Case Summary (G.R. No. 52267)
Procedural History
Trial court: Court of First Instance of Rizal, Branch II (Civil Case No. 14712) — decision finding petitioner failed to install items required by the contract and deviated from specifications, ordering payment for rectification plus damages, attorney’s fees and costs. Court of Appeals: affirmed the trial court’s decision. Supreme Court: petition for review on certiorari under Rule 45; petition denied and the Court of Appeals decision affirmed.
Facts Found by the Courts Below
Petitioner undertook fabrication and installation of an air‑conditioning system, supplying materials, labor and tools. After re‑possession in 1971 private respondent learned from NIDC employees of system defects and commissioned a technical evaluation which concluded the system could not maintain the required room temperature (76°F ± 2°F) and listed numerous defects and omissions from the contract specifications (including missing dampers, lack of fresh air provisions, unsuitable compressors, corroded parts and absence of several specified components). The trial court credited these findings and held that omissions and deviations materially reduced the system’s operational effectiveness, necessitating auxiliary window units.
Issues Presented
- Whether the contract for fabrication and installation was a contract of sale or a contract for a piece of work.
- If a contract for a piece of work, what prescriptive period governs actions for breach or for remedies related to defects.
- Whether acceptance of the work and payment of the contract price precluded liability for defects alleged by private respondent.
- Whether the alleged defects were patent and discoverable at acceptance or hidden and therefore actionable later.
Parties’ Contentions
Petitioner argued: (a) acceptance of the work and full payment extinguished liability; (b) defects, if any, were apparent and should have been discovered earlier; (c) prescription of six months under Article 1571 (by reference to Articles 1566 and 1567 on warranty against hidden defects) applies. Private respondent contended that the contract was one for a piece of work governed by Article 1713 et seq., that the action was for breach of the written contract and thus timely under the ten‑year prescriptive period for actions upon written contracts (Article 1144), and that factual questions (acceptance, discoverability of defects) had been correctly decided by the lower courts.
Governing Legal Provisions Recognized by the Court
- Article 1713 (contract for a piece of work): contractor binds himself to execute a work for a price; contractor may furnish materials.
- Article 1714: where contractor furnishes the material and delivers the produced thing, the contract is also governed by rules on warranty of title and hidden defects.
- Article 1715: contractor’s obligation to execute work with agreed qualities and without defects; employer may require remedy or replacement, and if contractor fails, employer may have defects removed at contractor’s cost.
- Articles 1561 and 1566 (warranty against hidden defects in sale): vendor’s responsibility for hidden defects and exceptions for patent defects or where vendee is an expert.
- Article 1571 and related articles (prescriptive period for redhibitory action): six months as to certain implied warranties; however, express warranties govern when provided.
- Article 1389 (general rule on rescission): four‑year prescriptive period where applicable.
- Article 1144: actions upon a written contract prescribe in ten years.
Nature of the Contract — Court’s Determination
The Court adopted the lower courts’ finding that the transaction was a contract for a piece of work rather than a sale. The decisive criterion was that the petitioner’s business was not the sale of manufactured air‑conditioning systems off the shelf; instead petitioner fabricated and installed systems according to particular plans and specifications provided by customers. The court emphasized that where the object would not have existed but for the order, the contract is for a piece of work.
Characterization of the Action and Applicable Prescription
Although the contract was a piece of work and Articles 1714–1715 apply, the Court analyzed the nature of the claim and concluded the complaint was not principally a redhibitory action enforcing warranties against hidden defects but a suit for breach of the written contract alleging failure to comply with particular specifications and omitted installations. Because the action is for breach of a written contract and Article 1715 contains no specific prescriptive period, Article 1144 (ten‑year prescriptive period for actions upon a written contract) governs. The contract (September 10, 1962) and the filing of the complaint (May 8, 1971) placed the action well within the ten‑year period; consequently, it had not prescribed.
Acceptance, Discoverability of Defects, and Liability
The Court accepted the lower courts’ factual determinations that the defects and deviations from specifications were not apparent at the time of delivery and acceptance and that private respondent, being not an expert, could not by simple inspection
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Case Caption, Citation and Procedural Posture
- Supreme Court G.R. No. 52267; Decision promulgated January 24, 1996; reported at 322 Phil. 161, Third Division.
- Petition for review on certiorari under Rule 45 seeking to set aside the Decision of the Court of Appeals in CA-G.R. No. 58276-R dated November 28, 1978, which affirmed in toto the decision dated April 15, 1974 of the Court of First Instance of Rizal, Branch II, in Civil Case No. 14712.
