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DIGEST: Celestino Co vs CIR

Celestino Co vs CIR (G.R. No. L-8506)


Subject: Sales
Doctrine: Contract for Piece-of-work
Facts: Celestino Co & Company is a duly registered general co-partnership doing
business under the trade name of Oriental Sash Factory. From 1946 to 1951 it
paid percentage taxes of 7% on the gross receipts of its sash, door and window
factory, in accordance with sec. 186 of the National Internal Revenue Code which is
a tax on the original sales of articles by manufacturer, producer or importer.
However, in 1952 it began to claim only 3% tax under Sec. 191, which is a tax on
sales of services. Petitioner claims that it does not manufacture ready-made doors,
sash and windows for the public, but only upon special orders from the customers,
hence, it is not engaged in manufacturing under sec 186, but only in sales of
services covered by sec 191. Having failed to convince BIR, petitioner went to the
Court of Tax Appeal where it also failed. CTA, in its decision, holds that the
petitioner has chosen for its tradename and has offered itself to the public as a
Factory, which means it is out to do business, in its chosen lines on a big scale. As
a general rule, sash factories receive orders for doors and windows of special design
only in particular cases but the bulk of their sales is derived from a ready-made
doors and windows of standard sizes for the average home.. Even if we were to
believe petitioners claim that it does not manufacture ready-made sash, doors and
windows for the public and that it makes these articles only special order of its
customers, that does not make it a contractor within the purview of section 191 of
the national Internal Revenue Code there are no less than fifty occupations
enumerated in the aforesaid sectionand after reading carefully each and every
one of them, we cannot find under which the business of manufacturing sash, doors
and windows upon special order of customers fall under the category mentioned
under Sec 191.
Issue: Whether the petitioner company provides special services or is engaged in
manufacturing.
Held: The important thing to remember is that Celestino Co & Company habitually
makes sash, windows and doors, as it has represented in its stationery and
advertisements to the public. That it manufactures the same is practically
admitted by appellant itself. The fact that windows and doors are made by it only

when customers place their orders, does not alter the nature of the establishment,
for it is obvious that it only accepted such orders as called for the employment of
such material-moulding, frames, panels-as it ordinarily manufactured or was in a
position habitually to manufacture. The Oriental Sash Factory does nothing more
than sell the goods that it mass-produces or habitually makes; sash, panels,
mouldings, frames, cutting them to such sizes and combining them in such forms as
its customers may desire.
Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in
filing orders for windows and doors according to specifications, it did not sell, but
merely contracted for particular pieces of work or merely sold its services. In our
opinion when this Factory accepts a job that requires the use of extraordinary or
additional equipment, or involves services not generally performed by it-it thereby
contracts for a piece of work filing special orders within the meaning of Article
1467. The orders herein exhibited were not shown to be special. They were merely
orders for work nothing is shown to call them special requiring extraordinary
service of the factory. The thought occurs to us that if, as alleged-all the work of
appellant is only to fill orders previously made, such orders should not be called
special work, but regular work. The Supreme Court affirms the assailed decision by
the CTA.

Celestino Co & Company v. CIR


Facts:
Celestino Co & Company is a general co-partnership registered under the trade
name Oriental Sash Factory. From 1946 to 1951, it paid taxes equivalent to 7% on
the gross receipts under Sec. 186 of the NIRC, which is a tax on the original sales of
articles by manufacturer, producer or importer. However, in 1952 it began to claim
only 3% tax under Sec. 191, which is a tax on sales of services. Petitioner claims
that it does not manufacture ready-made doors, sash and windows for the public,
but only upon special orders from the customers, hence, it is not engaged in
manufacturing, but only in sales of services.
Issue:
Whether the petitioner company is engaged in manufacturing, or is merely a special
service provider

Held:
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 them alone. And anyone who sees,
and likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from
appellant doors of the same kind, provided he pays the price. Surely, the appellant
will not refuse, for it can easily duplicate or even mass-produce the same doors-it is
mechanically equipped to do so.
The Oriental Sash Factory does nothing more than sell the goods that it massproduces or habitually makes; sash, panels, mouldings, frames, cutting them to
such sizes and combining them in such forms as its customers may desire. 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.
Anyway, supposing for the moment that the transactions were not sales, they were
neither lease of services nor contract jobs by a contractor. But as the doors and
windows had been admittedly "manufactured" by the Oriental Sash Factory, such
transactions could be, and should be taxed as "transfers" thereof under section 186
of the National Revenue Code.

