CIR vs.

Arnoldus Carpentry
G.R. No. 71122 March 25, 1988
Facts: Arnoldus Carpentry Shop, Inc. is a domestic corporation which has been in
existence since 1960. It has for its secondary 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." These furnitures, cabinets and other woodwork were sold locally and
exported abroad. For this business venture, Arnoldus kept samples or models of its
woodwork on display from where its customers may refer to when placing their
orders.
Sometime in March 1979, the examiners of the Commissioner of Internal Revenue
(CIR) conducted an investigation of the business tax liabilities of Arnoldus pursuant
to Letter of Authority. Later Arnoldus received a letter/notice of tax deficiency
assessment inclusive of charges and interest for the year 1977 in the amount of P
108,720.92. This tax deficiency was a consequence of the 3% tax imposed on
Arnoldus gross export sales which, in turn, resulted from the examiners' finding
that categorized Arnoldus as a contractor. Against this assessment, Arnoldus filed a
protest with the CIR. In the protest letter, Arnoldus manager maintained that the
carpentry shop is a manufacturer and therefor entitled to tax exemption on its gross
export sales under Section 202 (e) of the National Internal Revenue Code. He
explained that it was the 7% tax exemption on export sales which prompted private
respondent to exploit the foreign market which resulted in the increase of its foreign
sales to at least 52% of its total gross sales in 1977. Arnoldus protest with the CIR
was denied, which prompted it to appeal the case to the Court of Tax Appeal which
subsequently also denied Arnoldus protest.
Issue: Whether Arnoldus is a contractor or a manufacturer?
Held: Arnoldus is a "manufacturer" as defined in the Tax Code and not a
"contractor" under Section 205(e) of the Tax Code as the CIR would have the Court
decide. Arnoldus business does not fall under the definition of independent
contractors. CIR wants to impress upon the Court that under Art. 1467 of the NCC,
the true test of whether or not the contract is a piece of work or a contract of sale 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. 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.

Swedish Match vs. Court of Appeals

G.R. No. 128120. October 20, 2004
Facts: Swedish Match, AB (SMAB) is a corporation organized under the laws of
Sweden not doing business in the Philippines. SMAB, however, had three subsidiary
corporations in the Philippines, one being Phimco. Sometime in 1988, STORA, then
parent company of SMAB, decided to sell SMAB to Eemland Management Services,
now known as Swedish Match NV of Netherlands, (SMNV). SMNV adopted a twopronged strategy, the first being to sell its shares in Phimco and the other move was
to sell at once or in one package all the SMNV companies worldwide which were
engaged in match and lighter operations thru a global deal.
Ed Enriquez was commissioned and granted full powers to negotiate by SMNV, with
the resulting transaction, however, made subject to final approval by the board.
Enriquez was held under strict instructions that the sale of Phimco shares should be
executed on or before 30 June 1990, in view of the tight loan covenants of SMNV.
Enriquez came to the Philippines in November 1989 and informed the Philippine
financial and business circles that the Phimco shares were for sale. Several
interested parties tendered offers to acquire the Phimco shares, among whom were
the AFP Retirement and Separation Benefits System, herein respondent ALS
Management & Development Corporation and respondent Antonio Litonjua
(Litonjua), the president and general manager of ALS.
In a letter Litonjua submitted to SMAB a firm offer to buy all of the latters shares in
Phimco and all of Phimcos shares in the other two subsidiary company for the sum
of P750,000,000.00. Through its CEO, Massimo Rossi, SMAB, in its letter dated 1
December 1989, thanked respondents for their interest in the Phimco shares and
informed respondents that their price offer was below their expectations but urged
them to undertake a comprehensive review and analysis of the value and profit
potentials of the Phimco shares, with the assurance that respondents would enjoy a
certain priority although several parties had indicated their interest to buy the
shares. Thereafter, an exchange of correspondence ensued between petitioners and
respondents regarding the projected sale of the Phimco shares. Two days prior to
the deadline for submission of the final bid, Litonjua advised Rossi that they would
be unable to submit the final offer by the deadline, considering that the acquisition
audit of Phimco and the review of the draft agreements had not yet been
completed. Enriquez sent notice to Litonjua that they would be constrained to
entertain bids from other parties in view of Litonjuas failure to make a firm
commitment for the shares of Swedish Match in Phimco by 30 June 1990. In a letter
dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a
conditional contract with a local group for the disposal of Phimco. He told Litonjua
that his bid would no longer be considered unless the local group would fail to
consummate the transaction on or before 15 September1990.

