VELARDE v CA

Facts

 Private respondent David Raymundo is the absolute and registered owner of a parcel of land
located at 1918 Kamias St., Dasmariñas Village, Makati and covered by TCT No. 142177.
 Defendant George Raymundo [herein private petitioners] is David's father who negotiated with
plaintiffs Avelina and Mariano Velarde [herein petitioners] for the sale of said property, which
was, however, under lease
 a Deed of Sale with Assumption of Mortgage was executed by defendant David Raymundo, as
vendor, in favor of plaintiff Avelina Velarde, as vendee, with the condition that Velarde will
assume to pay the mortgage obligations on the property worth 1M 800K in favor of BPI
 Velarde also executed an Undertaking wherein it is stated that pending the approval of her
application for the assumption of mortgage on the property, she will still pay the mortgage
obligations in the name of David Raymundo as per their agreement
 Pursuant to the agreement, Velarde paid BPI the monthly interest on the loan secured by the
aforementioned mortgage for 3 months
 On Dec 15 1986, plaintiffs were advised that their application for assumption of mortgage was
not approved thus they made no further payment. Subsequently, defendants informed the
plaintiffs of their non-payment which constituted non-performance of their obligation. Plaintiffs
answered that they are willing to pay the balance if Raymundo will deliver the property to
plaintiffs for immediate occupancy, release the title and mortgage and make it free from any
liens and encumberances, and execute an absolute deed of sale free from any liens or
encumberances
 Defendants then sent a notarial notice of cancellation or recission of the intended sale of the
subject property to plaintiffs for allegedly failing to comply with the terms and conditions of the
deed of sale with assumption of mortgage and undertaking
 Petitioners filed a complaint which was dismissed. Thereafter, they filed a motion for
recondiferation which was granted. Thus, petitioners were ordered to pay the balance to private
respondents and the parties to proceed with the sale. Private respondents appealed to the CA.
 The CA reversed the decision and reinstated the earlier decision of the RTC explaining that the
nonpayment of the obligation constituted a violation of the contract and thus, raymundo may
choose to either demand the fulfillment of the contract or demand its recission
 In the case at bar, Raymundo sent Velarde notarial notice dated January 8, 1987 of
cancellation/rescission of the contract due to the latter's failure to comply with their obligation.
The rescission was justified in view of Velarde's failure to pay the price (balance) which is
substantial and fundamental as to defeat the object of the parties in making the agreement.

ISSUE: W/N there was substantial breach of contract and the recission valid

YES. Article 1191 of the New Civil Code applies. The breach committed did not merely consist of a
slight delay in payment or an irregularity; such breach would not normally defeat the intention of
the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but they
 also imposed upon private respondents new obligations as preconditions to the performance of
their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation,
which was legally due and demandable under the contract of sale. Hence, private respondents were
left with the legal option of seeking rescission to protect their own interest.

 Article 1191 of the New Civil Code applies. The breach committed did not merely consist of a
slight delay in payment or an irregularity; such breach would not normally defeat the intention
of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance,
but they also imposed upon private respondents new obligations as preconditions to the
performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an
existing obligation, which was legally due and demandable under the contract of sale. Hence,
private respondents were left with the legal option of seeking rescission to protect their own
interest. etitioners, on the other hand, did not perform their correlative obligation of paying the
contract price in the manner agreed upon. Worse, they wanted private respondents to perform
obligations beyond those stipulated in the contract before fulfilling their own obligation to pay
the full purchase price.
 “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.
The injured party may choose between fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible."
 True, petitioners expressed their willingness to pay the balance of the purchase price one month
after it became due; however, this was not equivalent to actual payment as would constitute a
faithful compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on
the performance by private respondents of additional burdens that had not been agreed upon
in the original contract. Thus, it cannot be said that the breach committed by petitioners was
merely slight or casual as would preclude the exercise of the right to rescind.

Rescission creates the obligation to return the object of the contract. It can be carried out only when the
one who demands rescission can return whatever he may be obliged to restore.20 To rescind is to
declare a contract void at its inception and to put an end to it as though it never was. It is not merely to
terminate it and release the parties from further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions as if no contract has been made.

