MAHINAY, Beya Ammahry

Assignment no. 2
SALES

Sale Distinguished from Similar Contracts:

Donation (Arts. 725 and 1471)

11. Manongsong v. Estimo, 404 SCRA 683 (2003)

FACTS:
Agatona Guevarra (“Guevarra”) inherited a property on San Jose Street, Manuyo Uno, Las Pias,
Metro Manila with an area of approximately 152 square meters (Property) from Justina Navarro, which is
now under possession of the heirs of Guevarra.
Guevarra had six children, one of them is Vicente Lopez, the father of petitioner Milagros Lopez
Manongsong (“Manongsong”). The respondents, the Jumaquio sisters and Leoncia Lopez claimed that the
property was sold to them by Justina Navarro prior to her death. The respondents presented deed of sale
dated October 11, 1957. Milagros and Carlito Manongsong (“petitioners”) filed a Complaint on June 19,
1992 praying for the partition and award to them of an area equivalent to one-fifth (1/5), by right of
representation.
The RTC of Manila ruled that the conveyance made by Justina Navarro is subject to nullity because
the property conveyed had a conjugal character and that Agatona Guevarra as her compulsory heir should
have the legal right to participate with the distribution of the estate under question to the exclusion of others.
The Deed of Sale did not at all provide for the reserved legitime or the heirs, and, therefore it has no force
and effect against Agatona Guevarra and should be declared a nullity ab initio.
On the other hand, CA stated that the property is not conjugal in nature. Therefore, CA reversed
the decision of the trial court.

ISSUE:
Whether the property is conjugal in nature
RULING:
No. The trial courts conclusion that the Property was conjugal was not based on evidence, but
rather on a misapprehension of Article 160 of the Civil Code, which provides: All property of the marriage
is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the
husband or to the wife.
As the Court of Appeals correctly pointed out, the presumption under Article 160 of the Civil Code
applies only when there is proof that the property was acquired during the marriage. Proof of acquisition
during the marriage is an essential condition for the operation of the presumption in favor of the conjugal
partnership.
There was no evidence presented to establish that Navarro acquired the Property during her
marriage. There is no basis for applying the presumption under Article 160 of the Civil Code to the present
case. On the contrary, Tax Declaration No. 911 showed that, as far back as in 1949, the Property was
declared solely in Navarros name. This tends to support the argument that the Property was not conjugal.

Barter (Arts. 1468, 1638 to 1641)

Contract for Piece-of-Work (Arts. 1467, 1713 to 1715)

12. Inchausti & Co. v. Cromwell, 20 Phil. 345 (1911);

FACTS:
The plaintiff firm has been engaging with business of buying and selling at wholesale hemp and
the operation of baling hemp was designated among merchants by the word prensaje. All sales of hemp by
the plaintiff, the price is quoted to the buyer at so much per picul, there is no mention of baling, but with the
tacit understanding, the amount depends upon the prevailing rate that is to be made against the buyer
under the denomination of prensaje.
 Between January 1905 and March 1910, the plaintiff firm, collected and received would amount up
to 380,124.35 Pesos and between October 1908 and March 1910, would go up to 31,080 Pesos. The
defendant always paid to the defendant or to his predecessors in the office of the Collector of Internal
Revenue the tax collectible under Section 139 of Act No. 1189 upon the selling price expressly agreed upon
for all hemp sold by the plaintiff firm, but has not, untilled compelled to do so pay the said tax upon sums
received from the purchaser of such hemp under the denomination of Prensaje.
The defendant made a demand in writing upon the plaintiff firm for the payment of 1,370.68 pesos
as a tax of one third of one per cent on the sums of money which was mentioned above. The plaintiff firm
paid to the defendant under protest and appeal to the defendant against the ruling by which the firm was
required to make the payment, the defendant overruled the protest and adversely devided said appeal and
refused to return the sum of 1,370.68 pesos.
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.

ISSUE:
Whether the price for the contract of sale should include the charge made under the denomination
of prensaje.

