CHAPTER 1: NATURE OF SALE

1. Gaite v. Fonacier (DU)

G.R. No. L-11!" #$%& '1( 1)*1 RE+ES( #.,.L.( J. -EN
,ANC
FERNANDO A. GA-TE( plaintiff-appellee,
vs.
-SA,ELO FONAC-ER( GEORGE .RA.O/ER( LARAP 0-NES 1 S0ELT-NG
CO.( -NC.( SEGUND-NA 2-2AS( FRNAC-SCO DANTE( PAC-F-CO ESCANDOR
an3 FERNANDO T+( defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-
appellants.
!T"# sorr$ %ung ma&aba but just read t&e summar$ for t&e facts' actuall$ just
read t&e summar$ p(ede na siguro for )P.
SUMMARY:
Fonacier owned iron lode mineral claims. Throuh a deed of
assinment, he made !aite as his attorne"-in-fact to e#plore and develop the
minin claims. !aite then developed them. $ater Fonacier decided to revo%e the
deed of assinment. !aite areed provided that he &e paid 'hp(),***. Fonacier
areed, &ut onl" on the condition that 'hp +*,*** will &e paid after the sinin of
the ,revocation of power of attorne" and contract- areement and the php.),***
will &e paid from and out of the first letter of credit coverin the first shipment of
iron ores and of the first amount derived from the local sale of iron ore made &"
the $arap Mines / Smeltin 0o.
!aite areed to such condition after a suret" &ond, underwritten &" Far
1astern Suret" and 2nsurance 0o. 3F1S204, was e#ecuted in favour of !aite to
secure the pa"ment of the &alance. The lia&ilit" of F1S20 would however, attach
onl" when there had &een an actual sale of iron ore amountin to at least
php.),***.
+ "ear later the &ond e#pired without an" sale &ein made. 5hen !aite
demanded pa"ment, fonacier wasn6t a&le to pa". 2n his defense, he claimed that
it was a condition that the &alance will &e paid out of the first letter of credit.
Since the" still haven6t sold an" iron ore, the condition has not "et &een fulfilled.
S0 said that it was not the case as the wordin of the contract implies
that what was uncertain was the date7maturit" of the pa"ment and not the
pa"ment itself. 8ein so it is a period and not a condition. Also, Sale is normall"
commutative and onerous that each part" anticipate performance &" the other
from the ver" start. Althouh a person can assume ris% of recoverin nothin3i.e
throuh a suspensive condition4 for what he ives, it is not usuall" in the course
of &usiness to do so. 3see 9illanueva, law on sales, +:4 Furthermore, the civil
code states if the contract is onerous, the dou&t shall &e settled in favor of the
reatest reciprocit" of interests. A 4a%e4 contract i4 an onero$4 contract(
5ein6 4o( t7e inter8retation 97ic7 :avo$r t7e 6reate4t reci8rocit& o:
intere4t4 47a%% 5e a88%ie3. 3see 9illanueva, law on sales, p++4 There can &e no
;uestion that reater reciprocit" o&tains if the &u"er< o&liation is deemed to &e
actuall" e#istin, with onl" its maturit" 3due date4 postponed or deferred. 2n
accordance with the civil code, since the securit" was impaired and Fonacier did
not replace it with a new one, 'laintiff lost the riht to use the period thus the
.),*** is due alread".
=etailed FA0TS 3>ust in case4:
=efendant-appellant 2sa&elo Fonacier was the owner of ++ iron lode mineral
claims, %nown as the =awahan !roup in the municipalit" of ?ose
'anani&an, province of 0amarines @orte.
8" a A=eed of AssinmentA dated Septem&er :B, +B):31#hi&it ACA4, Fonacier
constituted and appointed plaintiff-appellee Fernando A. !aite as his true
and lawful attorne"-in-fact to enter into a contract with an" individual or
>uridical person for the e#ploration and development of the minin claims
aforementioned on a ro"alt" &asis
!aite em&ar%ed upon the development and e#ploitation of the minin claims
in ;uestion
$ater, 2sa&elo Fonacier decided to revo%e the authorit" ranted &" him to
!aite to e#ploit and develop the minin claims in ;uestion
!aite assented thereto su&>ect to certain conditions.
As a result, a document entitled ARevocation of 'ower of Attorne" and
0ontractA was e#ecuted on =ecem&er D, +B)E 31#hi&it AAA4,wherein !aite
transferred to Fonacier all of his claims and rihts over the minin claims
and the improvements he made.
