QUIROGA v PARSONS

Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the
subject matter of this appeal and both substantially amount to the averment that the defendant
violated the following obligations: not to sell the beds at higher prices than those of the invoices; to
have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public
exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. As may be seen, with the exception of the obligation on the part of
the defendant to order the beds by the dozen and in no other manner, none of the obligations
imputed to the defendant in the two causes of action are expressly set forth in the contract. But the
plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said
obligations are implied in a contract of commercial agency. The whole question, therefore, reduced
itself to a determination as to whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

In order to classify a contract, due regard must be given to its essential clauses. In the contract in
question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to
furnish the defendant with the beds which the latter might order, at the price stipulated, and that the
defendant was to pay the price in the manner stipulated. The price agreed upon was the one
determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per
cent, according to their class. Payment was to be made at the end of sixty days, or before, at the
plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional
discount was to be allowed for prompt payment. These are precisely the essential features of a
contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds,
and, on the part of the defendant, to pay their price. These features exclude the legal conception of
an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not
pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third
person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the
plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their
price within the term fixed, without any other consideration and regardless as to whether he had or
had not sold the beds.

It would be enough to hold, as we do, that the contract by and between the defendant and the
plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a
commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each
other. But, besides, examining the clauses of this contract, none of them is found that substantially
supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of
an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as
stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in
articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's
beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that
they are not incompatible with the contract of purchase and sale.

The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant
corporation and who established and managed the latter's business in Iloilo. It appears that this
witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a
civil suit against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He
testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his
purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a
commission on sales. However, according to the defendant's evidence, it was Mariano Lopez
Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto
Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of
no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted,
constitute, as we have said, a contract of purchase and sale, and not one of commercial agency.
This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be
understood that a contract is what the law defines it to be, and not what it is called by the contracting
parties.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell;
that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the
defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But
all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the
performance of the contract in disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting
parties, subsequent to, and in connection with, the execution of the contract, must be considered for
the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in
the instant case, its essential agreements are clearly set forth and plainly show that the contract
belongs to a certain kind and not to another. Furthermore, the return made was of certain brass
beds, and was not effected in exchange for the price paid for them, but was for other beds of another
kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds,
which shows that it was not considered that the defendant had a right, by virtue of the contract, to
make this return. As regards the shipment of beds without previous notice, it is insinuated in the
record that these brass beds were precisely the ones so shipped, and that, for this very reason, the
plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they
merely constituted a discount on the invoice price, and the reason for applying this benefit to the
beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in
the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be
considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the
contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the
defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his
right and cannot complain for having acted thus at his own free will.

Engineering Equipment and Supply Company

v. CIR and CTA
Facts:

Engineering Equipment and Supply Company is engaged in the design and

installation of central type air conditioning system, pumping plants and steel
fabrications. Upon a letter from a certain Juan dela Cruz denouncing the
company for tax evasion and fraud in obtaining its dollar allocations, BIR, CB
and NBI conducted a raid and confiscated voluminous documents from the
firm. The Commissioner contends that Engineering is a manufacturer and
seller of air conditioning units and parts or accessories thereof and, therefore,
it is subject to the 30% advance sales tax prescribed by Section 185(m) of the
Tax Code, in relation to Section 194 of the same. Engineering claims that it is
not a manufacturer and setter of air-conditioning units and spare parts or
accessories thereof subject to tax under Section 185(m) of the Tax Code, but a
contractor engaged in the design, supply and installation of the central type of
air-conditioning system subject to the 3% tax imposed by Section 191 of the
same Code, which is essentially a tax on the sale of services or labor of a
contractor rather than on the sale of articles subject to the tax referred to in
Sections 184, 185 and 186 of the Code.

Issue:

Whether or not Engineering is a manufacturer of air conditioning units under

Section 185(m), supra, in relation to Sections 183(b) and 194 of the Code, or a
contractor under Section 191 of the same Code

Held:

The distinction between a contract of sale and one for work, labor and
materials is tested by the inquiry whether the thing transferred is one not in
existence and which never would have existed but for the order of the party
desiring to acquire it, or a thing which would have existed and has been the
subject of sale to some other persons even if the order had not been given. If
the article ordered by the purchaser is exactly such as the plaintiff makes and
keeps on hand for sale to anyone, and no change or modification of it is made
at defendant's request, it is a contract of sale, even though it may be entirely
made after, and in consequence of, the defendants order for it.

The word "contractor" has come to be used with special reference to a person
who, in the pursuit of the independent business, undertakes to do a specific
job or piece of work for other persons, using his own means and methods
without submitting himself to control as to the petty details. The true test of a
contractor would seem to be that he 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.

