I. CONTRACT OF SALE, CONCEPTS (NCC 1458)

STATUS

Essential requisites

Leabres vs. Court of Appeals, December 12, 1986

Sale as distinguished from other contracts

Contract for piece of work

Co vs. CIR, 99 Phil 841

CIR vs. Arnoldus Carpentry, 159 SCRA 199

Agency to Sell

Quiroga vs. Parsons, 38 Phil 501

Gonzalo Puyat & Sons, Inc. vs. Arco Amusement, 72 Phil 402

Kinds of sale Conditional

Dignos vs. CA, 158 SCRA 375

Rayos vs. CA, 434 SCRA 365

Clemeno, Jr. vs. Lobregat, 09 September 2004

G.R. No. L-41847 December 12, 1986

CATALINO LEABRES,petitioner,vs.COURT OF APPEALS and MANOTOK REALTY, INC.,respondents.

Magtanggol C. Gunigundo for petitioner.

Marcelo de Guzman for respondents.

PARAS,J.:

Before Us is a Petition for certiorari to review the decision of the Court of Appeals which is quoted hereunder:

In Civil Case No. 64434, the Court of First Instance of Manila made the following quoted decision:

(1) Upon defendant's counterclaim, ordering plaintiff Catalino Leabres to vacate and/or surrender possession to defendant Manotok Realty, Inc. the parcel of land subject matter of the complaint described in paragraph 3 thereof and described in the Bill of Particulars dated March 4, 1966;

(2) To pay defendant the sum of P81.00 per month from March 20, 1959, up to the time he actually vacates and/or surrenders possession of the said parcel of land to the defendant Manotok Realty, Inc., and

(3) To pay attorney's fees to the defendant in the amount of P700.00 and pay the costs. (Decision, R.A., pp. 54-55).

The facts of this case may be briefly stated as follows:

Clara Tambunting de Legarda died testate on April 22, 1950. Among the properties left by the deceased is the "Legarda Tambunting Subdivision" located on Rizal Avenue Extension, City of Manila, containing an area of 80,238.90 sq. m., covered by Transfer Certificates of Title No. 62042; 45142; 45149; 49578; 40957 and 59585. Shortly after the death of said deceased, plaintiff Catalino Leabres bought, on a partial payment of Pl,000.00 a portion (No. VIII, Lot No. 1) of the Subdivision from surviving husband Vicente J. Legarda who acted as special administrator, the deed or receipt of said sale appearing to be dated May 2, 1950 (Annex "A"). Upon petition of Vicente L. Legarda, who later was appointed a regular administrator together with Pacifica Price and Augusto Tambunting on August 28, 1950, the Probate Court of Manila in the Special Proceedings No. 10808) over the testate estate of said Clara Tambunting, authorized through its order of November 21, 1951 the sale of the property.

In the meantime, Vicente L. Legarda was relieved as a regular Administrator and the Philippine Trust Co. which took over as such administrator advertised the sale of the subdivision which includes the lot subject matter herein, in the issues of August 26 and 27, September 2 and 3, and 15 and 17, 1956 of the Manila Times and Daily Mirror. In the aforesaid Special Proceedings No. 10808, no adverse claim or interest over the subdivision or any portion thereof was ever presented by any person, and in the sale that followed, the Manotok Realty, Inc. emerged the successful bidder at the price of P840,000.00. By order of the Probate Court, the Philippine Trust Co. executed the Deed of Absolute Sale of the subdivision dated January 7, 1959 in favor of the Manotok Realty, Inc. which deed was judicially approved on March 20, 1959, and recorded immediately in the proper Register of Deeds which issued the corresponding Certificates of Title to the Manotok Realty, Inc., the defendant appellee herein.

A complaint dated February 8, 1966, was filed by herein plaintiff, which seeks, among other things, for the quieting of title over the lot subject matter herein, for continuing possession thereof, and for damages. In the scheduled hearing of the case, plaintiff Catalino Leabres failed to appear although he was duly notified, and so the trial Court, in its order dated September 14, 1967, dismissed the complaint (Annex "E").In another order of dismissal was amended as to make the same refer only to plaintiff's complaint and the counter claim of the defendant was reinstated and as the evidence thereof was already adduced when defendant presented its evidence in three other cases pending in the same Court, said counterclaim was also considered submitted for resolution. The motion for reconsideration dated January 22, 1968 (Annex " I "), was filed by plaintiff, and an opposition thereto dated January 25, 1968, was likewise filed by defendant but the Courta quodismissed said motion in its order dated January 12, 1970 (Annex "K"), "for lack of merits" (pp. 71-72, Record on Appeal).

Appealing the decision of the lower Court, plaintiff-appellant advances the following assignment of errors:

I

THE LOWER COURT ERRED IN DENYING THE MOTION FOR RECONSIDERATION, DATED OCTOBER 9, 1967, THUS DEPRIVING THE PLAINTIFF-APPELLANT HIS DAY IN COURT.

II

THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT CATALINO LEABRES TO VACATE AND/OR SURRENDER THE POSSESSION OF THE LOT SUBJECT MATTER OF THE COMPLAINT TO DEFENDANT-APPELLEE.

III

THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT TO PAY DEFENDANT-APPELLEE THE SUM OF P 81.00 PER MONTH FROM MARCH 20, 1969, UP TO THE TIME HE ACTUALLY VACATE THE PARCEL OF LAND. (Appellant's Brief, p. 7)

In the First Assigned Error, it is contended that the denial of his Motion for Reconsideration dated October 9, 1967, the plaintiff-appellant was not accorded his day in Court.

The rule governing dismissal of actions for failure to prosecute is provided for in Section 3, Rule 17 of the Rules of Court, as follows:

If the plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable length of time, or to comply with these rules or any order of the Court, the action may be dismissed upon motion of the defendant or upon the Court's own motion. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise provided by the Court.

