SPS. Santos v.

CA

(337 SCRA 67)

FACTS:

The spouses Fortunato and Rosalinda Santos owned a House and Lot located in
Paranaque. The said property was mortgaged with the Rural Bank of Salina, Inc., to secure a
loan of 150,000.00 on June 1987.

Upon its maturity, the bank sent Rosalinda a letter demanding of the unpaid interest
and other charges. Since, the Santoses had no funds, Rosalinda offered to sell the property
to Carmen Caseda, a very good friend of her, herein respondent. After the agreed to the
offer, they executed a document containing some terms and conditions which provides that
the balance of the mortgage loan with the Rural Bank, the real estate taxes, the electric
and water bills and the balance of the cash price on its maturity plus the initial payment of
the said property will be charged at the expense of the Casedas.

After the Casedas gave the initial payment of 54,100.00 of 300,000.00, they
immediately took possession of the property, which they the leased out. The Casedas also
pay all the balances as the terms and condition that the document provided. However, these
payments were made in the name of Rosalinda.

After lapse of five years, the Santoses saw that the Casedas lacked the means to
pay the remaining installments of loan. Thus, repossed the property. Moreover, they
collected the rentals from the tenants. On the other hand, the Casedas sold their fishpond
then approached the Santoses to pay for the remaining balance, but the same was rejected
because the Santoses wanted a higher price than their stipulation. As a result, Casedas
filed a case against the Santoses, alleging that there is a contract of sale, that upon partial
payment of the price of the property, they took possession of the said property and
transfer of ownership is subsequent upon its delivery.

ISSUE:

WON the transaction between the herein parties is a contract of absolute sale or a mere
oral contract to sell.

WHETHER PETITIONERS' DEMAND AND PRAYER FOR RESCISSION CONTAINED IN

THEIR ANSWER FILED BEFORE THE TRIAL SATISFIED THE JUDICIAL DEMAN FOR
RECISSION

WHETHER OR NOT THE NON-PAYMENT OF MORE THAN HALF OF THE ENTIRE

PURCHASE PRICE INCLUDING THE NON-COMPLIANCE WITH THE STIPULATION TO
LIQUIDATE THE MORTGAGE LOAN ON TIME WHICH CAUSED GRAVE DAMAGE AND
PREJUDICE TO PETITIONERS, CONSTITUTE SUBSTANTIAL BREACH TO JUSTIFY
RESCISSION OF A CONTRACT TO SELL
HELD:

1. It is a mere oral contract to sell. A contract of sale is what the law defines it to
be, taking into consideration its elements, and not what the contracting parties
call it.

Under Art. 1458 of NCC, it expressly obliges the vendor to transfer the ownership of the
thing sold as an essential element of a contract of sale. Thus, the transfer of ownership in
exchange for a price paid or promised is the very essence of contract of sale.

In the instant case, it is shown by the records that the ownership of the property
was retained in the name of the Santoses. The Casedas where paying the liabilities of the
Santoses as a mere financer. Thus, this payment is still in behalf of the Santoses. There is
no valid transfer of ownership between the parties. Hence, an absence of this essential
element will not tantamount to a contract of sale. The Supreme Court, however, classifies
this transaction as Contract to Sell, wherein the ownership was reserved by the vendor and
is not pass until the full payment of the purchase price, making it capable to be rescinded.

2. In view of our finding in the present case that the agreement between the parties is a
contract to sell, it follows that the appellate court erred when it decreed that a judicial
rescission of said agreement was necessary. This is because there was no rescission to
speak of in the first place. As we earlier pointed, in a contract to sell, title remains with
the vendor and does not pass on to the vendee until the purchase price is paid in full, Thus,
in contract to sell, the payment of the purchase price is a positive suspensive condition.
Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation
that prevents the obligation of the vendor to convey title from acquiring an obligatory
force.20 This is entirely different from the situation in a contract of sale, where non-
payment of the price is a negative resolutory condition. The effects in law are not identical.
In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it,
unless the contract of sale is rescinded and set aside.21 In a contract to sell, however, the
vendor remains the owner for as long as the vendee has not complied fully with the
condition of paying the purchase. If the vendor should eject the vendee for failure to meet
the condition precedent, he is enforcing the contract and not rescinding it.

3. Moot and academic question.

Carlos vs Ramil

G.R. No. 6736

Moreland, J.

Facts:

Agustin Carlos and his wife, Juliana Carlos, had no children and, so far as the record shows,
died leaving no heirs except the Alejandra. Getting old and needing someone to care for
them, Carlos and his wife took to live with them a young girl of the neighborhood. She grew
up with them, giving them the best of care and doing for them all that could be required of
a faithful and dutiful child. In the year 1901 the said daughter was about to marry the
defendant in this case, Antonio Ramil. The old people, fearing that the husband would
remove the daughter from the house and take her to live with him separately, and feeling
that this would deprive them of the only person who would give them the care which they
needed in their old age, Agustin Carlos and his wife on the 5th day of April, 1901, after the
marriage of said daughter and the defendant, made an agreement with them that if they
would remain, living in their house, caring for them as long as they should live, they, Carlos
and his wife, would give to the children the real estate described in the complaint in this
action.

This agreement, which was duly signed and executed by all the parties thereto, assumes
somewhat the appearance of a remunerative donation.

CFI of Ilocos ruled for Antonio Ramil.

Issue:

Is the instrument in question a remunerative donation? Who has the right to the land?

Held:
1. A careful examination of the record, however, demonstrates clearly that the instrument
in question is not a remunerative donation within the meaning of that term used in the Civil
Code, but is rather a contract by which Carlos and his wife transferred to the defendant
and his wife the lands described in the complaint upon the consideration that the latter
should give to the former the care therein mentioned and prescribed. That contract was
fully executed upon the part of the defendant and his wife. They cared for Carlos and his
wife as long as they lived, giving them food, clothing and shelter. If the transaction
between Carlos and the defendant was a donation it was una donacion con causa onerosa and
not una donacion remuneatoria. One of the leading differences between these two classes
of donations or gifts is that in the one con causa onerosa the services which form the
consideration for the gift have not yet been performed, while in the other they have. At
the time of the transaction heretofore referred to none of the services which formed the
consideration for the agreement in question had yet been performed. They were all to be
performed in the future. Under the provisions of the Civil Code una donacion con causa
onerosa is governed by the provisions of said code relative to contracts. That being so, the
arguments of appellant relative to the validity of the instrument in question are entirely
inapplicable and beside the point for the reason that they relate solely to a remunerative
gift. The judgment is affirmed, with costs.

2. Antonio Ramil. The arguments of appellant relative to the validity of the instrument in
question are entirely inapplicable and beside the point for the reason that they relate
solely to a remunerative gift. The judgment is affirmed, with costs.
De Santos vs City of Manila and AU

Facts:

On October 1, 1958, a contract of exchange was made and entered into by and between the
City of Manila and the Arellano University, Inc., in accordance with, and by virtue of,
Resolution No. 442 of the Municipal Board of Manila, whereby five parcels of land of the
City of Manila (Lots 1, 2, 3, 4 and 5, Psu-167195) containing an aggregate area of 2458.3
square meters, more or less, were exchanged for three parcels of land of the Arellano
University, Inc. (Lots 4-A, 9-A, and 10-A, Psd-53347) containing an aggregate area of
2171.4 square meters, more or less, which were needed for the construction of the
Azcarraga (now Claro M. Recto) Extension.

