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EILEEN EIKA M.

DELA CRUZ

SALES CASE DIGESTS

c) Price certain in money or its equivalent.


Under this definition, a Contract to Sell may not be
considered as a Contract of Sale because the first essential
element is lacking. In a contract to sell, the prospective
seller explicity reserves the transfer of title to the prospective
buyer, meaning, the prospective seller does not as yet agree
or consent to transfer ownership of the property subject of
the contract to sell until the happening of an event, which for
present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to
do is to fulfill his promise to sell the subject property when
the entire amount of the purchase price is 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. A contract to sell
may thus be defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership
of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase
price.
A contract to sell may not even be considered as a
conditional contract of sale where the seller may likewise
reserve title to the property subject of the sale until the

1. Coronel v. CA
Facts:

The case arose from a complaint for specific


performance filed by private respondent Alcaraz against
petitioners to consummate the sale of a parcel of land in
Quezon City.
On January 19, 1985, petitioners executed a Receipt of
Down Payment of P50,000 in favor of plaintiff Ramona
Alcaraz, binding themselves to transfer the ownership of the
land in their name from their deceased father, afterwhich the
balance of P1,190,000 shall be paid in full by Alcaraz. On
February 6, 1985, the property was transferred to
petitioners. On February 18, 1985, petitioners sold the
property to Mabanag. For this reason, Concepcion,
Ramonas mother, filed an action for specific performance.
Issue: Whether the contract between petitioners and private
respondent was that of a conditional sale or a mere contract
to sell
Held:
Sale, by its very nature, is a consensual contract
because it is perfected by mere consent. The essential
elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price;
b) Determinate subject matter; and

EILEEN EIKA M. DELA CRUZ


is no double sale in such case. Title to the property will
transfer to the buyer after registration because there is no
defect in the owner-seller's title per se, but the latter, of
course, may be used for damages by the intending buyer.
In a conditional contract of sale, however, upon the
fulfillment of the suspensive condition, the sale becomes
absolute and this will definitely affect the seller's title thereto.
In fact, if there had been previous delivery of the subject
property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller
will no longer have any title to transfer to any third person.
Such second buyer of the property who may have had actual
or constructive knowledge of such defect in the seller's title,
or at least was charged with the obligation to discover such
defect, cannot be a registrant in good faith. Such second
buyer cannot defeat the first buyer's title. In case a title is
issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
The agreement could not have been a contract to sell
because the sellers herein made no express reservation of
ownership or title to the subject parcel of land. Furthermore,
the circumstance which prevented the parties from entering
into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names)
and not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court

SALES CASE DIGESTS


fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated. However, if the
suspensive condition is fulfilled, the contract of sale is
thereby perfected, such that if there had already been
previous delivery of the property subject of the sale to the
buyer, ownership thereto automatically transfers to the buyer
by operation of law without any further act having to be
performed by the seller. In a contract to sell, upon the
fulfillment of the suspensive condition which is the full
payment of the purchase price, ownership will not
automatically transfer to the buyer although the property
may have been previously delivered to him. The prospective
seller still has to convey title to the prospective buyer by
entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell
and a conditional contract of sale specially in cases where
the subject property is sold by the owner not to the party the
seller contracted with, but to a third person, as in the case at
bench. In a contract to sell, there being no previous sale of
the property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full
payment of the purchase price, for instance, cannot be
deemed a buyer in bad faith and the prospective buyer
cannot seek the relief of reconveyance of the property. There

EILEEN EIKA M. DELA CRUZ


property sold. If a vendee in a double sale registers that sale
after he has acquired knowledge that there was a previous
sale of the same property to a third party or that another
person claims said property in a pervious sale, the
registration will constitute a registration in bad faith and will
not confer upon him any right.

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may safely presume that, had the certificate of title been in
the names of petitioners-sellers at that time, there would
have been no reason why an absolute contract of sale could
not have been executed and consummated right there and
then.
What is clearly established by the plain language of
the subject document is that when the said "Receipt of Down
Payment" was prepared and signed by petitioners Romeo A.
Coronel, et al., the parties had agreed to a conditional
contract of sale, consummation of which is subject only to
the successful transfer of the certificate of title from the
name of petitioners' father, Constancio P. Coronel, to their
names.
The provision on double sale presumes title or
ownership to pass to the first buyer, the exceptions being:
(a) when the second buyer, in good faith, registers the
sale ahead of the first buyer, and
(b) should there be no inscription by either of the two
buyers, when the second buyer, in good faith, acquires
possession of the property ahead of the first buyer.
Unless, the second buyer satisfies these
requirements, title or ownership will not transfer to him to the
prejudice of the first buyer. In a case of double sale, what
finds relevance and materiality is not whether or not the
second buyer was a buyer in good faith but whether or not
said second buyer registers such second sale in good faith,
that is, without knowledge of any defect in the title of the

EILEEN EIKA M. DELA CRUZ

SALES CASE DIGESTS

EILEEN EIKA M. DELA CRUZ


On 01 July 1986, the URBAN, ordered the cancellation of the
lot awards of Daniel Gomez.
On 01 February 1989, the surviving children of the
deceased spouses, who were American citizens and
residents of the United States of America, executed an
affidavit of adjudication with deed of donation disposing the
lot gratuitously to their uncle Vicente Gomez. RTC ordered to
set aside the cancellation. The CA reversed that decision.
ISSUE: whether or not the cancellation of the lot awarded
was proper.
HELD:

YES. Primarily, it must be stressed that the contract


entered into between the City of Manila and awardee Luisa
Gomez was not one of sale but a contract to sell. A contract
of sale may either be absolute or conditional- where
ownership or title is retained until the fulfillment of a
positive suspensive condition normally the payment of the
purchase price in the manner agreed upon.
Verily, Resolution 16-A and the Contract to Sell which was
annexed, attached and made to form part of said resolution,
clearly laid down the terms and conditions which the
awardee-vendee must comply with. Accordingly, as an
awardee, Luisa Gomez, her heirs and successors-in-interest
alike, are duty-bound to perform the correlative obligations
embodied in Resolution 16-A and the Contract to-Sell.
The resolution requires Filipino citizenship for award
to be valid, among others, and that it must be occupied
actually by the awardee, that they must not have any other
property in the Philippines, and that they are able to pay,
conditions among others which were violated.
Also, paragraph (8) of the Contract proscribes the
sale or lease, etc. of the lot without the written consent of
the City Mayor, within a period of twenty (20) years from
complete payment of the purchase price and execution of
the final deed of sale. The donation is also a violation.

