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

Subject: Sales

Doctrine: Contract for Piece-of-work

Facts: Celestino Co & Company is a duly registered general co-partnership doing

business under the trade name of “Oriental Sash Factory”. From 1946 to 1951 it paid

percentage taxes of 7% on the gross receipts of its sash, door and window factory, in

accordance with sec. 186 of the National Internal Revenue Code which is a tax on the

original sales of articles by manufacturer, producer or importer. However, in 1952 it began

to claim only 3% tax under Sec. 191, which is a tax on sales of services. Petitioner claims

that it does not manufacture ready-made doors, sash and windows for the public, but only

upon special orders from the customers, hence, it is not engaged in manufacturing under

sec 186, but only in sales of services covered by sec 191. Having failed to convince BIR,

petitioner went to the Court of Tax Appeal where it also failed. CTA, in its decision, holds

that the “petitioner has chosen for its tradename and has offered itself to the public as a

“Factory”, which means it is out to do business, in its chosen lines on a big scale. As a

general rule, sash factories receive orders for doors and windows of special design only in

particular cases but the bulk of their sales is derived from a ready-made doors and

windows of standard sizes for the average home.. Even if we were to believe petitioner’s

claim that it does not manufacture ready-made sash, doors and windows for the public and

that it makes these articles only special order of its customers, that does not make it a

contractor within the purview of section 191 of the national Internal Revenue Code… there

are no less than fifty occupations enumerated in the aforesaid section…and after reading

carefully each and every one of them, we cannot find under which the business of

manufacturing sash, doors and windows upon special order of customers fall under the

category” mentioned under Sec 191.

Issue: Whether the petitioner company provides special services or is engaged in

manufacturing.

Held: The important thing to remember is that Celestino Co & Company habitually

makes sash, windows and doors, as it has represented in its stationery and advertisements

to the public. That it “manufactures” the same is practically admitted by appellant itself.

The fact that windows and doors are made by it only when customers place their orders,

does not alter the nature of the establishment, for it is obvious that it only accepted such

orders as called for the employment of such material-moulding, frames, panels-as it

ordinarily manufactured or was in a position habitually to manufacture. The Oriental Sash

Factory does nothing more than sell the goods that it mass-produces or habitually makes;

sash, panels, mouldings, frames, cutting them to such sizes and combining them in such

forms as its customers may desire.

Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in

filing orders for windows and doors according to specifications, it did not sell, but merely

contracted for particular pieces of work or “merely sold its services”. In our opinion when

this Factory accepts a job that requires the use of extraordinary or additional equipment, or

involves services not generally performed by it-it thereby contracts for a piece of work —

filing special orders within the meaning of Article 1467. The orders herein exhibited were

not shown to be special. They were merely orders for work — nothing is shown to call

them special requiring extraordinary service of the factory. The thought occurs to us that if,

as alleged-all the work of appellant is only to fill orders previously made, such orders

should not be called special work, but regular work. The Supreme Court affirms the

assailed decision by the CTA.

2. COMMISSIONER OF INTERNAL REVENUE vs. ENGINEERING EQUIPMENT

G.R. No. L-27044 June 30, 1975

Facts:

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

engaged in the design and installation of central type air conditioning system,

pumping plants and steel fabrications.

CIR received an anonymous letter denouncing Engineering for tax evasion by

misdeclaring its imported articles and failing to pay the correct percentage taxes due

thereon in connivance with its foreign suppliers. Engineering was likewise denounced

to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. So, NBI and

Central Bank conducted a raid and search on which occasion voluminous records of

the firm were seized and confiscated. CIR also reported about deficiency advance sales

tax. CIR assessed against the Company payment of the increased amount and

suggested that P10,000 be paid as compromise in extrajudicial settlement of the

Company’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 the case to the Court of Tax

Appeals. During the pendency of the case the investigating revenue examiners

reduced the Company’s deficiency tax. CTA declared that Engineering is a contractor

and is exempt from deficiency manufacturers sales tax. The Commissioner, not

satisfied with the decision of the CTA, appealed to the Supreme Court.

Issue:

1) WON Engineering Equipment is a manufacturer or contractor? CONTRACTOR.

2) Corrollarily WON the installation of a centralized air-conditioning system a contact of

sale or a contract for piece of work? CONTRACT FOR PIECE OF WORK.

3) Is Celestino Co vs. CIR case applicable in this case? NO.

Held:

1)

The word “contractor” has come to be used with special reference to a person who, in

the pursuit of the independent business, undertakes to do a specific job or piece of

work for other persons, using his own means and methods without submitting himself

to control as to the petty details. The true test of a contractor is that when he renders

service in the course of an independent occupation, representing the will of his

employer only as to the result of his work, and not as to the means by which it is

accomplished.

Engineering did not manufacture air conditioning units for sale to the general public,

but imported some items (as refrigeration compressors in complete set, heat

exchangers or coils) which were used in executing contracts entered into by it.

Engineering undertook negotiations and execution of individual contracts for the

design, supply and installation of air conditioning units of the central type taking into

consideration in the process such factors as the area of the space to be air

conditioned; the number of persons occupying or would be occupying the premises;

the purpose for which the various air conditioning areas are to be used; and the

sources of heat gain or cooling load on the plant such as sun load, lighting, and other

electrical appliances which are or may be in the plan. Relative to the installation of air

conditioning system, Engineering designed and engineered complete each particular

plant and that no two plants were identical but each had to be engineered separately.