CIR vs. Engineering Equipment


COMMISSIONER OF INTERNAL REVENUE vs. ENGINEERING EQUIPMENT
G.R. No. L-27044 June 30, 1975
Facts:

Engineering Equipment and Supply Co., an engineering and machinery firm, is


engaged in the design and installation of central type air conditioning system,
pumping plants and steel fabrications.
CIR received an anonymous letter denouncing Engineering for tax evasion by
misdeclaring its imported articles and failing to pay the correct percentage taxes
due thereon in connivance with its foreign suppliers. Engineering was likewise
denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar
allocations. So, NBI and Central Bank conducted a raid and search on which
occasion voluminous records of the firm were seized and confiscated. CIR also
reported about deficiency advance sales tax. CIR assessed against the Company
payment of the increased amount and suggested that P10,000 be paid as
compromise in extrajudicial settlement of the Companys penal liability for violation
of the Tax Code. The firm, however, contested the tax assessment and requested
that it be furnished with the details and particulars of the Commissioners
assessment.Engineering appealed the case to the Court of Tax Appeals. During the
pendency of the case the investigating revenue examiners reduced the Companys
deficiency tax. CTA declared that Engineering is a contractor and is exempt from
deficiency manufacturers sales tax. The Commissioner, not satisfied with the
decision of the CTA, appealed to the Supreme Court.
Issue:
1) WON Engineering Equipment is a manufacturer or contractor? CONTRACTOR.
2) Corrollarily WON the installation of a centralized air-conditioning system a contact
of sale or a contract for piece of work? CONTRACT FOR PIECE OF WORK.
3) Is Celestino Co vs. CIR case applicable in this case? NO.
Held:
1)
The word contractor has come to be used with special reference to a person who,
in the pursuit of the independent business, undertakes to do a specific job or piece
of work for other persons, using his own means and methods without submitting
himself to control as to the petty details. The true test of a contractor is that when
he 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.
Engineering did not manufacture air conditioning units for sale to the general public,
but imported some items (as refrigeration compressors in complete set, heat
exchangers or coils) which were used in executing contracts entered into by it.
Engineering undertook negotiations and execution of individual contracts for the

design, supply and installation of air conditioning units of the central type taking
into consideration in the process such factors as the area of the space to be air
conditioned; the number of persons occupying or would be occupying the premises;
the purpose for which the various air conditioning areas are to be used; and the
sources of heat gain or cooling load on the plant such as sun load, lighting, and
other electrical appliances which are or may be in the plan. Relative to the
installation of air conditioning system, Engineering designed and engineered
complete each particular plant and that no two plants were identical but each had
to be engineered separately.
2)
NATURE OF OBJECT TEST:
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. 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 defendants request, it is a contract of sale,
even though it may be entirely made after, and in consequence of, the defendants
order for it.
The air conditioning units installed in a central type of air conditioning system would
not have existed but for the order of the party desiring to acquire it and if it existed
without the special order of Engineerings customer, the said air conditioning units
were not intended for sale to the general public. Hence, it is a contract for a piece of
work.
3)
Celestino Co compared to Engineering Equipment:
Points of discussion:
1) Advertisement as manufacturer/contractor
2) Ready-made materials
In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a
contractor of sash, doors and windows manufactured in its factory. From the very
start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes
etc. as it did register a special trade name for its sash business and ordered
company stationery carrying the bold print ORIENTAL SASH FACTORY. As a general
rule, sash factories receive orders for doors and windows of special design only in

particular cases, but the bulk of their sales is derived from ready-made doors and
windows of standard sizes for the average home, which sales were reflected in
their books of accounts totalling P118,754.69 for the period of only nine (9) months.
The Court found said sum difficult to have been derived from its few customers who
placed special orders for these items.
In the present case, the company advertised itself as Engineering Equipment and
Supply Company, Machinery Mechanical Supplies, Engineers, Contractors and not as
manufacturers. It likewise paid the contractors tax on all the contracts for the
design and construction of central system. Similarly, it did not have ready-made air
conditioning units for sale.

Engineering Equipment and Supply


Company v. CIR and CTA
Facts:
Engineering Equipment and Supply Company is engaged in the design and
installation of central type air conditioning system, pumping plants and steel
fabrications. Upon a letter from a certain Juan dela Cruz denouncing the company
for tax evasion and fraud in obtaining its dollar allocations, BIR, CB and NBI
conducted a raid and confiscated voluminous documents from the firm. The
Commissioner contends that Engineering is a manufacturer and seller of air
conditioning units and parts or accessories thereof and, therefore, it is subject to the
30% advance sales tax prescribed by Section 185(m) of the Tax Code, in relation to
Section 194 of the same. Engineering claims that it is not a manufacturer and setter
of air-conditioning units and spare parts or accessories thereof subject to tax under
Section 185(m) of the Tax Code, but a contractor engaged in the design, supply and
installation of the central type of air-conditioning system subject to the 3% tax
imposed by Section 191 of the same Code, which is essentially a tax on the sale of
services or labor of a contractor rather than on the sale of articles subject to the tax
referred to in Sections 184, 185 and 186 of the Code.
Issue:
Whether or not Engineering is a manufacturer of air conditioning units under Section
185(m), supra, in relation to Sections 183(b) and 194 of the Code, or a contractor
under Section 191 of the same Code
Held:

