NAVARRO MGA

SALES

I. Introduction to Sales

Definition of Sale (Art. 1458)

Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer
the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

A contract of sale may be absolute or conditional. (1445a)

Sale – is a contract where one party (seller) obligates himself to transfer ownership and deliver a
determinate thing, while the other party (buyer) obligates himself to pay for said thing a price certain
in money or its equivalent.

Nature of Obligation in a Contract of Sale

ABSOLUTE SALE

Q: When is a sale absolute?

A: The sale is absolute where the sale is not subject to any condition whatsoever and where the title
passes to the buyer upon delivery of the thing sold. (De Leon, p. 15)

Q: When is a deed of sale considered absolute in nature?

A: A deed of sale is considered absolute in nature where there is neither a stipulation in the deed
that title to the property sold is reserved in the seller until the full payment of the price, nor one
giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period.

CONDITIONAL SALE

Q: When is a sale conditional?

A: It is conditional where the sale contemplates a contingency, and in general, where the contract is
subject to certain conditions, usually in the case of the vendee, the full payment of the agreed
purchase price and in the case of the vendor, the fulfillment of certain warranties. (De Leon, p. 15)

Essential Requisites of a Contract of Sale - those without which a contract of sale would not
exist

1. Consent of the contracting parties

Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain and
the acceptance absolute. A qualified acceptance constitutes a counter-offer.

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Acceptance made by letter or telegram does not bind the offeror except from the time it
came to his knowledge. The contract, in such a case, is presumed to have been entered into
in the place where the offer was made. (1262a)

Article 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts. (1450a)

2. Subject matter – should be a determinate thing

Article 1349. The object of every contract must be determinate as to its kind. The fact
that the quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract between the
parties. (1273)

Article 1460. A thing is determinate when it is particularly designated or physical

segregated from all others of the same class.

The requisite that a thing be determinate is satisfied if at the time the contract is
entered into, the thing is capable of being made determinate without the necessity of a new or
further agreement between the parties. (n)

3. Price certain in money or its equivalent

Article 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.

 Dizon v. Court of Appeals

Regina Dizon et al v. CA and Overland Express Lines, Inc.

G.R. No. 122544 January 28, 1999Martinez, J.
FACTS:

Overland Express Lines, Inc. entered into a Contract of Lease with Option to Buy with petitioners
involving a 1,755.80 square meter parcel of land situated at corner MacArthur Highway and South“H” Street,
Diliman, Quezon City. The term of the lease was for 1 year commencing from May 16,1974 up to May 15,
1975. During this period, Overland Express Lines was granted an option to purchase the land for
the amount of P3,000 per square meter. Thereafter, the lease shall be on a per month basis with a
monthly rental of P3,000.

For failure of Overland Express Lines to pay the increased rental of P8,000.00 per month effective June 1976,
petitioners filed an action for ejectment against it. The lower court rendered judgment ordering Overland Express
Lines to vacate the leased premises and to pay the rentals in arrears and damages with interest in the form of
reasonable compensation for the use and occupation of the premises during the period of illegal detainer from June 1976 to

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November 1982. Overland Express Lines filed a petition enjoining the enforcement of said judgement and
dismissal of the case for lack of jurisdiction. Such petition was denied.

Thereafter, Overland Express Lines filed for an action specific performance to compel the execution of a deed
of sale pursuant to the option to purchase and the receipt of the partial consideration given to Alice Dizon and
for the fixing of period to pay the balance. Respondent CA rendered a decision upholding the jurisdiction of City
Court and concluding that there was a perfected contract of sale between the parties due to the said partial
payment. Petitioner’s motion for reconsideration was denied by the respondent court.

ISSUE:
WON there is perfected contract of sale between the parties

HELD:
No.

CA opined that the payment by Overland Express Lines of P300,000.00 as partial payment for the leased
property, which petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was
the operative act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny receipt
thereof, Overland Express Lines can therefore assume that Alice A. Dizon, acting as agent of petitioners, was
authorized by them to receive the money in their behalf. CA went further by stating that in fact, what was
entered into was a “conditional contract of sale” wherein ownership over the leased property shall not pass
to the Overland Express Lines until it has fully paid the purchase price. Since Overland Express Lines did not
consign to the court the balance of the purchase price and continued to occupy the subject premises, it had the
obligation to pay the amount of P1,700.00 in monthly rentals until full payment of the purchase price.