2)

NATURE OF OBJECT TEST:

The distinction between a contract of sale and one for work, labor and materials is

tested by the inquiry whether the thing transferred is one NOT in existence and which

never would have existed but for the order of the party desiring to acquire it, or a thing

which would have existed and has been the subject of sale to some other persons

even if the order had not been given. If the article ordered by the purchaser is exactly

such as the plaintiff makes and keeps on hand for sale to anyone, and no change or

modification of it is made at defendant’s request, it is a contract of sale, even though it

may be entirely made after, and in consequence of, the defendants order for it.

 The 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 Engineering’s customer, the said air conditioning units

were not intended for sale to the general public. Hence, it is a contract for a piece of

work.

3)

Celestino Co compared to Engineering Equipment:

Points of discussion:

1) Advertisement as manufacturer/contractor

2) Ready-made materials

In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a

contractor of sash, doors and windows manufactured in its factory. From the very

start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc.

as it did register a special trade name for its sash business and ordered company

stationery carrying the bold print “ORIENTAL SASH FACTORY.” As a general rule, sash

factories receive orders for doors and windows of special design only in particular

cases, but the bulk of their sales is derived from ready-made doors and windows of

standard sizes for the average home, which “sales” were reflected in their books of

accounts totalling P118,754.69 for the period of only nine (9) months. The Court found

said sum difficult to have been derived from its few customers who placed special

orders for these items.

In the present case, the company advertised itself as Engineering Equipment and

Supply Company, Machinery Mechanical Supplies, Engineers, Contractors and not as

manufacturers. It likewise paid the contractors tax on all the contracts for the design

and construction of central system. Similarly, it did not have ready-made air

conditioning units for sale.

 3. Ballesteros v Abion

GR no. 143361, Feb. 9, 2006

FACTS:

This is a petition for review on certiorari assailing the July 15, 1999 decision of the Court of  Appeals which affirmed the decision of the Regional Trial Court (RTC) of Iriga City, Branch 37,in Civil Case No. 2917. The property subject of the petition is a two-door, three-story commercial building and the 229sq.m. parcel of land on which it stands. The property was originally owned by Ruperto Ensano, as evidenced by TCT No. 6178. Ownership was subsequently transferred to the Development Bank of the Philippines (DBP) which, in turn, sold the property to Dr. Rodolfo Vargas in a deed of absolute sale dated March 30, 1988. Despite these transfers of ownership, however, the property was registered in the names of DBP and Dr. Vargas (TCT Nos. 941 and 942, respectively) only on February 21, 1996. Petitioner asserts that the Municipal Trial Court in the Cities (MTCC) had no jurisdiction to try the case because the complaint did not allege that he was withholding possession of the property beyond the expiration of the lease period and that, in violation of Rule 70, Section 2 of the Rules of Court, respondent failed to establish a cause of action by omitting to allege that demand to vacate was made for failure to pay the rent or comply with the conditions of the contract. We disagree. Furthermore, it is also worthy to note that, in his motion for reconsideration of the RTC decision, petitioner explicitly prayed that the "MTCC decision be affirmed." Since he actively participated in the proceedings before the MTCC and in fact later sought the affirmation of its decision, he in effect recognized its jurisdiction and he should now be estopped from questioning the jurisdiction of that court. In other words, petitioner cannot now assail the jurisdiction of the MTCC after voluntarily submitting himself to its proceedings.

ISSUE:Whether or not the trial court (MTCC of Iriga City, Br. 2) had jurisdiction to try the case?

HELD/RATIO:The Supreme Court that the Municipal Trial Court had jurisdiction over the case. In the motion for reconsideration of the RTC decision, petitioner explicitly prayed that the MTCC’s decision be affirmed. In effect, he recognized the jurisdiction of the said court and should be estopped from challenging the questioning of the MTCC¶s jurisdiction. The actual participation of the petitioner would also be a strong manifestation of his recognition of the court’s jurisdiction. The Supreme Court held that while lack of jurisdiction may be assailed at any stage,

a party’s active participation in the proceeding before a court without jurisdiction will estopped such party from assailing suck lack of jurisdiction. The petition was denied by the court, while the decision of the court of appeals was affirmed with modification as the attorney’s fees were deleted.

4. Julag-ay vs estate of Buenaventura(walang digest)

5. Chua Tee Dee vs. CAG.R. No. 135721, May 27, 2004

FACTS:

This is a case for collection of back rentals plus interest and attorney’s fees filed by Agricom against Chua Tee Dee, doing business as Pioneer Enterprises.

On May 22, 1985, Agricom and Dee entered into a 15-year lease contract over the rubber plantation owned by the former. Among the stipulations in the contract was the payment of deposit in the amount of P135,000.00 and payment of back rentals in case of non-payment of rentals for three months. The contract also stipulated that Agricom had the duty to maintain Dee in the quiet peaceful possession and enjoyment of the leased premises.

However, sometime in 1986, a labor case for illegal dismissal and unfair labor practice was filed against Agricom, Amado Dee (Chua Tee Dee’s husband) and Pioneer. This case arose from the fact that some of the plantation laborers were dismissed from work due to the contract of lease with Dee. The labor case dragged on for a number of years. In addition, Dee also complained of being pestered by some individuals who claimed portions of the plantation as their own property.Later on, Pioneer defaulted in its monthly payments, prompting Agricom to file a complaint for sum of money. In its Answer, Dee asserted that Agricom committed breach of contract for its failure to maintain her in peaceful possession and enjoyment of the leased premises. The breach, in turn, entitled her to suspend payment of rentals.

While the case was pending, Dee extended a personal loan of P30,000 to Lillian Carreido. When judgment was finally rendered, the complaint was dismissed and the lease contract terminated, the court stating that it was Agricom’s duty as lessor to maintain the lessee in peaceful possession and enjoyment of the leased premises.

