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L-24256, January 21, 1926

FACTS: On Oct. 25, 1922, PMC and Go Jocco entered into a contract wherein PMC bought 500 tons of
coconut oil for 27.5 cents per kilo from Go and the class of the oil shall not be more than 5% free fatty

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 which is 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 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 December 27, 1923 asking for P21,263 as

The CFI favored Go stating that 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 Paragraph 1 of
Art. 336 of the Code of Commerce was applicable and PMC’s cause of action extinguished.

ISSUE: Whether the defendant has a cause of action?

Held: 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 Article 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.