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Malizon, Crystal Joy M.


1. Sps. Fortunato Santos and Rosalinda R. Santos vs. Court of Appeals and Carmen Caseda

Petitioners owned the house and lot located in Paranaque. The said property was mortgaged
with the Rural Bank of Salinas to secure a loan of 150,000. Rosalinda Santos met the respondent, a
market vendor in Pasay. The bank sent a letter to Rosalinda demanding the latter to pay the said loan.
Since the petitioners had no funds to pay the said loan, Rosalinda offered to sell the said property to the
respondent. The parties agreed that respondent would pay the balance of the mortgage loan with the
Rural bank, the real estate taxes, and the electric and water bills. Respondent gave an initial payment of
54, 100 and immediately took possession of the property. When the petitioners found out that the
respondent lacked the means to pay the remaining installments and amortization of the loan, they
repossessed the said property. Respondent sold her fishpond in Batangas and decided to use the
proceeds from the said sale as payment for the balance of the purchase price for the house and lot. The
parties could not come up with an agreement for the sale of the said property because the petitioner
wanted a higher price. The respondents filed a civil case to compel the petitioners to execute the final
deed of conveyance over the property. The trial court dismissed the complaint filed by the respondent
on the ground that the latter was short of the purchase price. Therefore, they cannot demand specific
Petitioners argued that the transaction between them and the respondent was a mere contract to
sell because the sold documentary evidence referring to their agreement clearly showed that they did
not transfer ownership of the property and hence remained in its owner. Therefore, judicial rescission
was not applicable.
Respondents alleged that there was a perfected contract of sale, since upon their partial payment
of the purchase price, they immediately took possession of the property as vendees and subsequently
leased it.

Whether or not the subject transaction is not a contract of Absolute Sale but a mere oral contract
to sell in which case judicial demand for rescission is not applicable.

Yes. The transaction between the petitioners and the respondent was contract to sell. Although
the respondent first took possession of the disputed house and lot, the title of the property has remained
always in the name of Rosalinda. All amortizations payments made by the respondent to the bank were
also in the name of Rosalinda. The bank's cancellation and discharge of mortage was also made in
favor of the latter. Therefore, no valid transfer of ownership was made by the petitioners to the
respondent. Furthermore, judicial rescission was not proper, because in a contract to sell, the payment
of the purchase price is a positive suspensive condition. Failure to pay is not a mere breach, but
situation that prevents the obligation of the vendor to convey the title of the property to the prospective
buyer. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing
the contract and not rescinding it.
2. Antonio G. Santos vs. City of Manila and Arellano University

A contract of exchange was made between the City of Manila and the Arellano University in
accordance with the Resolution adopted by the former whereby five parcels of land of the City of
Manila were exchange for three parcels of land of the Arellano University which were needed for the
construction of the Azcarraga Extension. The petitioner assailed the validity of the said contract of
exchange on the ground that he has the right of redemption within 30 days from the written notice of
exhange. The City of Manila claimed ownership over the said properties and alleged that defendant
Arellano has a better right to the said properties.
Enrique Lopez, predecessor-in-interest of the plaintiff, having been advised that his property
would be affected by the widening of Legarda and that certain area of his property would be
expropriated, wrote a letter to the City Engineer proposing that the required be exchanged with the City
property back of his lot. The papers were then forwarded to the City Mayor by the City engineer per
endorsement. The aforesaid lot was exchanged by Lopez for 6 parcels of land situated in Jose Abad
Santos belonging to the plaintiff. The City Mayor informed the plaintiff that his office approved the
endorsement of the Office in charge of DPWH wherein it was recommended that the action on the
claim of Dr. Santos as successor-in-interest of Mr. Lopez be held in abeyance. City of Manila claimed
that in view of the tremendous cost of expropriation involved and in view of the proposed opening of
the Azcarraga extensions, negotiations for the widening of the Legarda Street even on a piece-meal
basis were suspended temporarily. Therefore, any exchange involving the widening of Legards Street
with any property that the City has, should be held in abeyance. However, efforts should be taken on
the acquisition of the properties along Azcarraga extension in order to lessen the traffic on Legarda
without widening it. The trial court rendered a judgment holding that the plaintiff has no right of
redemption over the lot in question.