Upon motion for recommendation, the lower court reversed its own ruling, ordering Dee to pay Agricom back rentals and rentals for the first three years of the lease already paid for. The CA affirmed the order.

Hence this appeal.

ISSUE:

Whether or not CA committed grave abuse of discretion in upholding the validity of the lease contract and holding Dee liable for back rentals, including rentals already paid forHELD:

The Supreme Court ruled partly in favor of Dee.

On the issue of suspension of payment of rentals, Dee anchors her argument on Art. 1658, NCC, which entitles the lessee to suspend payment of rent in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. Dee asserted that she was harassed by squatters and several claimants of the leased premises.

The duty “to maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the contract” is merely a warranty that the lessee shall not be disturbed in his legal, and not physical, possession. In the present case, however, petitioner had not been disturbed in her legal possession of the property.

As to the claims of loss due to the labor dispute, the Supreme Court agreed with the CA that Dee failed to prove this. During the period of pendency of the labor case, Dee regularly paid the monthly rentals. It was only after the labor case has been resolved that she started to fail to pay her rentals, strongly indicating that the labor case has not dampened her peaceful and adequate possession of the leased premises.

The Supreme Court, however, ruled that Dee should not be made to pay rentals for the first three years of the lease, since those rentals were already paid for. Moreover, the personal loan extended by Dee to Lillian Carriedo should not be charged against Agricom. While it is true that the petitioner and Carriedo had agreed that the personal loan of the latter shall be “chargeable against Agricom’s account,” the private respondent is not privy to the agreement; nor did it agree to pay the said loan. It must be stressed that the private respondent has a personality separate and distinct from its stockholders.

6.Tafio vs tecson (di ko mahanap)

7.http://sc.judiciary.gov.ph/jurisprudence/2004/feb2004/147999.htm

8.CHUA vs. VICTORIO

G.R. No. 157568 May 18, 2004

Facts:

Respondent Mutya Victorio is the owner of the property in Panganiban Street,

Santiago, Isabela where petitioners Chua and Yong Tian are lessees.

In 1990, Victorio effected an ejectment suit against the petitioners who were not

fulfilling their obligations as lessees, but a compromise agreement supervened this. In

1994, Victorio raised the rentals and petitioners did not comply with such payments.

She then again moved for an ejectment suit. The RTC and CA ordered respondents to

vacate the property. But this did not happen because respondents agreed as to the

new rentals and there again continued occupation of the property.

In 1998, Victorio wanted to increase again the rentals. They again failed to pay such

rents and respondent filed again for ejectment suit.

Petitioners impugn such raises in rents, invoking the provisions of the compromise

agreement that the two parties executed sometime in 1991. They contend that there

can be no increase of more than 25% in a span of 4 years.

Issue:

1. WON the petitioners can invoke the provisions of the compromise agreement in

order to hold respondent stopped from making raises in leases NO

2. WON Victorio may rescind the contract of lease? YES

Held:

1.

The compromise agreement executed in 1991 is without moment as to petitioner’s

claim.

Accordingly, in 1994, the juridical relation between the parties was severed when the

CA ordered ejectment of the petitioners. The lessor’s acceptance of the increased

rentals in 1996 did not have the effect of reviving the earlier contract of lease. Upon

the moment of acquiescence by respondents to the increased amount, an entirely new

contract of lease was entered into, forging an entirely new juridical relation. Since

payment of rent was made on a monthly basis, and pursuant to Article 1687 of the

Civil Code, the period of this lease contract was monthly. Upon the expiration of every

month, the lessor could increase the rents and demand that the lessee vacate the

premises upon non-compliance with increased terms.

2.

The right of rescission is statutorily recognized in reciprocal obligations, such as

contracts of lease. In addition to the general remedy of rescission granted under

Article 1191 of the Civil Code, there is an independent provision granting the remedy

of rescission for breach of any of the lessor or lessee’s statutory obligations. Under

Article 1659 of the Civil Code, the aggrieved party may, at his option, ask for (1) the

rescission of the contract; (2) rescission and indemnification for damages; or (3) only

indemnification for damages, allowing the contract to remain in force.

Payment of the rent is one of a lessee’s statutory obligations. The law grants the lessor

the option of extrajudicially terminating the contract of lease by simply serving a

written notice upon the lessee. This extrajudicial termination has the same effect as

rescission. Rescission of lease contracts under Article 1659 of the Civil Code does not

require an independent action, unlike resolution of reciprocal obligations under Article

1191 of said Code.

8. http://sc.judiciary.gov.ph/jurisprudence/2004/apr2004/118292.htm

G.R. No. 152347 June 21, 2006UNION BANK OF THE PHILIPPINES, 10. Petitioner, vs.SPS. ALFREDO ONG AND SUSANA ONG andJACKSON LEE, Respondents.GARCIA,

