GONZALO PUYAT & SONS v ARCO AMUSEMENT CO.
 CA posits that even if the contract was one of sale, petitioner was guilty of
20 June 1941 | Laurel, J. | Topic: Agency distinguished from other contracts
Petitioner: Gonzalo Puyat& Sons, Inc
Respondent: Arco Amusement Company (formerly known as Teatro Arco)
DOCTRINE: There can be no agency where the one is the agent of both vendor and vendee.
FACTS:
(1929) Teatro Arco (name changed in 1930), corporation duly organized under Philippine
laws was engaged in the business of operating cinematograph.
 C.S. Salmon was the president, A.B. Coulette was the business manager.
Gonzalo Puyat& Sons, Inc, was acting as exclusive agents in the Philippines for the Starr
Piano Company of Richmond, Indiana.
Gonzalo dealt in cinematographer equipment and machinery which prompted Arco to
approach the company thru its president and acting manager, Gil Puyat, and an employee
named Santos.
 Agreement was made between Salmon and Coulette representing Arco, and
Gil Puyat representing Gonzalo
 Gonzalo to order sound reproducing equipment from Starr Piano, to be
paid by Arco
 Payment to Gonzalo would be the price of the equipment + 10%
commission + all expenses (freight, insurance, etc)
Gonzalo inquired about the price without discount to which Starr listed at $ 1,700 fob.
 Gonzalo informed the plaintiff of the price of $1,700, without showing the
cable of inquiry made to Starr nor its subsequent reply.
 Being agreeable to the price, Arco formally authorized the order
Upon delivery to Arco, $1700 + 10% commission and other expenses was duly paid.
Another order for sound reproducing equipment was placed by the plaintiff on the same
terms as the first order.
About three years later, the officials of Arco discovered that the price quoted was not the
net price but rather the list price. The defendants had a discount from Starr Piano. They
also thought that the prices were too much.
 They then sought to obtain a reimbursement from defendant.
Trial Court held that the contract was one of outright purchase and sale.
 Petitioner absolved from complaint.
CA however, held that the relation was that of agent and principal.
 Petitioner sentenced to pay overpayments +legal interest.
fraud for concealing the true price.
ISSUE: W/N the contract between the petitioner and respondent was that of agency – NO
The relationship between the two parties was one of purchase and sale.
The letters by which the respondent accepted the prices for the equipment are clear in their
terms that the prices indicated are fixed and determinate. Respondent admitted in its
complaint that the petitioner agreed to sell to it the equipment and machinery. Whatever
unforeseen events might have taken place unfavorable to the petitioner such as change in
prices not covered by insurance or failure of the Starr Piano to properly fill the orders, the
respondent might still legally hold the petitioner to the prices fixed.
 Incompatible if relationship is agency
 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 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.
10% commission does not make the petitioner an agent, it is merely an additional price;
such stipulation not incompatible with the contract of purchase and sale.
Moreover, to hold the petitioner an agent of the respondent in the purchase is incompatible
with the fact that petitioner is the exclusive agent of Starr Piano in the Philippines.
 One cannot be the agent of both vendor and the purchaser
Petitioner as vendor is not bound to reimburse the respondent as vendee for any difference
between the cost price and the sales price representing the profit realized by the vendor out
of the transaction.
 This is the very essence of commerce without which merchants or
middleman would not exist.
Local dealers acting as agents of foreign manufacturers, aside from obtaining a discount
from the home office, sometimes add to the list price when they resell locally.
Respondent could not have secured the equipment by Starr Piano except through the
petitioner. The price was willingly paid; the equipment received as represented.
Not every concealment is fraud.
CA decision reversed, petitioner is absolved from the complaint.
Lim vs CA
Facts: an Information for Estafa was filed against petitioner Rosa Lim before Branch
92 of the Regional Trial Court of Quezon City.[1] The Information reads:
 October 8, 1987, petitioner Rosa Lim who had come from Cebu received from private
respondent Victoria Suarez the following two pieces of jewelry: one (1) 3.35 carat diamond
ring worth P169,000.00 and one (1) bracelet worth P170,000.00, to be sold on commission
basis. The agreement was reflected in a receipt marked as Exhibit A[6] for the prosecution.