SALES CASE DIGESTS

2. Gomez vs. CA (G.R. No. 120747


September 21, 2000)
Cancellation of the award of Lot 4, Block 1, through the
expediency of Resolution No. 015-86, was proper.
Primarily, it must be stressed that the contract entered into between the
City of Manila and awardee Luisa Gomez was not one of sale but a contract
to sell, which, under both statutory and case law, has its own attributes,
peculiarities and effects.
For a contract, like a contract to sell, involves a meeting of minds
between two persons whereby one binds himself, with respect to the other,
to give something or to render some service. Contracts, in general, are
perfected by mere consent, which is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance
absolute.
The provisions of Article 777 of the Civil Code notwithstanding, we
hold that the surviving children of awardee Luisa Gomez are not qualified
transferees of Lot 4, Block 1 for failure to conform with the prerequisites
set by Resolution 16-A, to wit, Filipino citizenship and actual occupancy,
which in the present case, are basic criteria for the award of the lot,
pursuant to the Land for the Landless Program of the City of Manila.

FACTS:
Luisa Gomez, predecessor-in-interest of herein
petitioner Vicente Gomez, was awarded Lot 4, Block 1,
subject to the provisions of Resolution No. 3-78 of the
URBAN and building, subdivision and zoning rules and
regulations.
On 18 January 1980, Luisa Gomez finally paid in full
the P3,556.00 purchase price of the lot. In 1982, Luisa,
together with her spouse Daniel, left again for the United
States of America where she died on 09 January 1983.
On 23 November 1984 there was an investigation
concerning the awarded lots because of violations to the
conditions agreed upon by the awardee-lessee.
Violation: The place was found actually occupied by Mrs.
Erlinda Perez and her family together with Mr. Mignony
Lorghas and family, who are paying monthly rentals of
P210.00 each to Vicente Gomez, brother of awardee.

EILEEN EIKA M. DELA CRUZ


course, the condition is imposed upon the perfection of the
contract itself, the failure of such condition would prevent the
juridical relation itself from coming into existence.
In determining the real character of the contract, the title
given to it by the parties is not as much significant as its
substance. For example, a deed of sale, although denominated as
a deed of conditional sale, may be treated as absolute in nature, if
title to the property sold is not reserved in the vendor or if the
vendor is not granted the right to unilaterally rescind the contract
predicated on the fulfillment or non-fulfillment, as the case may
be, of the prescribed condition. The term "condition" in the context
of a perfected contract of sale pertains, in reality, to the
compliance by one party of an undertaking the fulfillment of which
would beckon, in turn, the demandability of the reciprocal
prestation of the other party. The reciprocal obligations referred to
would normally be, in the case of vendee, the payment of the
agreed purchase price and, in the case of the vendor, the
fulfillment of certain express warranties (which, in the case at
bench is the timely eviction of the squatters on the property).
It would be futile to challenge the agreement here in
question as not being a duly perfected contract. A sale is at once
perfected when a person (the seller) obligates himself, for a price
certain, to deliver and to transfer ownership of a specified thing or
right to another (the buyer) over which the latter agrees. From the
moment the contract is perfected, the parties are bound not only
to the fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. Under the agreement,
private respondent is obligated to evict the squatters on the
property. Private respondent's failure "to remove the squatters

SALES CASE DIGESTS


Complete payment was on 1980 and the donation was on
1989.

3. Romero v. CA
Facts:

Private respondent entered into a Conditional Deed of


Sale with petitioner over a parcel of land in Paranaque, the latter
advancing P50,000 for the eviction of squatters therein. An
ejectment suit was then filed by the private respondent against the
squatters. Although successful, private respondent sought the
return of the downpayment she received because she could not
get rid of the squatters.
Issue: May the vendor demand the rescission of a contract for the
sale of a parcel of land for a cause traceable to his own failure to
have the squatters on the subject property evicted within the
contractually-stipulated period?
Held:

A perfected contract of sale may either be absolute or


conditional depending on whether the agreement is devoid of, or
subject to, any condition imposed on the passing of title of the
thing to be conveyed or on the obligation of a party thereto. When
ownership is retained until the fulfillment of a positive condition the
breach of the condition will simply prevent the duty to convey title
from acquiring an obligatory force. If the condition is imposed on
an obligation of a party which is not complied with, the other party
may either refuse to proceed or waive said condition. Where, of

EILEEN EIKA M. DELA CRUZ


Petitioners, thru counsel responded that they are willing to
pay in cash the balance subject to several conditions.
Private respondents sent a notarial notice of
cancellation/rescission of the Deed of Sale. Petitioners filed
a complaint which was consequently dismissed by an
outgoing judge but was reversed by the assuming judge in
their Motion for Reconsideration. The Court of Appeals
reinstated the decision to dismiss.
ISSUE: Whether or not there is a substantial breach of
contract that would entitle its rescission.
RULING:
YES. Article 1191 of the New Civil Code applies. The
breach committed did not merely consist of a slight delay in
payment or an irregularity; such breach would not normally
defeat the intention of the parties to the contract. Here,
petitioners not only failed to pay the P1.8 million balance,
but they also imposed upon private respondents new
obligations as preconditions to the performance of their own
obligation. In effect, the qualified offer to pay was a
repudiation of an existing obligation, which was legally due
and demandable under the contract of sale. Hence, private
respondents were left with the legal option of seeking
rescission to protect their own interest.

Facts:
David Raymundo (private respondent) is the absolute
and registered owner of a parcel of land, located at 1918
Kamias St., Dasmarias Village Makati, together with the
house and other improvements, which was under lease. It
was negotiated by Davids father with plaintiffs Avelina and
Mariano Velarde (petitioners). ADeed of Sale with

SALES CASE DIGESTS


from the property" within the stipulated period gives petitioner the
right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. This
option clearly belongs to petitioner and not to private respondent.
In contracts of sale particularly, Article 1545 of the Civil Code
allows the obligee to choose between proceeding with the
agreement or waiving the performance of the condition. Here,
evidently, petitioner has waived the performance of the condition
imposed on private respondent to free the property from
squatters.
The right of resolution of a party to an obligation is
predicated on a breach of faith by the other party that violates the
reciprocity between them. It is private respondent who has failed
in her obligation under the contract. Petitioner did not breach the
agreement. He has agreed, in fact, to shoulder the expenses of
the execution of the judgment in the ejectment case and to make
arrangements with the sheriff to effect such execution.

4. Velarde vs. Court of Appeals (361 SCRA 57)


FACTS:
The private respondent executed a Deed of Sale with
Assumption of Mortgage, with a balance of P1.8 million, in
favor of the petitioners. Pursuant to said agreements,
plaintiffs paid the bank (BPI) for three (3) months until they
were advised that the Application for Assumption of
Mortgage was denied. This prompted the plaintiffs not to
make any further payment. Private respondent wrote the
petitioners informing the non-fulfillment of the obligations.