Facts:Spouses Alfredo Ong and Susana Ong own the majority capital stock of Baliwag Mahogany Corporation (BMC).On October 10, 1990, the spouses executed a Continuing Surety Agreement in favor of Union Bank to secure aP40,000,000.00-credit line facility made available to BMC. The agreement expressly stipulated a solidary liability undertaking. On October 22, 1991, the spouses Ong, for P12,500,000.00, sold their 974-square meter lot located in Greenhills, San Juan, Metro Manila, together with the house and other improvements standing thereon, to their co-respondent, Jackson Lee. The following day, Lee registered the sale and was then issued Transfer Certificate of Title (TCT) No. 4746-R. At about this time, BMC had already availed itself of the credit facilities, and had in fact executed a total of twenty-two (22) promissory notes in favor of Union Bank. On November 22, 1991, BMC filed a Petition for Rehabilitation and for Declaration of Suspension of Payments with the Securities and Exchange Commission (SEC). To protect its

interest, Union Bank lost no time in filing with the RTC of Pasig City an action for rescission of the sale between the spouses Ong and Jackson Lee for purportedly being in fraud of creditors.Issue:Whether or not the Ong-Lee contract of sale partakes of a conveyance to defraud Union Bank  Ruling:The Ong-Lee contract of sale partakes a conveyance of bona fide transaction and not a trick to defeat creditors. Contracts in fraud of creditors are those executed with the intention to prejudice the rights of creditors. They should not be confused with those entered into without such mal-intent, even if, as a direct consequence thereof, the creditor may suffer some damage. In the present case, respondent spouses Ong, had sufficiently established the legitimacy of the sale. It was supported by sufficient consideration. The disparity between the price and the real value of the property was not as gross to support a conclusion of fraud. Furthermore, there was no evidence to prove that the spouses Ong and Lee were conniving cheats. Even if the spouses Ong did not leave the premises immediately after the sale, such action was supported by a valid contract of lease. It could not also be contended that Lee was not financially capable of purchasing the property, since mere income for a specific year is not sufficient to establish his incapacity.

PLATINUM PLANS PHILS INC V. CUCUECO 488 SCRA 156 (2006)

 FACTS: Respondent Cucueco filed a case for specific performance with damages against petitioner Platinum Plans pursuant to an alleged contract of sale executed by them for the purchase of a condominium unit.

According to the respondent: sometime in July 1993, he offered to buy from petitioner Platinum Plans Phils a condominium unit he was leasing from the latter for P 4 million payable in 2 installments of P2 million with the following terms and conditions:

a. Cucueco will issue a check for P100,00 as earnest moneyb. He will issue a post-dated check for P1.9 million to be encashed on September 30, 1993 on the

condition that he will stop paying rentals for the said unit after September 30c. In case Platinum Plans has an outstanding loan of less than P2 million with the bank as of

December 1993, Cucueco shall assume the same and pay the difference from the remaining P2 million Cucueco likewise claimed that Platinum Plans accepted his offer—by encashing the checks he issued. However, he was surprised to learn that Platinum Plans had changed the due date of the installment payment to September 30, 1993.

Respondent argued that there was a perfected sale between him and Platinum plans and as such, he may validly demand from the petitioner to execute the necessary deed of sale transferring ownership and title over the property in his favor

Platinum Plans denied Cucueco’s allegations and asserted that Cucueco’s initial down payment was forfeited based on the following terms and conditions:

a. The terms of payment only includes two installments (August 1993 and September 1993)b. In case of non-compliance on the part of the vendee, all installments made shall be forfeited in

favor of the vendor Platinum Plansc. Ownership over the property shall not pass until payment of the full purchase price

Petitioners anchor their argument on the claim that there was no meeting of the minds between the two parties, as evidenced by their letter of non-acceptance.

The trial court ruled in favor of Platinum, citing that since the element of consent was absent there was no perfected contract. The trial court ordered Platinum Plans to return the P2 million they had received from Cucueco, and for Cucueco to pay Platinum Plans rentals in arrears for the use of the unit. Upon appeal, CA held that there was a perfected contract despite the fact that both parties never agreed on the date of payment of the remaining balance. CA ordered Cucueco to pay the remaining balance of the purchase price and for Platinum Plans, to execute a deed of sale over the property

ISSUE: WON the contract there is a perfected contract of sale

HELD: No, it is a contract to sell.

In a contract of sale, the vendor cannot recover ownership of the thing sold until and unless the contract itself is resolved and set aside. Art 1592 provides:

In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon, the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.

Based on the above provision, a party who fails to invoke judicially or by notarial act would be prevented from blocking the consummation of the same in light of the precept that mere failure to fulfill the contract does not by itself have the effect of rescission.

On the other hand, a contract to sell is bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite its delivery to the prospective buyer, commits to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., full payment of the purchase price. Full payment here is considered as a positive suspensive condition.

As a result if the party contracting to sell, because of non-compliance with the suspensive condition, seeks to eject the prospective buyer from, the land, the seller is enforcing the contract and is not resolving it. The failure to pay is not a breach of contract but an event which prevent the obligation to convey title from materializing.

In the present case, neither side was able to produce any written evidence documenting the actual terms of their agreement. The trial court was correct in finding that there was no meeting of minds in this case considering that the acceptance of the offer was not absolute and uncondition. In earlier cases, the SC held that before a valid and binding contract of sale can exist, the manner of payment of the purchase price must first be established.

Furthermore, the reservation of the title in the name of Platinum Plans clearly indicates an intention of the parties to enter into a contract of sell. Where the seller promises to execute a deed of absolute sale upon completion of the payment of purchase price, the agreement is a contract to sell.

The court cannot, in this case, step in to cure the deficiency by fixing the period pursuant to:1. The relief sought by Cucueco was for specific performance to compel Platinum Plans to receive the balance of the purchase price. 2. The relief provide in Art 1592 only applies to contracts of sale

3. Because of the differing dates set by both parties, the court would have no basis for granting Cucueco an extension of time within which to pay the outstanding balance

SELLER CANNOT TREAT THE CONTRACT AS CANCELLED WITHOUT SERVING NOTICEThe act of a party in treating the contract as cancelled should be made known to the other party because this act is subject to scrutiny and review by the courts in cased the alleged defaulter brings the matter for judicial determination as explained in UP v. De los Angeles. In the case at bar, there were repeated written notices sent by Platinum Plans to Cucueco that failure to pay the balance would result in the cancellation of the contract and forfeiture of the down payment already made. Under these circumstance, the cancellation made by Platinum Plans is valid and reasonable (except for the forfeiture of the down payment because Cucueco never agreed to the same)

EFFECTS OF CONTRACT TO SELLA contract to sell would be rendered ineffective and without force and effect by the non-fulfillment of the buyer’s obligation to pay since this is a suspensive condition to the obligation of the seller to sell and deliver the title of the property. As an effect, the parties stand as if the conditional obligation had never existed. There can be no rescission of an obligation that is still non-existent as the suspensive condition has not yet occurred.