Whether or not the plaintiff has any right of pre-emption over the disputed property.

No. The adjacent owner has the right of pre-emption, if the urban land is about to be re-sold,
and the right of redemption under paragraph two, if the re-sale has been perfected. The exercise of
either right, however, is premised on the existence of two conditions, namely: (1) the piece of urban
land is so small that it cannot be used for any practical purpose within a reasonable time; and (2) such
small urban land was bought merely for speculation. The said Lot is also adjacent to the lots of the
defendant-appellee University/ It is not disputed that the aforesaid lot in controversy consists of 221.50
square meters, more or less, an area bigger than the average size of lots in Manila as found by the trial
court. Besides, it is alleged by respondent-appellee Arellano University that, as an educational
institution whose present site is not enough for its needs, it can devote said parcel of land to serve
public interest which intended use entitles the University to preference. These facts alone would be
sufficient to negate any claim that the area of the controverted urban lot is so small and so situated that
a major portion thereof may not be used for any practical purpose within a reasonable time. Respondent
City of Manila exchanged the disputed lot and other lots belonging to it, with those of respondent-
appellee Arellano University, because the former needed portions of properties of the latter for the
Azcarraga; and such an exchange would not necessitate disbursements of funds by respondent-appellee
City of Manila. And it has not been alleged nor shown, either, that respondent-appellee City of Manila
had the intention then to sell the said property. Furthermore,If any right, therefore were at all acquired
by plaintiff rom Enrique Lopez, it was but the right to pursue the latter's claim to its legitimate end.
However, as stated in the portion of appellate court's decision aforequoted, action on this matter was
held in abeyance, as the extension of Azcarraga Street was given priority over the widening of Legarda
Street. It, thus, becomes obvious that the basis of petitioner-appellant's claim failed to materialize.

3. Alejandro Carlos vs. Antonio Ramil

The disputed land was owned by Agustin Carlos, a relative of the plaintiff. Agustin died leaving
no heirs except the plaintiff. Agustin and his wife took to live with them a young girl of the
neighboorhood. Thereafter, the said girl decided to marry the defendant in this case. Agustin and his
wife, fearing that the defendant would remove the daughter from the house and take her to live with
him separately, they made an agreement with the defendant that the if latter would care for them, they
would give to them the real estate described in the complaint.

Whether or not the transaction entered between the spouses Agustin and the defendant was a
renumerative donation.
Held: No. It is rather a contract by which Carlos and his wife transferred to the defendant and his wife
the lands described in the complaint upon the consideration that the latter should give to the former the
care therein mentioned and prescribed. That contract was fully executed upon the part of the defendant
and his wife. One of the leading differences between these two classes of donations or gifts is that in
the one con causa onerosa the services which form the consideration for the gift have not yet been
performed, while in the other they have. At the time of the transaction heretofore referred to none of the
services which formed the consideration for the agreement in question had yet been performed. They
were all to be performed in the future.