ACAP v CA

Facts

 Felixberto Oruma sold his inherited land to Cosme Pido, which land is rented by petitioner
Teodoro Acap. When Cosme died intestate, his heirs executed a “Declaration of Heirship and
Waiver of Rights” in favor of private respondent Edy delos Reyes. Respondent informed
petitioner of his claim over the land, and petitioner paid the rental to him in 1982. However in
subsequent years, petitioner refused to pay the rental, which prompted respondent to file a
 complaint for the recovery of possession and damages. Petitioner averred that he continues to
recognize Pido as the owner of the land, and that he will pay the accumulated rentals to Pido’s
widow upon her return from abroad. The lower court ruled in favor of private respondent.

Issue

(1) Whether the “Declaration of Heirship and Waiver of Rights” is a recognized mode of acquiring
ownership by private respondent

(2) Whether the said document can be considered a deed of sale in favor of private respondent

Held

An asserted right or claim to ownership or a real right over a thing arising from a juridical act, however
justified, is not per se sufficient to give rise to ownership over the res. That right or title must be
completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are acquired
only pursuant to a legal mode or process. While title is the juridical justification, mode is the actual
process of acquisition or transfer of ownership over a thing in question.

In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other party to pay a price certain in money or its equivalent. Upon
the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed
with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the
decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs
under Rule 74 of the Rules of Court. Hence, there is a marked difference between a sale of hereditary
rights and a waiver of hereditary rights. The first presumes the existence of a contract or deed of sale
between the parties. The second is, technically speaking, a mode of extinction of ownership where there
is an abdication or intentional relinquishment of a known right with knowledge of its existence and
intention to relinquish it, in favor of other persons who are co-heirs in the succession. Private
respondent, being then a stranger to the succession of Cosme Pido, cannot conclusively claim ownership
over the subject lot on the sole basis of the waiver document which neither recites the elements of
either a sale, or a donation, or any other derivative mode of acquiring ownership.

A notice of adverse claim is nothing but a notice of a claim adverse to the registered owner, the validity
of which is yet to be established in court at some future date, and is no better than a notice of lis
pendens which is a notice of a case already pending in court. It is to be noted that while the existence of
said adverse claim was duly proven, there is no evidence whatsoever that a deed of sale was executed
between Cosme Pido's heirs and private respondent transferring the rights of Pido's heirs to the land in
favor of private respondent. Private respondent's right or interest therefore in the tenanted lot remains
an adverse claim which cannot by itself be sufficient to cancel the OCT to the land and title the same in
private respondent's name. Consequently, while the transaction between Pido's heirs and private
respondent may be binding on both parties, the right of petitioner as a registered tenant to the land
cannot be perfunctorily forfeited on a mere allegation of private respondent's ownership without the
corresponding proof thereof.

QUIJADA V CA

Facts

On April 5, 1956, Trinidad Quijada and her sisters executed a deed of conditional donation in favor of
the Municipality of Talacogon, the condition being that the land shall be used exclusively for the
construction of a provincial high school. Trinidad remained in possession of the land. On July 29, 1962,
Trinidad sold the land to respondent Regalado Mondejar. In 1980, the heirs of Trinidad, herein
petitioners, filed a complaint for forcible entry against the respondent. In 1987, the proposed campus
did not materialize, and the Sangguniang Bayan enacted a resolution donating back the land to the
donor. In the meantime, respondent Mondejar conveyed portions of the land to the other respondents.
On July 5, 1988, petitioners filed a complaint for quieting of title, recovery of possession and ownership
of the land.

Issue

Whether the sale between Trinidad and Regalado is valid considering the capacity of the vendor to
execute the contract in view of the conditional deed of donation

Held

The donor may have an inchoate interest in the donated property during the time that ownership of the
land has not reverted to her. Such inchoate interest may be the subject of contracts including a contract
of sale. In this case, however, what the donor sold was the land itself which she no longer owns. It
would have been different if the donor-seller sold her interests over the property under the deed of
donation which is subject to the possibility of reversion of ownership arising from the non-fulfillment of
the resolutory condition.