EILEEN EIKA M. DELA CRUZ


free from any liens and encumbrances (3) executes an
absolute deed of sale in their favor free from any liens and
encumbrances not later than Jan. 21, 1987.
The RTC of Makati dismissed the complaint of the
petitioners against Mr. Raymundo for specific performance,
nullity of cancellation, writ of possession and damages.
However, their Motion for Reconsideration was granted and
the Court instructed petitioners to pay the balance of P 1.8
million to private respondent who, in turn were ordered to
execute a deed of absolute sale and to surrender
possession of the disputed property to petitioners.
Upon the appeal of the private respondent to the CA,
the court upheld the earlier decision of the RTC regarding
the validity of the rescission made by private respondents.
Issue: Whether the rescission of contract made by the
private respondent is valid.
Held:
There is a breach of contract because the
petitioners did not merely stopped paying the mortgage
obligations but they also failed to pay the balance purchase
price. Their conditional offer to Mr. Raymundo cannot take
the place of actual payment as would discharge the
obligation of the buyer under contract of sale.
Mr. Raymundos source of right to rescind the
contract is Art. 1191 of the Civil Code predicated on a
breach of faith by the other party who violates the reciprocity
between them. Moreover, the new obligations as
preconditions to the performance of the petitioners own

SALES CASE DIGESTS


Assumption of Mortgage was executed in favor of the
plaintiffs. Part of the consideration of the sale was the
vendees assumption to pay the mortgage obligations of the
property sold in the amount of P 1,800,000.00 in favor of
the Bank of the PhilippineIslands. And while
their application for the assumption of the mortgage
obligations is not yet approved by the mortgagee bank, they
have agreed to pay the mortgage obligations on the property
with the bank in the name of Mr. David Raymundo. It was
further stated that in the event Velardes violate any of the
terms and conditions of the said Deed of Real
Estate Mortgage, they agree that the downpayment
P800,000.00, plus all the payments made with the BPI on
the mortgage loan, shall be forfeited in Favor of Mr.
Raymundo, as and by way of liquidated damages, w/out
necessity of notice or any judicial declaration to that effect,
and Mr. Raymundo shall resume total
and complete ownership and possession of the property,
and the same shall be deemed automatically cancelled,
signed by the Velardes.
Pursuant to said agreements, plaintiffs paid BPI the
monthly interest loan for three months but stopped in paying
the mortgage when informed that their application for the
assumption of mortgage was not approved. The defendants
through a counsel, wrote plaintiffs informing the latter that
their non-payment to the mortgagee bankconstituted nonperformance of their obligation and the cancellation and
rescission of the intended sale. And after two days, the
plaintiffs responded and advised the vendor that he is willing
to pay provided that Mr. Raymundo: (1) delivers actual
possession of the property to them not later than January
15, 1987 for their occupancy (2) causes the release of title
and mortgage from the BPI and make the title available and

EILEEN EIKA M. DELA CRUZ


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

Facts:
Felixberto Oruma sold his inherited land to Cosme
Pido, which land is rented by petitioner Teodoro Acap. When
Cosme died intestate, his heirs executed a Declaration of

SALES CASE DIGESTS


obligation were repudiation of an existing obligation, which
was legally due and demandable under the contract of sale.
The breach committed by the petitioners was the nonperformance of a reciprocal obligation. The mutual
restitution is required to bring back the parties to their
original situation prior to the inception of the contract. The
initial payment and the mortgage payments advanced by
petitioners should be returned by private respondents, lest
the latter unjustly enriched at the expense of the other.
Rescission creates the obligation to return the obligation of
contract. To rescind, is to declare a contract void at its
inception and to put an end to it as though it never was.
The decision of the CA is affirmed with modification
that private respondents are ordered to return to petitioners,
the amount they have received in advanced payment.

5. Acap vs CA g.r. 118114


Facts:
Acap was a tenant of the lot owned by Cosme Pido.
Upon Pido's death, Acap paid the monthly rental dues to the
widow Lauranciana Pido. He died intestate. The widow and
her 3 sons afterward executed a notarized document
denominated as "Declaration of Heirship and waiver of
rights" in favor of private respondant De los Reyes. Acap did
not recognize De los Reyes claim of ownership over the land
as he contended that the land still belongs to the heirs of
Cosme Pido, and won't pay the rent demanded by De los
Reyes.

EILEEN EIKA M. DELA CRUZ


In a Contract of Sale, one of the contracting parties obligates
himself to transfer the ownership of and to deliver a
determinate thing, and the other party to pay a price certain
in money or its equivalent. Upon the other hand, a
declaration of heirship and waiver of rights operates as a
public instrument when filed with the Registry of Deeds
whereby the intestate heirs adjudicate and divide the estate
left by the decedent among themselves as they see fit. It is
in effect an extrajudicial settlement between the heirs under
Rule 74 of the Rules of Court. Hence, there is a marked
difference between a sale of hereditary rights and a waiver
of hereditary rights. The first presumes the existence of a
contract or deed of sale between the parties. The second is,
technically speaking, a mode of extinction of ownership
where there is an abdication or intentional relinquishment of
a known right with knowledge of its existence and intention
to relinquish it, in favor of other persons who are co-heirs in
the succession. Private respondent, being then a stranger to
the succession of Cosme Pido, cannot conclusively claim
ownership over the subject lot on the sole basis of the waiver
document which neither recites the elements of either a
sale, or a donation, or any other derivative mode of acquiring
ownership.
A notice of adverse claim is nothing but a notice of a
claim adverse to the registered owner, the validity of which is
yet to be established in court at some future date, and is no
better than a notice of lis pendens which is a notice of a

SALES CASE DIGESTS


Heirship and Waiver of Rights in favor of private respondent
Edy delos Reyes. Respondent informed petitioner of his
claim over the land, and petitioner paid the rental to him in
1982. However in subsequent years, petitioner refused to
pay the rental, which prompted respondent to file a
complaint for the recovery of possession and damages.
Petitioner averred that he continues to recognize Pido as the
owner of the land, and that he will pay the accumulated
rentals to Pidos widow upon her return from abroad. The
lower court ruled in favor of private respondent.
Issues: (1) Whether the Declaration of Heirship and Waiver
of Rights is a recognized mode of acquiring ownership by
private respondent
(2) Whether the said document can be considered a
deed of sale in favor of private respondent
Held:
An asserted right or claim to ownership or a real right
over a thing arising from a juridical act, however justified, is
not per se sufficient to give rise to ownership over the res.
That right or title must be completed by fulfilling certain
conditions imposed by law. Hence, ownership and real rights
are acquired only pursuant to a legal mode or process.
While title is the juridical justification, mode is the actual
process of acquisition or transfer of ownership over a thing
in question.