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. 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 defendant's request, it is a contract of sale,
even though it may be entirely made after, and in consequence of, the defendants
order for it.
The word "contractor" has come to be used with special reference to a person who,
in the pursuit of the independent business, undertakes to do a specific job or piece
of work for other persons, using his own means and methods without submitting
himself to control as to the petty details. The true test of a contractor would seem
to be that he 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.
Engineering, in a nutshell, fabricates, assembles, supplies and installs in the
buildings of its various customers the central type air conditioning system; prepares
the plans and specifications therefor which are distinct and different from each
other; the air conditioning units and spare parts or accessories thereof used by
petitioner are not the window type of air conditioner which are manufactured,
assembled and produced locally for sale to the general market; and the imported air
conditioning units and spare parts or accessories thereof are supplied and installed
by petitioner upon previous orders of its customers conformably with their needs
and requirements. The facts and circumstances aforequoted support the theory that
Engineering is a contractor rather than a manufacturer.

MERCEDES CALIMLIM- CANULLAS vs.


HON. WILLELMO FORTUN
THE CASE:
Petition for Review on certiorari
assailing the Decision and the
Resolution on the Motion for
Reconsideration of the then CFI of
Pangasinan, upholding the sale of a
parcel of land in favor of DAGUINES
but not of the conjugal house.
THE FACTS:
MERCEDES Calimlim-Canullas and
FERNANDO Canullas were married
and begot five children. They lived in

a small house on the residential land


in question, located at Bacabac,
Bugallon, Pangasinan. After
FERNANDO's father died in 1965,
FERNANDO inherited the land. In
1978, FERNANDO abandoned his
family and was living with private
respondent Corazon DAGUINES.
During the pendency of this appeal,
they were convicted of concubinage
in a judgment rendered on October
27, 1981 by the then CFI of
Pangasinan, which judgment has
become final.
On April 15, 1980, FERNANDO sold
the subject property with the house
to DAGUINES for the sum of
P2,000.00. Unable to take
possession of the lot and house,
DAGUINES initiated a complaint for
quieting of title and damages
against MERCEDES. MERCEDES
resisted and claimed that the house
in dispute were built and planted
with conjugal funds and through her
industry; that the sale of the land
together with the house and
improvements to DAGUINES was null
and void because they are conjugal
properties and she had not given her
consent to the sale.
CFI declared DAGUINES "as the
lawful owner of the land in question
as well as the one-half of the house
erected on said land." Upon
reconsideration prayed for by
MERCEDES, however, the court ruled
that DAGUINES as the true and
lawfull owner of the land and 10
coconut trees, but declaring null and
void the sale of the conjugal house
to DAGUINES on April 15, 1980
including 3 coconut trees and other
crops planted during the conjugal

relation of FERNANDO and


MERCEDES. Hence this petition.
THE ISSUE:
Whether or not the subject lot is part
of the conjugal property and cannot
be validly sold?
THE RULING:
Yes, the subject lot is part of the
conjugal property and that the sale
was null and void. As enunciated in
Padilla vs. Paterno:
As to the above properties,
their conversion from
paraphernal to conjugal assets
should be deemed to retroact
to the time the conjugal
buildings were first
constructed thereon or at the
very latest, to the time
immediately before the death
of Narciso A. Padilla that
ended the conjugal
partnership. They can not be
considered to have become
conjugal property only as of
the time their values were
paid to the estate of the
widow Concepcion Paterno
because by that time the
conjugal partnership no longer
existed and it could not
acquire the ownership of said
properties. The acquisition by
the partnership of these
properties was, under the
1943 decision, subject to the
suspensive condition that
their values would be
reimbursed to the widow at
the liquidation of the conjugal
partnership; once paid, the
effects of the fulfillment of the

condition should be deemed


to retroact to the date the
obligation was constituted
(Art. 1187, New Civil Code) ...
Hence, FERNANDO could not have
alienated the house and lot to
DAGUINES since MERCEDES had not
given her consent to said sale.
Also, we find that the contract of
sale was null and void for being
contrary to morals and public policy.
The sale was made by a husband in
favor of a concubine after he had
abandoned his family and left the
conjugal home where his wife and
children lived and from whence they
derived their support. That sale was
subversive of the stability of the
family, a basic social institution
which public policy cherishes and
protects.
Article 1409 of the Civil Code states
that: contracts whose cause, object,
or purpose is contrary to law,
morals, good customs, public order,
or public policy are void and
inexistent from the very beginning.
Article 1352 also provides that:
"Contracts without cause, or
withunlawful cause, produce no
effect whatsoever. The cause is
unlawful if it is contrary to law,
morals, good customs, public order,
or public policy."
Finally, the law emphatically
prohibits the spouses from selling
property to each other subject to
certain exceptions. Similarly,
donations between spouses during
marriage are prohibited. It was also
designed to prevent the exercise of
undue influence by one spouse over
the other, as well as to protect the