Apparently irked by SMABs decision to junk his bid, Litonjua asserted that, for all
intents and purposes, the US$36 million bid which he submitted on 21 May 1990
was their final bid based on the financial statements for the year 1989. He pointed
out that they submitted the best bid and they were already finalizing the terms of
the sale. He stressed that they were firmly committed to their bid of US$36 million
and if ever there would be adjustments in the bid amount, the adjustments were
brought about by SMABs subsequent disclosures and validated accounts, such as
the aspect that only ninety-six percent (96%) of Phimco shares was actually being
sold and not one-hundred percent (100%).
More than two months from receipt of Litonjuas last letter, Enriquez sent a fax
communication to the former, advising him that the proposed sale of SMABs shares
in Phimco with local buyers did not materialize. Enriquez then invited Litonjua to
resume negotiations with SMAB for the sale of Phimco shares. He indicated that
SMAB would be prepared to negotiate with ALS on an exclusive basis for a period of
fifteen (15) days from 26 September 1990 subject to the terms contained in the
letter. Additionally, Enriquez clarified that if the sale would not be completed at the
end of the 15-day period, SMAB would enter into negotiations with other buyers.
Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new
set of terms and conditions for the sale of the Phimco shares. He emphasized that
the new offer constituted an attempt to reopen the already perfected contract of
sale of the shares in his favor. He intimated that he could not accept the new terms
and conditions contained therein.
In its Order dated 17 April 1991, the RTC dismissed respondents complaint. It ruled
that there was no perfected contract of sale between petitioners and respondents.
The court a quo said that the letter dated 11 June 1990, relied upon by respondents,
showed that petitioners did not accept the bid offer of respondents as the letter was
a mere invitation for respondents to conduct a due diligence process or preacquisition audit of Phimcos match and forestry operations to enable them to
submit their final offer on 30 June 1990. Assuming that respondents bid was favored
by an oral acceptance made in private by officers of SMAB, the trial court noted,
such acceptance was merely preparatory to a formal acceptance by the SMABthe
acceptance that would eventually lead to the execution and signing of the contract
of sale. Moreover, the court noted that respondents failed to submit their final bid
on the deadline set by petitioners.
Issue: Whether the series of written communications between petitioners and
respondents collectively constitute a valid contract of sale?
Held: No. A contract of sale requires the concurrence of three elements, consent or
meeting of the minds, that is, consent to transfer ownership in exchange for the
price, determinate subject matter, and price certain in money or its equivalent.
Such contract is born from the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. In general, contracts undergo

three distinct stages, negotiation, perfection or birth, and consummation.

Negotiation begins from the time the prospective contracting parties manifest their
interest in the contract and ends at the moment of agreement of the parties.
Perfection or birth of the contract takes place when the parties agree upon the
essential elements of the contract. Consummation occurs when the parties fulfil or
perform the terms agreed upon in the contract, culminating in the extinguishment
thereof. Litonjua repeatedly stressed in his letters that they would not be able to
submit their final bid by 30 June 1990.With indubitable inconsistency, respondents
later claimed that for all intents and purposes, the US$36 million was their final bid.
If this were so, it would be inane for Litonjua to state, as he did, in his letter dated
28 June 1990 that they would be in a position to submit their final bid only on 17
July 1990. The lack of a definite offer on the part of respondents could not possibly
serve as the basis of their claim that the sale of the Phimco shares in their favor was
perfected, for one essential element of a contract of sale was obviously wanting the
price certain in money or its equivalent. The price must be certain, otherwise there
is no true consent between the parties. There can be no sale without a price.
Granting arguendo, that the amount of US$36 million was a definite offer, it would
remain as a mere offer in the absence of evidence of its acceptance. To produce a
contract, there must be acceptance, which may be express or implied, but it must
not qualify the terms of the offer. The acceptance of an offer must be unqualified
and absolute to perfect the contract. In other words, it must be identical in all
respects with that of the offer so as to produce consent or meeting of the minds.
Olaguer vs. Puruganan
G.R. No. 158907 February 12, 2007
Facts: Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock
of Businessday Corporation with a total par value of P600,000.00. At the time he
was employed with the corporation as Executive Vice-President of Businessday, and
President of Businessday Information Systems and Services and of Businessday
Marketing Corporation, petitioner, together with respondent Raul Locsin and Enrique
Joaquin, was active in the political opposition against the Marcos dictatorship.
Anticipating the possibility that petitioner would be arrested and detained by the
Marcos military, Locsin, Joaquin, and Hector Holifea had an unwritten agreement
that, in the event that petitioner was arrested, they would support the petitioners
family by the continued payment of his salary. Olaguer also executed a Special
Power of Attorney appointing as his attorneys-in-fact Locsin, Joaquin and Hofilea
for the purpose of selling or transferring his shares of stock with Businessday. The
parties acknowledged the SPA before respondent Emilio Purugganan, Jr., who was
then the Corporate Secretary of Businessday, and at the same time, a notary public
for Quezon City. Olaguer was arrested by the military and detained for allegedly
committing arson. During his detention, Locsin ordered Purugganan to cancel the
Olaguers shares in the books of the corporation and to transfer them to Locsins
name. Locsin even sent an employee of Businessday, Fernando, to Camp Crame to
pretend to borrow Olaguers certificate of stock for the purpose of using it as

