CIR vs Constantino

Doctrine:
The transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such
transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a
debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the
transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but
as the property of the principal, who remains the owner and has the right to control sales, fix the price, and
terms, demand and receive the proceeds less the agents commission upon sales made.
That the dealer issues his own sales invoice to the customer is neither a means of acquiring ownership nor is it
proof of ownership.
Facts:
Petitioner Commissioner of Internal Revenue (CIR) assessed against and demanded from respondent
Constantino the commercial brokers percentage tax of 6% on his gross compensation for 1956, as dealer or
distributor of the products of International Harvester, Macleod, Inc. (IHM).
Respondent is designated as the exclusive dealer of the products IHM within a prescribed territory. In
classifying himself as an independent merchant instead of a commercial broker, respondent Constantino cites
that he may buy IHM products for Resale to his customers; that he is granted trade discounts and a cash
discount under certain conditions; that he may purchase service parts on open credit account or on a 30-day
term; and that he sold service parts to his customers on cash basis. Constantino also cited the fact that his
purchases are covered by IHMs sales invoices, and when he re-sells he issues his own sales invoice.
Constantino protested the assessment on the ground that he is not a commercial broker. On his protest being
overruled, he filed a petition for review with the Court of Tax Appeals, which, after trial, found for him. Upon
his reversal by the tax court, the CIR interposed the present appeal.
Issue:
Whether or not the relationship between the respondent and IHM is that of a vendor and a vendee
Held:
No. A casual examination of respondents evidence may give the impression that this relationship with the
company is that of vendor and vendee, but a closer look into the actual legal effect of the terms and conditions
embodied, rather than the names of the contracts used or the terminologies employed, in the chain of
documents shows that the relation between the company and the respondent is one of principal and agent.
Respondent failed to state or notice, however, the condition in his agreement with IHM, which is in small print,
that the title of the goods delivered under this order shall remain in IHM until the full purchase price shall have
been paid in cash or acceptable security. That the dealer should issue his own sales invoice to the customer is
neither a means of acquiring ownership nor is it proof of ownership.
Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale
to customers, the price and terms of which were subject to the companys control, the relationship between
the company and the dealer is one of agency, tested under the following criterion:
The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the
establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer
of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the
transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the
agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a

sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property
of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand
and receive the proceeds less the agents commission upon sales made (Salisbury v. Brooks, 94 SE 117, 118119).
The control by the company of the resale made, or agreed upon to be made, by the dealer is so pervasive as to
exclude the idea of the latter being an independent merchant. As respondent is not an independent merchant,
but an agent, the discount of 16% that he receives is not a trade discount but a compensation or profit for
selling or bringing about sales or purchases of merchandise for the company.
ENGINEERING
AND
MACHINERY
G.R. No. 52267 January 24, 1996

CORP.

VS.

COURT

OF

APPEALS

Facts:
Almeda and Engineering signed a contract, wherein Engineering undertook to fabricate, furnish and install the
air-conditioning system in the latters building along Buendia Avenue, Makati in consideration of P210,000.00.
Petitioner was to furnish the materials, labor, tools and all services required in order to so fabricate and install
said system. The system was completed in 1963 and accepted by private respondent, who paid in full the
contract price.
Almeda learned from the employees of NIDC of the defects of the air-conditioning system of the building.
Almeda spent for the repair of the airconditioning system. He now sues Engineering for the refund of the
repair. Engineering contends that the contract was of sale and the claim is barred by prescription since the
responsibility of a vendor for any hidden faults or defects in the thing sold runs only for 6 months (Arts 1566,
1567, 1571). Almeda contends that since it was a contract for a piece of work, hence the prescription period
was ten years (Hence Art 1144 should apply on written contracts).
RTC found that Engineering failed to install certain parts and accessories called for by the contract, and
deviated from the plans of the system, thus reducing its operational effectiveness to achieve a fairly desirable
room temperature.
Issue:
1) WON the contract for the fabrication and installation of a central air-conditioning system in a building, one
of
sale
or
for
a
piece
of
work?
CONTRACT
FOR
PIECE
OF
WORK.
2) Corrollarily WON the claim for refund was extinguished by prescription? NO.
Held:
1) A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the
inquiry as to whether the thing transferred is one not in existence and which would never have existed but for
the order, of the person desiring it. In such case, the contract is one for a piece of work, not a sale. On the
other hand, if the thing subject of the contract would have existed and been the subject of a sale to some
other person even if the order had not been given, then the contract is one of sale.
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 contract in question is one for a piece of work. It is not petitioners line of business to manufacture airconditioning systems to be sold off-the-shelf. Its business and particular field of expertise is the fabrication
and installation of such systems as ordered by customers and in accordance with the particular plans and