institution of marriage. The


prohibitions apply to a couple living
as husband and wife without benefit
of marriage, otherwise, "the
condition of those who incurred guilt
would turn out to be better than
those in legal union." Those
provisions are dictated by public
interest and their criterion must be
imposed upon the wig of the parties.
WHEREFORE, the Decision of
respondent Judge are hereby set
aside and the sale of the lot, house
and improvements in question, is
hereby declared null and void.

Calimlim-Canullas v. Fortun
Facts:
Petitioner Mercedes Calimlim-Canullas and Fernando Canullas were married in 1962,
with 5 children, and were living on a house situated on a land inherited by the latter.
In 1978, Fernando abandoned his family and lived with Corazon Daguines. In 1980,
Fernando sold the house and lot to Daguines, who initiated a complaint for quieting
of title. Mercedes resisted, claiming that the house and lot were conjugal properties,
and the sale was null nad void for she had not consented thereto.
Issues:
(1) Whether or not the construction of a conjugal house on the exclusive property of
the husband ipso facto gave the land the character of conjugal property
(2) Whether or not the sale of the lot together with the house and improvements
thereon was valid under the circumstances surrounding the transaction
Held:
(1) Both the land and the building belong to the conjugal partnership but the
conjugal partnership is indebted to the husband for the value of the land. The
spouse owning the lot becomes a creditor of the conjugal partnership for the value
of the lot, which value would be reimbursed at the liquidation of the conjugal

partnership. FERNANDO could not have alienated the house and lot to DAGUINES
since MERCEDES had not given her consent to said sale.
(2) The contract of sale was null and void for being contrary to morals and public
policy. The sale was made by a husband in favor of a concubine after he had
abandoned his family and left the conjugal home where his wife and children lived
and from whence they derived their support. That sale was subversive of the
stability of the family, a basic social institution which public policy cherishes and
protects. The law emphatically prohibits the spouses from selling property to each
other subject to certain exceptions. Similarly, donations between spouses during
marriage are prohibited. And this is so because if transfers or con conveyances
between spouses were allowed during marriage, that would destroy the system of
conjugal partnership, a basic policy in civil law. It was also designed to prevent the
exercise of undue influence by one spouse over the other, as well as to protect the
institution of marriage, which is the cornerstone of family law. The prohibitions apply
to a couple living as husband and wife without benefit of marriage, otherwise, "the
condition of those who incurred guilt would turn out to be better than those in legal
union." Those provisions are dictated by public interest and their criterion must be
imposed upon the wig of the parties.

CORNELIA MATABUENA vs. PETRONILA CERVANTES


L-2877 (38 SCRA 284)
March 31, 1971
FACTS:
In 1956, herein appellants brother Felix Matabuena donated a piece of lot
to his common-law spouse, herein appellee Petronila Cervantes. Felix and Petronila
got married only in 1962 or six years after the deed of donation was executed. Five
months later, or September 13, 1962, Felix died. Thereafter, appellant Cornelia
Matabuena, by reason of being the only sister and nearest collateral relative of the
deceased, filed a claim over the property, by virtue of a an affidavit of selfadjudication executed by her in 1962, had the land declared in her name and paid
the estate and inheritance taxes thereon. The lower court of Sorsogon declared that
the donation was valid inasmuch as it was made at the time when Felix and
Petronila were not yet spouses, rendering Article 133 of the Civil Code inapplicable.
ISSUE: Whether or not the ban on donation between spouses during a marriage
applies to a common-law relationship.
HELD:

While Article 133 of the Civil Code considers as void a donation between
the spouses during marriage, policy consideration of the most exigent character as
well as the dictates of morality requires that the same prohibition should apply to a
common-law relationship.
As stated in Buenaventura vs. Bautista (50 OG 3679, 1954), if the policy
of the law is to prohibit donations in favor of the other consort and his descendants
because of fear of undue and improper pressure and influence upon the donor, then
there is every reason to apply the same prohibitive policy to persons living together
as husband and wife without the benefit of nuptials.
The lack of validity of the donation by the deceased to appellee does not
necessarily result in appellant having exclusive right to the disputed property. As a
widow, Cervantes is entitled to one-half of the inheritance, and the surviving sister
to the other half.
Article 1001, Civil Code: Should brothers and sisters or their children
survive with the widow or widower, the latter shall be entitled to one-half of the
inheritance and the brothers and sisters or their children to the other half.