additional collateral for Businessdays then outstanding loan with the National
Investment and Development Corporation. When the borrowed stock certificate was
returned, the word "cancelled" was already written therein. When the Olaguer
became upset, it explained that this was merely a mistake committed by Locsins
secretary. But by the time Olaguer was released from prison 6 years later, he was
no longer a shareholder.
According to the respondents, they were just doing what was accorded in the SPA,
given that the price of the shares plummeted below market value because of the
stigma brought about by Olaguer being a very prominent oppositionist. In view of
petitioners previous instructions, Locsin decided to buy the shares himself.
Although the capital deficiency suffered by Businessday caused the book value of
the shares to plummet below par value, Locsin, nevertheless, bought the shares at
par value. However, he had to borrow from Businessday the funds he used in
purchasing the shares from petitioner, and had to pay the petitioner in installments
of P10,000.00 every 15th and 30th of each month.
Issue: Whether there was a valid contract of sale for the shares of stock owned by
Olaguer to Locsin?
Held: Yes. Olaguer argues that the records failed to show that he gave his consent
to the sale of the shares to Locsin for the price of P600,000.00. This argument is
unsustainable. Olaguer received from Locsin, through his wife and in-laws, the
installment payments for a total of P600,000.00 from 1980 to 1982, without any
protest or complaint. It was only four years after 1982 when Olaguer demanded the
return of the shares. Olaguer claim that he did not instruct Locsin to deposit the
money to the bank accounts of his in-laws fails to prove that petitioner did not give
his consent to the sale since Locsin was authorized, under the SPA, to negotiate the
terms and conditions of the sale including the manner of payment. Moreover, had
Locsin given the proceeds directly to Olaguer, as the latter suggested in this
petition, the proceeds were likely to have been included among the properties
which were confiscated by the military. Instead, Locsin deposited the money in the
bank accounts of Olaguers in-laws, and consequently, assured that the Olaguers
wife received these amounts. In addition, Olaguer made two inconsistent
statements when he alleged that Locsin had not asked him to endorse and deliver
the shares of stock, and when Fernando asked the Olaguer to endorse and deliver
the certificates of stock, but he refused and even became upset. In either case, both
statements only prove that Olaguer refused to honor his part as seller of the shares,
even after receiving payments from the buyer. Had Olaguer not known of or given
his consent to the sale, he would have given back the payments as soon as
Fernando asked him to endorse and deliver the certificates of stock, an incident
which unequivocally confirmed that the funds he received, through his wife and his
in-laws, were intended as payment for his shares of stocks. Instead, he held on to
the proceeds of the sale after it had been made clear to him that Locsin had