2n the same document, !aite transferred to Fonacier all his rihts and
interests over the A:E,*** tons of iron ore, more or lessA that the former had
alread" e#tracted from the mineral claims, in consideration of the sum of
'(),***.**, '+*,***.** of which was paid upon the sinin of the
areement,
the &alance of S2FTY-F291 TGHUSA@= '1SHS 3'.),***.**4 will &e paid
from and out of the first letter of credit coverin the first shipment of iron ores
and of the first amount derived from the local sale of iron ore made &" the
$arap Mines / Smeltin 0o. 2nc., its assins, administrators, or successors
in interests.
The &alance of .),*** was secured with a suret" &ond e#ecuted &"
Fonacier, as principal, in favour of !aite with the $arap Mines and Smeltin
0o. and its stoc%holders as suret"
!aite wanted that the &ond &e underwritten &" a &ondin compan"
Thus a new &ond was e#ecuted &" the same parties to the first &ond 1#hi&it
AA-+A, with the Far 1astern Suret" and 2nsurance 0o. as additional suret",
&ut it provided that the lia&ilit" of the suret" compan" would attach onl" when
there had &een an actual sale of iron ore for an amount of not less than
.),***.
o The &ond will e#pire in + "ear
+ "ear later, no sale of the appro#imatel" :E,*** tons of iron ore had &een
made nor the .),*** price paid, and the &ond e#pired alread".
Fonacier and his suret" failed to pa" when !aite demanded pa"ment, thus
!aite sued them
Fonacier set up the defense that the o&liation sued upon &" !aite was
su&>ect to a condition
o that the amount of '.),***.** would &e pa"a&le out of the first letter of
credit coverin the first shipment of iron ore and7or the first amount
derived from the local sale of the iron ore &" the $arap Mines /
Smeltin 0o., 2nc.I
o that up to the time of the filin of the complaint, no sale of the iron ore
had &een made,
+
o hence the condition had not "et &een fulfilledI and that conse;uentl",
the o&liation was not "et due and demanda&le
R1$19A@T 2SSU1:
that the lower court erred in holdin that the o&liation of appellant Fonacier to
pa" appellee !aite the '.),***.** 3&alance of the price of the iron ore in
;uestion4is one with a period or term and not one with a suspensive condition,
and that the term e#pired on =ecem&er D, +B))I and
G1$=: it is a period.
RAT2H:
The shipment or local sale of the iron ore is not a condition precedent 3or
suspensive4 to the pa"ment of the &alance of '.),***.**, &ut was onl" a
suspensive period or term.
5hat characteriJes a conditional o&liation is the fact that its efficac" or
o&liator" force 3as distinuished from its demanda&ilit"4 is su&ordinated to
the happenin of a future and uncertain eventI
The words of the contract e;8re44 no contin6enc& in the &u"er<s
o&liation to pa":
o AThe &alance of Si#t"-Five Thousand 'esos 3'.),***.**4 (ill be
paid out of the first letter of credit coverin the first shipment of iron ores
. . .A etc.
o There is no uncertaint" that the pa"ment will have to &e made sooner or
laterI
o what is undetermined is merel" the e*act date at which it will &e made. -
onl" the pa"ment6s maturit$ or demandabilit$ is deferred.
The continent character of the o&liation must clearl" appear
A contract of sale is normall" commutative and onerous: not onl" does each
one of the parties assume a correlative o&liation, &ut each part" anticipates
performance &" the other from the ver" start. 3see 9illanueva, law on sales,
+:4
5hile in a sale the o&liation of one part" can &e lawfull" su&ordinated to an
uncertain event, so that the other understands that he assumes the ris% of
receivin nothin for what he ives, it is not in t7e $4$a% co$r4e o:
5$4ine44 to 3o 4o<
o !aite not wantin a continent o&liation was shown when he re;uired
that the pa"ment &e secured &" loan underwritten &" a &ond compan"
To su&ordinate the o&liation to pa" the remainin '.),***.** to the sale or
shipment of the ore as a condition precedent, would &e tantamount to leavin the
pa"ment at the discretion of the de&tor,
for the sale or shipment could not &e made unless the appellants too% steps
to sell the ore.
Appellants would thus &e a&le to postpone pa"ment indefinitel". The
desira&ilit" of avoidin such a construction of the contract 1#hi&it AAA needs
no stressin.
TG1 !R1AT1R R102'RH02TY HF 2@T1R1STS 3see 9illanueva, law on sales,
p++4
The rules of interpretation would incline the scales in favor of Athe reater
reciprocit" of interestsA, since sale is essentiall" onerous.
The 0ivil 0ode of the 'hilippines, Article +C(D, pararaph +, in fine,
provides:
o 2f the contract is onerous, the dou&t shall &e settled in favor of the
reatest reciprocit" of interests.
o
there can &e no ;uestion that reater reciprocit" o&tains if the &u"er<
o&liation is deemed to &e actuall" e#istin, with onl" its maturit" 3due date4
postponed or deferred, that if such o&liation were viewed as non-e#istent or
not &indin until the ore was sold.
