Lawyers Cooperative Publishing Company vs. Perfecto A. Tabora

The risk of loss in a sale passes to the buyer upon delivery when the seller retains title merely to secure the buyer’s performance, and an express stipulation that the buyer shall bear any loss or damage after delivery is valid and binding on the buyer. An obligation to pay money is not extinguished by fortuitous loss of the thing sold where the debtor has contractually assumed the risk after delivery.

On May 3, 1955, Perfecto A. Tabora, a practicing lawyer with an office in Naga City, purchased from Lawyers Cooperative Publishing Company a complete set of American Jurisprudence and its General Index on an installment plan. The books were delivered to his law office on May 15, 1955. That same night, a massive fire razed the entire block, destroying the law office and library together with the newly acquired books. Tabora promptly informed the seller, which sent him complimentary volumes of the Philippine Reports as a goodwill gesture. Despite the lapse of considerable time, Tabora failed to pay the monthly installments. The seller demanded payment and, upon refusal, filed an action for collection of the balance of the purchase price, plus liquidated damages.

• The Purchase: On May 3, 1955, defendant-appellant Perfecto A. Tabora purchased from plaintiff-appellee Lawyers Cooperative Publishing Company one complete set of American Jurisprudence (48 volumes with 1954 pocket parts) and one set of American Jurisprudence General Index (4 volumes) for a total price of P1,675.50, plus freight charges of P6.90, or a total of P1,682.40. Tabora made a down payment of P300.00, leaving a balance of P1,382.40. The contract contained two salient clauses: (a) “title to and ownership of the books shall remain with the seller until the purchase price shall have been fully paid,” and (b) “loss or damage to the books after delivery to the buyer shall be borne by the buyer.”

• Delivery and Fire: The books were delivered to and receipted for by Tabora at his law office in the Ignacio Building, Naga City, on May 15, 1955. In the midnight of the same date, a major fire broke out in the locality and destroyed the entire block of buildings, including Tabora’s office and library. All the purchased books, along with Tabora’s other important documents and papers, were burned in the conflagration. Tabora immediately reported the loss to the seller by letter dated May 20, 1955. The seller replied on May 23, 1955, and as a gesture of goodwill sent Tabora, free of charge, volumes 75 to 78 of the Philippine Reports.

• Default and Suit: Despite the passage of a long period, Tabora failed to pay the agreed monthly installments on the balance. The seller demanded payment of the overdue installments and, upon continued non-payment, commenced an action in the Court of First Instance of Manila to recover the outstanding balance of P1,382.40, plus liquidated damages equal to 25% of the amount due, and costs of suit.

• Defense: In his answer, Tabora invoked force majeure. He alleged that the books were destroyed by the fire of May 15, 1955 without any fault on his part and that, because the loss was due to a fortuitous event, he could not be held liable for their value. He prayed for dismissal of the complaint and an award of moral damages of P15,000.00.

• Trial Court’s Findings: The Court of First Instance of Manila rejected the defense and rendered judgment for the seller, ordering Tabora to pay the balance of P1,382.40 with legal interest from the filing of the complaint, liquidated damages of 25% of the total amount due, and costs.

• Risk of Loss and Retention of Title: Petitioner Tabora contended that since the contract reserved title and ownership in the seller until full payment, the seller remained the owner at the time of the loss; consequently, the loss should be borne by the owner-seller and not by the buyer.

• Force Majeure: Petitioner further argued that, even assuming ownership had passed to him upon perfection of the contract, he should not be liable because the destruction of the books was caused by a fortuitous event without any contributing fault on his part. He invoked the general rule that an obligor is exempted from liability when the loss occurs through force majeure.

• Liquidated Damages / Attorney’s Fees: Petitioner assailed the trial court’s award of 25% of the amount due, characterising it as attorney’s fees and contending that it was improperly granted.

• Stipulated Assumption of Risk: Respondent seller countered that the contract explicitly provided that “loss or damage to the books after delivery to the buyer shall be borne by the buyer.” Respondent maintained that this stipulation was determinative and that the retention of title was intended merely to secure the buyer’s obligation, consistent with Article 1504(1) of the Civil Code.

• Inapplicability of Force Majeure to Pecuniary Obligation: Respondent asserted that the obligation to pay the balance of the purchase price is a pecuniary obligation, not an obligation to deliver a determinate thing, and that the exceptions to the rule on fortuitous events therefore did not apply. Respondent also relied on the express contractual agreement by which the buyer assumed the risk of loss after delivery.

