemption under See. 202 (d) and (e) now Sec. 167
(d) and (e)] of the Tax Code.
Engineering Machinery Corp. vs. CA

Pursuant to the contract dated September 10, 1962
between petitioner and private respondent (Ponciano
Almeda), the former undertook to fabricate, furnish and
install the air-conditioning system in the latter's building
along Buendia Avenue, Makati in consideration of
P210,000.00. Petitioner was to furnish the materials,
labor, tools and all services required in order to so
fabricate and install said system. The system was
completed in 1963 and accepted by private respondent,
who paid in full the contract price.

On September 2, 1965, Almeda sold the building to the
National Investment and Development Corporation
(NIDC). The latter took possession of the building but on
account of NIDC's noncompliance with the terms and
conditions of the deed of sale, private respondent was
able to secure judicial rescission thereof. The ownership
of the building having been decreed back to private
respondent, he re-acquired possession sometime in
1971. It was then that he learned from some NIDC
employees of the defects of the air-conditioning system
of the building.

Almeda, acting on this information, commissioned Engr.
David Sapico, who rendered a technical evaluation of
the system and concluded that it was not capable of
maintaining the desired room temperature. On the basis
of this report, Almeda filed an action for damages
against petitioner. Petitioner moved to dismiss the
complaint, alleging that the prescriptive period of six
months had set in pursuant to Articles 1566 and 1567, in
relation to Article 1571 of the Civil Code, regarding the
responsibility of a vendor for any hidden faults or defects
in the thing sold.

Private respondent countered that the contract dated
September 10, 1962 was not a contract for sale but a
contract for a piece of work under Article 1713 of the
Civil Code. Thus, in accordance with Article 1144 (1) of
the same Code, the complaint was timely brought within
the ten-year prescriptive period. The trial court rendered
a decision finding that petitioner failed to install certain
parts and accessories called for by the contract, and
deviated from the plans of the system, thus reducing its
operational effectiveness to the extent that 35 window-
type units had to be installed in the building to achieve a
fairly desirable room temperature. On the question of
prescription, the trial court ruled that the complaint was
filed within the ten-year court prescriptive period
although the contract was one for a piece of work,
because it involved the "installation of an air-conditioning
system which the defendant itself manufactured,
fabricated, designed and installed." Upon appeal, the CA
affirmed the decision of the trial court.

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"? (2)What is the
prescriptive period for filing actions for breach of the
terms of such contract?

(1) It is a contract for a piece of work. Article 1713 of
the Civil Code defines a contract for a piece of work

By the contract for a piece of work the contractor binds
himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or
also furnish the material. 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.

Justice Vitug explains that 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 a contract for a piece of work. To Tolentino,
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
obligations of a contractor for a piece of work are set
forth in Articles 1714 and 1715 of the Civil Code
whereas, the provisions on warranty against hidden
defects, referred to in Art. 1714 are found in Articles
1561 and 1566. 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.

(2) The general law on prescription, which is Art. 1144of
the Civil Code applies. 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. It
alleged that the petitioner, "in the installation of the air
conditioning system did not comply with the
specifications provided" in the written agreement
between the parties. The Court is persuaded to believe
the plaintiff that not only had the defendant failed to
install items and parts provided for in the specifications
of the air-conditioning system be installed, but also that
there are items, parts and accessories which were used
and installed on the air-conditioning system which were
not in full accord with contract specifications. These
omissions to install the equipments, parts and
accessories called for in the specifications of the
contract, as well as the deviations made in putting into
the air-conditioning system equipments, parts and
accessories not in full accord with the contract
specification naturally resulted to adversely affect the
operational effectiveness of the air-conditioning system
which necessitated the installation of thirty-five window
type of air-conditioning units distributed among the
different floor levels in order to be able to obtain a fairly
desirable room temperature for the tenants and actual
occupants of the building.