Under the afore-cited section, it is discretionary on the part of the Court to dismiss an action for failure to prosecute, and its action will not be reversed upon appeal in the absence of abuse. The burden of showing abuse of this discretion is upon the appellant since every presumption is toward the correctness of the Court's action (Smith, Bell & Co., et al vs. American Pres. Lines, Ltd., and Manila Terminal Co., No. L-5304, April 30, 1954; Adorable vs. Bonifacio, G. R. No. L-0698, April 22, 1959); Flores vs. Phil. Alien Property Administration, G.R. No. L-12741, April 27, 1960). By the doctrine laid down in these cases, and by the provisions of Section 5, Rules 131 of the Rules of Court, particularly paragraphs (m) and (o) which respectively presume the regularity of official performance and the passing upon by the Court over all issues within a case, it matters not if the Court dismissing the action for failure to prosecute assigns any special reason for its action or not. We take note of the fact that the Order declaring appellant in default was handed down on September 14, 1967. Appellant took no steps to have this Order set aside. It was only on January 22, 1968, after he was furnished a copy of the Court's decision dated December 9, 1967 or about four months later that he attached this Order and the decision of the Court. Appellant slept on his rights-if he had any. He had a chance to have his day in Court but he passed it off. Four months later he alleges that sudden illness had prevented him. We feel appellant took a long time too-long in fact-to inform the Court of his sudden illness. This sudden illness that according to him prevented him from coming to Court, and the time it took him to tell the Court about it, is familiar to the forum as an oft repeated excuse to justify indifference on the part of litigants or outright negligence of those who represent them which subserves the interests of justice. In the instant case, not only did the appellant wantonly pass off his chance to have a day in Court but he has also failed to give a convincing, just and valid reason for the new hearing he seeks. The trial court found it so; We find it so. The trial Court in refusing to give appellant a new trial does not appear to have abused his discretion as to justify our intervention.

The Second and Third Assignments of Error are hereby jointly treated in our discussion since the third is but a consequence of the second.

It is argued that had the trial Court reconsidered its order dated September 14, 1967 dismissing the complaint for failure to prosecute, plaintiff-appellant might have proved that he owns the lot subjectmatter of the case, citing the receipt (Annex A) in his favor; that he has introduced improvements and erected a house thereon made of strong materials; that appellee's adverse interest over the property was secured in bad faith since he had prior knowledge and notice of appellant's physical possession or acquisition of the same; that due to said bad faith appellant has suffered damages, and that for all the foregoing, the judgment should be reversed and equitable relief be given in his favor.

As above stated, the Legarda-Tambunting Subdivision which includes the lot subject matter of the instant case, is covered by Torrens Certificates of Title. Appellant anchors his claim on the receipt (Annex "A") dated May 2, 1950, which he claims as evidence of the sale of said lot in his favor. Admittedly, however, Catalino Leabres has not registered his supposed interest over the lot in the records of the Register of Deeds, nor did he present his claim for probate in the testate proceedings over the estate of the owner of said subdivision, in spite of the notices advertised in the papers. (Saldana vs. Phil. Trust Co., et al.; Manotok Realty, Inc.,supra).

On the other hand, defendant-appellee, Manotok Realty, Inc., bought the whole subdivision which includes the subject matter herein by order and with approval of the Probate Court and upon said approval, the Deed of Absolute Sale in favor of appellee was immediately registered with the proper Register of Deeds. Manotok Realty, Inc. has therefore the better right over the lot in question because in cases of lands registered under the Torrens Law, adverse interests not therein annotated which are without the previous knowledge by third parties do not bind the latter. As to the improvement which appellant claims to have introduced on the lot, purchase of registered lands for value and in good faith hold the same free from all liens and encumbrances except those noted on the titles of said land and those burdens imposed by law. (Sec. 39, Act. 496).An occupant of a land, or a purchaser thereof from a person other than the registered owner, cannot claim good faith so as to be entitled to retention of the parcels occupied by him until reimbursement of the value of the improvements he introduced thereon, because he is charged with notice of the existence of the owner's certificate of title (J.M. Tuason & Co. vs. Lecardo, et al., CA-G.R. No. 25477-R, July 24, 1962; J.M. Tuason & Co., Inc. vs. Manuel Abundo, CA-G.R. No. 29701-R, November 18, 1968).

Appellant has not convinced the trial Court that appellee acted in bad faith in the acquisition of the property due to the latter's knowledge of a previous acquisition by the former, and neither are we impressed by the claim. The purchaser of a registered land has to rely on the certificate of title thereof. The good faith of appellee coming from the knowledge that the certificate of title covering the entire subdivision contain no notation as to appellant's interest, and the fact that the records of these eases like Probate Proceedings Case No. 10808, do not show the existence of appellant's claim, strongly support the correctness of the lower Court's decision

WHEREFORE, in view of the foregoing, we find no reason to amend or set aside the decision appealed from, as regards to plaintiff-appellant Catalino Leabres. We therefore affirm the same, with costs against appellant. (pp. 33-38, Rollo)

Petitioner now comes to us with the following issues:

(1) Whether or not the petitioner was denied his day in court and deprived of due process of law.

(2) Whether or not the petitioner had to submit his receipt to the probate court in order that his right over the parcel of land in dispute could be recognized valid and binding and conclusive against the Manotok Realty, Inc.

(3) Whether or not the petitioner could be considered as a possessor in good faith and in the concept of owner. (p. 11, Rollo)

Petitioner's contention that he was denied his day in court holds no water. Petitioner does not deny the fact that he failed to appear on the date set for hearing on September 14, 1967 and as a consequence of his non-appearance, the order of dismissal was issued, as provided for by Section 3, Rule 17 of the Revised Rules of Court.

Moreover, as pointed out by private respondent in its brief, the hearing on June 11, 1967 was notex parte. Petitioner was represented by his counsel on said date, and therefore, petitioner was given his day in Court.

The main objection of the petition in the lower court's proceeding is the reception of respondent's evidence without declaring petitioner in default. We find that there was no necessity to declare petitioner in default since he had filed his answer to the counterclaim of respondent.