petitioner returned the bracelet to Vicky Suarez, but failed to return the diamond ring
or to turn over the proceeds thereof if sold. As a result, private complainant, aside from
making verbal demands, wrote a demand letter[7] to petitioner asking for the return of said
ring or the proceeds of the sale thereof. In response, petitioner, thru counsel, wrote a
letter[8] to private respondents counsel alleging that Rosa Lim had returned both ring and
bracelet to Vicky Suarez sometime in September, 1987, for which reason, petitioner had no
longer any liability to Mrs. Suarez insofar as the pieces of jewelry were concerned. Irked,
Vicky Suarez filed a complaint for estafa under Article 315, par. 1(b) of the Revised Penal
Code for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October
1987, together with one Aurelia Nadera, who introduced petitioner to private respondent,
and that they were lodged at the Williams Apartelle in Timog, Quezon City. Petitioner
denied that the transaction was for her to sell the two pieces of jewelry on commission
basis. She told Mrs. Suarez that she would consider buying the pieces of jewelry for her
own use and that she would inform the private complainant of such decision before she
goes back to Cebu. Thereafter, the petitioner took the pieces of jewelry and told Mrs. Suarez
to prepare the necessary paper for me to sign because I was not yet prepare(d) to buy
it.[9] After the document was prepared, petitioner signed it. To prove that she did not agree
to the terms of the receipt regarding the sale on commission basis, petitioner insists that
she signed the aforesaid document on the upper portion thereof and not at the bottom
where a space is provided for the signature of the person(s) receiving the jewelry.[10]
On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by
telephone in order to inform her that she was no longer interested in the ring and
bracelet. Mrs. Suarez replied that she was busy at the time and so, she instructed the
petitioner to give the pieces of jewelry to Aurelia Nadera who would in turn give them back
to the private complainant. The petitioner did as she was told and gave the two pieces of
jewelry to Nadera as evidenced by a handwritten receipt, dated October 12, 1987
the trial court rendered judgment, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as
defined and penalized under Article 315, paragraph 1(b) of the Revised Penal Code;
Court of Appeals affirmed the Judgment of conviction with the modification
Issue:
First, what was the real transaction between Rosa Lim and Vicky Suarez - a contract of
agency to sell on commission basis as set out in the receipt or a sale on credit; and, second,
was the subject diamond ring returned to Mrs. Suarez through Aurelia Nadera?
Ruling:
Petitioner maintains that she cannot be liable for estafa since she never received the
jewelries in trust or on commission basis from Vicky Suarez. The real agreement between
her and the private respondent was a sale on credit with Mrs. Suarez as the owner-seller
and petitioner as the buyer, as indicated by the fact that petitioner did not sign on the
blank space provided for the signature of the person receiving the jewelry but at the upper
portion thereof immediately below the description of the items taken.
The contention is far from meritorious.
The receipt marked as Exhibit A which establishes a contract of agency to sell on
commission basis between Vicky Suarez and Rosa Lim is herein reproduced in order to
come to a proper perspective:
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. This is clear from Article 1356 of the New Civil Code which provides:
Contracts shall be obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present. x x x.
However, there are some provisions of the law which require certain formalities for
particular contracts. The first is when the form is required for the validity of the contract;
the second is when it is required to make the contract effective as against third parties
such as those mentioned in Articles 1357 and 1358; and the third is when the form is
required for the purpose of proving the existence of the contract, such as those provided in
the Statute of Frauds in Article 1403.[13] A contract of agency to sell on commission basis
does not belong to any of these three categories, hence it is valid and enforceable in
whatever form it may be entered into.
Furthermore, there is only one type of legal instrument where the law strictly
prescribes the location of the signature of the parties thereto. This is in the case of notarial
wills found in Article 805 of the Civil Code, to wit:
Every will, other than a holographic will, must be subscribed at the end thereof by the
testator himself x x x.
The testator or the person requested by him to write his name and the instrumental
witnesses of the will, shall also sign, as aforesaid, each and every page thereof, except the
last, on the left margin x x x.
In the case before us, the parties did not execute a notarial will but a simple contract
of agency to sell on commission basis, thus making the position of petitioners signature
thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez
through Aurelia Nadera, thus relieving her of any liability.