CA’S RELIANCE ON LEVY HERMANOS V. GERVACIO IS MISPLACEDIt was unnecessary for CA to distinguish whether the transaction between the parties was an installment sale or a straight sale. In the first place, there is no valid and enforceable contract to speak of.

AYALA INC VS. RAY BURTON CORP

GR No. 163075

January 23, 2006

FACTS: On December 22, 1995, Ayala Inc. and Ray Burton Corp.  entered into a contract

denominated as a “Contract to Sell,” with a “Side Agreement” of even date. In these contracts,

petitioner agreed to sell to respondent a parcel of land situated at Muntinlupa City. The

purchase price of the land is payable as follows:

On contract date: 26%, inclusive of option money

Not later than 1-6-96: 4%

In consecutive quarterly installments for a period of 5 years: 70%

Respondent paid thirty (30%) down payment and the quarterly amortization. However in 1998,

respondent notified petitioner in writing that it will no longer continue to pay due to the adverse

effects of the economic crisis to its business. Respondent then asked for the immediate

cancellation of the contract and for a refund of its previous payments as provided in the

contract.

Petitioner refused to cancel the contract to sell. Instead, it filed with the RTC  Makati City, a

complaint for specific performance against respondent, demanding from the latter the payment

of the remaining unpaid quarterly installments inclusive of interest and penalties.

Respondent, in its answer, denied any further obligation to petitioner, asserting that it

(respondent) notified the latter of its inability to pay the remaining installments. Respondent

invoked the provisions of paragraphs 3 and 3.1 of the contract to sell providing for the refund to

it of the amounts paid, less interest and the sum of 25% of all sums paid as liquidated damages.

The trial court rendered a Decision in favor of Ayala and holding that respondent transgressed

the law in obvious bad faith. It ordered the defendant ordered to pay Ayala the unpaid balance,

interest agreed upon, and penalties. Defendant is further ordered to pay plaintiff for attorney’s

fees and the costs of suit. Upon full payment of the aforementioned amounts by defendant,

plaintiff shall, as it is hereby ordered, execute the appropriate deed of absolute sale conveying

and transferring full title and ownership of the parcel of land subject of the sale to and in favor of

defendant.

On appeal, the CA rendered a Decision reversing the trial court’s Decision.  Hence, the instant

petition for review on certiorari.

ISSUE:

1. WON respondent’s non-payment of the balance of the purchase price gave rise to a cause of

action on the part of petitioner to demand full payment of the purchase price; and

2. WON Ayala should refund respondent the amount the latter paid under the contract to sell.

HELD: The petition is denied. The CA decision is affirmed.

At the outset, it is significant to note that petitioner does not dispute that its December 22, 1995

transaction with respondent is a contract to sell. Also, the questioned agreement clearly

indicates that it is a contract to sell, not a contract of sale. Paragraph 4 of the contract provides:

4. TITLE AND OWNERSHIP OF THE PROPERTY. – The title to the property shall transfer to the

PURCHASER upon payment of the balance of the Purchase Price and all expenses, penalties and

other costs which shall be due and payable hereunder or which may have accrued thereto.

Thereupon, the SELLER shall execute a Deed of Absolute Sale in favor of the PURCHASER

conveying all the SELLER’S rights, title and interest in and to the Property to the PURCHASER

1. NO. Considering that the parties’ transaction is a contract to sell, can petitioner, as seller,

demand specific performance from respondent, as buyer?

Black’s Law Dictionary defined specific performance as “(t)he remedy of requiring exact

performance of a contract in the specific form in which it was made, or according to the precise

terms agreed upon. The actual accomplishment of a contract by a party bound to fulfill it.”

Evidently, before the remedy of specific performance may be availed of, there must be

a breach of the contract.

Under a contract to sell, the title of the thing to be sold is retained by the seller until the

purchaser makes full payment of the agreed purchase price. The non-fulfillment by the

respondent of his obligation to pay, which is a suspensive condition to the obligation of the

petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective

and without force and effect; failure of which is not really a breach, serious or otherwise, but an

event that prevents the obligation of the petitioners to convey title from arising, in accordance

with Article 1184 of the Civil Code .

The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil

Code will not apply because it presupposes an obligation already extant. There can be no

rescission of an obligation that is still non-existing, the suspensive condition not having

happened Thus, a cause of action for specific performance does not arise.

Here, the provisions of the contract to sell categorically indicate that respondent’s default in the

payment of the purchase price is considered merely as an “event,” the happening of which

gives rise to the respective obligations of the parties mentioned therein, thus:

3. EVENT OF DEFAULT. The following event shall constitute an Event of Default under this

contract: the PURCHASER fails to pay any installment on the balance, for any reason not

attributable to the SELLER, on the date it is due, provided, however, that the SELLER shall have

the right to charge the PURCHASER a late penalty interest on the said unpaid interest at the rate

of 2% per month computed from the date the amount became due and payable until full

payment thereof.

