Sun Brothers Appliances, Inc. vs. Perez

A stipulation in a conditional sale agreement placing the risk of loss on the buyer "for any cause," including fortuitous events, is valid and enforceable under Article 1174 of the Civil Code, and the buyer remains obligated to pay the unpaid price even if the goods are destroyed by a fortuitous event while in his possession and before title has vested.

Sun Brothers Appliances, Inc. was a vendor of appliances, and Damaso P. Perez was a buyer who purchased an Admiral Air Conditioner under a conditional sale agreement dated December 6, 1958. The agreement provided that title would vest in the buyer only upon full payment and that the buyer would bear the risk of any loss, damage, or destruction of the property "for any cause" after delivery. The Civil Code's provisions on fortuitous events, particularly Article 1174, which recognizes the exception that parties may expressly stipulate that a fortuitous event will not exempt the obligor, furnished the statutory framework for the dispute.

On December 6, 1958, Damaso P. Perez entered into a conditional sale agreement with Sun Brothers Appliances, Inc. in the City of Manila for the purchase of one Admiral Air Conditioner, Slim Style, Model 100-23-1 H.P., Serial No. 2978828, with a contract price of ₱1,678.00. Under the agreement, title to the property would vest in the buyer only upon full payment of the entire account and complete performance of all other conditions. The agreement further stipulated that the buyer would keep the property in good condition and properly protected, and that if the property or any part thereof were lost, damaged, or destroyed "for any cause," the buyer would suffer such loss, the property remaining at the buyer's risk after delivery.

Pursuant to the agreement, Sun Brothers delivered the air conditioner, and Perez made a down payment of ₱274.00 on December 6, 1958. The unit was installed by the plaintiff through its representative at the defendant's office located on Gardiner Street, Lucena, Quezon. Thereafter, Perez did not pay any of the monthly installments of ₱78.00, leaving an unpaid balance of ₱1,404.00 in favor of the plaintiff.

On or about 2:00 o'clock in the morning of December 27, 1958, the air conditioner was destroyed by fire at the place where it had been installed. The defendant claimed that the machine was destroyed by force majeure, not by his fault or negligence, and that he was therefore not liable for the remaining balance under the conditional sale agreement. The parties stipulated on the facts at trial and agreed to leave to the court the resolution of whether loss by fire extinguished the defendant's obligation to pay the remaining installments. The Court of First Instance rendered judgment against the defendant for the amount demanded, including interest and attorney's fees, finding that the buyer assumed liability for loss by any cause, including fortuitous event. The defendant appealed directly to the Supreme Court on a question of law.

• Retention of Title by Vendor: Defendant-appellant argued that because title to the property sold would vest in the buyer only upon full payment of the price, the loss should fall upon the vendor, who retained ownership.
• Scope of "For Any Cause": Defendant-appellant maintained that the phrase "for any cause" used in the contract could not be interpreted to include a fortuitous event absolutely beyond his control.
• No Express Stipulation on Fortuitous Event: Defendant-appellant contended that although Article 1174 of the Civil Code recognizes the exception when parties expressly stipulate that a fortuitous event does not exempt the obligor, the phrase "for any cause" did not indicate any intention of the parties that loss due to a fortuitous event would be included within the responsibility of the buyer.

• Validity of the Stipulation: Respondent-appellee argued that the stipulation making the buyer liable for any loss, damage, or destruction "for any cause" was not contrary to law, morals, or public policy and was specifically authorized by Article 1174 of the Civil Code.
• Risk of Loss Expressly Assumed by Buyer: Respondent-appellee maintained that the risk of loss was expressly stipulated to be undertaken by the buyer, even though title to the property remained with the vendor by stipulation.
• "Any Cause" Includes Fortuitous Event: Respondent-appellee asserted that the terms "any cause" used in the agreement included a fortuitous event, and an express stipulation making the vendee responsible in such a case was valid.

• Validity of Risk-of-Loss Stipulation: Whether a stipulation in a conditional sale agreement placing the risk of loss on the buyer "for any cause," including fortuitous events, is valid and enforceable under Article 1174 of the Civil Code.
• Effect of Retained Title on Risk of Loss: Whether the fact that title to the property remains with the vendor until full payment relieves the buyer from the obligation to pay the price when the property is destroyed by a fortuitous event while in the buyer's possession.