Engineering, in a nutshell, fabricates, assembles, supplies and installs in the

buildings of its various customers the central type air conditioning system;
prepares the plans and specifications therefor which are distinct and different
from each other; the air conditioning units and spare parts or accessories
thereof used by petitioner are not the window type of air conditioner which are
manufactured, assembled and produced locally for sale to the general market;
and the imported air conditioning units and spare parts or accessories thereof
are supplied and installed by petitioner upon previous orders of its customers
conformably with their needs and requirements. The facts and circumstances
aforequoted support the theory that Engineering is a contractor rather than a
manufacturer.

DMPI v ARAGONES

x x x Such new form does not divest the Oriental Sash Factory of its character as
manufacturer. Neither does it take the transaction out of the category of sales
under Article 1467 above quoted, because although the Factory does not, in the
ordinary course of its business, manufacture and keep on stock doors of the kind
sold to Teodoro, it could and/or probably had in stock the sash, mouldings and
panels it used therefor (some of them at least). (Emphasis in the original;
underscoring supplied).

Petitioner concludes that as the Supply Agreement between Aragones

and MEGA-WAFF was one of sale to which it (petitioner) was not privy, it
cannot be held liable for any obligation arising therefrom.
Dodging liability for the damages (exemplary and . . . attorneys fees
including the cost of this suit) awarded to Aragones, petitioner claims that it
was in fact the one which was injured by Aragones filing in bad faith of a
complaint bereft of cause of action and at best, [one] barred by full payment of
the amount due to MEGA-WAFF, on account of which it is entitled to moral
damages in the amount of P50,000.00 pursuant to Article 2217 of the Civil
Code, and to attorneys fees and expenses of litigation in the amount of at
least P30,000.00 plus P2,500.00 per hearing pursuant to Article 2208 of the
Civil Code.
The petition fails.
The authorities petitioner cited in fact show that the nature of the Supply
Agreement between Aragones and MEGA-WAFF was one for a piece of
work.
Contrary to petitioners 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.
While initially Garcia specified that the machines to be fabricated should
be for hexagon shaped blocks, he later asked Aragones to instead fabricate
machines for casting S shaped blocks.
In accordance with the Supply Agreement, Garcia furnished the cement
and aggregates for the fabrication of the blocks and Aragones fabricated three
(3) machines for S shaped blocks which were delivered at the casting site on
different dates. And the entire plant/casting machines and . . . . accessories
were, as dictated under the Supply Agreement, devoted by Aragones for
[MEGA-WAFF]s exclusive use.
There can be no gainsaying that the specifications/conditions in
the Supply Agreement and the admitted subsequent directive of Garcia for
Aragones to fabricate machines for casting S shaped, instead of hexagon
shaped blocks, show that the concrete blocks were manufactured specifically
for, and upon the special order of Garcia.
That Garcia supplied the cement and aggregates and that the entire
made-to-order casting machines and accessories used in the manufacture of
those unusual shaped blocks were agreed upon to be devoted only for the
exclusive use of MEGA-WAFF should belie petitioners contention that the
concrete blocks were mass-produced and catered to the general market in the
ordinary course of Aragones business.
Under Art. 1467 then of the Civil Code which provides:

ART. 1467. 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. (Emphasis
and underscoring supplied),

the Supply Agreement was decidedly a contract for a piece of work.

Following Art. 1729 of the Civil Code which provides:

ART. 1729. 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. x x x

x x x (Underscoring supplied),
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 petitioner
up to the amount it owed MEGA-WAFF at the time Aragones made his claim
to petitioner.

EULOGIO v APELES
Art. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate

thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.

The second paragraph of Article 1479 provides for the definition and
consequent rights and obligations under an option contract. For an option contract
to be valid and enforceable against the promissor, there must be a separate and
distinct consideration that supports it.

The consideration is the why of the contracts, the essential reason which
moves the contracting parties to enter into the contract. This definition illustrates
that the consideration contemplated to support an option contract need not be
monetary. Actual cash need not be exchanged for the option.However, by the very
nature of an option contract, as defined in Article 1479, the same is an onerous
contract for which the consideration must be something of value, although its kind
may vary.[26]

We have painstakingly examined the Contract of Lease with Option to

Purchase, as well as the pleadings submitted by the parties, and their testimonies in
open court, for any direct evidence or evidence aliunde to prove the existence of
consideration for the option contract, but we have found none. The only
consideration agreed upon by the parties in the said Contract is the supposed
purchase price for the subject property in the amount not exceeding P1.5 Million,
which could not be deemed to be the same consideration for the option contract
since the law and jurisprudence explicitly dictate that for the option contract to be
valid, it must be supported by a consideration separate and distinct from the
price.

PNOC v KEPPEL
Applied to the present case, we find that the offer to buy the land was timely accepted by Keppel.