RULING:
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 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.

13. Celestino & Co. v. Collector, 99 Phil. 841 (1956).

FACTS:

Celestino Co & Company is a duly registered copartnership 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 pursuant to Section 186 of the National Internal Revenue Code (NIRC). However, in 1952, it began
to claim liability only to the contract’s 3% tax under Section 191 of the NIRC.
The company contends that it is only an ordinary contractor that does not manufacture ready-made sash,
doors, and windows for the public but rather makes these articles only upon special order of its customers.

On the other hand, the Court of Tax Appeals avers that it cannot believe that petitioner company would
take, as in fact, it has taken all the trouble and expenses of registering a special trade name for its business
solely for the purpose of supplying the needs of it special and limited customers. Further, it 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. The
court also found it difficult to believe that the six figures income derived by petitioner from its few customers
was due to the special orders of sash, doors, and windows.

ISSUE:
Is the petitioner engaged in a contract for a piece of work?

RULING:
No. When a company or factory does nothing more than sell the goods that it mass produces or habitually
makes — sash, panels, mouldings, frames — cutting them to sizes and combining them in such forms as
its customers may desire; not merely selling its services, but also the materials ordinarily manufactured by
it, although in such form or combination as suited the fancy of the purchaser, it is still a manufacturer, and
not a contractor for a piece of work or a lessor of services, and its transactions with its customers are
contracts of sale under Art. 1467 of the Civil Code.
Said article reads as follows:
A contract for the delivery at a certain price of an article which the vendor in the ordinary course of
his business manufactures or procures for the general market, whether the same is on hand at the time
or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and
upon his special order, and not for the general market, it is contract for a piece of work.
When a 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. However, a sawmill that cuts
lumber in accordance with peculiar specifications of a customer is a seller, not a contractor for a piece of
work, even though the sizes referred to are not previously held in stock for sale to the public.
In the court’s 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.

TLDR: The sale of goods manufactured for the general market is a contract of sale. If goods are
manufactured specially for the customer, it is a contract for a piece of work. The company habitually
makes sash, windows, and doors as it has been represented to the public. The fact that the windows and
doors are made only when customers place their orders, does not alter the nature of the establishment, for
it is obvious that they accept special orders other than making ready-made products. The factory does
nothing more than sell the goods that it mass produces or habitually makes.

14. CIR v. Eng’ing Equipment & Supply Co., 64 SCRA 590 (1975)

FACTS:
This case originated with a report made by one Juan Dela Cruz to the Commissioner of Internal Revenue
(CIR) against Engineering Equipment and Supply Co. (Engineering) for, among others, tax evasion.
According to Dela Cruz, Engineering misdeclared imported articles and failed to pay the correct percentage
taxes due thereon. The revenue examiners assessed Engineering with a deficiency advance manufacturers
sales tax of P916k (later reduced to P740k).
The CIR assessed against Engineering and demanded payment, the latter refused. On appeal, the CTA
declared engineering exempt from the deficiency manufacturers sales tax but liable for P174k
compensating tax, plus surcharge. Both parties appealed.

The CIR argued that Engineering is a manufacturer and seller of air conditioning units and parts. Thus,
subject to the 30% advance sales tax under Section 185(m) of the Tax Code, in relation to Section 194
thereof.
On the other hand, Engineering claims that it is a contractor engaged in the design, supply and installation
of the central type of air-conditioning system subject to the 3% compensating 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.

ISSUE:
WON Engineering is a manufacturer of air conditioning units or a contractor

RULING:
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.

TLDR: What distinguishes a contract for a piece of work and a contract of sale is their subject matter. If the
thing transferred is being produced in the ordinary course of one’s business, it is a contract of sale.
If the thing transferred wouldn’t have existed but for the special order of a customer, it is one for a
piece of work.

