LIM YHI LUYA, PETITIONER, VS. COURT OF APPEALS AND HIND SUGAR COMPANY, RESPONDENTS.

Lim Yhi Luya versus Hind Sugar Company

The Case

This is a petition for review of a decision of the Court of Appeals in a commercial dispute between Lim Yhi Luya, a businessman of Lingayen, Pangasinan who runs a grocery, a hardware store, and a gasoline station, and Hind Sugar Company, a sugar manufacturer based in Manaoag, Pangasinan. Lim sued the company on several causes of action arising from a contract of sale of sugar and from his supply of fuel and chemicals to the company on credit. The case matters because it is the Supreme Court's clearest teaching on how a written contract is read: whether the phrase "cash upon signing of this contract" proves that payment was in fact made, or merely fixes the moment when payment was to be made. It is a lesson in the interpretation of contracts under the Civil Code, and in when the Supreme Court will disturb the factual findings of the appellate court.

Procedural History

Lim Yhi Luya filed his complaint before the Court of First Instance of Pangasinan, pleading six causes of action and asking for delivery of undelivered sugar, payment of his supply credits, damages, and attorney's fees. Hind Sugar Company answered and set up a counterclaim for the unpaid price of sugar, seeking a set-off and a balance in its favor. After trial, the Court of First Instance rendered judgment in favor of Lim on all causes of action, ordering delivery of the remaining sugar or payment of its value, payment of his supply account with interest and attorney's fees, and damages.

Hind Sugar Company appealed to the Court of Appeals. The appellate court reversed and modified the trial court. It held that Lim had not paid the price, ordered him to pay the value of the sugar he had withdrawn, cancelled the company's obligation to deliver the remaining portion for his failure to pay, and allowed him to deduct his own credits, leaving a balance payable to the company, plus attorney's fees. Lim moved for reconsideration, which was denied. He then came to the Supreme Court by petition for review on certiorari.

Facts

Since 1958, Lim and Hind Sugar Company had dealt with each other. The company sold sugar to Lim, and Lim supplied the company with diesoline, gasoline, muriatic acid, sulfuric acid, and other materials on credit. On November 12, 1970, the company's vice president and general manager, Emiliano Abalos, sent Lim a telegram asking him to come the next morning without fail. Lim went on November 13, 1970, and in Abalos's office the parties agreed on the sale of 4,085 piculs of sugar at 35 pesos per picul. The written contract stated the terms as cash upon signing of the contract. On the same day, four delivery orders covering the whole quantity were issued to Lim upon the instruction of Abalos.

Between November 13, 1970 and January 27, 1971, Lim withdrew 3,735 piculs in varying quantities under substitute delivery orders, leaving 350 piculs undelivered. On January 20, 1971, he deposited 55,000 pesos with a bank in the name of the company. On January 22, 1971, the question of payment arose. Lim claimed he had paid 142,975 pesos in cash to the cashier and the manager on November 13, 1970, and pointed to the contract itself, particularly the stipulation on cash upon signing, as his proof of payment. The company officials denied receiving any payment, and an audit of the company's books showed no payment by Lim.

Lim then sued, claiming the undelivered sugar, the return or delivery of the export sugar covered by his deposit, the value of sugar he had paid for but not claimed, and payment of his supply credits, with damages and attorney's fees. The company answered that the contract was duly executed but that it suspended the last delivery when Lim, who had paid nothing, refused to pay and insisted he had already paid in full. It set up its own counterclaim for the price of the sugar taken, to be offset against Lim's credits and deposit.

Issues

• Whether or not the contract of sale, stating that the terms are cash upon signing of the contract, is evidence that Lim had in fact paid the purchase price upon signing.
• Whether or not Lim was required to produce a separate receipt signed by the company to prove that he had paid.
• Whether or not Lim had fully paid the price of the sugar he bought.
• Whether or not the findings of fact of the Court of Appeals are binding on the Supreme Court in this case.

Applicable Provisions

Article 1370 of the Civil Code provides:

If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

This is the starting rule: the literal meaning controls when the terms are clear, but the evident intention prevails when the words contradict it.

Article 1371 of the Civil Code provides:

In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall principally be considered.

This directs the Court to the parties' conduct at and after the signing, which is exactly what the dispute over payment turns on.

Article 1375 of the Civil Code provides:

Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract.

This governs the reading of the ambiguous phrase on cash upon signing.

Article 1377 of the Civil Code provides:

The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

This places the risk of an unclear term on the party who drafted it.

Ruling

On the first issue, the Court held that the stipulation on cash upon signing does not prove payment. The contract in its entirety proves no more than a meeting of the minds. The signing perfected the contract but did not by its own force consummate it. It gave each party the right to demand performance from the other: the seller to deliver the sugar, and the buyer to pay the price upon signing. The questioned portion does not say, and is not evidence, that Lim had paid. In the words of the Court of Appeals, which the Supreme Court upheld, the provision means that payment is to follow or is to be made, and not that it was made, upon the signing.

On the second issue, the Court sustained the appellate court's disbelief of Lim's claim that he paid 142,975 pesos in cash in the afternoon of the signing. It found it improbable that a successful businessman who banked in several banking houses would keep so much cash, especially money he said he held in trust for another firm, when he had always paid mostly by check. The Court also noted the close relationship between the parties, which explained why the manager accommodated Lim by changing the mode of payment without correcting the written contract.

On the third issue, the Court held that Lim had not fully paid. The Court of Appeals therefore correctly ordered him to pay the price of the 3,735 piculs he had withdrawn, cancelled the obligation to deliver the remaining 350 piculs for his failure to pay, and allowed the company to return his deposit and credit him for his supplies, leaving a balance in the company's favor.

On the fourth issue, the Court held that the general rule binding it to the factual findings of the appellate court applies, and that no exception was shown. The findings on the improbability of the cash payment were supported by the evidence, so the Court respected them.

Doctrine

A contract of sale is perfected by consent, but perfection does not equal consummation. A stipulation that the price is cash upon signing fixes the time for performance; it does not by itself prove that payment was made. The buyer who claims payment must prove it, and the written contract is not a receipt.

Under Article 1370, the literal meaning of clear stipulations controls, but the evident intention of the parties prevails over words that contradict it. Under Article 1371, the Court judges that intention chiefly from the parties' contemporaneous and subsequent acts. Under Article 1375, ambiguous words are read in keeping with the nature and object of the contract. Under Article 1377, obscurity is not construed in favor of the party who caused it.

Finally, the factual findings of the Court of Appeals are binding on the Supreme Court and must be respected absent a showing of a recognized exception.

Disposition

The petition was denied, and the decision of the Court of Appeals was affirmed. Hind Sugar Company prevailed, with Lim ordered to pay the balance of the price after deducting his credits, plus attorney's fees, with costs against him.

Remember This

The one line to memorize: cash upon signing means payment is to be made, not that it was made, so the contract is not a receipt. Examiners use this case in civil law on the interpretation of contracts under Articles 1370 to 1377, and in remedial law on the binding effect of the appellate court's findings of fact.