G.R. No. L-24069 - La Fuerza, Inc. vs. Court of Appeals

Case Summary (G.R. No. L-24069)

Factual Background of the Conveyor Contract

In January 1960, Antonio Co visited La Fuerza’s office in Manila and informed Mariano Lim that he had inspected La Fuerza’s plant at Pasong Tamo, Makati, Rizal. He expressed the opinion that the plant needed a conveyor system to convey empty bottles from the storage room to the bottle washers in the production room to increase production and efficiency. Antonio Co offered his services to manufacture and install the system, and Lim asked that the offer be put in writing.

Antonio Co submitted a written offer dated February 4, 1960 (marked as Exhibit A). On February 11, 1960, Lim wrote his signature under the word “confirmation” at the foot of Exhibit A, indicating conformity. A note was added stating: “All specifications shall be in strict accordance with the approved plan made part of this agreement hereof.” La Fuerza then delivered a down payment of P5,000.00 to Associated Engineering by check.

After the agreement, Associated Engineering prepared the premises by digging holes in the cement floor. On April 18, 1960, it delivered two conveyor units: one unit measuring 110’ 26” wide flat belt conveyor valued at P3,750.00, and another unit measuring 190’ and 4” wide flat conveyor valued at P4,500.00, or a total of P13,250.00. After deducting the down payment of P5,000.00, a balance of P8,250.00 was to be paid upon completion of the installation (as reflected in Exhibit B).

Completion, Trial Runs, and Alleged Defects

The work proceeded during March and April, with the president and general manager of La Fuerza being duly apprised through communications made by the plant mechanic, Mr. Santos. The installation was completed in May 1960. Trial runs were conducted in the presence of Lim and Antonio Co, the technical manager of Associated Engineering, and others. The record indicated that several trial runs were made, totalling about five, and that they were continued in June with about three trial runs. Additional trial runs occurred in July 1960.

After the trial runs, La Fuerza’s general manager reported that the conveyor system did not function satisfactorily as represented by Associated Engineering’s technical manager. It was alleged that when operated, bottles collided, some jumped off the conveyor belt, and were broken, causing considerable damage. La Fuerza also claimed that the flow of the system was sluggish and that its earlier method of hand-carrying bottles from storage to washers was faster and more efficient.

After July 1960, Associated Engineering’s technical manager was allegedly repeatedly advised to make necessary adjustments or corrections to improve efficiency. Since the defects allegedly remained unremedied, the parties “came to the parting of the ways.” When Associated Engineering billed La Fuerza for the balance of the contract price, La Fuerza refused to pay on the ground that the conveyors did not serve the purpose for which they were manufactured and installed at heavy expense. The installed conveyors nonetheless remained in La Fuerza’s premises.

Procedural History: Trial Court Decision

On March 22, 1961, Associated Engineering commenced the action to recover P8,250.00 as the unpaid balance of the contract price and P2,000.00 as attorney’s fees, plus costs. In its answer, La Fuerza alleged that the conveyors “do not meet the conditions and warrantings” and raised a counterclaim. It sought dismissal of the complaint and rescission of its contract with Associated Engineering. It also prayed that Associated Engineering be ordered to refund the P5,000.00 down payment and pay P1,000.00 attorney’s fees and costs.

The Court of First Instance of Manila rendered a decision rescinding the contract marked as Exhibit A. It ordered Associated Engineering to refund or return P5,000.00, together with the costs of the action. On the other hand, it ordered La Fuerza to permit Associated Engineering to remove the flat belt conveyors installed in its premises. This decision was initially affirmed by the Court of Appeals.

Court of Appeals Reversal on Reconsideration

Upon a motion for reconsideration filed by Associated Engineering, the Court of Appeals set aside its original decision and rendered a new one in favor of Associated Engineering, ordering La Fuerza to pay the plaintiff P8,250.00 with interest at 1% per month from July 1960 until fully paid, plus P500.00 attorney’s fees and costs.

The Court of Appeals’ resolution, as described in the Supreme Court decision, relied in effect on the theory of prescription of La Fuerza’s right of action for rescission. It held that under Article 1571 of the Civil Code, an action to rescind “shall be barred after six months from delivery of the thing sold,” and that La Fuerza did not avail of the right to demand rescission until the filing of its answer in the trial court on April 17, 1961—over ten months after the installation was completed on May 30, 1960.

Issues Raised by La Fuerza

La Fuerza assailed the Court of Appeals’ view and advanced two principal contentions. First, it argued that there had been, in contemplation of law, no delivery of the conveyors until Associated Engineering complied with the contract conditions, requirements, and warranties—particularly La Fuerza’s need for a conveyor system that would mechanically transport empty bottles as contemplated in the agreement. Second, assuming delivery, La Fuerza contended that the six-month period in Article 1571 referred not to the action for rescission but to the period to bring an action demanding compliance of the warranty against hidden defects.

The Supreme Court’s Ruling on Delivery Under Article 1571

The Supreme Court rejected both grounds. On La Fuerza’s first point, it held that there was no persuasive reason to treat acceptance as a condition for delivery within the meaning of Article 1571. In adopting the Court of Appeals’ approach, the Court explained that Article 1571 applies through Article 1714, which provides that pertinent provisions on warranty of title against hidden defect in a contract of sale are applicable to a contract for a piece of work.

