G.R. No. L-75198 October 18, 1988
SCHMID & OBERLY, INC., petitioner, vs. RJL MARTINEZ FISHING CORPORATION, respondent.

FACTS

RJL Martinez Fishing Corporation needed generators for its fishing vessels. It engaged in two separate transactions with Schmid & Oberly, Inc. The first involved the direct sale of three generators from Schmid’s own stock. The second, which is the subject of this case, involved twelve “Nagata”-brand generators. For this second transaction, Schmid provided a quotation stipulating that payment be made via an irrevocable letter of credit in favor of the Japanese manufacturer, D. Nagata Co., Ltd. RJL Martinez opened the letter of credit in favor of Nagata Co., which then shipped the generators directly to RJL and invoiced it directly. Schmid merely transmitted the order to Nagata Co. and received a commission. All generators from both transactions later malfunctioned. Schmid replaced the three from the first transaction but refused responsibility for the twelve from the second. RJL Martinez sued Schmid for breach of warranty, seeking rescission and damages.

ISSUE

Whether Schmid & Oberly, Inc. can be held liable for breach of warranty on the twelve generators it did not directly sell but for which it facilitated the transaction.

RULING

No. The Supreme Court reversed the Court of Appeals, dismissing the complaint. The legal logic hinges on the nature of the transaction and the absence of a proven warranty. The Court meticulously distinguished the two transactions. For the first three generators, Schmid was the direct vendor, invoicing the sale and supplying from its stock, thus incurring vendor’s warranty obligations under the Civil Code. However, for the twelve generators, the arrangement was an indent or commission sale. Schmid acted merely as an agent or broker, facilitating the transaction between RJL Martinez (the buyer) and Nagata Co. (the manufacturer-seller). The legal relationship of vendor and vendee was established directly between RJL Martinez and Nagata Co., as evidenced by the letter of credit opened in Nagata’s favor, Nagata’s direct shipment and invoice to RJL, and the lack of any sales invoice from Schmid for these units. Schmid’s role was that of a middleman earning a commission. RJL Martinez failed to prove that Schmid extended an independent warranty on these indent-sale goods. Testimony on a supposed warranty was inconsistent and unsubstantiated. Consequently, as Schmid was not the vendor, it could not be held liable under the law on warranties for hidden defects. The obligation to warrant against defects falls upon the actual seller, Nagata Co., not the agent who arranged the sale.