Equatorial Realty Dev. v.

Mayfair (2001)
FACTS:
Carmelo & Bauermann, Inc. (“Carmelo”) used to own a parcel of land, together with two
2-storey buildings constructed thereon. On June 1, 1967, Carmelo entered into a Contract of
Lease with Mayfair Theater, Inc. (“Mayfair”) for a period of 20 years. The lease covered a
portion of the second floor and mezzanine of a two-storey building with about 1,610 square
meters of floor area, which respondent used as a movie house known as Maxim Theater.
Both leases contained a provision granting Mayfair a right of first refusal to purchase the
subject properties. However, on July 30, 1978—within the 20-year-lease term —the subject
properties were sold by Carmelo to Equatorial Realty Development, Inc. (“Equatorial”) for the
total sum of P11,300,000, without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint
before the Regional Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of
Absolute Sale between Carmelo and Equatorial, (b) specific performance, and (c) damages.
After examining the decision of the case in CA, the SC rendered a decision in favor of the
respondent Mayfair and rescinded the contract between Carmelo and the petitioner Equatorial.
However, Carmelo could no longer be located. Thus, following the order of execution of the trial
court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of
P11,300,000 less P847,000 as withholding tax. The lower court issued a Deed of Reconveyance
in favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these documents, the
Registry of Deeds of Manila cancelled Equatorial’s titles and issued new Certificates of Title 7 in
the name of Mayfair.
Meanwhile, on September 18, 1997—barely five months after Mayfair had submitted its
Motion for Execution before the RTC of Manila, Branch 7—Equatorial filed with the Regional
Trial Court of Manila, Branch 8, an action for the collection of a sum of money against Mayfair,
claiming payment of rentals or reasonable compensation for the defendant’s use of the subject
premises after its lease contracts had expired.
In its Complaint, Equatorial alleged among other things that the Lease Contract covering
the premises occupied by Maxim Theater expired on May 31, 1987, while the Lease Contract
covering the premises occupied by Miramar Theater lapsed on March 31, 1989. 10 Representing
itself as the owner of the subject premises by reason of the Contract of Sale on July 30, 1978, it
claimed rentals arising from Mayfair’s occupation thereof.
ISSUE:
1. Whether equatorial is entitled to have back rentals?
HELD: The petition is NOT MERITORIOUS. Petitioner is not entitled for back rentals for
reasons of (a) the patent failure to deliver the property and (b) petitioner’s bad faith,
RATIO:
Rent is a civil fruit that belongs to the owner of the property producing it by right of
accession. Consequently, the rentals that fell due from the time of the perfection of the sale to
petitioner until its rescission by final judgment should belong to the owner of the property during
that period.
By a contract of sale, “one of the contracting parties obligates himself to transfer
ownership of and to deliver a determinate thing and the other to pay therefor a price certain in
money or its equivalent. However, Ownership of the thing sold is a real right, which the buyer
acquires only upon delivery of the thing to him “in any of the ways specified in articles 1497 to
1501, or in any other manner signifying an agreement that the possession is transferred from the
vendor to the vendee.” This right is transferred, not merely by contract, but also by tradition or
delivery.
Delivery has been described as a composite act, a thing in which both parties must join
and the minds of both parties concur. It is an act by which one party parts with the title to and the
possession of the property, and the other acquires the right to and the possession. In the Law on
Sales, delivery may be either actual or constructive, but both forms of delivery contemplate “the
absolute giving up of the control and custody of the property on the part of the vendor, and the
assumption of the same by the vendee.
THE POSSESSION WAS NEVER ACQUIRED BY THE PETITIONER
From the peculiar facts of this case, it is clear that petitioner never took actual control and
possession of the property sold, in view of respondent’s timely objection to the sale and the
continued actual possession of the property. The objection took the form of a court action
impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in
the mother case. Hence, respondent’s opposition to the transfer of the property by way of sale to
Equatorial was a legally sufficient impediment that effectively prevented the passing of the
property into the latter’s hands.