4. De Jayme vs. Court of Appeals

Spouses Graciano and Mamerta Jayme are the registered owners of Lot 2700, situated in the
Municipality of Mandaue Cebu. They entered into a Contract of Lease with George Neri, president of
Airland Motors Corporation covering one-half of the said Lot. It was agreed upon that Asiancars may
use the leased premises as a collateral to secure payment of a loan which it may obtain from any bank,
provided that the proceeds of the loan shall be used solely for the construction of a building which,
upon the termination of the lease or the voluntary surrender of the leased premises before the expiration
of the contract, shall automatically become the property of the Jayme spouses. Asiancars secured a loan
of P300,000 from the General Bank and Trust Company and the said loan was fully paid by them.
Thereafter, Asiancars obtained a loan of P6,000,000 from the Metropolitan Bank and Trust Company
and used the entire Lot as collateral for the loan. As mortgagors, the spouses signed a Deed of Real
Estate Mortgage in favor of MBTC. It stated that the deed was to secure the payment of a loan obtained
by Asiancars from the bank.
Thereafter, due to financial difficulties, Asiancars conveyed ownership of the building on the
leased premises to MBTC, by way of dacion en pago. MBTC extrajudicially foreclosed the mortgage
and was declared as the winning bidder in the public auction. As a result of the foreclosure, Gracianos
heirs filed a civil complaint for Annulment of Contract with Damages against respondent. Petitioners
alleged that the deed presented to the Jayme spouses was in blank, without explanation on the
stipulations contained therein. They also claimed that because Graciano did not know how to read nor
write, the latter was deceived into signing the Deed of Real Estate Mortgage. On the other hand, the
respondent claimed that the Gracianos spouses were fully advised and compensated for the use of their
property as collateral with MBTC and that they voluntarily signed the deed of mortgage.

a. Whether or not the Real Estate Mortgage should be annulled on the ground of vitiated consent.
b. Whether or not the dacion en pago by Asiancars in favor of MBTC is valid and binding
despite the stipulation in the lease contract that ownership of the building will vest on the
Jaymes at the termination of the lease.

a. No. The Real Estate Mortgage should not be annulled. The facts show that the spouses affixed
their signature on the Deed of Real Estate Mortgage, in the presence of two instrumental
witnesses. As a notarized document, it has in its favor the presumption of regularity, The fact
that the loans were solely for the benefit of (the debtor) would not invalidate the mortgage with
respect to petitioners property.The records also showed that the spouses Jayme agreed to use
their property as collateral for Neris loan because Neri had their full trust and confidence.
b. Yes. The alienation of the building by Asiancars in favor of MBTC for the partial satisfaction of
its indebtedness is valid. The ownership of the building had been effectively in the name of the
lessee-mortgagor (Asiancars), though with the provision that said ownership be transferred to
the Jaymes upon termination of the lease or the voluntary surrender of the premises. The lease
was constituted on January 8, 1973 and was to expire 20 years thereafter, or on January 8,
1993. The alienation via dacion en pago was made by Asiancars to MBTC on December 18,
1980, during the subsistence of the lease. At this point, the mortgagor, Asiancars, could validly
exercise rights of ownership, including the right to alienate it, as it did to MBTC.
MBTC was a purchaser in good faith. MBTC had no knowledge of the stipulation in the
lease contract. Although the same lease was registered and duly annotated on the certificate of
title of Lot 2700, MBTC was charged with constructive knowledge only of the fact of lease of
the land and not of the specific provision stipulating transfer of ownership of the building to the
Jaymes upon termination of the lease. There was no annotation on the title of any encumbrance.
While the alienation was in violation of the stipulation in the lease contract between the Jaymes
and Asiancars, MBTCs own rights could not be prejudiced by Asiancars actions unbeknownst to

1. Dao Heng Bank Inc. vs. Spouses Lilia and Reynaldo Laigo

The spouses used two parcels of land registered in their names as a security for the payment of
the loan obtained by them from the petitioner. Respondents offered to cede to the petitioner one of the
two mortagage lots by way of Dacion en pago.The petitioner filed an application to foreclose the real
estate mortgage executed by the respondents when the latter failed to settle their obligation. The
properties subject of the mortgage were sold at a public auction to Banco de Oro Universal Bank.
respondents filed a complaint for Annulment, Injunction with Prayer for Temporary Restraining Order
(TRO), praying for the annulment of the foreclosure of the properties subject of the real estate
mortgages and for them to be allowed to deliver by way of dacion en pago one of the mortgaged
properties as full payment of their mortgaged obligation. Petitioner claimed that there was no meeting
of the minds between the parties on the settlement of respondents loan via dacion en pago.

Whether or not there was no meeting of the minds between the parties on the settlement of
respondents loan via dacion en pago.