Hther issues discussed:
w7n fonacier can still en>o" the periodK
o @o, &ecause it was a condition of the contract that there &e a &ond,
since the &ond e#pired 3it was impaired4 and he did not e#ecute a new
&ond, it is deemed that he had lost his rihts to the period.
57n there had &een a short deliver"K
o @o, the parties did not actuall" measure or weihed the mass and the
contract said ,more or less- impl"in that the" areed on merel" the
estimate of the tonnae of the iron ore.
2. ,$enavent$ra v. CA (#T)
@ovem&er :*, :**C
0arpio, +.
P%ainti::4: Four children of the spouses, and their spouses
De:en3ant4: Spouses $eonardo and Feliciana ?oa;uin Lhereinafter 'AR1@TSM,
and seven of their children and their spouses
Recit-rea3&: Spouses $eonardo and Feliciano ?oa;uin e#ecuted deeds of sale
to some of their children. The remainin children filed a case &ecause the"
&elieve that such sale 3+4 would impair their leitime and 3:4 was void for lac% of
consideration. The S0 held that their rihts to their parents6 properties would vest
onl" upon their parents6 death, and while the" are still alive, the" ma" dispose of
it even without the consent of the heirs. Hn the issue of consideration, the S0
held that a contract of sale is a consensual contract. As lon as the price of the
propert" was areed upon, the contract is valid. Failure of pa"ment would not
result in an invalid contract, &ut merel" ives a riht to demand pa"ment. Also,
inade;uate consideration does not invalidate a contract.
Fact4:
The parents e#ecuted certain deeds of sail of real propert" to the defendant
children. 'laintiffs see% the declaration of nullit" of the deeds of sale &ecause:
+. There was no valid consideration for the deeds of sale
:. That assumin there is a valid consideration, it is rossl" inade;uate
C. The deeds of sale do not reflect and e#press the parties6 true intent 3i.e. the"
were simulated4
E. The sale was the result of a deli&erate conspirac" to un>ustl" deprive the
plaintiffs of their leitime
The trial court and the 0ourt of Appeals dismissed the complaint &" sa"in that
the" have no cause of action aainst the defendants, &ecause ,their riht to the
properties of their defendant parents ### is merel" inchoate and vests onl" upon
:
the latter6s death. 5hile still alive, defendant parents are free to dispose of their
properties ###-
-44$e=He%3:
+. 57@ petitioners have a leal interest over the properties su&>ect of the deeds
of sale N @H
:. 57@ the deeds of sale are void for lac% of consideration N @H
C. 57@ the deeds of sale are void for ross inade;uac" of price N @H
Ratio:
2. @o leal interest
A. An action must &e prosecuted in the name of the real part" in
interest
+. Real part" in interest N the part" who would &e &enefited or
in>ured &" the >udment, or the part" entitled to the avails of the
suit
:. Such part" must present su&stantial interest, that he has the
leal title to demand
8. 'etitioners have no leal interest &ecause their rihts to their
parents6 properties are merel" inchoate and vests upon their
parents6 death
0. 5hile still livin, the parents of the petitioners are free to dispose of
their properties
22. =eeds of sale are not void for lac% of consideration
A. A contract of sale is not a real contract. 2t is a consensual contract.
+. 2t &ecomes valid and &indin upon the meetin of the minds as
to price
:. 2f the real price is not stated in the contract, then the contract of
sale is valid &ut su&>ect to reformation
8. 2t is not the pa"ment of the price that determines the validit" of a
contract of sale
+. 'a"ment oes into the performance
:. Failure to pa" the consideration is different from lac% of
consideration
a. 0onse;uence of failure to pa": riht to demand the
fulfillment, or cancellation of the o&liation
&. 0onse;uence of lac% of consideration: the contract shan6t
e#ist
0. 'etitioner also failed to show that the contract is a&solutel"
simulated
+. The purchase price was stated in the deeds of sale
:. Respondent si&lins have also full" paid the price to their
parents
222. =eeds of sale not void for inade;uac" of price
A. Article +C)): 1#cept in cases specified &" law, lesion or inade;uac"
of cause shall not invalidate a contract, unless there has &een
fraud, mista%e or undue influence
3. Ce%e4tino 1 Co. v. Co%%ector( 1)>* (LS)
'etitioner: 0elestino 0o / 0o.