The execution of a public instrument gives rise, therefore, only to a prima facie
presumption of delivery. Such presumption is destroyed when the instrument itself expresses or
implies that delivery was not intended; or when by other means it is shown that such delivery
was not effected, because a third person was actually in possession of the thing. In the latter case,
the sale cannot be considered consummated. Although it is postulated in the Art. 1462 that the
execution of a public document is equivalent to delivery, this legal fiction only holds true when
there is no impediment that may prevent the passing of the property from the hands of the vendor
into those of the vendee.
At bottom, it may be conceded that, theoretically, a rescissible contract is valid until
rescinded. However, this general principle is not decisive to the issue of whether Equatorial ever
acquired the right to collect rentals. What is decisive is the civil law rule that ownership is
acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of
this controversy as found by this Court in the mother case, Equatorial was never put in actual and
effective control or possession of the property because of Mayfair’s timely objection.
In short, the sale to Equatorial may have been valid from inception, but it was judicially
rescinded before it could be consummated. Petitioner never acquired ownership, not because the
sale was void, as erroneously claimed by the trial court, but because the sale was not
consummated by a legally effective delivery of the property sold.
IN TERMS OF PETITIONER BEING ENTITLED TO FRUITS/RENTAL
However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as
buyer acquired a right to the fruits of the thing sold from the time the obligation to deliver the
property to petitioner arose. That time arose upon the perfection of the Contract of Sale on July
30, 1978, from which moment the laws provide that the parties to a sale may reciprocally
demand performance.
Does this mean that despite the judgment rescinding the sale, the right to the fruits
belonged to, and remained enforceable by, Equatorial? Article 1385 of the Civil Code answers
this question in the negative, because “[rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the price with its interest; x x
x.” Not only the land and building sold, but also the rental payments paid, if any, had to be
returned by the buyer.
IN TERMS OF DISMISSING THAT PAYMENT OF RENTALS IS NOT AFFIRMATION
THAT THE PETITIONER IS THE OWNER
The fact that Mayfair paid rentals to Equatorial during the litigation should not be
interpreted to mean either actual delivery or ipso facto recognition of Equatorial’s title. The
rental payments made by Mayfair should not be construed as a recognition of Equatorial as the
new owner. They were made merely to avoid imminent eviction from the property while waiting
for the decision of the case regarding the rescission of the contract of sale between equatorial and
Carmelo.
XPN TO OWNERSHIP EVEN WITH ACTUAL DELIVERY: BAD FAITH
Furthermore, assuming for the sake of argument that there was valid delivery, petitioner
is not entitled to any benefits from the “rescinded” Deed of Absolute Sale because of its bad
faith. This being the law of the mother case decided in 1996, it may no longer be changed
because it has long become final and executory.
On the part of Equatorial, it cannot be a buyer in good faith because it bought the
property with notice and full knowledge that Mayfair had a right to or interest in the property
superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair.”
Petitioner’s claim of reasonable compensation for respondent’s use and occupation of the
subject property from the time the lease expired cannot be countenanced. If it suffered any loss,
petitioner must bear it in silence, since it had wrought that loss upon itself. Otherwise, bad faith
would be rewarded instead of punished.
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Manongsong v. Estimo (2003)
FACTS:
Spouses Agatona Guevarra (“Guevarra”) and Ciriaco Lopez had six (6) children, namely:
(1) Dominador Lopez; NO OFFSPRING
MAIN RESPONDENT
(2) Enriqueta Lopez-Jumaquio, mother of FILOMENA ESTIMO (“Jumaquio sisters”);
Respondents
(3) Victor Lopez, married to respondent Leoncia Lopez;
(4) Benigna Lopez-Ortiz, ORTIZ FAMILY
(5) Rosario Lopez-dela Cruz, CRUZ FAMILY
Petitioner
(6) Vicente Lopez, the father of petitioner (“Manongsong”).