Yes. There was no meeting of the minds between the parties on the settlement of respondents
loan via dacion en pago to dacion any of the mortgaged properties as full settlement of the
loan. Although there was a PROPOSAL and NEGOTIATIONS to settle the loan by way of dacion,
nothing came out of said proposal, much less did the negotiations mature into the execution of a dacion
en pago instrument. Defendant Dao Heng Bank found the offer to settle by way of dacion not
acceptable and thus, it opted to foreclose on the mortgage.
The power to decide whether or not to foreclose on the mortgage is the sole prerogative of the
Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of sale
whereby property is alienated to the creditor in satisfaction of a debt in money. It is an objective
novation of the obligation, hence, common consent of the parties is required in order to extinguish the
There is no concrete showing, however, that after the appraisal of the properties, petitioner
approved respondents proposal to settle their obligation via dacion en pago. The delivery to petitioner
of the titles to the properties is a usual condition sine qua non to the execution of the mortgage, both for
security and registration purposes. For if the title to a property is not delivered to the mortgagee, what
will prevent the mortgagor from again encumbering it also by mortgage or even by sale to a third party.

2. Luzon Development Bank vs. Angeles Catherine Enriquez

DELTA is owned by Ricardo De Leon who is also the registered owner of Lot 4. De Leon and
his spouse obtained a P4 million loan from the BANK for the express purpose of developing Delta
Homes I. De Leon executed in favor of the BANK a real estate mortgage on several of their properties.
Thereafter, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez
over the house and lot in Lot 4 and the latter made a down payment. The said contract to sell provides
that in case the respondent failed to pay the monthly installment for 3 months, DELTA may annul the
said contract without further proceeding.
When DELTA failed to settle its loan obligation, the BANK agreed to a dation in payment or a
dacion en pago instead of foreclosing the real estate mortgage. The Deed of Assignment was executed
and the lot 4 which was the subject of contract to sell between DELTA and Enriquez was among the
properties assigned to the Bank. Enriquez filed a complaint against DELTA and the BANK before the
Region IV Office of the HLURB alleging that DELTA violated the terms of its License to Sell by
failing to get a clearance for the mortgage from the HLURB.
DELTA pointed out that the Contract to Sell contained a condition that ownership shall only be
transferred to Enriquez upon the latters full payment of the purchase price to DELTA. Since Enriquez
has yet to comply with this suspensive condition, ownership is retained by DELTA. As the owner of
Lot 4, DELTA had every right to enter into a dation in payment to extinguish its loan obligation to the
BANK argued that since Enriquez has not yet made such full payment, DELTA retained
ownership over Lot 4 and could validly convey the same to the BANK via dacion en pago.

a. Whether or not the Contract to Sell executed by DELTA in favor of Enriquez transferred
ownership over Lot 4 to Enriquez.
b. Whether or not the dacion en pago extinguished the loan obligation, such that DELTA has no
more obligations to the BANK.

a. No. Contract to Sell executed by DELTA in favor of Enriquez did not transfer ownership over
Lot 4 to Enriquez. In other words, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising
and thus, ownership is retained by the prospective seller without further remedies by the
prospective buyer. It does not, by itself, transfer ownership to the buyer. There is nothing in the
provisions of the contract entered into by DELTA and Enriquez that would exempt it from the
general definition of a contract to sell. The terms thereof provide for the reservation of DELTAs
ownership until full payment of the purchase price; such that DELTA even reserved the right to
unilaterally void the contract should Enriquez fail to pay three successive monthly
Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership
remained with DELTA. DELTA could then validly transfer such ownership (as it did) to another
person (the BANK). However, the transferee BANK is bound by the Contract to Sell and has to
respect Enriquezs rights thereunder. This is because the Contract to Sell, involving a subdivision
lot, is covered and protected by PD 957. One of the protections afforded by PD 957 to buyers
such as Enriquez is the right to have her contract to sell registered with the Register of Deeds in
order to make it binding on third parties.
While DELTA, in the instant case, failed to register Enriquezs Contract to Sell with the
Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its
obligation to respect Enriquezs Contract to Sell. Despite the non-registration, the BANK cannot
be considered an innocent purchaser for value of Lot 4 when it accepted the latter (together with
other assigned properties) as payment for DELTAs obligation.
The BANK was well aware that the assigned properties, including Lot 4, were
subdivision lots and therefore within the purview of PD 957. It knew that the loaned amounts
were to be used for the development of DELTAs subdivision project, for this was indicated in
the corresponding promissory notes. The technical description of Lot 4 indicates its location,
which can easily be determined as included within the subdivision development. Under these
circumstances, the BANK knew or should have known of the possibility and risk that the
assigned properties were already covered by existing contracts to sell in favor of subdivision lot
Further, as an entity engaged in the banking business, the BANK is required to observe
more care and prudence when dealing with registered properties. The Court cannot accept that
the BANK was unaware of the Contract to Sell existing in favor of Enriquez.

