Moles vs. Intermediate Appellate Court

An express warranty issued by the seller in a sale of a secondhand article is binding on the seller, and a venue stipulation printed on a pro forma invoice that is not the contract itself does not govern the parties' transaction.

Petitioner Jerry T. Moles operated a printing business known as The LM Press in Bacolod City, while private respondent Mariano M. Diolosa owned the Diolosa Publishing House in Iloilo City. The two were introduced through an agent of Smith, Bell and Co. when petitioner needed a linotype printing machine and respondent had two available secondhand units for sale. The transaction between them was primarily verbal in character, with a pro forma invoice prepared solely to facilitate petitioner's industrial loan application with the Development Bank of the Philippines for the purchase of the machine.

Sometime in 1977, petitioner Jerry T. Moles needed a linotype printing machine for his printing business, The LM Press, in Bacolod City, and applied for an industrial loan with the Development Bank of the Philippines (DBP) for its purchase. An agent of Smith, Bell and Co. introduced petitioner to private respondent Mariano M. Diolosa, owner of the Diolosa Publishing House in Iloilo City, who had two available secondhand machines. Petitioner went to Iloilo City to inspect the machines and was informed they were secondhand but functional. On his second visit, accompanied by Rogelio Yusay, a letter press machine operator, petitioner decided to buy a linotype machine, Model 14. The transaction was basically verbal, but to facilitate the loan application with DBP, a pro forma invoice dated April 23, 1977 was signed by petitioner, reflecting the amount of P50,000.00 as consideration, with an addendum stating that payment had not yet been made but that petitioner promised to pay the full amount upon release of his loan on or before the end of the month. Although the agreed selling price was only P40,000.00, the invoice amount was increased by P10,000.00, intended for the purchase of new matrices for the machine.

Sometime between April and May 1977, the machine was delivered to petitioner's publishing house at Tangub, Bacolod City, where it was installed by Crispino Escurido, an employee of respondent. Another employee, Tomas Plondaya, stayed at petitioner's house for almost a month to train petitioner's cousin in operating the machine. On August 29, 1977, private respondent issued a certification warranting that the machine sold was in "A-1 condition," together with other express warranties. Prior to the release of the loan, a DBP representative supposedly inspected the machine but merely looked at it to see that it was there. The inspector's recommendation was favorable, and petitioner's loan of P50,000.00 was granted and released.

Before payment was made to private respondent, petitioner required the latter in a letter dated September 30, 1977 to accomplish certain conditions, including issuing a crossed check for P15,407.10 representing an overprice in the machine, freight and handling, share in electric repair, and insurance for repairs, as well as an official receipt for P50,000.00 as full payment. Private respondent complied immediately and on the same day received the DBP check for P50,000.00. The official receipt, No. 0451, expressly stated that private respondent received the DBP check "in full payment of one (1) Unit Model 14 Linotype Machine as per Pro forma Invoice dated April 23, 1977."

On November 29, 1977, petitioner wrote private respondent that the machine was not functioning properly as it needed a new distributor bar. Petitioner expressed his grievances, stating that he bought the machine in good faith and trusted respondent, but later discovered from a Manila expert that the machine was worth at most P5,000.00. Private respondent made no reply, so petitioner engaged other technicians. After several telephone calls regarding the defects, private respondent sent two technicians to make repairs, but they failed to put the machine in running condition. Petitioner was never able to use the machine. On February 18, 1978, petitioner again wrote private respondent, warning that he would seek legal remedies. In response, private respondent purchased a new distributor bar and delivered it through Pedro Candido on March 16, 1978, but when petitioner asked respondent to pay for it, respondent asked petitioner to share the cost. Petitioner then referred the matter to his lawyer.

An expert witness for the petitioner, Gil Legaspina, testified that he inspected the machine and found six defects: a worn-out vertical automatic stop lever, a breached justification lever, a worn-out distributor bar, a torn partition at the entrance channel, a missing "pie stacker" tube entrance, and a worn-out slouch arm lever. Legaspina had previously inspected the same machine for Sy Brothers, who aborted their planned purchase upon learning of the defects. In his opinion, major repairs were needed to put the machine back in good running condition. The trial court found the machine not reasonably fit for its intended purpose and decreed rescission, but the Intermediate Appellate Court reversed, dismissing the complaint.

• Venue Stipulation Not Binding: Petitioner argued that the Sales Invoice No. 075A was not the contract evidencing the sale, the transaction being substantially verbal in character, and that the printed venue stipulation therein could not bind the parties.
• Express Warranty Binding: Petitioner maintained that private respondent's certification warranting the machine's "A-1 condition" constituted an express warranty that was binding on the seller, having been issued as a condition sine qua non for the release of the bank loan.
• Redhibitory Defects: Petitioner contended that the hidden defects in the machine were of such gravity as to warrant rescission of the contract of sale, the machine having never been put to appropriate use from the time of purchase.