The contested property is a parcel of land on San Jose Street, Manuyo Uno, Las Piñas,
Metro Manila with an area of approximately 152 square meters (“Property”). The records do not
show that the Property is registered under the Torrens system but has different tax declarations.
Tax Declaration No. B-001-00390 was registered with the Office of the Municipal
Assessor of Las Piñas on 30 September 1984 in the name of “Benigna Lopez, et al.
(RESPONDENT)
However, the improvements on the portion of the Property denominated as No. 831
San Jose St., Manuyo Uno, Las Piñas were separately declared in the name of “Filomena J.
Estimo” or JUMAQUIO SISTERS.
Manongsong (“petitioners”) filed a Complaint 6 on 19 June 1992, alleging that
Manongsong and respondents are the owners pro indiviso of the Property. Invoking Article 494
of the Civil Code, petitioners prayed for the partition and award to them of an area equivalent to
one-fifth (1/5) of the Property or its prevailing market value, and for damages.
Petitioners alleged that Guevarra was the original owner of the Property. Upon
Guevarra’s death, her children inherited the Property. Since Dominador Lopez died without
offspring, there were only five children left as heirs of Guevarra. Each of the five children,
including Vicente Lopez, the father of Manongsong, was entitled to a fifth of the Property. As
Vicente Lopez’ sole surviving heir, Manongsong claims her father’s 1/5 share in the Property by
right of representation. The area actually occupied by each respondent family differs, ranging in
size from approximately 25 to 50 square meters. Petitioners are the only descendants not
occupying any portion of the Property.
Under the Stipulation of Facts and Compromise Agreement 8 dated 12 September 1992
(“Agreement”), petitioners and the Ortiz and Dela Cruz families agreed that each group of heirs
would receive an equal share in the Property. The signatories to the Agreement asked the trial
court to issue an order of partition to this effect and prayed further that “those who have
exceeded said one-fifth (1/5) must be reduced so that those who have less and those who have
none shall get the correct and proper portion.
Among the respondents, the Jumaquio sisters and Leoncia Lopez who each occupy 50
square meter portions of the Property—and Joselito dela Cruz, did not sign the Agreement.
However, only the Jumaquio sisters actively opposed petitioners’ claim. The Jumaquio sisters
contended that Justina Navarro (“Navarro”), supposedly the mother of Guevarra, sold the
Property to Guevarra’s daughter Enriqueta Lopez Jumaquio. They presented evidences of
KASULATAN SA BILIHAN NG LUPA and even Tax declarations of the property from
Navarro. Moreover, because the Jumaquio sisters were in peaceful possession of their portion of
the Property for more than thirty years, they also invoked the defense of acquisitive prescription
against petitioners, and charged that petitioners were guilty of laches.
ISSUE:
1. Whether the petitioner is co-owner and entitled of the share of the property?
HELD: Petition LACKS MERIT.
RATIO:
VALIDITY OF KASULATAN SA BILIHAN NG LUPA
The Kasulatan, being a document acknowledged before a notary public, is a public
document and prima facie evidence of its authenticity and due execution. To assail the
authenticity and due execution of a notarized document, the evidence must be clear, convincing
and more than merely preponderant. Otherwise the authenticity and due execution of the
document should be upheld. The trial court itself held that “(n)o countervailing proof was
adduced by plaintiffs to overcome or impugn the document’s legality or its validity”.
Even if the Kasulatan was not notarized, it would be deemed an ancient document and
thus still presumed to be authentic. The Kasulatan is: (1) more than 30 years old, (2) found in the
proper custody, and (3) unblemished by any alteration or by any circumstance of suspicion. The
property is not conjugal based on the tax declaration, as it was not acquired by Navarro during
marriage.
We likewise find no basis for the trial court’s declaration that the sale embodied in the
Kasulatan deprived the compulsory heirs of Guevarra of their legitimes. As opposed to a
disposition inter vivos by lucrative or gratuitous title, a valid sale for valuable consideration does
not diminish the estate of the seller. When the disposition is for valuable consideration, there
is no diminution of the estate but merely a substitution of values, that is, the property sold
is replaced by the equivalent monetary consideration.