In an attempt to resurrect the lapsed option, Overland Express Lines gave P300,000.00 to petitioners (thru Alice
A. Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of sale pursuant
to the contract of lease with option to buy. There was no valid consent by the petitioners (as co-owners of the
leased premises) on the supposed sale entered in to by Alice A. Dizon, as petitioners’ alleged agent, and Overland
Express Lines. The basis for agency is representation and a person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent. As provided in Article 1868 of the New
Civil Code, there was no showing that petitioners consented to the act of Alice A. Dizon nor
authorized her to act on their behalf with regard to her transaction with private respondent. The
most prudent thing private respondent should have done was to ascertain the extent of the authority of
Alice A. Dizon. Beingn egligent in this regard, private respondent cannot seek relief on the basis of a supposed agency.

Every person dealing with an agent is put upon inquiry

a n d m u s t d i s c o v e r u p o n h i s p e r i l t h e authority of the agent. If he does not make such
inquiry, he is chargeable with knowledge of the agent’s authority, and his ignorance of that authority will
not be any excuse. Persons dealing with an assumed agency, whether the assumed agency be a general or
special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency
but also the nature and extent of the authority, and in case either is controverted, the burden of
proof is upon them to establish it.

Stages

1. Negotiation – from the time the prospective contracting parties indicate interest in the
contract to the time the contract is perfected

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2. Perfection – upon the concurrence of the essential elements of the sale, which is the meeting
of the minds of the parties as to the object of the contract and upon the price
3. Consummation – begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof

Characteristics of a Contract of Sale

1. Nominate and Principal

 Nominate – it has a special name given to it by law
 Principal – It can exist by itself without being dependent on another contract
2. Consensual – it is perfected by mere consent of the parties
3. Bilateral and Reciprocal - the parties are bound by reciprocal obligations

Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)

4. Onerous – valuable considerations are given by both parties to acquire rights

5. Commutative – the parties exchange almost equivalent values

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Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence. (n)

Article 1470. Gross inadequacy of price does not affect a contract of sale, except as it may
indicate a defect in the consent, or that the parties really intended a donation or some other act
or contract. (n)

Contract of Sale distinguished from other Contracts

1. Donation

Article 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing
or right in favor of another, who accepts it. (618a)

Article 1471. If the price is simulated, the sale is void, but the act may be shown to have been
in reality a donation, or some other act or contract. (n)

SALE DONATION
Onerous Gratuitous/onerous
Consensual Formal contract
Law on Sales Law on Donation

2. Barter

Article 1468. If the consideration of the contract consists partly in money, and partly in another
thing, the transaction shall be characterized by the manifest intention of the parties. If such
intention does not clearly appear, it shall be considered a barter if the value of the thing given as a
part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a
sale. (1446a)

Article 1638. By the contract of barter or exchange one of the parties binds himself to give one
thing in consideration of the other's promise to give another thing. (1538a)

Article 1639. If one of the contracting parties, having received the thing promised him in barter,
should prove that it did not belong to the person who gave it, he cannot be compelled to deliver
that which he offered in exchange, but he shall be entitled to damages. (1539a)

Article 1640. One who loses by eviction the thing received in barter may recover that which he
gave in exchange with a right to damages, or he may only demand an indemnity for damages.
However, he can only make use of the right to recover the thing which he has delivered while the
same remains in the possession of the other party, and without prejudice to the rights acquired in
good faith in the meantime by a third person. (1540a)

Article 1641. As to all matters not specifically provided for in this Title, barter shall be governed
by the provisions of the preceding Title relating to sales. (1541a)

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SALE BARTER
Consideration is giving of money as payment Consideration is giving of a thing
If consideration consists party in money & partly by thing–look at manifest intention;
If intention is not clear – Art. 1468
Value of thing is equal or less than amount of Value of thing is more than amount of
money = Sale money = Barter
Both are governed by law on sales

 Fule v. CA

GREGORIO FULE, petitioner,

vs.
COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO, respondents.

FACTS:

Petitioner Gregorio Fule, a banker by profession and a jeweler, acquired a 10-hectare

property in Tanay, Rizal. In 1984, he met private respondent Dr. Ninevetch Cruz who was
interested on the said lot. It so happened that at the time, petitioner had also shown
interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz.

Gregorio offered to buy the jewelry for P100 000, he was refused. Then, he offered to buy
the jewelry for $6000 (exchange rate: $25 for P1), was still refused. However, they agreed
on Gregorio Fule’s land for the jewelry.