The Court opines and so holds that the failure of the
defendant to follow the contract specifications and said
omissions and deviations having resulted in the
operational ineffectiveness of the system installed
makes the defendant liable to the plaintiff in the amount
necessary to rectify to put the air conditioning system in
its proper operational condition to make it serve the
purpose for which the plaintiff entered into the contract
with the defendant. Having concluded that the original
complaint is one for damages arising from breach of a
written contract - and not a suit to enforce warranties
against hidden defects - we here - with declare that the
governing law is Article 1715 (supra). 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.
Dino vs. CA


business under the trade name "CANDY CLAIRE
FASHION GARMENTS", petitioners, vs. COURT OF
APPEALS and ROMAN SIO, doing business under
MANUFACTURING", respondents.

Petitioners spouses Dino, doing business under the
trade name "Candy Claire Fashion Garment" are
engaged in the business of manufacturing and selling
shirts. Respondent Roman Sio is part owner and
general manager of a manufacturing corporation doing
business under the trade name "Universal Toy Master

Petitioners and respondent Sio entered into a contract
whereby the latter would manufacture for the petitioners
20,000 pieces of vinyl frogs and 20,000 pieces of vinyl
mooseheads at P7.00 per piece in accordance with the
sample approved by the petitioners. These frogs and
mooseheads were to be attached to the shirts petitioners
would manufacture and sell.

Respondent Sio delivered in several installments the
40,000 pieces of frogs and mooseheads. The last
delivery was made on September 28, 1988. Petitioner
fully paid the agreed price. Subsequently, petitioners
returned to respondent 29,772 pieces of frogs and
mooseheads for failing to comply with the approved
sample. Petitioners then demanded from the respondent
a refund of the purchase price of the returned goods in
the amount of P208,404.00. respondent Sio refused to
pay. Petitioners claim that the Complaint they filed was
one for the collection of a sum of money. Respondent
contends that it was an action for breach of warranty as
the sum of money petitioners sought to collect was
actually a refund of the purchase price they paid for the
alleged defective goods they bought from the

Whether or not the contract was a sale or for a piece of

Yes. The Supreme Court ruled in favor of the

The following provisions of the New Civil Code are:

"Art. 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 a
contract for a piece of work."

"Art. 1713. By the contract for a piece of work the
contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or
compensation. The contractor may either employ only
his labor or skill, or also furnish the material."

As this Court ruled in Engineering & Machinery
Corporation v. Court of Appeals, et al., "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 contract
between the petitioners and respondent stipulated that
respondent would manufacture upon order of the
petitioners 20,000 pieces of vinyl frogs and 20,000
pieces of vinyl mooseheads according to the samples
specified and approved by the petitioners. Respondent
Sio did not ordinarily manufacture these products, but
only upon order of the petitioners and at the price agreed
upon. Clearly, the contract executed by and between the
petitioners and the respondent was a contract for a piece
of work.
Quiroga vs. Parsons Hardware Co.

Quiroga granted to defendant Parsons the right to sell as
an agent the Quiroga beds in the Visayas.

A contract in the following tenor was entered into by and
between the plaintiff and defendant:

ARTICLE 1. Don Andres Quiroga grants the exclusive
right to sell his beds in the Visayan Islands to J. Parsons
under the following conditions:

(A) Mr. Quiroga shall furnish beds of his manufacture to
Mr. Parsons for the latter's establishment in Iloilo, and
shall invoice them at the same price he has fixed for
sales, in Manila, and, in the invoices, shall make and
allowance of a discount of 25 per cent of the invoiced
prices, as commission on the sale; and Mr. Parsons
shall order the beds by the dozen, whether of the same
or of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the
beds received, within a period of sixty days from the
Qudate of their shipment.


Parsons was obliged under the contract to pay for the
beds within a specified period after delivery even when
not yet sold, at a discount of 25% as commission for the

Quiroga subsequently sought the rescission of the
agreement claiming that Parsons, as agent, had violated
its obligation to sell the beds at higher prices than those
of the invoices; to open an establishment in Iloilo; to
keep the beds on public exhibition, and to pay for the
advertisement expenses incurred; and to order the beds
in dozen and in no other manner.

Except for the ordering the beds in dozens, none of the
other obligations imputed to Parsons were expressly set
forth in the contract to serve as a basis for rescission
based on substantial breach.

However, Quiroga insisted that Parsons was his agent,
and that said obligations were implied from the
commercial agency or at least were instructed and
disobeyed. In other words, he invoked the essential
revocability of agency as his legal basis to rescind the

Whether Quiroga could rescind the contract depended
on whether it was one of sale or agency to sell.

