CIR vs Arnoldus CarpentryShop

Subject:SalesDoctrine:Contract of Sale vs Contract for a Piece of Work

Facts:Arnoldus Carpentry Shop, Inc. is a domestic corporation which has been in existence since 1960 which has for its 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. The company kept samples or models of its woodwork on display from where its customers may refer to when placing their orders.On March 1979, the examiners from BIR who conducted an investigation on the companys tax liabilities reported that subject corporation should be considered a contractor and not a manufacturer since 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. Hence, in the computation of the percentage tax, the 3% contractors tax should be imposed instead of the 7% manufacturers tax. However, responded company holds that the carpentry shop is a manufacturer and therefore entitled to tax exemption on its gross export sales under Section 202 (e) of the National Internal Revenue Code. CIR rendered its decision classifying the respondent as contractor which was in turn reversed by the CTA. Hence, this appeal.

Issue:

1) WON Arnoldus is a manufacturer? YESa. Corrollarily, WON it is a contract of sale or contract for piece of work? Contract of SALE.

Held:

1)Arnoldus is a manufacturer as defined in the Tax Code and not a contractor under Section 205(e) of the Tax Code.

2)Accdg to CIR: 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 the mere existence of the product at the time of the perfection of the contract such that if the thing already exists, the contract is of sale, if not, it is work.

TRUE TEST whether or not it is contract of sale or for a piece of work:What determines whether the contract is one of work or of sale 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 ones business, it is a contract of sale. The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. 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.

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.

Arnoldus had a ready stock of its shop products for sale to 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 by orders for existing models. Hence, it is a manufacturer. Furthermore, it is a contract of sale.

These products were for sale to the general public and not for special orders. Hence, being a manufacturer, Arnoldus is entitled to tax exemption under Sec 202 (d) and Sec 167 (d) & (e) of the Tax Code

Romulo Coronel vs Court of Appeals , Conception Alcaraz

FACTS:

This case is about a sale of land in Roosevelt Avenue, Quezon City by the vendor Romulo Coronel to the vendees Conception Alcaraz and her daughter Ramona Patricia Alcaraz with the following conditions: (1,240,000.00 CONTRACT COST)

The Coronels will immediately transfer the certificate of title in their name upon receipt of the downpayment which is 50,000.

Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and then Ramona shall immediately pay the Coronels the whole balance of 1,190,000.

On January 15, 1985, Conception paid the downpayment of 50,000 and then on February 6, 1985, the property was now registered under the name of Coronels. By Feb. 18, 1985, the Coronels sold the property to Catalina B. Mabanag for 1,580,000 after she made a 300,000 downpayment. This is the reason why the Coronels cancelled and rescind the contract with the Alcaraz by depositing back the 50,000 to Ramonas bank account.

On Feb. 22, Conception filed a complaint for specific performance against the Coronels. On April, the Coronels executed a deed of absolute sale over the subject property to Catalina after which on June Catalina was issued a new title over the subject property.

ISSUE:Whether or not the Receipt of Down payment embodied a perfected contract of sale or just a mere contract to sell?

HELD:CONTRACT OF SALE- contracting parties obligates himself to transfer the ownership and to a determinate thing and the other to pay a price certain in money or its equivalent.

CONTRACT TO SELL- the prospective seller explicitly reserves the transfer of the title to the prospective buyer, meaning the seller does not yet agree or consent to transfer the ownership of the property until the happening of a contingent event like full payment of price.

SUPREME COURT RULING:

When the Receipt of Down Payment document was prepared and signed by Romulo Coronel, the parties had agreed to a conditional contract of sale the consummation of the contract is subject only to the successful transfer of the certificate of Title.

According to Supreme Court, the receipt of down payment document manifests a clear intent of the Coronels to transfer the title to the buyer, but since the title is still in the name effect the transfer even though the buyers are able and willing to immediately pay the purchase price. The agreement as well could not have been a contract to sell because the seller or the Coronels made no express reservation of ownership or the title of the land.

On Feb. 6, 1985, the Contract of Sale between the Coronels and the Alcaraz became obligatory.

www.howardscasedigests.webs.com

G.R. No. 123672: Fernando Carrascoso, Jr. v. Court of Appeals and Lauro Leviste

December 14, 2005. 477 scra 666

Contract to Sell vs Contract of Sale

In March 1972, El Dorado Plantation Inc, through board member Lauro Leviste, executed aDeed of Sale with Carrascoso. The subject of the sale was a 1825 hectare of land. It wasagreed that Carrascoso is to pay P1.8M. P290K would be paid by Carrascoso to PNB to settlethe mortgage placed on the said land. P210k would be paid directly to Leviste. The balance ofP1.3M plus 10% interest would be paid over the next 3 years at P519k every 25th of March.Leviste also assured that there were no tenants hence the land does not fall under the LandReform Code. Leviste allowed Carrascoso to mortgage the land which the latter did.Carrascoso obtained a total of P1.07M as mortgage and he used the same to pay the downpayment agreed upon in the contract. Carrascoso defaulted from his obligation which wassupposed to be settled on March 25, 1975. Leviste then sent him lettersto make good his endof the contract otherwise he will be litigated.In 1977, Carrascoso executed a Buy and Sell Contract with PLDT. The subject of the sale wasthe same land sold to Carrascoso by Leviste but itwas only the 1000 sq mportion thereof. Theland is to be sold at P3M. Part of the terms and conditions agreed upon was that Carrascoso isto remove all tenants from the land within one year. He is also given a 6 month extension incase hell need one. Thereafter, PLDT will notify Carrascoso if whether or not PLDt will finalizethe sale. PLDT gained possession of the land.El Dorado filed a civilcase against Carrascoso. PLDT intervened averring that it was a buyer ingood faith. The RTC ruled in favor of Carrascoso. CA reversed the RTC ruling.

ISSUE:What is thenature of each contract?

HELD:The contract executed between El Dorado and Carrascoso was a contract of sale. It wasperfected by their meeting of the minds and was consummated by the delivery of the property toCarrascoso. However, ElDorado has the right to rescind the contract by reason of Carrascososfailure to perform his obligation.A contract of sale is a reciprocal obligation.The seller obligates itself to transfer the ownershipof and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain inmoney or its equivalent. The non-payment of the price by the buyer is a resolutory conditionwhich extinguishes the transaction that for a time existed, and discharges the obligationscreated thereunder.Such failure topay the pricein the mannerprescribed by the contract ofsale entitles the unpaid seller to sue for collection or to rescind the contract.The contract between Carrascoso and PLDT is a contract to sell. This is evidenced by the termsand conditions that they have agreed upon thatafter fulfillment of Carrascosos obligation PLDThas to notify Carrascoso of its decision whether or not to finalize the sale.Carrascoso also averredthat therewas a breach on El Dorados partwhen itcomes towarranty. Carrascoso claimed that there were tenants on the land and he spent about P2.9Mrelocating them. The SC ruled that Carrascoso merely had abare claim without additional proofto support it.