McCullough vs. R. Aenlle & Co.

A perfected contract of sale for all leaf tobacco then owned by the vendor, at prices fixed by reference to existing invoices, binds the vendee to accept the goods regardless of their kind, class, or quality; a subsequent inventory merely ascertains the total price and cannot vary the parties' rights. A difference in grade or quality from an inventory description is not a hidden defect under Article 1474 of the Civil Code.

E. C. McCullough owned a printing establishment and wished to move it into the building occupied by R. Aenlle & Co.'s cigar factory. Because the building could not be obtained without purchasing the tobacco factory, the transaction was structured as a sale of the factory, its trademark, equipment, and all leaf tobacco on hand, with provisions for the leasing and ultimate purchase of the building. The dispute implicated the Civil Code provisions on perfected sales, certainty of price, and warranty against hidden defects, as well as the Code of Civil Procedure's authority for the Supreme Court to find facts and render final judgment.

On August 27, 1901, E. C. McCullough and R. Aenlle & Co. executed a written contract in which the partnership, through Francisco Gonzalez y de la Fuente and Antonio la Puente y Arce, acting under the instructions of manager Matias Saenz de Vizmanos y Lecaros, sold absolutely to McCullough the tobacco and cigarette factory known as "La Maria Cristina," located at No. 36 Calle Echague, Plaza de Goiti, Santa Cruz, including its registered trade-mark, stock of tobacco in leaf and manufacture, machinery, labels, wrappers, furniture, fixtures, and everything else belonging to the factory, as shown in an inventory to be drawn up for formal delivery. The contract itemized approximate values: 20,000 pesos for the trade-mark; 30,000 pesos for machinery, tools, equipment, and installation; 4,500 pesos for furniture; 71,000 pesos for leaf tobacco; 1,500 pesos for boxes; 12,500 pesos for manufactured tobacco; 10,000 pesos for wrappers and labels; and 4,000 pesos for cigarette paper, totaling 153,500 pesos, subject to modification by the inventory. The inventory was to value furniture at 10 percent below the partnership inventory, machinery and installation at 10 percent below invoice price, tobacco and related items at invoice price, cigars at the partnership price list less 20 percent, and cigars at the same list less 35 percent, with the 20,000-peso trade-mark value unchanged. The contract also contained provisions for the leasing and ultimate purchase of the building by McCullough, who owned a printing establishment and wanted to move it into the building occupied by the defendant's cigar factory; he testified that he could not obtain the building without buying the tobacco factory and bought it intending to sell it as soon as he could without loss.

The inventory was thereafter made by the defendant and delivered to McCullough. Before September 26, McCullough, through an expert he selected, examined sample bales selected by the defendant, which its agents said were sample bales of the different lots of tobacco mentioned in the inventory; the samples corresponded as to quality with the lots described in the inventory. On September 26, the parties executed a second instrument reciting that they had completed the inventory of machinery, furniture, stock of tobacco in leaf and manufactured, boxes, labels, wrappers, and other appurtenances, representing a total effective value of 131,000 pesos after the agreed discounts and including the 20,000-peso trade-mark, and that McCullough remained in possession to his entire satisfaction. The second instrument fixed the selling price at 131,000 pesos, authorized the vendors to collect the 20,000 pesos deposited in the Spanish-Philippine Bank, and bound McCullough to pay the remaining 111,000 pesos by September 30, with rescission and forfeiture of the 20,000 pesos if he failed to pay on that date. On September 30, the parties executed a third contract in which the defendant acknowledged receipt of the full purchase price.

Among the leaf tobacco in the inventory were two lots: (1) "Y. P. I. 4. S.a — Angadanan — 99 — 221 bales, net weight qqs. 571.35 at 40," amounting to $22,854; and (2) "Isabela, 99 loose leaves. 1.a 2.a 3.a 76 bales re-baled, net weight, qqs. 130.32 at 42," amounting to $5,473.44. It was admitted that the first item meant 221 bales of fourth-class superior tobacco from Angadanan of the 1899 crop, and that the second item meant 76 bales from Isabela of the 1899 crop and of the first, second, and third class. In December 1901, McCullough, with others, organized a company to which he sold all the tobacco he had bought from the defendant. The new company, on examining these two lots, rejected them because the tobacco was not of the quality indicated in the inventory. McCullough then claimed that the tobacco in these two lots was worthless and brought this action against the defendant to recover what he had paid for them, namely $22,854 and $5,473.44.