Petitioner prepare the documents of the deed of absolute sale while Dr. Cruz attended to
the safekeeping of the jewelry. Dr. Cruz got the earrings from her safety deposit box and
handed it to petitioner, who, when asked if those were alright, nodded and took the
earrings. The property was for P200 000 and the jewelry is for P160 000, both agreed that
Dr. Cruz will pay the remaining P 40 000 of the property by cash. Two hours after,
petitioner Fule alleged that the earrings he received were fake. He filed a complaint to
declare the sale of property null and void on the ground of fraud and deceit on the part of
the respondent.

ISSUE:

1. Whether or not the CA erred in upholding the validity of the Contract of Sale
2. Whether the contract of sale should be nullified on the ground of fraud.

HELD:

1. No. Contract of Sale is consensual, and it is perfected when minds met. Contract may
render void if (1) the party has no capacity to give consent and (2) consent was given
because of violence, intimidation, mistake, fraud, and undue influence. Dr. Cruz was not
fraudulent.

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2. There is fraud when, through the insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them,
he would not have agreed to.

The records, however, are bare of any evidence manifesting that private respondents
employed such insidious words or machinations to entice petitioner into entering the
contract of barter. Neither is there any evidence showing that Dr. Cruz induced
petitioner to sell his Tanay property or that she persuaded him to take the earrings in
exchange for said property. On the contrary, Dr. Cruz did not initially agree to
petitioner’s proposal to buy the said jewelry. It was in fact petitioner who resorted to
machinations to convince Dr. Cruz to exchange her jewelry for the lot. On account of
the petitioner’s work as a banker-jeweler, it can be rightfully assumed that he was an
expert on matters regarding gems. He had the intellectual capacity and the business
expertise as a banker to take precautionary measures to avert such a mistake,
considering the value of both the jewelry and his land; that the finger of suspicion of
switching the genuine jewelry for a fake inevitably points to him.

There were no legal bases for the nullification of the contract of sale. Ownership over
the parcel of land and the pair of emerald-cut diamond earrings had been transferred to
Dr. Cruz and petitioner, respectively, upon the actual and constructive delivery thereof.

3. Contract for a Piece of Work

Article 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. (n)

Article 1713. By the contract for a piece of work the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or also furnish the material. (1588a)

Article 1714. If the contractor agrees to produce the work from material furnished by him, he
shall deliver the thing produced to the employer and transfer dominion over the thing. This
contract shall be governed by the following articles as well as by the pertinent provisions on
warranty of title and against hidden defects and the payment of price in a contract of sale. (n)

Article 1715. The contract shall execute the work in such a manner that it has the qualities
agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or
stipulated use. Should the work be not of such quality, the employer may require that the
contractor remove the defect or execute another work. If the contract fails or refuses to comply
with this obligation, the employer may have the defect removed or another work executed, at
the contractor’s cost.

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CONTRACT FOR A PIECE OF WORK

SALE

Goods manufactured or procured in the ordinary course of Goods manufactured specially for the customer
business (WON on hand) upon his special order

Not for the general market

For the general market

Essence is the object Essence is skill

Tests under jurisprudence:

1. Habituality test: WON the job

requires the use of extraordinary or additional equipment, or involves services not generally performed
(Celestino v. CIR, 1956)

2. WON the thing is one which would have never existed but for the order of the party desiring to acquire it,
or one which would have existed and have been the subject of sale to some other person even if the order
had not been given (CIR v. Eng.&Supply, 1975)

 Celestino v. Collector

CASE DIGEST: Celestino Co vs Collector G.R. No. L-8506 (99 PHIL 841) (Yellow Pad Digest)
Celestino Co vs Collector

Facts:
· Celestino Co doing business under the name of “Oriental Sash Factory”. From 1956-1951 it paid
percentage tax of 7% (National Revenue Code sec. 186) on the gross receipts of its sash, door, and window
factory. However on 1952 it began to claim liability only to contractor’s 3% tax (Instead of 7%) under sec.
191.
· Celestino claims that they do not manufacture ready made doors, sash, and windows for the public. He
claims that they only do Special Orders for customers, thus, contending they are not manufacturers. This
did not convince the BIR and the Court of Tax Appeals.

· CTA said that their tradename gives an impression they do engage in manufacturing and their records
suggest that their huge earnings (P188, 754.69) cannot be from special orders from their few customers, but
because it was from ready made products. They also offered themselves as a “factory” to the public.