WON the contract entered into by Quiroga and Parsons
was one of sale or agency to sell.

Contract of Sale

The Court found the arrangement to be one of SALE
since the essential clause provides that payment was to
be made at the end of sixty days, or before, at the
plaintiffs 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
conditions were precisely the essential features of a
contract of purchase and sale because there was the
obligation on the part of the Quiroga to supply the beds,
and, on the part of Parsons to PAY their price, thus:

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 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.

What is more, the Court noted that merely because by
their contract, the parties designated the arrangement as
an agency did not mean the characterization to be
conclusive, but it must be understood that a contract is
what the law defines it to be, and not what it is called by
the contracting parties.


From its very nature, sale is not unilaterally revocable,
whereas, a contract of agency to sell, because it covers
and underlying fiduciary relationship, is essentially
revocable, even in the presence of an irrevocability

In sale, the buyer himself PAYS for the price of the
object, which constitutes his main obligation; in an
agency to sell, the agent is NOT OBLIGED to pay the
price, and is merely obliged to DELIVER the price which
he may receive from the buyer.

In sale, the buyer, after delivery, becomes the owner of
the subject matter; in an agency to buy, the agent does
not become the owner of the thing subject of agency,
even if the object is delivered to him.

Puyat & Sons, Inc. vs. Arco Amusement

Arco Amusement Company, a corporation was engaged
in the business of operating cinematographs. On the
other hand, Gonzalo Puyat& Sons, Inc.,is another
corporation doing business and it was also acting as
exclusive agents in the Philippines for the Starr Piano
with petitioner and agreed that petitioner would order
sound reproducing equipmentfrom the Starr Piano
Company and that the plaintiff would pay the
defendant$1,700 as the price of the equipment, a 10
percent commission and out-of-pocket expenses.
Transactions for the second order were transpired for

After three years, in connection with a civil case in
Vigan, filed by one Fidel Reyes against the defendant
herein Gonzalo Puyat& Sons, Inc., the officials of the
Arco Amusement Company discovered that the price
quoted to them by the defendant with regard to their two
orders mentioned was not the net price but rather the list
price, and that the defendants had obtained a discount
from the Starr Piano Company. Moreover, by reading
reviews and literature on prices of machinery and
cinematograph equipment, said officials of the plaintiff
were convinced that the prices charged them by the
defendant were much too high including the charges for
out-of-pocket expense. For these reasons, they sought
to obtain a reduction from the defendant or rather a
reimbursement, and failing in this they brought the
present action.

Whether the contract between Puyat and Sons Co.
andArco Amusement Company is that of that agency or
a mere contract of sales.

The contract between the petitioner and the respondent
was one of purchase and sale, and not one of agency.
The letters, by which the respondent accepted the prices
of $1,700 and $1,600, respectively, 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. The
respondent admitted that the petitioner agreed to sell to
it the first sound reproducing equipment and machinery.
The third paragraph of the respondent's cause of action

3. That on or about November 19, 1929, the herein
plaintiff (respondent) and defendant (petitioner) entered
into an agreement, under and by virtue of which the
herein defendant was to secure from the United States,
and sell and deliver to the herein plaintiff, certain sound
reproducing equipment and machinery, for which the
said defendant, under and by virtue of said agreement,
was to receive the actual cost price plus ten per cent
(10%), and was also to be reimbursed for all out of
pocket expenses in connection with the purchase and
delivery of such equipment, such as costs of telegrams,
freight, and similar expenses.

We agree with the trial judge that "whatever unforseen
events might have taken place unfavorable to the
defendant (petitioner), 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, the plaintiff
(respondent) might still legally hold the defendant
(petitioner) to the prices fixed of $1,700 and $1,600."
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).
While the letters, state that the petitioner was to receive
ten per cent (10%) commission, this does not
necessarily make the petitioner an agent of the
respondent, as this provision is only an additional price
which the respondent bound itself to pay, and which
stipulation is not incompatible with the contract of
purchase and sale. (See Quiroga vs. Parsons Hardware
Co., 38 Phil., 501.)