Petitioner anchors his main arguments on the receipt (Exh. 1) dated May 2, 1950, as a basis of a valid sale. An examination of the receipt reveals that the same can neither be regarded as a contract of sale or a promise to sell. There was merely an acknowledgment of the sum of One Thousand Pesos (P1,000.00). There was no agreement as to the total purchase price of the land nor to the monthly installment to be paid by the petitioner. The requisites of a valid Contract of Sale namely 1) consent or meeting of the minds of the parties; 2) determinate subject matter; 3) price certain in money or its equivalent-are lacking in said receipt and therefore the "sale" is not valid nor enforceable. Furthermore, it is a fact that Dona Clara Tambunting died on April 22, 1950. Her estate was thereafter undercustodia legisof the Probate Court which appointed Don Vicente Legarda as Special Administrator on August 28, 1950. Don Vicente Legarda entered into said sale in his own personal-capacity and without court approval, consequently, said sale cannot bind the estate of Clara Tambunting. Petitioner should have submitted the receipt of alleged sale to the Probate Court for its approval of the transactions. Thus, the respondent Court did not err in holding that the petitioner should have submitted his receipt to the probate court in order that his right over the subject land could be recognized-assuming of course that the receipt could be regarded as sufficient proof.

Anent his possession of the land, petitioner cannot be deemed a possessor in good faith in view of the registration of the ownership of the land. To consider petitioner in good faith would be to put a premium on his own gross negligence. The Court resolved to DENY the petition for lack of merit and to AFFIRM the assailed judgment.

Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

G.R. No. L-8506 August 31, 1956

CELESTINO CO & COMPANY,petitioner,vs.COLLECTOR OF INTERNAL REVENUE,respondent.

Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E. Torres and Solicitor Federico V. Sian for respondent.

BENGZON,J.:

Appeal from a decision of the Court of Tax Appeals.

Celestino Co & Company is a duly registered general copartnership doing business under the trade name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of 7 per cent on the gross receipts of its sash, door and window factory, in accordance with section one hundred eighty-six of the National Revenue Code imposing taxes on sale of manufactured articles. However in 1952 it began to claim liability only to the contractor's 3 per cent tax (instead of 7 per cent) under section 191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also failed. Said the Court:

To support his contention that his client is an ordinary contractor . . . counsel presented . . . duplicate copies of letters, sketches of doors and windows and price quotations supposedly sent by the manager of the Oriental Sash Factory to four customers who allegedly made special orders to doors and window from the said factory. The conclusion that counsel would like us to deduce from these few exhibits is that the Oriental Sash Factory does not manufacture ready-made doors, sash and windows for the public but only upon special order of its select customers. . . . I cannot believe that petitioner company would take, as in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold print"Oriental Sash Factory(Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076,Manufacturers of all kinds of doors, windows, sashes, furniture, etc. used season-dried and kiln-dried lumber, of the best quality workmanships"solely for the purpose of supplying the needs for doors, windows and sash of its special and limited customers. One ill note that petitioner has chosen for its tradename and has offered itself to the public as a "Factory", which means it is out to do business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of special design only in particular cases but the bulk of their sales is derived from a ready-made doors and windows of standard sizes for the average home. Moreover, as shown from the investigation of petitioner's book of accounts, during the period from January 1, 1952 to September 30, 1952, it sold sash, doors and windows worth P188,754.69. I find it difficult to believe that this amount which runs to six figures was derived by petitioner entirely from its few customers who made special orders for these items.

Even if we were to believe petitioner's claim that it does not manufacture ready-made sash, doors and windows for the public and that it makes these articles only special order of its customers, that does not make it a contractor within the purview of section 191 of the national Internal Revenue Code. there are no less than fifty occupations enumerated in the aforesaid section of the national Internal Revenue Code subject to percentage tax and after reading carefully each and every one of them, we cannot find under which the business of manufacturing sash, doors and windows upon special order of customers fall under the category of "road, building, navigation, artesian well, water workers and other construction work contractors" are those who alter or repair buildings, structures, streets, highways, sewers, street railways railroads logging roads, electric lines or power lines, and includes any other work for the construction, altering or repairing for which machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).

Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the national Internal Revenue Code, this leaves us to decide the remaining issue whether or not petitioner could be taxed with lesser strain and more accuracy as seller of its manufactured articles under section 186 of the same code, as the respondent Collector of Internal Revenue has in fact been doing the Oriental Sash Factory was established in 1946.

The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services, in contradiction with the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. (Formilleza's Commentaries and Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section 186 of the National Internal Revenue Code as a sale of articles.

There was a strong dissent; but upon careful consideration of the whole matter are inclines to accept the above statement of the facts and the law. The important thing to remember is that Celestino Co & Companyhabitually makessash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture.

Perhaps the following paragraph represents in brief the appellant's position in this Court:

Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash, windows and doors only for special customers and upon their special orders and in accordance with the desired specifications of the persons ordering the same and not for the general market: since the doors ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence and which never would have existed but for the order of the party desiring it; and since petitioner's contractual relation with his customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services, it follows that the petitioner should be taxed under section 191 of the Tax Code and NOT under section 185 of the same Code." (Appellant's brief, p. 11-12).

But the argument rests on a false foundation. Any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it serves special customersonlyor confines its services to them alone. And anyone who sees, and likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he pays the price. Surely, the appellant will not refuse, for it can easily duplicate or even mass-produce the same doors-it is mechanically equipped to do so.

That the doors and windows must meet desired specifications is neither here nor there. If these specifications do not happen to be of the kind habitually manufactured by appellant special forms for sash, mouldings of panels it would not accept the order and no sale is made. If they do, the transaction would be no different from a purchasers of manufactured goods held is stock for sale; they are bought because they meet the specifications desired by the purchaser.

Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer-sizes not previously held in stock for sale to the public-it thereby becomes an employee or servant of the customer,1not the seller of lumber. The same consideration applies to this sash manufacturer.

The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its customers may desire.