In the present case, the contracts were not standard but especially made for each customer and installed
in buildings upon special order therefore, the contracts were for a piece of work.
 Agency to Sell (Art. 1466)
15. Quiroga v. Parsons, 38 Phil. 501 (1918)

FACTS: On January 24, 1911, a contract was executed between the parties Andres Quiroga and J.
Parsons, both merchants established in Manila, for the exclusive sale of “Quiroga” beds in the Visayan
islands. The terms of the contract which the plaintiff pointed out as violative of their agreement are as
follows:

(a) not to sell the beds at higher prices than those of the invoices;
(b) to have an open establishment in Iloilo;
(c) itself to conduct the agency;
(d) to keep the beds on public exhibition, and to pay for the advertisement expenses for the same;
(e) and to order the beds by the dozen and in no other manner.

The plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said
obligations are implied in a contract of commercial agency. It also averred that Ernesto Vidal, former VP of
defendant corporation was the one who drafted the contract with the purpose in contracting with the plaintiff,
“to be an agent for his beds and to collect a commission on sales.” Furthermore, the plaintiff also
endeavored to prove that the defendant had returned beds that it could not sell; that, without previous
notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission
for the beds sold by the plaintiff directly to persons in Iloilo.

ISSUE: Whether the defendant, by reason of the contract, was a purchaser or an agent of the plaintiff for
the sale of his beds.

RULING: The contract by and between the defendant and the plaintiff is one of purchase and sale, and not
of commercial agency. Besides, examining the clauses of the contract, none of them is found that
substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the
idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as
stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles
2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan
Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible
with the contract of purchase and sale.

Even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting
with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims
to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial
agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must
be understood that a contract is what the law defines it to be, and not what it is called by the contracting
parties.

As to the return of the beds, at the most only shows that, on the part of both of them, 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, but not when, as in the instant
case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain
kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in
exchange for the price paid for them, but was for other beds of another kind; As regards the shipment of
beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones
so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-
called commissions, they merely constituted a discount on the invoice price, and the reason for applying
this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant
obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were
to be considered as a result of that advertisement.

For the foregoing reasons, the Court held that the contract by and between the plaintiff and the defendant
was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action
are not imposed upon the defendant, either by agreement or by law.

16. Victorias Milling Co., Inc. v. CA, 333 SCRA 663 (2000).

FACTS: St. Therese Merchandising (STM) regularly bought sugar from petitioner Victorias Milling Co., Inc.,
(VMC). In their recent dealings, STM ordered 25,000 bags (50 kgs/bag at P630/bag) and was issued by
VMC Shipping List/Delivery Receipt SLDR No. 1214M “subject for availability of stock at NAWACO
warehouse.”

On October 25, 1989 STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in
SLDR No. 1214M for P 14,750,000.00. CSC issued a total of 4 checks as payment. On October 27, 1989,
STM issued 16 checks in the total amount of P31,900,000.00 with VMC as payee. The latter, in turn, issued
OR No. 33743 dated October 27, 1989 acknowledging receipt of the said checks in payment of 50,000
bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.

CSC presented to VMC the letter of authority along with SLDR No. 1214M. CSC was able to withdraw 2,000
bags but was later denied further withdrawals on the ground that all the sugar corresponding to the amount
of STM's cleared checks had been fully withdrawn and hence, there would be no more deliveries of the
commodity to STM's account. Thus, CSC filed a civil case for specific performance and alleged that STM
had fully paid VMC for the sugar covered by SLDR No. 1214M. Therefore, the latter had no justification for
refusing delivery of the sugar.

VMC heavily relied upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M
to show that the latter was STM's agent. The pertinent portion of said letter reads:

“This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf
(stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No.
1214 dated October 16, 1989 in the total quantity of 25, 000 bags.”

The trial court rendered judgment in favor of CSC and against Victoria's Milling Company.