Sale, being a consensual contract, is perfected by mere consent, which is manifested the moment there
is a meeting of the minds as to the offer and acceptance thereof on three (3) elements: subject matter,
price and terms of payment of the price. Ownership by the seller on the thing sold at the time of the
perfection of the contract of sale is not an element for its perfection. What the law requires is that the
seller has the right to transfer ownership at the time the thing sold is delivered. Perfection per se does
not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. A
perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the
seller at the time of its perfection; hence, the sale is still valid.
The consummation, however, of the perfected contract is another matter. It occurs upon the
constructive or actual delivery of the subject matter to the buyer when the seller or her successors-in-
interest subsequently acquires ownership thereof. Such circumstance happened in this case when
petitioners who are Trinidad Quijada's heirs and successors-in-interest became the owners of the
subject property upon the reversion of the ownership of the land to them. Consequently, ownership is
transferred to respondent Mondejar and those who claim their right from him. Article 1434 of the New
Civil Code supports the ruling that the seller's "title passes by operation of law to the buyer." This rule
applies not only when the subject matter of the contract of sale is goods, but also to other kinds of
property, including real property.

FULE v CA

Facts

Gregorio Fule, a banker and a jeweller, offered to sell his parcel of land to Dr. Cruz in exchange for
P40,000 and a diamond earring owned by the latter. A deed of absolute sale was prepared by Atty.
Belarmino, and on the same day Fule went to the bank with Dichoso and Mendoza, and Dr. Cruz arrived
shortly thereafter. Dr. Cruz got the earrings from her safety deposit box and handed it to Fule who,
when asked if those were alright, nodded and took the earrings. Two hours after, Fule complained that
the earrings were fake. He files a complaint to declare the sale null and void on the ground of fraud and
deceit.

Issue

Whether the sale should be nullified on the ground of fraud

Held

A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is
the object of the contract and upon the price. Being consensual, a contract of sale has the force of law
between the contracting parties and they are expected to abide in good faith by their respective
contractual commitments. It is evident from the facts of the case that there was a meeting of the minds
between petitioner and Dr. Cruz. As such, they are bound by the contract unless there are reasons or
circumstances that warrant its nullification.

Contracts that are voidable or annullable, even though there may have been no damage to the
contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract;
and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
The records, however, are bare of any evidence manifesting that private respondents employed such
insidious words or machinations to entice petitioner into entering the contract of barter. It was in fact
petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the Tanay
property.
Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil
Code within which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he was
satisfied with the same. By taking the jewelry outside the bank, petitioner executed an act which was
more consistent with his exercise of ownership over it. This gains credence when it is borne in mind that
he himself had earlier delivered the Tanay property to Dr. Cruz by affixing his signature to the contract
of sale. That after two hours he later claimed that the jewelry was not the one he intended in exchange
for his Tanay property, could not sever the juridical tie that now bound him and Dr. Cruz. The nature and
value of the thing he had taken preclude its return after that supervening period within which anything
could have happened, not excluding the alteration of the jewelry or its being switched with an inferior
kind.

Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred to
Dr. Cruz and petitioner, respectively, upon the actual and constructive delivery thereof. Said contract of
sale being absolute in nature, title passed to the vendee upon delivery of the thing sold since there was
no stipulation in the contract that title to the property sold has been reserved in the seller until full
payment of the price or that the vendor has the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period.

While it is true that the amount of P40,000.00 forming part of the consideration was still payable to
petitioner, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the
transfer of ownership and possession of the things exchanged considering the fact that their contract is
silent as to when it becomes due and demandable.

POLYTECHNIC PHILS v CA

Facts

Petitioner NDC (National Development Corp.) a GOCC owned & had in its disposal a 10 hectar property
which is the NDC Compound.

A portion of which was leased to private respondent FIRESTONE CORPORATION for ceramic
manufacturing business. Both parties entered into a contract of lease for a term of 10 years renewable
for another 10 years. Firestone built several warehouses and facilities therein.

Prior to the expiration of the said lease contract, Firestone wrote NDC requesting for an extension of
their lease agreement. Since business between NDC and FIRESTONE went smooth, the lease was twice
renewed, this time conferring upon Firestone an express grant the first option to purchase the leased
premise in the event that NDC decided to dispose and sell the properties including the lot. So Firestone
now has the right of first refusal.
Eventually though, a Memorandum Order No. 214 was issued by then President Corazon Aquino
ordering the transfer of the whole NDC compound to the National Government. The order of
conveyance would automatically result in the cancellation of NDC's total obligation in favor of the
National Government. The memorandum order was in consideration of NDC’s P57M debt.

And so, pursuant thereto, NDC had no choice but to transfer the property to Polytechnic University of
the Philippines, another GOCC, and in need of expansion.

Firestone therefore instituted an action for specific performance to compel NDC to sell the leased
property in its favor.

