Title
Continental Cement Corp. vs. Asea Brown Boveri, Inc.
Case
G.R. No. 171660
Decision Date
Oct 17, 2011
CCC sued ABB for breach of contract after repeated motor repair failures, claiming damages. SC ruled ABB liable for penalties but denied production loss claims, citing lack of foreseeability and insufficient evidence.
repair service providers
contractual obligation
production losses

Case Summary (G.R. No. 171660)

Factual Background

In July 1990, Continental Cement Corporation delivered its 160 KW Kiln DC Drive Motor to Asea Brown Boveri, Inc. and BBC Brown Boveri, Corp. for repair pursuant to Purchase Order Nos. 17136-17137. Respondent Tord B. Eriksson was alleged to have personally directed the repair. After repeated unsuccessful repairs and failed tests in October, November, and March, petitioner alleged interruption of production and other losses. Petitioner filed a complaint on October 23, 1991 alleging production and opportunity losses of P10,600,000.00, labor cost and crane rental of P26,965.78, penalties computed at P987.25 per day totaling P331,716.00, cost of money interest of P24,335.59 and a total claimed damage of P10,983,017.42, together with an agreement to pay counsel Twenty Percentum (20%) of the amount sought as attorney’s fees.

Trial Court Proceedings

On August 30, 1995, the Regional Trial Court rendered judgment in favor of petitioner. The RTC rejected respondents’ defense of limited liability under the General Conditions because respondents failed to prove that petitioner received a copy of the General Conditions. The RTC awarded petitioner P10,600,000.00 for loss of production, P26,965.78 for labor cost and crane rental, and P100,000.00 as attorney’s fees and costs, and ordered defendants jointly and severally liable.

Court of Appeals Ruling

On appeal, the Court of Appeals reversed and set aside the RTC decision. The CA applied Clause 7 of the General Conditions to exculpate respondents from liability for consequential damages and ruled that no implied warranty attached to repair work; consequently, the CA dismissed the complaint. Petitioner’s motion for reconsideration before the CA was denied in the February 16, 2006 resolution.

Issues Presented

Petitioner pressed two principal issues: whether the CA gravely erred in applying the terms of the General Conditions of Purchase Orders Nos. 17136 and 17137 to exculpate respondents from liability; and whether the CA erred in invoking the concepts of implied warranty and warranty against hidden defects of the New Civil Code to relieve respondents of contractual liability for the unsuccessful repair.

Petitioner's Contentions

Petitioner maintained that it never agreed to be bound by the General Conditions and that it never received a copy of those conditions; therefore, Clause 7 could not absolve respondents. Petitioner also argued that the CA misapplied doctrines of implied warranty and warranty against hidden defects because the dispute did not arise from a contract of sale but from an obligation to perform repair work. Petitioner invoked Articles 1170 and 2201 of the Civil Code as the governing standards for liability.

Respondents' Contentions

Respondents contended that issuance of Purchase Order Nos. 17136-17137 effected petitioner’s acceptance of the General Conditions appended to respondent ABB’s letter of offer, thus binding petitioner to Clause 7. Respondents further argued that no implied warranty arose from the repair work and that any warranty of fitness belonged against the original manufacturer. Respondents also asserted that they performed in good faith and denied liability for damages.

Supreme Court's Ruling

The Court found merit in the petition and reversed the Court of Appeals. The Court held that Clause 7 of the General Conditions was not binding on petitioner because respondents failed to prove that petitioner was furnished with a copy of the General Conditions. The Court applied Articles 1167, 1170, and 2201 of the Civil Code to conclude that a repairman who breached his obligation is liable for the execution of the obligation and for damages that are the natural and probable consequences of the breach. The Court further held that under Article 1226 of the Civil Code the contractual penalty stipulated in the Purchase Orders substituted indemnity for damages and interest in case of noncompliance unless there was a stipulation to the contrary, and that the penalty covered other claimed damages unless the obligor refused to pay the penalty or was guilty of fraud. Because respondents did not refuse to deliver and the penalty was demandable, the Court awarded the contractual penalty in lieu of the larger consequential damage claims.

Application of Law to the Facts

The Court found that respondent ABB incurred delay and failed to effect a proper repair. The Purchase Orders provided a penalty of one half of one percent of the total cost, equating to P987.25 per day of delay. Records showed delivery of the motor to petitioner on January 7, 1991, although testing occurred on March 13, 1991 at petitioner’s request. The Court computed the period of delay from August 30, 1990 to January 7, 1991, or 131 days, and awarded penalties totaling P129,329.75. The Court denied recovery of production loss, labor cost, and crane rental because petitioner failed to present production reports for the period August 1990 to March 1991 and produced no competent proof of crane rental or labor expenses. The Court reiterated that actual damages require competent proof and reasonable certainty, citing Citytrust Banking Corporation v. Villanueva, and that consequential damages are recoverable only if they were reasonably foreseen or were within the contemplation of the parties at the time of contracting, citing Mendoza v. Philippine Air Lines, Inc. The Court reasoned that respondent ABB could not reasonably have foreseen liability for production loss because the motor under repair was a spare.

Allocation of Interest, Attorney's Fees, and Corporate Officer Liability

The Court imposed interest at six percent (6%) per annum from the date of filing of the complaint until finality of the decision, and twelve percent (12%) per annum from finality until full payment. The Court denied petitioner’s claim for attorney’s fees because jurisprudence requires the factual basis for such an award to appear in the body of the trial court’s decision, and the RTC had stated the award only in the dispositive portion. The Court also held that respondent Tord B. Eriksson could not be made jointly and severally liable because there was no showing that he directed or participated in the repair or that he acted in bad faith or with gross negligence; the Court invoked the corporate separateness principle and cited Queensland-Tokyo Commodities, Inc. v. George.

Disposition

The Court granted the petition, reversed and set aside the CA Decision dated August 25, 2005 and the CA Resolution dated February 16, 2006. The Court ordered respondent Asea Brown Boveri, Inc. to pay petitioner P129,329.75, with interest at six percent (6%) per annum from the filing of the complaint until finality and twelve percent (12%) per annum thereafter until full payment. All other claims for production loss, labor cost, rental of crane, and attorney’s fees were denied. Respondent Tord B. Eriksson was held not personally liable.

Legal Basis and Reasoning

The Court emphasized that an exculpatory clause in standard conditions is not effective against a contracting party who did not receive or assent to those conditions. The Court applied Articles 1167 and 1170 to impose liability for breach, and Article 2201 to delimit re

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