On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable. Nobody would regard the doing of two window panels a construction work in common parlance.2

Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for windows and doors according to specifications, it did not sell, but merely contracted for particular pieces of work or "merely sold its services".

Said article reads as follows:

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 contract for a piece of work.

It is at once apparent that the Oriental Sash Factory did not merely sellits servicesto Don Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the matter is that it sold materials ordinarily manufactured by it sash, panels, mouldings to Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. 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 stockdoors of the kindsold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefor (some of them at least).

In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it-it thereby contracts for apiece of work filing special orders within the meaning of Article 1467. The orders herein exhibited were not shown to be special. They were merely orders for work nothing is shown to call them special requiring extraordinary service of the factory.

The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be calledspecialwork, but regular work. Would a factory do business performing only special, extraordinary or peculiar merchandise?

Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. But as the doors and windows had been admittedly "manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as "transfers" thereof under section 186 of the National Revenue Code.

The appealed decision is consequently affirmed. So ordered.

Paras, C. J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ.,concur.

G.R. No. 71122 March 25, 1988

COMMISSIONER OF INTERNAL REVENUE,petitioner,vs.ARNOLDUS CARPENTRY SHOP, INC. and COURT OF TAX APPEALS,respondents.

The Solicitor General for petitioner.

Generoso Jacinto for respondents.

CORTES,J.:

Assailed in this petition is the decision of the Court of Tax Appeals in CTA case No. 3357 entitled "ARNOLDUS CARPENTRY SHOP, INC. v. COMMISSIONER OF INTERNAL REVENUE."

The facts are simple.

Arnoldus Carpentry Shop, Inc. (private respondent herein) is a domestic corporation which has been in existence since 1960. It has for its secondary purpose the "preparing, processing, buying, selling, exporting, importing, manufacturing, trading and dealing in cabinet shop products, wood and metal home and office furniture, cabinets, doors, windows, etc., including their component parts and materials, of any and all nature and description" (Rollo, pp. 160-161). These furniture, cabinets and other woodwork were sold locally and exported abroad.

For this business venture, private respondent kept samples or models of its woodwork on display from where its customers may refer to when placing their orders.

Sometime in March 1979, the examiners of the petitioner Commissioner of Internal Revenue conducted an investigation of the business tax liabilities of private respondent pursuant to Letter of Authority No. 08307 NA dated November 23, 1978. As per the examination, the total gross sales of private respondent for the year 1977 from both its local and foreign dealings amounted to P5,162,787.59 (Rollo. p. 60). From this amount, private respondent reported in its quarterly percentage tax returns P2,471,981.62 for its gross local sales. The balance of P2,690,805.97, which is 52% of the total gross sales, was considered as its gross export sales (CTA Decision, p. 12).

Based on such an examination, BIR examiners Honesto A. Vergel de Dios and Voltaire Trinidad made a report to the Commissioner classifying private respondent as an "other independent contractor" under Sec. 205 (16) [now Sec. 169 (q)] of the Tax Code. The relevant portion of the report reads:

Examination of the records show that per purchase orders, which are hereby attached, of the taxpayer's customers during the period under review,subject corporation should be considered a contractor and not a manufacturer.The corporation renders service in the course of an independent occupation representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished, (Luzon Stevedoring Co. v. Trinidad, 43 Phil. 803). Hence, in the computation of the percentage tax, the 3% contractor's tax should be imposed instead of the 7% manufacturer's tax. [Rollo, p. 591 (Emphasis supplied.)

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As a result thereof, the examiners assessed private respondent for deficiency tax in the amount of EIGHTY EIGHT THOUSAND NINE HUNDRED SEVENTY TWO PESOS AND TWENTY THREE CENTAVOS ( P88,972.23 ). Later, on January 31, 1981, private respondent received a letter/notice of tax deficiency assessment inclusive of charges and interest for the year 1977 in the amount of ONE HUNDRED EIGHT THOUSAND SEVEN HUNDRED TWENTY PESOS AND NINETY TWO CENTAVOS ( P 108,720.92 ). This tax deficiency was a consequence of the 3% tax imposed on private respondent's gross export sales which, in turn, resulted from the examiners' finding that categorized private respondent as a contractor (CTA decision, p.2).

Against this assessment, private respondent filed on February 19, 1981 a protest with the petitioner Commissioner of Internal Revenue. In the protest letter, private respondent's manager maintained that the carpentry shop is a manufacturer and therefor entitled to tax exemption on its gross export sales under Section 202 (e) of the National Internal Revenue Code. He explained that it was the 7% tax exemption on export sales which prompted private respondent to exploit the foreign market which resulted in the increase of its foreign sales to at least 52% of its total gross sales in 1977 (CTA decision, pp. 1213).

On June 23, 1981, private respondent received the final decision of the petitioner stating:

It is the stand of this Office that you areconsidered a contractor an not a manufacturer.Records show that you manufacture woodworks only upon previous order from supposed manufacturers and only in accordance with the latter's own design, model number, color, etc. [Rollo p. 64] (Emphasis supplied.)

On July 22, 1981, private respondent appealed to the Court of Tax Appeals alleging that the decision of the Commissioner was contrary to law and the facts of the case.

On April 22, 1985, respondent Court of Tax Appeals rendered the questioned decision holding that private respondent was a manufacturer thereby reversing the decision of the petitioner.

Hence, this petition for review wherein petitioner raises the sole issue of.Whether or not the Court of Tax Appeals erred in holding that private respondent is a manufacturer and not a contractor and therefore not liable for the amount of P108,720.92, as deficiency contractor's tax, inclusive of surcharge and interest, for the year 1977.

The petition is without merit.

1. Private respondent is a "manufacturer" as defined in the Tax Code and not a "contractor" under Section 205(e) of the Tax Code as petitioner would have this Court decide.

(a) Section 205 (16) [now Sec. 170 (q)] of the Tax Code defines "independent contractors" as:

... persons (juridical and natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whoseactivity consists essentially of the sale of all kinds of servicesfor a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. (Emphasis supplied.)

Private respondent's business does not fall under this definition.