specifications provided by the customers. Naturally, the price or compensation for the system manufactured
and installed will depend greatly on the particular plans and specifications agreed upon with the customers.
2)
The original complaint is one for damages arising from breach of a written contract and not a suit to enforce
warranties against hidden defects we here with declare that the governing law is Article 1715 (supra).
However, inasmuch as this provision does not contain a specific prescriptive period, the general law on
prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions
upon a written contract prescribe in ten (10) years. Since the governing contract was executed on
September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed.
DEL MONTE PHILIPPINES vs ARAGONES Case Digest
DEL MONTE PHILIPPINES, INC. vs. NAPOLEON N. ARAGONES
461 SCRA 139 (2005), THIRD DIVISION (Carpio Morales, J.)

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.

FACTS: Del Monte Philippines Inc. (DMPI) entered into an agreement with Mega-Engineering
Services in
joint
venture
with
WAFF
Construction
System
Corporation
(MEGAWAFF) represented by Edilberto Garcia (Garcia), wherein Garcia will supply the installation of modular
pavement in DMPIs warehouse. In this regard, Garcia as a contractor entered into a supply agreement with
Dynablock Enterprises represented by respondent Aragones, to supply labor, materials, equipment and the
like. Thereafter, Argones started to do his obligation. The deadline however was not met. After the installation,
Aragones failed to collect the payment from Garcia. Then, Aragones sent a letter to DMPI saying that instead
of paying Garcia, DMPI should directly pay him. But this did not happen. Hence Aragones filed a complaint for
sum of money with damages against Garcia and DMPI before RTC.

RTC ruled in favor of Aragones, it held that DMPI and Garcia are jointly and severally liable. DMPI appealed to
Court of Appeal (CA). However at CA, the court affirmed RTCs decision. Hence, DMPI filed this petition. It
contends that the supply agreement between Garcia and Aragones is a contract of sale to which DMPI was not
privy, hence DMPI cannot be held liable.

ISSUE: Whether or not Supply Agreement between Aragones and Garcia is a contract of sale

HELD: Contrary to DMPIs claim that save for the shape, there was no consideration of any special needs or
requirements of DMPI taken into account in the design or manufacture of the concrete paving blocks, the
Supply Agreement is replete with specifications, terms or conditions showing that it was one for a piece of
work.

As reflected in the highlighted and underscored above-quoted provisions of the Supply Agreement, as well
as other evidence on record, the machines Aragones was obliged to fabricate were those for casting the
concrete blocks specified by Garcia. Aragones did not have those kind of machines in his usual business, hence,
the special order.

Under Article 1467 then of the Civil Code, 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 Supply Agreement was decidedly a contract for a piece of work.

Following Art. 1729 of the Civil Code which provides that those who put their labor upon or furnish materials
for a piece of work undertaken by the contractor have an action against the owner up to the amount owing
from the latter to the contractor at the time the claim is made.

Aragones having specially fabricated three casting machines and furnished some materials for the production
of the concrete blocks specially ordered and specified by MEGA-WAFF which were to be and indeed they were
for the exclusive use of MEGA-WAFF, he has a cause of action upon DMPI up to the amount it owed MEGAWAFF at the time Aragones made his claim to DMPI.

