PHILIPPINE MANUFACTURING CO. (PMC) vs.
GO JOCCO ISSUE / RATIO
J. Ostrand | January 21, 1926
TOPIC: Express Warranties
Distinguished from False Representation
FACTS
On Oct. 25, 1922, PMC and Go Jocco entered into a contract.
PMC bought 500 tons of coconut oil for 27.5 cents per kilo from Go.
The class of the oil shall not be more than 5% free fatty acid
On Nov. 15, 1922, Go tried to collect the price of the oil from PMC but was
told by Mr. Mason that it would first examine the oil. On the same day, the
quality of the oil was found to be satisfactory. PMC gave Go its check for
P137,500, the full amount of the contract purchase price.
On Nov. 17, 1922, PMC sold the oil to Portsmouth Cotton Oil Refining Co. at
the price of $7.50 per 100 pounds. The contract states that the quality of the
oil is 5% free fatty acid, maximum 7% free fatty acid, 1% moisture and
impurities; provided, however, that any oil which exceeds 5% free fatty acid
but does not exceed 7% shall not be rejected but shall be reduced in price.
Upon its arrival, Portsmouth refused to accept the oil because it was
contaminated with cottonseed oil. As such, the matter was submitted for
arbitration. Samples were tested and were found to be contaminated.
On Mar. 19, 1923, PMC sold to Proctor & Gamble the same oil which was
duly accepted.
On Feb. 3, 1923, PMC wrote Go, notifying Go that the oil delivered by him
contained kapok or cottonseed oil and that the buyers in the USA are
claiming damages. As such, PMC holds Go to incur any resulting loss or
damage.
After some fruitless correspondence, PMC sued Go on Dec. 27, 1923 asking
for P21,263 as damages.
CFI: IN FAVOR OF GO. It was not established that the oil purchased from
Go was contaminated at the time of its delivery to PMC. Evidence show that
the contamination may been caused through the impurity of the oil
manufactured by PMC itself in view of the fact that PMC was partly engaged
in the manufacturing of kapok oil while Go neither dealt with nor
manufactured such oil. The CFI found that PMC, before closing its contract
with Go, examined the oil to its satisfaction and therefore Par. 1 of Art. 336 of
the Code of Commerce was applicable and PMCs cause of action
extinguished.
WON GO has a cause of action? Yes, not based on express warranty but
based on fraud or false representation.
The small quantity of kapok oil alleged to be mixed with the coconut oil can
only be regarded as an impurity and did not change the essential character
of the oil. Compared to the contract between PMC and Portsmouth, the
contract between PMC and Go contains no express warranty against
impurities. Hence, this is not an action on an express warranty.
There being no express warranty and PMC having lost its right of action on
the implied warranties as to the quality of the oil, PMC must now necessarily
base its cause of action on fraud under Art. 344.
Anson defines fraud as a false representation of fact, made with a
knowledge of its falsehood, or recklessly, without belief in its truth, with the
intention that it should be acted upon by the complaining party, and actually
inducing him to act upon it. Concealment is sometimes equivalent to false
representations, and it is here argued that Go, in not disclosing the existence
of kapok oil in the oil sold to PMC, was guilty of fraud.
An intention to deceive or mislead the other party to his prejudice is an
essential element of the fraud here considered. It is true that such an
intention may be imputed upon the principle that the party must be presumed
to intend the necessary consequences of his own acts and need not
necessarily be proven by direct evidence, but in this case, nothing shows that
such intention may be definitely inferred. Had there been any mixing of other
oils with the coconut oil in question, Go would have been aware thereof, but
there is nothing from which we can presume that Go intended to mislead the
PMC to his prejudice. It is not disputed that at the time the sale was made,
kapok oil commanded a higher price in the market than did coconut oil and
Go may well have been under the impression that a slight admixture of kapok
oil did not substantially impair the general market value of the oil purchased.
Indeed, there is nothing in evidence to show that the coconut oil suffered any
material impairment in value from the mixture and it is to be observed that Go
was not advised that the oil was sold to the Portsmouth under an express
warranty against impurities. That it was still of good merchantable quality
clearly appears from the fact that it was bought by P&G at current market
prices. And when it is further considered that PMC, before purchasing,
examined the oil, it seems obvious that the evidence is not sufficient to
overcome the presumption of good faith and to establish fraud on the part of
Go. In commercial sales, the fact that the vendor does not volunteer detailed
statements of all he knows, whether important or not, in regard to the goods
sold by him, is not fraud per se.