 Under Article 1458 of the Civil Code, the elements of a valid contract of sale are: (1)
consent or meeting of the minds; (2) determinate subject matter and (3) price certain in money or
its equivalent. The presence of these elements is apparent on the face of the Kasulatan itself. The
Property was sold in 1957 for P250.00.
“NA DAHIL AT ALANG ALANG sa halagang DALAWANG DAAN LIMANGPUNG
PISO (P250.00), SALAPING PILIPINO, na sa akin ay kaliwang iniabot at ibinayad ni
ENRIQUETA LOPEZ, may sapat na gulang, Pilipino, may asawa at naninirahan sa Las Piñas,
Rizal, at sa karapatang ito ay aking pinatutunayan ng pagkakatanggap ng nasabing halaga na
buong kasiyahan ng aking kalooban ay aking IPINAGBILI, ISINALIN AT INILIPAT sa
nasabing, ENRIQUETA LOPEZ, sa kanyang mga tagapagmana at kahalili, ang kabuuang sukat
ng lupang nabanggit sa itaas nito sa pamamagitan ng bilihang walang anomang pasubali.”
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Lo v. KJS-Eco Formwork System (2003)
FACTS:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the
sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style
San’s Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding
equipments from respondent worth P540,425.80. He paid a downpayment in the amount of
P150,000.00. The balance was made payable in ten monthly installments.
Respondent delivered the scaffoldings to petitioner. 2 Petitioner was able to pay the first
two monthly installments. His business, however, encountered financial difficulties and he was
unable to settle his obligation to respondent despite oral and written demands made against him.
On October 11, 1990, petitioner and respondent executed a Deed of Assignment,
whereby petitioner assigned to respondent his receivables in the amount of P335,462.14 from
Jomero Realty Corporation.
However, when respondent tried to collect the said credit from Jomero Realty
Corporation, the latter refused to honor the Deed of Assignment because it claimed that
petitioner was also indebted to it. On November 26, 1990, respondent sent a letter 7 to petitioner
demanding payment of his obligation, but petitioner refused to pay claiming that his obligation
had been extinguished when they executed the Deed of Assignment.
ISSUE:
Whether the deed of assignment extinguished the obligation of petitioner?
RULE:
The petition is without merit. An assignment of credit is an agreement by virtue of which
the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago,
exchange or donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the same extent
as the assignor could enforce it against the debtor.
In dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of debt.
In order that there be a valid dation in payment, the following are the requisites: (1) There
must be the performance of the prestation in lieu of payment (animo solvendi) which may consist
in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There
must be some difference between the prestation due and that which is given in substitution (aliud
pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that due.
Dacion en pago really partakes in one sense of the nature of sale, that is, the creditor is
really buying the thing or property of the debtor, payment for which is to be charged against the
debtor’s debt. Hence, it may well be that the assignment of credit, which is in the nature of a sale
of personal property, produced the effects of a dation in payment which may extinguish the
obligation. However, as in any other contract of sale, the vendor or assignor is bound by certain
warranties. More specifically, the first paragraph of Article 1628 of the Civil Code.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero claimed
that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it
essentially meant that its obligation to petitioner has been extinguished by compensation. In
other words, respondent alleged the non-existence of the credit and asserted its claim to
petitioner’s warranty under the assignment. Therefore, it behooved on petitioner to make good its
warranty and paid the obligation
Indeed, by warranting the existence of the credit, petitioner should be deemed to have
ensured the performance thereof in case the same is later found to be inexistent. He should be
held liable to pay to respondent the amount of his indebtedness.
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SSS v. Atlantic Gulf (2008)
FACTS:
On 13 February 2004, Atlantic Gulf and Pacific Company of Manila, Inc. (AG & P) and
Semirara Coal Corporation (SEMIRARA) (collectively referred to as private respondents) filed a
complaint for specific performance and damages against SSS before the Regional Trial Court of
Batangas City.
