Sy, Charelle Mei V.

RCBC v. Odrada
GR No. 219037; 19 October 2016

Noel Odrada sold a secondhand Mitsubishi Montero to Teodoro Lim for P1,510,000. Of the total
consideration, P610,000 was initially paid by Lim and P900,000 was financed by RCBC Savings Bank
through a car loan obtained by Lim. Following the downpayment, Odrada executed a Deed of
Absolute Sale in favor of Lim and the latter took possession of the Montero.

When RCBC received the required documents, it used 2 manager’s checks payable to Odrada for
P900,000 and P13,500. After the issuance of the manager’s checks and their turnover to Odrada but
prior to the checks’ presentation, Lim notified Odrada in a letter that there was an issue regarding the
roadworthiness of the Montero, and requested to meet in person. Odrada however, did not go to the
meeting and instead deposite the manager’s checks with Ibank and redeposited it again a few days
later – which were dishonored on both times upon Lim’s instruction to RCBC.

Thus, Odrada filed a collection suit against Lim and RCBC. The RTC ruled in favor Odrada, stating
that the defective condition of the Montero was not a supervening event that would justify the
dishonor of the manager’s checks, since the check becomes the primary obligation of the bank which
issued it and constitutes a written promise to pay on demand. The CA affirmed the ruling of the RTC.

Q: Can Lim cancel the auto loan despite the failure in consideration due to the contested
roadworthiness of the vehicle delivered to him by Odrada?

A: Yes, he can.

Under the law on sales, a contract of sale is perfected the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price which is the consideration. From
that moment, the parties may reciprocally demand performance. Performance may be done through
delivery, actual or constructive. Through delivery, ownership is transferred to the vendee. However,
the obligations between the parties do not cease upon delivery of the subject matter. The vendor and
vendee remain concurrently bound by specific obligations. The vendor, in particular, is responsible
for an implied warranty against hidden defects. (Art. 1547 of the Civil Code)

Art. 1566 of the Civil Code also provides that the vendor is responsible for the hidden defects in the
thing sold, even if he was not aware thereof. Hidden defect is defined as one which would render the
thing sold unfit for the use for which it is intended, or would diminish its fitness for such use to such
an extent that, had the vendee been aware thereof, he would not have acquired it or would have given
a lower price for it.

In this case, there was a contract of sale between Odrada and Lim. Following the initial down payment
and execution of the deed of sale, the Montero was delivered by Odrada to Lim and the latter took
possession of the Montero. Odrada’s warranties against hidden defects continued even after the
Montero’s delivery. Consequently, a misrepresentation as to its roadworthiness constitutes a breach
of warranty against hidden defects.