In the second place, to hold the petitioner an agent of
the respondent in the purchase of equipment and
machinery from the Starr Piano Company of Richmond,
Indiana, 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 indicated do not point to anything but
plain ordinary transaction where the respondent enters
into a contract of purchase and sale with the petitioner,
the latter as exclusive agent of the Starr Piano Company
in the United States.

It follows that the petitioner as vendor is not bound to
reimburse the respondent as vendee for any difference
between the cost price and the sales price which
represents the profit realized by the vendor out of the
transaction. This is the very essence of commerce
without which merchants or middleman would not exist.
Ker & Co., Ltd. vs. Lingad as Acting Commissioner
of Internal Revenue

Petitioner Ker & Co., Ltd. was assessed by the then
Commissioner of Internal Revenue Melecio R. Domingo
the sum of P20,272.33 as the commercial broker's
percentage tax, surcharge, and compromise penalty for
the period from July 1, 1949 to December 31, 1953.

In his answer upon appeal, the then Commissioner
Domingo maintained his stand that petitioner should be
taxed in such amount as a commercial broker. In the
decision now under review, promulgated on October 19,
1962, the Court of Tax Appeals held petitioner taxable
except as to the compromise penalty of P500.00, the
amount due from it being fixed at P19, 772.33.

Such liability arose from a contract of petitioner with the
United States Rubber International (USRI for brevity),
the petitioner being referred to as the Distributor and
USRI specifically designated as the Company. The
contract was to apply to transactions between the two,
as Distributor, from July 1, 1948 to continue in force until
terminated by either party giving to the other sixty days'

The crucial stipulation of the contract states as follows:

"The Company shall from time to time consign to the
Distributor and the Distributor will receive, accept and/or
hold upon consignment the products specified under the
terms of this agreement in such quantities as in the
judgment of the Company may be necessary for the
successful solicitation and maintenance of business in
the territory, and the Distributor agrees that responsibility
for the final sole of all goods delivered shall rest with
sale price of all goods sold less the discount given to the
Distributor by the Company in accordance with the
provision of paragraph 13 of this agreement, whether or
not such sale price shall have been collected by the
Distributor from the purchaser or purchasers, shall
immediately be paid and remitted by the Distributor to
the Company.

It is further agreed that this agreement DOES NOT
PURPOSE WHATSOEVER. Distributor is not granted
any right or authority to assume or to create any
obligation or responsibility, express or implied, in
behalf of or in the name of the company, or to bind
the company in any manner or thing whatsoever."

Whether the relationship thus created is one of vendor
and vendee or of broker and principal.


Broker and Principal

Not that there would have been the slightest doubt were
it not for the categorical denial in the contract that
petitioner was not constituted as "the agent or legal
representative of the Company for any purpose
whatsoever." It would be, however, to impart to such an
express disclaimer a meaning it should not possess to
ignore what is manifestly the role assigned to petitioner
considering the instrument as a whole. That would be to
lose sight altogether of what has been agreed upon. The
Court of Tax Appeals was not misled in the language of
the decision now on appeal: "That the petitioner Ker &
Co., Ltd. is, by contractual stipulation, AN AGENT
the facts that petitioner 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 and in other
circumstances clearly stipulated in the contract.
Hence its conclusion, upon analysis of the contract,
as a whole, together with the actual conduct of the
parties in respect thereto, we have arrived at the
conclusion that the relationship between them is

The controlling decision as to the test to be followed as
to who falls within the above definition of a commercial
broker is that of Commissioner of Internal Revenue v.
Constantino. to wit:

"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 company's control, the relationship
between the company and the dealer is one of agency.