Respondent: 0ollector of 2nternal Revenue
S$??ar&: 2n this case, petitioner historicall" has paid (O ta# on ross receipts
from its sales of sash, door and windows. 2n +B):, it &ean pa"in >ust CO,
contendin that it is a onl" contractor 3ie, manufacturin such oods when there
are special orders from customers4. 2t failed to >ustif" its pa"ment of the CO ta# to
the 82R. The 0ourt of Ta# Appeals also ruled aainst the petitioner. Gence, this
petition. The S0 holds that the petitioner is a seller of oods that it ha&ituall"
manufactures, and as such is re;uired to pa" the (O ta#.
FACTS:
+. 0elestino 0o and 0ompan" is a dul" reistered eneral co-partnership doin
&usiness under the trade name of ,Hriental Sash Factor"-
:. From +BE. to +B)+ it paid percentae ta#es of (O on the ross receipts 3this
means receipts from sales4 of its sash, door and window factor", in
accordance with section +D. of the @ational Revenue 0ode imposin ta#es
on 4a%e of manufactured articles.
C. Gowever, in +B):, it &ean to claim lia&ilit" onl" to the contractor<s CO ta#
3instead of (O4 under section +B+ of the same 0ode
E. 2t failed to convince the 8ureau of 2nternal Revenue 382R4 of its use of the
CO contractor ta#.
). 0ourt of Ta# Appeals 30TA4 also >un%ed the case. Gence, this petition.
.. 0ounsel for petitioner su&mitted duplicate copies of letters, s%etches of of
doorsand windows and price ;uotations supposedl" sent &" the manaer of
the Hriental Sash Factor" to four customers who alleedl" made special
orders to doors and window from the said factor".
a. The conclusion that counsel would li%e us to deduce from these few
e#hi&its is that the Hriental Sash Factor" does not manufacture
read"-made doors, sash and windows for the pu&lic &ut onl" upon
special order of its select customers
-SSUE: 5hether or not petitioner is a manufacturin compan" or a contractor for
special wor%s 3ie, enaed in contracts for a piece of wor% as opposed to seller
of manufactured oods -P This is an important difference in Sales $aw.4
HELD: @o. 2t is a seller of its manufactured oods and, as such, is lia&le to pa"
(O ta# on ross receipts.
RAT-O:
+. 1ven if we were to &elieve petitioner<s claim that it does not manufacture
read"-made sash, doors and windows for the pu&lic and that it ma%es these
articles onl" special order of its customers, that does not ma%e it a contractor
within the purview of section +B+ of the national 2nternal Revenue 0ode.
:. There are no less than fift" occupations enumerated in the aforesaid section
of the national 2nternal Revenue 0ode su&>ect to percentae ta# and after
readin carefull" each and ever" one of them, we cannot find under which
the &usiness of manufacturin sash, doors and windows upon special order
of customers fall under the cateor" of Aroad, &uildin, naviation, artesian
well, water wor%ers and other construction wor% contractorsA are those who
C
alter or repair &uildins, structures, streets, hihwa"s, sewers, street
railwa"s railroads loin roads, electric lines or power lines, and includes
an" other wor% for the construction, alterin or repairin for which machiner"
driven &" mechanical power is used.
C. Gavin thus eliminated the feasi&ilit" off ta#in petitioner as a contractor
under +B+ of the national 2nternal Revenue 0ode, this leaves us to decide
the remainin issue 97et7er or not 8etitioner co$%3 5e ta;e3 9it7 %e44er
4train an3 ?ore acc$rac& a4 4e%%er o: it4 ?an$:act$re3 artic%e4 $n3er
4ection 1* o: t7e 4a?e co3e, as the respondent 0ollector of 2nternal
Revenue has in fact &een doin the Hriental Sash Factor" was esta&lished
in +BE..
a. The percentae ta# imposed in section +B+ of our Ta# 0ode is enerall"
a ta; on t7e 4a%e4 o: 4ervice4( in contradiction with the ta# imposed in
section +D. of the same 0ode which is a ta; on t7e ori6ina% 4a%e4 o:
artic%e4 5& t7e ?an$:act$rer( 8ro3$cer or i?8orter.
&. The fact that the articles sold are manufactured &" the seller does not
e#chane the contract from the purview of section +D. of the @ational
2nternal Revenue 0ode as a sale of articles.
E. 0el est i no 0o / 0ompan" habitually ma%es sash, wi ndows and
doors, as it has represented in its stationer" and advertisements to the
pu&lic.
). That it ,manufactures- the same is practicall" admitted &" appellant himself.
The fact that windows and doors are made &" it onl" when customers place
their orders, does not alter the nature of the esta&lishment, for it is o&vious
that it onl" accepted such orders as called for the emplo"ment of such
material N mouldin, frames, panels N as it ordinaril" manufactured or was in
a position ha&ituall" to manufacture.