Issue: W/ON Petitioner is in engaged in manufacturing

Held: Yes. The company habitually makes Sash, windows, and doors as it has been represented to the public.
The fact that the windows and doors are made only when customers place their orders, does not alter the

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nature of the establishment, for it is obvious that they accept special orders other than making ready made
products. The factory does nothing more than sell the goods that it mass produces or habitually makes.

 Commissioner vs. Engineering Equipment

CIR V ENGINEERING EQUIPMENT AND SUPPLY COMPANY

FACTS: Engineering Equipment & Supply (EES) was engaged in the business of designing and installing central
air-conditioning systems. It was assessed by the Commissioner of Internal Revenue for 30% advanced sales
tax, among other penalties pursuant to an anonymous complaint filed before the BIR. EES vehemently
objected and argued that they are contractors and not manufacturers and should be liable only for the 3% tax
on sales of services for pieces of work. The commissioner demanded upon Engineering the payment of the
assessed tax and suggested that

Engineering pay P10k as compromise for Engineering’s penal liability for violation of the Tax Code.

ISSUE: W/N EES is a contractor for a piece of work thus only liable for 3% tax

HELD:

Contractor – 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.

True test of contractor – 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.

The SC found that EES was not a manufacturer of air-conditioning units. While it imported such items, they
were not for sale to the general public and were used as mere components for the design of the centralized
air-conditioning system, the designs and specifications of w/c are different for every client. Various technical
factors must be considered, and it can be argued that no two plants are the same; all are engineered
separately and distinctly. Each project requires careful planning and meticulous layout. Such central air-
conditioning systems and their designs would not have existed were it not for the special order of the party
desiring to acquire it. EES is thus not liable for the sales tax.

In comparison with Celestino case:

Engineering advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies,
Engineers, Contractors while Oriental used “Oriental Sash Factory”. It also paid the contractors
tax on all the contracts for design and construction of central system unlike Oriental who did not pay
contractors tax. Engineering did not have ready-made air conditioning units for sale unlike oriental whose bulk
of their sale came from ready-made doors and windows.

As for their liability for violation of Tax Code, they should pay the whole amount not the one suggested by the
commissioner.

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4. Agency to Buy or Sell

Article 1466. In construing a contract containing provisions characteristic of both the contract of sale and of
the contract of agency to sell, the essential clauses of the whole instrument shall be considered. (n)

Article 1868. By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. (1709a)

 Quiroga v. Parsons Hardware Co.

Doctrine: Contract of Agency to Sell vs Contract of Sale

Facts: On Jan 24, 1911, plaintiff and the respondent entered into a contract making the
latter an “agent” of the former. The contract stipulates that Don Andres Quiroga, here in
petitioner, grants exclusive rights to sell his beds in the Visayan region to J. Parsons. The
contract only stipulates that J.Parsons should pay Quiroga within 6 months upon the
delivery of beds.

Quiroga files a case against Parsons for allegedly violating the following stipulations: 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. 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.

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Issue: Whether the contract is a contract of agency or of sale.

Held: In order to classify a contract, due attention 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.
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.
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.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff
and the defendant was one of purchase and sale, and that the obligations the breach of
which is alleged as a cause of action are not imposed upon the defendant, either by
agreement or by law.

 Gonzalo Puyat & Sons, Inc. v. Arco Amusement Co.

CONTRACT OF SALE, CONCEPTS | Agency to Sell

FACTS:

Arco Amusement was engaged in the business of operating cinematographs while Gonzalo
Puyat & Sons (GPS) was the exclusive agent in the Philippines for the Starr Piano Company
(SPC). Desiring to equip its cinematograph with sound reproducing devices, Arco
approached GPS, through its president, Gil Puyat, and an employee named Santos. After
some negotiations, it was agreed between the parties that GPS would order sound
reproducing equipment from SPC and that Arco would pay GPS, in addition to the price of
the equipment, a 10% commission, plus all expenses such as freight, insurance, etc. When
GPS inquired SPC the price (without discount) of the equipment, the latter quoted such at
$1,700.00 FOB Indiana. Being agreeable to the price, Arco formally authorized the order.
The following year, both parties agreed for another order of sound reproducing equipment
on the same terms as the first at $1,600.00 plus 10% plus all other expenses. 3 years later,
Arco discovered that the prices quoted to them by GPS with regard to their first 2 orders

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mentioned, were not the net prices but rather the latter has obtained a discount from SPC
thus, equipment is deemed overpriced and GPS had to reimburse the excess amount.