- By resolution of the First Division dated November 13, 1995, the case was transferred to the Third Division. The opinion in the Supreme Court was authored by Justice Panganiban, who had taken his oath as a member of the Court on October 10, 1995.
- Final disposition: Petition denied; the assailed Decision of the Court of Appeals affirmed. No costs.
Parties and Nature of the Contract
- Petitioner: Engineering & Machinery Corporation (contractor/fabricator and installer of the air‑conditioning system).
- Private respondent: Ponciano L. Almeda (owner of the building on Buendia Avenue, Makati).
- Contract dated September 10, 1962: petitioner undertook to fabricate, furnish and install the central air‑conditioning system for private respondent’s building in consideration of P210,000.00; petitioner to furnish materials, labor, tools and all services required.
- System completed in 1963 and accepted by private respondent; private respondent paid the contract price in full.
Factual Background Leading to the Suit
- On September 2, 1965 private respondent sold the building to the National Investment and Development Corporation (NIDC), which took possession; due to NIDC’s noncompliance with the deed of sale, private respondent later obtained judicial rescission and re‑acquired possession sometime in 1971.
- After repossession in 1971 private respondent learned from some NIDC employees of defects in the building’s air‑conditioning system and commissioned Engineer David R. Sapico to evaluate the system relative to the contract.
- Sapico’s technical evaluation (Exhibit C) enumerated defects and concluded the present system was not capable of maintaining the desired room temperature of 76°F ± 2°F.
- Based on the evaluation, private respondent filed suit for damages on May 8, 1971 (Civil Case No. 14712), alleging noncompliance with the agreed plans and specifications and praying for: P210,000.00 representing rectification cost, P100,000.00 as damages, and P15,000.00 as attorney’s fees.
Trial Court Proceedings, Motions and Interim Relief
- Petitioner moved to dismiss the complaint asserting prescription under Articles 1566 and 1567 in relation to Article 1571 of the Civil Code (six‑month prescriptive period for redhibitory actions/warranty against hidden defects).
- Private respondent contended the contract was one for a piece of work under Article 1713 and thus the ten‑year prescriptive period under Article 1144 (actions upon a written contract) applied.
- Petitioner replied that Article 1571 applies to contracts for a piece of work by virtue of Article 1714, which incorporates warranties against hidden defects and payment provisions from the law on sale.
- Trial court denied the motion to dismiss and, after proceedings (including petitioner’s answer asserting prescription as affirmative defense and a compulsory counterclaim referencing Civil Case No. 71494), granted private respondent’s ex parte motion for preliminary attachment upon posting of a P50,000.00 bond.
- Trial court rendered decision finding petitioner failed to install certain required parts and accessories and deviated from the plans and specifications, reducing operational effectiveness to the extent that 35 window‑type units had to be installed to achieve acceptable temperatures. Trial court held the complaint was filed within the ten‑year prescriptive period because the contract involved manufacture, fabrication, design and installation by petitioner.
Trial Court Findings as to Defects and Specifications (Summary of Sapico’s Report and Court Findings)
- Specific defects and omissions noted by Sapico and adopted by the trial court include:
- Ground Floor, Right Wing: deteriorated evaporative condenser panels; coils full of scales and heavy corrosion; defective compressor gauges; absence of motor belt guard and main switch cover; desired room temperature not attained; omissions of specified items such as face and by‑pass dampers of G.I. sheets No. 16, fresh air intake provision, motor to regulate damper, liquid level indicator for refrigerant, suitable heat exchanger, modulating thermostat, water treatment device for evaporative condenser, and liquid receiver or sight glass.
- Ground Floor, Left Wing: defects similar to right wing and common omissions.
- Second Floor through Eighth Floor: MELCO compressors installed did not satisfy design conditions—missing automatic capacity unloaders, oil pressure safety control, provisions for renewal sleeves; of 15 MELCO compressors installed only six were in operation and several units were replaced, some with larger crank shafts.
- Ninth Floor: Worthington 2VC4 units with defects similar to ground floor.
- General remark: System could not maintain desired room temperature of 76°F ± 2°F; additional 35 window‑type units had been installed by tenants; temperature measurements on March 29, 1971 showed only 78°F rooms maintained due to additional units.
- Trial court concluded petitioner failed to install items and parts required by the contract and substituted parts not in accordance with specifications; omissions and deviations adversely affected operational effectiveness and made petitioner liable to pay the amount necessary to rectify the system plus damages, attorney’s fees and costs.