Issue

Whether or not there is a valid sale between NDC and PUP.

All three (3) essential elements of a valid sale, without which there can be no sale, were attendant in the
"disposition" and "transfer" of the property from NDC to PUP - consent of the parties, determinate
subject matter, and consideration therefor.

1. consent is manifested by the Memo Order No. 214,

2. the subject matter was the property subject of the dispute.

3. the cancellation of liabilities constituted consideration

But the argument of PUP and NDC was untenable. GOCCs have personalities separate and distinct from
the government. “Sale” brings within its grasp the whole gamut of transfers where ownership of a thing
is ceded for consideration.

Since a sale was involved, the right of first refusal in favor of Firestone must be respected. It forms an
integral part of the lease and is supported by consideration—Firestone having made substantial
investments therein.

Only when Firestone fails to exercise such right may the sale to PUP proceed.
So here we see that GOCCs even though ‘government owned & controlled’ has a personality of its own
distinct and separate from that of the government.

And the intervention in a transaction of the Office of the President thru the Executive Secretary DOES
NOT CHANGE THE INDEPENDENT EXISTENCE of a government entity as it deals with another government
entity.

GAITE v FONACIER

Facts

 Isabelo Fonacier – owner and/or holder either by himself or in a representative capacity, of 11

iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose
Panganiban, province of Camarines Norte.
 Deed of Assignment - Fonacier constituted and appointed plaintiff-appellee Fernando A. 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 aforementioned on a royalty
basis of not less than P0.50 per ton of ore that might be extracted therefrom. Gaite in turn
executed a general assignment (Record on Appeal, pp. 17-19) conveying the development and
exploitation of said mining claims into the Larap Iron Mines, a single proprietorship owned
solely by and belonging to him, on the same royalty basis provided for in Exhibit "3". 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.
 Isabelo 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
 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 65K will be paid out of the first letter of credit covering the first
shipment and of the first amount derived from the local sale of iron ores
 To secure payment for said balance, fonacier promised to execute in favor of Gaite a surety
bond but when this was presented, Gaite refused to sign unless there was another bond written
by a bonding company. Hence, a second bond was executed binding far eastern surety and
 insurance co as an additional surety but it provided that liability will only attach once there had
been an actual sale og iron ore for an ampunt not less then 65K and this would expire on dec 8
1955
 When the bond with FESIC expired, no sale of approx. 24k tons of iron ore had been made nor
had the 65k balance been paid by fonacier. They claim that they had lost the right to make use
of the period given them when their bond automatically expired. Despite gaite’s demands,
fonacier and his sureties failed to pay thus prompting gaite to file a case in court.
 ll 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.


Issue: w/n the obligation to pay the 65k was one with a period or term and not one with a suspensive
condition and that the term expired on dec 8 1955

Held

Yes it is not an obligation with a suspensive condition byt only a suspensive period or term. 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.

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.

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 P65,000.00.

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.

Moreover, a contract is essentially onerous thus interpretation would always incline towards the
greatest reciprocity of interests thus 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.

CIR v CA, CTA, ATENEO

 Private respondent Ateneo is a non-stock, non-profit educational institution that has an auciliary
unit Institute of Philippine culture which is engaged in social science studies. Occassionally, it
accepts sponsorships for its research activities from international organizations, private
foundations, and government agencies. On july 1963, respondent received a letter from
petitioner commissioner of Internal Revenue containing an assessment for alleged deficiency in
contractor’s tac anf an assessment for alleged deficiency income tax. Private respondent filed a
letter protest contesting the validity of the assessments
 Petitioner canceled the assessment for the deficiency income tax byt modified the assessment
for contractors tac by increasing the amount due. Private respondent requested for a
reinvestigation and filed a petition for review in the respondent court. Petitioner again modified
its assessment and reduced the amount pending judgment in the petition filed by private
respondent. Unsatisfied, petitioner came to court to raise the issue

Whether or not private respondent falls under the purview of independent contractor pursuant to
sec 205 of the tax code and w/n it is subject to 3%contractors tax

Held

The Commissioner should have determined first if private respondent was covered by Section 205,
applying the rule of strict interpretation of laws imposing taxes and other burdens on the populace,
before asking Ateneo to prove its exemption therefrom. it is basic that "in case of doubt, such
statutes are to be construed most strongly against the government and in favor of the subjects or
citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import.