The lot under controversy - Lot No. 1 Psu-167195 - contains 221.50 square meters. It was a
part of the partially dried bed of the Estero de San Miguel or Sampaloc, and is situated
south of Lot No. 4, Block 2646, Manila Cadastre, which contains an area of 1460 square
meters and which was acquired by Antonio De Santos on January 31, 1958 from Enrique C.
Lopez. It also adjoins the properties belonging to the Arellano University, Inc.

De Santos then filed for the nullification of the exchange and in the event that the validity
of said contract is sustained, to declare Lot 1 subject to plaintiff's right of redemption
within 30 days from the written notice of such exchange; and (3) in the event that said Lot
1 be declared not to belong to the City of Manila, to enjoin the said City, "in the event that
it finally acquires the aforesaid property, to respect plaintiff's right of preemption."

The trial court on March 7, 1961 rendered judgment for the defendants holding that
plaintiff has no right to exercise any right of pre-emption or redemption over the lot in
question; denying the alternative cause of action for annulment of the deed of exchange on
the ground that such an issue cannot be raised by plaintiff, who is not a proper party in
interest; dismissing the complaint; and directing plaintiff to pay defendant Arellano
University the sum of P5,000.00 as attorney's fees, with costs against the plaintiff. CA
affirmed the said decision of the RTC.

Issue:

whether or not petitioner-appellant has any right of pre-emption or redemption over Lot
No. 1 of Psu-167195, or, as an alternative cause of action, to seek the annulment of the
deed of exchange executed by and between respondents-appellees

Ruling:

Petitioner-appellant has no right to pre-empt or redeem the lot in question as adjoining

owner under the pertinent provision of law on the matter, Article 1622 of the new Civil
Code, thus:

ART. 1622. Whenever a piece of urban land is so small and so situated that a major portion
thereof cannot be used for any practical purpose within a reasonable time, having been
bought merely for speculation, is about to be re-sold, the owner of any adjoining land has a
right of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the adjoining land shall have a right of
redemption, also at a reasonable price.

When two or more owners of adjoining lands wish to exercise the right of pre-emption or
redemption, the owner whose intended use of the land in question appears best justified
shall be preferred.

A person, who is not a party obliged principally or subsidiarily under a contract, may
exercise an action for nullity of the contract if he is prejudiced in his rights with respect
to one of the contracting parties, and can show detriment which would positively result to
him from the contract in which he had no intervention.  

The said contract of exchange is not detrimental to the right or interest of petitioner-
appellant; because he has neither the right of pre-emption nor redemption over the
disputed lot. Petitioner-appellant, therefore, cannot legally seek the annulment of said deed
of exchange.
MAMERTA VDA. DE JAYME et. al vs. CA
G.R. No. 128669 | 2002-10-04

FACTS:
 The spouses Graciano and Mamerta Jayme are the registered owners of Lot
2700, situated in the Municipality of Mandaue (now Mandaue City), Cebu, consisting
of 2,568 sq.m. and covered by Transfer Certificate of Title No. 8290.
 On January 8, 1973, they entered into a Contract of Lease with George Neri,
president of Airland Motors Corporation (now Cebu Asiancars Inc.), covering one-
half of Lot 2700. The lease was for twenty (20) years.
 The terms and conditions of the lease contract stipulated that Cebu Asiancars
Inc. (hereafter, Asiancars) may use the leased premises as a collateral to secure
payment of a loan which Asiancars may obtain from any bank, provided that the
proceeds of the loan shall be used solely for the construction of a building
which, upon the termination of the lease or the voluntary surrender of the leased
premises before the expiration of the contract, shall automatically become the
property of the Jayme spouses (the lessors).
 A Special Power of Attorney dated January 26, 1974, was executed in favor of
respondent George Neri, who used the lot to secure a loan of P300,000 from the
General Bank and Trust Company. The loan was fully paid on August 14, 1977.
 In October 1977, Asiancars obtained a loan of P6,000,000 from the Metropolitan
Bank and Trust Company (MBTC). The entire Lot 2700 was offered as one of
several properties given as collateral for the loan. As mortgagors, the spouses
signed a Deed of Real Estate Mortgage dated November 21, 1977 in favor of
MBTC. It stated that the deed was to secure the payment of a loan obtained by
Asiancars from the bank. The building was later on built and constructed.
 Meeting financial difficulties and incurring an outstanding balance on the loan,
Asiancars conveyed ownership of the building on the leased premises to MBTC,
by way of "dacion en pago." The building was valued at P980,000 and the amount
was applied as partial payment for the loan. There still remained a balance of
P2,942,449.66, which Asiancars failed to pay.
 Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction was
held on February 4, 1981. MBTC was the highest bidder. A certificate of sale was
issued and was registered with the Register of Deeds on February 23, 1981.
 As a result of the foreclosure, Graciano's heirs filed a civil complaint, in January
of 1982, for Annulment of Contract with Damages with Prayer for Issuance of
Preliminary Injunction, against respondent Asiancars, its officers and
incorporators and MBTC.
 RTC – Real Estate Mortgage in favor of Metrobank is valid and binding;
 CA – affirmed RTC; MR denied. Hence, this petition.
 Petitioners – vitiated consent due to fraud
 Respondents – no fraud was employed, nor was there a scheme to make the spouses
sign as mortgagors instead of guarantors. [The respondents imply that the alienation
by dacion en pago was valid because the corresponding contract of mortgage was
valid.]
ISSUE: Whether or not the dacion en pago is valid and binding despite the stipulation in
the lease contract that ownership of the building will vest on the Jaymes at the
termination of the lease.

HELD: YES.
 Much as we sympathize with petitioners' plight, we are unable to find merit in their
plea for the annulment of the deed of sale covering Lot 2700 as a result of
foreclosure of mortgage. Petitioners failed to show the required quantum of
evidence that they were fraudulently made to sign as mortgagors.
 The alienation of the building by Asiancars in favor of MBTC for the partial
satisfaction of its indebtedness is, in our view, also valid. The ownership of the
building had been effectively in the name of the lessee-mortgagor (Asiancars),
though with the provision that said ownership be transferred to the Jaymes upon
termination of the lease or the voluntary surrender of the premises. The lease was
constituted on January 8, 1973 and was to expire 20 years thereafter, or on
January 8, 1993. The alienation via dacion en pago was made by Asiancars to
MBTC on December 18, 1980, during the subsistence of the lease. At this point,
the mortgagor, Asiancars, could validly exercise rights of ownership, including the
right to alienate it, as it did to MBTC.
 Dacion en pago 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. It is a special mode of payment where the debtor offers another thing to
the creditor who accepts it as equivalent of payment of an outstanding debt. 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. As such, the essential elements of a
contract of sale, namely, consent, object certain, and cause or consideration must
be present. In its modern concept, what actually takes place in dacion en pago is an
objective novation of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation 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.
DAO HENG BANK, INC., now BANCO DE ORO UNIVERSAL BANK, Petitioner, versus
SPS. LILIA and REYNALDO LAIGO, Respondents.
G.R. No. 173856 | 2008-11-20