b. Yes. The Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the
parties that the assigned properties would serve as full payment for DELTAs entire obligation.
Like in all contracts, the intention of the parties to the dation in payment is paramount and
controlling. The BANK accepted said properties as equivalent of the loaned amount and as full
satisfaction of DELTAs debt. The BANK cannot complain if, as it turned out, some of those
assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier, the
BANK knew that the assigned properties were subdivision lots and covered by PD 957.

1. SSS vs. Atlantic Gulf and Pacific Company of Manila, Inc.

SSS suggested two options to respondent to settle its premiums and loan amortization
delinquencies either to pay by installment or through “dacion en pago”. Respondent chose to settle its
obligation under dacion en pago of its property situated in Baguio. SSS proposed to carve-out from the
said property an area sufficient to cover plaintiffs’ delinquencies. The latter did not agree to the
proposal of SSS.
AG&P then made another proposal to SSS. They offered as payment a portion of its lot situated
in Batangas. SEMIRARA, a company which also has delinquencies with SSS, was included to the
proposed settlement through dacion en pago. In its Resolution No. 270, SSS finally approved AG&P’s
proposal to settle its and SEMIRARA’s delinquencies through dacion en pago.
A Deed of Assignment has to be executed between the AG&P and SSS to effect the transfer of
the property as the payment for the outstanding delinquencies. Due to SSS failure to execute the Deed
of Assignment to effect said transfer, AG&P prepared the draft and submitted it to the Office of the
Vice-President. Unfortunately, SSS failed to take any action on said Deed of Assignment causing
AG&P to re-submit it to the same office. SSS sent the revised copy of the Deed of Assignment to
AG&P whereby the latter’s obligation increased due to the additional interests and penalty charges.
AG&P demanded for deletion of the additional interests on the ground that delay in the approval of the
deed of conveyance of the property in defendant’s name was solely attributable to the defendant SSS.
Defendant, however, refused to accept the payment through dacion en pago, unless plaintiffs also pay
the additional interests and penalties.

Whether or not the parties had an agreement that the obligation of the respondent would be
extinguished through dacion en pago.

Yes. . SSS stated in said resolution that "the dacion en pago proposal of AG&P Co. of Manila
and Semirara Coals Corporation to pay their liabilities in the total amount of P30,652,710.71 as of 31
March 2001 by offering their 5.8 ha. property located in San Pascual, Batangas, be, as it is hereby,
approved..” This statement unequivocally evinces its consent to the dacion en pago.


The Institute of Philippine Culture (IPC), auxiliary unit of Ateneo, accepts sponsorships for its
research activities from international organizations, private foundations and government agencies.
Ateneo received from petitioner Commissioner of Internal Revenue a demand letter assessing its
alleged deficiency contractors tax, and income tax. Denying said tax liabilities, Ateneo sent the CIR a
letter-protest. CIR rendered a letter-decision cancelling the assessment for deficiency income tax but
increasing the assessment for deficiency contractors tax.
Whether or not the transactions of Ateneos Institute of Philippine Culture cannot be deemed
considered either as a contract of sale or a contract for a piece of work.

