Case Digest (G.R. No. 188633)
Facts:
Sandoval Shipyards, Inc. and Rimport Industries, Inc. entered into a Ship Building Contract with Philippine Merchant Marine Academy (PMMA) on 19 December 1994 for the construction of two 9.10-meter lifeboats with specified 45-HP Gray Marine diesel engines, to be delivered within the agreed period in exchange for installment payments, which PMMA made in several installments up to substantial completion. PMMA later discovered that the lifeboats had been fitted with surplus Isuzu C-240 engines and that other construction requirements were not complied with; despite demands, petitioners refused full compliance, prompting PMMA to file a Complaint for Rescission of Contract with Damages before the RTC, Branch 146, Makati City.
The RTC ruled that petitioners committed substantial breach warranting rescission and awarded damages, penalty, and attorneys fees, while also addressing issues on mediation participation and estoppel. On ordinary appeal under Rule 41, the Court of Appeals (CA) affirmed rescission and damages but deleted the attorneys fees for lack of specific factual basis. Petitioners then filed this Rule 45 petition, arguing, among others, that factual review was warranted because the trial judge who penned the decision did not hear the evidence, that the proper remedy was breach rather than rescission, and that non-attendance at mediation should have resulted in dismissal.
Issues:
- Whether a factual review was warranted because the judge who penned the RTC decision did not receive the evidence and assess witness demeanor.
- Whether the case should be treated as one for damages/breach of contract rather than rescission.
- Whether respondent’s failure to attend mediation proceedings required the dismissal of the case.
Ruling:
The Supreme Court denied the petition and affirmed the CA’s Decision and Resolution.
On the first issue, the Court held that the change of the trial judge who rendered the decision did not fall under recognized exceptions to the rule that Rule 45 petitions raise only questions of law, and it reiterated that a decision is not rendered erroneous merely because the judge who heard the case was not the one who penned it.
On the second issue, the Court sustained rescission because petitioners’ breach was substantial and the contract’s lifeboats were not validly received by PMMA, making mutual restoration of benefits impossible in fact; nonetheless, petitioners had received payment and therefore had to return the amount PMMA paid.
On the third issue, the Court upheld the RTC’s refusal to dismiss, ruling that dismissal for non-attendance at mediation was not warranted absent findings of willful or flagrant disregard of mediation rules, intended delay, or lack of interest in amicable settlement.
Ratio:
The Court explained that under Rule 45, factual findings of the lower courts are generally binding, and the proffered reason that the decision writer was different from the evidence-receiving judge did not justify a factual re-examination. It relied on doctrine that demeanor-based credibility assessment is not indispensable when the decision writer can rely on the record and transcripts; such reliance does not violate due process.
As to remedy, the Court emphasized that the cause of action alleged was petitioners’ breach of contractual obligations, while rescission and/or damages were reliefs dependent on breach. Both RTC and CA found substantial violations (including installation of engines different from the contract specifications and failure to deliver within the agreed time) that warranted rescission; however, mutual restitution was infeasible because PMMA never validly took custody of the lifeboats due to unauthorized receipt, while petitioners had received the contract payments and had to return them.
Finally, the Court applied the standards on mediation dismissal: while sanctions may be imposed for non-appearance, dismissal is too severe without clear proof of willful or flagrant disregard, delay, or lack of genuine interest in settlement, and the record showed efforts at amicable settlement during pretrial.
Doctrine:
- Under Rule 45, only questions of law may be raised, and factual review of lower-court findings is allowed only under recognized exceptions.
- The fact that the judge who penned the decision was not the judge who heard the evidence does not, by itself, render the judgment erroneous or violate due process.
- In a contract case, rescission and damages are reliefs; the cause of action is the act or omission that violates another’s rights, and rescission may be granted for substantial breach.
- Rescission entails mutual restitution, but when mutual restoration is impossible, the party who received payment must return what it received.
- Non-attendance at mediation may justify sanctions, including dismissal, only upon clear findings of willful or flagrant disregard of mediation rules, intended delay, or lack of interest in settlement.