[177] FILINVEST CREDIT V.

CA o that the machinery be purchased in the petitioner's name;

G.R. No. 82508 | September 29, 1989 | Sarmiento, J. o that it be leased (with option to purchase upon the termination of
Petitioner: FILINVEST CREDIT CORPORATION the lease period) to the private respondents;
Respondents: CA, JOSE SY BANG and ILUMINADA TAN SY BANG, o that the private respondents execute a real estate mortgage in
Topic: Concept of Fault or Negligence – Specific Cases favor of the petitioner as security for the amount advanced by the
latter.
SUMMARY: Jose and Iluminada were in the business of the sale of gravel from  Accordingly, on May 18,1981, a contract of lease of machinery (with option
crushed rocks for construction purposes. They looked for a rock crusher, and they to purchase) was entered into by the parties whereby the private
were referred to Rizal Consolidated Corporation. The machine sold by RCC was respondents agreed to lease from the petitioner the rock crusher for two
labeled to have a certain capacity, and was inspected by Oscar (Jose’s brother) – he years starting from July 5, 1 981 payable as follows:
was satisfied and signified their intent to purchase the machine, obtaining assistance o P10,000.00 - first 3 months
from Filinvest Credit Corporation, executing a mortgage in favor of FCC for o 23,000.00 - next 6 months
their loan. 3 months after, buyers said the machine was not up to their standards
o 24,800.00 - next 15 months
(could crush only 5 tons instead of 20-40). Eventually, buyers stopped payment then
FCC foreclosed the mortgage. Buyers filed an action for rescission for the lease and  The contract likewise stipulated that at the end of the two-year period, the
annulment of the mortgage. RTC rescinded the lease and annulled the mortgage. CA machine would be owned by the private respondents. Thus, the private
affirmed. respondents issued in favor of the petitioner a check for P150,550.00, as
initial rental (or guaranty deposit), and twenty-four (24) postdated checks
DOCTRINE: The buyers are more knowledgeable about the machine because it is in corresponding to the 24 monthly rentals.
the nature of their line of business, and because of the fact that they were able to o In addition, to guarantee their compliance with the lease contract,
inspect the machine in question – they are now disallowed from complaining about its the private respondents executed a real estate mortgage over two
deficiencies. Actually, it is their failure or neglect to exercise the caution and prudence parcels of land in favor of the petitioner.
of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of  The rock crusher was delivered to the private respondents on June 9, 1981.
the rock crusher that gave rise to their difficulty and to this conflict. The rule is that  Three months from the date of delivery (September 7, 1981), however, the
between 2 parties, he who by his own negligence caused the loss shall bear the private respondents, claiming that they had only tested the machine that
same. month, sent a letter-complaint to the petitioner, alleging that contrary to the
20-40 tons per hour capacity of the machine as stated in the lease contract,
FACTS: the machine could only process 5 tons of rocks and stones per hour.
 The private respondents, the spouses Jose Sy Bang and Iluminada Tan, o They demanded that the petitioner make good the stipulation in the
were engaged in the sale of gravel produced from crushed rocks and used lease contract. They followed that up with similar written complaints
for construction purposes. to the petitioner, but the latter did not, however, act on them.
 In order to increase their production, they engaged the services of Mr. Subsequently, the private respondents stopped payment on the
Ruben Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look remaining checks they had issued to the petitioner.
for a rock crusher which they could buy.  As a consequence of the non-payment by the private respondents of the
o Mr. Mercurio referred the private respondents to the Rizal rentals on the rock crusher as they fell due despite the repeated written
Consolidated Corporation which then had for sale one such demands, the petitioner extrajudicially foreclosed the real estate mortgage. 
machinery described as: o April 18, 1983  private respondents received a Sheriff s Notice of
 ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT Auction Sale informing them that their mortgaged properties were
(RECONDITIONED) [sic]; JAW CRUSHER-10xl6 going to be sold at a public auction on May 25, 1983 at 10AM at the
DOUBLE ROLL CRUSHER 16x16; 3 UNITS PRODUCT Office of the Provincial Sheriff in Lucena City to satisfy their
CONVEYOR; 75 HP ELECTRIC MOTOR; 8 PCS. BRAND indebtedness to the petitioner.
NEW TIRES CHASSIS NO. 19696 GOOD RUNNING  To thwart the impending auction of their properties, the private respondents
CONDITION  filed before RTC Quezon, on May 4, 1983, a complaint against the