FACTS:
 The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao
Heng Bank, Inc. (Dao Heng) in the total amount of P11 Million. To secure the
payment of which they forged on October 28, 1996, November 18, 1996 and April
18, 1997 three Real Estate Mortgages covering two parcels of land registered in
the name of respondent "Lilia D. Laigo, . . . married to Reynaldo Laigo,"
 As of 2000, respondents failed to settle their outstanding obligation, drawing
them to verbally offer to cede to Dao Heng one of the two mortgaged lots by
way of dacion en pago. To appraise the value of the mortgaged lands, Dao Heng
in fact commissioned an appraiser whose fees were shouldered by it and
respondents. [Comment: Emphasis on this kasi ito ang defense ng respondents later
on. At this point, hindi pa nag-agree si bank sa dacion en pago. Pina-appraise nya lang
yung lots pero hindi sya pumayag pa sa dacion en pago as term of payment. No
acceptance of the offer, in short.]
 Dao Heng demanded the settlement of respondents' obligation by letter of
August 18, 2000 wherein it indicated that they had an outstanding obligation of
P10,385,109.92 inclusive of interests and other charges. Respondents failed to
heed the demand, however.
 Dao Heng thereupon filed in September 2000 an application to foreclose the real
estate mortgages executed by respondents. The properties subject of the
mortgage were sold for P10,776,242 at a public auction conducted on December 20,
2000 to Banco de Oro Universal Bank (hereafter petitioner) which was the
highest bidder.
 It appears that respondents negotiated for the redemption of the mortgages, to
which Dao Heng had been merged, through its Vice President on Property
Management & Credit Services Department, replied with a letter laying down the
conditions of such redemption. However, nothing was heard from respondents.
[Comment: Again, may offer na naman dito to redeem the properties, pero wala na
naman acceptance of such offer.]
 Six days before the expiration of the redemption period, respondents filed a
complaint before the Regional Trial Court (RTC) of Quezon City, for Annulment,
Injunction with Prayer for Temporary Restraining Order (TRO), praying for the
annulment of the foreclosure of the properties subject of the real estate
mortgages and for them to be allowed "to deliver by way of 'dacion en pago' one of
the mortgaged properties as full payment of [their] mortgaged obligation" and to, in
the meantime, issue a TRO directing the defendant-herein petitioner to desist from
consolidating ownership over their properties. Petitioner filed a motion to dismiss.
 RTC – granted petitioner's Motion to Dismiss;
 CA – reinstated respondents’ complaint; MR denied. Hence, this petition.
 Respondents claim that defendant Dao Heng Bank[s] foreclosure sale of the
mortgaged properties was improper because there was an agreement to dacion
one of the two (2) mortgaged properties as full settlement of the loan obligation.
 [Comment: Remember, walang meeting of minds as to this. Nag-feeling lang sya na
may agreement na sila.]
 Petitioners: there was no meeting of minds between the parties to dacion any of
the mortgaged properties as full settlement of the loan.
ISSUE: Is the foreclosure valid?

HELD: YES.
 There was no meeting of the minds between defendant Dao Heng Bank and the
plaintiffs to dacion any of the mortgaged properties as full settlement of the
loan. Although there was a PROPOSAL and NEGOTIATIONS to settle the loan
by way of dacion, nothing came out of said proposal, much less did the negotiations
mature into the execution of a dacion en pago instrument. Defendant Dao Heng Bank
found the offer to settle by way of dacion not acceptable and thus, it opted to
foreclose on the mortgage.
 There is no concrete showing, however, that after the appraisal of the
properties, petitioner approved respondents' proposal to settle their obligation
via dacion en pago. The delivery to petitioner of the titles to the properties is a
usual condition sine qua non to the execution of the mortgage, both for security and
registration purposes. For if the title to a property is not delivered to the
mortgagee, what will prevent the mortgagor from again encumbering it also by
mortgage or even by sale to a third party.
 The power to decide whether or not to foreclose on the mortgage is the sole
prerogative of the mortgagee" (Rural Bank of San Mateo, Inc. vs. Intermediate
Appellate Court, 146 SCRA 205, at 213 [1986]) Defendant Dao Heng Bank merely
opted to exercise such prerogative.
 Dacion en pago as a mode of extinguishing an existing obligation partakes of the
nature of sale whereby property is alienated to the creditor in satisfaction of a
debt in money. It is an objective novation of the obligation, hence, common consent
of the parties is required in order to extinguish the obligation.
 Being likened to that of a contract of sale, dacion en pago is governed by the law on
sales. The partial execution of a contract of sale takes the transaction out of the
provisions of the Statute of Frauds so long as the essential requisites of consent of
the contracting parties, object and cause of the obligation concur and are clearly
established to be present.
LUZON DEVELOPMENT BANK / DELTA DEVELOPMENT and MANAGEMENT
SERVICES, INC., PETITIONERS VERSUS ANGELES CATHERINE ENRIQUEZ,
Respondent.
G.R. No. 168646 / G.R. No. 168666 | 2011-01-12

FACTS:
 Petitioner DELTA is a domestic corporation engaged in the business of developing
and selling real estate properties, particularly Delta Homes I in Cavite. DELTA
is owned by Ricardo De Leon (De Leon), who is the registered owner of a parcel of
land covered by Transfer Certificate of Title (TCT) No. T-6371837 of the Registry
of Deeds of the Province of Cavite, which corresponds to Lot 4 of Delta Homes I.
Said Lot 4 is the subject matter of these cases.
 On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the
BANK for the express purpose of developing Delta Homes I. To secure the loan, the
spouses De Leon executed in favor of the BANK a real estate mortgage (REM)
on several of their properties, including Lot 4. Subsequently, this REM was
amended by increasing the amount of the secured loan from P4 million to P8 million.
Both the REM and the amendment were annotated on TCT No. T-637183.11
 Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles
Catherine Enriquez (Enriquez) over the house and lot in Lot 4 for the purchase
price of P614,950.00. Enriquez made a downpayment of P114,950.00.
 When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing
the REM, agreed to a dation in payment or a dacion en pago. The Deed of
Assignment in Payment of Debt was executed on September 30, 1998 and stated
that DELTA "assigns, transfers, and conveys and sets over [to] the assignee that
real estate with the building and improvements existing thereon x x x in payment of
the total obligation owing to [the Bank] x x x." Unknown to Enriquez, among the
properties assigned to the BANK was the house and lot of Lot 4, which is the
subject of her Contract to Sell with DELTA. The records do not bear out and the
parties are silent on whether the BANK was able to transfer title to its name. It
appears, however, that the dacion en pago was not annotated on the TCT of Lot 4.
 On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK
before the Region IV Office of the HLURB alleging that DELTA violated the
terms of its License to Sell for failing to get a clearance for the mortgage from
the HLURB.
 HLURB Arbiter - ordered DELTA to accept payment of the balance of
P108,013.36 from Enriquez, and (upon such payment) to deliver to Enriquez the
title to the house and lot free from liens and encumbrances.
 HLURB Board of Commissioners - all developers should obtain a clearance for
mortgage from the HLURB, regardless of the date when the mortgage was secured;
DELTA and Enriquez were presumed to have had a meeting of the minds on the
object of the sale and the purchase price
 Office of President – affirmed HLURB in toto. MR denied. The Bank appealed from
the decision of the OP. The BANK reiterated that DELTA can no longer deliver
Lot 4 to Enriquez because DELTA had sold the same to the BANK by virtue of
the dacion en pago.
  CA - ruled against the validity of the dacion en pago executed in favor of the
BANK on the ground that DELTA had earlier relinquished its ownership over Lot 4 in
favor of Enriquez via the Contract to Sell. MR denied. Hence, these separate
appeals from the BANK and Delta, which were later on consolidated.
 The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez,
DELTA has the obligation to pay the BANK the corresponding value of Lot 4.
According to the BANK, the dation in payment extinguished the loan only to the
extent of the value of the thing delivered. Since Lot 4 would have no value to the
BANK if it will be delivered to Enriquez, DELTA would remain indebted to that
extent.
 DELTA points out that the Contract to Sell contained a condition that ownership
shall only be transferred to Enriquez upon the latter’s full payment of the
purchase price to DELTA. Since Enriquez has yet to comply with this suspensive
condition, ownership is retained by DELTA. As the owner of Lot 4, DELTA had every
right to enter into a dation in payment to extinguish its loan obligation to the BANK.