The lower court found that the first lot was worth at the time of sale only 8 pesos a quintal instead of 40, the price paid, and that the second lot was worth 11 pesos instead of 42, and ordered judgment against the defendant for the difference, amounting to 24,109.24 pesos. The defendant proved at trial, by means of the original invoices, that the prices stated in the inventory were the prices it had paid for the tobacco, and McCullough made no claim to the contrary. There was evidence tending to show that the first lot, instead of being fourth-class superior of 1899, was fourth-class inferior of 1898, and that the second lot, instead of being of the first, second, and third class of 1899, was "particular" of 1898. There was no evidence that any representations as to the quality of the tobacco were made to McCullough by the defendant before the August 27 contract, nor that there was any prior agreement as to an exhibition of samples, nor that McCullough before that time made any examination or inquiry as to the quality of the tobacco. McCullough testified that he had to buy the factory and everything that went with it in order to get the building, and that the defendant was not willing to sell him the building and the good tobacco while retaining the poorer quality; he had to take it all or not get the building. He also testified that the express agreement was that he would pay no more than the defendant had paid.

• Worthless Tobacco and Recovery: McCullough claimed that the two lots of tobacco were worthless because they were not of the quality indicated in the inventory and sought to recover the amounts he had paid for them, $22,854 and $5,473.44.
• Specificity of New Trial Motion: McCullough maintained that the motion for a new trial should have specified more in detail the grounds for the motion.

• Perfected Sale: Whether the August 27, 1901 contract was a perfected contract of sale binding upon the parties despite the subsequent inventory.
• Obligation to Accept All Tobacco: Whether McCullough was bound to accept all leaf tobacco then owned by R. Aenlle & Co. at the invoice prices regardless of its kind, class, or quality.
• Effect of Inventory Descriptions: Whether the inventory's descriptions of the two tobacco lots created a warranty as to class, quality, or crop that would allow McCullough to recover.
• Hidden Defect: Whether the alleged difference in grade or quality constituted a hidden defect under Article 1474 of the Civil Code.
• Rescission for Lesion: Whether McCullough could rescind the contract for lesion because the value of the tobacco was less than half the purchase price.
• New Trial Motion Specificity: Whether the motion for a new trial should have specified more in detail the grounds for the motion.

• Perfected Sale: Yes. The August 27 contract was a completed contract of sale under Article 1450 of the Civil Code; the thing and price were agreed upon, and the price could be made certain by reference to existing invoices under Article 1447.
• Obligation to Accept All Tobacco: Yes. McCullough bound himself to take all leaf tobacco then belonging to the factory and to pay the invoice prices; the obligation was absolute and did not depend on the quality or value of the tobacco.
• Effect of Inventory Descriptions: No. The subsequent inventory merely ascertained the total purchase price and could not alter the rights already fixed by the August 27 contract; McCullough purchased by quantity, not by class or quality.
• Hidden Defect: No. A difference in grade or quality from the inventory description is not a hidden defect within the meaning of Article 1474 of the Civil Code.
• Rescission for Lesion: No. The right to rescind for lesion when the value is less than half the purchase price was expressly taken away by Article 1293 of the Civil Code.
• New Trial Motion Specificity: No. Sections 145, 146, and 497 of the Code of Civil Procedure do not require the party to state at length and in detail the grounds for a new trial.