Tan Queto vs CA gr no. L-35648 Feb. 27, 1987

En Banc, Paras (J): 10 concur, 1 votes to deny reconsideration, 1 dissents, 2 took no part
Facts: Restituta Tagalinar Guangco de Pombuena received the questioned lot (Lot 304-B of the Cadastre
Survey of the Municipality of Centro, Misamis Occidental) either as a purported donation or by way of
purchase on 11 February 1927 for P50.00 as the alleged consideration thereof. The transaction took place
during her mothers lifetime (her father having predeceased the mother) and consummated while Restituta
was already married to her husband Juan Pombuena. On 22 January 1935, Juan filed an application of Torrens
title over the land for himself and his supposed co-owner Restituta. On 22 November 1938, a decision was
promulgated (GLRC 1638, Cadastral Case 12) pronouncing Juan (married to Restituto) as the owner of the land.
On 22 September 1949 a contract of lease over the lot was entered into between Pershing Tan Queto and
Restituta (with the consent of her husband) for a period of 10 years.
Meanwhile, On 27 December 1960 Restituta sued Tan Queto for unlawful detainer (the lease contract having
expired) before the Municipal Court of Ozamis City.
On 22 April 1962, as a consequence of the cadastral case, an OCT was issued in Juans name. On 10 October
1962, Tan Queto and Juan entered into a barter agreement whereby Tan Queto became the owner of the
disputed lot, and the spouses in turn became the owners of a parcel of land with the house constructed
thereon previously owned (that is, before the barter) by Tan Queto. Thereafter, Tan Queto constructed on the
disputed land a concrete building, without any objection on the part of Restituta.

The Municipal court ruled in favor of the spouses in the unlawful detainer case; but on appeal in the CFI, the
entire case was dismissed because of an understanding (barter) entered into by Juan and Tan Queto.
Restituta sued both Juan and Tan Queto for reconveyance of the title over the registered but disputed lot, for
annulment of the barter, and for recovery of the land with damages. The CFI and the Court of Appeals found
the disputed lot as paraphernal and that Tan Queto was a builder in bad faith. These findings were regarded by
the Supreme Court as findings of facts and thus ordinarily conclusive upon the Court. Tan Queto filed for a
motion for reconsideration of the Supreme Court decision dated 16 May 1983.
The Supreme Court set aside its decision promulgated on 16 May 1983, and rendered a new one declaring the
questioned lot together with the building thereon, as Tan Quetos exclusive property; without costs.
1. Findings of the lower courts ordinary conclusive upon the Court; exception, if erroneous
The findings of the Court of First Instance and the Court of Appeals were regarded by the Supreme Court as
findings of facts and thus ordinarily conclusive upon the Court. Assuming they are factual findings, still if they
are erroneous inferences from certain facts, they cannot bind the Court.
2. Land not transferred to Restituta by donation, for it to be paraphernal
The oral donation of the lot cannot be a valid donation inter-vivos because it was not executed in a public
instrument (Art. 749, Civil Code), nor as a valid donation mortis causa for the formalities of a will were not
complied with. The allegation that the transfer was a conveyance to Restituta of her hereditary share in the
estate of her mother (or parents) cannot be sustained for the contractual transmission of future inheritance is
generally prohibited.
3. Land is conjugal, not paraphernal; Ownership by tradition
The land is conjugal, not paraphernal. Ownership was acquired by the spouses by tradition (delivery) as a
consequence of the contract of sale (See Art. 712, Civil Code) with P50.00 (then a considerable amount) as the
cause or consideration of the transaction. The lot is therefore conjugal, having been acquired by the spouses
thru onerous title (the money used being presumably conjugal, there being no proof that Restituta had
paraphernal funds of her own).
4. Sale not fictitious nor simulated; Allegation of simulation cannot prejudice a stranger
The sale cannot be said to be fictitious or simulated (and therefore void) as there was a valid consideration
therefor. Assuming that there had indeed been a simulation, the parties thereto cannot use said simulation to
prejudice a stranger to said strategem (like petitioner herein).
5. Tan Queto recognized Restituta as an owner, not the owner
Tan Queto admitted Restituta was an owner (not the owner) of the lot in his Answer, and this is true, for she
was a co-owner (with Juan, and therefore an owner.) There is no admission of Restitutas exclusive
ownership.
6. Assuming Tan Queto recognized Restituta as the owner; bad faith of one neutralizes the bad faith of the
other
Even assuming that despite registration of the lot as conjugal, Tan Queto nursed the belief that the lot was
actually Restitutas (making him in bad faith), still Restitutas failure to prohibit him from building despite her
knowledge that construction was actually being done, makes her also in bad faith. The net resultant of mutual
bad faith would entitle Tan Qyeto to the rights of a builder in good faith (Art. 448, Civil Code), ergo,