• Validity of Risk-of-Loss Stipulation: Yes. The stipulation making the buyer responsible for any loss whatsoever, fortuitous or otherwise, is neither contrary to law, morals, nor public policy, and is expressly sanctioned by Article 1174 of the Civil Code.
• Effect of Retained Title on Risk of Loss: No. The retention of title by the vendor does not relieve the buyer from the obligation to pay the price where the contract expressly places the risk of loss on the buyer after delivery.

• Validity of Risk-of-Loss Stipulation: Article 1174 of the Civil Code recognizes that parties to a contract may expressly stipulate that a fortuitous event shall not exempt the obligor from liability. The conditional sale agreement contained a provision stating that if the property were "lost, damaged, or destroyed for any cause," the buyer would suffer such loss, the property remaining at the buyer's risk after delivery. The phrase "for any cause" was sufficiently broad to include a fortuitous event such as fire. Such a stipulation was neither contrary to law, morals, nor public policy. The Court cited Government vs. Amechazurra, 10 Phil. 637, as precedent for the validity of such stipulations, and relied on American jurisprudence recognizing that where goods are sold and delivered under an agreement that title remains in the vendor until payment, loss or destruction without the buyer's fault does not relieve him from the obligation to pay the price. The rule rests on the absolute and unconditional nature of the vendee's promise to pay, the vendor's full performance of the contract upon delivery, and the policy of providing an incentive for the buyer to care properly for the goods under his exclusive control and dominion.

• Effect of Retained Title on Risk of Loss: The defendant-appellant argued that because title remained with the vendor under the conditional sale, the loss should fall upon the vendor. This argument was rejected. The Court found that the risk of loss was expressly stipulated to be borne by the buyer, even though title remained with the vendor. The buyer received what he bargained for — the right of possession and use of the goods and the right to acquire title upon full payment — and the vendor had fully performed by delivering the property. The retention of title did not alter the allocation of risk expressly agreed upon by the parties.

• Express Stipulation on Fortuitous Event (Article 1174, Civil Code) — Under Article 1174 of the Civil Code, parties to a contract may expressly stipulate that a fortuitous event shall not exempt the obligor from liability. The default rule is that fortuitous events exempt the obligor, but this default yields to the parties' express agreement. In this case, the phrase "for any cause" in the conditional sale agreement was held sufficient to constitute an express stipulation that the buyer would bear the risk of loss even from fortuitous events, including fire.

• Risk of Loss in Conditional Sales — Where goods are sold and delivered under a conditional sale agreement providing that title remains in the vendor until full payment, the loss or destruction of the property while in the buyer's possession, without his fault, does not relieve the buyer from the obligation to pay the price, provided the contract expressly places the risk of loss on the buyer. The rule rests on three bases: (1) the absolute and unconditional nature of the vendee's promise to pay; (2) the vendor's full performance upon delivery, the vendee having received the right of possession, use, and eventual title; and (3) the policy of providing an incentive for the buyer to care properly for the goods under his exclusive control.

• "We believe that the agreement making the buyer responsible for any loss whatsoever, fortuitous or otherwise, even if the title to the property remains in the vendor, is neither contrary to law, nor to morals or public policy." — This passage states the ratio decidendi: the validity of a risk-of-loss stipulation in a conditional sale that includes fortuitous events, even when title is retained by the vendor.

• "The weight of authority support the rule that where goods are sold and delivered to the vendor under an agreement that the title is to remain in the vendor until payment, the loss or destruction of the property while in the possession of the vendor before payment, without his fault, does not relieve him from the obligation to pay the price, and he, therefore, suffers the loss." — This quotation, drawn from American jurisprudence (47 Am. Jur., pp. 81-82), articulates the doctrinal basis for allocating the risk of loss to the buyer in conditional sales and was adopted by the Court as controlling.

• Government vs. Amechazurra, 10 Phil. 637 — Cited as controlling precedent for the proposition that a stipulation making the buyer responsible for loss, including fortuitous events, in a conditional sale is valid. The Court followed this case in holding the stipulation legal, also referencing Tolentino's Commentaries on the Civil Code (Vol. IV, p. 120).

• Article 1174, Civil Code of the Philippines — Recognizes the exception to the general rule that fortuitous events exempt the obligor, when the parties expressly stipulate otherwise. The Court applied this provision to uphold the validity of the "for any cause" stipulation in the conditional sale agreement, finding it sufficient to constitute an express agreement that the buyer would bear the risk of loss from fortuitous events.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, Barrera, Paredes, Dizon, Regala, and Makalintal, JJ., concurred. Padilla, J., did not take part.