CIR vs Arnoldus Carpentry Shop

GR No. 71122

Subject: Sales

Doctrine: Contract of Sale vs Contract for a Piece of Work

Facts: Arnoldus Carpentry Shop, Inc. is a domestic corporation which has been in existence

since 1960 which has for its purpose the “preparing, processing, buying, selling, exporting,

importing, manufacturing, trading and dealing in cabinet shop products, wood and metal home

and office furniture, cabinets, doors, windows, etc., including their component parts and

materials, of any and all nature and description”. The company kept samples or models of its

woodwork on display from where its customers may refer to when placing their orders.

On March 1979, the examiners from BIR who conducted an investigation on the company’s tax

liabilities reported that subject corporation should be considered a contractor and not a

manufacturer since the corporation 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. Hence, in the computation of the percentage tax, the 3% contractor’s

tax should be imposed instead of the 7% manufacturer’s tax. However, responded company

holds that the carpentry shop is a manufacturer and therefore entitled to tax exemption on its

gross export sales under Section 202 (e) of the National Internal Revenue Code. CIR rendered its

decision classifying the respondent as contractor which was in turn reversed by the CTA. Hence,

this appeal.

Issue: Whether or not the Court of Tax Appeals erred in holding that private respondent is a

manufacturer and not a contractor.

Held: The Supreme Court holds that the private respondent is a “manufacturer” as defined in

the Tax Code and not a “contractor” under Section 205(e) of the Tax Code.

Petitioner CIR wants to impress upon this Court that under Article 1467, the true test of whether

or not the contract is a piece of work (and thus classifying private respondent as a contractor) or

a contract of sale (which would classify private respondent as a manufacturer) is the mere

existence of the product at the time of the perfection of the contract such that if the thing already

exists, the contract is of sale, if not, it is work. This is not the test followed in this jurisdiction.

Based on Art. 1467, what determines whether the contract is one of work or of sale is whether

the thing has been manufactured specially for the customer and “upon his special order.” Thus, if

the thing is specially done at the order of another, this is a contract for a piece of work. If, on the

other hand, the thing is manufactured or procured for the general market in the ordinary course

of one’s business, it is a contract of sale. The distinction between a contract of sale and one for

work, labor and materials is tested by the inquiry whether the thing transferred is one not in

existence and which never would have existed but for the order of the party desiring to acquire it,

or a thing which would have existed and has been the subject of sale to some other persons even

if the order had not been given. The one who has ready for the sale to the general public finished

furniture is a manufacturer, and the mere fact that he did not have on hand a particular piece or

pieces of furniture ordered does not make him a contractor only.

A contract for the delivery at a certain price of an article which the vendor in the ordinary course

of his business manufactures or procures for the – general market, whether the same is on hand at

the time or not, is a contract of sale, but if the goods are to be manufactured specially for the

customer and upon his special order, and not for the general market, it is a contract for a piece of

work. The facts show that the company had a ready stock of its shop products for sale to its

foreign and local buyers. As a matter of fact, the purchase orders from its foreign buyers showed

that they ordered by referring to the models designated by petitioner. Even purchases by local

buyers for television cabinets were by orders for existing models except only for some

adjustments in sizes and accessories utilized.

The Court finds itself in agreement with CTA and as the CTA did not err in holding that private

respondent is a “manufacturer,” then private respondent is entitled to the tax exemption under

DIGNOS YS. COURT OF APPEALS158 SCRA 378

FACTS:The spouses Silvestre and Isabel Dignos were. owners of a parcel of land in Opon, Lapu-Lapu City. OnJune 7, 1965, appellants, herein petitioners Dignos spouses sold the said parcel of land to respondentAtilano J. Jabil for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of PI 2,000.00, which was paid andacknowledged by the vendors in the deed of sale executed in favor of plaintiff-appellant, and the nextinstallment in the sum of P4,000.00 to be paid on or before September 15, 1965.On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, LucianoCabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale was executed by the Dignos spouses in favor of the Cabigas spouses, and which wasregistered in the Office of the Register of Deeds pursuant to the provisions of Act No. 3344.As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of theland, and as plaintiff- appellant discovered the second sale made by defendants-appellants to the Cabigasspouses, plaintiff-appellant brought the present suit.