• Perfected Sale: The document of August 27 was a completed contract of sale under Article 1450 because the articles which were the subject of the sale were definitely and finally agreed upon. The price for each article was fixed; although the price of tobacco was not stated in dollars and cents, McCullough agreed to pay the amount named in the invoices then in existence, and the price could be made certain by a mere reference to those invoices under Article 1447. By the instrument of August 27, the contract was perfected, and thereafter each party could compel the other to fulfill it under Article 1258.
• Obligation to Accept All Tobacco: By the terms of the contract, McCullough was bound to take all the leaf tobacco then belonging to the factory and to pay the prices named in the invoices. This obligation was absolute and did not depend at all upon the quality of the tobacco or its value. McCullough did not reserve the right to reject the tobacco if it were not of a specific crop; he did not buy tobacco of a particular kind, class, or quality. He bought all the tobacco which the appellant owned and agreed to pay for it what the defendant had paid for it, as McCullough himself testified was the express agreement.
• Effect of Inventory Descriptions: The inventory subsequently made could not in any respect change the rights of the parties which had already been fixed by the contract. Its sole purpose was to ascertain what the total purchase price was. If it correctly gave the number of bales and the price paid therefor by the appellant according to the invoices, it was a sufficient compliance with the contract. The fact that the tobacco was described as of one class instead of another would be unimportant, because McCullough did not purchase by class or quality, but by quantity. The Court illustrated that if the inventory had described the lots as fourth-class inferior Angadanan of 1898 and Isabela hojas sueltas particular of 1898, McCullough could not have maintained the action; therefore, he could not maintain it under the existing circumstances.
• Hidden Defect: Article 1474 of the Civil Code had no application. The fact that an article is of one grade or quality instead of another does not constitute a hidden defect within the meaning of that article. There was no evidence that any representations as to quality were made to McCullough before the August 27 contract, nor any prior agreement as to an exhibition of samples, nor any prior examination or inquiry by McCullough as to quality. McCullough had to buy the factory and everything that went with it in order to get the building; the defendant was not willing to sell him the building and the good tobacco while retaining the poorer quality, so he had to take it all or not get the building. He could relieve himself from the obligation only by showing either that the tobacco in the inventory was not owned by the defendant on August 27 or that the prices stated therein were not the prices the defendant paid; he did neither.
• Rescission for Lesion: The right to rescind a contract for lesion when the value is less than half of the purchase price, given by Law 56, title 5, partida 5, was expressly taken away by Article 1293 of the Civil Code.
• New Trial Motion Specificity: There is nothing in sections 145, 146, or 497 of the Code of Civil Procedure which requires the party to state at length and in detail his reasons for thinking that he is entitled to a new trial.

• Perfected Contract of Sale and Certainty of Price — Under Article 1450 of the Civil Code, a sale is perfected between vendor and vendee when they have agreed upon the thing which is the object of the contract and upon the price. Article 1447 permits the price to be made certain by reference to existing invoices. The Court applied these rules to hold that the August 27, 1901 contract was already a completed sale before the inventory was made, and that the parties could compel each other to perform it under Article 1258.
• Sale by Quantity Distinguished from Sale by Description or Quality — Where the vendee agrees to buy all of a described stock and to pay the invoice prices paid by the vendor, the sale is by quantity rather than by particular kind, class, or quality. The vendee cannot later reject the goods merely because they differ in grade or crop from descriptions in a subsequent inventory. The Court applied this doctrine because McCullough bought all the leaf tobacco then owned by R. Aenlle & Co. and agreed to pay what the defendant had paid, without reserving any right to reject based on quality.
• Inventory as Price-Ascertaining Instrument — A subsequent inventory contemplated by the contract merely ascertains the total purchase price and cannot add to or take from the rights and obligations already fixed in the existing contract. The Court held that the inventory in this case served only to determine the total price, and that its descriptions of class or quality did not alter the parties' rights.
• Hidden Defects Under Article 1474 — The warranty against hidden defects does not cover a mere difference in grade or quality from a description. The Court held that Article 1474 had no application because the alleged defect was that the tobacco was of one grade or quality instead of another, which does not constitute a hidden defect within the meaning of that article.
• Abolition of Rescission for Lesion — The right to rescind a contract for lesion when the value is less than half of the purchase price was expressly taken away by Article 1293 of the Civil Code. The Court applied this provision to deny McCullough any recovery based on the alleged low value of the tobacco.
• Specificity of New Trial Motion — Sections 145, 146, and 497 of the Code of Civil Procedure do not require a party to state at length and in detail the grounds for a new trial. The Court applied this rule to reject McCullough's contention that the motion for new trial was defective for lack of specificity.