Petitioner contends that the fact that private respondent "designs and makes samples or models that are 'displayed' or presented or 'submitted' to prospective buyers who 'might choose' therefrom" signifies that what private respondent is selling is a kind of service its shop is capable of rendering in terms of woodwork skills and craftsmanship (Brief for Petitioner, p. 6). He further stresses the point that if there are no orders placed for goods as represented by the sample or model, the shop does not produce anything; on the other hand, if there are orders placed, the shop goes into fall production to fill up the quantity ordered (Petitioner's Brief, p. 7).

The facts of the case do not support petitioner's claim. Petitioner is ignoring the fact that private respondent sells goods which it keeps in stock and not services. As the respondent Tax Court had found:

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Petitioner [private respondent herein] claims, and the records bear petitioner out, thatit had a ready stock of its shop products for saleto its foreign and local buyers. As a matter of fact, the purchase orders from its foreign buyers showed that they ordered by referring to the models designated by petitioner. Even purchases by local buyers for television cabinets (Exhs. '2 to13', pp. 1-13, BIR records) were byorders for existing modelsexcept only for some adjustments in sizes and accessories utilized.

With regard to the television cabinets, petitioner presented three witnesses its bookkeeper, production manager and manager who testified that samples of television cabinets were designed and made by petitioner, from which models the television companies such as Hitachi National and others might choose, then specified whatever innovations they desired.If found to be saleable, some television cabinets were manufactured for display and sold to the general public. These cabinets were not exported but only sold locally. (t.s.n., pp. 2235, February 18,1982; t.s.n., pp. 7-10, March 25, 1982; t.s.n., pp. 3-6, August 10, 1983.)

xxx xxx xxx

In the case of petitioner's other woodwork products such as barometer cases, knife racks, church furniture, school furniture, knock down chairs, etc., petitioner's above-mentioned witnesses testified that these were manufactured without previous orders.Samples were displayed, and if in stock, were available for immediate sale to local and foreign customers. Such testimony was not contradicted by respondent (petitioner herein). And in all the purchase orders presented as exhibits, whether from foreign or local buyers, reference was made to the model number of the product being ordered or to the sample submitted by petitioner.

Respondent's examiners, in their memorandum to the Commissioner of Internal Revenue, stated that petitioner manufactured only upon previous orders from customers and "only in accordance with the latter's own design, model number, color, etc." (Exh. '1', p. 27, BIR records.)Their bare statement that the model numbers and designs were the customers' own, unaccompanied by adequate evidence, is difficult to believe. It ignores commonly accepted and recognized business practices that it is not the customer but the manufacturer who furnishes the samples or models from which the customers select when placing their orders, The evidence adduced by petitioner to prove that the model numbers and designs were its own is more convincing[CTA decision, pp. 6-8.] (Emphasis supplied)

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This Court finds no reason to disagree with the Tax Court's finding of fact. It has been consistently held that while the decisions of the Court of Tax Appeals are appealable to the Supreme Court, the former's finding of fact are entitled to the highest respect. The factual findings can only be disturbed on the part of the tax court [Collector of Intern. al Revenue v. Henderson, L-12954, February 28, 1961, 1 SCRA 649; Aznar v. Court of Tax Appeals, L-20569, Aug. 23, 1974, 58 SCRA 519; Raymundo v. de Joya, L-27733, Dec. 3, 1980, 101 SCRA 495; Industrial Textiles Manufacturing Co. of the Phils. , Inc. v. Commissioner of Internal Revenue, L-27718 and L-27768, May 27,1985,136 SCRA 549.]

(b) Neither can Article 1467 of the New Civil Code help petitioner's cause. Article 1467 states:

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.

Petitioner alleged that what exists prior to any order is but the sample model only, nothing more, nothing less and the ordered quantity would never have come into existence but for the particular order as represented by the sample or model [Brief for Petitioner, pp. 9-101.]

Petitioner wants to impress upon this Court that under Article 1467, the true test of whether or not the contract is a piece of work (and thus classifying private respondent as a contractor) or a contract of sale (which would classify private respondent as a manufacturer) is themere existence of the product at the time of the perfection of the contract such that if the thing already exists, the contractis of sale, if not, it is work.

This is not the test followed in this jurisdiction. As can be clearly seen from the wordings of Art. 1467, what determines whether the contract is one of work or ofsale is whether the thing has been manufactured specially for the customer and upon his special order."Thus, if the thing is specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary course of one's business, it is a b contract of sale.

Jurisprudence has followed this criterion. As held inCommissioner of Internal Revenue v. Engineering Equipment and Supply Co. (L-27044 and L-27452, June 30, 1975, 64 SCRA 590, 597), "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 andwhich 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." (Emphasis supplied.) And in a BIR ruling, which as per Sec. 326 (now Sec. 277) of the Tax Court the Commissioner has the power to make and which, as per settled jurisprudence is entitled to the greatest weight as an administrative view [National Federation of Sugar Workers (NFSW) v. Ovejera, G.R. No. 59743, May 31, 1982, 114 SCRA 354, 391; Sierra Madre Trust v. Hon. Sec. of Agriculture and Natural Resources, Nos. 32370 and 32767, April 20, 1983,121 SCRA 384; Espanol v. Chairman and Members of the Board of Administrators, Phil. Veterans Administration, L-44616, June 29, 1985, 137 SCRA 3141, "one who has ready for the sale to the general public finished furniture is a manufacturer,and the mere fact that he did not have on hand a particular piece or pieces of furniture ordered does not make him a contractor only" (BIR Ruling No. 33-1, series of 1960). Likewise,

xxx xxx xxx

When the vendor enters into a contract for the delivery of an article which in the ordinary course of his business he manufactures or procures for the general market at a price certain (Art. 1458) such contract is one of saleeven if at the time of contracting he may not have such article on hand. Such articles fall within the meaning of "future goods" mentioned in Art. 1462, par. 1. [5 Padilla, Civil Law: Civil Code Annotated 139 (1974)

xxx xxx xxx

These considerations were what precisely moved the respondent Court of Tax Appeals to rule that 'the fact that [private respondent] kept models of its products... indicate that these products were for sale to the general public and not for special orders,' citingCelestino Co and Co. v. Collector of Internal Revenue[99 Phil, 841 (1956)]. (CTA Decision, pp. 8-9.)

