G.R. No. L-8439; May 30, 1958
CO CHO CHIT, doing business under the name and style of Grace Park Engineering, petitioner, vs. HANSON, ORTH and STEVENSON, INC., ET AL., respondents.

FACTS

On March 10, 1949, petitioner Co Cho Chit (vendor) and respondent Hanson, Orth and Stevenson, Inc. (vendee) entered into a contract for the sale of one hemp press for P8,000.00. The contract stipulated that the vendor would furnish a competent mechanic to supervise the installation of the press and turn it over “in satisfactory running order.” In a separate letter of the same date, the vendor guaranteed the press would “give satisfactory service under reasonable use… for a period of six months.” The press was shipped and installed at the vendee’s plant in Davao under the vendor’s supervision. However, the press never functioned satisfactorily as it could not compress hemp into bales of the regulation size (12 cubic feet or less) required for export by the Fiber Inspection Administration. Consequently, the vendee demanded a refund of the purchase price and reimbursement for expenses. Upon the vendor’s refusal, the vendee filed a complaint for rescission. The Court of First Instance ruled in favor of the vendee, ordering rescission and a refund of the purchase price (P8,000) and installation expenses (P2,341.69). The Court of Appeals modified this decision, upholding the rescission and refund of the purchase price but disallowing the reimbursement for installation expenses.

ISSUE

Whether the Court of Appeals erred in holding that the vendor warranted the hemp press would render “satisfactory” service in the sense that it could be used for the vendee’s business of exporting hemp, despite the absence of an express warranty to that effect in the written contract.

RULING

The Supreme Court affirmed the decision of the Court of Appeals. The Court held that the vendor’s guarantee of “satisfactory service” must be interpreted in light of the surrounding circumstances and the known purpose of the sale. The vendee (a company engaged in exporting hemp) needed the press for its business, and virtually all Philippine hemp was produced for export, requiring bales of regulation size. Since the press, after installation under the vendor’s supervision, could not produce bales of the required size, it failed to give the “satisfactory service” guaranteed. The contract’s failure of its essential object justified its rescission. The parol evidence rule did not bar consideration of these circumstances as they did not vary but merely explained the written terms by showing what “satisfactory service” meant in the context of the parties’ transaction. The Court of Appeals correctly ordered the rescission, refund of the purchase price with interest, and the return of the hemp press to the vendor.