EILEEN EIKA M. DELA CRUZ


respondent. In 1987, the proposed campus did not
materialize, and the Sangguniang Bayan enacted a
resolution donating back the land to the donor. In the
meantime, respondent Mondejar conveyed portions of the
land to the other respondents. On July 5, 1988, petitioners
filed a complaint for quieting of title, recovery of possession
and ownership of the land.
Issue: Whether the sale between Trinidad and Regalado is
valid considering the capacity of the vendor to execute the
contract in view of the conditional deed of donation
Held:
The donor may have an inchoate interest in the
donated property during the time that ownership of the land
has not reverted to her. Such inchoate interest may be the
subject of contracts including a contract of sale. In this case,
however, what the donor sold was the land itself which she
no longer owns. It would have been different if the donorseller sold her interests over the property under the deed of
donation which is subject to the possibility of reversion of
ownership arising from the non-fulfillment of the resolutory
condition.
Sale, being a consensual contract, is perfected by
mere consent, which is manifested the moment there is a
meeting of the minds as to the offer and acceptance thereof
on three (3) elements: subject matter, price and terms of

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case already pending in court. It is to be noted that while the
existence of said adverse claim was duly proven, there is no
evidence whatsoever that a deed of sale was executed
between Cosme Pido's heirs and private respondent
transferring the rights of Pido's heirs to the land in favor of
private respondent. Private respondent's right or interest
therefore in the tenanted lot remains an adverse claim which
cannot by itself be sufficient to cancel the OCT to the land
and title the same in private respondent's name.
Consequently, while the transaction between Pido's heirs
and private respondent may be binding on both parties, the
right of petitioner as a registered tenant to the land cannot
be perfunctorily forfeited on a mere allegation of private
respondent's ownership without the corresponding proof
thereof.

6. Quijada v. CA
Facts:
On April 5, 1956, Trinidad Quijada and her sisters
executed a deed of conditional donation in favor of the
Municipality of Talacogon, the condition being that the land
shall be used exclusively for the construction of a provincial
high school. Trinidad remained in possession of the land. On
July 29, 1962, Trinidad sold the land to respondent
Regalado Mondejar. In 1980, the heirs of Trinidad, herein
petitioners, filed a complaint for forcible entry against the

EILEEN EIKA M. DELA CRUZ

7. Fule v. CA
Facts:

Gregorio Fule, a banker and a jeweller, offered to sell his


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

Held:
A contract of sale is perfected at the moment there is
a meeting of the minds upon the thing which is the object of
the contract and upon the price. Being consensual, a
contract of sale has the force of law between the contracting
parties and they are expected to abide in good faith by their
respective contractual commitments. It is evident from the
facts of the case that there was a meeting of the minds
between petitioner and Dr. Cruz. As such, they are bound by
the contract unless there are reasons or circumstances that
warrant its nullification.
Contracts that are voidable or annullable, even
though there may have been no damage to the contracting

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

EILEEN EIKA M. DELA CRUZ


constructive delivery thereof. Said contract of sale being
absolute in nature, title passed to the vendee upon delivery
of the thing sold since there was no stipulation in the
contract that title to the property sold has been reserved in
the seller until full payment of the price or that the vendor
has the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period.
While it is true that the amount of P40,000.00 forming
part of the consideration was still payable to petitioner, its
nonpayment by Dr. Cruz is not a sufficient cause to
invalidate the contract or bar the transfer of ownership and
possession of the things exchanged considering the fact that
their contract is silent as to when it becomes due and
demandable.

8. POLYTECHNIC UNIVERSITY OF THE


PHILIPPINES vs. CA & FIRESTONE
Facts:

Petitioner NDC (National Development Corp.) a GOCC


owned & had in its disposal a 10 hectar property which is the
NDC Compound.
A portion of which was leased to private respondent
FIRESTONE CORPORATION for ceramic manufacturing
business. Both parties entered into a contract of lease for a term
of 10 years renewable for another 10 years. Firestone built several
warehouses and facilities therein.

SALES CASE DIGESTS


parties are: (1) those where one of the parties is incapable
of giving consent to a contract; and (2) those where the
consent is vitiated by mistake, violence, intimidation, undue
influence or fraud. The records, however, are bare of any
evidence manifesting that private respondents employed
such insidious words or machinations to entice petitioner
into entering the contract of barter. It was in fact petitioner
who resorted to machinations to convince Dr. Cruz to
exchange her jewelry for the Tanay property.
Furthermore, petitioner was afforded the reasonable
opportunity required in Article 1584 of the Civil Code within
which to examine the jewelry as he in fact accepted them
when asked by Dr. Cruz if he was satisfied with the same.
By taking the jewelry outside the bank, petitioner executed
an act which was more consistent with his exercise of
ownership over it. This gains credence when it is borne in
mind that he himself had earlier delivered the Tanay property
to Dr. Cruz by affixing his signature to the contract of sale.
That after two hours he later claimed that the jewelry was
not the one he intended in exchange for his Tanay property,
could not sever the juridical tie that now bound him and Dr.
Cruz. The nature and value of the thing he had taken
preclude its return after that supervening period within which
anything could have happened, not excluding the alteration
of the jewelry or its being switched with an inferior kind.
Ownership over the parcel of land and the pair of
emerald-cut diamond earrings had been transferred to Dr.
Cruz and petitioner, respectively, upon the actual and

EILEEN EIKA M. DELA CRUZ


1. consent is manifested by the Memo Order No. 214,
2. the subject matter was the property subject of the dispute.
3. the cancellation of liabilities constituted consideration
But the argument of PUP and NDC was untenable.
GOCCs have personalities separate and distinct from the
government. Sale brings within its grasp the whole gamut of
transfers where ownership of a thing is ceded for consideration.
Since a sale was involved, the right of first refusal in favor
of Firestone must be respected. It forms an integral part of the
lease and is supported by considerationFirestone having made
substantial investments therein.
Only when Firestone fails to exercise such right may the
sale to PUP proceed.
So here we see that GOCCs even though government
owned & controlled has a personality of its own distinct and
separate from that of the government.
And the intervention in a transaction of the Office of the
President thru the Executive Secretary DOES NOT CHANGE THE
INDEPENDENT EXISTENCE of a government entity as it deals
with another government entity.

SALES CASE DIGESTS


Prior to the expiration of the said lease contract, Firestone
wrote NDC requesting for an extension of their lease agreement.
Since business between NDC and FIRESTONE went smooth, the
lease was twice renewed, this time conferring upon Firestone an
express grant the first option to purchase the leased premise in
the event that NDC decided to dispose and sell the properties
including the lot. So Firestone now has the right of first refusal.
Eventually though, a Memorandum Order No. 214 was
issued by then President Corazon Aquino ordering the transfer of
the whole NDC compound to the National Government. The order
of conveyance would automatically result in the cancellation of
NDC's total obligation in favor of the National Government. The
memorandum order was in consideration of NDCs P57M debt.
And so, pursuant thereto, NDC had no choice but to
transfer the property to Polytechnic University of the Philippines,
another GOCC, and in need of expansion.
Firestone therefore instituted an action for specific
performance to compel NDC to sell the leased property in its
favor.
Issue: Whether or not there is a valid sale between NDC and
PUP.
The answer is: WELL YES, BUT...
Ruling

9. Gaite v. Fonacier
Facts:

All three (3) essential elements of a valid sale, without


which there can be no sale, were attendant in the "disposition"
and "transfer" of the property from NDC to PUP - consent of the
parties, determinate subject matter, and consideration therefor.