ISSUE:

Is there a contract of agency?

HELD:

No. The contract between the petitioner and the respondent was one of purchase and sale.
The letters, Exhibits 1 and 2, by which the respondent accepted the prices of $1,700.00
and $1,600.00, respectively, for the sound reproducing equipment subject of its contract
with petitioner, are clear in their terms and admit no other interpretation that the
respondent in question at the prices indicated which are fixed and determinate. The
respondent admitted in its complaint with the CFI of Manila that the petitioner agreed to
sell to it the first sound reproducing equipment. To hold the petitioner an agent of the
respondent in the purchase of equipment and machinery from the SPC of Richmond,
Indiana, is incompatible with the admitted fact that the petitioner is the exclusive agent of
the same company in the Philippines. It is out of the ordinary for one to be the agent of
both the vendor and the purchaser. The facts and circumstances indicated do not point to
anything but plain ordinary transaction where the respondent enters into a contract of
purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano
Company in the United States.

It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee
for any difference between the cost price and the sales price which represents the profit
realized by the vendor out of the transaction. This is the very essence of commerce without
which merchants or middleman would not exist.

 Albaladejo y Cia v. Philippine Refining Co.

FACTS: Albaladejo y Cia was engaged in the buying and selling of copra in Albay, while
Visayan Refining Corp. (VRC) was engaged in the manufacture of coconut oil, for which
purpose it must continually purchase large quantities of copra. Pursuant to an agreement
which both parties made, Albaladejo y Cia, as VRC’s agent, bought copra extensively for
VRC. During the years that they contracted with each other, VRC required large quantities
of copra which compelled Albaladejo y Cia to extend its business by establishing some 20
agencies or subagencies in various ports and places in Albay and neighboring provinces.

Affairs between them remained until 1920 when VRC closed down its factory in Opon, Cebu
and withdrew from the copra market.

Upon the liquidation of their accounts, VRC rendered the last account to Albaladejo y Cia
amounting to a balance of P288 in favor of VRC as of April 1921. This account was
approved by Albaladejo. This time, Philippine Refining Co. (PRC) succeeded to the rights
and liabilities of VRC.

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Six weeks after, Albaladejo alleged that VRC negligently failed to provide opportune
transportation for the copra it collected and deposited for shipment at various places,
pursuant to their agreement that VRC obligated itself to provide transportation by sea to
Opon, Cebu. Due to VRC’s failure, the copra diminished in weight and value due to its
shrinkage through excessive drying. The total value of these copra was P201,599.53, in
which amount Albaladejo y Cia was damaged and injured. However, the lower court ruled
that VRC was not negligent in the delay of the transportation but the occasional
irregularities were due at times to the condition of the weather as to the transportation by
sea.
Albaladejo also sought to recover P110,000, the amount it expended in maintaining and
extending its organization, on the basis that VRC requested such, with repeated assurances
that it would resume its activity as a purchaser of copra.

ISSUE: W/N Albaladejo y Cia, as agent of VRC, is entitled to reimbursement for the
expenses in maintaining and extending its organization for the purchase of copra in the
period when VRC was closed which it incurred at the instance and request of VRC or upon
any promise of the defendant to make that expenditure good

HELD: NO. Albaladejo y Cia presented several trade letters of VRC and PRC as evidence
that PRC hoped that it would soon re-enter the copra market. But nothing in these letters
held PRC liable for the expenses incurred by Albaladejo y Cia in keeping its organization
intact.
The contract between VRC/PRC and Albaladejo y Cia is one of purchase, and not of
agency. Although VRC/PRC used “agents” in its trade letters to refer to Albaladejo y Cia and
other suppliers, it was only used for convenience and it is very clear that in its activities
as a buyer, Albaladejo y Cia was acting upon its own account and not as agent of
VRC. When it turned over the copra to VRC, a second sale was affected.

Not having a contract of agency with VRC, Albaladejo y Cia is NOT entitled to
reimbursement, as contemplated under Art. 1729, now Art. 1913, for the
damages/expenses it incurred in maintaining and extending VRC’s organization.