ISSUE:
 Whether the Contract to Sell conveys ownership
 Whether the dacion en pago extinguished the loan obligation, such that DELTA has
no more obligations to the BANK.

FIRST ISSUE: NO, but the bank must respect the Contract to Sell.
 Both parties are correct in arguing that the Contract to Sell executed by DELTA in
favor of Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to
sell is one where the prospective seller reserves the transfer of title to the
prospective buyer until the happening of an event, such as full payment of the
purchase price. What the seller obliges himself to do is to sell the subject property
only when the entire amount of the purchase price has already been delivered to
him. "In other words, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell
from arising and thus, ownership is retained by the prospective seller without
further remedies by the prospective buyer." It does not, by itself, transfer
ownership to the buyer.
 In the instant case, there is nothing in the provisions of the contract entered into
by DELTA and Enriquez that would exempt it from the general definition of a
contract to sell. The terms thereof provide for the reservation of DELTA’s
ownership until full payment of the purchase price; such that DELTA even reserved
the right to unilaterally void the contract should Enriquez fail to pay three
successive monthly amortizations.
 While DELTA, in the instant case, failed to register Enriquez’s Contract to Sell with
the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK
from its obligation to respect Enriquez’s Contract to Sell. Despite the non-
registration, the BANK cannot be considered, under the circumstances, an
innocent purchaser for value of Lot 4 when it accepted the latter (together with
other assigned properties) as payment for DELTA’s obligation.
 Further, as an entity engaged in the banking business, the BANK is required to
observe more care and prudence when dealing with registered properties. The
 Court cannot accept that the BANK was unaware of the Contract to Sell existing in
favor of Enriquez. In Keppel Bank Philippines, Inc. v. Adao ,66 we held that a bank
dealing with a property that is already subject of a contract to sell and is protected
by the provisions of PD 957, is bound by the contract to sell (even if the contract to
sell in that case was not registered).
 It is true that persons dealing with registered property can rely solely on the
certificate of title and need not go beyond it. However, x x x, this rule does not
apply to banks. Banks are required to exercise more care and prudence than private
individuals in dealing even with registered properties for their business is affected
with public interest. As master of its business, petitioner should have sent its
representatives to check the assigned properties before signing the compromise
agreement and it would have discovered that respondent was already occupying one
of the condominium units and that a contract to sell existed between [the vendee]
and [the developer]. In our view, petitioner was not a purchaser in good faith and we
are constrained to rule that petitioner is bound by the contract to sell.
 Bound by the terms of the Contract to Sell, the BANK is obliged to respect the
same and honor the payments already made by Enriquez for the purchase price
of Lot 4. Thus, the BANK can only collect the balance of the purchase price
from Enriquez and has the obligation, upon full payment, to deliver to Enriquez
a clean title over the subject property.

SECOND ISSUE: YES.

 Like in all contracts, the intention of the parties to the dation in payment is
paramount and controlling. The contractual intention determines whether the
property subject of the dation will be considered as the full equivalent of the debt
and will therefore serve as full satisfaction for the debt. "The dation in payment
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 ."
 In the case at bar, the Dacion en Pago executed by DELTA and the BANK
indicates a clear intention by the parties that the assigned properties would
serve as full payment for DELTA’s entire obligation.
SOCIAL SECURITY SYSTEM, versus ATLANTIC GULF AND PACIFIC COMPANY OF
MANILA, INC. and SEMIRARA COAL CORPORATION,
G.R. No. 175952
2008-04-30
Tinga, J.:

Facts:

 Atlantic Gulf and Pacific Company of Manila, Inc. (AG & P) and Semirara Coal
Corporation filed a complaint for specific performance and damages against
SSS.
 It appeared that SSS offered AGP two ways to settle iits premiums and loan
amortization delinquencies covering the period from January 2000 to May 2000
amounting to P7.3 Million, First, to pay by installment and second, by
Dacion en Pago.
 AGP chose payment through dacion en pago at first consisting of a lot they
owned in Baguio but since AGP did not agree to subdivide it they offered the
property in Batangas.
 On April 2001, SSS finally approved AGP’s proposal of dacion en pago to sette its
delinquencies which amounted to about 29 million pesos.
 To effect immediate transfer, both paies had to come up with a Deed of
Assignment. SSS failed to come up with it, and as such, AGP sent a draft of the
Deed to SSS.
 On February 28, 2003, almost two years for SSS to respond to AGP’s draft. And on
such a time, the delinquencies ballooned from P29,261,902.45 to P40,846,610.64
allegedly because of the additional interests and penalty charges assessed on
plaintiffs' outstanding obligation from April 2001, the date of approval of the
proposal, up to January 2003;.
 AGP was willing to settle the 29 million deficiency
 AG&P demanded for the waiver and deletion of the additional interests on the
ground that delay in the approval of the deed and the subsequent delay in
conveyance of the property in defendant's name was solely attributable to the
defendant; hence, to charge plaintiffs with additional interests and penalties
amounting to more than P10,000,000.00, would be unreasonable....;
 Defendant, however, refused to accept the payment through dacion en pago,
unless plaintiffs also pay the additional interests and penalties being charged;
 Instead of filing an answer, SSS moved for the dismissal of the complaint for
lack of jurisdiction and non-exhaustion of administrative remedies.
 In an order dated 28 July 2004, the trial court granted SSS's motion and
dismissed private respondents' complaint. Ruling for lack of jurisdiction and The
alleged dacion en pago is crystal clear manifestation of offering a special form of
payment which to the mind of the court will produce effect only upon acceptance by
the offeree and the observance and compliance of the required formalities by the
parties. No matter in what form it may be, still the court believes that the subject
matter is the payment of contributions and the corresponding penalties which are
 within the ambit of Sec. 5 (a) of R.A. No. 1161, as amended by R.A. No. 8282. Private
respondents moved for the reconsideration of the order but the same was denied.
 The Court of Appeals reversed and set aside the trial courts decision. The
appellate court thus held that the subject of the complaint is no longer the
payment of the premium and loan amortization delinquencies, as well as the
penalties appurtenant thereto, but the enforcement of the dacion en pago
pursuant to SSS Resolution No. 270. The action then is one for specific
performance which case law holds is an action incapable of pecuniary estimation
falling under the jurisdiction of the Regional Trial Court.
 SSS filed a motion for reconsideration of the appellate court's decision but the
same was denied

Issue : which body has jurisdiction to entertain a controversy arising from the non-
implementation of a dacion en pago agreed upon by the parties as a means of
settlement of private respondents' liabilities.