The issue as to the return of the ring boils down to one of credibility. Weight of
evidence is not determined mathematically by the numerical superiority of the witnesses
testifying to a given fact. It depends upon its practical effect in inducing belief on the part of
the judge trying the case.[17] In the case at bench, both the trial court and the Court of
Appeals gave weight to the testimony of Vicky Suarez that she did not authorize Rosa Lim
to return the pieces of jewelry to Nadera. The respondent court, in affirming the trial court,
said:
x x x This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It
contravenes the very terms of Exhibit A. The instruction by the complaining witness to
appellant to deliver the ring to Aurelia Nadera is vehemently denied by the complaining
witness, who declared that she did not authorize and/or instruct appellant to do so.
We shall not disturb this finding of the respondent court. It is well settled that we should
not interfere with the judgment of the trial court in determining the credibility of witnesses,
unless there appears in the record some fact or circumstance of weight and influence which
has been overlooked or the significance of which has been misinterpreted. The reason is
that the trial court is in a better position to determine questions involving credibility having
heard the witnesses and having observed their deportment and manner of testifying during
the trial
The elements of estafa with abuse of confidence under this subdivision are as follows:
(1) That money, goods, or other personal property be received by the offender in trust, or on
commission, or for administration, or under any other obligation involving the duty to make
delivery of, or to return, the same; (2) That there be misappropriation or conversion of such
money or property by the offender or denial on his part of such receipt; (3) That such
misappropriation or conversion or denial is to the prejudice of another; and (4) That there is
a demand made by the offended party to the offender (Note: The 4th element is not
necessary when there is evidence of misappropriation of the goods by the defendant).[19]
All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code,
are present in the case at bench. First, the receipt marked as Exhibit A proves that
petitioner Rosa Lim received the pieces of jewelry in trust from Vicky Suarez to be sold on
commission basis. Second, petitioner misappropriated or converted the jewelry to her own
use; and, third, such misappropriation obviously caused damage and prejudice to the
private respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is
hereby AFFIRMED
Chua Ngo vs Universal
Facts: Chua Ngo delivered, in Manila, to the Universal Trading Company, Inc., a local
corporation, the price of 300 boxes of Sunkist oranges to be gotten from the United States.
The latter ordered the said boxes from Gabuardi Company of San Francisco, and in due
course, the goods were shipped from that port to Manila "F. O. B. San Francisco." One
hundred eighty boxes were lost in transit, and were never delivered to Chua Ngo.
This suit by Chua Ngo is to recover the corresponding price he had paid in advance.
Universal Trading Company refused to pay, alleging it merely acted as agent of Chua Ngo in
purchasing the oranges. Chua Ngo maintains he bought the oranges from Universal
Trading Company, and, therefore, is entitled to the return of the price corresponding to the
undelivered fruit.
From a judgment for plaintiff, the defendant appealed.
It appears that on January 14, 1946, the herein litigants signed the document Exhibit 1,
which reads as follows:
Agreement is hereby made between Messrs. Chua Ngo of 753Folgueras, Manila, and the
Universal Trading Company, Inc., Manila,for order as follows and under the following
terms:
Quantity Merchandise and description Unit Unit Price Amount
300 Sunkist oranges, wrapped
On January 16 and January 19, 1946, the Universal Trading Co., Inc., wrote Chua Ngo two
letters informing him that the contract for oranges (and onions) had been confirmed by the
supplier — i. e., could be fulfilled — and asking for deposit of 65% of the price and certain
additional charges.
On January 21, 1946, Chua Ngo deposited with the defendant, on account of the Sunkist
oranges, the amount of P3,650, and later (March 9, 1946), delivered the additional sum of
P2,822.43 to complete the price, as follows:chanrob1es virtual 1aw library
300 cases of oranges at $9.36 P6,616.00
The 300 cases of oranges ordered by the defendant from Gabuardi Company were loaded in
good condition on board the S/S Silversandal in the port of San Francisco, together with
other oranges (totalling 6,380 cases) for other customers. They were all marked "UTC
Manila" and were consigned to defendant. The Silversandal arrived at the port of Manila on
March 7, 1946. And out of the 6,380 boxes of oranges, 607 cases were short landed for
causes beyond defendant’s control. Consequently, defendant failed to deliver to Chua Ngo
180 cases of the 300 cases contracted for. The total cost of such 180 cases (received by
defendant) is admittedly P3,882.60.