The CA however, modified and ruled that where the relation of agency is dependent upon the acts of the
parties, the law makes no presumption of agency, and it is always a fact to be proved, with the burden of
proof resting upon the persons alleging the agency, to show not only the fact of its existence, but also its
nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. VMC failed to sufficiently establish the
existence of an agency relation between plaintiff-appellee and STM. The fact alone that it (STM) had
authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as
pointing to the existence of an agency relation. It should be viewed in the context of all the circumstances
obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by the use of the
phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990, plaintiff-appellee
informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM. Further,
plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M were sold and
transferred by STM to it. A conclusion that there was a valid sale and transfer to plaintiff-appellee may,
therefore, be made thus capacitating plaintiff-appellee to sue in its own name, without the need of joining
its imputed principal STM as co-plaintiff."

ISSUE: Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence,
estopped to sue upon SLDR No. 1214M as an assignee.
RULING: No. The Civil Code defines a contract of agency as follows: “Art. 1868. By the contract of agency
a person binds himself to render some service or to do something in representation or on behalf of another,
with the consent or authority of the latter.”

It is clear from Article 1868 that the basis of agency is representation. On the part of the principal, there
must be an actual intention to appoint or an intention naturally inferable from his words or actions; and on
the part of the agent, there must be an intention to accept the appointment and act on it, and in the absence
of such intent, there is generally no agency. One factor which most clearly distinguishes agency from other
legal concepts is control; one person - the agent - agrees to act under the control or direction of another -
the principal. Indeed, the very word “agency” has come to connote control by the principal. The control
factor, more than any other, has caused the courts to put contracts between principal and agent in a
separate category.
In this case, it appears plain that private respondent CSC was a buyer of the SLDR form, and not an
agent of STM. Private respondent CSC was not subject to STM's control.

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

17. Puyat v. Arco Amusement Co., 72 Phil. 402 (1941). sularte

FACTS: Gonzalo Puyat and Sons, Inc. (Puyat) was the exclusive agent of Starr Piano Company (Indiana,
USA; Starr) in the Philippines. Arco Amusement Company (Arco) sought to purchase musical instruments
from Starr via Puyat. Under the agreement between Puyat and Arco, the latter will pay cost, plus 10%
commission, and shall bear related costs and taxes. Arco placed and received two orders. However, Arco
later learned that Puyat was able to obtain 25% discount from Starr. Arco thus believed that it made
overpayments to Puyat.

The buyer filed an action to secure reimbursement of alleged overpayments. The RTC absolved Puyat,
holding that the contract between the parties was one of purchase and sale. The CA reversed, finding an
agent-principal relationship between the parties. The SC reversed.

ISSUE: Whether the nature of the contract between the parties were a purchase and sale or agency.

RULING: The nature of the contract between the parties are that of a contract of purchase and sale, not
agency. The buyer clearly agreed to the purchase price set by the buyer, this is evidenced by the letters
sent by the former to the latter accepting said price. The contract has the force of law between the parties
and must be complied with in good faith. As provided for, the seller may hold that buyer liable for the price
agreed upon regardless of unfavorable events (e.g. mistake in quotation). This feature is incompatible with
the contract of agency whereby the agent is relieved of liability only if it complied with the instructions of the
principal.

The 10% commission paid to Puyat does not necessarily mean that it was an agent. The same was merely
an additional price that the buyer undertook to pay, and which is not incompatible with the contract of
purchase and sale.
Furthermore, since it was already admitted that Puyat was the exclusive agent of Starr Piano, it can no
longer be the agent of the buyer. It is out of the ordinary for one to be the agent of both the vendor and the
purchaser.

As such, Puyat as a vendor is not bound to reimburse the respondent as vendee for any difference between
the cost price and the sales price which represents the profit.

Meeting of the minds of the buyer and the seller as to the object and consideration perfects a contract of
sale. Where compliance to the obligations arising therefrom may be demanded without consideration as to
the compliance of the purported agent (buyer) to the instructions of the purported principal (seller), the
contract is not one of agency.

Petition granted. Decision reversed.

