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 companys 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% contractors
tax should be imposed instead of the 7% manufacturers 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 ones 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

contract of sale was already
land toCabigas

absolute contract of sale.2. Whether or not the

rescinded when the Digros spouses sold the

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. CA
Facts:

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

G.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;

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

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 petitioners 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.
Petitioners 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, petitioners 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 courts decision had thereby become final and
executory, no appeal having been perfected.