ALLIANCE TOBACCO CORPORATION, INC., PETITIONER, VS. PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION, FARMER’S VIRGINIA TOBACCO REDRYING COMPANY, INC. AND INTERMEDIATE APPELLATE COURT…

The issue in the instant petition for review on certiorari of the
decision of the then Intermediate Appellate Court is whether or not
petitioner’s delivery of 174 bales of tobacco to the Farmer’s Virginia Tobacco Redrying Company, Inc. (FVTR), a contractee
of the Philippine Virginia Tobacco Administration (PVTA), perfected the
contract of sale between petitioner and the (PVTA) so as to hold the latter liable for the
loss of said bales while in the possession of the FVTR.

The PVTA, a government corporation created under Republic Act No.
2265 to promote the tobacco industry, entered into a contract of procuring, redrying and servicing with the FVTR for the 1963 tobacco
trading operation.^[1] In June of that year, the PVTA also entered
into a merchandising loan agreement with the petitioner, a duly incorporated
and authorized tobacco trading entity, whereby the PVTA agreed to lend P25,500 to the petitioner for the purchase of flue-cured Virginia tobacco from bona fide Virginia tobacco farmer-producers.^[2]

The following month, petitioner shipped to the FVTR 96 bales of
tobacco weighing 4,800 kilos covered by Guia No. 1
and 167 bales weighing 8,350 kilos covered by Guia
No. 2.  In the words of the lower court,
the following transpired:

“x x x.  Before
shipping the tobacco to the Redrying Plant, the
plaintiff (petitioner herein) obtained a Clearance issued by the Tobacco
Inspector, authorizing the tobacco shipment to proceed to the Redrying Plant.  Upon
the arrival of the tobacco shipments in the Redrying
Plant, defendant FVTR, at Bauang, La Union (Bauang for
short), they were listed in the Log Book, after which the tobacco were brought
inside the Redrying Compound.  The Log Book was then submitted to the
Marketing Department, formerly the Trading Department and kept by the Branch
Manager, Bauang, Mr. Jovencio
Pimentel, assisted by Mr. Pio Balagot.  The documents submitted
accompanying the tobacco shipments were the BIR clearance, Clearance from the
Regional Tobacco Inspector at San Fernando, La Union (San Fernando for short) and Guias
Nos. 1 and 2.  After several days, the
grading of the plaintiff’s tobacco took place but only 89 bales from Guia No. 2 were graded, weighed and accepted.  The remaining bales of tobacco in Guia No. 2
and the whole of Guia No. 1 were not graded and
weighed because after grading and weighing 89 bales of Guia
No. 2, some officers and employees in the premises of
defendant FVTR asked money for the separate grading and weighing of the ungraded and unweighed tobacco
bales.  Because the rest of the
plaintiff’s tobacco were not graded and weighed, Aldegunda
Villanueva, Business Manager of the
plaintiff, saw the Branch Manager of the defendant FVTR and asked him to have
their tobacco graded and weighed.  Since
the grading and weighing of the plaintiff’s tobacco was (sic) not resumed, in
1965, said Business Manager personally called on Atty. Eduardo Bananal, Manager of the defendant PVTA in Manila and told
the latter that some tobacco of the plaintiff were not graded and weighed and
were no longer in the premises of defendant FVTR’s Redrying Plant, Manager Bananal
told her that the plaintiff’s tobacco in question were considered accepted.

“The operations of defendant FVTR in Bauang, stopped in October
1963.  The plaintiff asked that its ungraded and unweighed tobacco be
withdrawn from the Redrying
Plant.  The defendants PVTA and FVTR
refused to allow the plaintiff’s request because according to them the tobacco
sought to be withdrawn were subject of a merchandising loan and
owned by defendant PVTA.”^[3]

Unfortunately, the remaining ungraded and unweighed 174 bales
with a total value of P28,382 were lost while they
were in the possession of the FVTR. 
Having learned of such loss in 1965, petitioner demanded for its value
and the application of the same to its merchandising loan with PVTA but both
the latter and the FVTR refused to heed said demands.^[4]

Consequently, petitioner filed in the then Court of First Instance of La Union a complaint
against PVTA and FVTR praying that the two defendants be ordered to pay it P4,443 representing the value of the 89 bales which were
weighed, graded and accepted by the defendants, P28,382.00 representing the value of the lost bales of tobacco
and/or that the said amount be applied to its loan with PVTA, and P4,000 as attorney’s fees and litigation expenses.^[5] They prayed that interest be charged on
the first two amounts.