Ruling:

The Court finds the decision of the Court of Appeals in accord with law and
jurisprudence.

If it is primarily for the recovery of a sum of money, the claim is considered capable of
pecuniary estimation, and whether jurisdiction in the municipal courts or in the courts of
first instance would depend on the amount of the claim. However, where the basic issue is
something other than the right to recover a sum of money, where the money claim is purely
incidental to, or a consequence of, the principal relief sought, this Court has considered
such actions as cases where the subject of the litigation may not be estimated in terms of
money, and are cognizable exclusively by courts of first instance (now Regional Trial
Courts).

There is no longer any dispute with respect to respondents' accountability to the SSS.
Respondents had, in fact, admitted their delinquency and offered to settle them by way of
dacion en pago subsequently approved by the SSS in Resolution No. 270-s. 2001. SSS
stated in said resolution that "the dacion en pago proposal of AG&P Co. of Manila and
Semirara Coals Corporation to pay their liabilities in the total amount of P30,652,710.71 as
of 31 March 2001 by offering their 5.8 ha. property located in San Pascual, Batangas, be, as
it is hereby, approved."[9] This statement unequivocally evinces its consent to the dacion en
pago. 

Dacion en pago 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. It is a
special mode of payment where the debtor offers another thing to the creditor who
accepts it as equivalent of payment of an outstanding debt . 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. As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present. In its modern
concept, what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the performance of an
obligation 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.
COMMISSIONER OF INTERNAL REVENUE,r vs. THE COURT OF APPEALS, THE
COURT OF TAX APPEALS and ATENEO DE MANILA UNIVERSITY,
G.R. No. 115349
1997-04-18
PANGANIBAN, J.

Facts

 Private respondent is a non-stock, non-profit educational institution with

auxiliary units and branches all over the Philippines. One such auxiliary unit is the
Institute of Philippine Culture (IPC), which has no legal personality separate and
distinct from that of private respondent. The IPC is a Philippine unit engaged in
social science studies of Philippine society and culture.
  On July 8, 1983, private respondent received from petitioner Commissioner of
Internal Revenue a demand letter dated June 3, 1983, assessing private respondent
the sum of P174,043.97 for alleged deficiency contractor's tax, and an assessment
dated June 27, 1983 in the sum of P1,141,837 for alleged deficiency income tax,
both for the fiscal year ended March 31, 1978. Denying said tax liabilities, private
respondent sent petitioner a letter-protest and subsequently filed with the latter a
memorandum contesting the validity of the assessments.
 On March 17, 1988, petitioner rendered a letter-decision canceling the
assessment for deficiency income tax but modifying the assessment for
deficiency contractor's tax by increasing the amount due to P193,475.55. 
 Unsatisfied, private respondent requested for a reconsideration or
reinvestigation of the modified assessment. At the same time, it filed in the
respondent court a petition for review of the said letter-decision of the
petitioner. 
 While the petition was pending before the respondent court, petitioner issued a
final decision dated August 3, 1988 reducing the assessment for deficiency
contractor's tax from P193,475.55 to P46,516.41, exclusive of surcharge and
interest.
 on July 12, 1993, the respondent court rendered the questioned decision that the
deficiency contractor's tax assessment in the amount of P46,516.41 exclusive of
surcharge and interest for the fiscal year ended March 31, 1978 is CANCELED. 
 Petitioner contends that the respondent court erred in holding that private
respondent is not an "independent contractor" within the purview of Section 205
of the Tax Code. Private respondent falls under the definition of an "independent
contractor" and is not among the exceptions. Therefore, subject to the 3%
contractor's tax imposed under the same Code.
 the term "independent contractor", as defined by the Code, encompasses all kinds
of services rendered for a fee and that the only exceptions are the following: a.
Persons, association and corporations under contract for embroidery and apparel for
export and gross receipts of or from pioneer industry registered with the Board of
Investment under R.A. No. 5186;
  The Court of Appeals disagreed with the Petitioner Commissioner of Internal
Revenue and affirmed the assailed decision of the Court of Tax Appeals. \
 Unfazed, petitioner now asks us to reverse the CA through this petition for
review.

Issue: Is Ateneo de Manila University, through its auxiliary unit or branch the Institute of
Philippine Culture performing the work of an independent contractor and, thus, subject to
the three percent contractor's tax levied by then Section 205 of the National Internal
Revenue Code?

Ruling:

The petition is unmeritorious

Petitioner Commissioner of Internal Revenue erred in applying the principles of tax

exemption without first applying the well-settled doctrine of strict interpretation in the
imposition of taxes 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.

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. After this is proven only then that such coverage is shown does the rule of
construction that tax exemptions are to be strictly construed against the taxpayer come
into play, contrary to petitioner's position.

Petitioner Commissioner of Internal Revenue contends that "the tax is due on its
activity of conducting researches for a fee. The tax is due on the gross receipts made in
favor of IPC pursuant to the contracts the latter entered to conduct researches for the
benefit primarily of its clients. The tax is imposed on the exercise of a taxable
activity. . . . [T]he sale of services of private respondent is made under a contract and
the various contracts entered into between private respondent and its clients are
almost of the same terms, showing, among others, the compensation and terms of
payment." 11

We find no evidence that Ateneo's Institute of Philippine Culture ever sold its services
for a fee to anyone or was ever engaged in a business apart from and independently of the
academic purposes of the university.

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
byAteneo 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..

It is also well to stress that the questioned transactions of Ateneo's Institute of

Philippine Culture cannot be deemed either as a contract of sale or a contract of a
piece of work. "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. Thus, Article 1458 of the Civil
Code "expressly makes the obligation to transfer ownership as an essential element of
the contract of sale, following modern codes, such as the German and the Swiss. Even in
the absence of this express requirement, however, most writers, including Sanchez Roman,
Gayoso, Valverde, Ruggiero, Colin and Capitant, have considered such transfer of
ownership as the primary purpose of sale . Perez and Alguer follow the same view, stating
that the delivery of the thing does not mean a mere physical transfer, but is a means
of transmitting ownership. Transfer of title or an agreement to transfer it for a price
paid or promised to be paid is the essence of sale ." 17 In the case of a contract for a
piece of work, "the contractor binds himself to execute a piece of work for the employer,
in consideration of a certain price or compensation. . . . If the contractor agrees to produce
the work from materials furnished by him, he shall deliver the thing produced to the
employer and transfer dominion over the thing, . . ." 18 Ineludibly, whether the contract
be one of sale or one for a piece of work, a transfer of ownership is involved and a
party necessarily walks away with an object. 19 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.