An excerpt from Salisbury v. Brooks cited in support of
such a view follows:

The decisions say the transfer of title or agreement
to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in
the attitude or position of an owner and makes him liable
to the transferor as a debtor for the agreed price, and not
merely as an agent who must account for the proceeds
of a resale, THE TRANSACTION IS A SALE; while the
essence of an agency to sell is THE DELIVERY TO
owner and has the right to control sales, fix the price,
and terms, demand and receive the proceeds less the
agent's commission upon sales made.' "

The Constantino opinion could categorically affirm that
the mere disclaimer in a contract that an entity like
petitioner is not "the agent or legal representative for any
purpose whatsoever" does not suffice to yield the
conclusion that it is an independent merchant if the
control over the goods for resale of the goods

SPEAK QUITE CLEARLY. There is lacking that degree
of ambiguity sufficient to give rise to serious doubt as to
what was contemplated by the parties. A READING
AND PURCHASER. If it were thus intended, then it
would not have included covenants which in their totality
would negate the concept of a firm acquiring as vendee
goods from another. Instead, the stipulations were so
worded as to lead to no other conclusion than that the
control by the United States Rubber International over
the goods in question is, in the language of the
Constantino opinion, "pervasive". The insistence on a
relationship opposed to that apparent from the language
employed might even yield the impression that such a
mode of construction was resorted to in order that the
applicability of a taxing statute might be rendered
nugatory. Certainly, such a result is to be avoided.

WHEREFORE, the Court of Tax Appeals decision of
October 19, 1962 is affirmed.
Schmid & Oberly, Inc. vs. RJL Martinez Fishing

RJL Martinez Fishing Corporation is engaged in deep-
sea fishing, and in the course of its business, needed
electrical generators for the operation of its business

Schmid & Oberly, Inc sells electrical generators with the
brand of "Nagata", a Japanese product - they advertised
such generator

Negotiations between them for the acquisition thereof
took place. The parties had two separate transactions
over "Nagata"-brand generators.

First transaction was the sale of three (3) generators -
not disputed that SCHMID was the vendor of the

Second transaction, which gave rise to the present
controversy, involves twelve (12) "Nagata"-brand

Stipulated that payment would be made by confirming an
irrevocable letter of credit in favor of NAGATA CO. +
another condition stated in the event the shippers are
unable to ship within the specified period due to strikes,
lack of shipping space or other circumstances beyond
their reasonable control, Buyer agrees to extend the said
Letter of Credit for later shipment.

RJL agreed to said terms so Schmid transmitted to
NAGATA CO. an order for the twelve (12) generators to
be shipped directly to RJL MARTINEZ.

For its efforts, SCHMID received from NAGATA CO. a
commission of $1,752.00 for the sale of the twelve
generators to RJL MARTINEZ.

All fifteen (15) generators subject of the two transactions
burned out after continuous use.

Tests revealed that the generators were overrated -
actual capacity was only 4 KVA contrary to the supposed
capacity of 5 KVA

SCHMID replaced the three (3) generators subject of the
first sale.

As for the twelve (12) generators subject of the second
transaction - 3 were repaired while the remaining 9 were
neither repaired nor replaced.

In Lieu of this, RJL MARTINEZ thereafter formally
demanded that it be refunded the cost of the generators
and paid damages to which Schmid refused as it was
not the seller of the 12 generators.

RTC and CA
SCHMID was the vendor in the second transaction and
was liable under its warranty. Accordingly, the courts a
quo rendered judgment in favor of RJL MARTINEZ.

WON the second transaction between RJL and Schmid
was a sale or an indent transaction.

The Civil Code defines a contract of sale, thus:
ART. 458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

Essence of the contract of sale is transfer of title or
agreement to transfer it for a price paid or promised.

Rules and Regulations to Implement Presidential Decree
No. 1789 - Indentor is a middlemen in the same class
as commercial brokers and commission merchants.

An indentor may therefore be best described as one
who, for compensation, acts as a middleman in bringing
about a purchase and sale of goods between a foreign
supplier and a local purchaser.

SCHMID therefore was not a vendor, but was merely
an indentor, in the second transaction. Not being the
vendor, SCHMID cannot be held liable for the implied
warranty for hidden defects under the Civil Code [Art.

The second transaction is significantly different from the
first transaction wherein SCHMID delivered the goods
from its own stock (which it had itself imported from
NAGATA CO.), issued its own invoice, and collected
payment directly from the purchaser.

In contrast to its act of replacing the three (3) generators
subject of the first transaction, SCHMID did not replace
any of the twelve (12) generators, but merely rendered
assistance to both RJL TINES and NAGATA CO. so that
the latter could repair the defective generators.

HOWEVER - SCHMID may be held answerable for
some other contractual obligation, if indeed it had so
bound itself.

