Case Summary (G.R. No. 211724)
Contract Formation and Express Terms
The parties negotiated two written proposals from petitioner: one dated 19 May 1987 quoting P87,000 (rejected) and another dated 22 May 1987 quoting P60,000 (accepted). The accepted proposal described a windmill assembly “suitable for 2 inches or 3 inches deep-well pump” and listed items relating to the windmill assembly, tower, standard appurtenances, and concreting materials; it did not include an itemized description or any express commitment to construct a deep well. The one-year guaranty from completion and acceptance is an express contractual term.
Payment History and Respondent’s Claim
Respondent paid petitioner a P30,000 down payment and a P15,000 installment, leaving an asserted balance of P15,000. Respondent contended in defense that he paid P15,000 directly to San Pedro General Merchandising, Inc. (SPGMI), which installed the deep well to be connected to the windmill, and that payment to SPGMI should be credited against his balance with petitioner because the deep well formed part of the windmill project.
Trial Court Findings
The trial court held that construction of the deep well was not part of the windmill project, relying primarily on the letter-proposals which did not expressly include deep-well construction. It also found insufficient proof that defects in construction caused the windmill’s collapse and thus did not hold petitioner liable for reconstruction under the guaranty. On the payment issue, the trial court accepted that the deep well was not included in petitioner’s contract price.
Court of Appeals Ruling
The Court of Appeals reversed the trial court: it found that “deep well” was mentioned in both proposals and, considering testimony from SPGMI’s proprietor (Guillermo Pili) that petitioner told him the cost would be deducted from the P60,000 contract price, concluded the deep well was included in the parties’ agreement. The appellate court applied respondent’s P15,000 payment to extinguish his balance with petitioner, rejected petitioner’s force majeure defense, and ordered petitioner to reconstruct the windmill under the one-year guaranty.
Issues on Review and Standard of Appellate Review
The Supreme Court framed the issues as (1) whether the contract included the installation of the deep well, and (2) whether petitioner was obliged to reconstruct the windmill after collapse. The Court applied principles of contractual interpretation: clear and unambiguous terms control, the intention of the parties is paramount, and contemporaneous and subsequent acts may be considered where doubt exists (citing Art. 1371, New Civil Code, and pertinent authorities).
Interpretation of “deep well” in the Proposals
The Supreme Court concluded that the accepted 22 May 1987 proposal did not include construction of a deep well. Though the documents mentioned “deep well” or “deep-well pump,” the phrasing (e.g., “suitable for … deep-well pump”) described the type of pump the windmill would operate rather than promising to construct a well. The Court stressed that had the parties intended to include deep-well construction, conjunctive language such as “and” or “with” would have been used and the proposal would have itemized materials and workmanship for the well.
Contemporaneous and Subsequent Acts and Credibility of Evidence
Examining contemporaneous acts and the parties’ conduct, the Court found respondent’s version unpersuasive. The alleged letter from respondent to Pili was not produced; Pili’s testimony that petitioner told him the deep well cost would be deducted was not corroborated and was improbable absent written commitments. That respondent himself paid Pili P15,000 suggested the well installation was a separate agreement between respondent and SPGMI. The Court held there was no evidence that Pili or SPGMI was authorized to receive payment on petitioner’s behalf; hence legal doctrines regarding payments to a creditor or by a third person (Arts. 1236–1240, New Civil Code) did not operate to extinguish respondent’s obligation to petitioner.
Payment by Third Party and Legal Effect
The Court emphasized the principle that payment must be made to the person in whose favor the obligation subsists, or to an authorized representative (Art. 1240). Since no creditor-debtor relationship or authorization between petitioner and SPGMI was established, respondent’s direct payment to Pili could not be imputed to extinguish the debt to petitioner. The contemporaneous circumstances supported the conclusion that the deep well contract was between respondent and SPGMI, not part of the windmill contract with petitioner.
Fortuitous Event (Force Majeure) Analysis
On the issue of reconstruction and petitioner's force majeure defense, the Court applied its established requisites for exemption under Article 1174 (as elaborated in Nakpil): (a) independence from the debtor’s will; (b) unforeseeable or unavoidable character; (c) impossibility to fulfill the obligation normally; and (d) absence of debtor participation or aggravation. The Court found petitioner failed to prove the collapse was caused solely by a fortuitous event. The record did not show a typhoon occurred; petitioner referred only to a “strong wind.” The Court reasoned that strong wind is not unforeseeable where windmills are installed (indeed, such conditions are the anticipated operating env
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Parties and Procedural Posture
- Petitioner: Jacinto M. Tanguilig, doing business as J.M.T. Engineering and General Merchandising, plaintiff in the trial court and appellant to the Supreme Court.
- Private respondent: Vicente Herce Jr., defendant in the trial court and appellee before the Supreme Court.