Furthermore, it is clear that the research activity of the Institute of Philippine Culture is
done in pursuance of maintaining Ateneo's university status and not in the course of an
independent business of selling such research with profit in mind. This is clear from a
reading of the regulations governing universities:

WHEREFORE, premises considered, the petition is DENIED and the assailed Decision of
the Court of Appeals is hereby AFFIRMED in full.
Inchausti & Co. vs. Cromwell 20 Phil 345

Facts:

 Petitioner is engaged in the business of buying and selling wholesale hemp either on
commission or for its own account.
 It is customary to sell hemp in bales which are made by compressing the loose fiber by
means of presses, covering two sides of the bale with matting, and fastening it by
means of strips of rattan; that the operation of bailing hemp is designated among
merchants by the word “prensaje.”
 In all sales of hemp by Inchausti, the price is quoted to the buyer at so much per picul,
no mention being made of bailing. It is with the tacit understanding that the hemp will
be delivered in bales. The amount depends under the denomination of “prensaje” or the
baled hemp.
 Between the first day of January, 1905, and the 31st day of March, 1910, the plaintiff
firm 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 between the 1st day of
October, 1908, and the 1st day of March, 1910, 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.
 On the 29th day of April, 1910, the defendant, acting in his official capacity as
Collector of Internal Revenue of the Philippine Islands, 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 as a tax of one-third of one per cent on the sums of money mentioned .
 Petitioner paid the amount under protest but, however, contends that the collected
amount is erroneous on the ground that the said charge does not constitute a part of
the selling price of hemp, but is rather a charge made for service or labor for baling
the said hemp. Thus, distinct and different from the contract of sale of hemp and
should not be charged by the defendant.

Issue: WoN the charge in bailing of hemp is deemed constituted in the contract of sale of
the same.

Ruling: YES

 The word "price" signifies the sum stipulated as the equivalent of the thing sold and
also every incident taken into consideration for the fixing of the price, put to the debit
of the vendee and agreed to by him. It is quite possible that the plaintiff, in this case in
connection with the hemp which he sold, had himself already paid the additional expense
of baling as a part of the purchase price which he paid and that he himself had received
the hemp baled from his vendor In such case the plaintiff performed no service
whatever for his vendee, nor did, the plaintiff's vendor perform any service for him.
 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 been the subject of sale to some other person. even
if the order had not been given. It is clear that in the case at bar the hemp was in
existence in baled form before the agreements of sale were made, or, at least, would
have been in existence even if none of the individual sales here in question had been
consummated. It would have been baled, nevertheless, for sale to someone else, since,
according to the agreed statement of facts, it is customary to sell hemp in bales. When
a person stipulates for the future sale of articles which he is habitually making, and
which at the time are not made or finished, it is essentially a contract of sale and not a
contract for labor. It is otherwise when the article is made pursuant to agreement.
 Where labor is employed on the materials of the seller he cannot maintain an action for
work and labor. If the article ordered by the purchaser is exactly such as the plaintiff
makes and keeps on hand for sale to anyone, and no change or modification of it is made
at the defendant's request, it is a contract of sale, even though it may be entirely made
after, and in consequence of, the defendant's order for it.
 It has been held in Massachusetts that a contract to make is a contract of sale if
the article ordered is already substantially in existence at the time of the order
and merely requires some alteration, modification, or adaptation to the buyer's
wishes or purposes. It is also held in that state that a contract for the sale 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 for the sale of goods to which the statute of frauds applies. But if the
goods are to be manufactured especially for the purchaser and upon his special
order, and not for the general market, the case is not within the statute.
 It is clear to our minds that in the case at bar the baling was performed for the
general market and was not something done by plaintiff which was a result of any
peculiar wording of the particular contract between him and his vendee. It is
undoubted that the plaintiff prepared his hemp for the general market. This would be
necessary One who exposes goods for sale in the market must have them in marketable
form. The hemp in question would not have been in that condition if it had not been
baled. The baling, therefore, was nothing peculiar to the contract between the
plaintiff and his vendee. It was precisely the same contract that was made by
every other seller of hemp, engaged as was the plaintiff, and resulted simply in
the transfer of title to goods already prepared for the general market.
 It is conceded in the case that a separate entry and charge would have been made for
the baling even if the plaintiff had not been the one who baled the hemp but, instead,
had received it already baled from his vendor. This indicates of necessity that the mere
fact of entering a separate item for the baling of the hemp is formal rather than
essential and in no sense indicates in this case the real transaction between the parties.
It is indisputable that, if the plaintiff had bought the hemp in question already baled,
and that that was the hemp the sale of which formed the subject of this controversy,
then the plaintiff would have performed no service for his vendee and could not,
therefore, lawfully charge for the rendition of such service. This demonstrates the
nature of the transaction and discloses, as we have already said, that the entry of
a separate charge for baling does not accurately describe the transaction between
the parties.
Celestino Co. vs. Collector of Internal Revenue

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.

Issue: WoN the petitioner is engaged in manufacturing or provides special services.

Ruling:

 The Oriental Sash Factory is engaged in manufacturing. The company habitually makes
sash, windows and doors as it has been represented to the [Link] 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.

*Ruling that is relevant to the syllabus topic:

 SC differentiated contract of sale from a contract for a piece of work saying that
"A contract for the delivery at a certain price of an article which the vendor in
the ordinary course of his business manufactures or procures for the general
market, whether the same is on hand at the time or not, is a contract of sale, but
if the goods are to be manufactured specially for the customer and upon his special
order, and not for the general market, it is contract for a piece of work."
CIR vs. Engineering Equipment and Supply

Facts:

 Engineering Equipment and Supply Co (EESC) is an engineering and machinery firm and is
engaged, among others, in the design and installation of central type air conditioning
system, pumping plants and steel fabrications.
 One Juan dela Cruz wrote the Collector, now Commissioner of CIR, denouncing EESC for
tax evasion and failing to pay the correct percentage taxes due in connivance with
foreign suppliers.
 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) 1 of the Tax Code, instead of
Section 186 of the same Code.
 This assessment was revised on January 23, 1959, in line with the observation of the
Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency advance
sales tax and manufacturers sales tax, inclusive of the 25% and 50% surcharges.
 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.
 On Appeal, Court of Tax Appeals (CTA) modified the Commissioner’s decision ruled that
EESC, as a contractor, is declared exempt from the deficiency manufacturers sales tax.
Both parties filed their appeal on this Court.

Issue: WoN petitioner is engaged in manufacturing and therefore subject to sec 185 (M) of
Tax Code.

Ruling: NO.

 Engineering was not engaged in the manufacture of air conditioning units but had its
services contracted for the installation of a central system.
 In this case, the Court found that Engineering did not manufacture the air conditioning
units for sale to the general public, but imported some items which were used in
executing contracts entered into by it. These contracts were not standard but
especially made for each customer and installed in his building upon special order. For
each contract, Engineering would have to take into account factors such as the space to
be air-conditioned, the number of persons occupying, the purpose of air conditioning the
area, heat source, among others. The SC also found that Engineering advertised itself
as Engineering Equipment and Supply Company, Machinery Mechanical Supplies,
Engineers, Contractors, and not as manufacturers. Also, it paid the contractors tax on
all the contracts it executed.
 The arguments of both the Engineering and the Commissioner call for a clarification of
the term contractor as well as the distinction between a contract of sale and contract
for furnishing services, labor and materials. The distinction between a contract of
sale and one for work, labor and materials is tested by the inquiry whether the
thing transferred is one not in existence and which never would have existed but
for the order of the party desiring to acquire it, or a thing which would have
existed and has been the subject of sale to some other persons even if the order
had not been given. If the article ordered by the purchaser is exactly such as the
plaintiff makes and keeps on hand for sale to anyone, and no change or
modification of it is made at defendant's request, it is a contract of sale, even
though it may be entirely made after, and in consequence of, the defendants order
for it.
 COMMISSIONER ON INTERNAL REVENUE VS ENGINEERING EQUIPMENT

G.R. NO. L-27044 JUNE 30, 1975

FACTS:
 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.
 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.
 The Commissioner claims that the Court of Tax Appeals erred in holding that the
respondent company is a contractor and not a manufacturer

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

ISSUE:  
WON 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.

ngineering claims that it is not a manufacturer and seller of air-conditioning units and spare
parts or accessories thereof subject to tax under Section 185(m) of the Tax Code, but a
contractor engaged in the design, supply and installation of the central type of air-
conditioning system subject to the 359 tax imposed by Section 191 of the same Code, which
is essentially a tax on the sale of services or labor of a contractor rather than on the sale
of articles subject to the tax referred to in Sections 184,185 and 186 of the Code.