The Court of Appeals’ reasoning, which the Supreme Court found to be sound, construed “delivery” in Article 1571 in the light of sales provisions. Under Article 1497, the thing sold is understood as delivered when placed in the control and possession of the vendee. The Court treated delivery as an act of the vendor, while acceptance as an obligation on the vendee’s side under Article 1582. Thus, acceptance could not be regarded as a condition to complete delivery. The Supreme Court emphasized that after completion of the installation in May 1960, and particularly after the last trial run in July 1960, La Fuerza was in a position to decide whether it was satisfied with the conveyors and, hence, whether to accept or reject them. La Fuerza’s failure to express categorically whether it accepted or rejected did not negate that it already had control and possession, and therefore that delivery had already taken place. Consequently, the six-month period under Article 1571 started to run upon such delivery.

The Supreme Court’s Ruling on Prescription: Rescission and the Six-Month Period

On La Fuerza’s second point, the Supreme Court analyzed the warranty framework that underpins rescission in the relevant sales provisions. Article 1571 bars actions arising from the preceding ten articles after six months from delivery of the thing sold. Among those ten articles are Articles 1566 and 1567.

The Court noted that Article 1566 makes the vendor responsible for hidden faults or defects even if the vendor was not aware, subject to specific exceptions. Article 1567 provides that in the cases covered by those articles, the vendee may elect between w

Case Syllabus (G.R. No. L-24069)

The case arose from an ordinary action for the recovery of a sum of money involving a contract for the manufacture and installation of flat belt conveyors.
La Fuerza, Inc. (the defendant) petitioned for review on certiorari after the Court of Appeals reversed an earlier ruling and ordered La Fuerza to pay the plaintiff.
The Court affirmed the Court of Appeals’ resolution and denied the petition.

Parties and Procedural Posture

The petitioner was La Fuerza, Inc., a corporation engaged in the manufacture of wines.
The respondents were the Court of Appeals and Associated Engineering Co., Inc. (the plaintiff), a corporation engaged in the manufacture and installation of flat belt conveyors.
The Court of First Instance of Manila rendered an initial decision for the defendant, La Fuerza, rescinding the contract and ordering the plaintiff to refund the down payment.
On appeal, the Court of Appeals first affirmed the trial court’s decision.
On the plaintiff’s motion for reconsideration, the Court of Appeals set aside its original decision and rendered a new one in favor of the plaintiff by ordering payment of the remaining contract price and related amounts.
The Court of Appeals’ reversal was grounded on the theory of prescription of La Fuerza’s right to rescind.
La Fuerza then filed this petition for review on certiorari challenging the Court of Appeals’ construction of Art. 1571 of the Civil Code.

Key Factual Allegations

The plaintiff, through its manager Antonio Co, met the defendant’s president and general manager Mariano Lim and offered to manufacture and install a conveyor system to convey empty bottles from the storage room to the bottle washers, with the aim of increasing production and efficiency.
Mariano Lim did not decide immediately and suggested that the offer be put in writing.
On February 4, 1960, Antonio Co submitted the written offer (marked Exhibit A).
On the same document, Mariano Lim signed under the word “confirmation”, but the defendant added a stipulation that all specifications must strictly accord with an approved plan made part of the agreement.
The plaintiff demanded a down payment of P5,000.00, which the defendant paid promptly by check.
The parties proceeded with the installation work, and the plaintiff delivered two conveyor units valued collectively at P13,250.00.
From the total value, the defendant’s down payment was deducted, leaving a balance of P8,250.00 to be paid upon completion of the installation (as reflected in Exhibit B).
The installation proceeded during March and April 1960, with the defendant’s president and general manager informed through the defendant’s plant mechanic.
The work was completed in May 1960, and trial runs were conducted, totaling about five, with subsequent trial runs in June and lastly in July 1960.
The defendant’s general manager reported that, during trial runs, some bottles collided, jumped off the conveyor belt, and were broken, causing damage.
The defendant also observed that the conveyor’s flow was sluggish, such that the prior method of hand-carrying bottles allegedly appeared more efficient.
After the last trial run in July 1960, the plaintiff’s technical manager was advised several times to make adjustments, but the defendant claimed the defects were not remedied.
When the plaintiff billed the balance of the contract price, the defendant refused payment on the ground that the conveyor system did not serve the intended purpose at the heavy expense.
The installed conveyors remained on the defendant’s premises despite the dispute.
On March 22, 1961, the plaintiff commenced the action to recover P8,250.00 as the balance of the contract price and P2,000.00 as attorney’s fees, plus costs.
In its answer, La Fuerza alleged that the conveyors did not meet the conditions and warranties of the plaintiff, sought rescission of the contract, prayed for dismissal of the complaint, and counterclaimed for the return of the P5,000.00 down payment plus P1,000 attorney’s fees and costs.
The Court of First Instance rescinded the contract and ordered the plaintiff to refund the down payment and costs, while ordering the defendant to permit the plaintiff to remove the conveyors.

Issues Presented

The principal issue concerned whether the defendant’s rescission was timely under Art. 1571 of the Civil Code.
La Fuerza contended that, in contemplation of law, there had been no delivery by the plaintiff within the meaning of Art. 1571 because accept