FVTR was declared in default.^[6]
Thereafter, petitioner and the PVTA submitted a stipulation of facts and agreed
that a partial judgment be rendered as to the 89 bales of tobacco which had
been weighed and graded.^[7]

In its decision,^[8]
the lower court, citing Santiago Virginia Tobacco Planters Association vs.
PVTA,^[9]
ruled that the PVTA should not be held responsible for the lost bales of tobacco
because they were not yet properly graded and weighed and that petitioner
failed to present the weigher’s tally sheets and
warehouse receipts or quedans.  The dispositive
portion of the decision states:

“WHEREFORE, judgment is hereby rendered as follows:

“1.     Ordering the
defendant PVTA to pay the plaintiff the amount of P9,323.11
which is the agreed value of the plaintiff’s uncontested 89 bales of tobacco,
with interest at the legal rate, from the filing of the Complaint on December 27, 1968, up to its full
payment;

2.       Ordering the
defendant PVTA to pay the plaintiff the amount of P1,000 as attorney’s fee;

Since the plaintiff admitted that it has a merchandising loan of
P20,000 from defendant PVTA, the amounts to be paid to
the former may be applied by the latter to the payment of said loan and its
interest at the agreed rate.

3.       Dismissing the plaintiff’s complaint
regarding the 96 bales and 78 bales of tobacco under Guias
Nos. 1 and 2, respectively.

There is no pronouncement as to costs.

SO ORDERED.”^[10]

Petitioner appealed to the then Intermediate Appellate Court
which, in its decision of March 20,
1984,^[11] affirmed in toto
the lower court’s decision.  Hence,
petitioner interposed the instant petition for review on certiorari of
the appellate court decision.  It
contends that the question of substance decided by the said court is not in
accord with the decision of this Court in Philippine Virginia Tobacco
Administration vs. De los Angeles,^[12]
and that the said “question of substance boils down (to) whether or not there is a perfected contract of sale
between petitioner and respondent PVTA with respect to the aforesaid remaining
bales of tobacco.”^[13]

On the other hand, the herein respondent alleges that, without
having been weighed or graded, the tobacco shipment could not be deemed to have
been accepted by FVTR, much less the
PVTA.  It insists that the Santiago
Virginia Tobacco Planters Association, Inc. vs. PVTA case (Santiago case for brevity) should be applied.  Furthermore, the petition having presented only
the factual question of whether or not the tobacco shipment was indeed weighed
and graded at the redrying plant, the same must be
denied.^[14]

On January 13, 1986,
this Court denied the petition for lack of merit.  However upon petitioner’s motion for reconsideration
of the resolution denying the petition, the Court set aside said resolution of
January 13, 1986 and gave due course to the petition.^[15]

At the outset, it should be emphasized that the lower court made a definitive
factual finding on the actual and physical delivery of the lost bales of
tobacco from the petitioner to the FVTR.^[16]
The parties, however, disagree as to
the legal implications of such delivery. 
Petitioner contends that it bound not only FVTR but also the PVTA and
perfected the contract of sale between petitioner and the PVTA.  On the other hand, the PVTA argues that the
delivery was not valid and binding on it considering that, not having been
weighed and graded by its agents, it had not duly
accepted the shipments so as to perfect the contract of sale.

Under the Santiago
case, shipping documents and checklists which are accomplished prior to
delivery do not prove actual delivery. 
To prove such delivery, documents such as the weigher’s
tally sheet and the warehouse receipts which are accomplished when the actual
delivery is made are necessary.  It
should be noted, however, that the factual circumstances extant in this case
are different from those in the Santiago
case.

In said case, there was a
need to prove actual delivery because the petitioner therein demanded
for the payment of tobacco shipments which were allegedly delivered to
the FVTR.^[17]
In other words, the actual, physical delivery of the shipments was not
proven.  On the other hand, in this case,
the lower court established from the testimonies of witnesses the fact that
petitioner entrusted to the FVTR a total of 263 bales of tobacco 89 bales of
which were even actually weighed and graded in the redrying
plant.^[18] However, for reasons beyond the control of
the petitioner, the FVTR refused to weigh and grade the remaining 174 bales.  On top of this, the FVTR also refused
to grant petitioner’s request to withdraw the unweighed and ungraded shipments. 
As it turned out later, said shipments were lost while in the
custody of FVTR, thereby placing the petitioner in a “no win” situation.