Dacion En Pago (Arts. 1245 and 1934)

18. Yuson v. Vitan, 496 SCRA 540 (2007). acodili

FACTS:

Complainant Mar Yuson bought a second-hand taxi with the help of Atty. Vitan on all the legal matters
concerning his purchase. With this, the lawyer borrowed P100,000 from him in December 2002, promising
to repay the loan before the end of the following year.
To guarantee payment, respondent executed in favor of complainant several postdated checks to cover
the loaned amount which proved worthless, because they had been drawn against the lawyer's closed
account. This development prompted complainant to seek the aid of the IBP -NCLA in obtaining payment.
Upon receipt of the letter, the lawyer again gave assurances that he would pay the loan in time.
When the date passed without any payment, complainant demanded a collateral to secure the loan. Thus,
in his favor, Atty. Vitan executed a document denominated as a Deed of Absolute Sale, covering the latter's
parcel of land located in Sta. Maria, Bulacan. According to complainant, their intention was to transfer the
title of the property to him temporarily, so that he could either sell or mortgage it. It was further agreed that,
if it was mortgaged, respondent would redeem it as partial or full payment of the loan.
However, the parties executed a second Deed of Absolute Sale, this time in favor of Atty. Vitan, with
complainant as vendor.
On April 12, 2004, complainant was able to mortgage the property for P30,000. Contrary to their earlier
agreement, respondent did not redeem it from the mortgagee and, instead, simply sent complainant a letter
dated July 7, 2004, promising to pay on or before July 12, 2004.
On July 19, 2004, IBP-NCLA sent another letter on behalf of complainant stating that an administrative
case would be filed against him, unless he settled his obligations by July 30, 2004.
Atty. Vitan contends that his obligation was already extinguished, because he had allegedly sold his
Bulacan property to complainant. Basically, respondent is asserting that what had transpired was a dation
in payment.

ISSUE: Whether Atty. Vitan’s obligation was extinguished by virtue of the first Deed of Absolute Sale which
appears to be a dacion en pago.

RULING:

No, there was no extinguishment of obligation by means of a bona fide dation in payment or sale that took
place between the parties. Governed by the law on sales, dacion en pago is a transaction that takes place
when a piece of property is alienated to the creditor in satisfaction of a debt in money. It involves delivery
and transmission of ownership of a thing -- by the debtor to the creditor -- as an accepted equivalent of the
performance of the obligation.
Going over the records of this case, did not really intend to sell and relinquish ownership over his property
in Sta. Maria, Bulacan, notwithstanding the execution of a Deed of Absolute Sale in favor of complainant.
The second Deed of Absolute Sale, which reconveyed the property to respondent, is proof that he had no
such intention. This second Deed, which he referred to as his "safety net," betrays his intention to counteract
the effects of the first one.
In a manner of speaking, Atty. Vitan was taking back with his right hand what he had given with his left. The
second Deed of Absolute Sale returned the parties right back where they started, as if there were no sale
in favor of complainant to begin with. In effect, on the basis of the second Deed of Sale, respondent took
back and asserted his ownership over the property despite having allegedly sold it. Thus, he fails to
convince that there was a bona fide dation in payment or sale that took place between the parties; that is,
that there was an extinguishment of obligation.

19. Philippine Lawin Bus Co. v. CA, 374 SCRA 332 (2002) ESMAIL

FACTS: On 7 August 1990 plaintiff Advance Capital Corporation, a licensed lending investor, extended a
loan to defendant Philippine Lawin Bus Company in the amount of P8,000,000.00 payable within a period
of one (1) year. The defendant, through Marciano Tan, its Executive Vice President, executed Promissory
Note No. 003, for the amount of P8,000,000.00. To guarantee payment of the loan, defendant Lawin
executed in favor of plaintiff 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 dated 07 August 1990, signed by Isidro Tan and Marciano Tan, and (3) A joint and
several UNDERTAKING executed and signed by Esteban, Isidro, Marciano and Henry, all surnamed Tan.