• Risk of Loss: Whether the loss of the books by fire after delivery fell upon the buyer or the seller given the contractual clause retaining title in the seller until full payment, and the express stipulation that loss or damage after delivery shall be borne by the buyer.

• Force Majeure: Whether the destruction of the books by a fortuitous event without the buyer’s fault exempted the buyer from his obligation to pay the balance of the purchase price.

• Liquidated Damages: Whether the trial court correctly awarded liquidated damages equivalent to 25% of the amount due.

• Risk of Loss: The loss was borne by the buyer. The retention of title by the seller served merely to secure performance by the buyer of his obligation under the contract. Article 1504(1) of the Civil Code expressly provides that “where delivery of the goods has been made to the buyer ... and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer’s risk from the time of such delivery.” The agreement that “loss or damage to the books after delivery to the buyer shall be borne by the buyer” was therefore fully consistent with the law and placed the risk on the buyer from the moment of delivery.

• Force Majeure: The exemption for fortuitous events did not apply. The rule that an obligor is released when a determinate thing due is lost through fortuitous event without his fault, under Article 1262 of the Civil Code, is qualified in two respects: it pertains to obligations to deliver a determinate thing, and it applies only in the absence of a stipulation to the contrary. Here, the obligation of the buyer was exclusively pecuniary — to pay a sum of money — not to deliver a determinate thing. Furthermore, the buyer had expressly bound himself to assume the risk of loss after delivery, thereby creating an exception to the general rule.

• Liquidated Damages: The award of liquidated damages was deleted. The amount of 25% was stipulated as liquidated damages, not attorney’s fees, but the buyer’s refusal to pay the balance was not shown to have been in bad faith. Hence, the liquidated damages clause was not enforced.

• Risk of Loss in Sale with Retention of Title as Security — Under Article 1504(1) of the Civil Code, when goods have been delivered to the buyer and the seller retains ownership merely to secure the buyer’s performance, the goods are at the buyer’s risk from the time of delivery. A contractual stipulation that the buyer shall bear the loss or damage after delivery is valid and governs the allocation of risk, even if title remains with the seller.

• Fortuitous Event and Pecuniary Obligations — The exoneration from liability for loss due to a fortuitous event under Article 1262 of the Civil Code applies only (i) where the obligation consists in the delivery of a determinate thing, and (ii) in the absence of an agreement holding the obligor liable even in case of fortuitous event. An obligation to pay a sum of money is pecuniary, not an obligation to deliver a determinate thing, and is not extinguished by the fortuitous destruction of the object sold. Additionally, a contractual assumption of the risk of loss after delivery constitutes an express stipulation to the contrary, removing the case from the ordinary rule.

• “While as a rule the loss of the object of the contract of sale is borne by the owner or in case of force majeure the one under obligation to deliver the object is exempt from liability, the application of that rule does not here obtain because the law on the contract entered into on the matter argues against it.”

• “[I]n the very contract it was expressly agreed that the ‘loss or damage to the books after delivery to the buyer shall be borne by the buyer.’ Any such stipulation is sanctioned by Article 1504 of our Civil Code, which in part provides: ‘(1) Where delivery of the goods has been made to the buyer … and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer’s risk from the time of such delivery.’”

• “The obligation does not refer to a determinate thing, but is pecuniary in nature, and the obligor bound himself to assume the loss after the delivery of the goods to him. In other words, the obligor agreed to assume any risk concerning the goods from the time of their delivery, which is an exception to the rule provided for in Article 1262 of our Civil Code.”

• N/A — The decision did not rely on or discuss any prior judicial precedent; it rested solely on the interpretation of the contractual stipulations and the applicable provisions of the Civil Code.

• Article 1504(1), Civil Code (Republic Act No. 386) — “Unless otherwise agreed, the goods remain at the seller’s risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer, the goods are at the buyer’s risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer … in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer’s risk from the time of such delivery.” The provision was applied to hold that, because the seller retained title solely to secure the buyer’s obligation, the risk passed to the buyer upon delivery, and the express stipulation that the buyer would bear loss after delivery was consistent with the statute.

• Article 1262, Civil Code — “An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.” The provision was held inapplicable because the buyer’s obligation to pay the price was pecuniary, not an obligation to deliver a determinate thing, and the buyer had contractually assumed the risk of loss after delivery, thus constituting a stipulation to the contrary.

Bengzon, C.J., Concepcion, Barrera, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concurred. Justice J.B.L. Reyes concurred in the result.

• None. The decision was unanimous.