SIXTO CELESTINO, PETITIONER AND APPELLANT, VS. AUDITOR GENERAL OF THE PHILIPPINES, AND THE CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES, RESPONDENTS AND APPELLEES.

Celestino versus Auditor General

The Case

This is the case of Celestino versus the Auditor General. Sixto Celestino, as representative of the Fil-American Irregular Troops, bought a surplus military depot from the Government and then claimed payment for combat materials that the Armed Forces of the Philippines later withdrew from it. The Auditor General disallowed his claim, and he appealed to the Supreme Court. The case matters because it teaches the binding effect of an express exclusion clause in a contract of sale, the meaning of "combat materials" as the parties themselves defined it, and the rule that a motion for reconsideration of an Auditor General's decision suspends the period to appeal.

Procedural History

Celestino first demanded payment from the Armed Forces of the Philippines, which refused on the ground that ownership of the materials never passed to him because they had been expressly excluded from the sale. He appealed to the Secretary of National Defense, who affirmed the stand of the Armed Forces. He then brought the matter to the President of the Philippines, who denied the claim, and denied his motion for reconsideration as well. Acting on the recommendation of the Secretary of Justice, he filed his claim with the Auditor General, who after hearing rendered a decision disallowing it. Celestino appealed that decision to the Supreme Court. The Solicitor General moved to dismiss the appeal as filed out of time, but the Court denied the motion, and the appeal proceeded to judgment.

Facts

Under the Roxas-Vegelback Agreement of September 1946, approved by the Philippine Government through Republic Act Number 33, vast amounts of surplus war materials of the United States Government were transferred to the Philippines, and the President was authorized to administer them and to sell what the Government did not need. Part of that surplus was Ordnance Sub-Depot Number 6 in Isaac Peral, Manila. The policy was to satisfy the needs of government agencies first, so the Government Enterprises Council turned over all combat materials in the depot to the Armed Forces of the Philippines. When the remaining property was placed on negotiated offers, the offer carried the clause: "Excluded: All combat materials (military, weapons, gun parts and accessories) that may be found." The Armed Forces was authorized to earmark and withdraw the combat materials it needed, and it reserved the exclusive right to screen the items as the buyer hauled them, opening the boxes and segregating any combat material found.

On July 12, 1949, the Control Committee of the Government Enterprises Council approved the negotiated sale of the remaining fixed installations and movable property at the depot to the Fil-American Irregular Troops, represented by Celestino, for 42,000 pesos plus compensating tax, or a total of 44,100 pesos. Before the sale, the condition reserved by the Armed Forces was brought to Celestino's attention, and he signified his written conformity to it. The sales invoice and the tally-out sheet evidencing delivery both carried the same exclusion clause for all combat materials that may be found.

About three months after the sale, from October to December 1949, authorized representatives of the Ordnance Service of the Armed Forces withdrew certain items from the depot, among them 7,926 boxes of ordnance materials and 20 radial engines. Celestino demanded payment, and the Armed Forces refused, insisting that ownership of those materials never passed to him because they had been expressly excluded from the sale.

Issues

• Whether or not the appeal was perfected within the period allowed, considering that Celestino filed a motion for reconsideration of the Auditor General's decision.
• Whether or not ownership of the 7,926 boxes of ordnance materials and the 20 radial engines passed to Celestino under the sale.
• Whether or not those items are combat materials excluded from the sale.

Applicable Provisions

The exclusion clause in the negotiated offer, the sales invoice, and the tally-out sheet provides:

Excluded: All combat materials (military, weapons, gun parts and accessories) that may be found.

This clause is the heart of the case, because it fixes by agreement what was withheld from the sale and what the buyer could never own.

The condition reserved by the Armed Forces, to which Celestino gave his written conformity, provides:

The AFP retains the exclusive right to screen all the items as soon as the buyer starts hauling them from the depot. The AFP representative will require the buyer to open the boxes and inspect the contents before they are hauled from the depot. Any combat material which is found to be within the AFP requirements and which may be considered dangerous to public safety will be segregated by the AFP representative and will be withdrawn by the AFP.

This condition shows that the parties contemplated, from the very start, the later withdrawal of combat materials even after the buyer took possession.

Section 2 of Republic Act Number 38, cited in the decision, directs the Surplus Property Commission to sell or dispose of surplus properties:

under such terms and conditions as may be deemed advantageous.

This provision bears on the reasonableness of the sale, because a sale of materials worth far more than the price paid would defeat the purpose of the law.

Ruling

On the first issue, the Court held that the appeal was timely. A petition for reconsideration of the decision of the Auditor General suspends the running of the period for perfecting an appeal, a practice in consonance with the principle of exhaustion of administrative remedies. The Court adhered to its earlier ruling in the Libuet case and found no reason to disturb its resolution denying the motion to dismiss.

On the second and third issues, the Court ruled against Celestino. From the very beginning, he was given to understand in clear and unmistakable terms, and he expressed his conformity, that all combat materials found in the depot were excluded from the sale. Those materials included not only those removed before the sale but also those later withdrawn by the Armed Forces as combat materials. The Court noted that the Armed Forces, with the petitioner's conformity, had reserved the right to open the boxes before they were hauled away in order to examine the contents and remove all combat materials. The Court found the reason plain: materials with a procurement cost of over a million pesos were sold for about 44,000 pesos including compensating tax.

The Court adopted the Auditor General's computation. The original procurement cost of the depot was 3,620,568 pesos, but since 70 percent of the items were combat materials reserved for the Armed Forces, the cost was revised to 1,086,170 pesos, roughly 30 percent of the original. The offer of 42,000 pesos yielded a recovery of 3.86 percent of that revised cost, showing that both parties understood that only non-combat materials were being sold. The Court also held that the 7,926 boxes contained purely combat materials, such as magazine accessories and spare parts for carbines, garands, grease guns, and Thompsons, and that the 20 radial engines, being spare parts of tanks, were war materials. It rejected the proposed distinction between essentially and non-essentially combat materials as a mere personal opinion, since the stipulations in the award of sale and in the sale invoice were quite clear and needed no further interpretation.

Doctrine

An express exclusion clause in a contract of sale binds the buyer who accepted it, and property excluded from the sale never passes to him; he cannot later claim payment for it. Where the parties themselves define the excluded items, as "combat materials (military, weapons, gun parts and accessories)," that definition controls, and courts will not adopt a different classification not supported by the stipulations. A price grossly disproportionate to the value of the property confirms that the parties intended to sell only the unreserved portion. Finally, a motion for reconsideration of a decision of the Auditor General suspends the running of the period to appeal, consistent with the principle of exhaustion of administrative remedies.

Disposition

The Supreme Court affirmed the decision of the Auditor General disallowing the claim, with costs against Celestino.

Remember This

Memorize this line: what the parties expressly excluded from the sale never passed to the buyer, and his written conformity to the exclusion seals the matter. Examiners use this case on the binding force of exclusion clauses in sales of surplus property and on the suspensive effect of a motion for reconsideration on the appeal period from the Auditor General.