• Improper Venue: Respondent relied on the venue stipulation in Sales Invoice No. 075A, arguing that all judicial actions arising from the contract should be instituted in Iloilo City.
• No Warranty in Sale of Secondhand Goods: Respondent contended that there is no implied warranty in the sale of secondhand articles, citing the general rule that unless goods are sold in a manner raising an implied warranty, none exists.
• Certification Not Part of Contract: Respondent submitted that the certification of "A-1 condition" was not binding because it was not part of the contract of sale between the parties.
• Dealer's Talk: Respondent argued that the certification was merely "dealer's talk" and not a warranty.
• Prescription: Respondent contended at a belated stage of the appeal that the action for rescission was barred by prescription under Article 1571 of the Civil Code, which provides a six-month prescriptive period for redhibitory actions.

• Venue: Whether the venue stipulation printed on the pro forma invoice binds the parties and governs the proper venue for the action.
• Express Warranty: Whether the seller's certification that the machine was in "A-1 condition" constitutes a binding express warranty in the sale of a secondhand article.
• Rescission: Whether the hidden defects in the linotype machine are redhibitory and sufficient to warrant rescission of the contract of sale.
• Prescription: Whether the action for rescission is barred by prescription.

• Venue: No. The pro forma invoice was merely a preliminary memorandum of a proposal to buy, not the contract evidencing the sale, and its printed venue stipulation could not have been intelligently and deliberately intended by the parties to govern their transaction.
• Express Warranty: Yes. The certification that the machine was in "A-1 condition" constituted a binding express warranty, having been issued as a condition sine qua non for the release of petitioner's bank loan and not being mere "dealer's talk."
• Rescission: Yes. The defects established by the expert witness required major repairs before the machine could be used, and petitioner never made appropriate use of the machine, attesting to redhibitory defects warranting rescission.
• Prescription: No. The six-month period under Article 1571 applies only to implied warranties; the four-year general rule on rescission governs express warranties, and the action was filed within one year of delivery. Prescription was also waived by not being raised in the trial court.

• Venue: The Court agreed with petitioner that Sales Invoice No. 075A was not the contract evidencing the sale but merely a preliminary memorandum of a proposal, using a printed form originally designed for printing job orders in respondent's business. This very issue had been raised by private respondent in G.R. No. 49078 and dismissed for lack of merit, and the respondent court erred in reopening it on appeal with a contrary ruling. Furthermore, the respondent court adopted the lower court's factual findings yet reversed its holding that the sales invoice was merely a pro forma memorandum, without showing that the finding was grounded on speculation or conjecture. Private respondent himself admitted in Official Receipt No. 0451 that the sales invoice was merely a "pro forma invoice." A venue stipulation, to bind the parties, must have been intelligently and deliberately intended to exclude the case from the reglementary rules on venue, and the printed provisions on a form used for other types of transactions could not have been so intended.

• Express Warranty: While the general rule is that no implied warranty exists in the sale of secondhand articles subject to inspection, this rule is not without exceptions. Article 1562 of the Civil Code, derived from the Uniform Sales Act, provides an implied warranty where the buyer makes known to the seller the particular purpose for which goods are acquired and relies on the seller's skill or judgment. More determinatively, American jurisprudence uniformly holds that an express warranty can be made by and be binding on the seller even in the sale of a secondhand article. In this case, private respondent issued a certification warranting the machine was in "A-1 condition." This was not mere "dealer's talk," as respondent was not a dealer of printing or linotype machines and the certification was not made to induce the purchase but to confirm in writing his representations for purposes of the financing aspect of the transaction. The certification was a condition sine qua non for the release of petitioner's loan, and respondent failed to refute this or explain why he made the warranty if he did not intend to be bound by it. The respondent court itself considered the certification as part and parcel of the verbal contract by declaring that petitioner should have availed of the remedy of repairs provided therein.

• Rescission: A redhibitory defect must be an imperfection of such nature as to engender a certain degree of importance; an imperfection of little consequence does not qualify. The expert witness for petitioner categorically established six specific defects and testified that major repairs were needed before the machine could be used. Coupled with the fact that petitioner never made appropriate use of the machine from the time of purchase until the filing of the action, these facts attest to major defects that are redhibitory. The trial court's factual finding that the machine was not reasonably fit for its intended purpose was supported by ample evidence and must be upheld.

• Prescription: While Article 1571 provides a six-month prescriptive period for redhibitory actions, a cursory reading of the ten preceding articles reveals that this rule applies only to implied warranties. The present case involves an express warranty, so the general rule on rescission of contract under Article 1389, which prescribes a four-year period, governs. The action was filed only one year after delivery of the machine, well within the prescriptive period. Aside from this, the defense of prescription is waived and cannot be considered on appeal if not raised in the trial court, and this case presents no exception to that doctrinal rule.