Despite repeated demands, the defendants failed to pay their indebtedness which totaled of
P16,484,992.42 as of 31 July 1992. Thus, the suit for sum of money, wherein the plaintiff prays that
defendants solidarily pay plaintiff as of July 31, 1992 the sum of (a) P16,484,994.12 as principal obligation
under the two promissory notes Nos. 003 and 00037, plus interests and penalties, and other damages. On
04 September 1993, a writ of preliminary injunction was issued with respect to movable and immovable
properties of the defendants.

In answer to the complaint, defendants-appellees assert by way of special and affirmative defense, that
there was already an arrangement as to the full settlement of the loan obligation by way of:
A. Sale of the nine (9) units passenger buses the proceeds of which will be credited against the loan amount
as full payment thereof; or in the alternative.
B. Plaintiff will shoulder and bear the cost of rehabilitating the buses, with the amount thereof to be included
in the total obligation of defendant Lawin and the bus operated, with the earnings thereof to be applied to
the loan obligation of defendant Lawin."

Defendants further assert that the foreclosure sale was in violation of the aforequoted arrangement and
prayed for the nullification of the same and the dismissal of the complaint.
On 28 June 1995, the trial court rendered a decision dismissing the complaint for lack of merit; Declaring
the foreclosure and auction sale null and void, and Declaring the obligation or indebtedness of defendants
EXTINGUISHED. On 30 September 1997, the Court of Appeals promulgated a decision reversing that of
the trial court.
ISSUE: Whether there was dacion en pago between the parties upon the surrender or transfer of the
mortgaged buses to the respondent.

RULING: No, there was no dacion en pago that took place between the parties.

In dacion en pago, property is alienated to the creditor in satisfaction of a debt in money.16 It is "the delivery
and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the
performance of the obligation."17 It "extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement,
express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished.

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 dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts
it as equivalent of payment of an outstanding obligation. The undertaking really partakes in one sense of
the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which
is to be charged against the debtor’s debt.1âwphi1 As such, the essential elements of a contract of sale,
namely, consent, object certain, and cause or consideration must be present.

What actually takes place in dacion en pago is an objective novation of the obligation where the thing
offered as an accepted equivalent is considered as the object of the contract of sale, while the debt is
considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or
novation, to have the effect of totally extinguishing the debt or obligation.

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 executed by respondent’s representative as proof
of an agreement of the parties that delivery of the buses to private respondent would result in extinguishing
petitioner’s obligation do not in any way reflect the intention of the parties that ownership thereof by
respondent would be complete and absolute. 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. The receipts themselves
in fact show that petitioners deemed respondent as their agent in the sale of the two vehicles whereby the
proceeds thereof would be applied in payment of petitioners’ indebtedness to respondent. Such an
agreement negates transfer of absolute ownership over the property to respondent, as in a sale. Where
machinery and equipment were repossessed to secure the payment of a loan obligation and not for the
purpose of transferring ownership thereof to the creditor in satisfaction of said loan, no dacion en pago was
ever accomplished.

Lease (Arts. 1484 and 1485)

20. Filinvest Credit Corp. v. CA, 178 SCRA 188 (1989) SORIANO

FACTS: The spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel produced from
crushed rocks and used for construction purposes. In order to increase their production, they engaged the
services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a rock
crusher which they could buy. Mr. Mercurio referred the spouses to the Rizal Consolidated Corporation
which then had for sale one such machinery.Apparently satisfied with the machine, Sy Bang signified their
intent to purchase the same.

They were confronted with a problem, the rock crusher carried a cash price tag of P550,000.00. Bent on
acquiring the machinery, the spouses applied for financial assistance from Filinvest Credit Corporation.
Filinvest agreed to extend to the spouses financial aid on the following conditions: that the machinery be
purchased in Filinvest’s name; that it be leased (with option to purchase upon the termination of the lease
period) to the spouses; and that the spouses execute a real estate mortgage in favor of Filinvest as security
for the amount advanced by the latter.