Rubias v. Batiller
Facts:
Before the war with Japan, Francisco Militante filed an application for registration of
the parcel of land in question. After the war, the petition was heard and denied.
Pending appeal, Militante sold the land to petitioner, his son-in-law. Plaintiff filed an
action for forcible entry against respondent. Defendant claims the complaint of the
plaintiff does not state a cause of action, the truth of the matter being that he and
his predecessors-in-interest have always been in actual, open and continuous
possession since time immemorial under claim of ownership of the portions of the
lot in question.
Issue:
Whether or not the contract of sale between appellant and his father-in-law was
void because it was made when plaintiff was counsel of his father-in-law in a land
registration case involving the property in dispute
Held:
The stipulated facts and exhibits of record indisputably established plaintiff's lack of
cause of action and justified the outright dismissal of the complaint. Plaintiff's claim
of ownership to the land in question was predicated on the sale thereof made by his

father-in- law in his favor, at a time when Militante's application for registration
thereof had already been dismissed by the Iloilo land registration court and was
pending appeal in the Court of Appeals.
Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits
in its six paragraphs certain persons, by reason of the relation of trust or their
peculiar control over the property, from acquiring such property in their trust or
control either directly or indirectly and "even at a public or judicial auction," as
follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and
employees; judicial officers and employees, prosecuting attorneys, and lawyers; and
(6) others especially disqualified by law.
Fundamental consideration of public policy render void and inexistent such
expressly prohibited purchase (e.g. by public officers and employees of government
property intrusted to them and by justices, judges, fiscals and lawyers of property
and rights in litigation and submitted to or handled by them, under Article 1491,
paragraphs (4) and (5) of our Civil Code) has been adopted in a new article of our
Civil Code, viz, Article 1409 declaring such prohibited contracts as "inexistent and
void from the beginning."
Indeed, the nullity of such prohibited contracts is definite and permanent and
cannot be cured by ratification. The public interest and public policy remain
paramount and do not permit of compromise or ratification. In his aspect, the
permanent disqualification of public and judicial officers and lawyers grounded
on public policy differs from the first three cases of guardians, agents and
administrators (Article 1491, Civil Code), as to whose transactions it had been
opined that they may be "ratified" by means of and in "the form of a new contact, in
which cases its validity shall be determined only by the circumstances at the time
the execution of such new contract. The causes of nullity which have ceased to exist
cannot impair the validity of the new contract. Thus, the object which was illegal at
the time of the first contract, may have already become lawful at the time of the
ratification or second contract; or the service which was impossible may have
become possible; or the intention which could not be ascertained may have been
clarified by the parties. The ratification or second contract would then be valid from
its execution; however, it does not retroact to the date of the first contract."

Philippine Trust Co. v. Roldan


Facts:

Mariano Bernardo, a minor, inherited 17 parcels of land from his deceased father.
Respondent, Marianos step-mother, was appointed his guardian. As guardian, she
sold the 17 parcels to Dr. Ramos, her brother-in-law, for P14,700. After a week, Dr.
Ramos sold the lands to her for P15,000. Subsequently, she sold 4 out of 17 parcels
to Emilio Cruz. Petitioner replaced Roldan as guardian, and two months thereafter,
this litigation sought to declare as null and void the sale to Dr. Ramos, and the sale
to Emilio Cruz.
Issue:
Whether the sale of the land by the guardian is null and void for being violative of
the prohibition for a guardian to purchase either in person or through the mediation
of another the property of her ward
Held:
Remembering the general doctrine that guardianship is a trust of the highest order,
and the trustee cannot be allowed to have any inducement to neglect his wards
interest, and in line with the courts suspicion whenever the guardian acquires
wards property we have no hesitation to declare that in this case, in the eyes of the
law, Socorro Roldan took by purchase her wards parcels thru Dr. Ramos, and that
Article 1459 of the Civil Code applies.

MELLIZA v CITY OF ILOILO


FACTS: Meliza owned Lot 1214, 9,000 sqm of which shedonated to the Mun. of Iloilo
for the use of the site ofthe Mun. Hall. However, the donation was revokedbecause it
was inadequate to meet the requirements ofthe Arellano Plan. Lot 1214 was later
divided into 4lots. Meliza then sold Lots C and D to the Municipality;Lot B was not
mentioned in the sale. However, thecontract stipulated that the area to be sold to
theMunicipality would include such areas needed for theconstruction of the City Hall
according the ArellanoPlan. She then sold the remaining portions of the lots
toVillanueva, who then sold the same to Pio. The sale wasfor such lots not included
in the sale to the Mun. ofIloilo. The City of Iloilo, assuming that Lot B has beensold in
its favor pursuant to the Arellano Plan, thendonated Lot B to UP. Pio objected and
sought to recoverthe lots stating that Lot B was not included in the initialsale made
by Meliza to the Municipalityand that thesubject matter of sale should be a
determinate thing.ISSUE: W/N there was a determinate/determinablesubject
matterHELD: YES. The requirement for the subject matter tobe determinate is
satisfied in this case. Simplereference to the Arellano Plan would indicate that
itcould determine what portions of the contiguous land(lot B) were needed for the
construction of the CityHall. There was no need for a further agreement toestablish
the lots covered by the sale; thus, the sale isvalid. Besides, the portions of Lot B
covered by the salewere practically at the heart of the City Hall site