The above are the main facts according to the stipulation of the parties. Uncontradicted
additional evidence was introduced that the mark "UTC Manila" written on all the boxes
means "Universal Trading Company, Manila" ; that the defendant paid in its own name to
Gabuardi Company the shipment of oranges, and made claims for the lost oranges to the
steamship company and the insurance company that insured the shipment; and finally,
that in the transaction between plaintiff and defendant, the latter received no commission
Issue: Did Universal Trading Company merely agree to buy for and on behalf of Chua Ngo
the 300 boxes of oranges, or did it agree to sell — and sold — the oranges to Chua Ngo? If
the first, the judgment must be reversed; if the latter, it should be affirmed.
In our opinion, the circumstances of record sufficiently indicate a sale. First, no
commission was paid. Second, Exhibit I says that "if balance is not paid within 48 hours of
notification, merchandise may be resold by the Universal Trading Company and the deposit
forfeited." "Resold" implies the goods had been sold to Chua Ngo. And forfeiture of the
deposit is incompatible with a contract of agency. Third, immediately after executing
Exhibit I wherein oranges were quoted at $6.30 per box, Universal Trading placed an order
for purchase of the same with Gabuardi Company at $6 per box. If Universal Trading
Company was agent of Chua Ngo, it could not properly do that. Inasmuch as good faith is
to be presumed, we must hold that Universal Trading acted thus because it was not acting
as agent of Chua Ngo, but as independent purchaser from Gabuardi Company. Fourth, the
defendant charged the plaintiff the sum of P218.87 for 3 1/2 percent sales tax, thereby
implying that their transaction was a sale. Fifth, if the purchase of the oranges had been
made on behalf of Chua Ngo, all claims for losses thereof against the insurance company
and against the shipping company should have been assigned to Chua Ngo. Instead, the
defendant has been pressing such claims for itself.
In our opinion, the arrangement between the parties was this: Chua Ngo purchased from
Universal Trading Company, 300 boxes of oranges at $6.30 plus. In turn, the latter
purchased from Gabuardi Company at $6 plus, sufficient fruit to comply with its contract
with Chua Ngo.
Unfortunately, however, part of the orange consignment from San Francisco was lost in
transit. Who is to suffer that loss? Naturally, whoever was the owner of the oranges at the
time of such loss. It could not be Chua Ngo because the fruit had not been delivered to him.
As between Gabuardi and the Universal Trading, inasmuch as the goods had been sold "F.
O. B. San Francisco", the loss must be borne by the latter, because Under the law, said
goods had been delivered to the purchaser at San Francisco on board the vessel
Silversandal. 1 That is why the Universal has been trying to recover the loss from both the
steamship company and the insurer.
Now, as Chua Ngo has paid for 300 boxes and has received 120 boxes only, the price of 180
boxes undelivered must be paid back to him.
It appears that whereas in the lower court defendant sustained the theory that it acted as
agent of plaintiff, in this Court the additional theory is advanced that it acted as agent of
Gabuardi Company. This obviously has no merit.
As to the contention that defendant incurred no liability because it is admitted that the
oranges were lost due to causes beyond the control of the defendant, and the oranges were
shipped "F. O. B. San Francisco", the answer is that such contention is based on the
assumption — which we reject — that defendant merely acted as agent of plaintiff in the
purchase of the oranges from Gabuardi.
In view of the foregoing, the appealed judgment for plaintiff in the sum of P3,882.60 is
affirmed, with costs.
Filinvest vs CA
Facts: The private respondents, the spouses Jose Sy Bang and Iluminada Tan, were
engaged in the sale of gravel produced from crushed rocks and used for construction
purposes. In order to increase their production, they engaged the services of Mr. Ruben
Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a rock crusher
which they could buy. Mr. Mercurio referred the private respondents to the Rizal
Consolidated Corporation which then had for sale one such machinery described as:
ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT (RECONDITIONED) [sic]
JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16
Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the machine
at the Rizal Consolidated's plant site. Apparently satisfied with the machine, the private
respondents signified their intent to purchase the same. They were however confronted with
a problem-the rock crusher carried a cash price tag of P 550,000.00. Bent on acquiring the
machinery, the private respondents applied for financial assistance from the petitioner,
Filinvest Credit Corporation. The petitioner agreed to extend to the private respondents
financial aid on the following conditions: that the machinery be purchased in the
petitioner's name; that it be leased (with option to purchase upon the termination of the
lease period) to the private respondents; and that the private respondents execute a real
estate mortgage in favor of the petitioner as security for the amount advanced by the latter.