Accordingly, on 18 May 1981, a contract of lease of machinery (with option to purchase) was entered into
by the parties whereby the spouses agreed to lease from the petitioner the rock crusher for two years
starting from 5 July 1981 payable at P10,000.00 for first 3 months, P23,000.00 for the next 6 months, and
P24,800.00 for the next 15 months. The contract likewise stipulated that at the end of the two-year period,
the machine would be owned by the spouses.

Thus, the spouses issued in favor of Filinvest a check for P150,550.00, as initial rental (or guaranty deposit),
and 24 postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their
compliance with the lease contract, the spouses executed a real estate mortgage over two parcels of land
in favor of Filinvest. The rock crusher was delivered to the spouses on 9 June 1981.

Three months from the date of delivery, or on 7 September 1981, however, the spouses, claiming that they
had only tested the machine that month, sent a letter-complaint to Filinvest, 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 Filinvest make good the stipulation in the
lease contract. They followed that up with similar written complaints to Filinvest, but the latter did not,
however, act on them.

Subsequently, the spouses stopped payment on the remaining checks they had issued to Filinvest. As a
consequence of the non-payment by the spouses of the rentals on the rock crusher as they fell due despite
the repeated written demands, Filinvest extrajudicially foreclosed the real estate mortgage. On 18 April
1983, the spouses received a Sheriff a Notice of Auction Sale informing them that their mortgaged
properties were going to be sold at a public auction on 25 May 1983, 10:00 a.m., at the Office of the
Provincial Sheriff in Lucena City to satisfy their indebtedness to Filinvest.

ISSUES:
1. Whether or not the parties entered into a contract of lease.

2. Whether or not Filinvest is liable for the machine’s failure to produce in accordance with its described
capacity.

RULING: SALE ON INSTALLMENT

1.No, the parties into a contract of sale, and not a contract of lease.

Primarily what the parties entered into is not contract of lease but a lease only in name. As the court
describe, 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.

Thus in Vda. de Jose v. Barrueco, SC stated:

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.

Under the Art. 1484 of the New Civil Code, the seller of movables in installments, in case the buyer
fails to pay two or more installments may elect to pursue either of the following remedies: (1) exact
fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on
the purchased property if one was constituted thereon. It is now settled that the said remedies are
alternative and not cumulative and therefore, the exercise of one bars the exercise of the others.

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
instalments. 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. It is thus for these reasons that
Article 1485 of the new Civil Code provides that:

Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of possession or enjoyment
of the thing.

RECTO LAW, A REMEDY APPLICABLE ON MOVABLE PROPERTY ON INSTALLMENT ACT 4122,

ART 1484

MACEDA LAW
STUDY TIL 1475. QUIZ SEPT 6

2. NO. Filinvest is not liable for the rock crusher’s failure to produce in accordance with its described
capacity.

The spouses Bang and Tan were the one who chose, inspected and tested the subject machinery. In fact
, this was stipulated in the contract they signed:

LESSEE’S SELECTION, INSPECTION AND VERIFICATION.-TheLESSEE hereby confirms and

acknowledges that he has independently inspected and verified the leased property and has selected and
received the same from the Dealer of his own choosing in good order and excellent running and operating
condition and on the basis of such verification, etc. the LESSEE has agreed to enter into this Contract.”

It is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a prudent man,
in the selection, testing, and inspection of the rock crusher that gave rise to their difficulty and to this
conflict. A well-established principle in law is that between two parties, he, who by his negligence
caused the loss, shall bear the same.

The spouses also released Filinvest from any liability arising from any defect or deficiency of the machinery
they bought with the stipulation on express waiver of warranties in favor of Filinvest in the agreement.

Certainly, the waiver in question could not be considered a mere surplusage in the contract between the
parties. Moreover, nowhere is it shown in the records of the case that the private respondent has argued
for its nullity or illegality. In any event, we find no ambiguity in the language of the waiver or the release of
warranty. There is therefore no room for any interpretation as to its effect or applicability vis-a- vis the
deficient output of the rock crusher. Suffice it to say that the private respondents have validly excused the
petitioner from any warranty on the rock crusher. Hence, they should bear the loss for any defect found
therein.