Melliza vs. City of Iloilo, 23 SCRA 477 (1968)


Melliza was the owner of several parcels of land. She sold several big parcels of
land. She sold several tracts of land to the then Municipality of Iloilo, including lots
1214-C and 1214-D. The instrument of sale did not mention lot 1214-B, although it
was contiguous to the other lots. But the contract did stipulate that the area being
sold to the Municipality shall include the area needed for the construction of the
city hall site, avenues and parks according to the Arellano plan.
A few years later, Melliza sold her remaining interest in lot 1214 with a stipulation in
the contract that she was selling portions of Lot 1214 as were not included in the
previous sale to Iloilo Municipality. When the then City of Iloilo donated the city hall
site to the University of the Philippines, the donation included lots 1214-B, 1214-C
and 1214-D. Pio Melliza, who ultimately became the buyer of the remaining portions
of lot 1214 sold by Melliza, filed an action for the recovery of the lot 1214-B or its
value stating that it was not included in the contract executed between Melliza and
the Mun. of Iloilo, and therefore was part of the land that he purchase as the
remaining portion of lot 1214.
One of his causes of action was that the contract of sale executed between Melliza
and the Mun. referred only to lots 1214-C and 1214-D and it is unwarranted to
include lot 1214-B as being included under the description therein because that
would mean that the object of the contract of sale would be indeterminate. One of
the essential requirements for a contract of sale is that it should have for its object
a determinate thing.
The Supreme Court held that a sale must have for its object a determinate thing, an
this requirement is fulfilled as long as, at the time the contract is entered into, the
object of the sale is capable of being made determinate without the necessity of a
new or further agreement between the parties. The requirement in Melliza was
deemed fulfilled under the contract of sale because it referred to the Arellano plan.
At that time, the plan had long been in existence and it specifically provided for the
land areas needed for the city hall site Therefore, at the time of the execution of the
contract, the exact area of the land needed, which was the subject matter of the
sale, could be determined by simply referring to the Arellano plan, without the
parties needing to draw-up a new contract.

Melliza v. Iloilo City [G.R. No. L-24732. April 30, 1968.]

Facts: Juliana Melliza during her lifetime owned, among other properties, 3 parcels
of residential land in Iloilo City (OCT 3462). Said parcels of land were known as Lots
Nos. 2, 5 and 1214. The total area of Lot 1214 was 29,073 sq. m. On 27 November
1931 she donated to the then Municipality of Iloilo, 9,000 sq. m. of Lot 1214, to
serve as site for the municipal hall. The donation was however revoked by the
parties for the reason that the area donated was found inadequate to meet the
requirements of the development plan of the municipality, the so- called Arellano