RJL has failed to prove that SCHMID had given a
warranty on the twelve (12) generators subject of the
second transaction. Even assuming that a warranty was
given, there is no way to determine whether there has
been a breach thereof, considering that its nature or
terms and conditions have not been shown.
Victorias Milling Co. vs. CA and Consolidated Sugar

St. Therese Merchandising (STM) regularly bought
sugar from petitioner Victorias Milling Co., Inc., (VMC).
In the course of their dealings, petitioner issued several
Shipping List/Delivery Receipts (SLDRs) to STM as
proof of purchases. Among these was SLDR No. 1214M,
which gave rise to the instant case. On October 16,
1989, SLDR No. 1214M covers 25,000 bags of sugar.
The transaction it covered was a "direct sale."
On October 25, 1989, STM sold to private respondent
Consolidated Sugar Corporation (CSC) its rights in
SLDR No. 1214M for P 14,750,000.00. CSC issued one
check dated October 25, 1989 and three checks
postdated in payment. That same day, CSC wrote
petitioner that it had been authorized by STM to
withdraw the sugar covered by SLDR No. 1214M.
Enclosed in the letter were a copy of SLDR No. 1214M
and a letter of authority from STM authorizing CSC "to
withdraw for and in our behalf the refined sugar covered
by Shipping List/Delivery Receipt-Refined Sugar (SDR)
No. 1214 dated October 16, 1989 in the total quantity of
25,000 bags."

On October 27, 1989, STM issued 16 checks in the total
amount of P31,900,000.00 with petitioner as payee.
Private respondent CSC surrendered SLDR No. 1214M
to the petitioner's warehouse and was allowed to
withdraw sugar. However, after 2,000 bags had been
released, petitioner refused to allow further withdrawals
of sugar against SLDR No. 1214M. CSC then sent
petitioner a letter informing that it had been refused
further withdrawals of sugar from petitioner's warehouse
despite the fact that only 2,000 bags had been
withdrawn. CSC thus inquired when it would be allowed
to withdraw the remaining 23,000 bags.

Petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because
STM had already withdrawn all the sugar covered by the
cleared checks.

Seven days later, petitioner reiterated that all the sugar
corresponding to the amount of STM's cleared checks
had been fully withdrawn and hence, there would be no
more deliveries of the commodity to STM's account.
Petitioner also noted that CSC had represented itself to
be STM's agent as it had withdrawn the 2,000 bags
against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific
performance, CSC's complaint alleged that STM had
fully paid VMC for the sugar covered by SLDR No.
1214M. Therefore, the latter had no justification for
refusing delivery of the sugar. CSC prayed that petitioner
be ordered to deliver the 23,000 bags covered by SLDR
No. 1214M.

Petitioner's primary defense a quo was that it was an
unpaid seller for the 23,000 bags. Since STM had
already drawn in full all the sugar corresponding to the
amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner
also contended that it had no privity of contract with

Petitioner explained that the SLDRs, which it had issued,
were not documents of title, but mere delivery receipts
issued pursuant to a series of transactions entered into
between it and STM. The SLDRs prescribed delivery of
the sugar to the party specified therein and did not
authorize the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the
SLDR and was actually STM's co-conspirator to defraud
it through a misrepresentation that CSC was an innocent
purchaser for value and in good faith.

The trial court rendered its judgment favoring private
respondent CSC.

Court of appeals modified the ruling of the trial court and
both parties filed for motion for reconsideration.
WON the Court of Appeals erred in not ruling that CSC
was an agent of STM and hence, estopped to sue upon
SLDR No. 1214M as an assignee.

WON the Court of Appeals erred in applying the law on
compensation to the transaction under SLDR No. 1214M
so as to preclude petitioner from offsetting its credits on
the other SLDRs.

WON Whether or not the Court of Appeals erred in not
ruling that the sale of sugar under SLDR No. 1214M was
a conditional sale or a contract to sell and hence freed
petitioner from further obligations.

Anent the first issue, petitioner heavily relies upon STM's
letter of authority allowing CSC to withdraw sugar
against SLDR No. 1214M to show that the latter was
STM's agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or
its representative to withdraw for and in our behalf
(stress supplied) the refined sugar covered by Shipping
List/Delivery Receipt = Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25, 000

The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent
or authority of the latter."