 Oscar Sy Bang, a brother of Jose Sy Bang, went to inspect the machine at petitioner, for the rescission of the contract of lease, annulment of the real
the Rizal Consolidated's plant site. Apparently satisfied with the machine, the estate mortgage, and for injunction and damages, with prayer for the
private respondents signified their intent to purchase the same. issuance of a writ of preliminary injunction.
o They were however confronted with a problem-the rock crusher o On May 23, 1983, three days before the scheduled auction sale,
carried a cash price tag of P 550,000.00. the trial court issued a temporary restraining order commanding the
 Bent on acquiring the machinery, the private respondents applied for Provincial Sheriff of Quezon, and the petitioner, to refrain and
financial assistance from the petitioner, Filinvest Credit Corporation. The desist from proceeding with the public auction.
petitioner agreed to extend financial aid on the following conditions:
TC: (September 4, 1985) rendered a decision in favor of private respondents 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"
CA: (March 17, 1988) affirmed in toto and that of the waiver being "printed" does not militate against the latter's effectivity.
As such, whether "a capacity of 20 to 40 tons per hour" is a condition or a description
ISSUES: is of no moment. What stands is that the private respondents had expressly
1. Whether or not the nature of the contract is one of a contract of sale. exempted the petitioner from any warranty whatsoever.
2. Whether or not the remedies of the seller provided for in Article 1484 are Taking into account that due to the nature of its business and its mode of providing
cumulative. financial assistance to clients, the petitioner deals in goods over which it has no
3. Who shall bear the loss. 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
RATIO: himself against product defects. This is where the waiver of warranties is of
1. YES. The intent of the parties to the subject contract is for the so-called rentals to paramount importance. Common sense dictates that a buyer inspects a product
be the installment payments. Upon the completion of the payments, then the rock before purchasing it (under the principle of caveat emptor or "buyer beware") and
crusher, subject matter of the contract, would become the property of the private does not return it for defects discovered later on, particularly if the return of the
respondents. This form of agreement has been criticized as a lease only in name. product is not covered by or stipulated in a contract or warranty.
Sellers desirous of making conditional sales of their goods, but who do not wish WAIVER NOT CONSIDERED A MERE SUPRLUSAGE IN CONTRACT. — to declare
openly to make a bargain in that form, for one reason or another, have frequently the waiver as non-effective, as the lower courts did, would impair the obligation of
restored to the device of making contracts in the form of leases either with options to contracts. Certainly, the waiver in question could not be considered a mere
the buyer to purchase for a small consideration at the end of term, provided the so- surplusage in the contract between the parties. Moreover, nowhere is it shown in the
called rent has been duly paid, or with stipulations that if the rent throughout the term records of the case that the private respondent has argued for its nullity or illegality. In
is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are any event, we find no ambiguity in the language of the waiver or the release of
leases only in name. The so-called rent must necessarily be regarded as payment of warranty. There is therefore no room for any interpretation as to its effect or
the price in installments since the due payment of the agreed amount results, by the applicability vis-a-vis the deficient output of the rock crusher. Suffice it to say that the
terms of bargain, in the transfer of title to the lessee. private respondents have validly excused the petitioner from any warranty on the rock
crusher. Hence, they should bear the loss for any defect found therein.
2. NO, it is alternative. The seller of movable in installments, in case the buyer fails to
pay 2 or more installments, may elect to pursue either of the following remedies: (1) RULING: WHERFORE, the Petition is GRANTED; the Decision of the Court of
exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose Appeals dated March 17, 1988 is hereby REVERSED AND SET ASIDE, and another
the mortgage on the purchased property if one was constituted thereon. It is now one rendered DISMISSING the complaint. Costs against the private respondents.
settled that the said remedies are alternative and not cumulative, and therefore, the
exercise of one bars the exercise of the others. 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.

3. [RELATED TO THE TOPIC] BETWEEN TWO PARTIES, HE WHO BY HIS

NEGLIGENCE CAUSED THE LOSS, SHALL BEAR THE SAME. Considering that
between the parties, 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.
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