.. The Hriental Sash Factor" does nothin more than sell the oods that it
mass-produces or ha&ituall" ma%es: sahs, panels, mouldins, frames,
cuttin them to such siJes and com&inin them in such forms as its
customers ma" desire.
(. Appellant invo%es Article +E.( of the @ew 0ivil 0ode to &olster its contention
that in filin orders for windows and doors accordin to specifications, it did
not sell, &ut merel" contracted for particular pieces of wor% or Amerel" sold
its servicesA.
a. A contract for the deliver" at a certain price of an article which the
vendor in the ordinar" course of his &usiness manufactures or procures
for the eneral mar%et, whether the same is on hand at the time or not,
is a contract o: 4a%e, &ut if the oods are to &e manufactured speciall"
for the customer and upon his special order, and not for the eneral
mar%et, it is contract :or a 8iece o: 9or@. 3Article +E.(4
D. 2n our opinion when this Factor" accepts a >o& that re;uires the use of
e#traordinar" or additional e;uipment, or involves services not enerall"
performed &" it-it there&" contracts for a piece of (or% Q filin special
orders within the meanin of Article +E.(. The orders herein e#hi&ited were
not shown to &e special. The" were merel" orders for wor% Q nothin is
shown to call them special re;uirin e#traordinar" service of the factor".
4. Co??i44ioner o: -nterna% Reven$e v.
En6ineerin6 EA$i8?ent 1 S$88%& Co (PR)
FACTS:
1nineerin 1;uipment and Suppl" 0o. 3"ngineering4 is an enineerin and
machiner" firm enaed, amon others, in the desin and installation of
central t"pe enineerin s"stem, pumpin plants and steel fa&rications.
An anon"mous letter was sent to the 0ollector, now the 0ommission of
2nternal Revenue 302R4 denouncin 1nineerin for ta# evasion &"
misdeclarin its imported articles and for connivin with forein suppliers.
Assessed ta# deficienc" is 'ED*, B+:.*+ from misdeclared importation of air-
condition units and parts and its accessories su&>ect to Section +D)3m4 of
the Ta# 0ode 3as manufacturer and seller of aircon units, compan" is
su&>ect to C*O advance sales ta#4. 82R raised the amount to 'B+., C.:.).
inclusive of :)O and )*O surchares.
The compan" claimed that it is not a manufacturer &ut a seller of
airconditionin units and spare parts and accessories thereof, &ut a
contractor which desins, supplies and installs airconditionin s"stems, and
thus the ta# applica&le to their &usiness is on the sale of service or la&or
rather than on the sale of articles 3under Section +D)4
"ngineering appealed and 0ourt of Ta# Appeals 30TA4 reduced the amount
to '(E*, )D(.D.. 02R appealed while "ngineering filed a motion for recon
with 0TA.
-SSUE:
57@ "ngineering is a manufacturer or a contractor of air- conditionin units under
Sec. +D), or a contractor under Sec. +B+ of the Ta# 0ode.
HELD:
"ngineering is a 0H@TRA0THR- refers to a person who, in pursuit of
independent &usiness, underta%es to do a specific >o& or piece of wor%,
usin his own means and methods without su&mittin himself to control as to
the pett" details.
The compan" did not manufacture air- conditionin units &ut imported some
items. 2t desined, supplied and installed air- conditionin units of the central
t"pe in &uildins, and no two desins are ali%e.
Contract o: Sa%e- the article ordered &" the purchaser is e#actl" the one the
seller %eeps on hand for sale to an"one and no modification is made at the
&u"er6s re;uestI a thin which would have e#isted and has &een the su&>ect
of sale to some other person even if the order had not &een iven
9s.
Contract :or 9or@( %a5or an3 ?ateria%4- the thin transferred is not one in
e#istence and which would never have e#isted if not for the order of the
part" desirin to ac;uire it
: T"pes of Air- conditionin S"stems : 3a4 0entral Station S"stem- also
referred to as &uilt- up s"stem, re;uires the installation of components at
different points in a &uildin and their interconnectionI 3&4 Unitar" S"stem- all
functional components are included in one or two pac%aes and are installed
&" ma%in service connection such as electricit", water and drains 3e#: room
aircon4
E
The nature of 1nineerin6s &usiness shows that the air-conditionin s"stem
it installed would not have e#isted &ut for the order its customers.
The ta# "ngineering is held lia&le to pa" is compensatin ta# LSection +B* in
relation to Sec. +D)3m4M- ta# on the use of imported oods not su&>ect to
sales ta#.
5. B$iro6a v. Par4on4 (0R)
Avancena, +.