EILEEN EIKA M. DELA CRUZ


obligation (the seller to deliver and transfer ownership of the thing
sold and the buyer to pay the price),but each party anticipates
performance by the other from the very start. While in a sale the
obligation of one party can be lawfully subordinated to an
uncertain event, so that the other understands that he assumes
the risk of receiving nothing for what he gives (as in the case of a
sale of hopes or expectations, emptio spei), it is not in the usual
course of business to do so; hence, the contingent character of
the obligation must clearly appear. Nothing is found in the record
to evidence that Gaite desired or assumed to run the risk of losing
his right over the ore without getting paid for it, or that Fonacier
understood that Gaite assumed any such risk. This is proved by
the fact that Gaite insisted on a bond a to guarantee payment of
the P65,000.00, an not only upon a bond by Fonacier, the Larap
Mines & Smelting Co., and the company's stockholders, but also
on one by a surety company; and the fact that appellants did put
up such bonds indicates that they admitted the definite existence
of their obligation to pay the balance of P65,000.00.
The appellant have forfeited the right court below that the
appellants have forfeited the right to compel Gaite to wait for the
sale of the ore before receiving payment of the balance of
P65,000.00, because of their failure to renew the bond of the Far
Eastern Surety Company or else replace it with an equivalent
guarantee. The expiration of the bonding company's undertaking
on December 8, 1955 substantially reduced the security of the
vendor's rights as creditor for the unpaid P65,000.00, a security
that Gaite considered essential and upon which he had insisted
when he executed the deed of sale of the ore to Fonacier.

SALES CASE DIGESTS


Gaite was appointed by Fonacier as attorney-in-fact to
contract any party for the exploration and development of mining
claims. Gaite executed a deed of assignment in favor of a single
proprietorship owned by him. For some reasons, Fonacier revoked
the agency, which was acceded to by Gaite, subject to certain
conditions, one of which being the transfer of ores extracted from
the mineral claims for P75,000, of which P10,000 has already
been paid upon signing of the agreement and the balance to be
paid from the first letter of credit for the first local sale of the iron
ores. To secure payment, Fonacier delivered a surety agreement
with Larap Mines and some of its stockholders, and another one
with Far Eastern Insurance. When the second surety agreement
expired with no sale being made on the ores, Gaite demanded the
P65,000 balance. Defendants contended that the payment was
subject to the condition that the ores will be sold.
Issue: (1) Whether the sale is conditional or one with a period
(2) Whether there were insufficient tons of ores
Held:

(1) The shipment or local sale of the iron ore is not a


condition precedent (or suspensive) to the payment of the balance
of P65,000.00, but was only a suspensive period or term. What
characterizes a conditional obligation is the fact that its efficacy or
obligatory force (as distinguished from its demandability) is
subordinated to the happening of a future and uncertain event; so
that if the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed.
A contract of sale is normally commutative and onerous:
not only does each one of the parties assume a correlative

EILEEN EIKA M. DELA CRUZ


Denying said tax liabilities, private respondent sent petitioner a letterprotest and subsequently filed with the latter a memorandum contesting
the validity of the assessments. On 17 March 1988, petitioner rendered
a letter-decision cancelling the assessment for deficiency income tax but
modifying the assessment for deficiency contractors 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 3 August 1988 reducing the assessment for deficiency contractors
tax from P193,475.55 to P46,516.41, exclusive of surcharge and interest.
On 12 July 1993, the respondent court set aside respondents decision,
and cancelling the deficiency contractors tax assessment in the amount
of P46,516.41 exclusive of surcharge and interest for the fiscal year
ended 31 March 1978. No pronouncement as to cost. On 27 April 1994,
Court of Appeals, in CA-GR SP 31790, affirmed the decision of the
Court of Tax Appeals. Not in accord with said decision, petitioner came
to Supreme Court via a petition for review.

Issue: Whether the private respondent is taxable as an


independent contractor.
Held:
The Commissioner erred in applying the principles of tax
exemption without first applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is obviously both
illogical and impractical to determine who are exempted without
first determining who are covered by the aforesaid provision. The
Commissioner should have determined first if private respondent
was covered by Section 205, applying the rule of strict

SALES CASE DIGESTS


(2) The sale between the parties is a sale of a specific
mass or iron ore because no provision was made in their contract
for the measuring or weighing of the ore sold in order to complete
or perfect the sale, nor was the price of P75,000,00 agreed upon
by the parties based upon any such measurement.(see Art. 1480,
second par., New Civil Code). The subject matter of the sale is,
therefore, a determinate object, the mass, and not the actual
number of units or tons contained therein, so that all that was
required of the seller Gaite was to deliver in good faith to his buyer
all of the ore found in the mass, notwithstanding that the quantity
delivered is less than the amount estimated by them.

10. CIR v. CA, CTA, Ateneo De Manila


University
Facts:
Ateneo de Manila University, is a non-stock, non-profit
educational institution with auxiliary units and branches all over the
Philippines. One 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. Occasionally, it accepts
sponsorships for its research activities from international organizations,
private foundations and government agencies. On 8 July 1983, private
respondent received from Commissioner of Internal Revenue (CIR) a
demand letter dated 3 June 1983, assessing private respondent the sum
of P174,043.97 for alleged deficiency contractors tax, and an
assessment dated 27 June 1983 in the sum of P1,141,837 for alleged
deficiency income tax, both for the fiscal year ended 31 March 1978.

EILEEN EIKA M. DELA CRUZ


for so long despite its accumulation of significant losses, we can
only agree with both the Court of Tax Appeals and the Court of
Appeals that education and not profit is motive for undertaking
the research projects.