reimbursement should be given him if Restituta decides to appropriate the building for herself (Art. 448, Civil
Code).
7. Tan Queto an owner-possessor
Tan Queto having bartered his own lot and small house with the questioned lot with Juan (who has been
adverted to by a court decision and by the OCT a conjugal owner) may be said to be the owner-possessor of
the lot. Certainly he is not merely a possessor or builder in good faith (this phrase presupposes ownership in
another); much less is he a builder in bad faith. He is a builder-possessor (jus possidendi) because he is the
owner himself.
8. Jus possessionis, jus possidendi; good faith and bad faith
The Chapter on Possession (jus possessionis, not jus possidendi) in the Civil Code refers to a possessor other
than the owner. The difference between a builder (or possessor) in good faith and one in bad faith is that the
former is not aware of the defect or flaw in his title or mode of acquisition while the latter is aware of such
defect or flaw (Art. 526, Civil Code). But in either case there is a flaw or defect. In the present case, there is no
such flaw or defect because it is Tan Queto himself (not somebody else) who is the owner of the property.

Ten Forty Realty vs Cruz

FACTS:
Petitioner filed an ejectment complaint against Marina Cruz(respondent) before the MTC. Petitioner alleges
that the land indispute was purchased from Barbara Galino on December 1996, andthat said land was again
sold to respondent on April 1998;
On the other hand, respondent answer with counterclaim that never was there an occasion when petitioner
occupied a portion of the premises. In addition, respondent alleges that said land was a public land
(respondent filed a miscellaneous sales application with the Community Environment and Natural Resources
Office) and the action for ejectment cannot succeed where it appears that respondent had been in possession
of the property prior to the petitioner;
On October 2000, MTC ordered respondent to vacate the land and surrender to petitioner possession
thereof. On appeal, the RTC reversed the decision. CA sustained the trial courts decision.
ISSUE/S:
Whether or not petitioner should be declared the rightful owner of the property.
HELD:
No. Respondent is the true owner of the land.1) The action filed by the petitioner, which was an action for
unlawful detainer, is improper. As the bare allegation of petitioners tolerance of respondents occupation of
the premises has not been proven, the possession should be deemed illegal from the beginning. Thus, the CA
correctly ruled that the ejectment case should have been for forcible entry. However, the action had already
prescribed because the complaint was filed on May 12, 1999 a month after the last day forfiling;2) The
subject property had not been delivered to petitioner; hence, it did not acquire possession either materially or
symbolically. As between the two buyers, therefore, respondent was first in actual possession of the property.
As regards the question of whether there was good faith in the second buyer. Petitioner has not proven that
respondent was aware that her mode of acquiring the property was defective at the time she acquired it from
Galino. At the time, the property which was public land had not been registered in the name of Galino;
thus, respondent relied on the tax declarations thereon. As shown, the formers name appeared on the tax
declarations for the property until its sale to the latter in 1998. Galino was in fact occupying the realty when
respondent took over possession. Thus, there was no circumstance that could have placed the latter upon
inquiry or required her to further investigate petitioners right of ownership.
DOCTRINE/S:
Execution of Deed of Sale; Not sufficient as delivery. Ownership is transferred not by contract but by tradition
or delivery. Nowhere in the Civil Code is it provided that the execution of a Deed of Sale is a conclusive
presumption of delivery of possession of a piece of real estate. The execution of a public instrument gives rise
only to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not
effected, because of a legal impediment. Such constructive or symbolic delivery, being merely presumptive,