Petitioner alleges that the error of the respondent Tax Court was due to the 'heavy albeit misplaced and indiscriminate reliance on the case ofCelestino Co and Co. v. Collector of Internal Revenue[99 Phil. 841, 842 (1956)] which is not a case in point' 1 Brief for Petitioner, pp. 14-15). The Commissioner of Internal Revenue made capital of the difference between the kinds of business establishments involved a FACTORY in the Celestino Co case and a CARPENTRY SHOP in this case (Brief for Petitioner, pp. 14-18). Petitioner seems to have missed the whole point in the former case.

True, the former case did mention the fact of the business concern being a FACTORY, Thus:

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... I cannot believe that petitioner company would take, as in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold print "Oriental Sash Factory (Celestino Co and Company, Prop.) 926 Raon St., Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes furniture, etc. used season dried and kiln-dried lumber, of the best quality workmanship" solely for the purpose of supplying the need for doors, windows and sash of its special and limited customers. One will note that petitioner has chosen for its trade name and has offered itself to the public as a FACTORY, which means it is out to do business in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of special design only in particular cases but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home. [Emphasis supplied.]

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However, these findings were merely attendant facts to show what the Court was really driving at thehabitualityof the production of the goods involved for thegeneral public.

In the instant case, it may be that what is involved is a CARPENTRY SHOP. But, in the same vein, there are also attendant facts herein to show habituality of the production for the general public.

In this wise, it is noteworthy to again cite the findings of fact of the respondent Tax Court:

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Petitioner [private respondent herein] claims, and the records bear petitioner out, thatit had a ready stock of its shop products for saleto its foreign and local buyers. As a matter of fact, the purchase orders from its foreign buyers showed that they ordered by referring to the models designed by petitioner. Even purchases by local buyers for television cabinets... were byorders for existing models. ...

With regard to the television cabinets, petitioner presented three witnesses... who testified that samples of television cabinets were designed and made by petitioner, from which models the television companies ... might choose, then specified whatever innovations they desired.If found to be saleable, some television cabinets were manufactured for display and sold to the general public.

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In the case of petitioner's other woodwork products... these were manufactured without previous orders.Samples were displayed, and if in stock, were available for immediate sale to local and foreign customers.(CTA decision, pp. 6-8.1 [Emphasis supplied.]

(c) The private respondent not being a "contractor" as defined by the Tax Code or of the New Civil Code, is it a 'manufacturer' as countered by the carpentry shop?

Sec. 187 (x) [now Sec. 157 (x)] of the Tax Code defines a manufacturer' as follows:

"Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to which it could not have been in its original condition, or who by any such process alters the quality or any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or different kinds and in such manner that the finished product of such process or manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products in their original condition would not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption.

It is a basic rule in statutory construction that when the language of the law is clear and unequivocal, the law must be taken to mean exactly what it says [Banawa et al. v. Mirano et al., L-24750, May 16, 1980, 97 SCRA 517, 533].

The term "manufacturer" had been considered in its ordinary and general usage. The term has been construed broadly to include such processes as buying and converting duck eggs to salted eggs ('balut") [Ngo Shiek v. Collector of Internal Revenue, 100 Phil. 60 (1956)1; the processing of unhusked kapok into clean kapok fiber [Oriental Kapok Industries v. Commissioner of Internal Revenue, L-17837, Jan. 31, 1963, 7 SCRA 132]; or making charcoal out of firewood Bermejo v. Collector of Internal Revenue, 87 Phil. 96 (1950)].

2. As the Court of Tax Appeals did not err in holding that private respondent is a "manufacturer," then private respondent is entitled to the tax exemption under See. 202 (d) and (e) mow Sec. 167 (d) and (e)] of the Tax Code which states:

Sec. 202. Articles not subject to percentage tax on sales. The following shall be exempt from the percentage taxes imposed in Sections 194, 195, 196, 197, 198, 199, and 201:

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(d) Articles shipped or exported by the manufacturer or producer, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the articles so exported.

(e) Articles sold by "registered export producers" to (1) other" registered export producers" (2) "registered export traders' or (3) foreign tourists or travelers, which are considered as "export sales."

The law is clear on this point. It is conceded that as a rule, as argued by petitioner, any claim for tax exemption from tax statutes is strictly construed against the taxpayer and it is contingent upon private respondent as taxpayer to establish a clear right to tax exemption [Brief for Petitioners, p. 181. Tax exemptions are strictly construed against the grantee and generally in favor of the taxing authority [City of Baguio v. Busuego, L-29772, Sept. 18, 1980, 100 SCRA 1161; they are looked upon with disfavor [Western Minolco Corp. v. Commissioner Internal Revenue, G.R. No. 61632, Aug. 16,1983,124 1211. They are held strictly against the taxpayer and if expressly mentioned in the law, must at least be within its purview by clear legislative intent [Commissioner of Customs v. Phil., Acetylene Co., L-22443, May 29, 1971, 39 SCRA 70, Light and Power Co. v. Commissioner of Customs, G.R. L-28739 and L-28902, March 29, 1972, 44 SCRA 122].

Conversely therefore, if there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative intent, then the rule on strict construction will not apply. In the present case the respondent Tax Court did not err in classifying private respondent as a "manufacturer". Clearly, the 'latter falls with the term 'manufacturer' mentioned in Art. 202 (d) and (e) of the Tax Code. As the only question raised by petitioner in relation to this tax exemption claim by private respondent is the classification of the latter as a manufacturer, this Court affirms the holding of respondent Tax Court that private respondent is entitled to the percentage tax exemption on its export sales.