ISSUE:Whether or not there was an absolute contract of sale.2. Whether or not the contract of sale was already rescinded when the Digros spouses sold the land toCabigas

HELD:

Yes. That a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale"where nowhere in the contract in question is a proviso or stipulation to the effect that title to theproperty sold is reserved in the vendor until full payment of the purchase price, nor is there astipulation giving the vendor the right to unilaterally rescind the contract the moment the vendeefails to pay within a fixed period.A careful examination of the contract shows that there is no such stipulation reserving the title of the property on the vendors nor does it give them the right to unilaterally rescind the contract uponnon-payment of the balance thereof within a fixed period.On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, arepresent, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3)price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that"The ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." While it may be conceded that there was no constructive delivery of the land soldin the case at bar, as subject Deed of Sale is a private instrument, it is beyond question that therewas actual delivery thereof. As found by the trial court, the Dignos spouses delivered the possessionof the land in question to Jabil as early as March 27,1965 so that the latter constructed thereonSally's Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resorton January 15, J 966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admittedby petitioner spouses.2. No. The contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. It isundisputed that petitioners never notified private respondents Jabil by notarial act that they wererescinding the contract, and neither did they file a suit in court to rescind the sale. There is noshowing that Amistad was properly authorized by Jabil to make such extra-judicial rescission for thelatter who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he wasalready waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is requiredthat acts and contracts which have for their object extinguishment of real rights over immovableproperty must appear in a public document.Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money onthe stipulated date of payment on September 15,1965 and was able to raise the necessary amountonly by mid-October 1965. It has been ruled, however, that where time is not of the essence of theagreement, a slight delay on the part of one party in the performance of his obligation is not asufficient ground for the rescission of the agreement. Considering that private respondent has only abalance of P4,OOO.00 and was delayed in payment only for one month, equity and justice mandateas in the aforecited case that Jabil be given an additional period within which to complete paymentof the purchase price.

Coronel v. CAFacts:

The case arose from a complaint for specific performance filed by private respondent Alcaraz against petitioners to consummate the sale of a parcel of land in Quezon City.

On January 19, 1985, petitioners executed a “Receipt of Down Payment” of P50,000 in favor of plaintiff Ramona Alcaraz, binding themselves to transfer the ownership of the land in their name from their deceased father, afterwhich the balance of P1,190,000 shall be paid in full by Alcaraz. On February 6, 1985, the property was transferred to petitioners. On February 18, 1985, petitioners sold the property to Mabanag. For this reason, Concepcion, Ramona’s mother, filed an action for specific performance.

Issue:

Whether the contract between petitioners and private respondent was that of a conditional sale or a mere contract to sell

Held:

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property

exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller's title per se, but the latter, of course, may be used for damages by the intending buyer.In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been previous delivery of the subject property, the seller's ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third

person. Such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller's title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then.

What is clearly established by the plain language of the subject document is that when the said "Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to their names.

The provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer. In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. If a vendee in a double sale registers that sale after he has acquired knowledge that there was a previous sale of the same property to a third party or

that another person claims said property in a pervious sale, the registration will constitute a registration in bad faith and will not confer upon him any right.

G.R. No. 123672: Fernando Carrascoso, Jr. v. Court of Appeals and Lauro Leviste

December 14, 2005. 477 scra 666 Contract to Sell vs Contract of Sale

FACTS:

In March 1972, El Dorado Plantation Inc, through board member Lauro Leviste, executed a Deed of Sale with Carrascoso. The subject of the sale was a 1825 hectare of land. It was agreed that Carrascoso is to pay P1.8M. P290K would be paid by Carrascoso to PNB to settle the mortgage placed on the said land. P210k would be paid directly to Leviste. The balance of P1.3M plus 10% interest would be paid over the next 3 years at P519k every 25th of March. Leviste also assured that there were no tenants hence the land does not fall under the Land Reform Code. Leviste allowed Carrascoso to mortgage the land which the latter did. Carrascoso obtained a total of P1.07M as mortgage and he used the same to pay the down payment agreed upon in the contract. Carrascoso defaulted from his obligation which was supposed to be settled on March 25, 1975. Leviste then sent him letters to make good his end of the contract otherwise he will be litigated. In 1977, Carrascoso executed a Buy and Sell Contract with PLDT. The subject of the sale was the same land sold to Carrascoso by Leviste but it was only the 1000 sq m portion thereof. The land is to be sold at P3M. Part of the terms and conditions agreed upon was that Carrascoso is to remove all tenants from the land within one year. He is also given a 6 month extension in case he’ll need one. Thereafter, PLDT will notify Carrascoso if whether or not PLDt will finalize the sale. PLDT gained possession of the land. El Dorado filed a civil case against Carrascoso. PLDT intervened averring that it was a buyer in good faith. The RTC ruled in favor of Carrascoso. CA reversed the RTC ruling.