- Other respondent in caption: Court of Appeals (appellate tribunal whose decision was appealed).
- Trial court rendered judgment in favor of petitioner (plaintiff) on the complaint to collect unpaid balance and on issues of scope of contract and defects.
- Court of Appeals reversed the trial court, concluding the deep well installation was included in the contract and ordered reconstruction under the one-year guaranty; it also applied respondent’s payment to extinguish the balance.
- Petitioner sought relief in the Supreme Court raising two principal issues: (1) whether the agreement to construct the windmill system included installation of a deep well; and (2) whether petitioner was obligated to reconstruct the windmill after it collapsed.
- Supreme Court decision: modified the appellate court’s decision — reversed as to inclusion of the deep well, sustained as to reconstruction obligation; set terms for payment and reconstruction.
Factual Background
- Around April 1987 petitioner proposed to respondent the construction of a windmill system.
- Parties negotiated and agreed on construction of the windmill for a contract price of P60,000.00 with a one-year guaranty from date of completion and acceptance.
- Respondent paid petitioner P30,000.00 as down payment and an installment of P15,000.00, leaving a balance of P15,000.00.
- On 14 March 1988 petitioner filed a complaint to collect the remaining P15,000.00, alleging respondent’s refusal and failure to pay the balance.
- Respondent denied owing the balance, claiming he had paid P15,000.00 to San Pedro General Merchandising, Inc. (SPGMI) which constructed the deep well to which the windmill was to be connected, and that such payment should be credited against his obligation to petitioner.
- Respondent further alleged defects in the windmill system caused its collapse after a strong wind hit their place and sought offset of the balance by reason of defects.
- Petitioner asserted the contract price of P60,000.00 covered only the windmill assembly and installation, excluding construction of a deep well or other incidental materials; petitioner denied responsibility for repairs, alleged delivery of a working windmill accepted by respondent, and asserted collapse caused by a typhoon (force majeure).
Contract Proposals, Exhibits, and Relevant Wording
- Two written proposals were submitted by petitioner and are central to interpretation:
- Exh. "1" (dated 19 May 1987): Contract price P87,000.00; description included: "One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not advisable to operate during extra-intensity wind. Excluding cylinder pump. UNIT CONTRACT PRICE P87,000.00"
- Exh. "A" (dated 22 May 1987): Contract price P60,000.00; description included: "One (1) set - Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal. One (1) lot - Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling. One (1) lot - Float valve. One (1) lot - Concreting materials foundation. F. O. B. Laguna Contract Price P60,000.00"
- Notably, neither proposal contains an express statement that installation or construction of a deep well is included; the terms "deep well" and "deep well pump" appear only to describe the type/size of pump for which the windmill would be suitable ("for" and "suitable for" language).
Payments, Third-Party Involvement, and Evidence
- Payments by respondent to petitioner: P30,000.00 down payment + P15,000.00 installment = P45,000.00 paid; P15,000.00 remaining.
- Respondent paid P15,000.00 directly to Guillermo Pili / SPGMI for construction of the deep well.
- Guillermo Pili (proprietor of SPGMI) testified that petitioner Tanguilig told him cost of constructing the deep well would be deducted from the P60,000.00 contract price; Pili also testified petitioner approached him with a letter from respondent requesting well construction as "part of the price/contract which Engineer (Herce) had with Mr. Tanguilig." (TSN, 13 April 1989, pp. 18-19).
- Respondent did not present the alleged letter to Pili in court.
- Respondent’s explanation for paying Pili directly: "because he has (sic) the money, so (he) just paid the money in his possession." (TSN, 13 April 1989, p. 22).
- There was no evidence that Pili or SPGMI was authorized to receive payment on petitioner’s behalf nor that a contract existed between petitioner and Pili for the deep well.
Trial Court Findings and Reasoning
- Trial court found construction of the deep well was not part of the windmill project, relying on clarity of petitioner’s letter proposals (Exh. "1" and Exh. "A") and reasoning that inclusion of a deep well would have been explicitly stated if intended.
- Trial court held that absence of such an express agreement led to conclusion that deep well construction was not plaintiff’s undertaking.
- Regarding the windmill’s collapse, trial court found no clear and convincing proof that the collapse was due to defective construction by petitioner (Rollo, pp. 36-37).
- Trial court thus found for plaintiff (petitioner) on the contract interpretation issue.
Court of Appeals Findings and Reasoning
- Court of Appeals reversed the trial court on both major points:
- It ruled the deep well construction was included in the agreement because the term "deep well" was mentioned in both proposals.
- It credited Pili’s testimony that petitioner had told him the deep well cost would be deducted from the P60,000.00 contract price.
- Based on that, the appellate court concluded respondent’s payment of P15,000.00 to SPGMI should be applied to extinguish respondent’s remaining bala