Accordingly, on May 18,1981, a contract of lease of machinery (with option to purchase)
was entered into by the parties whereby the private respondents agreed to lease from the
petitioner the rock crusher for two years starting from July 5, 1 981 payable as follows:
P10,000.00 - first 3 months chanrobles virtual law library
23,000.00 - next 6 months chanrobles virtual law library
24,800.00 - next 15 months
2. rescinding the contract of lease of the machinery and equipment and ordering the
plaintiffs to return to the defendant corporation the machinery subject of the lease contract
CA- the appellate court, finding no error in the appealed judgment, affirmed the same in
toto.

The contract likewise stipulated that at the end of the two-year period, the machine would the petitioner reasserts that the private respondents' cause of action is not against it (the
be owned by the private respondents. petitioner), but against either the Rizal Consolidated Corporation, the original owner-seller
of the subject rock crusher, or Gemini Motors Sales which served as a conduit facilitator of
the purchase of the said machine. The petitioner argues that it is a financing institution
Thus, the private respondents issued in favor of the petitioner a check for P150,550.00, as
engaged in quasi-banking activities, primarily the lending of money to entrepreneurs such
initial rental (or guaranty deposit), and twenty-four (24) postdated checks corresponding to
as the private respondents and the general public, but certainly not the leasing or selling of
the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract,
heavy machineries like the subject rock crusher. The petitioner denies being the seller of
the private respondents executed a real estate mortgage over two parcels of land in favor of
the rock crusher and only admits having financed its acquisition by the private
the petitioner. The rock crusher was delivered to the private respondents on June 9, 1981.
respondents. Further, the petitioner absolves itself of any liability arising out of the lease
Three months from the date of delivery, or on September 7, 1981, however, the private
contract it signed with the private respondents due to the waiver of warranty made by the
respondents, claiming that they had only tested the machine that month, sent a letter-
latter.
complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of
the machine as stated in the lease contract, the machine could only process 5 tons of rocks
Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred
and stones per hour. They then demanded that the petitioner make good the stipulation in
after six months, from the delivery of the thing sold.chanroblesvirtualawlibrarychanrobles
the lease contract.
vir

Subsequently, the private respondents stopped payment on the remaining checks they had
issued to the petitioner. 5 chanrobles virtual law library

As a consequence of the non-payment by the private respondents of the rentals on the rock
Ruling: We find the petitioner's first contention untenable. While it is accepted that the
crusher as they fell due despite the repeated written demands, the petitioner extrajudicially
petitioner is a financing institution, it is not, however, immune from any recourse by the
foreclosed the real estate mortgage. 6 On April 18, 1983, the private respondents received a
private respondents. Notwithstanding the testimony of private respondent Jose Sy Bang
Sheriff s Notice of Auction Sale informing them that their mortgaged properties were going
that he did not purchase the rock crusher from the petitioner, the fact that the rock
to be sold at a public auction on May 25, 1983 at 10:00 o'clock in the morning at the Office
crusher was purchased from Rizal Consolidated Corporation in the name and with the
of the Provincial Sheriff in Lucena City to satisfy their indebtedness to the petitioner. 7 To
funds of the petitioner proves beyond doubt that the ownership thereof was effectively
thwart the impending auction of their properties, the private respondents filed before the
transferred to it. It is precisely this ownership which enabled the petitioner to enter into the
Regional Trial Court of Quezon, on May 4, 1983, 8 a complaint against the petitioner, for
"Contract of Lease of Machinery and Equipment" with the private
the rescission of the contract of lease, annullment of the real estate mortgage, and for
respondents.chanroblesvirtualawlibrary chanrobles virtual law library
injunction and damages, with prayer for the issuance of a writ of preliminary injunction

RTC- trial court issued a temporary restraining order commanding the Provincial Sheriff of
Quezon, and the petitioner, to refrain and desist from proceeding with the public auction.
the trial court rendered a decision in favor of the private respondents, the dispositive
portion of which reads:chanrobles virtual law library
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1. making the injunction permanent; chanrobles virtual law library
Be that as it may, the real intention of the parties should prevail. The nomenclature of the
agreement cannot change its true essence, i.e., a sale on installments. It is basic that a
contract is what the law defines it and the parties intend it to be, not what it is called by
the parties. 13 It is apparent here thatthe intent of the parties to the subject contract is for
the so-called rentals to be the installment payments. Upon the completion of the payments,
then the rock crusher, subject matter of the contract, would become the property of the
private respondents.