11. INCHAUSTI & CO. VS. CROMWELL


20 Phil 345

FACTS:
1. Plaintiff firm for many years past has been and is now engaged
in business of buying and selling at wholesale hemp.
2. It was customary for it to sell hemp in bales and that in all sales
of hemp by the plaintiff firm no mention is made of baling; but with
the tacit understanding, unless otherwise expressly agreed, that
the hemp will be delivered in bales.
3. A charge is then made against the buyers for said baling.
4. Elias Cromwell, the Collector of the Internal Revenue then
made a tax assessment upon the sums received from the sale of
baled hemp.
5. Plaintiff paid under protest contending that the tax assessed by
the defendant upon the aggregate of charges made against said
purchasers of hemp by the plaintiff is illegal upon the ground that
the said charge does not constitute a part of the selling price of
the hemp, but is a charge made for the services of baling the
hemp.
ISSUE: Is there a contract of sale?
HELD:

SALES CASE DIGESTS


interpretation of laws imposing taxes and other burdens on the
populace, before asking Ateneo to prove its exemption therefrom,
following the rule of construction where the tax exemptions are to
be strictly construed against the taxpayer.
The doctrine in the interpretation of tax laws is that a
statute will not be construed as imposing a tax unless it does so
clearly, expressly, and unambiguously. Tax cannot be imposed
without clear and express words for that purpose. Accordingly, the
general rule of requiring adherence to the letter in construing
statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication.
In case of doubt, such statutes are to be construed most strongly
against the government and in favor of the subjects or citizens
because burdens are not to be imposed nor presumed to be
imposed beyond what statutes expressly and clearly import. In the
present case, Ateneos Institute of Philippine Culture never 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. Funds received by the Ateneo de Manila University are
technically not a fee. They may however fall as gifts or donations
which are tax-exempt as shown by private respondents
compliance with the requirement of Section 123 of the National
Internal Revenue Code providing for the exemption of such gifts to
an educational institution.
The Supreme Court denied the petition and affirmed the
assailed Decision of the Court of Appeals. The Court ruled that
the private respondent is not a contractor selling its services for a
fee but an academic institution conducting these researches
pursuant to its commitments to education and, ultimately, to public
service. For the institute to have tenaciously continued operating

EILEEN EIKA M. DELA CRUZ


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 herein 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 defendants request, it is a
contract of sale, even though it may be entirely made after, and in
consequence of, the defendants order for it.
In the case at bar the baling was performed for the general
market and was not something done by the 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.

SALES CASE DIGESTS


The judgment of the court below was right. It is one of the
stipulations in the Statement of Facts that it is customary to sell
hemp in bales, and that the price quoted in the market for hemp
per picul is the price for the hemp baled. The fact it that among
large dealers like the plaintiff in this case it is practically
impossible to handle hemp without its being baled, and it is
admitted by the Statement of Facts, as well as demonstrated by
the documentary proof introduced in this case, that if the plaintiff
sold a quantity of hemp it would be the understanding, without
words, that purchase price would include the cost and expense of
baling.
In other words, it is the fact as stipulated, as well as it
would be the fact of necessity, that in all dealings in hemp in the
general market the selling price consist of the value of the hemp
loose plus the cost and expense of petting it into marketable form.
* Under such conditions the cost and expenses of baling
the hemp is a part of the purchase price and subject to a tax
imposed by law on the gross amount of sales of the dealers, and
is not a sum paid for work, labor, and materials performed and
furnished by the vendor for the vendee.
The word price signifies the sum stipulated or 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.
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 has not been given.

EILEEN EIKA M. DELA CRUZ


by Don Toribio Teodoro & Sons Inc. may purchase from
appellant doors of the same kind, provided he pays the
price. Surely, the appellant will not refuse, for it can easily
duplicate or even mass-produce the same doors-it is
mechanically equipped to do so.
The Oriental Sash Factory does nothing more than
sell the goods that it 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. When this Factory accepts a job that requires
the use of extraordinary or additional equipment, or
involves services not generally performed by it-it thereby
contracts for a piece of work filing special orders within
the meaning of Article 1467. The orders herein exhibited
were not shown to be special. They were merely orders
for work nothing is shown to call them special requiring
extraordinary service of the factory.
Anyway, supposing for the moment that the
transactions were not sales, they were neither lease of
services nor contract jobs by a contractor. But as the
doors and windows had been admittedly "manufactured"
by the Oriental Sash Factory, such transactions could be,
and should be taxed as "transfers" thereof under section
186 of the National Revenue Code.

13. CIR vs ENGR. EQUUIPMENT (64 SCRA


590)

Facts:
Engineering Equipment and Supply Co., an engineering
and machinery firm, is engaged in the design and installation of

SALES CASE DIGESTS

12. CELESTINO vs CIR (99 Phil 841)

Facts:
Celestino Co & Company is a general copartnership registered under the trade name Oriental
Sash Factory. From 1946 to 1951, it paid taxes
equivalent to 7% on the gross receipts under Sec. 186 of
the NIRC, which is a tax on the original sales of articles by
manufacturer, producer or importer. However, in 1952 it
began to claim only 3% tax under Sec. 191, which is a tax
on sales of services. Petitioner claims that it does not
manufacture ready-made doors, sash and windows for the
public, but only upon special orders from the customers,
hence, it is not engaged in manufacturing, but only in
sales of services.
Issue: Whether the petitioner company is engaged in
manufacturing, or is merely a special service provider
Held:
Celestino Co & Company habitually makes sash,
windows and doors, as it has represented in its stationery
and advertisements to the public. That it "manufactures"
the same is practically admitted by appellant itself. The
fact that windows and doors are made by it only when
customers place their orders, does not alter the nature of
the establishment, for it is obvious that it only accepted
such orders as called for the employment of such
material-moulding, frames, panels-as it ordinarily
manufactured or was in a position habitually to
manufacture.
Any builder or homeowner, with sufficient money,
may order windows or doors of the kind manufactured by
this appellant. Therefore it is not true that it serves
special customers only or confines its services to them
alone. And anyone who sees, and likes, the doors ordered

EILEEN EIKA M. DELA CRUZ


1) The word contractor has come to be used with special
reference to a person who, in the pursuit of the independent
business, undertakes to do a specific job or piece of work for
other persons, using his own means and methods without
submitting himself to control as to the petty details. The true
test of a contractor is that when he renders service in the
course of an independent occupation, representing the will of
his employer only as to the result of his work, and not as to the
means by which it is accomplished.
Engineering did not manufacture air conditioning units for sale
to the general public, but imported some items (as refrigeration
compressors in complete set, heat exchangers or coils) which
were used in executing contracts entered into by it. Engineering
undertook negotiations and execution of individual contracts for
the design, supply and installation of air conditioning units of
the central type taking into consideration in the process such
factors as the area of the space to be air conditioned; the
number of persons occupying or would be occupying the
premises; the purpose for which the various air conditioning
areas are to be used; and the sources of heat gain or cooling
load on the plant such as sun load, lighting, and other electrical
appliances which are or may be in the plan. Relative to the
installation of air conditioning system, Engineering designed
and engineered complete each particular plant and that no two
plants were identical but each had to be engineered separately.
2) NATURE OF OBJECT TEST:
The distinction between a contract of sale and one for
work, labor and materials is tested by the inquiry whether the
thing transferred is one NOT in existence and which never
would have existed but for the order of the party desiring to
acquire it, or a thing which would have existed and has been
the subject of sale to some other persons even if the order had
not been given. If the article ordered by the purchaser is
exactly such as the plaintiff makes and keeps on hand for sale