Art. 1913. The principal must also indemnify the agent for all the damages which the
execution of the agency my have caused the latter, without fault or negligence on his part.
(1729)

5. Dacion en Pago

Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales. (n)

SALE
DATION
w/ pre-existing debt
No pre-existing debt

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Creates obligation Extinguishes obligation (mode of payment)

 Dao Heng Bank Vs Sps Lilia And Reynaldo Laigo (G.R. No. 173856)

Facts: Spouses Laigo obtained a loan from Dao Heng Bank Inc. in the total amount of P11
million. As a security, 3 real estate mortgages were executed covering 2 parcels of land. As of
2000, the Laigos failed to pay on time; so as a remedy, they verbally agreed to cede one of the
mortgaged property to Dao Heng by way of dacion enpago (dation in payment). In August
2000, Dao Heng, thru a letter informed the Laigos that there total obligation amounts to P10.8
million. The Laigos took no action so their property was foreclosed and sold at public auction.
The spouses filed for a complaint praying for the annulment of the foreclosure of the properties
subject of the real estate mortgages and for them to be allowed "to deliver by way of ‘dacion en
pago' one of the mortgaged properties as full payment of their mortgaged obligation". They
now contend that the foreclosure was illegal since there was a verbal agreement for dacion en
pago. Dao Heng, however, contends that the dacion enpago falls under the statute of fraud
therefore it is not enforceable. The Laigo’s counter this by stating that thedacion is an exception
since it is no longer executory but had undergone partial performance when the titles to
theproperty were deliveredto Dao Heng.

Issues:

(1) Whether the obligation of the spouses has been extinguished through dacion en pago
(2) Is the foreclosure valid?

Held:
(1) No. There is no showing that the dacion en pago has been accepted by both parties. Since
there is no mutual lconsent, there is no dacion. Dacion en pago as a mode of extinguishing an
existing obligation partakes of the nature of sale whereby property is alienated to the creditor in
satisfaction of a debt in money. It is an objective novation of the obligation, hence, common
consent of the parties is required in order to extinguish the obligation.Being likened to that of a
contract of sale, dacion en pago is governed by the law on sales. The partial execution of a
contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as
the essential requisites of consent of the contracting parties, object and cause of the obligation
concur and are clearly established to be present. In the case at bar, the titles to the property
were delivered as a security for the mortgage.

(2) The foreclosure is valid. It is the proper remedy for securing payment for a mortgage. The
law clearly provides that the debtor of a thing cannot compel the creditor to receive a different
one, although the latter may be of the same value, or more valuable than that which is due
(Article 1244, New Civil Code). The obligee is entitled to demand fulfillment of the obligation or
performance as stipulated. The power to decide whether to foreclose on the mortgage is the
sole prerogative of the mortgagee.

6. Lease

Article 1484. In a contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:

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(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void. (1454-A-a)

Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of the possession or
enjoyment of the thing. (1454-A-a)

SALE LEASE OF THING

Ownership transferred Ownership not transferred

7. Contract to Sell

 Luzon Brokerage v. Maritime Building

Doctrine: The distinction between contracts of sale and contract to sell with reserved title has been recognized
by this Court in repeated decisions upholding the power of promisors under contracts to sell in case of failure
of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse
conveyance and retain the sums or installments already received, where such rights are expressly provided
for, as in this case.

Short version: Myers corp sold land to Maritime. In the agreement, they agreed on an installment plan and
that if Maritime missed a payment, the contract will be annulled and the payments already made will be
forfeited. Maritime failed to pay so Myers annulled the contract and did not return payments. SC says Myers
can do this because under contracts to sell, promisors, in case of failure of the other party to complete
payment, can extrajudicially terminate the contract, refuse conveyance, and retain installments already
received, where such rights are provided.

In Manila, Myers owned 3 parcels of land w/ improvements. Myers then

entered into a contract called a “Deed of Conditional Sale” with
Maritime Building.
O Myers sold the land for P1million.
O They agreed on the manner of payment (instalment, initial payment upon execution of contract,
interest rate)
O In the contract it was stipulated that in case of failure of buyer to pay any of the instalments, the
contract will be annulled at theoption of the seller and all payments made by the buyer is forfeited.

Later on, the stipulated instalment of P10k with 5%interest was amended to the P5k with 5.5% per annum.
O Maritime paid the monthly instalments but failed to pay the monthly instalment of March.

VP of Maritime wrote to Pres of Myers requesting for a moratorium on the monthly payment of the instalments
because the company wasundergoing financial problems.
O Myers refused.