To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the
independent contractor be engaged in the business of selling its services. Hence, to impose the
three percent contractor's tax on Ateneo's Institute of Philippine Culture, it should be sufficiently
proven that the private respondent is indeed selling its services for a fee in pursuit of an
independent business. And it is only after private respondent has been found clearly to be subject to
the provisions of Sec. 205 that the question of exemption therefrom would arise.

Therefore, it is clear that the funds received by Ateneo's Institute of Philippine Culture are not given
in the concept of a fee or price in exchange for the performance of a service or delivery of an object.
Rather, the amounts are in the nature of an endowment or donation given by IPC's benefactors
solely for the purpose of sponsoring or funding the research with no strings attached. As found by
the two courts below, such sponsorships are subject to IPC's terms and conditions. No proprietary or
commercial research is done, and IPC retains the ownership of the results of the research, including
the absolute right to publish the same. The copyrights over the results of the research are owned by
Ateneo and, consequently, no portion thereof may be reproduced without its permission. 15 The
amounts given to IPC, therefore, may not be deemed, it bears stressing as fees or gross receipts that
can be subjected to the three percent contractor's tax.

NOT A contract of sale : "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." 16 By its very nature, a contract of sale requires a transfer of
ownership.

In the case at bench, it is clear from the evidence on record that there was no sale either of objects
or services because, as adverted to earlier, there was no transfer of ownership over the research
data obtained or the results of research projects undertaken by the Institute of Philippine Culture.

INCHAUSTI v CROMWELL

Inchausti & Co. is engaged in the business of buying and selling at wholesale hemp, both for its own
account and on commission. The operation of of baling hemp is designated among merchants by the
word ‘prensaje.’ Inchausti, in all its sales of hemp, quoted the price to the buyer at so much per
picul, no mention being made of baling. The company in accordance with the custom mentioned in
paragraph V hereof, collected and received, under the denomination of ‘prensaje,’ from purchasers
of hemp sold by the said firm for its own account, in addition to the price expressly agreed upon for
the said hemp, sums aggregating P380,124.35 and collected for the account of the owners of hemp
sold by the plaintiff firm in Manila on commission, and under the said denomination of ‘prensaje,’ in
addition to the price expressly agreed upon for said hemp, sums aggregating P31,080. Inchausti has
always paid to Ellis Cromwell, in the office of the Collector of Internal Revenue the tax collectible
upon the selling price expressly agreed upon for all hemp sold but has not, until compelled to do so,
paid the said tax upon sums received from the purchaser of such hemp under the denomination of
‘prensaje.’ Ellis Cromwell, in his capacity as Collector of Internal Revenue, made demand in writing
upon the plaintiff firm for the payment within the period of five (5) days of the sum of P1,370.68,
the amount collected from purchasers of hemp under the denomination of ‘prensaje.’ Inchausti paid
for such demand under protest but Cromwell still refuses to return such amount.
The contention of the defendant was that the said charge made under the denomination of
“prensaje” is in truth and in fact a part of the gross value of the hemp sold and of its actual selling
price, and that therefore the tax imposed by section 139 of Act No. 1189 lawfully accrued on said
sums, that the collection thereof was lawfully and properly made and that therefore the plaintiff is
not entitled to recover back said sum or any part thereof; and that the defendant should have
judgment against plaintiff for his costs.

ISSUES:

1. Whether the price for the contract of sale should include the charge made under the
denomination of “prensaje”

2. Whether there exists a contract of sale.

HELD:

The Supreme Court stated that there can be no question that, if the value of the hemp were not
augmented to the amount of P1.75 per bale by said operation, the purchaser would not pay that
sum. If one buys a bale of hemp at a stipulated price of P20, well knowing that there is an
agreement on his part, express or implied, to pay an additional amount of P1.75 for that bale, he
considers the bale of hemp worth P21.75. It is agreed, as we have before stated, that hemp is sold in
bales. Therefore, baling is performed before the sale. The purchaser of hemp owes to the seller
nothing whatever by reason of their contract except the value of the hemp delivered. That value,
that sum which the purchaser pays to the vendee, is the true selling price of the hemp, and every
item which enters into such price is a part of such selling price. By force of the custom prevailing
among hemp dealers in the Philippine Islands, a purchaser of hemp in the market, unless he
expressly stipulates that it shall be delivered to him in loose form, obligates himself to purchase and
pay for baled hemp. Whether or not such agreement is express or implied, whether it is actual or
tacit, it has the same force. After such an agreement has once been made by the purchaser, he has
no right to insist thereafter that the seller shall furnish him with unbaled hemp. It is undoubted that
the vendees, in the sales referred to in the case at bar, would have had no right, after having made
their contracts, to insist on the delivery of loose hemp with the purpose in view themselves to
perform the baling and thus save 75 centavos per bale. It is unquestioned that the seller, the
plaintiff, would have stood upon his original contract of sale, that is, the obligation to deliver baled
hemp, and would have forced his vendees to accept baled hemp, he himself retaining among his
own profits those which accrued from the process of baling. The Court stated that 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 would never 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. Further, 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 where the
article would not have been made but for the agreement; and where the article ordered by the
purchase is exactly such as the vendor makes and keeps on hand for sale to anyone, and no change
or modification of it is made at the vendee’s request, it is a contract of sale even though it be
entirely made after and in consequence of the vendee’s order for it. Furthermore, the Court defined
“price.” The word “price” signifies the sum stipulated as the equivalent of the thing sold and also
every incident taken into consideration f or the fixing of the price put to the debit of the vendee and
agreed to by him.

CELESTINO v COLLECTOR

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 petitioner’s 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
section…and 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.

CIR v ENGINEERING EQUIPMENT

Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an
engineering and machinery firm. As operator of an integrated engineering shop, it is engaged,
among others, in the design and installation of central type air conditioning system, pumping plants
and steel fabrications.

· On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal
Revenue 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.
Acting on these denunciations, a raid and search was conducted by a joint team of Central Bank,
(CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on
September 27, 1956, on which occasion voluminous records of the firm were seized and confiscated

· On September 30, 1957, revenue examiners Quesada and Catudan reported and recommended
to the then Collector, now Commissioner, of Internal Revenue that Engineering be assessed for
P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its importation of air
conditioning units and parts and accessories thereof which are subject to tax under Section 185(m)
of the Tax Code,

· On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering
payment of the increased amount and suggested that P10,000 be paid as compromise in
extrajudicial settlement of Engineering's 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 Commissioner's assessment
· Engineering appealed to the Court of Tax Appeals. CTA rendered a decision in favor of
Engineering, declared exempt from the deficiency manufacturers sales tax covering the period from
June 1, 1948. to September 2, 1956. However, petitioner is ordered to pay respondent, or his duly
authorized collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the
period from 1953 to September 1956. With costs against petitioner.

· Not satisfied, both appealed before the SC. Since the two cases are similar, both will be tried
together.

Issue: W/ON 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: Contractor. 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 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.

QUIROGA V PARSONS

FACTS:
 A contract was entered into between Andres Quiroga and J. Parsons, who were both merchants,
which granted the exclusive right to sell his beds in the Visayan Islands to Parsons under the
following conditions: 1) There be a discount of 2.5% as commission for the sale; 2) Parsons shall
order the beds by the dozen, whether of the same or of different styles; 3) Expenses for
transportation and shipment shall be borne by Quiroga; 4) Parsons is bound to pay Quiroga for the
beds received within 60 days from the date of their shipment; 5) If Quiroga should request payment
before the invoice falls due, it shall be considered as prompt payment with 2% deduction; 6) 15-day
notice must at least be given by Quiroga before any alteration in price of beds; and 7) Parsons binds
himself to only sell Quiroga beds. Quiroga alleged that Parsons breached its contract by selling the
beds at a higher price, not having an open establishment in Iloilo, not maintaining a public
exhibition, and for not ordering the beds by the dozen. Only the last imputation was provided for by
the contract, the others were not stipulated. Quiroga argued that since there was a contract of
agency between them, such obligations were necessarily implied.

ISSUE:

Is the contract between them one of agency, not of sale?

HELD:

No. The agreement between Quiroga and Parsons was that of a simple purchase and sale — not an
agency. Quiroga supplied the beds, while Parsons had the obligation to pay their purchase price.
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. There was mutual
tolerance in the performance of the contract in disregard of its terms; and it gives no right to have
the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of
the contracting parties, subsequent to, and in connection with, the execution of the contract, must
be considered for the purpose of interpreting the contract, when such interpretation is necessary.