The arguments of both the Engineering and the Commissioner call for a clarification of the
term contractor as well as the distinction between a contract of sale and contract for
furnishing services, labor and materials. 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. 2 If the article ordered by the
purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and
no change or modification of it is made at defendant's request, it is a contract of sale, even
though it may be entirely made after, and in consequence of, the defendants order for it. 3

Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of
work thus:
"Art. 1467. A contract for the delivery at a certain price of an article which the vendor in
the ordinary course of his business manufactures or procures for the general market,
whether the same is on hand at the time or not, is a contract of sale, but if the goods are
to be manufactured specially for the customer and upon his special order and not for the
general market, it is a contract for a piece of work."

GONZALO PUYAT & SONS, INC., vs.

ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco)

FACTS:
 Arco Amusement Company is a business engaged in operating cinematographs.
Gonzalo Puyat & Sons, Inc, was acting as exclusive agents in the Philippines for
 Starr Piano Company of Indiana, USA, and dealt with cinematographer equipment
and company.
Arco Amusement approached Gonzalo Puyat & Sons entered into an agreement
wherein Gonzalo Puyat will, on behalf of Arco Amusement, order sound reproducing
equipment from Starr Piano Company and that Arco Amusement will pay Gonzalo
Puyat, in addition to the price of equipment, a 10% commission plus all expenses.
Starr Piano quoted the list price of equipment as $1700 without discount to Gonzalo
Puyat, which then told Arco Amusement about it. Being agreeable, the two
formalized the transaction and Arco Amusement duly paid $1700 to Gonzalo Puyat.
 Subsequently, Arco Amusement made another order again to Gonzalo Puyat for the
equipment on the same terms as the first order. The order stated that Gonzalo
Puyat would pay for the equipment the amount of $1600 which was supposed to be
the exact price quoted by Starr Piano plus 10% commission and expenses. Arco
Amusement duly paid $1600 plus 10% commission plus $160 for the expenses; the
$160 does not represent actual out-of-pocket expenses but a mere flat charge and
rough estimate made by Arco Amusement equivalent to 10% of the $1,600 price.
 Arco Amusement subsequently discovered that the price quoted to them with
regard to their previous orders were not the net price but rather the list price, and
that the Gonzalo Puyat had obtained a discount from the Starr Piano Company.
Moreover, by reading reviews and literature on prices of machinery and
cinematograph equipment, Arco Amusement was convinced that the prices charged
them were much too high. For these reasons, they sought to obtain a reduction from
Gonzalo Puyat rather than a reimbursement, and failing in this they filed the
complaint.

RTC: Contract between Arco Amusement and Gonzalo Puyat was one of outright purchase
and sale.

CA: Reversed RTC’s ruling; the relation between the two was that of agent and principal,
Gonzalo Puyat acting as agent of Arco Amusement, and sentenced Gonzalo Puyat to pay the
alleged overpayments.

ISSUE:
Whether or not the contract between Arco Amusement and Gonzalo Puyat was one of
purchase and sale, and not agency.

HELD:
Yes. There was a contract of sale between the two.

In the first place, the contract is the law between the parties and should include all the
things they are supposed to have been agreed upon. What does not appear on the face of
the contract should be regarded merely as “dealer’s” or “trader’s talk”, which can not bind
either party. The letters showing that Arco Amusement accepted the prices of $1700 and
$1600 for the sound reproducing equipment subject of its contract with the petitioner, are
clear in their terms and admit no other interpretation that the respondent in question at
the prices indicated which are fixed and determinate.
Whatever unforseen events might have taken place unfavorable to Arco Amusement, such
as change in prices, mistake in their quotation, loss of the goods not covered by insurance
or failure of the Starr Piano Company to properly fill the orders as per specifications,
Gonzalo Puyat might still legally hold Arco Amusement to the prices fixed. This is
incompatible with the pretended relation of agency between the petitioner and the
respondent, because in agency, the agent is exempted from all liability in the discharge
of his commission provided he acts in accordance with the instructions received from
his principal (section 254, Code of Commerce), and the principal must indemnify the
agent for all damages which the latter may incur in carrying out the agency without
fault or imprudence on his part (article 1729, Civil Code).
The orders which state that the petitioner was to receive ten per cent (10%) commission
does not necessarily make Gonzalo Puyat an agent of Arco Amusement as this provision is
only an additional price which Arco Amusement bound itself to pay, and which stipulation is
not incompatible with the contract of purchase and sale.
 QUIROGA v. PARSONS

Facts:

Andres Quiroga vs. Parsons Hardware Co.

G.R. No. L-11491
August 23, 1918

FACTS:
On January 24, 1911, a contract was entered into by and between the plaintiff and the
defendant
for the exclusive sale of Quiroga beds in the Visayan Island. The defendant has
violated the
following obligations: not to sell the beds at higher prices than those of the invoices; to
have an
open establishment in Iloilo; itself to conduct the agency; to keep the beds on public
exhibition,
and to pay for the advertisement expenses for the same; and to order the beds by the
dozen and in
no other manner. Aside from the obligation on the part of the defendant to order the beds
by the
dozen and in no other manner, none of the obligations imputed to the defendant in two
causes of
action are expressly set forth in the contract. But 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.

ISSUE/S:
Whether the defendant was a purchaser or an agent of the plaintiff for the sale of his
beds.

RULING:
The obligation of the plaintiff was to furnish the defendant with the beds which the latter
might
order, at the price stipulated, and that the defendant was to pay the price in the manner
stipulated.
The price agreed upon was the one determined by the plaintiff for the sale of
these beds in
Manila. These are precisely the essential features of a contract of purchase and sale. By
virtue of
the contract, the defendant was necessarily obliged to pay their price on receiving the
beds within
the terms fixed, without any other consideration and regardless as to whether he had or
had not
sold the beds.
The plaintiff also endeavored to prove that the defendant had returned beds that it could
not sell;
that 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. But the return
made
was of certain brass beds, and was not affected in exchange for the price paid for them,
but was
for other beds of another kind.
The contract 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
On Jan 24, 1911, plaintiff and the respondent entered into a contract making the latter an
“agent” of the former. The contract stipulates that Don Andres Quiroga, here in petitioner,
grants exclusive rights to sell his beds in the Visayan region to J. Parsons. The contract
only stipulates that [Link] should pay Quiroga within 6 months upon the delivery of
beds.