considered the P600,000.00 as payment for the shares, and asked Olaguer, through
Fernando, to endorse and deliver the stock certificates for cancellation.
EDCA vs. Spouses Santos
G.R. No. 80298 April 26, 1990
Facts: A person identifying himself as Professor Jose Cruz and dean of De la Salle
College placed an order by telephone with EDCA for 406 books, payable on delivery.
EDCA prepared and delivered the same together with an invoice. In turn Cruz issued
a personal check covering the purchase price of P8,995.65. Cruz then sold 120 of
the books to private respondent Leonor Santos who, after verifying the seller's
ownership from the invoice he showed her, paid him P1,700.00. EDCA made an
inquiry with the De la Salle College was informed that there was no such person in
its employ Further verification revealed that Cruz had no more account or deposit
with the Philippine Amanah Bank, against which he had drawn the payment check.
EDCA then went to the police, which set a trap and arrested Cruz. Investigation
disclosed his real name as Tomas de la Pea and his sale of 120 of the books he had
ordered from EDCA to Santos. EDCA and the police went to Santos store and seized
the subject books. Spouses Sanos sued for recovery of the books after demand for
their return was rejected by EDCA. EDCA argues that it was unlawfully deprived of
the books, because the impostor acquired no title to the books and that he could
not have validly transferred the books to the private respondents.
Issue:Whether EDCA has been unlawfully deprived of the books because the check
issued by the impostor in payment therefor was dishonoured?
Held: The contract of sale is consensual and is perfected once agreement is
reached between the parties on the subject matter and the consideration. It is clear
from Articles 1475, 1477-78 of the NCC that ownership in the thing sold shall not
pass to the buyer until full payment of the purchase only if there is a stipulation to
that effect. Otherwise, the rule is that such ownership shall pass from the vendor to
the vendee upon the actual or constructive delivery of the thing sold even if the
purchase price has not yet been paid. Non-payment only creates a right to demand
payment or to rescind the contract, or to criminal prosecution in the case of
bouncing checks. But absent the stipulation above noted, delivery of the thing sold
will effectively transfer ownership to the buyer who can in turn transfer it to
another. Actual delivery of the books having been made, Cruz acquired ownership
over the books which he could then validly transfer to the spouses Santos. The fact
that he had not yet paid for them to EDCA was a matter between him and EDCA and
did not impair the title acquired by the spouses Santos to the books.
Tanongon vs. Samson
G.R. No. 140889. May 9, 2002
Facts: Cayco Marine Service is engaged in the business of hauling oil. It is owned
and operated by Iluminada Cayco Olizon. Felicidad Samson, Casiano A. Osin, Alberto
Belbes, and Luisito Venus were among the employees of Cayco and filed a

complaint against their employer for illegal dismissal, underpayment of wages, nonpayment of holiday pay, rest day pay and leave pay. NLRC directed Cayco and
Olizon to pay the complainants, separation pay, backwages, and, 5 days service
incentive leave pay limited to the three (3) years back from the filing of the
complaint.
Cayco and Olizon sought reconsideration of the NLRCs decision but it proved futile.
On appeal to the Supreme Court, the Court resolved to deny the petition for noncompliance with a Supreme Court Circular and also for the failure of Cayco and
Olizon to establish grave abuse of discretion on the part of the NLRC. Accordingly,
the decision of the NLRC became final and executory on April 29, 1997 and a writ of
execution was issued directing the NLRC sheriff to collect from Cayco and Olizon.
After the notice of levy/sale on execution of personal property was issued, a motor
tanker, owned by Olizon was seized, to be sold at public auction however a certain
Dorotea Tanongon filed a third party claim before the labor arbiter, alleging that she
was the owner of the subject motor tanker, having acquired the same from Olizon
on July 29, 1997, for and in consideration of P1,100,000.00.
Issue: Whether or not Tanongon is a buyer in good faith and for value?
Held: No. There is sufficient basis that petitioner was a buyer in bad faith. The
judgment favoring respondents against Cayco and Olizon was rendered on July 18,
1996, and affirmed by this Court via a January 15, 1997 Resolution. The Writ of
Execution was issued by the labor arbiter on July 24, 1997. The sale of the levied
tanker, however, was made only on July 29, 1997. Olizon act was a cavalier attempt
to evade payment of the judgment debt. She obviously got word of the issuance of
the Writ and disposed of the tanker to prevent its sale on execution. Despite
knowledge of these antecedents, Tanongon bought the tanker barely ten days
before it was levied upon on August 8, 1997.It is not only the proximity in time that
supports this finding. Under Article 1387 of the Civil Code, alienations by onerous
title are presumed to be fraudulent when done by persons against whom some
judgment has been rendered or some writ of attachment issued in any instance. It
was stress that in the present case, the Writ of Attachment has been issued, the
levy already made and, as will later be discussed, the property still in the name of
Olizon and Cayco. It is also more than coincidental that the purchase price for the
tanker was P1,100,000.00, while Olizons judgment debt to respondents amounted
to P1,192,422.55.
A purchaser in good faith or an innocent purchaser for value is one who buys
property and pays a full and fair price for it at the time of the purchase or before
any notice of some other persons claim on or interest in it. Tanongon should have
inquired whether Olizon had other unsettled obligations and encumbrances that
could burden the subject property. Any person engaged in business would be wary
of buying from a company that is closing shop, because it may be dissipating its
assets to defraud its creditors.