On September 18, 1988, Del Monte Philipiines Inc. entered in an agreement with Mega Engineering Services in a joint venture with WAFF Construction System Corporation, represented by Edilberto Garcia. The agreement states that Garcia will supply the installation of modular pavement in DMPI’s warehouse. Following this, Garcia entered into a supply agreement with Dynablock Enterprises represented by Napoleon Aragones, to supply the labor, materials, and equipment for the modular pavement. From there, Aragones started doing his obligations but he did not meet the deadlines. After the installation, Aragones was not able to collect payment from Garcia. Aragones then sent a letter to DMPI, saying that instead of paying Garcia, they should pay him directly. DMPI did not pay Aragones. Aragones then filed a complaint for a sum of money with damages againts Garcia and DMPI.
Whether or not the supply agreement between Aragones and Garcia is a contract of sale.
At this juncture it is well to note that the Supply Agreement was in the nature of a contract for a piece of work. The distinction between a contract of sale and one for work, labor and materials is tested by 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 but has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the seller makes and keeps on hand for sale to anyone, and no change or modification of it is made at purchasers request, it is a contract of sale even though it may be entirely made after, and in consequence of the purchasers order for it. [Commissioner of Internal Revenue vs. Engineering Equipment and Supply Company, G.R. No. L-27044, June 30, 1975] In the case at bench, the modular paving blocks are not exactly what the plaintiff-appellee makes and keeps on hand for sale to anyone, but with a modification that the same be S in shape. Hence, the agreement falls within the ambit of Article 1467 making Article 1729 likewise applicable in the instant case. As can be clearly seen from the wordings of Art. 1467, 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 on 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 authorities petitioner cited in fact show that the nature of the Supply Agreement between Aragones and MEGA-WAFF was one for a piece of work.
Digest Credit: Shem Gasatan