was deemed negated by the failure of the vendee to take actual possession of the land sold. Disqualification
from Ownership of Alienable Public Land.
Private corporations are disqualified from acquiring lands of the public domain, as provided under Section 3 of
Article XII of the Constitution. While corporations cannot acquire land of the public domain, they can however
acquire private land. However, petitioner has not presented proof that, at the time it purchased the property
from Galino, the property had ceased to be of the public domain and was already private land. The established
rule is that alienable and disposable land of the public domain held and occupied by a possessor personally
or through predecessors-in-interest, openly, continuously, and exclusively for 30 years is ipso jure converted
to private property by the mere lapse of time.
RULING:
The Supreme Court DENIED the petition.

SAN
LORENZO
DEVELOPMENT
CORPORATION,
petitioner,
vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, respondents

G.R. No. 124242

January 21, 2005

FACTS

On 20 August 1986, the Spouses Lu purportedly sold two parcels of land to respondent Pablo
Babasanta, for the price of fifteen pesos (P15.00) per square meter. Babasanta made a downpayment
of (P50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same date.

Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale in his favor so
that he could effect full payment of the purchase price. In response, Pacita Lu wrote a letter to
Babasanta wherein she reminded Babasanta that when the balance of the purchase price became
due, he requested for a reduction of the price and when she refused, Babasanta backed out of the
sale

herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention. SLDC
alleged that it had legal interest in the subject matter under litigation because on 3 May 1989, the
two parcels of land involved had been sold to it in a Deed of Absolute Sale with Mortgage. It alleged
that it was a buyer in good faith and for value and therefore it had a better right over the property in
litigation

Respondent Babasanta, however, argued that SLDC could not have acquired ownership of the
property because it failed to comply with the requirement of registration of the sale in good faith. He
emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was already a
notice of lis pendens annotated on the titles of the property made as early as 2 June 1989. Hence,
petitioners registration of the sale did not confer upon it any right.

ISSUE:

Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of
delivery and possession in good faith which admittedly had occurred prior to SLDCs knowledge of the
transaction in favor of Babasanta?
HELD:NO

It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in
favor of SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had paid more than
one half of the agreed purchase price, the Spouses Lu subsequently executed on 3 May 1989 a Deed
of Absolute Sale in favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of
the prior transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution of
the first deed up to the moment of transfer and delivery of possession of the lands to SLDC, it had
acted in good faith and the subsequent annotation of lis pendens has no effect at all on the
consummated sale between SLDC and the Spouses Lu.

A purchaser in good faith is one who buys property of another without notice that some other person
has a right to, or interest in, such property and pays a full and fair price for the same at the time of
such purchase, or before he has notice of the claim or interest of some other person in the property.

We rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records
that it had knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the
property to SLDC, the vendors were still the registered owners of the property and were in fact in
possession of the lands.

In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently
relies on the principle of constructive notice incorporated in Section 52 of the Property Registration
Decree (P.D. No. 1529) which reads, thus:

Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the
Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all
persons from the time of such registering, filing, or entering.

However, the constructive notice operates as such by the express wording of Section 52 from the
time of the registration of the notice of lis pendens which in this case was effected only on 2 June
1989, at which time the sale in favor of SLDC had long been consummated insofar as the obligation of
the Spouses Lu to transfer ownership over the property to SLDC is concerned.