Engineering and Machinery Corp. v. CA

Facts:

Pursuant to the contract dated 10 September 1962 between the Engineering and MachineryCorporation (the Corporation) and Almeda, the former undertook to fabricate, furnish and install the air-conditioning system in the latter’s building along Buendia Avenue, Makati in consideration of P12,000.00.The Corporation was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by Almeda, who paid in full the contractprice. On 2 September 1965, Almeda sold the building to the National Investment and DevelopmentCorporation (NIDC). The latter took possession of the building but on account of NIDC’s noncompliance with the terms and conditions of the deed of sale,  Almeda was able to secure judicial rescission thereof. The ownership of the building having been decreed back to Almeda, he re-acquired possession sometime in 1971.It was then that he learned from some NIDC employees of the defects of the air-conditioning system of the building. Acting on this information, Almeda commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with the Corporation. In his report, Sapico enumerated the defects of the system and concluded that it was “not capable of maintaining the desired room temperature of76ºF — 2ºF.”On the basis of this report, Almeda filed on 8 May 1971 an action for damages against the Corporation with the then CFI Rizal (Civil Case 14712). The complaint alleged that the air-conditioning system installed by the Corporation did not comply with the agreed plans and specifications, hence, Almeda prayed for the amount ofP210,000.00 representing the rectification cost, P100,000.00 as damages and P15,000.00 as attorney’s fees.

The Corporation moved to dismissed the case, alleging prescription, but which was denied by the Court. Thereafter, Almeda filed an ex-parte motion for preliminary attachment on the strength of the Corporation’s own statement to the effect that it had sold its business and was no longer doing business in Manila. The tria lcourt granted the motion and, upon Almeda’s posting of a bond of P50,000.00, ordered the issuance of a writ of attachment. In due course, and on 15 April 1974, the trial court rendered a decision, which ordered the Corporation to pay Almeda the amount needed to rectify the faults and deficiencies of the air-conditioning system installed by the Corporation in Almeda’s building, plus damages, attorney’s fees and costs). Petitioner appealed to the Court of Appeals, which affirmed on 28 November 1978 the decision of the trial court. Hence, it instituted a petition for review on certiorari under Rule 45 of the Rules of Court. The Supreme Court denied the petition and affirmed the decision assailed; without costs.

Contract of a piece of work defined

Article 1713 of the Civil Code defines a contract for a piece of work as “by the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material.”

Contract for a piece of work distinguished from a contract of sale

A contract for a piece of work, labor and materials may be distinguished from a contract of sale by theinquiry as to whether the thing transferred is one not in existence and which would never have existed but forthe order of the person desiring it . In such case, the contract is one for a piece of work, not a sale. On theother hand, if the thing subject of the contract would have existed and been the subject of a sale to some otherperson even if the order had not been given, then the contract is one of sale.“A contract for the delivery at a certain price of an article which the vendor in the ordinary course ofhis business manufactures or procures for the general market whether the same is on hand at the time or not isa contract of sale, but if the goods are to be manufactured specially for the customer and upon his specialorder, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code). The merefact alone that certain articles are made upon previous orders of customers will not argue against theimposition of the sales tax if such articles are ordinarily manufactured by the taxpayer for sale to the public.”

(Celestino Co. vs. Collector, 99 Phil. 8411).

To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus,if the parties intended that at some future date an object has to be delivered, without considering the work orlabor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertakingon the basis of some plan, taking into account the work he will employ personally or through another, there isa contract for a piece of work.

Contract in question is one for a piece of work

The contract in question is one for a piece of work. It is not the Corporation’s line of business tomanufacture air-conditioning systems to be sold “off-the-shelf.” Its business and particular field of expertiseis the fabrication and installation of such systems as ordered by customers and in accordance with theparticular plans and specifications provided by the customers. Naturally, the price or compensation for thesystem manufactured and installed will depend greatly on the particular plans and specifications agreed uponwith the customers.

Obligations of a contractor for a piece of work

The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the CivilCode. Article 1714 provides that “if the contractor agrees to produce the work from material furnished byhim, he shall deliver the thing produced to the employer and transfer dominion over the thing. — Thiscontract shall be governed by the following articles as well as by the pertinent provisions on warranty of titleand against hidden defects and the payment of price in a contract of sale.” Article 1715 provides that “thecontractor shall execute the work in such a manner that it has the qualities agreed upon and has no defectswhich destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of suchquality, the employer may require that the contractor remove the defect or execute another work. If thecontractor fails or refuses to comply with this obligation, the employer may have the defect removed oranother work executed, at the contractor’s cost.”

Provisions on warranty against hidden defects

The provisions on warranty against hidden defects, referred to in Article 1714, are found in Articles1561 and 1566. Article 1561 provides that “the vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.” Article 1566 provides that “the vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof,” and provides further that the provision “shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold.”

Remedy against violation of the warranty against hidden defects

The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (rehibitory action) or to demand a proportionate reduction of the price (accion quanti minoris), with damages in either case.

Prescriptive period as specified in express warranty, or in the absence of which, 4 years; Prescriptive period of 6 months for rehibitory action is applicable only in implied warranties

While it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a rehibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties; and where there is an express warranty in the contract, the prescriptive period is the one specified in the express warranty, and in the absence of such period, the general rule on rescission of contract, which is four years (Article 1389, Civil Code) shall apply.

(Villostas v. CA)

Original complaint is one for arising from breach of a written contact and not a suit to enforce warranty against hidden defects; Article 1715 in relation to Article 1144 apply, prescription in 10 years; Action not prescribed

The lower courts opined and so held that the failure of the defendant to follow the contract specifications and said omissions and deviations having resulted in the operational ineffectiveness of the system installed makes the defendant liable to the plaintiff in the amount necessary to rectify to put the air conditioning system in its proper operational condition to make it serve the purpose for which the plaintiff entered into the contract with the defendant. Thus, having concluded that the original complaint is one for damages arising from breach of a written contract, and not a suit to enforce warranties against hidden defects, the governing law therefore is Article 1715. However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions “upon a written contract” prescribe in 10 years. Since the governing contract was executed on 10 September 1962 and the complaint was filed on 8 May 1971, it is clear that the action has not prescribed.

Acceptance of the work by the employer does not relieve the contractor of liability for any defect in the work

The mere fact that Almeda accepted the work does not, ipso facto, relieve the Corporation from liability for deviations from and violations of the written contract, as the law gives him 10 years within which to file an action based on breach thereof. As held by the Court of Appeals, “as the breach of contract consisted in appellant’s omission to install the equipment [sic], parts and accessories not in accordance with the plan and specifications provided for in the contract and the deviations made in putting into the air-conditioning system parts and accessories not in accordance with the contract specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of the work, considering further that Almeda is not an expert to recognize the same. From the very nature of things, it is impossible to determine by the simple inspection of air conditioning system installed in an 8-floor building whether it has been furnished and installed as per agreed specifications.”