Plan. Subsequently, Lot 1214 was divided by Certeza Surveying Co., Inc. into Lots
1214-A and 1214-B. And still later, Lot 1214-B was further divided into Lots 1214-B1, Lot 1214-B-2 and Lot 1214-B-3. As approved by the Bureau of Lands, Lot 1214-B1, with 4,562 sq. m., became known as Lot 1214-B; Lot 1214-B-2, with 6,653 sq. m.,
was designated as Lot 1214-C; and Lot 1214-B-3, with 4,135 sq. m., became Lot
1214-D. On 15 November 1932, Juliana Melliza executed an instrument without any
caption providing for the absolute sale involving all of lot 5, 7669 sq. m. of Lot 2
(sublots 2-B and 2-C), and a portion of 10,788 sq. m. of Lot 1214 (sublots 1214-B2
and 1214-B3) in favor of the Municipal Government of Iloilo for the sum of P6,422;
these lots and portions being the ones needed by the municipal government for the
construction of avenues, parks and City hall site according the Arellano plan. On
14 January 1938, Melliza sold her remaining interest in Lot 1214 to Remedios Sian
Villanueva (thereafter TCT 18178). Remedios in turn on 4 November 1946
transferred her rights to said portion of land to Pio Sian Melliza (thereafter TCT
2492). Annotated at the back of Pio Sian Mellizas title certificate was the following
that a portion of 10,788 sq. m. of Lot 1214 now designated as Lots 1412-B-2 and
1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per
instrument dated 15 November 1932. On 24 August 1949 the City of Iloilo, which
succeeded to the Municipality of Iloilo, donated the city hall site together with the
building thereon, to the University of the Philippines (Iloilo branch). The site donated
consisted of Lots 1214-B, 1214-C and 1214-D, with a total area of 15,350 sq. m.,
more or less. Sometime in 1952, the University of the Philippines enclosed the site
donated with a wire fence. Pio Sian Melliza thereupon made representations, thru
his lawyer, with the city authorities for payment of the value of the lot (Lot 1214-B).
No recovery was obtained, because as alleged by Pio Sian Melliza, the City did not
have funds. The University of the Philippines, meanwhile, obtained Transfer
Certificate of Title No. 7152 covering the three lots, Nos. 1214-B, 1214-C and 1214D.
On 10 December 1955 Pio Sian Melizza filed an action in the CFI Iloilo against Iloilo
City and the University of the Philippines for recovery of Lot 1214-B or of its value.
After stipulation of facts and trial, the CFI rendered its decision on 15 August 1957,
dismissing the complaint. Said court ruled that the instrument executed by Juliana
Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B, and
thus it held that Iloilo City had the right to donate Lot 1214-B to UP. Pio Sian Melliza
appealed to the Court of Appeals. On 19 May 1965, the CA affirmed the
interpretation of the CFI that the portion of Lot 1214 sold by Juliana Melliza was not
limited to the 10,788 square meters specifically mentioned but included whatever
was needed for the construction of avenues, parks and the city hall site.
Nonetheless, it ordered the remand of the case for reception of evidence to
determine the area actually taken by Iloilo City for the construction of avenues,
parks and for city hall site. Hence, the appeal by Pio San Melliza to the Supreme
Court.
The Supreme Court affirmed the decision appealed from insofar as it affirms that of
the CFI, and dismissed the complaint; without costs.
Held: Requirement, that sale must have a determinate thing as object, is
fulfilled if object of sale is capable of being made determinate at the time
of the contract

The requirement of the law that a sale must have for its object a determinate thing,
is fulfilled as long as, at the time the contract is entered into, the object of the sale
is capable of being made determinate without the necessity of a new or further
agreement between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil
Code). The specific mention of some of the lots plus the statement that the lots
object of the sale are the ones needed for city hall site; avenues and parks,
according to the Arellano plan, sufficiently provides a basis, as of the time of the
execution of the contract, for rendering determinate said lots without the need of a
new and further agreement of the parties.

National Grains Authority v. IAC


Facts:
On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to
NFA through William Cabal, the provincial manager in Tuguegarao. The documents
submitted were processed, and he was given a quota of 2,640 cavans, which is the
maximum number of cavans he may sell to NFA. On the same day and on the
following day, Soriano delivered 630 cavans, which were no rebagged, classified
and weighed. When he demanded payment, he was told that payment will be held
in abeyance since Mr. Cabal was still investigating on an information received that
Soriano was not a bona fide farmer. Instead of withdrawing the palay, Soriano
insisted that the palay grains be delivered and paid. He filed a complaint for specific
performance. Petitioners contend that the delivery was merely made for the
purpose of offering it for sale because until the grains were rebagged, classified and
weighed, they are not considered sold.
Issue:
Whether there was a perfected sale
Held:
Soriano initially offered to sell palay grains produced in his farmland to NFA. When
the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a
quota of 2,640 cavans, there was already a meeting of the minds between the
parties. The object of the contract, being the palay grains produced in Soriano's
farmland and the NFA was to pay the same depending upon its quality. The fact that
the exact number of cavans of palay to be delivered has not been determined does
not affect the perfection of the contract. Article 1349 of the New Civil Code
provides: ". . .. The fact that the quantity is not determinate shall not be an obstacle

to the existence of the contract, provided it is possible to determine the same,


without the need of a new contract between the parties." In this case, there was no
need for NFA and Soriano to enter into a new contract to determine the exact
number of cavans of palay to be sold. Soriano can deliver so much of his produce as
long as it does not exceed 2,640 cavans. From the moment the contract of sale is
perfected, it is incumbent upon the parties to comply with their mutual obligations
or "the parties may reciprocally demand performance" thereof.

Yu Tek & Co. v. Gonzales


Facts:
A contract was executed between the herein parties, whereby Mr. Basilio Gonzales
acknowledges the receipt of P3,000 from Yu Tek & Co., and that in consideration of
which he obligates himself to deliver to the latter 600 piculs of sugar of the first and
second grade, according to the result of polarization, within 3 months. There is a
stipulation providing for rescission with P1,200 penalty in case of failure to deliver.
No sugar was delivered, so plaintiff filed a case praying for the judgment of P3,000
plus P1,200. P3,000 was awarded, thus, both parties appealed.
Issues:
(1) Whether compliance of the obligation to deliver depends upon the production in
defendants plantation
(2) Whether there is a perfected sale
(3) Whether liquidated damages of P1,200 should be awarded to the plaintiff
Held:
(1) There is not the slightest intimation in the contract that the sugar was to be
raised by the defendant. Parties are presumed to have reduced to writing all the
essential conditions of their contract. While parol evidence is admissible in a variety
of ways to explain the meaning of written contracts, it cannot serve the purpose of
incorporating into the contract additional contemporaneous conditions which are
not mentioned at all in the writing, unless there has been fraud or mistake. It may
be true that defendant owned a plantation and expected to raise the sugar himself,
but he did not limit his obligation to his own crop of sugar. Our conclusion is that the
condition which the defendant seeks to add to the contract by parol evidence