It is clear from Article 1868 that the basis of agency is
representation. On the part of the principal, there must
be an actual intention to appoint or an intention naturally
inferable from his words or actions; and on the part of
the agent, there must be an intention to accept the
appointment and act on it, and in the absence of such
intent, there is generally no agency. One factor which
most clearly distinguishes agency from other legal
concepts is control; one person - the agent - agrees to
act under the control or direction of another - the
principal. Indeed, the very word "agency" has come to
connote control by the principal. The control factor, more
than any other, has caused the courts to put contracts
between principal and agent in a separate category. The
Court of Appeals, in finding that CSC, was not an agent
of STM, opined:

"This Court has ruled that where the relation of agency is
dependent upon the acts of the parties, the law makes
no presumption of agency, and it is always a fact to be
proved, with the burden of proof resting upon the
persons alleging the agency, to show not only the fact of
its existence, but also its nature and extent (Antonio vs.
Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant
failed to sufficiently establish the existence of an agency
relation between plaintiff-appellee and STM. The fact
alone that it (STM) had authorized withdrawal of sugar
by plaintiff-appellee "for and in our (STM's) behalf"
should not be eyed as pointing to the existence of an
agency relation ...It should be viewed in the context of all
the circumstances obtaining. Although it would seem
STM represented plaintiff-appellee as being its agent by
the use of the phrase "for and in our (STM's) behalf" the
matter was cleared when on 23 January 1990, plaintiff-
appellee informed defendant-appellant that SLDFR No.
1214M had been "sold and endorsed" to it by STM.

Further, plaintiff-appellee has shown that the 25, 000
bags of sugar covered by the SLDR No. 1214M were
sold and transferred by STM to it ...A conclusion that
there was a valid sale and transfer to plaintiff-appellee
may, therefore, be made thus capacitating plaintiff-
appellee to sue in its own name, without need of joining
its imputed principal STM as co-plaintiff."

In the instant case, it appears plain to us that private
respondent CSC was a buyer of the SLDFR form, and
not an agent of STM. Private respondent CSC was not
subject to STM's control. The question of whether a
contract is one of sale or agency depends on the
intention of the parties as gathered from the whole scope
and effect of the language employed. That the
authorization given to CSC contained the phrase "for
and in our (STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the parties.
That no agency was meant to be established by the
CSC and STM is clearly shown by CSC's communication
to petitioner that SLDR No. 1214M had been "sold and
endorsed" to it. The use of the words "sold and
endorsed" means that STM and CSC intended a
contract of sale, and not an agency. Hence, on this
score, no error was committed by the respondent
appellate court when it held that CSC was not STM's
agent and could independently sue petitioner.

On the second issue, proceeding from the theory that
the transactions entered into between petitioner and
STM are but serial parts of one account, petitioner
insists that its debt has been offset by its claim for STM's
unpaid purchases, pursuant to Article 1279 of the Civil

However, the trial court found, and the Court of Appeals
concurred, that the purchase of sugar covered by SLDR
No. 1214M was a separate and independent transaction;
it was not a serial part of a single transaction or of one
account contrary to petitioner's insistence. Evidence on
record shows, without being rebutted, that petitioner had
been paid for the sugar purchased under SLDR No.
1214M. Petitioner clearly had the obligation to deliver
said commodity to STM or its assignee. Since said sugar
had been fully paid for, petitioner and CSC, as assignee
of STM, were not mutually creditors and debtors of each

Regarding the third issue, petitioner contends that the
sale of sugar under SLDR No. 1214M is a conditional
sale or a contract to sell, with title to the sugar still
remaining with the vendor. Noteworthy, SLDR No.
1214M contains the following terms and conditions:
"It is understood and agreed that by payment by
buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to
buyer/trader and delivery to him/it is deemed effected
and completed (stress supplied) and buyer/trader
assumes full responsibility therefore"

The aforequoted terms and conditions clearly show that
petitioner transferred title to the sugar to the buyer or his
assignee upon payment of the purchase price. Said
terms clearly establish a contract of sale, not a contract
to sell. Petitioner is now estopped from alleging the