Petitioner: Andres Ruiroa
Respondent: 'arsons Gardware 0o.
Facts
Ruiroa and 'arsons entered into a contract, the pertinent provisions of
which are reproduced &elow:
,A)T-./" 0. 1on Andres 2uiroga grants t&e e*clusive rig&t to sell &is beds in
t&e 3isa$an -slands to +. Parsons under t&e follo(ing conditions#
4A5 Mr. 2uiroga s&all furnis& beds of &is manufacture to Mr. Parsons for t&e
latter6s establis&ment in -loilo, and s&all invoice t&em at t&e same price &e &as
fi*ed for sales, in Manila, and, in t&e invoices, s&all ma%e and allo(ance of a
discount of 78 per cent of t&e invoiced prices( a4 co??i44ion on t7e 4a%e< and
Mr. Parsons s&all order t&e beds b$ t&e do9en, (&et&er of t&e same or of
different st$les.
4B5 Mr. Parsons binds &imself to pa$ Mr. 2uiroga for t&e beds received, (it&in a
period of si*t$ da$s from t&e date of t&eir s&ipment.
415 -f, before an invoice falls due, Mr. 2uiroga s&ould re:uest its pa$ment, said
pa$ment (&en made s&all be considered as a prompt pa$ment, and as suc& a
deduction of 7 per cent s&all be made from t&e amount of t&e invoice.
T&e same discount s&all be made on t&e amount of an$ invoice (&ic& Mr.
Parsons ma$ deem convenient to pa$ in cas&.
A)T. 7. -n compensation for t&e e*penses of advertisement (&ic&, for t&e benefit
of bot& contracting parties, Mr. Parsons ma$ find &imself obliged to ma%e, Mr.
2uiroga assumes t&e obligation to offer and give t&e preference to Mr. Parsons
in case an$one s&ould appl$ for t&e e*clusive a6enc& for an$ island not
comprised (it& t&e 3isa$an group.
A)T. ;. Mr. Parsons ma$ sell, or establis& branc&es of &is a6enc& for t&e sale of
<2uiroga< beds in all t&e to(ns of t&e Arc&ipelago (&ere t&ere are no e*clusive
agents, and s&all immediatel$ report suc& action to Mr. 2uiroga for &is approval.=
Ruiroa allees that 'arsons violated the followin o&liations:
- not to sell the &eds at hiher prices than those of the invoicesI
- to have an open esta&lishment in 2loiloI
- itself to conduct the aenc"I
- to %eep the &eds on pu&lic e#hi&ition, and to pa" for the
advertisement e#penses for the sameI
- and to order the &eds &" the doJen and in no other manner.
2t will &e noticed that e#cept the last one, none of the alleations are
e#pressl" set forth in the contract. 'laintiff avers that since this was a
contract of A!1@0Y, those o&liations are implied.
Issue and held
5as 'arsons merel" a purchaser or was he an aent of RuiroaK 'urchaser.
Ratio
To classif" the contract, we loo% at the essential clauses 3condensed from
a&ove ;uoted provisions4:
- plaintiff was to furnish the defendant with the &eds which the latter
miht order, at the price stipulated, and that the defendant was to pa"
the price in the manner stipulated.
- The price areed upon was the one determined &" the plaintiff for the
sale of these &eds in Manila, with a discount of from :* to :) per
cent, accordin to their class.
- 'a"ment was to &e made at the end of si#t" da"s, or &efore, at the
plaintiff s re;uest, or in cash, if the defendant so preferred, and in
these last two cases an additional discount was to &e allowed for
prompt pa"ment.
The a&ove are e#actl" the essential clauses of a 0H@TRA0T HF
'UR0GAS1 A@= SA$1.
0ontract of purchase and sale v. contract of aenc"
- in the former, plaintiff supplies the &eds, defendant pa"s their price,
whether or not he6s a&le to sell it
- in the latter, as aent the defendant would have to receive the &ed
and sell it. The proceeds would o to the plaintiff. 2f the aent is
una&le to sell, he returns the thin.
0larifications in the contract, which do not prove that it was one of
aenc"
- ,commission on the sale- in Art. +3A4 simpl" means there6s a discount
on the invoice price
- ,aenc"- in Art. : and C simpl" means that onl" the defendant ma"
sell in the 9isa"as
Testimon" of 1rnesto 9idal, former 9' of the corporation
- he was the one that drafted the contractI when ;uestioned, he said
that he oriinall" intended for it to &e an aenc" contract
- reardless, a contract is what the law defines it to &eI not what the
parties call it
- the prior and su&se;uent acts of the contractin parties will &e loo%ed
into onl" when the contract calls for interpretation, which is not the
case here as the essential clauses are clear
6. P$&at v. Arco A?$4e?ent Co. (APG)
'etitioner: !onJalo 'u"at and Sons, 2@0.