The importance of the criticism is heightened in the light of Article 1484 of the new Civil
Code which provides for the remedies of an unpaid seller of movables on installment basis.
Article 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies: chanrobles virtual law
library
(1) Exact fulfillment of the obligation, should the vendee fail to pay; chanrobles virtual law
library
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;chanrobles virtual law library
(3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.
Under the aforequoted provision, the seller of movables in installments, in case the buyer
fails to pay two or more installments may elect to pursue either of the following remedies:
(1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose
the mortgage on the purchased property if one was constituted thereon. It is now settled
that the said remedies are alternative and not cumulative and therefore, the exercise of one
bars the exercise of the others.chanroblesvirtualawlibrary chanrobles virtual law library
Indubitably, the device contract of lease with option to buy is at times resorted to as a
means to circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up,
the vendor, by retaining ownership over the property in the guise of being the lessor,
retains, likewise, the right to repossess the same, without going through the process of
foreclosure, in the event the vendee-lessee defaults in the payment of the installments.
There arises therefore no need to constitute a chattel mortgage over the movable sold. More
important, the vendor, after repossessing the property and, in effect, canceling the contract
of sale, gets to keep all the installments-cum-rentals already paid. It is thus for these
reasons that Article 1485 of the new Civil Code provides that:
Article 1485. The preceding article shall be applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of possession
or enjoyment of the thing. (Emphasis ours.)
Unfortunately, even with the foregoing findings, we however fail to find any reason to hold
the petitioner liable for the rock crusher's failure to produce in accordance with its
described capacity. According to the petitioner, it was the private respondents who chose,
inspected, and tested the subject machinery. It was only after they had inspected and
tested the machine, and found it to their satisfaction, that the private respondents sought
financial aid from the petitioner. These allegations of the petitioner had never been rebutted
by the private respondents. In fact, they were even admitted by the private respondents in
the contract they signed. Thus:chanrobles virtual law library
LESSEE'S SELECTION, INSPECTION AND VERIFICATION.-The LESSEE hereby confirms
and acknowledges that he has independently inspected and verified the leased property and
has selected and received the same from the Dealer of his own choosing in good order and
excellent running and operating condition and on the basis of such verification, etc. the
LESSEE has agreed to enter into this Contract.
it is the private respondents, by reason of their business, who are presumed to be more
knowledgeable, if not experts, on the machinery subject of the contract, they should not
therefore be heard now to complain of any alleged deficiency of the said machinery. It is
their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a
prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to
their difficulty and to this conflict. A well- established principle in law is that between two
parties, he, who by his negligence caused the loss, shall bear the
same.chanroblesvirtualawlibrary chanrobles virtual law library
:
At any rate, even if the private respondents could not be adjudged as negligent, they still
are precluded from imputing any liability on the petitioner. One of the stipulations in the
contract they entered into with the petitioner is an express waiver of warranties in favor of
the latter. By so signing the agreement, the private respondents absolved the petitioner
from any liability arising from any defect or deficiency of the machinery they bought. The
stipulation on the machine's production capacity being "typewritten" and that of the waiver
being "printed" does not militate against the latter's effectivity.
WARRANTY-LESSEE absolutely releases the lessor from any liability whatsoever as to any
and all matters in relation to warranty in accordance with the provisions hereinafter
stipulated. 17chanrobles virtual law library
Taking into account that due to the nature of its business and its mode of providing
financial assistance to clients, the petitioner deals in goods over which it has no sufficient
know-how or expertise, and the selection of a particular item is left to the client concerned,
the latter, therefore, shoulders the responsibility of protecting himself against product
defects. This is where the waiver of warranties is of paramount importance. Common sense
dictates that a buyer inspects a product before purchasing it (under the principle of caveat
emptor or "buyer beware") and does not return it for defects discovered later on,
particularly if the return of the product is not covered by or stipulated in a contract or
warranty. In the case at bar, to declare the waiver as non-effective, as the lower courts did,
would impair the obligation of contracts. Certainly, the waiver in question could not be
considered a mere surplusage in the contract between the parties.
WHEREFORE, the Petition is GRANTED; the Decision of the Court of Appeals dated March
17, 1988 is hereby REVERSED AND SET ASIDE.