3.1. If the Event of Default shall have occurred, then at any time thereafter, if any such event

shall then be continuing for a period of six (6) months, the SELLER shall have the right

to cancel this Contract without need of court declaration to that effect by giving the

PURCHASER a written notice of cancellation sent to the address of the PURCHASER as specified

herein by registered mail or personal delivery. Thereafter, the SELLER shall return to the

PURCHASER the aggregate amount that the SELLER shall have received as of the cancellation of

this Contract, less: (i) penalties accrued as of the date of such cancellation, (ii) an amount

equivalent to twenty five percent (25%) of the total amount paid as liquidated damages, and

(iii) any unpaid charges and dues on the Property. Any amount to be refunded to the

PURCHASER shall be collected by the PURCHASER at the office of the SELLER. Upon notice to the

PURCHASER of such cancellation, the SELLER shall be free to dispose of the Property covered

hereby as if this Contract had not been executed. Notice to the PURCHASER sent by registered

mail or by personal delivery to its address stated in this Contract shall be considered as

sufficient compliance with all requirements of notice for purposes of this Contract.14

Therefore, in the event of respondent’s default in payment, petitioner, under the above

provisions of the contract, has the right to retain an amount equivalent to 25% of the total

payments. As stated by the CA, petitioner having been informed in writing by respondent of its

intention not to proceed with the contract prior to incurring delay in payment of succeeding

installments, the provisions in the contract relative to penalties and interest find no application.

2. YES. The CA is correct that with respect to the award of interest, petitioner is liable to pay

interest of 12% per annum upon the net refundable amount due from the time respondent made

the extrajudicial demand upon it to refund payment under the Contract to Sell, pursuant to our

ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

NOTES:

1. The real nature of a contract may be determined from the express terms of the written

agreement and from the contemporaneous and subsequent acts of the contracting parties. In

the construction or interpretation of an instrument, the intention of the parties is primordial and

is to be pursued.5 If the terms of the contract are clear and leave no doubt upon the intention of

the contracting parties, the literal meaning of its stipulations shall control.6 If the words appear

to be contrary to the evident intention of the parties, the latter shall prevail over the

former.7 The denomination or title given by the parties in their contract is not conclusive of the

nature of its contents.

2. Lim v. Court of Appeals (182 SCRA 564 [1990]) is most illuminating. In the said case, a

contract to sell and a contract of sale were clearly and thoroughly distinguished from each other.

NAVAL vs. COURT OF APPEALS ET AL

G.R. No. 167412

February 22, 2006

FACTS: In 1969, Ildefonso Naval sold a parcel of land located in  Camarines Sur to Galarosa. The sale was recorded in the RD pursuant to Act No. 3344, the law governing registrations of all instruments on unregistered lands.

Subsequently, Galarosa sold portions of the land to respondents Balilla, Nacion, spouses Moya, and Camalla. All buyers occupied the portion they bought, built improvements thereon, and paid the taxes due thereto.

The controversy arose when petitioner Juanita Naval, the great granddaughter of Ildefonso, was issued by the RD an OCT covering a portion of the subject land. She claimed that she bought the subject land from Ildefonso in 1972.

Petitioner Juanita filed a complaint for recovery of possession against Aguirre, Balila, Moya, and Nacion. However, the case was dismissed without prejudice for failure to prosecute the action for an unreasonable length of time.

Almost 20 years later petitioner re-filed the complaint for recovery of possession with damages before the MCTC, against Camalla, Balila, Aguirre, Nacion and Moya. After trial, the MCTC rendered its decision in favor of the plaintiff and against defendants, declaring: the plaintiff to be the legal owner of the land, ordering defendants Camalla, Balila, Balila, Aguirre and Nacion to vacate the property in question and to deliver its possession to the plaintiff, and ordering Moya to vacate the land occupied by her and to relinquish its possession to the plaintiff;

Aggrieved, respondents appealed the decision to the RTC of Naga City, which affirmed in toto the assailed decision. Respondents thereafter elevated the case to the CA. Finding the prior registration of the deed of sale between Ildefonso and Galaura with the RD as a constructive notice to subsequent buyers, the appellate court reversed the decision of the RTC. Hence, this petition for review.

ISSUE: Who has the superior right to a parcel of land sold to different buyers at different times by its former owner.

HELD: RESPONDENTS

The petition is DENIED. The Decision of the CA and the denial of the motion for reconsideration are AFFIRMED.

a. It is not disputed that the subject land belonged to Ildefonso and that it was not registered under the Torrens System when it was sold to Gregorio in 1969 and to the petitioner in 1972. Further, the deed of sale between Ildefonso and Gregorio was registered with the RD of Camarines Sur pursuant to Act No. 3344.

In holding that respondents have a better right to possess the subject land in view of the bona fide registration of the sale with the RD of Camarines Sur by Ildefonso and Gregorio, the CA applied Article 1544 of the Civil Code.

While we agree with the appellate court that respondents have superior right over the petitioner on the subject property, we find Article 1544 inapplicableto the case at bar since the subject land was unregistered at the time of the first sale. The registration contemplated under this provision has been held to refer to registration under the Torrens System, which considers the act of registration as the operative act that binds the land. Thus, in Carumba v.

Court of Appeals, we held that Article 1544 of the Civil Code has no application to land not registered under Torrens System.

