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Engineering and Machinery Corp. vs. Court of Appeals by Maki ENGINEERING AND MACHINERY CORP. VS. COURT OF APPEALS G.R. No. 52267 January 24, 1996 Facts: Almeda and Engineering signed a contract, wherein Engineering undertook to fabricate, furnish and install the air-conditioning system in the latters 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. Almeda learned from the employees of NIDC of the defects of the air-conditioning system of the building. Almeda spent for the repair of the airconditioning system. He now sues Engineering for the refund of the repair. Engineering contends that the contract was of sale and the claim is barred by prescription since the responsibility of a vendor for any hidden faults or defects in the thing sold runs only for 6 months (Arts 1566, 1567, 1571). Almeda contends that since it was a contract for a piece of work, hence the prescription period was ten years (Hence Art 1144 should apply on written contracts). RTC found that Engineering failed to install certain parts and accessories called for by the contract, and deviated from the plans of the system, thus reducing its operational effectiveness to achieve a fairly desirable room temperature. Issue: 1) WON the contract for the fabrication and installation of a central air-conditioning system in a building, one of sale or for a piece of work? CONTRACT FOR PIECE OF WORK. 2) Corrollarily WON the claim for refund was extinguished by prescription? NO. Held: 1) A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order, of the person desiring it. In such case, the contract is one for a piece of work, not a sale. 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. 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 . The contract in question is one for a piece of work. It is not petitioners 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. 2) 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 (supra). 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

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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 prescribe Inocencio Yu Dino vs. Court of Appeals June 20, 2001 G.R. No. 113564 359 SCRA 91 First Division Puno, J.: FACTS: Petitioners spouses Dinoare engaged in the business of manufacturing and selling shirts.1 Respondent Sio is part owner and general manager of a manufacturing corporation doing business under the trade name "Universal Toy Master Manufacturing." Petitioners and respondent Sio entered into a contract whereby the latter would manufacture for the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads at P7.00 per piece in accordance with the sample approved by the petitioners. These frogs and mooseheads were to be attached to the shirts petitioners would manufacture and sell. Respondent Sio delivered in several installments the 40,000 pieces of frogs and mooseheads. Petitioner fully paid the agreed price. Subsequently, petitioners returned to respondent 29,772 pieces of frogs and mooseheads for failing to comply with the approved sample. Petitioners then demanded from the respondent a refund of the purchase price of the returned goods in the amount of P208,404.00. As respondent Sio refused to pay. Petitioners filed action for collection of a sum of money. RTC ruled in favor of the petioners. Respondent Sio sought recourse in the Court of Appeals. The appellate court affirmed the trial court decision. Respondent then filed a Motion for Reconsideration and a Supplemental Motion for Reconsideration alleging therein that the petitioners' action for collection of sum of money based on a breach of warranty had already prescribed. On January 24, 1994, the respondent court reversed its decision and dismissed petitioners' Complaint for having been filed beyond the prescriptive period. Hence, this petition. ISSUE: Whether the contract between the contracting parties is a contract of sale or a contract for a piece of work Whether the respondent is responsible for the warranty against hidden defects RULING: Petition is DENIED. The contract between the petitioners and respondent stipulated that respondent would manufacture upon order of the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads according to the samples specified and approved by the petitioners. Respondent Sio did not ordinarily manufacture these products, but only upon order of the petitioners and at the price agreed upon. Clearly, the contract executed by and between the petitioners and the respondent was a contract for a piece of work. At any rate, whether the agreement between the

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parties was one of a contract of sale or a piece of work, the provisions on warranty of title against hidden defects in a contract of sale apply to the case at bar. A hidden defect is one which is unknown or could not have been known to the vendee. QUIROGA vs. PARSONS HARDWARE CO.38 Phil 501, G.R. No. L-11491, August 23, 1918 FACTS: On January 24, 1911, herein plaintiff-appellant Andress Quiroga and J. Parsons, both merchants, enteredinto a contract, for the exclusive sale of "Quiroga" Beds in the Visayan Islands. It was agreed, amongothers, that Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J.Parsons, subject to some conditions provided in the contract. Likewise, it was agreed that. Incompensation 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 thepreference to Mr. Parsons in case anyone should apply for the exclusive agency for any island notcomprised with the Visayan group; and that, Mr. Parsons may sell, or establish branches of his agency forthe sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, andshall immediately report such action to Mr. Quiroga for his approval.Plaintiff filed a complaint, alleging that the defendant violated the following obligations: not to sell thebeds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conductthe agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for thesame; and to order the beds by the dozen and in no other manner. He alleged that the defendant washis agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency ISSUE: Whether or not the defendant, by reason of the contract hereinbefore transcribed, was an agent of theplaintiff for the sale of his beds. HELD: No. In order to classify a contract, due regard must be given to its essential clauses. In the contract inquestion, there was the obligation on the part of the plaintiff to supply the beds, and, on the part of thedefendant, to pay their price. These features exclude the legal conception of an agency or order to sellwhereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers tothe principal the price he obtains from the sale of the thing to a third person, and if he does not succeedin selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, onreceiving the beds, was necessarily obliged to pay their price within the term fixed, without any otherconsideration and regardless as to whether he had or had not sold the beds.In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by thecontract, the effect of its breach would only entitle the plaintiff to disregard the orders which thedefendant might place under other conditions; but if the plaintiff consents to fill them, he waives his rightand cannot complain for having acted thus at his own free will.

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KERR VS LINGAD The transfer of title or agreement to transfer it for a price paid is the essence of sale. If such transfer puts the transferee in the position of an owner and makes him liable for the agreed price, the transaction is a sale. On the other hand, the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of his principal, who remains the owner and has the right to control sales, fix the price and terms, demand and receive the proceeds less the agent's commission upon sales made. In the case at bar, the relationship between the petitioner and US Rubber International is one of brokerage or agency because of the following contractual stipulations:

o certain persons or entities and within stipulated limits, unless excepted by the contract or by the Rubber Company (Par. 2)

properties of the latter company (Par. 8);

(Par. 3);

hall render a detailed report showing sales during the month (Par. 14);

14); der insurance

policies payable to it in case of loss (Par. 15);

existin existing stock which may be checked by an authorized representative of the former (Par. 15); and

ancellation of the Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company until their disposition is provided for by the latter (Par. 19). LIM VS. CA (G.R. NO. 102784 FEBRUARY 28, 1996) Was is a contract of sale or contract of agency to sell? CONTRACT OF AGENCY. Rosa Lims signature indeed appears on the upper portion of the receipt immediately below the description of the items taken: We find that this fact does not have the effect of altering the terms of the transaction from a contract of agency to sell on commission basis to a contract of sale. Neither does it indicate absence or vitiation of consent thereto on the part of Rosa Lim which would make the contract void or voidable. The moment she affixed her signature thereon, petitioner became bound by all the terms stipulated in the receipt. She, thus, opened herself to all the legal obligations that may arise from their breach. It is of no moment that the signature was found in the upper portion of the receipt. Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. A contract of agency to sell on commission basis does not need the formalities of the location of the signature unlike notarial wills, hence it is valid and enforceable in whatever form it may be entered into.

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Rosa Lim could not have turned over or entrusted the ring to Aurelia Nadera because the latter is also heavily indebted to Suarez, such that the entrustment will cause her a lot of risk. It does not prove much of the absence of a contract of agency.