Case Digest (G.R. No. 188633)
Facts:
This case involves Sandoval Shipyards, Inc. and Rimport Industries, Inc., represented by Engineer Reynaldo G. Importante, as petitioners, and the Philippine Merchant Marine Academy (PMMA) as respondent. On December 19, 1994, PMMA entered into a Ship Building Contract with Sandoval Shipyards, through its agent Rimport Industries, for the construction of two 9.10-meter lifeboats intended for student training. The lifeboats were to have 45-HP Gray Marine diesel engines and were to be delivered within 45 working days following contract signing and mobilization fund payment. PMMA agreed to pay a total of ₱1,685,200 in installments based on progress.
PMMA made payments accordingly: ₱236,694 as mobilization fund on March 8, 1995; ₱504,947.20 on March 15, 1995; and ₱386,600 as final payment on March 25, 1995. On August 10, 1995, a PMMA faculty member, Angel Rosario, allegedly accepted the lifeboats at Philippine Navy Wharf; however, he was not authorized by PMMA to receive the lifeboat
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Case Digest (G.R. No. 188633)
Facts:
- Contract Formation and Terms
- On 19 December 1994, Philippine Merchant Marine Academy (PMMA or respondent) entered into a Ship Building Contract with Sandoval Shipyards, Inc., through its agent Rimport Industries, Inc. (petitioners).
- The contract required the construction of two units of 9.10-meter lifeboats for use as training boats, equipped with 45-HP Gray Marine diesel engines, and to be delivered within 45 working days from contract-signing and payment of the mobilization fund.
- PMMA agreed to pay a total of P1,685,200 in installments based on progress.
- Payment and Alleged Delivery
- Respondent paid:
- P236,694.00 on 08 March 1995 (mobilization fund);
- P504,947.20 on 15 March 1995 (first progress billing);
- P386,600.00 on 25 March 1995 (final payment).
- On 10 August 1995, Angel Rosario, a faculty member of PMMA claiming verbal authorization, allegedly received the lifeboats at the Philippine Navy Wharf.
- Inspection and Identification of Breach
- In November 1995, an inspection team found:
- Surplus Japan-made Isuzu C-240 diesel engines installed instead of the specified 45-HP Gray Marine engines;
- Lack of manual for electric starting systems;
- Engine compartments not conforming with the approved plan.
- Respondent's dean submitted a report recommending rectification; a meeting was held on 01 December 1995 reminding petitioners to comply with specifications and to formally request extension if needed.
- Petitioners formally requested extension on 18 December 1995, extending delivery to January 1996.
- Further Inspection and Condition of Lifeboats
- On 18 July 1996, a COA technical audit reported:
- Lifeboats were corroding and deteriorating due to exposure;
- Plankings and benches deteriorating, not coated with fiberglass;
- Lifeboats lacked mast sails or row locks;
- Installed engines were Isuzu, not compliant with the contract;
- Full payment was made except for 10% retention.
- Legal Action and Lower Court Proceedings
- Respondent filed a Complaint for Rescission of Contract with Damages before the RTC.
- RTC ruled:
- Despite the caption, the complaint was for breach of contract;
- Petitioners breached contract by installing surplus engines;
- Ordered joint and several liability for actual damages of P1,516,680 plus 1% penalty per day of delay;
- Awarded P200,000 as attorney’s fees and costs due to petitioners’ unjustified refusal to comply;
- Held that petitioners were estopped from questioning respondent’s non-compliance with mediation due to active trial participation.
- Court of Appeals Proceedings
- Petitioners appealed, claiming:
- RTC erred by treating case as breach of contract instead of rescission;
- RTC should have dismissed case due to respondent’s failure to attend mediation;
- Petitioners complied fully;
- Attorney’s fees awarded without basis.
- CA ruled:
- Petitioners committed substantial breach warranting rescission;
- Delivery to Rosario invalid because he was not duly authorized;
- Mutual restitution impossible as respondent never had possession;
- Deleted attorney’s fees award for lack of factual support.
- Petitioners’ Motion for Reconsideration denied.
- Petitioners’ Arguments before the Supreme Court
- Argued substitution of engines by equivalent “old stock” surplus engines;
- Claimed implied acceptance via president’s christening of lifeboats;
- Contended trial judge who issued decision was not present during trial, thus credibility findings should be reviewed;
- Denied the need for dismissal based on mediation non-compliance.
- Supreme Court’s Order and Proceedings
- Required respondent’s comment and received petitioners’ reply;
- Raised issues limited to questions of law for Rule 45 review.
Issues:
- Whether a factual review is warranted on the basis that the judge who penned the decision was not the one who heard the evidence during trial.
- Whether the case involves rescission of contract exclusively or breach of contract with damages.
- Whether failure of respondent to attend mediation proceedings warranted dismissal of the complaint.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)