There is nothing illegal in taking advantage of tax exemptions. When the private respondent was still exporting less and producing locally more, the petitioner did not question its classification as a manufacturer. But when in 1977 the private respondent produced locally less and exported more, petitioner did a turnabout and imposed the contractor's tax. By classifying the private respondent as a contractor, petitioner would likewise take away the tax exemptions granted under Sec. 202 for manufacturers. Petitioner's action finds no support in the applicable law.

WHEREFORE, the Court hereby DENIES the Petition for lack of merit and AFFIRMS the Court of Tax Appeals decision in CTA Case No. 3357.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Feliciano and Bidin, concur.

G.R. No. L-11491 August 23, 1918

ANDRES QUIROGA,plaintiff-appellant,vs.PARSONS HARDWARE CO.,defendant-appellee.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.Crossfield & O'Brien for appellee.

AVANCEA,J.:

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions:

(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment.

(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons.

(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice.

The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash.

(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given.

(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.

ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party.

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 wordscommission on salesused in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The wordagency, 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 wasto 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.

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.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ.,concur.

G.R. No. L-47538 June 20, 1941

GONZALO PUYAT & SONS, INC.,petitioner,vs.ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco),respondent.

Feria & Lao for petitioner.J. W. Ferrier and Daniel Me. Gomez for respondent.

LAUREL,J.:

This is a petition for the issuance of a writ ofcertiorarito the Court of Appeals for the purpose of reviewing its Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."

It appears that the respondent herein brought an action against the herein petitioner in the Court of First Instance of Manila to secure a reimbursement of certain amounts allegedly overpaid by it on account of the purchase price of sound reproducing equipment and machinery ordered by the petitioner from the Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as found by the trial court and confirmed by the appellate court, which are admitted by the respondent, are as follows:

In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the Philippine Islands, with its office in Manila, was engaged in the business of operating cinematographs. In 1930, its name was changed to Arco Amusement Company. C. S. Salmon was the president, while A. B. Coulette was the business manager. About the same time, Gonzalo Puyat & Sons, Inc., another corporation doing business in the Philippine Islands, with office in Manila, in addition to its other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, U.S. A. It would seem that this last company dealt in cinematographer equipment and machinery, and the Arco Amusement Company desiring to equipt its cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru its then president and acting manager, Gil Puyat, and an employee named Santos. After some negotiations, it was agreed between the parties, that is to say, Salmon and Coulette on one side, representing the plaintiff, and Gil Puyat on the other, representing the defendant, that the latter would, on behalf of the plaintiff, order sound reproducing equipment from the Starr Piano Company and that the plaintiff would pay the defendant, in addition to the price of the equipment, a 10 per cent commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of the plaintiff, the defendant sent a cable, Exhibit "3", to the Starr Piano Company, inquiring about the equipment desired and making the said company to quote its price without discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff the cable of inquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being agreeable to this price, the plaintiff, by means of Exhibit "1", which is a letter signed by C. S. Salmon dated November 19, 1929, formally authorized the order. The equipment arrived about the end of the year 1929, and upon delivery of the same to the plaintiff and the presentation of necessary papers, the price of $1.700, plus the 10 per cent commission agreed upon and plus all the expenses and charges, was duly paid by the plaintiff to the defendant.

Sometime the following year, and after some negotiations between the same parties, plaintiff and defendants, another order for sound reproducing equipment was placed by the plaintiff with the defendant, on the same terms as the first order. This agreement or order was confirmed by the plaintiff by its letter Exhibit "2", without date, that is to say, that the plaintiff would pay for the equipment the amount of $1,600, which was supposed to be the price quoted by the Starr Piano Company, plus 10 per cent commission, plus all expenses incurred. The equipment under the second order arrived in due time, and the defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and charges. This amount of $160 does not represent actual out-of-pocket expenses paid by the defendant, but a mere flat charge and rough estimate made by the defendant equivalent to 10 per cent of the price of $1,600 of the equipment.

About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company discovered that the price quoted to them by the defendant with regard to their two orders mentioned was not the net price but rather the list price, and that the defendants had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of machinery and cinematograph equipment, said officials of the plaintiff were convinced that the prices charged them by the defendant were much too high including the charges for out-of-pocket expense. For these reasons, they sought to obtain a reduction from the defendant or rather a reimbursement, and failing in this they brought the present action.

The trial court held that the contract between the petitioner and the respondent was one of outright purchase and sale, and absolved that petitioner from the complaint. The appellate court, however, by a division of four, with one justice dissenting held that the relation between petitioner and respondent was that of agent and principal, the petitioner acting as agent of the respondent in the purchase of the equipment in question, and sentenced the petitioner to pay the respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the filing of the complaint until said amount is fully paid, as well as to pay the costs of the suit in both instances. The appellate court further argued that even if the contract between the petitioner and the respondent was one of purchase and sale, the petitioner was guilty of fraud in concealing the true price and hence would still be liable to reimburse the respondent for the overpayments made by the latter.

The petitioner now claims that the following errors have been incurred by the appellate court:

I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos, entre la recurrente y la recurrida existia una relacion implicita de mandataria a mandante en la transaccion de que se trata, en vez de la de vendedora a compradora como ha declarado el Juzgado de Primera Instncia de Manila, presidido entonces por el hoy Magistrado Honorable Marcelino Montemayor.

II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo que dicha relacion fuerra de vendedora a compradora, la recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto al precio de $1,700 y $1,600 de las maquinarias y equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr Piano Company of Richmond, Indiana.

We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of purchase and sale, and not one of agency, for the reasons now to be stated.

In the first place, the contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's talk", which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject of its contract with the 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 filed with the Court of First Instance of Manila that the petitioner agreed tosellto it the first sound reproducing equipment and machinery. The third paragraph of the respondent's cause of action states:

3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant (petitioner) entered into an agreement, under and by virtue of which the herein defendant was to secure from the United States, andselland deliver to the herein plaintiff, certain sound reproducing equipment and machinery, for which the said defendant, under and by virtue of said agreement, was to receive the actual cost price plus ten per cent (10%), and was also to be reimbursed for all out of pocket expenses in connection with the purchase and delivery of such equipment, such as costs of telegrams, freight, and similar expenses. (Emphasis ours.)