cannot be considered. The rights of the parties must be determined by the writing
itself.
(2) We conclude that the contract in the case at bar was merely an executory
agreement; a promise of sale and not a sale. At there was no perfected sale, it is
clear that articles 1452, 1096, and 1182 are not applicable. The defendant having
defaulted in his engagement, the plaintiff is entitled to recover the P3,000 which it
advanced to the defendant, and this portion of the judgment appealed from must
therefore be affirmed.
(3) The contract plainly states that if the defendant fails to deliver the 600 piculs of
sugar within the time agreed on, the contract will be rescinded and he will be
obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for loss
and damages. There cannot be the slightest doubt about the meaning of this
language or the intention of the parties. There is no room for either interpretation or
construction. Under the provisions of article 1255 of the Civil Code contracting
parties are free to execute the contracts that they may consider suitable, provided
they are not in contravention of law, morals, or public order. In our opinion there is
nothing in the contract under consideration which is opposed to any of these
principles.

Mate v. CA
Facts:
On October 6, 1986, Josefina Josie Rey and private respondent Tan went to the
residence of petitioner in Tacloban City. Josie solicited his help to stave her off her
prosecution by respondent for violation of B. P. 22. Josie asked petitioner to cede to
respondent his 3 lots. Josie explained to him that he was in no danger of losing his
property as they will be redeemed by her own funds. After a long discussion,
petitioner agreed to execute a fictitious deed of sale with right to repurchase after 6
months. Josie gave petitioner 2 post-dated checks to be used in redeeming the
property. However, the checks were both dishonoured. Realizing that he was
swindled, he sent a telegram to Josie, and looked for her in Manila, but she was
nowhere to be found. Petitioner filed a criminal case against Josie for violation of B.
P. 22, but the case was archived since Josie could not be located. Petitioner filed a
case for annulment of contract with damages against Josie and respondent. Josie
was declared in default and the case proceeded against respondent. Both the trial
court and the Court of Appeals upheld the validity of the sale.

Issue:
Whether the sale was null and void for want of consideration
Held:
It is plain that consideration existed at the time of the execution of the deed of sale
with right of repurchase. It is not only appellant's kindness to Josefina, being his
cousin, but also his receipt of P420,000.00 from her which impelled him to execute
such contract. Furthermore, while petitioner did not receive the P1.4 Million
purchase prices from respondent Tan, he had in his possession a postdated check of
Josie Rey in an equivalent amount precisely to repurchase the two lots on or before
the sixth month. Unfortunately, the two checks issued by Josie Rey were worthless.
Both were dishonored upon presentment by petitioner with the drawee banks.
However, there is absolutely no basis for petitioner to file a complaint against
private respondent Tan and Josie Rey to annul the pacto de retro sale on the ground
of lack of consideration, invoking his failure to encash the two checks. Petitioner's
cause of action was to file criminal actions against Josie Rey under B.P. 22, which he
did. The filing of the criminal cases was a tacit admission by petitioner that there
was a consideration of the pacto de retrosale.

REPUBLIC v. PHILIPPINE RESOURCES DEVELOPMENT CORPORATION


G.R. No. L-10141 January 31, 1958
Padilla, J.

Doctrine:
Article 1458 provides that the purchaser may pay a price certain in money or its
equivalent, which means that the price need not be in money.
Facts:
The Bureau of Prisons instituted a complaint against Macario Apostol for the latters
failure to pay the unpaid balance for logs purchased. Apostol, who was then the
president of the respondent corporation, delivered goods belonging to the
corporation and without the knowledge or consent of the stockholders thereof, to
the Bureau of Prisons in an attempt to settle his personal debts with the latter
entity. The corporation demanded the Bureau of Prisons for the return of the goods.
Upon the refusal of the Bureau, the corporation filed a motion to intervene.

Issue:
Whether or not price is limited only to be paid in money
Held:
No. Article 1458 provides that the purchaser may pay a price certain in money or
its equivalent, which means that they meant of the price need not be in money. In
this case, the materials have been assessed and evaluated and their price
equivalent in terms of money have been determined and that said materials for
whatever price they have been assigned were considered as tokens of payment.

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