)
Respondent: Arco Amusement 3formerl" %nown as Teatro Arco4
!onJalo 'u"at and Sons 2@0 N e#clusive aents in the 'hils. For the Starr 'iano
0ompan" of Richmond, 2ndiana, U.S.A 3S'04
!onJalo 'u"at N representative of !'S2
Arco Amusement 0ompan" N enaed in the &usiness of cinematoraphs
- formerl" %nown as Teatro Arco
Salmon and 0oulette N representative of AAM
Starr 'iano 0ompan" N forein manufacturer of sound producin e;uipment

FACTS:
AAM &rouht an action aainst !'S2 to secure the reim&ursement of certain
amounts overpaid &" it on the purchase price of sound producin e;uipment
and machiner" ordered &" !'S2 from S'0.
8oth parties areed that !'S2 would order sound producin e;uipment from
S'0 and that AA0 would pa" !'S2 the price of the e;uipment plus all
e#penses 3freiht. 2nsurance, &an%in chares, ca&les, etc4.
!'S2 in;uired from S'0 to ;uote its price 3without discount4 which the
former did not show to AAM &ut onl" informed them of the price of S+(**.
AAM areed to this price. Thus, it formall" authoriJed the order.
Upon deliver" of the e;uipment and presentation of documents, S+(** T
+*O 3commission4 T all e#penses and chares was paid &" AA0 to !'S2.
After that, AA0 ordered aain for the same e;uipment on the same terms as
the first order from !'S2.
AAM then paid S+.** 3supposed to &e the price ;uoted &" S'04 T +*O
3commission4 T S+.* 3mere flat chare and rouh estimate N e#penses4.
C "rs later, officials of AA0 discovered that the price ;uoted to them &" !'S2
for their : orders was not the net price &ut rather the list price and that latter
o&tained a discount.
Thus, the" souht to o&tain reim&ursement.
RT0 rulin N AA0 and !'S2 was one of outriht purchase and sale
0A rulin N !'S2 was mere actin as an aent of AAM in the purchase of
the e;uipment.

-SSUE:
5hether or not it was a contract of purchase and sale or contract of aenc".
HELD:
0ontract of purchase and sale
RAT-O:
The letters 3&" which AA0 accepted the price4 for the e;uipment su&>ect
with its contract with !'S2 are clear in their terms and admit no other
interpretation when AA0 areed to purchase the e;uipment in ;uestion at
the prices indicated. Lcontract is the law &etween the parties and should
include all the thins the" are supposed to have areed upon. 5hat does
not appear in the face of the contract should &e rearded as mere ,dealers-.
0ontract of aenc" vs. 0ontract of purchase and sale
o 0A - aent is e#empted from all lia&ilit" in the dischare of his
commission and the principal must indemnif" the aent for all
damaes which the latter ma" incur in carr"in out the aenc"
without fault.
o 0'S N whatever unforeseen events miht ta%e place unfavoura&le
to the seller 3chane in prices, mista%e in their ;uotation, and loss
of the oods4, the &u"er miht still leall" hold the seller
+*O commission does not ma%e !'S2 an aent of AA0 as this is onl" an
additional price which is not incompati&le with the contract of purchase and
sale.
For !'S2 to &e considered as aent of AA0 would &e incompati&le with the
fact that !'S2 is the e#clusive aent of S'0 in the 'hils.
!'S2 as 91@=HR is not &ound to reim&urse AA0 for an" difference
&etween the cost price and sales price which represents the profit of the
vendor.
:)O discount ranted &" S'0 to !'S2 is availa&le onl" the latter as the
former6s e#clusive aent. And also, the latter is not &ound to reveal the
arranement it had with the former. $ocal dealers actin as aents of forein
manufacturers are iven discount from home office and sometimes that add
to the list price when the" resell to local purchasers.
AA0 willinl" paid the price ;uoted. 1ven thouh !'S2 o&tained more or
less profit than AA0 calculated, it cannot &e a round to rescind the contract
or reduced the price. L@ot ever" concealment is fraudM.
7. Lo v. .#S Eco-For?9or@ S&4te? P7i%.( -nc.
(A#G)
!R @o. +EBE:* U E+C S0RA +D: U Hcto&er D, :**C
Petitioner: Sonn" $o, a &uildin contractor under his &usiness San6s 1nterprises
Re48on3ent: V?S 1co 3for &revit"4, enaed in sale of steel scaffoldins.
To8ic 3i4c$44e3 in t7e ca4e: =acion en pao has a nature of a sale.