Yes. By its very nature, a contract of sale requires a transfer of ownership. On the other hand, a
contract for a piece of work, the contractor binds himself to execute a piece of work for the employer,
in consideration of a certain price or compensation. Whether the contract be one of sale or one for a
piece of work, a transfer of ownership is involved and a party necessarily walks away with an object. In
the case at bench, it is clear from the evidence on record that there was no sale either of objects or
services because, as adverted to earlier, there was no transfer of ownership over the research data
obtained or the results of research projects undertaken by the Institute of Philippine Culture.
Furthermore, it is clear that the research activity of the Institute of Philippine Culture is done in
pursuance of maintaining Ateneos university status and not in the course of an independent business of
selling such research with profit in mind. It is also clear that the funds received by Ateneos Institute of
Philippine Culture are not given in the concept of a fee or price in exchange for the performance of a
service or delivery of an object. Rather, the amounts are in the nature of an endowment or donation
given by IPCs benefactors solely for the purpose of sponsoring or funding the research with no strings
attached. As found by the two courts below, such sponsorships are subject to IPCs terms and
conditions. No proprietary or commercial research is done, and IPC retains the ownership of the results
of the research, including the absolute right to publish the same.

3. Inchausti & co. vs. Cromwell

Inchausti is engaged in the business of buying and selling at wholesale hemp. It is customary to
sell hemp in bales which are made by compressing the loose fiber by means of presses, covering two
sides of the bale with matting, and fastening it by means of strips of rattan. Hemp will be delivered in
bales and that, according to custom, a charge is to be made against the buyer under the denomination of
Inchausti has always paid to the respondent CIR the tax collectible upon the selling price
expressly agreed upon for all hemp sold, but has not paid the said tax upon sums received from the
purchaser of such hemp under the denomination of "prensaje." The petitioner claimed that tax assessed
upon the aggregate sum of said charges made against said purchasers of hemp, under the denomination
of "prensaje" 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 service of baling the hemp. CIR contested that the said
charge made under the denomination of "prensaje" is in truth and in fact a part of the gross value of the
hemp sold and of its actual selling price.

Whether or not the charge for the bailing was a part of the contract of sale.

Yes. 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 is that among large dealers like the plaintiff in this case it
is practically impossible to handle hemp without its being baled. In all dealings in hemp in the general
market, the selling price consists of the value of the hemp loose plus the cost and expense of putting it
into marketable form. The word "price" signifies the sum stipulated as the equivalent of the thing sold
and also every incident taken into consideration for the fixing of the price, put to the debit of the
vendee and agreed to by him. The Baling was performed for the general market and was not something
done by plaintiff which was a result of any peculiar wording of the particular contract between him and
his vendee. It is undoubted that the plaintiff prepared his hemp for the general market. The hemp in
question would not have been in that condition if it had not been baled. The baling, therefore, was
nothing peculiar to the contract between the plaintiff and his vendee. It was precisely the same contract
that was made by every other seller of hemp, engaged as was the plaintiff, and resulted simply in the
transfer of title to goods already prepared for the general market.

4. Celestino co. v. Collector of Internal Revenue

Celestino Co & Company, doing business under the trade name of "Oriental Sash Factory", paid
percentage taxes on the gross receipts of its sash, door and window. However in 1952 it began to claim
liability only to contractor’s 3% tax. Duplicate copies of letters, sketches of doors and windows and
price quotations supposedly sent by the manager of the Oriental Sash Factory to four customers who
allegedly made special orders to doors and window from the said factory. The petitioner claimed that it
does not manufacture ready-made doors, sash and windows for the public but only upon special order
of its select customers. The CIR could not believe that that petitioner company would take all the
trouble and expense of registering a special trade name for its sash business and then orders company
stationery carrying the bold print "Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon
St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes, furniture,
etc. used season-dried and kiln-dried lumber, of the best quality workmanships" solely for the purpose
of supplying the needs for doors, windows and sash of its special and limited customers.