From the averments in their complaint, the appellate court observed that private
respondents are seeking to implement the Deed of Assignment which they had drafted and
submitted to SSS sometime in July 2001, pursuant to SSS’s letter addressed to AG& P dated 23
April 2001 ap proving AG&P and SEMIRARA’S delinquencies through dacion en pago, which
as of 31 March 2001, amounted to P29,261,902.45. The appellate court thus held that the subject
of the complaint is no longer the payment of the premium and loan amortization delinquencies,
as well as the penalties appurtenant thereto, but the enforcement of the dacion en pago pursuant
to SSS Resolution No. 270. The action then is one for specific performance which case law holds
is an action incapable of pecuniary estimation falling under the jurisdiction of the Regional Trial
Court. However, SSS insists on the Social Security Commission’s (the Commission) jurisdiction
over the complaint.
The main issue in this case pertains to which body has jurisdiction to entertain a
controversy arising from the non-implementation of a dacion en pago agreed upon by the parties
as a means of settlement of private respondents’ liabilities.
ISSUE: Whether the trial court has jurisdiction over non-implementation of dacio en pago?
HELD: YES. Even though it was delinquency, such delinquency was paid through dacio en
pago.
RATIO:
From the allegations of respondents’ complaint, it readily appears that there is no longer
any dispute with respect to respondents’ accountability to the SSS. Respondents had, in fact,
admitted their delinquency and offered to settle them by way of dacion en pago subsequently
approved by the SSS.
Dacion en pago is a novation in payment in which the delivery and transmission of
ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance
of the obligation, a special mode of payment where the debtor offers another thing to the creditor
who accepts it as equivalent of payment of an outstanding debt.
A suit to obtain the enforcement of an approved and agreed dacion en pago is, doubtless,
a suit for specific performance and one incapable of pecuniary estimation beyond the
competence of the Social Security Commission—it is cognizable by the Regional Trial Courts.
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Engineering Machinery Corp v. CA (1996)
FACTS:
Is a contract for the fabrication and installation of a central air-conditioning system in a
building, one of “sale” or “for a piece of work”? What is the prescriptive period for filing actions
for breach of the terms of such contract?
Pursuant to the contract dated September 10, 1962 between petitioner and private
respondent, the former undertook to fabricate, furnish and install the airconditioning system in
the latter’s building along Buendia Avenue, Makati in consideration of P210,000.00. Petitioner
was to furnish the materials, labor, tools and all services required in order to so fabricate and
install said system. The system was completed in 1963 and accepted by private respondent, who
paid in full the contract price. Later, the private respondent found the defects of the air-
conditioning system.
The complaint alleged that the air-conditioning system installed by petitioner did not
comply with the agreed plans and specifications. Hence, private respondent prayed for the
amount of P210,000.00 representing the rectification cost, P100,000.00 as damages and
P15,000.00 as attorney’s fees.
Petitioner moved to dismiss the complaint, alleging that the prescriptive period of 6
months had set in pursuant to Articles 1566 and 1567, in relation to Article 1571 of the Civil
Code, regarding the responsibility of a vendor for any hidden faults or defects in the thing sold.
Private respondent countered that the contract dated September 10, 1962 was not a
contract of sale but a contract for a piece of work under Article 1713 of the Civil Code. Thus, in
accordance with Article 1144 (1) of the same code, the complaint was timely filed in 10 yr.
prescriptive period.
ISSUE:
1. Whether the installation of air-conditioning unit by the petitioner is a contract of sale?
HELD:
1. No. It was a piece-of-work.
RATIO:
Article 1713 of the Civil Code defines a contract for a piece of work thus: “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.
The INQUIRY is whether the thing transferred is one not in existence and which would
never have existed but for the order of the person desiring it, then this is a contract for a piece of
work. On the other hand, if the thing subject of the contract would have existed and been the
subject of a sale to some other person even if the order had not been given, then the contract is
one of sale.