The Civil Code provides that ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof.^[19]
There is delivery when the thing sold is placed in the control and possession of the vendee.^[20] Indeed, in tobacco trading, actual delivery
plays a pivotal role.  The peculiar
procedure undergone in trading, which procedure was set out at length in both
the Santiago and the PVTA vs. De los Angeles
cases, reveals that delivery seals the
contract of sale because the trader loses not only possession but also control
over the shipment.  Outlined by the PVTA
pursuant to its power “to take over and assume, and therefore exclusively
direct, supervise and control, all functions and operations with respect to the
processing, warehousing, and trading of Virginia tobacco, the provisions of any
existing law to the contrary notwithstanding,”^[21] the procedure is observed by everyone
involved in the trade.

Verily, the tobacco trading procedure conceived and formulated by
the PVTA is akin to a contract of adhesion wherein only one party has a hand
in the determination of the terms.  But
observance of the procedure more often than not renders a trader at a
disadvantage.  The moment the shipment is
placed in the
hands of the PVTA or its representative and it is lost, the trader is left
empty-handed.  While the flaw may not
really be in the procedure itself, the same may be found in the persons charged
with the implementation of the procedure. 
Some personnel mishandle the shipment to the detriment of the trader. 
Some demand grease money to
facilitate the trading
process.  Sadly, this is what happened in
this case.

Hence, while under an
ideal situation, we would have found merit in respondent PVTA’s
contention that the contract of sale could not have been perfected pursuant to
Article 1475^[22]
of the Civil Code because to determine the price of the tobacco traded, the
shipment should first be inspected, graded and weighed, we find said contention
misplaced herein.  A strict
interpretation of the provision of Article 1475 may result in adverse effects
to small planters who would not be paid
for the lost products of their toil. 
Such situation was what the ruling in PVTA vs. De los Angeles
sought to avoid.

Equity and fair dealing, the anchor of said case, must once more
prevail.  Since PVTA had virtual control
over the lost tobacco bales, delivery thereof to the FVTR should also be
considered effective delivery to the PVTA.

WHEREFORE, the decision of the appellate court insofar as
it affirms the decision of the lower court directing the PVTA to pay petitioner
the amount of P9,323.11 for the 89 bales of tobacco is
hereby affirmed.

Respondent PVTA is likewise ordered to pay petitioner’s claim of
P28,382.00 for the lost 174 bales of tobacco.  Both amounts are subject to interest at the
legal rate from the filing of the complaint on December 27, 1968 up to their full payment.

Should the petitioner still owe respondent PVTA pursuant to the
merchandising loan agreement between them, the same shall be offset by whatever
amount the petitioner would receive from the respondent PVTA by virtue of this
decision.  No costs.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin, and Cortes, JJ., concur.

^[1] Rollo, p. 48.

^[2] Rollo, pp. 51-53.

^[3] Rollo, pp. 81-82.

^[4] Rollo, p. 26.

^[5] lbid.

^[6] Rollo, p. 32.

^[7] Rollo, pp. 79-80.

^[8] Penned by Judge Antonio G.
Bautista.

^[9] L-26292, February 18, 1970, 31 SCRA 528.

^[10] Rollo, p. 85.

^[11]
Penned by Justice Mariano A. Zosa and concurred in by
Justices Jorge R. Coquia and Floreliana
Castro-Bartolome.

^[12] L-33079, December 11, 1978, 87 SCRA 197.

^[13] Rollo, p. 9.

^[14] Rollo, pp. 118-128.

^[15] Rollo, p. 107.

^[16] Rollo, p. 81.

^[17] Santiago decision, supra, at p. 533.

^[18] Rollo, p. 81.

^[19] Art. 1477.

^[20] Art. 1497.

^[21] Sec. 4(a), Republic
Act No. 2265.

^[22] This article was erroneously cited as Art. 1425 in respondent PVTA’s memorandum (p.11).  Art. 1475 provides that “(t)he contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is
the object of the contract and upon the price.”