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O For the months of March, April, and May, Maritime failed to pay and did not heed the demand of
Myers.

Myers wrote Maritime cancelling the “Deed of Conditional Sale”

O Myers demanded return of possession of properties

O Held Maritime liable for use and occupation amounting to P10k per month

In the meantime, Luzon Brokerage was leasing the property from Maritime.
O Myers demanded from Luzon the payment of monthly rentals of P10k
O Myers also demanded surrender of property.

While actions and crossclaims between Myers and Maritime were happening, the contract between Maritime
and Luzon was extended for 4more years.

Turns out, Maritime’s suspension of its payments to Myers corp arose from a previous event: An award of
back wages made by the Court of Industrial Relations in favor of Luzon Labor Union (employees employed by
Luzon).
O FH Myers was a major stockholder of Luzon Brokerage. FH Myers promised to
indemnify Schedler (who controlled Maritime) when Shedler purchased FH Myers’s stock in Luzon Brokerage
company. (This indemnification is for the award of back wages by the CIR)
o Schedler claims that after FH Myers estates closed, he was notified that the indemnity on the Labor
Union case will not be honored anymore.
O And so, Schedler advised Myers corp that Maritime is withholding payments to Myers corp in order to
offset the liability when Myersheirs failed to honor the indemnity agreement.

TC ruled Maritime in breach of contract.

Issue:
Has there been a breach of contract?
Can Myers extrajudicially terminate the contract?

Held:
Yes.
Yes.

Ratio:
Failure to pay monthly installments constitute a breach of contract. Default was not made in good faith.
The letter to Myers corp means that the non-payment of installments was deliberately made to coerce Myers
crp into answering for an alleged promise of the dead FH Myers.
Whatever obligation FH Myers had assumed is not an obligation of Myers corp. No proof that board of Nyers
corp agreed to assume responsibility to debts of FH Myers and heirs.
Schaedler allowed the estate proceedings of FH Myers to close without providing liability.
By the balance (of payment) in the Deed of Conditional Sale, Maritime wasattempting to burden the Myers
corp with an uncollectible debt,since enforcement against FH Myers estate was already barred.
Maritime acted in bad faith.
Maritime’s contract with Myers is not the ordinary sale contemplated in NCC 1592 (transferring ownership
simultaneously with

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delivery).
The distinction between contracts of sale and contract to sell with reserved title has been recognized by this
Court in repeated decisions upholding the power of promisors under contracts to sell in case of failure of the
other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance
and retain the sums or installments already received, where such rights are expressly provided for, as in this
case

 Dignos v. Court of Appeals

FACTS:

Spouses Silvestre Dignos and Isabela Lumungsod de Dignos sold their parcel of land in Opon, Lapu-Lapu to
private respondent Antonio Jabil for the sum of P28,000.00 payable for 2 installments, with an assumption of
indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00 as was acknowledged by vendors in
the Deed of Absolute Sale (Exh. C), and the next installment to be paid 3 months after. But the same land was
also sold by Spouses Dignos (Exh. J) which was registered in the Registry of Deeds. This prompted Jabil to file
a civil suit against Spouses Dignos for the 2nd sale to Spouses Luciano Cabigas and Jovita de Cabigas, who
were then US citizens. CFI of Cebu rendered the 2nd sale to Spouses Cabigas null and void, directing Spouses
Dignos to return the P35,000.00 to Spouses Cabigas and ordered Jabil to pay the remaining balance. Spouses
Dignos contend that Exh. C is a contract to sell and as such, anchored their contention on the very terms of
the contract as mentioned in ¶4, that said spouses have agreed to sell the herein mentioned property to
Alilano B. Jabil and condition in ¶5, in which the spouses agreed to sign a final deed of absolute sale upon
payment of the remaining balance of P4,000.00.

ISSUE:

Is the contract between the parties a contract of sale or a contract to sell?

HELD:

The contract between the parties is a contract of sale. It has been held that a deed of sale is absolute in
nature although dominated as a “Deed of Conditional Sale” where nowhere in the contract in question is a
proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of
the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period. All the elements of a valid contract of sale are present in
the document and that Spouses Dignos never notified Jabil by notarial act that they were rescinding the
contract, and neither did they file a suit in court to rescind the sale. There is no showing that Jabil properly
authorized a certain Cipriano Amistad to tell petitioners that he was already waiving his rights to the land in
question.

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