The law applicable therefore is Act No. 3344, which provides for the registration of all instruments on land neither covered by the Spanish Mortgage Law nor the Torrens System. Under this law, registration by the first buyer is constructive notice to the second buyer that can defeat his right as such buyer in good faith; it binds third person who may subsequently deal with the same property.

b. Even if petitioner argues that she purchased and registered the subject land in good faith and without knowledge of any adverse claim thereto, respondents still have superior right over the disputed property. We held in Rayos v. Reyes32 that:

“[T]he issue of good faith or bad faith of the buyer is relevant only where the subject of the sale is registered land and the purchaser is buying the same from the registered owner whose title to the land is clean x x x in such case the purchaser who relies on the clean title of the registered owner is protected if he is a purchaser in good faith for value.” Since the properties in question are unregistered lands, petitioners as subsequent buyers thereof did so at their peril. Their claim of having bought the land in good faith, i.e., without notice that some other person has a right to or interest in the property, would not protect them if it turns out, as it actually did in this case, that their seller did not own the property at the time of the sale.

c. It is an established principle that no one can give what one does not have, nemo dat quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally.In the case at bar, since Ildefonso no longer owned the subject land at the time of the sale to the petitioner, he had nothing to sell and the latter did not acquire any right to it.

d. Even if we apply Article 1544, the facts would nonetheless show that respondents and their predecessors-in-interest registered first the source of their ownership and possession, i.e., the 1969 deed of sale, and possessed the subject land at the earliest time. Applying the doctrine of “priority in time, priority in rights” or “prius tempore, potior jure,” respondents are entitled to the ownership and possession of the subject land.

e. True,  Section 32 of Presidential Decree No. 1529 provides that “[u]pon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible.” However, it does not deprive an aggrieved party of a remedy in law. What cannot be collaterally attacked is the certificate of title and not the title or ownership which is represented by such certificate. Ownership is different from a certificate of title. The fact that petitioner was able to secure a title in her name did not operate to vest ownership upon her of the subject land. Registration of a piece of land under the Torrens System does not create or vest title, because it is not a mode of acquiring ownership. A certificate of title is merely an evidence of ownership or title over the particular property described therein. It cannot be used to protect a usurper from the true owner; nor can it be used as a shield for the commission of fraud; neither does it permit one to enrich himself at the expense of others. Its issuance in favor of a particular person does not foreclose the possibility that the real property may be co-owned with persons not named in the certificate, or that it may be held in trust for another person by the registered owner.

As correctly held by the Court of Appeals, notwithstanding the indefeasibility of the Torrens title, the registered owner may still be compelled to reconvey the registered property to its true owners. The rationale for the rule is that reconveyance does not set aside or re-subject to review the findings of fact of the Bureau of Lands. In an action for reconveyance, the decree of registration is respected as incontrovertible. What is sought instead is the transfer of the property or its title which has been wrongfully or erroneously registered in another person’s name, to its rightful or legal owner, or to the one with a better right.

Finally, the Court of Appeals correctly held that an action for reconveyance does not prescribe when the plaintiff is in possession of the land to be reconveyed, as in this case. The reason for

this is that one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession.

We hold that in such a situation the right to quiet title to the property, to seek its reconveyance and annul any certificate of title covering it, accrued only from the time the one in possession was made aware of a claim adverse to his own, and it is only then that the statutory period of prescription commences to run against such possessor.

NUTRIMIX FEEDS CORP V. CA 441 SCRA 357 (2004)FACTS: In 1993, private respondent spouses  Evangelista  procured  various  animal   feeds   from petitioner Nutrimix Feeds Corp. the petitioner gave the respondents a credit period of 30-45 days to postdate checks to be issued as payment for the feeds. The accommodation was made apparently  because   the  company’s  president  was  a   close   friend  of  Evangelista. The various animal feeds were paid and covered by checks with due dates from July 1993-September 1993.

1. Initially, the spouses were good paying customers. However, there were instances when they failed to issue checks despite the delivery of goods. Consequently, the respondents incurred an aggregate unsettled account with Nutrimix amounting to P766,151

2. When the checks were deposited by the petitioner, the same were dishonored (closed account). Despite several demands from the petitioner, the spouses refused to pay the remaining balance

3. Thereafter, Nutrimix filed a complaint against Evangelista for collection of money with damages.4. The respondents admitted their unpaid obligation but impugned their liability. The nine checks

issued were made to guarantee the payment of the purchases, which was previously determined to be procured from the expected proceeds in the sale of their broilers and hogs.  They contended that inasmuch as the sudden and massive death of their animals was caused by the contaminated products of the petitioner, the nonpayment of their obligation was based on a just and legal ground.

5. The respondents also lodged a complaint for damages against the petitioner, for the untimely and unforeseen death of their animals supposedly effected by the adulterated animal feeds the petitioner sold to them.

6. Nutrimix alleged that the death of the respondents’ animals was due to the widespread pestilence in their farm. The petitioner, likewise, maintained that it received information that the respondents were in an unstable financial condition and even sold their animals to settle their obligations from other enraged and insistent creditors. It, moreover, theorized that it was the respondents who mixed poison to its feeds to make it appear that the feeds were contaminated.

7. The trial court held in favor of petitioner on the ground that it cannot be held liable under Articles 1561 and 1566 of the Civil Code governing “hidden defects” of commodities sold. The   trial court         is predisposed to believe that the subject feeds were contaminated sometime between    their storage at the bodega of the Evangelistas and their consumption by the poultry and hogs 

fed therewith, and that the contamination was perpetrated by unidentified or unidentifiable ill-meaning mischief-maker(s) over whom Nutrimix had no control in whichever way.