Rea3&-recit ver4ion
'etitioner Sonn" $o ordered scaffoldin e;uipments from respondent
V?S 10H pa"a&le in +* monthl" instalments. V?S was a&le to perform its
prestation and delivered the said e;uipments. Sonn" $o, on the other hand, was
a&le to pa" the first two monthl" instalments. Gowever, &usiness has declined,
and Mr. $o was not a&le to pa" the &alance an"more. Fortunatel" for Mr. $o, he
claims that another compan" 3?omero Realt" 0orp4 owes him somethin 3as
evidenced &" Accounts Receiva&les4. To &e a&le to pa" the &alance to V?S, he
assined the A7Rs to V?S throuh a =eed of Assinment. Gavin possession of
Sonn"6s A7Rs, petitioner tried to collect from ?omero. Gowever, ?omero refused
to pa" &ecause the" insisted that Sonn" $o A$SH owes them somethin. After
due demand, V?S filed an action for recover", &ut petitioner arued that the
o&liation was e#tinuished with the e#ecution of the =eed of Assinment. The
court held that Y1S, the o&liation M2!GT have &een e#tinuished throuh this
mode. An assinment of credit ma" have for its leal cause a dacion en pago.
=acion en pao is a mode of e#tinuishin the o&liation to the e#tent of the
value of the thin delivered. 2t parta%es in one sense of the nature of the sale,
&ecause the creditor is reall" &u"in the propert" of the de&tor, pa"ment for
which is to &e chared aainst the de&tor6s de&t. GH5191R, the e#tinuishment
is not automatic, &ecause petitioner is &ound to warrant the e#istence of the
.
credit at the time of assinment. Since ?omero6s de&t to Sonn" is e#tinuished &"
compensation, there is no more credit to assin. Ge is still &ound to pa"
respondent.
Fact$a% Antece3ence
Fe&ruar" ::, +BB* N petitioner ordered scaffoldin e;uipments from
respondent worth ')E*,E:).D* pa"a&le in +* monthl" instalments with a
downpa"ment of +)*%.
Respondent delivered scaffoldins. 'etitioner was a&le to pa" : installments
&ut not the rest due to financial difficulties.
Hcto&er ++, +BB* N petitioner e#ecuted a =eed of Assinment, assinin its
Accounts Receiva&le from ?omero Realt" 0orporation in the amount of
'CC),E.:.+E.
o $ast portion of =oA reads: ,Assignor s&all e*ecute and do all suc&
furt&er acts and deeds as s&all be reasonabl$ necessar$ to
effectuall$ enable said Assignee to recover (&atever collectibles
said Assignor &as.=
V?S presented the =oA to ?omero Realt", &ut it was refused on the round
that Sonn" $o also has de&ts due to them.
V?S demanded for collection from $o, &ut $o refused to pa" claimin that his
o&liation has alread" &een e#tinuished when the" e#ecuted the =oA.
?anuar" +*, +BB+ N respondent filed an action for recover". Trial court ruled
for petitioner, then reversed &" 0A. Gence, the present petition &" Sonn" $o.
-44$e=He%3
5hether or not the o&liation of Sonn" $o has &een e#tinuished N @H.
Rationa%e
Assinment of 0redit N an areement &" virtue of which the owner of a credit
3assinor4, &" a leal cause such as sale, dacion en pago, e#chane, or
donation, and without the consent of the de&tor, transfers his credit and
accessor" rihts to the assinee who ac;uires the power to enforce it.
=acion en pao N de&tor offers another thin to the creditor who accepts it
as e:uivalent of pa$ment of an outstandin de&t. The followin are the
re;uisites:
o 'erformance of the prestation in lieu of pa"ment 3animo solvendi4
o =ifference &etween the prestation due and what is iven in su&stitution
3aliud pro alio4
o Areement &etween creditor and de&tor that o&liation is immediatel"
e#tinuished &" reason of performance of new prestation.
-?8ortant to o$r 3i4c$44ion: The underta%in reall" parta%es in one sense
of the nature of sale, that is, the creditor is reall" &u"in the thin or propert"
of the de&tor 3accounts receiva&les4, pa"ment for which is to &e chared
aainst the de&tor6s de&t 3de&t of Sonn" $o from the purchase of
scaffoldin4.
2n the case at &ar, the =oA has the effects of a dation in pa"ment which ma"
e#tinuish the o&liation. Gowever, it is to &e noted that petitioner is still
&ound &" certain warranties. Ge must ensure the e#istence and lealit" of
the credit. 2n this reard, the petitioner failed to do its part.
'etitioner also violated the last portion of the =oA, &ecause he did not do
what is reasona&l" necessar" to ena&le V?S to recover what is due to them.
(