SALES CASE DIGESTS


central type air conditioning system, pumping plants and steel
fabrications.
CIR received an anonymous letter denouncing
Engineering for tax evasion by misdeclaring its imported
articles and failing to pay the correct percentage taxes due
thereon in connivance with its foreign suppliers. Engineering
was likewise denounced to the Central Bank (CB) for alleged
fraud in obtaining its dollar allocations. So, NBI and Central
Bank conducted a raid and search on which occasion
voluminous records of the firm were seized and confiscated. CIR
also reported about deficiency advance sales tax. CIR assessed
against the Company payment of the increased amount and
suggested that P10,000 be paid as compromise in extrajudicial
settlement of the Companys penal liability for violation of the
Tax Code. The firm, however, contested the tax assessment and
requested that it be furnished with the details and particulars of
the Commissioners assessment. Engineering appealed the
case to the Court of Tax Appeals. During the pendency of the
case the investigating revenue examiners reduced the
Companys deficiency tax. CTA declared that Engineering is a
contractor and is exempt from deficiency manufacturers sales
tax. The Commissioner, not satisfied with the decision of the
CTA, appealed to the Supreme Court.
Issue: 1) WON Engineering Equipment is a manufacturer or
contractor? CONTRACTOR.
2) Corrollarily WON the installation of a centralized airconditioning system a contact of sale or a contract for piece of
work? CONTRACT FOR PIECE OF WORK.
3) Is Celestino Co vs. CIR case applicable in this case?
NO.
Held:

EILEEN EIKA M. DELA CRUZ


Mechanical Supplies, Engineers, Contractors and not as
manufacturers. It likewise paid the contractors tax on all the
contracts for the design and construction of central system.
Similarly, it did not have ready-made air conditioning units for
sale.

14. QUIROGA vs PARSONS HARDWARE


Facts:
On 24 January 1911, in Manila, a contract was entered
into by and between the Quiroga and J. Parsons (to whose
rights and obligations Parsons Hardware later subrogated itself)
for the exclusive sale of Quiroga Beds in the Visayan Islands.
Quiroga was to furnish the Parson with the beds (which the
latter might order, at the price stipulated) and that Parson was
to pay the price in the manner stipulated. The price agreed
upon was the one determined by Quiroga for the sale of these
beds in Manila, with a discount of from 20 to 25 per cent,
according to their class. Payment was to be made at the end of
sixty days, or before, at Quirogas request, or in cash, if Parson
so preferred, and in these last two cases an additional discount
was to be allowed for prompt payment.
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

SALES CASE DIGESTS


to anyone, and no change or modification of it is made at
defendants request, it is a contract of sale, even though it may
be entirely made after, and in consequence of, the defendants
order for it.
The air conditioning units installed in a central type of
air conditioning system would not have existed but for the
order of the party desiring to acquire it and if it existed without
the special order of Engineerings customer, the said air
conditioning units were not intended for sale to the general
public. Hence, it is a contract for a piece of work.
3) Celestino Co compared to Engineering Equipment:
Points of discussion:
1)

Advertisement as manufacturer/contractor

2)

Ready-made materials

In Celestino Co, the Court held the taxpayer to be a


manufacturer rather than a contractor of sash, doors and
windows manufactured in its factory. From the very start,
Celestino Co intended itself to be a manufacturer of doors,
windows, sashes etc. as it did register a special trade name for
its sash business and ordered company stationery carrying the
bold print ORIENTAL SASH FACTORY. As a general rule, sash
factories receive orders for doors and windows of special design
only in particular cases, but the bulk of their sales is derived
from ready-made doors and windows of standard sizes for the
average home, which sales were reflected in their books of
accounts totalling P118,754.69 for the period of only nine (9)
months. The Court found said sum difficult to have been
derived from its few customers who placed special orders for
these items.
In the present case, the company advertised itself as
Engineering Equipment and Supply Company, Machinery

EILEEN EIKA M. DELA CRUZ

15. GONZALO PUYAT and SONS vs ARCO


AMUSEMENT COMP.
(72 Phil 402)
FACTS:
In the year 1929, the Teatro Arco, was engaged in
the business of operating cinematographs. In 1930, its
name was changed to Arco Amusement Company. About
the same time, Gonzalo Puyat & Sons, Inc., in addition to
its other business, was acting as exclusive agents in the
Philippines for the Starr Piano Company of Richmond,
Indiana, USA, which dealt in cinematograph equipment
and machinery. Arco, desiring to equip its cinematograph
with sound reproducing devices, approached Puyat. After
some negotiations, it was agreed between the parties,
Puyat would, on behalf of Arco Amusement, order sound
reproducing equipment from the Star Piano Company and
that Arco Amusement would pay Puyat, in addition to the
price of the equipment, 10% commission, plus all
expenses, such as, freight, insurance, banking charges,
cables, etc. At the expense of the Arco, Puyat sent a cable
to the Starr Piano Company, inquiring about the
equipment desired and making the said company to
quote its price of $1,700 FOB factory Richmond, Indiana.
Puyat informed the plaintiff of the price of $1,700, and
being agreeable to the price, Arco, in a letter dated 19
November 1929, formally authorized the order. The
equipment arrived about the end of the year 1929, and
upon delivery of the same to Arco and the presentation of
necessary papers, the price of $1,700, plus the 10%
commission agreed upon the plus all the expenses and
charges, was duly paid by the Arco to Puyat. He following
year, another order for sound reproducing equipment was
placed by Arco with Puyat, on the same terms as the first
order. The equipment under the second order arrived in

SALES CASE DIGESTS


hereinbefore transcribed, was a purchaser or an agent of the
plaintiff for the sale of his beds.
Issue: Whether the contract is a contract of 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 plaintiffs 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 defendants 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.

EILEEN EIKA M. DELA CRUZ


indemnify the principal for damages, or a mere contract
of sale
Held:
The letters, by which the respondent accepted the
prices 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. The respondent admitted in its complaint
filed with the Court of First Instance of Manila that the
petitioner agreed to sell to it the first sound reproducing
equipment and machinery.
We agree with the trial judge that "whatever
unforseen events might have taken place unfavorable to
the defendant (petitioner), 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, the plaintiff
(respondent) might still legally hold the defendant
(petitioner) to the prices fixed of $1,700 and $1,600." 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).
While the letters state that the petitioner was to receive
ten per cent (10%) commission, this does not necessarily
make the petitioner an agent of the respondent, as this
provision is only an additional price which the respondent
bound itself to pay, and which stipulation is not
incompatible with the contract of purchase and sale.