8. CA modified the decision of the trial court, citing that respondents were not obligated to pay their outstanding obligation to the petitioner in view of its breach of warranty against hidden defects. The CA gave much credence to the testimony of Dr. Rodrigo Diaz, who attested that the sample feeds distributed to the various governmental agencies for laboratory examination were taken from a sealed sack bearing the brand name Nutrimix

ISSUE: WON Nutrimix is guilty of breach of warranty due to hidden defects

HELD: NO.The provisions on warranty against hidden defects are found in Articles 1561 and 1566 of the New Civil Code of the Philippines. A hidden defect is one which is unknown or could not have been known to the vendee. Under the law, the requisites to recover on account of hidden defects are as follows:

a) the defect must be hidden;b) the defect must exist at the time the sale was made;c) the defect must ordinarily have been excluded from the contract;d) the defect, must be important (renders thing UNFIT or considerably decreases FITNESS);e) the action must be instituted within the statute of limitations

In the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable to be used for the purpose which both parties contemplated. To be able to prove liability on the basis  of  breach of   implied warranty,   three things must be established by the respondents.       The      first      is   that   they   sustained   injury  because  of   the  product;   the      second      is   that   the   injury    occurred  because   the  product  was  defective  or  unreasonably  unsafe;  and   finally   ,   the      defect    existed when the product left the hands of the petitioner.A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by the product in the absence of any proof that the product in question was defective. The defect must be present upon the delivery or manufacture of the product; or when the product left the seller’s or manufacturer’s control; or when the product was sold to the purchaser; or the product must have reached the user or consumer without substantial change in the condition it was sold. Tracing the defect to the petitioner requires some evidence that there was no tampering with, or changing of the animal feeds. The nature of the animal feeds makes it necessarily difficult for the respondents to prove that the defect was existing when the product left the premises of the petitioner.

A review of the facts of the case would reveal that the petitioner delivered the animal feeds, allegedly containing rat poison, on July 26, 1993; but it is astonishing that the respondents had the animal feeds examined only on October 20, 1993, or barely three months after their broilers and hogs had died. A difference of approximately three months enfeebles the respondents’ theory that the petitioner is guilty of breach of warranty by virtue of hidden defects. In a span of

three months, the feeds could have already been contaminated by outside factors and subjected to many conditions unquestionably beyond the control of the petitioner.

Even more surprising is the fact that during the meeting with Nutrimix President Mr. Bartolome, the respondents claimed that their animals were plagued by disease, and that they needed more time to settle their obligations with the petitioner. It was only after a few months that the respondents changed their justification for not paying their unsettled accounts, claiming anew that their animals were poisoned with the animal feeds supplied by the petitioner.

Lagrimas Boy vs Court of Appeals, Erlinda & Isagani Ramoson January 22, 2012

14 April 2004, 427 SCRA 196

Constructive Delivery 

In 1984, Lagrimas needed money for her brother’s placement fee to go abroad. She

then borrowed P15k from spouses Ramos. In 1986, Lagrimas executed a Deed of

Absolute Sale with the Ramoses. Subject of the sale was Lagrimas’ 55.75 sq m land

and the house erected there. Price agreed upon was P31k. Allegedly, Lagrimas’ debt is

to be deducted, so the Ramoses are to pay P16k more. Lagrimas stayed in the

property as the Ramoses were not yet in immediate need thereof.

In 1988, Lagrimas went to Erlinda asking that they execute a Kasunduan. The

Kasunduan states that the Ramoses still owe P16k to Lagrimas; that interest is to be

deducted in favor of the Ramoses so that would leave a balance of P8.5k. The

Kasunduan was notarized but upon signing, Erlinda changed her mind. She said she

realized that they were actually able to pay P31k to Lagrimas when the Deed of Sale

was executed. She advised the lawyer to change what she just signed. The lawyer said

that the parties need to talk to each other first. Lagrimas promised the lawyer that she

will be scrapping the Kasunduan.

Later, the need for the Ramoses to occupy the land arose. They demanded Lagrimas

to vacate the property. Lagrimas refused to do so. She invoked the Kasunduan.

ISSUE: Whether or not the Kasunduan prevails over the Deed of Absolute Sale.

HELD: No. A review of the Deed shows no indication that there was a balance left to

be paid to Lagrimas. The contract is absolute. It has been established that Lagrimas

sold the subject property to private respondents for the price of P31k, as evidenced by

the Deed of Absolute Sale, the due execution of which was not controverted by

Lagrimas.     The   contract is absolute in nature, without any provision that title to the

property is reserved in Lagrimas until full payment of the purchase price. By the

contract of sale, Lagrimas (as vendor), obligated herself to transfer the ownership of,

and to deliver, the subject property to the Ramoses (as vendees) after they paid the

price of P31k.  Under Article 1477 of the Civil Code, the ownership of the thing sold

shall be transferred to the vendee upon the actual or constructive delivery thereof.

In addition, Article 1498 of the Civil Code provides that when the sale is made through

a public instrument, as in this case, the execution thereof shall be equivalent to the

delivery of the thing which is the object of the contract, if from the deed the contrary

does not appear or cannot clearly be inferred.  In this case, the Deed of Absolute Sale

does not contain any stipulation against the constructive delivery of the property to

private respondents. In the absence of stipulation to the contrary, the ownership of the

property sold passes to the vendee upon the actual or constructive delivery thereof. 

The Deed of Absolute Sale, therefore, supports private respondents’ right of material

possession over the subject property.

http://sc.judiciary.gov.ph/jurisprudence/2006/may2006/G.R.%20No.%20149788.htm

http://www.lawphil.net/judjuris/juri1990/feb1990/gr_85733_1990.html

http://www.lawphil.net/judjuris/juri2006/feb2006/gr_125283_2006.html

http://sc.judiciary.gov.ph/jurisprudence/1997/oct1997/110115.htm

http://sc.judiciary.gov.ph/jurisprudence/2004/mar2004/138480.htm

http://sc.judiciary.gov.ph/jurisprudence/2004/nov2004/150308.htm