Case Summary (G.R. No. 205405)
Petitioner
Eduardo Atienza, operator of MV Ace I, claimant of damages for breach of warranty.
Respondents
- Golden Ram Engineering Supplies & Equipment Corporation (GRESEC) – dealer and distributor of engines.
- Bartolome T. Torres – President and Manager of GRESEC.
Key Dates
• August 24, 1993 – Pro forma invoice issued and purchase agreed.
• March 1994 – Engines delivered and commissioned.
• September 26, 1994 – Starboard engine malfunctioned.
• November 16, 1994 – Complaint filed.
• August 28, 2008 – Regional Trial Court (RTC) decision.
• May 31, 2012 – Court of Appeals (CA) decision.
• June 28, 2021 – Supreme Court decision.
Applicable Law
• 1987 Philippine Constitution (governing since 1990).
• Civil Code of the Philippines, Articles 1547, 1561, 1566 (warranty and hidden defects).
• Civil Code Articles 2208(2),(5) and 2219 (attorney’s fees, costs, moral damages).
• Jurisprudential criteria on corporate officer liability (Tramat Mercantile v. CA).
Factual Background
Atienza bought two MAN Diesel D 2840 LE engines, each rated 470 HP, for P3.5 million and paid P2.5 million upon delivery. The Pro forma invoice incorporated a 12-month warranty (or 18 months maximum) limited to 2,000 hours of operation. Six months after commissioning, the starboard engine’s connecting rod split, halting operations. GRESEC’s service engineer inspected the defect, attributed it to a factory fault, and reported to MAN Diesel Singapore, which promised a replacement. Despite repeated demands, GRESEC neither replaced the engine nor reimbursed losses, prompting Atienza’s complaint.
RTC Findings and Ruling
The trial court found by preponderance of evidence that:
- The engine breakdown occurred within the warranty period and 2,000-hour limit.
- The defect was hidden and not due to Atienza’s maintenance.
- GRESEC and Torres acted in bad faith by failing to replace the engine or advise properly on warranty procedures.
- Their failure caused lost earnings, anxiety, and creditors’ abandonment.
Accordingly, the RTC held GRESEC and Torres solidarily liable for: (a) P1,600,000 actual damages with legal interest, (b) P200,000 moral damages, and (c) P150,000 attorney’s fees and costs.
Court of Appeals Modification
The appellate court affirmed breach of the implied warranty but ruled that:
• GRESEC and Torres acted in good faith, honestly believing Atienza failed to comply with maintenance and written‐claim requirements under the warranty clause.
• Moral damages, attorney’s fees, and costs could not be awarded absent proven bad faith.
• Torres, as a separate juridical personality, could not be held solidarily liable with GRESEC.
Issue on Appeal
Whether GRESEC and Torres denied Atienza’s valid warranty claim in bad faith so as to justify moral damages, attorney’s fees, and solidary liability of Torres under the 1987 Constitution and relevant Civil Code provisions.
Warranty and Hidden Defect Standard
In the absence of express stipulation, Article 1547 implies a warranty of freedom from hidden defects. Articles 1561 and 1566 hold the vendor liable for hidden defects that render the thing unfit for its intended use. A contract of adhesion (the Pro forma invoice) must be strictly construed against the drafter (GRESEC).
Supreme Court’s Finding of Bad Faith
Bad faith entails dishonest purpose or conscious wrongdoing. The Court agreed with the RTC that GRESEC and Torres:
- Allowed an underperforming engine to be delivered and commissioned.
- Took superficial corrective measures (piston rings, propeller) without resolving the defect.
- Instructed Atienza’s crew to rely solely on GRESEC for maintenance, never requiring a written claim.
- Concealed MAN Diesel Singapore’s involvement and claim requirements.
- Delivered demonstration units instead of new engines.
These circumstances evidenced fraudulent intent and bad faith in denying a valid warranty claim.
Moral Damages and Attorney’s Fees
Under Civil Code Article 2219 and Article 2208(2),(5), moral damages and litigation expenses are recoverable when bad faith is clearly established. The Court found Atienza suffered anxiety, social humiliati
Case Syllabus (G.R. No. 205405)
Factual Antecedents
- Petitioner Eduardo Atienza operated the passenger vessel MV Ace I on the Batangas–Mindoro route.
- Respondent Golden Ram Engineering Supplies & Equipment Corporation (GRESEC) was a dealer and distributor of marine engines; its President and Manager was Bartolome T. Torres.
- On August 24, 1993, Atienza purchased two MAN Diesel engines (Type D 2840 LE, 470 HP each) from GRESEC for ₱3.5 million, paying ₱2.5 million on proforma invoice.
- The proforma invoice incorporated a twelve-month warranty (or 2000 operating hours) against hidden defects, reckoned from commissioning but not later than eighteen months after notification of readiness for delivery.
- GRESEC delivered and commissioned the engines in March 1994. Six months later (September 26, 1994), the starboard engine suffered a major breakdown—diagnosed as a factory defect by GRESEC’s service engineer and reported to MAN B&W Diesel Singapore.
- Despite repeated requests and a demand letter (October 28, 1994) proposing engine replacement or refund plus losses, GRESEC failed to act; Atienza’s vessel operations ceased, causing economic loss.
- Atienza filed a complaint for damages; respondents admitted the breakdown but attributed it to improper maintenance and denied any promise of replacement, invoking warranty exclusions for purchaser’s failure to comply with handling and service instructions.
Procedural Posture
- Regional Trial Court (RTC) of Manila, Branch 173 (Civil Case No. 94-72195), August 28, 2008: found GRESEC and Bartolome Torres solidarily liable for breach of warranty; awarded actual damages, moral damages, attorney’s fees and costs.
- Court of Appeals (CA), CA-G.R. CV No. 92372, May 31, 2012 decision with January 14, 2013 resolution denying reconsideration: affirmed breach and actual damages but deleted awards of moral damages, attorney’s fees and costs; exculpated Bartolome Torres from solidary liability.
- Atienza’s petition for certiorari under Rule 45 to the Supreme Court assailed the CA’s deletion of moral damages, attorney’s fees, costs, and exoneration of Bartolome Torres.
Issue
- Whether respondents’ denial of Atienza’s warranty claim was made in bad faith such as