We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with the pretended relation of agency between the petitioner and the respondent, because in agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code).

While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission, this does not necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale. (SeeQuirogavs.Parsons Hardware Co., 38 Phil., 501.)

In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and machinery from the Starr Piano Company 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.

The respondents contends that it merely agreed to pay the cost price as distinguished from the list price, plus ten per cent (10%) commission and all out-of-pocket expenses incurred by the petitioner. The distinction which the respondents seeks to draw between the cost price and the list price we consider to be spacious. It is to be observed that the twenty-five per cent (25%) discount granted by the Starr piano Company to the petitioner is available only to the latter as the former's exclusive agent in the Philippines. The respondent could not have secured this discount from the Starr Piano Company and neither was the petitioner willing to waive that discount in favor of the respondent. As a matter of fact, no reason is advanced by the respondent why the petitioner should waive the 25 per cent discount granted it by the Starr Piano Company in exchange for the 10 percent commission offered by the respondent. Moreover, the petitioner was not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers, and the respondent was not even aware of such an arrangement. The respondent, therefore, could not have offered to pay a 10 per cent commission to the petitioner provided it was given the benefit of the 25 per cent discount enjoyed by the petitioner. It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an exhorbitant additional price that the respondent sought to limit it to 10 per cent, and the respondent is estopped from questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain, it alone must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground alone. The respondent could not secure equipment and machinery manufactured by the Starr Piano Company except from the petitioner alone; it willingly paid the price quoted; it received the equipment and machinery as represented; and that was the end of the matter as far as the respondent was concerned. The fact that the petitioner obtained more or less profit than the respondent calculated before entering into the contract or reducing the price agreed upon between the petitioner and the respondent. Not every concealment is fraud; and short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world.

The writ ofcertiorarishould be, as it is hereby, granted. The decision of the appellate court is accordingly reversed and the petitioner is absolved from the respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc., defendants-appellee," without pronouncement regarding costs. So ordered.

Avancea, C.J., Diaz, Moran and Horrilleno, JJ.,concur.

G.R. No. L-59266 February 29, 1988

SILVESTRE DIGNOS and ISABEL LUMUNGSOD,petitioners,vs.HON. COURT OF APPEALS and ATILANO G. JABIL,respondents.

BIDIN,J.:

This is a petition for review on certiorari seeking the reversal of the: (1) Decision*of the 9th Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court of First Instance**of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for lack of merit.

The undisputed facts as found by the Court of Appeals are as follows:

The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be paid on or before September 15, 1965.

On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register of Deeds pursuant to the provisions of Act No. 3344.

As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the land, and as plaintiff- appellant discovered the second sale made by defendants-appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28)

After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal portion of which reads:

WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United States of America, null and void ab initio, and the deed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the decision of this case becomes final and executory.

The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding to the expenses or costs of the hollow block fence, so far constructed.

It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall enrich himself at the expense of another.

The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this decision.

With costs against the defendants.

From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein) appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al."

On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the land in question. The disposive portion of said decision of the Court of Appeals reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment as pertains to plaintiff-appellant above indicated, the judgment appealed from is hereby AFFIRMED in all other respects.

With costs against defendants-appellants.

SO ORDERED.

Judgment MODIFIED.

A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the Court of Appeals denying the motion for lack of merit.

Hence, this petition.

In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In the resolution dated April 26,1982, respondents were required to comment thereon, which comment was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On August 9,1982, acting on the motion for reconsideration and on all subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10, 1982 and to give due course to the instant petition. On September 6, 1982, respondents filed a rejoinder to reply of petitioners which was noted on the resolution of September 20, 1982.

Petitioners raised the following assignment of errors:

I

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL.

II

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.

III

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS.

IV

PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS.

V

BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO.

The foregoing assignment of errors may be synthesized into two main issues, to wit:

I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell.

II. Whether or not there was a valid rescission thereof.

There is no merit in this petition.

It is significant to note that this petition was denied by the Second Division of this Court in its Resolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on the basis of all subsequent pleadings filed, the petition was given due course.

I.

The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:

1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil. Philippine Currency as advance payment;

2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00) Loan from the First Insular Bank of Cebu;

3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos (P4,000.00) on or before September 15,1965;

4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the said property;

5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over the above-mentioned property upon the payment of the balance of Four Thousand Pesos. (Original Record, pp. 10-11)

In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two (2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or before September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further contended that in said contract, title or ownership over the property was expressly reserved in the vendor, the Dignos spouses until the suspensive condition of full and punctual payment of the balance of the purchase price shall have been met. So that there is no actual sale until full payment is made (Rollo, pp. 51-52).

In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and the absence of a formal deed of conveyance is a very strong indication that the parties did not intend "transfer of ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms and conditions of the contract, more particularly paragraph four which reads, "that said spouses has agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number five which reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned property upon the payment of the balance of four thousand pesos."

Such contention is untenable.

By and large, the issues in this case have already been settled by this Court in analogous cases.

Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title to 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 Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).

A careful examination of the contract shows that there is no such stipulation reserving the title of the property on the vendors nor does it give them the right to unilaterally rescind the contract upon non-payment of the balance thereof within a fixed period.

On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that "The ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.

While it may be conceded that there was no constructive delivery of the land sold in the case at bar, as subject Deed of Sale is a private instrument, it is beyond question that there was actual delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the land in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108).

Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale was intended by the parties and not a contract to sell.

Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void.

II.

Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was already rescinded.

Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with the case at bar, the contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. It is undisputed that petitioners never notified private respondents Jabil by notarial act that they were rescinding the contract, and neither did they file a suit in court to rescind the sale. The most that they were able to show is a letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the latter had no money and further advised petitioners to sell the land in litigation to another party (Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is no showing that Amistad was properly authorized by Jabil to make such extra-judicial rescission for the latter who, on the contrary, vigorously denied having sent