Quiroga files a case against Parsons for allegedly violating the following stipulations: not to
sell the beds at higher prices than those of the invoices; to have an open establishment in
Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for
the advertisement expenses for the same; and to order the beds by the dozen and in no
other manner. With the exception of the obligation on the part of the defendant to order
the beds by the dozen and in no other manner, none of the obligations imputed to the
defendant in the two causes of action are expressly set forth in the contract.

But 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. The whole
question, therefore, reduced itself to a determination as to whether the defendant, by
reason of the contract hereinbefore transcribed, was a purchaser or an agent of the
plaintiff for the sale of his beds.

Issue:

Whether or not the contract was that of an agency or of sale

Held:

In order to classify a contract, due attention must be given to its essential clauses. In the
contract in question, what was essential, as constituting its cause and subject matter, is
that the plaintiff was to furnish the defendant with the beds which the latter might order,
at the price stipulated, and that the defendant was to pay the price in the manner
stipulated. Payment was to be made at the end of sixty days, or before, at the plaintiff’s
request, or in cash, if the defendant so preferred, and in these last two cases an additional
discount was to be allowed for prompt payment. These are precisely the essential features
of a contract of purchase and sale. There was the obligation on the part of the plaintiff to
supply the beds, and, on the part of the defendant, to pay their 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.

In respect to the defendant’s obligation to order by the dozen, the only one expressly
imposed by the contract, the effect of its breach would only entitle the plaintiff to
disregard the orders which the defendant might place under other conditions; but if the
plaintiff consents to fill them, he waives his right and cannot complain for having acted
thus at his own free will.

For the foregoing reasons, we are of opinion 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.

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.

The obligation of the plaintiff was to furnish the defendant with the beds which the latter
might order, at the price stipulated, and that the defendant was to pay the price in the
manner stipulated. The price agreed upon was the one determined by the plaintiff
for the sale of these beds in Manila. These are precisely the essential features of a
contract of purchase and sale. By virtue of the contract, the defendant was necessarily
obliged to pay their price on receiving the beds within the terms fixed, without any other
consideration and regardless as to whether he had or had not sold the beds. The plaintiff
also endeavored to prove that the defendant had returned beds that it could not sell; that
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. But
the return made was of certain brass beds, and was not affected in exchange for the price
paid for them, but was for other beds of another kind. The contract 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.

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.
 VICTORIAS MILLING v. CA

Facts:

St. Therese Merchandising (STM) regularly bought sugar from Victorias Milling Co (VMC).
In the course of their dealings, VMC issued several Shipping List/Delivery Receipts
(SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M. SLDR No.
1214M, dated October 16, 1989, covers 25,000 bags of sugar. Each bag contained 50 kg and
priced at P638.00 per bag. The transaction covered was a “direct sale”.

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation
(CSC) its rights in the same SLDR for P14,750,000.00. CSC issued checks in payment. That
same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar
covered by the said SLDR. Enclosed in the letter were a copy of SLDR No. 1214M and a
letter of authority from STM authorizing CSC to “withdraw for and in our behalf the
refined sugar covered by the SLDR” On Oct. 27, 1989, STM issued checks to VMC as
payment for 50,000 bags, covering SLDR No. 1214M. CSC surrendered the SLDR No. 1214M
and to VMC’s NAWACO Warehouse and was allowed to withdraw sugar. But only 2,000 bags
had been released because VMC refused to release the other 23,000 bags.

Therefore, CSC informed VMC that SLDR No. 1214M had been “sold and endorsed” to it.
But VMC replied that it could not allow any further withdrawals of sugar against SLDR No.
1214M because STM had already withdrawn all the sugar covered by the cleared checks.
VMC also claimed that CSC was only representing itself as STM’s agent as it had withdrawn
the 2,000 bags against SLDR No. 1214M “for and in behalf” of STM. Hence, CSC filed a
complaint for specific performance against Teresita Ng Sy (doing business under STM's
name) and VMC. However, the suit against Sy was discontinued because later became a
witness. RTC ruled in favor of CSC and ordered VMC to deliver the 23,000 bags left. CA
concurred. Hence this appeal.

Issue:

WON the contract was that of an agency or sale

Held:

CONTRACT OF SALE. CSC was not an agent of STM. VMC heavily relies on STM’s letter of
authority that said CSC is authorized to withdraw sugar “for and in our behalf”. It is clear
from Art. 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.
In an agency to sell, the agent, in dealing with the thing received, is bound to act according
to the instructions of his principal, while in a sale, the buyer can deal with the thing as he
pleases, being the owner. The elementary notion of sale is the transfer of title to a
thing from one to another, while the essence of agency involves the idea of an
appointment of one to act for another. Agency is a relationship which often results in a
sale, but the sale is a subsequent step in the transaction. An authorization given to another
containing the phrase “for and in our behalf’’ does not necessarily establish an agency, as
ultimately what is decisive is the intention of the parties. Thus, the use of the words “sold
and endorsed’’ may mean that the parties intended a contract of sale, and not a contract of
agency.

In the instant case, it appears plain that private respondent CSC was a buyer of the SLDFR
form, and not an agent of STM. Private respondent CSC was not subject to STM's control.
The question of whether a contract is one of sale or agency depends on the intention of the
parties as gathered from the whole scope and effect of the language employed. That the
authorization given to CSC contained the phrase "for and in our (STM's) behalf” did not
establish an agency. Ultimately, what is decisive is the intention of the parties. That no
agency was meant to be established by the CSC and STM is clearly shown by CSC's
communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it. The
use of the words "sold and endorsed" means that STM and CSC intended a contract of sale,
and not an agency. WHEREFORE, the instant petition is DENIED for lack of merit. SO
ORDERED.
 FILINVEST CREDIT CORP v. CA

Facts:

Herein private respondent-spouses Jose Sy Bang and Iluminada Tan were engaged in the
sale of gravel produced from crushed rocks and used for construction purposes. They
intended to buy rock crusher from Rizal Consolidated Corporation which carried a cash
price tag of P550,000.00. They applied for financial assistance from herein petitioner
Filinvest Credit Corporation, who agreed to extend financial aid on the certain conditions.

A contract of lease of machinery (with option to purchase) was entered into by the parties
whereby the private respondents agreed to lease from the petitioner the rock crusher for
two years starting from July 5, 1981, payable as follows: P10,000.00 – first 3 months,
P23,000.00 – next 6 months, P24,800.00 – next 15 months. It was likewise stipulated that
at the end of the two-year period, the machine would be owned by the private respondents.
Thus the private respondent issued in favor of the petitioner 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
private respondent executed a real estate mortgage over two parcels of land in favor of
the petitioner. The rock crusher was delivered to the spouses.

However, 3 months later, the souses stopped payment when petitioner had not acted on the
complaints of the spouses about the machine. As a consequence, petitioner extra-judicially
foreclosed the real estate mortgage. The spouses filed a complaint before the RTC. The
RTC rendered a decision in favor of private respondent. The petitioner elevated the case to
CA which affirmed the decision in toto. Hence, this petition.

Issue:

Whether or not the nature of the contract is one of a contract of sale

Held:

YES. 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 restored 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) [Link] 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.