ISSUE: What is the nature of each contract?

HELD:

The contract executed between El Dorado and Carrascoso was a contract of sale. It was perfected by their meeting of the minds and was consummated by the delivery of the property to Carrascoso. However, El Dorado has the right to rescind the contract by reason of Carrascoso’s failure to perform his obligation. A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent. The non-payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time existed, and discharges the obligations created thereunder. Such failure to pay the price in the manner prescribed by the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract. The contract between Carrascoso and PLDT is a contract to sell. This is evidenced by the terms and conditions that they have agreed upon that after fulfillment of Carrascoso’s obligation PLDT has “to notify Carrascoso of its decision whether or not to finalize the sale.” Carrascoso also averred that there was a breach on El Dorado’s part when it comes to

warranty. Carrascoso claimed that there were tenants on the land and he spent about P2.9M relocating them. The SC ruled that Carrascoso merely had a bare claim without additional proof to support it. Requisites of Express warranty in a Contract of Sale

 LUZON DEVELOPMENT BANK VS. ANGELES CATHERINE ENRIQUEZG.R. No. 168646, January 21, 2011

FACTS:

Petitioner DELTA(which is owned by Ricardo de Leon) is a domestic corporation engaged in the business of developing and selling real estate properties loaned from Luzon Development Bank for the express purpose of developing Delta Homes I.  To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on several of their properties, including Lot 4(which is the disputed lot). Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez) over the house and lot in Lot 4 for the purchase price of P614,950.00.  Enriquez made a downpayment of P114,950.00. When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in payment or a dacion en pago.  The Deed of Assignment in Payment of Debt was executed on September 30, 1998 and stated that DELTA "assigns, transfers, and conveys and sets over to the assignee that real estate with the building and improvements existing thereon x x x in payment of the total obligation owing to the Bank x x x."  Unknown to Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4, which is the subject of her Contract to Sell with DELTA.  The records do not bear out and the parties are silent on whether the BANK was able to transfer title to its name.  It appears, however, that the dacion en pago was not annotated on the TCT of Lot 4.

 

ISSUE/S:

1. Whether the Contract to Sell conveys ownership;

2. Whether the dacion en pago extinguished the loan obligation, such that DELTA has no more obligations to the BANK;

 

HELD:

A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price.  What the seller obliges himself to do is tosell the subject property only when the entire amount of the purchase price has already been delivered to him.  "In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer."  It does not, by itself, transfer ownership to the buyer.

The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the obligation to pay the BANK the corresponding value of Lot 4.  According to the BANK, the dation in payment extinguished the loan only to the extent of the value of the thing delivered.  Since Lot 4 would have no value to the BANK if it will be delivered to Enriquez, DELTA would remain indebted to that extent.

G.R. No. 190823 April 4, 2011

DOMINGO CARABEO, Petitioner,

vs.

SPOUSES NORBERTO and SUSAN DINGCO, Respondents.

Facts:

On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract denominated as "KasunduansaBilihanngKarapatansa Lupa"1 (kasunduan) with Spouses Norberto and Susan Dingco (respondents) whereby petitioner agreed to sell his rights over a 648 square meter parcel of unregistered land situated in Purok III, Tugatog, Orani, Bataan to respondents for P38,000.

Respondents tendered their initial payment of P10,000 upon signing of the contract, the remaining balance to be paid on September 1990, and paid small amounts to petitioner, who still had to settle a family “squabble” over said land.

After the case was submitted for decision or on January 31, 2001,2 petitioner passed away. The records do not show that petitioner’s counsel informed Branch 1 of the Bataan RTC, where the complaint was lodged, of his death and that proper substitution was effected in accordance with Section 16, Rule 3, Rules of Court. Petitioner’s counsel filed a Notice of Appeal on March 20, 2001.

Issue: Whether or not the counsel had personality to act on behalf of the deceased petitioner.

Ruling:

The death of a client immediately divests the counsel of authority. Thus, in filing a Notice of Appeal, petitioner’s counsel of record had no personality to act on behalf of the already deceased client who, it bears reiteration, had not been substituted as a party after his death. The trial court’s decision had thereby become final and executory, no appeal having been perfected.