GONZALO PUYAT v ARCO AMUSEMENT

FACTS:
A contract was entered into between Andres Quiroga and J. Parsons, who were both merchants, which
granted the exclusive right to sell his beds in the Visayan Islands to Parsons under the following
conditions: 1) There be a discount of 2.5% as commission for the sale; 2) Parsons shall order the beds by
the dozen, whether of the same or of different styles; 3) Expenses for transportation and shipment shall
be borne by Quiroga; 4) Parsons is bound to pay Quiroga for the beds received within 60 days from the
date of their shipment; 5) If Quiroga should request payment before the invoice falls due, it shall be
considered as prompt payment with 2% deduction; 6) 15-day notice must at least be given by Quiroga
before any alteration in price of beds; and 7) Parsons binds himself to only sell Quiroga beds. Quiroga
alleged that Parsons breached its contract by selling the beds at a higher price, not having an open
establishment in Iloilo, not maintaining a public exhibition, and for not ordering the beds by the dozen.
Only the last imputation was provided for by the contract, the others were not stipulated. Quiroga
argued that since there was a contract of agency between them, such obligations were necessarily
implied.

ISSUE:

Is the contract between them one of agency, not of sale?

HELD:

No. The agreement between Quiroga and Parsons was that of a simple purchase and sale — not an
agency. Quiroga supplied the beds, while Parsons had the obligation to pay their purchase price. 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. There was mutual tolerance in the
performance of the contract in disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting
parties, subsequent to, and in connection with, the execution of the contract, must be considered for
the purpose of interpreting the contract, when such interpretation is necessary.

Phil. Lawin Bus Co et al v CA

G.R. No. 130972. January 23, 2002

Art. 1245 – Dation in Payment

Facts:

· Advance Capital Corporation, a licensed lending investor, extended a loan to petitioner Philippine
Lawin Bus Company of P8,000,000.00 payable within 1 year.

· To guarantee payment of the loan, Lawin executed in favor of Advance the following documents:
(1) A Deed of Chattel Mortgage wherein 9 units of buses were constituted as collaterals: (2) A joint and
several UNDERTAKING of defendant Master Tours and Travel Corporation, signed by Isidro Tan and
Marciano: and (3) A joint and several UNDERTAKING, executed and signed by Esteban, Isidro, Marciano
and Henry, all surnamed Tan.

· Out of the P8,000,000.00 loan, P1,800,000.00 was paid. Thus, Lawin was able to avail an
additional loan of P2,000,000.00 for one (1) month.

· LAWIN failed to pay the promissory note and the same was renewed.

· But LAWIN failed to pay the two promissory notes so that it was granted a loan re-structuring for
two (2) months. Despite the restructuring, LAWIN failed to pay.

· Respondent foreclosed the mortgaged buses and as the sole bidder thereof, the amount of
P2,000,000.00 was accepted by the deputy sheriff conducting the sale and credited to the account of
LAWIN.

· Thereafter, identical demand letters were sent to petitioners to pay their obligation. Despite
repeated demands, petitioners failed to pay their indebtedness which totaled of P16,484,992.42.

· Thus, the suit for sum of money, wherein the respondent prays that defendants solidarily pay
plaintiff.

Issue:

WoN there was dacion en pago between the parties upon the surrender or transfer of the mortgaged
buses to the respondent.

Held:

No, the Court affirms with CA that there was no dacion en pago that took place between the
parties.
 Article 1245 of the Civil Code provides that the law on sales shall govern an agreement of dacion
en pago. A contract of sale is perfected at the moment there is a meeting of the minds of the parties
thereto upon the thing which is the object of the contract and upon the price.

In this case, there was no meeting of the minds between the parties on whether the loan of the
petitioners would be extinguished by dacion en pago.

The receipts show that the two buses were delivered to respondent in order that it would take custody
for the purpose of selling the same. Such an agreement negates transfer of absolute ownership over the
property to respondent, as in a sale.

Thus, the Court REVERSES and SETS ASIDE the appealed decision.

FILINVEST CREDIT v CA

Facts:

Spouses Sy Bang were engaged in the sale of gravel produced from crushed rocks and used for
construction purposes. In order to increase their production, they looked for a rock crusher which Rizal
Consolidated Corporation then had for sale. A brother of Sy Bang, went to inspect the machine at the
Rizal Consolidated’s plant site. Apparently satisfied with the machine, the private respondents signified
their intent to purchase the same.