As early as 1994, Keppel expressed its desire to exercise its option to buy the land. Instead of rejecting
outright Keppel's acceptance, PNOC referred the matter to the Office of the Government Corporate Counsel
(OGCC). In its Opinion No. 160, series of 1994, the OGCC opined that Keppel "did not yet have the right to
purchase the Bauan lands."114 On account of the OGCC opinion, the PNOC did not agree with Keppel's
attempt to buy the land;115 nonetheless, the PNOC made no categorical withdrawal of the offer to sell
provided under the Agreement.

By 2000, Keppel had met the required Filipino equity proportion and duly communicated its acceptance of
the offer to buy to PNOC.116 Keppel met with the board of directors and officials of PNOC who interposed no
objection to the sale.117 It was only when the amount of purchase price was raised that the conflict between
the parties arose,118 with PNOC backtracking in its position and questioning the validity of the option.119 c han robles law

Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan land stood, not having
been withdrawn by PNOC. The offer having been duly accepted, a contract to sell the land ensued
which Keppel can rightfully demand PNOC to comply with.

Ang Yu Asuncion Vs. CA

Facts:

 July 29, 1987: An amended Complaint for Specific Performance was filed by petitioners
Ang Yu Asuncion and others against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan
before RTC.
 Petitioners (Ang Yu) alleged that:
- they are the tenants or lessees of residential and commercial spaces owned by Bobby Unijeng
and others located in Binondo, Manila (since 1935)

that on several occasions before October 9, 1986, the lessors informed the lessees (petitioners)
that they are offering to sell the premises and are giving them priority to acquire the same;

- that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while they made a
counter offer of P5-million;
- that they wrote them on October 24, 1986 asking that they specify the terms and conditions of
the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated
January 28, 1987 with the same request;

 The RTC found that Cu Unjiengs’ offer to sell was never accepted by the petitioners (Ang
Yu) for the reason that they did not agree upon the terms and conditions of the proposed
sale, hence, there was no contract of sale at all. The Court of Appeals affirmed the
decision of the lower court. This decision was brought to the Supreme Court by petition for
review on certiorari which subsequently denied the appeal on May 6, 1991 “for
insufficiency in form and substance”. (Referring to the first case filed by Ang Yu)
 November 15, 1990: While the case was pending consideration by this Court, the Cu
Unjieng spouses executed a Deed of Sale transferring the subject petitioner to petitioner
Buen Realty and Development Corporation.
 Petitioner Buen Realty and Development Corporation, as the new owner of the subject
property, wrote a letter to the lessees demanding that the latter vacate the premises.
 August 30, 1991: the RTC ordered the Cu Unjiengs to execute the necessary Deed of Sale
of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go
for the consideration of P15 Million pesos in recognition of petitioners’ right of first refusal
and that a new Transfer Certificate of Title be issued in favor of the buyer. The court also
set aside the title issued to Buen Realty Corporation for having been executed in bad faith.
On September 22, 1991, the Judge issued a writ of execution.
 The CA reversed the RTC ruling.

Issue: WON Buen Realty can be bound by the writ of execution by virtue of the notice of lis
pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the
latter’s purchase of the property on 15 November 1991 from the Cu Unjiengs. NO

Held:
Right of first refusal is not a perfected contract of sale under Article 1458 of the Civil
Code

In the law on sales, the so-called “right of first refusal” is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the
Civil Code.

In a right of first refusal, while the object might be made determinate, the exercise of the right,
however, would be dependent not only on the grantor’s eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that obviously are yet to be
later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of
preparatory juridical relations governed not by contracts (since the essential elements to
establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws
of general application, the pertinent scattered provisions of the Civil Code on human conduct.

The proper action for violation of the right of first refysal is to file an action for damages
and NOT writ of execution

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a
“right of first refusal” in favor of petitioners (Ang Yu et. al). The consequence of such a
declaration entails no more than what has heretofore been said. In fine, if, as it is here so
conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right
of first refusal, the remedy is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the purpose.

Unconditional mutual promise to buy vs. Accepted unilateral promise

An unconditional mutual promise to buy and sell, as long as the object is made determinate and
the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted.

An accepted unilateral promise which specifies the thing to be sold and the price to be paid,
when coupled with a valuable consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract is legally binding, and in sales, it
conforms with the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
(1451a)

Observe, however, that the option is not the contract of sale itself. The optionee has the right,
but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted
before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are
then reciprocally bound to comply with their respective undertakings.

Buen Realty cannot be ousted from the ownership and possession of the property

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in
any case, be considered bound to respect the registration of the lis pendens in Civil Case No.
87-41058 are matters that must be independently addressed in appropriate proceedings. Buen
Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the
writ of execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.