• Binding Nature of Venue Stipulations — A venue stipulation, to bind the parties, must have been intelligently and deliberately intended by them to exclude their case from the reglementary rules on venue. Printed provisions on a form used for purposes of other types of transactions cannot be deemed so intended. Even an intended variance may not be given judicial approval where there are no restrictive or qualifying words indicating that venue cannot be laid in any place other than that agreed upon, and in contracts of adhesion.

• Express Warranty in Sale of Secondhand Articles — While the general rule is that no implied warranty exists in the sale of secondhand articles subject to inspection, an express warranty can be made by and be binding on the seller even in the sale of a secondhand article. A written certification specifically representing the condition of the article as true cannot be considered mere "dealer's talk," especially where it was issued as a condition sine qua non for the release of financing.

• Redhibitory Defects — A redhibitory defect must be an imperfection or defect of such nature as to engender a certain degree of importance. An imperfection or defect of little consequence does not come within the category of being redhibitory. Where an expert establishes that major repairs are needed before the article can be used, and the buyer never made appropriate use of the article, the defects are redhibitory and warrant rescission under Article 1561 of the Civil Code.

• Prescription in Redhibitory Actions — The six-month prescriptive period under Article 1571 applies only to cases involving implied warranties. Where an express warranty is involved, the general rule on rescission of contract under Article 1389, prescribing a four-year period, applies. The defense of prescription is waived if not raised in the trial court.

• "It is obvious that a venue stipulation, in order to bind the parties, must have been intelligently and deliberately intended by them to exclude their case from the reglementary rules on venue." — This passage articulates the standard for determining whether a venue stipulation is binding, emphasizing the requirement of deliberate and intelligent intent by the parties.

• "To repeat, in the case before Us, a certification to the effect that the linotype machine bought by petitioner was in A-1 condition was issued by private respondent in favor of the former. This cannot but be considered as an express warranty." — This statement establishes the ratio decidendi on the binding nature of the seller's written certification as an express warranty in a sale of a secondhand article.

• "A redhibitory defect must be an imperfection or defect of such nature as to engender a certain degree of importance. An imperfection or defect of little consequence does not come within the category of being redhibitory." — This passage provides the canonical formulation of what constitutes a redhibitory defect under Article 1561 of the Civil Code.

• "While it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitory action a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties." — This clarifies the distinction in prescriptive periods between actions based on implied warranties (six months) and those based on express warranties (four years under Article 1389).

• Polytrade Corporation vs. Blanco, 30 SCRA 187 (1969) — Cited for the principle that a venue stipulation must contain restrictive or qualifying words indicating that venue cannot be laid in any place other than that agreed upon by the parties.
• Sweet Lines, Inc. vs. Teves, et al., 83 SCRA 361 (1978) — Cited in connection with venue stipulations in contracts of adhesion.
• Sison vs. Ago, et al. — Cited by the respondent court for the general rule that there is no implied warranty in the sale of secondhand articles; the Court distinguished this case as involving an express warranty.
• Drumar Mining Co. vs. Morris Ravine Mining Co., 92 P 2d 424 — Cited for the proposition that the Uniform Sales Act's implied warranty provisions apply to all sales of goods, whether new or secondhand.
• Markman vs. Hallbeck, 206 III. App. 465 — Cited for the rule that an express warranty can be made by and be binding on the seller even in the sale of a secondhand article, and that secondhand goods might be sold under circumstances raising an implied warranty.
• Puyat & Sons, Inc. vs. Arco Amusement Co., 72 Phil. 402 (1941) — Cited for the principle that what does not appear on the face of a written instrument should be regarded as dealer's or trader's talk, and conversely, what is specifically represented as true in a document cannot be so considered.
• Legaspi vs. Court of Appeals, et al., 142 SCRA 82 (1986) — Cited for the rule that factual findings of the trial court should not be reversed where they are not grounded entirely on speculation, surmises, or conjectures.
• Ramos vs. Osorio, et al., 38 SCRA (1971) — Cited for the doctrinal rule that the defense of prescription is waived and cannot be considered on appeal if not raised in the trial court.

• Article 1561, Civil Code — Governs redhibitory defects in sales. The Court applied this provision to determine that the six defects found in the linotype machine were of sufficient importance to be redhibitory, warranting rescission.
• Article 1562, Civil Code — Provides for implied warranties as to quality or fitness of goods, particularly where the buyer makes known the particular purpose for which goods are acquired and relies on the seller's skill or judgment. The Court cited this provision, derived from the Uniform Sales Act, to show that implied warranties may apply even to secondhand goods under certain circumstances.
• Article 1571, Civil Code — Prescribes a six-month prescriptive period for redhibitory actions. The Court held this provision applicable only to implied warranties, not to express warranties as in the present case.
• Article 1389, Civil Code — Provides the general four-year prescriptive period for rescission of contract. The Court applied this provision instead of Article 1571 because the case involved an express warranty, and the action was filed within one year of delivery.

Melencio-Herrera (Chairperson), Paras, Padilla, and Sarmiento, JJ., concurred.