Whether or not the petitioner is engaged in a contract for a piece of work.

No. 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 by Don Toribio Teodoro
& Sons Inc. may purchase from appellant doors of the same kind, provided he pays the price. That the
doors and windows must meet desired specifications is neither here nor there. If these specifications do
not happen to be of the kind habitually manufactured by appellant — special forms for sash, mouldings
of panels — it would not accept the order — and no sale is made. Oriental Sash Factory did not merely
sell its services to Don Toribio Teodoro & Co. because it also sold the materials. The truth of the matter
is that it sold materials ordinarily manufactured by it — sash, panels, mouldings — to Teodoro & Co.,
although in such form or combination as suited the fancy of the purchaser. Such new form does not
divest the Oriental Sash Factory of its character as manufacturer.

5. Cir vs. Engineering Equipment and Supply Company

Engineering Equipment & Supply (EES) was engaged in the design and installation of central
type air conditioning system, pumping plants and steel fabrications. It was assessed by the
Commissioner of Internal Revenue for 30% advanced sales tax, among other penalties pursuant to a
complaint filed before the BIR. The complaint claimed that EES was guilty of tax evasion for
misdeclaration of its imported articles and failure to pay the correct percentage taxes in connivance
with its foreign suppliers
EES vehemently objected and argued that they are contractors and not manufacturers and should be
liable only for the 3% tax on sales of services or pieces of work.

Whether or not EES is engaged in the contract for piece of work.
Yes. EES was only a contractor engaged in the design, supply and installation of the central type
of air-conditioning system. 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 Court found that Engineering did not manufacture air conditioning units for sale to the
general public, but imported some items which were used in executing contracts entered into by it.
Engineering, therefore, 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. Engineering also testified during the hearing in
the CTA that 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.

6. Andres Quiroga v. Parsons Hardware Co.

A contract was entered into by plaintiff and defendant wherein the former granted the latter with
the exclusive right to sale Quiroga beds in the Visayan Islands subject to several conditions such as Mr.
Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and
shall invoice them at the same price he has fixed for sales. Mr. Parsons also bound himself to pay Mr.
Quiroga for the beds received, within a period of 60 days from the date of their shipment.
Plaintiff alleged that defendant violated the following obligations: not to sell the beds at higher
prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency;
to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; to order
the beds by the dozen and in no other manner.

W/N the defendant, by reason of the contract, was a an agent of the plaintiff for the sale of his

No. The contract entered into by the parties is a contract of purchase and sale. In the contract in
question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to
furnish the defendant with the beds which the latter might order, at the price stipulated, and that the
defendant was to pay the price in the manner stipulated. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the defendant so preferred. 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. The words commission
on sales used in the said contract mean nothing else than a mere discount on the invoice price. The
word agency only expresses that the defendant was the only one that could sell the plaintiff's beds in
the Visayan Islands.

7. Gonzalo Puyat and Sons, inc. vs. Arco Amusement Company

Arco Amusement was engaged in the business of operating cinematographs. On the other hand,
Gonzalo Puyat & Sons Inc (GPS) was the exclusive agent in the Philippines for the Starr Piano
Company Desiring to equip its cinematograph with sound reproducing devices, Arco approached GPS.
Defendant bound itself, on behalf of the plaintiff, to order sound reproducing equipment from the Starr
Piano Company and that the latter would pay the tem, in addition to the price of the equipment, a 10
percent commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc.
The defendant sent a cable, Exhibit "3", to the Starr Piano Company, inquiring about the
equipment desired and making the said company to quote its price without discount. A reply was
received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list price of $1,700 f.o.b. factory
Richmond, Indiana. The defendant did not show the plaintiff the cable of inquiry nor the reply but
merely informed the plaintiff of the price of $1,700. Being agreeable to this price, the plaintiff, by
means of Exhibit "1", which is a letter signed by C. S. Salmon dated November 19, 1929, formally
authorized the order.
The defendant sent a cable, Exhibit "3", to the Starr Piano Company, inquiring about the

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