Since he does not have the financing capability, Sy Bang applied for financial assistance from Filinvest
Credit Corporation. Filinvest agreed to extend financial aid on the following conditions: (1) that the
machinery be purchased in the petitioner’s name; (2) that it be leased with option to purchase upon the
termination of the lease period; and (3) that Sy Bang execute a real estate mortgage as security for the
amount advanced by Filinvest. A contract of lease of machinery (with option to purchase) was entered
into by the parties whereby they to lease from the petitioner the rock crusher for two years. The
contract likewise stipulated that at the end of the two-year period, the machine would be owned by Sy
Bang.

3 months from the date of delivery, Sy Bang claiming that they had only tested the machine that month,
sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of
the machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones
per hour. They then demanded that the petitioner make good the stipulation in the lease contract. Sy
Bang stopped payment on the remaining checks they had issued to the petitioner.
As a consequence of the non-payment, Filinvest extrajudicially foreclosed the real estate mortgage.

Issue:

WON the real transaction was lease or sale? SALE ON INSTALLMENTS.

Held:

The real intention of the parties should prevail. The nomenclature of the agreement cannot change its
true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the
parties intend it to be, not what it is called by the parties. It is apparent here that the intent of the
parties to the subject contract is for the so-called rentals to be the installment payments. Upon the
completion of the payments, then the rock crusher, subject matter of the contract, would become the
property of the private respondents. This form of agreement has been criticized as a lease only in name.

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a
bargain in that form, for one reason or another, have frequently resorted to the device of making
contracts in the form of leases either with options to the buyer to purchase for a small consideration at
the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions
are leases only in name. The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms of bargain, in the
transfer of title to the lessee.

Indubitably, the device contract of lease with option to buy is at times resorted to as a means to
circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the
same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the
payment of the installments. There arises therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the
contract of sale, gets to keep all the installments-cum-rentals already paid.
Even if there was a contract of sale, Filinvest is still not liable because Sy Bang is presumed to be more
knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be
heard now to complain of any alleged deficiency of the said machinery. It was Sy Bang who was
negligent, not Filinvest. Further, Sy Bang is precluded to complain because he signed a Waiver of
Warranty.

ADDITIONAL

DOMINGO V CA

Facts:

Paulina Rigonan owned three parcels of land located at Batac and Espiritu, Ilocos Norte, including a
house and warehouse on one parcel. She allegedly sold them to Felipe and Concepcion Rigonan, who
claim to be her relatives. Petitioners Domingo, Mangabat and Capalungan who claim to be Paulina’s
closest surviving relatives, allegedly took possession of the property by means of stealth, force and
intimidation and refused to vacate the same. Felipe Rigonan filed a complaint for reinvindicacion against
petitioners in the RTC of Batac, Ilocos Norte, alleging their ownership of the land through the deep of
sale executed by Paulina Rigonan and since then have been in continuous possession of the properties
and introduced permanent improvements thereon. According to the petitioners, the deed of absolute
sale was void for being spurious since they inherited the three lots and the permanent improvements as
nearest surviving kin within the fifth degree of consanguinity to Paulina. The RTC ruled in the petitioner’s
favor, declaring them the lawful owners of the contested land. The Court of Appeals reversed the trial
court’s decision and ordered the petitioners to vacate the subject properties and surrender possession
thereof.

Issues:

(1) Whether or not private respondents sufficiently established the existence and due execution of the
Deed of Absolute and Irrevocable Sale of Real Property

(2) Whether or not Paulina Rigonan was competent to enter into said contract

Ruling:

Paulina Rigonan was in continuous possession of the property in this case, throwing an inverse
implication and serious doubt on the due execution of the deed of sale. The same parcels of land
involved in the alleged sale were still included in the will subsequently executed by Paulina and
notarized by Atty. Tagatag. These circumstances, taken together, militate against unguarded acceptance
of the due execution and genuineness of the alleged deed of sale.
At the time of the execution of the alleged contract, Paulina Rigonan was already of advanced age and
senile, attested by the testimony that she played with her waste and urinated in bed. She died an
octogenarian barely a year when the deed was allegedly executed. The general rule is that a person is
not incompetent to contract merely because of advance years or by reason of physical infirmities.
However, when such age or infirmities have impaired the mental faculties so as to prevent the person
from properly, intelligently and firmly protecting her property rights when she is undeniably
incapacitated.

The decision of the Court of Appeals is reversed and set aside and the decision of the Batac RTC is
reinstated.