• "The document of August 27 was a completed contract of sale. (Art. 1450, Civil Code.) The articles which were the subject of the sale were definitely and finally agreed upon." — This passage states the ratio decidendi on the perfection of the sale, holding that the August 27 contract was already binding before the inventory was made.
• "By its terms the appellee was bound to take all the leaf tobacco then belonging to the factory and to pay therefor the prices named in the invoices. This obligation was absolute and did not depend at all upon the quality of the tobacco or its value." — This is the core holding that McCullough's obligation was absolute and not conditioned on the quality or value of the tobacco.
• "The fact that in the inventory subsequently made that particular lot of tobacco is mentioned can not in any respect change the rights of the parties which had already been fixed by the contract." — This passage defines the limited effect of the inventory, holding that it could not vary the parties' already-fixed rights.
• "The fact that an article is of one grade or quality instead of another does not constitute a hidden defect within the meaning of that article." — This passage is the Court's canonical formulation distinguishing a difference in grade or quality from a hidden defect under Article 1474.

• Benedicto vs. De la Rama, December 8, 1903 — Cited by the majority for the authority of the Supreme Court, under section 497 of the Code of Civil Procedure, to find the facts from the evidence and render such final judgment as justice and equity require.

• Article 1450, Civil Code — Provides that a sale is perfected between vendor and vendee when they have agreed upon the thing which is the object of the contract and upon the price. Applied to hold that the August 27, 1901 contract was a completed contract of sale.
• Article 1447, Civil Code — Permits the price to be made certain by reference to existing invoices. Applied because McCullough agreed to pay the invoice prices paid by the defendant, making the price certain by reference to those invoices.
• Article 1258, Civil Code — Provides that contracts are binding and each party may compel the other to fulfill them. Applied because the August 27 contract was perfected and each party could compel performance.
• Article 1293, Civil Code — Expressly took away the right to rescind a contract for lesion when the value is less than half of the purchase price. Applied to deny rescission for lesion.
• Article 1474, Civil Code — Governs warranty against hidden faults or defects. Held inapplicable because a difference in grade or quality from an inventory description is not a hidden defect.
• Law 56, title 5, partida 5 — The old rule granting rescission for lesion when the value is less than half of the purchase price. Cited as having been expressly taken away by Article 1293 of the Civil Code.
• Sections 145, 146, and 497, Code of Civil Procedure — Sections 145 and 146 concern new trial motions; section 497 authorizes the Supreme Court to find the facts from the evidence and render final judgment as justice and equity require. Applied to reject the claim that the new trial motion needed more detailed grounds and to support the Court's factual review.

Arellano, C.J., Torres, J., and Mapa, J.

• Justice McDonough — Dissented. He argued that the inventory was an essential part of the contract and retroacted to the date of the contract; that the sale was by sample and by the description in the inventory; and that there was a breach of warranty because the tobacco did not correspond to the samples or to the inventory description. He also maintained that there was a breach of the legal warranty against hidden faults or defects under the Civil Code, because the tobacco was in bales and its defective quality could not be discovered without opening them. He concluded that the judgment below should be affirmed.
• Justice Cooper — Dissented in part. He agreed that the August 27 contract was a perfected sale and that no particular kind or description of tobacco was sold, nor was any sample shown to the plaintiff at or before the purchase. He disagreed, however, that the Civil Code provisions on warranty were inapplicable. He would have held that the tobacco had hidden defects because it was in bales and the defects were not visible, that McCullough was not an expert, and that there was no stipulation excluding warranty. He concluded that McCullough was entitled to recover the difference between the value the tobacco would have had if free from hidden defects and its value as delivered, and that the lower court should have measured damages on that basis rather than on the difference between the tobacco delivered and the kind described in the inventory.