SALES CASE DIGESTS


due time, and the defendant was duly paid the price of
$1,600 with its10 per cent commission, and $160, for all
expenses and charges. This amount of $160 does not
represent actual out-of-pocket expenses paid by Puyat,
but a mere flat charge and rough estimate made by Puyat
equivalent to 10% of the price of $1,600 of the
equipment.
Three years later, in connection with a civil case in
Vigan, filed by one Fidel Reyes against Puyat, the officials
of the Arco discovered that the price quoted to them by
Puyat with regard to their two orders was not the net
price but rather the list price, and that the defendant had
obtained a discount from the Starr Piano Company.
Moreover, by reading reviews and literature on prices of
machinery and cinematograph equipment, said officials of
Arco were convinced that the prices charged them by the
defendant were much too high including the charges for
out-of-pocket expenses. For these reasons, they sought to
obtain a reduction from Puyat or rather a reimbursement.
Failing in this they brought an action with the CFI Manila.
The trial court held that the contract between the
parties was one of the outright purchase and sale, and
absolved Puyat from the complaint. The appellate court,
however, held that the relation between the parties was
that of agent and principal, Puyat acting as agent of Arco
in the purchase of the equipment in question, and
sentenced Puyat to pay Arco alleged over payments in
the total sum of $1,335.52 or P2,671.04, together with
legal interest thereon from the date of the filing of the
complaint until said amount is fully paid, as well as to pay
the costs of the suit in both instances.
Hence, the petition for the issuance of a writ of
certiorari to the Court of Appeals for the purposed of
reviewing its decision in civil case GR 1023.
Issue: Whether the contract between petitioner and
respondent is that of agency where agent is bound to

EILEEN EIKA M. DELA CRUZ

Lawin initially loaned from Advance Capital Corp. (ACC)


Php 8M payable w/in 1 yr and guaranteed by a chattel
mortgage of Lawins 9 buses. Lawin was in default in its
payments and was able to pay only Php 1.8M.
Lawin obtained its second loan of 2M payable in one
month under a promissory note. Lawin was in default
again hence it asked ACC for a restructuring of the loan
despite this Lawin was still not able to pay. The buses for
foreclosed and it was sold for 2M.
ACC sent Lawin demand letters to settle its indebtedness
amounting to hp 16,484,992.42 then subsequently filed a
suit for sum of money against Lawin. Lawin in its defense
said that there was already an arrangement to settle the
obligation
o A. Sale of 9 buses and its proceeds will cover for
the full payment; OR
o B. ACC will shoulder the rehabilitation of the buses
and the earnings of the operation will be then
applied to the loan

Issue/Held: W/N there was a dacion en pago bet. the parties?


NO
Ratio:
Dacion en Pago is a special mode of payment, the debtor
offers another thing to the creditor who accepts it as
equivalent of payment of the outstanding obligation. It
partakes the nature of a sale whose essential elements
are a) consent b)object certain and c) cause and the

SALES CASE DIGESTS


In the second place, to hold the petitioner an agent
of the respondent in the purchase of equipment and
machinery from the Starr Piano Company of Richmond,
Indiana, is incompatible with the admitted fact that the
petitioner is the exclusive agent of the same company in
the Philippines. It is out of the ordinary for one to be the
agent of both the vendor and the purchaser. The facts
and circumstances indicated do not point to anything but
plain ordinary transaction where the respondent enters
into a contract of purchase and sale with the petitioner,
the latter as exclusive agent of the Starr Piano Company
in the United States.
It follows that the petitioner as 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 realized by the vendor out of the
transaction. This is the very essence of commerce without
which merchants or middleman would not exist.
The Supreme Court granted the writ of certiorari,
reversed the decision of the appellate court, and absolved
Puyat & Sons from the complaint in GR 1023, without
pronouncement regarding costs

16. Philippine Lawin Bus Co. (Lawin) vs CA


Doctrine:
Nature:
RTC- Suit to claim for a sum of money against Lawin, case was
dismissed
CA- Reversed RTC and ruled that Lawin has to pay ACC
SC- Affirmed CAs decision and ordered
Facts:

EILEEN EIKA M. DELA CRUZ


Since he does not have the financing capability, Sy Bang
applied for financial assistance from Filinvest Credit Corporation.
Filinvest agreed to extend financial aid on the following conditions:
(1) that the machinery be purchased in the petitioners name; (2)
that it be leased with option to purchase upon the termination of
the lease period; and (3) that Sy Bang execute a real estate
mortgage as security for the amount advanced by Filinvest. A
contract of lease of machinery (with option to purchase) was
entered into by the parties whereby they to lease from the
petitioner the rock crusher for two years. The contract likewise
stipulated that at the end of the two-year period, the machine
would be owned by Sy Bang.
3 months from the date of delivery, Sy Bang claiming that
they had only tested the machine that month, sent a lettercomplaint to the petitioner, alleging that contrary to the 20 to 40
tons per hour capacity of the machine as stated in the lease
contract, the machine could only process 5 tons of rocks and
stones per hour. They then demanded that the petitioner make
good the stipulation in the lease contract. Sy Bang stopped
payment on the remaining checks they had issued to the
petitioner.
As a consequence of the non-payment, Filinvest
extrajudicially foreclosed the real estate mortgage.
Issue: WON the real transaction was lease or sale? SALE ON
INSTALLMENTS.

SALES CASE DIGESTS

contract is perfected at the moment of the meeting of the


minds of the parties.
In this case there was no meeting of the minds between
Lawin and ACC that the obligation would be extinguished
by dacion en pago. The receipts shows that the delivery of
the 2 buses to ACC didnt transfer the ownership of the
bus to ACC rather they were deemed to be only as Lawins
agent in the sale of the bus whereby the proceeds are then
to be applied as payment for the loan.

17. FILINVEST CREDIT CORPORATION vs.


COURT OF APPEALS
G.R. No. 82508 September 29, 1989

Facts:

Spouses Sy Bang were engaged in the sale of gravel


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

EILEEN EIKA M. DELA CRUZ


agreed amount results, by the terms of bargain, in the transfer of
title to the lessee.
Indubitably, the device contract of lease with option to buy
is at times resorted to as a means to circumvent Article 1484,
particularly paragraph (3) thereof.Through the set-up, the vendor,
by retaining ownership over the property in the guise of being the
lessor, retains, likewise, the right to repossess the same, without
going through the process of foreclosure, in the event the vendeelessee 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.

SALES CASE DIGESTS


Held:

The real intention of the parties should prevail. The


nomenclature of the agreement cannot change its true essence,
i.e., a sale on installments. It is basic that a contract is what the
law defines it and the parties intend it to be, not what it is called by
the parties. It is apparent here that the intent of the parties to the
subject contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock
crusher, subject matter of the contract, would become the
property of the private respondents. This form of agreement has
been criticized as a lease only in name.
Sellers desirous of making conditional sales of their goods,
but who do not wish openly to make a bargain in that form, for one
reason or another, have frequently resorted to the device of
making contracts in the form of leases either with options to the
buyer to purchase for a small consideration at the end of term,
provided the so-called rent has been duly paid, or with stipulations
that if the rent throughout the term is paid, title shall thereupon
vest in the lessee. It is obvious that such transactions are leases
only in name. The so-called rent must necessarily be regarded as
payment of the price in installments since the due payment of the

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