To Tolentino, the distinction between the two contracts depends on the intention of the
parties. Thus, if the parties intended that at some future date an object has to be delivered,
without considering the work or labor of the party bound to deliver, the contract is one of sale.
But if one of the parties accepts the undertaking on the basis of some plan, taking into account
the work he will employ personally or through another, there is a contract for a piece of work.
CLEARLY, IN THE CASE AT BAR, IT IS A PIECE OF WORK. It is not petitioner’s
line of business to manufacture air-conditioning systems to be sold “off-the-shelf.” Its business
and particular field of expertise is the fabrication and installation of such systems as ordered by
customers and in accordance with the particular plans and specifications provided by the
customers. Naturally, the price or compensation for the system manufactured and installed will
depend greatly on the particular plans and specifications agreed upon with the customers.
The remedy against violations of the warranty against hidden defects is either to
withdraw from the contract (redhibitory action) or to demand a proportionate reduction of the
price (accion quanti minoris), with damages in either case. In Villostas vs. Court of Appeals, we
held that, “while it is true that Article 1571 of the Civil Code provides for a prescriptive period
of six months for a redhibitory action, a cursory reading of the ten preceding articles to which it
refers will reveal that said rule may be applied only in case of implied warranties”; and where
there is an express warranty in the contract, as in the case at bench, the prescriptive period is the
one specified in the express warranty, and in the absence of such express warranty, what must
be followed is the general rule on rescission of contract which is 4 years. Here, the complaint
already prescribed as it was filed 4 years after the completion or installation of the air
conditioners.
However, a close scrutiny of the complaint filed in the trial court reveals that the original
action is not really for enforcement of the warranties against hidden defects, but one for breach
of the contract itself. It alleged that the petitioner, “in the installation of the air conditioning
system did not comply with the specifications provided” in the written agreement. The SC agree
that such contract agreement was violated and the specifications were not followed.
Having concluded that the original complaint is one for damages arising from breach of a
written contract—and not a suit to enforce warranties against hidden defects—we here-with
declare that the governing law is Article 1715. However, inasmuch as this provision does not
contain a specific prescriptive period, the general law on prescription, which is Article 1144 of
the Civil Code, will apply. Said provision states, inter alia, that actions “upon a written contract”
prescribe in ten (10) years. Since the governing contract was executed on September 10, 1962
and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed.
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Gonzalo Puyat v. Arco Company (1941)
FACTS:
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.
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.
 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
After some negotiations, it was agreed between the parties, Puyat would order sound
reproducing equipment from the Star Piano Company and that the Arco would pay Puyat, in
addition to the price of the equipment, a 10 per cent commission, plus all expenses, such as,
freight, insurance, banking charges, cables, etc.
Puyat 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. Puyat did not
show the Arco company the cable of inquiry nor the reply but merely informed the plaintiff of
the price of $1,700. Then, Arco company agreed.
About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes
against Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company discovered
that the price quoted to them by Puyat with regard to their two orders above mentioned was not
the net price but rather the list price, and that Puyat obtained some discounts from the purchase.
For these reasons, Arco sought to obtain a reduction from Puyat or rather a reimbursement, and
failing in this they brought the present action.
ISSUE:
1. Whether the contract entered by the parties is a contract of sale or contract of agency?
HELD:
It was a contract of sale.
RATIO:
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. 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 of no other
interpretation than that the respondent agreed to purchase from the petitioner the equipment in
question at the prices indicated which are fixed and determinate.
In worst case scenario, we agree with the trial judge that "whatever unforeseen events
might have taken place unfavorable to the (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 (respondent) might still legally hold the
(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).
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. Thus, if this is the case, petitioner will an agent to both the respondent and the Star
Piano Company.
Thus, the SC decides that 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 was
just plainly an ordinary sale by petitioner to respondent. 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 of purchase and sale, is no ground for rescinding the contract or reducing the price
agreed upon between the petitioner and the respondent.