EQUATORIAL REALTY DEVELOPMENT, INC., vs. MAYFAIR THEATER, INC.

,
G.R. No. 133879

November 21, 2001

Facts: This case stemmed from a Civil Case entitled "Mayfair" Theater, Inc. v. Carmelo and Bauermann, Inc., et al.," where
Carmelo & Bauermann, Inc 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 it owned which respondent used as a movie
house known as Maxim Theater.
Two years later,Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latter's
property .In that space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a
period of 20 years.
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"), without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint for (a) the annulment of the Deed of
Absolute Sale between Carmelo and Equatorial, (b) specific performance, and (c) damages. After trial on the merits, the lower
court rendered a Decision in favor of Carmelo and Equatorial.
The Supreme Court made the following pronouncement for this case: The Deed of Absolute Sale between petitioners Equatorial
Realty Development, Inc. and Carmelo & Bauermann, Inc.is deemed rescinded; Carmelo & Bauermann is ordered to return to
petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and documents necessary
to return ownership to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater,
Inc. to buy the aforesaid lots.
The foregoing Decision of this Court became final and executory. Subsequently, Mayfair filed a Motion for Execution, which the
trial court granted.
However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair deposited with
the clerk of court. 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 canceled Equatorial's titles and issued new Certificates of
Title in the name of Mayfair.
Meanwhile, barely five months after Mayfair had submitted its Motion for Execution before the RTC of Manila, Equatorial filed
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.
Issue: Whether or not Equatorial is entitled to back rentals
Ruling: No. Equatorial is not entitled to back rentals.
No right of ownership was transferred from Carmelo to Equatorial in view of a patent failure to deliver the property to the buyer.
Rent is a civil fruit that belongs to the owner of the property producing it by right of accession. Consequently and ordinarily, 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."
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. And there is said to be
delivery if and when the thing sold "is placed in the control and possession of the vendee." Thus, it has been held that while the
execution of a public instrument of sale is recognized by law as equivalent to the delivery of the thing sold, such constructive or
symbolic delivery, being merely presumptive, is deemed negated by the failure of the vendee to take actual possession of the land
sold.
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."
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. It has been held that the execution of
a contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there is no impediment that may
prevent the passing of the property from the hands of the vendor into those of the vendee. When there is such impediment,
"fiction yields to reality the delivery has not been effected."
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.
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.

INCHAUSTI AND CO., vs. ELLIS CROMWELL, Collector of Internal Revenue,

G.R. No. L-6584

October 16, 1911

Facts: Inchausti is engaged in the business of buying and selling at wholesale hemp. It is customary to sell hemp in bales. The
operation of bailing hemp is designated among merchants by the word "prensaje."
In all sales of hemp by the plaintiff firm, the price is quoted to the buyer at so much per picul, no mention being made of bailing;
but with the tacit understanding, unless otherwise expressly agreed, that the hemp will be delivered in bales and that, according to
the custom prevailing among hemp merchants and dealers in the Philippine Islands, a charge, is to be made against the buyer
under the denomination of "prensaje." This charge is made in the same manner in all cases, even when the operation of bailing
was performed by the plaintiff or by its principal long before the contract of sale was made.
Plaintiff Inchausti has always paid to the defendant Collector of Internal Revenue or to his predecessor in the office of the
Collector of Internal Revenue the tax collectible upon the selling price expressly agreed upon for all hemp sold by the plaintiff
firm, but has not, until compelled to do so paid the said tax upon sums received from the purchaser of such hemp under the
denomination of "prensaje."
Subsequently, the defendant, acting in his official capacity as Collector of Internal Revenue of the Philippine Islands, made
demand in writing upon the plaintiff firm for the payment as tax on the sums of money collected from purchasers of hemp under
the denomination of "prensaje."
The plaintiff firm paid to the defendant under protest that the tax for the collected money under the denomination of "prensaje" is
illegal upon the ground that the said charge does not constitute a part of the selling price of the hemp, but is a charge made for the
service of baling the hemp.
It is the contention of the defendant that the said charge made under the denomination of "prensaje" is in truth and in fact a part of
the gross value of the hemp sold and of its actual selling price.
Issue: Whether or not the amount collected under the denomination pensaje is part of the selling price of the hemp.
Ruling: Yes. It is considered part of the selling price and the tax was properly imposed.
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 no 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 been the subject of sale to some other person, even if the order had not been given. It is clear
that in the case at bar the hemp was in existence in baled form before the agreements of sale were made, or, at least, would have
been in existence even if none of the individual sales here in question had been consummated. It would have been baled,
nevertheless, for sale to someone else, since, according to the agreed statement of facts, it is customary to sell hemp in bales.
When a person stipulates for the future sale of articles which he is habitually making, and which at the time are not made or
finished, it is essentially a contract of sale and not a contract for labor. It is otherwise when the article is made pursuant to
agreement. Where labor is employed on the materials of the seller he cannot maintain an action for work and labor. If the article
ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or
modification of it is made at the defendant's request, it is a contract of sale, even though it may be entirely made after, and in
consequence of, the defendant's order for it.
A contract to make is a contract of sale if the article ordered is already substantially in existence at the time of the order and
merely requires some alteration, modification, or adoption to the buyer's wishes or purposes. It is also held in that state that a
contract for the sale 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 for the sale of goods to which the statute of frauds applies.

But if the goods are to be manufactured especially for the purchaser and upon his special order, and not for the general market,
the case is not within the statute.
It is clear to our minds that in the case at bar the baling was performed for the general market and was not something done by
plaintiff which was a result of any peculiar wording of the particular contract between him and his vendee. It is undoubted that
the plaintiff prepared his hemp for the general market.