Engineering & Machinery Corporation v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner Engineering & Machinery Corporation (EMC) entered into a contract with private respondent Ponciano L. Almeda to fabricate, furnish, and install a central air-conditioning system in Almeda's building for P210,000.00. The system was completed in 1963 and accepted by Almeda, who paid the full contract price. In 1965, Almeda sold the building to National Investment and Development Corporation (NIDC). Due to NIDC's non-compliance with sale terms, the sale was judicially rescinded, and Almeda re-acquired possession in 1971. Upon re-acquiring possession, Almeda learned from NIDC employees about defects in the air-conditioning system. Almeda commissioned an engineer who reported that the system was "not capable of maintaining the desired room temperature of 76ºF - 2ºF". Procedural History: On May 8, 1971, Almeda filed a complaint for damages against EMC with the Court of First Instance (CFI) of Rizal, alleging non-compliance with plans and specifications, seeking P210,000.00 for rectification, P100,000.00 for damages, and P15,000.00 for attorney's fees. EMC moved to dismiss, invoking the six-month prescriptive period under Articles 1566 and 1567 in relation to Article 1571 of the Civil Code. Almeda countered that the contract was for a piece of work, governed by the ten-year prescriptive period under Article 1144. The CFI denied the motion to dismiss. After trial, the CFI ruled that EMC failed to install certain parts and deviated from specifications, rendering the system ineffective. It held that the complaint was filed within the ten-year prescriptive period for a contract for a piece of work. The Court of Appeals (CA) affirmed the CFI decision. EMC filed the instant petition for review on certiorari. The Petition: EMC raised three issues: (1) acceptance and payment extinguished liability for defects; (2) the CA erred in holding that defects were not apparent upon acceptance as Almeda was not an expert; and (3) the complaint was barred by prescription under Article 1571.
Issue(s)
Whether the contract for the fabrication and installation of a central air-conditioning system is a contract of sale or a contract for a piece of work, and whether the action for damages due to breach of contract was barred by prescription. Whether the acceptance of the work and payment of the contract price extinguished the contractor's liability for defects, and whether the defects in the air-conditioning system were apparent at the time of delivery and acceptance.
Ruling
The petition is denied, and the assailed decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the nature of the contract and prescription: The Court held that the contract for the fabrication and installation of the air-conditioning system is a contract for a piece of work, not a contract of sale. This is because the system was not a standard item manufactured for the general market but was specially fabricated and installed for the customer according to specific plans and specifications. Citing Article 1713 of the Civil Code, the Court distinguished a contract for a piece of work from a contract of sale based on whether the thing transferred was one not in existence and would never have existed but for the order. The Court further clarified that while Article 1714 of the Civil Code states that a contract for a piece of work where the contractor furnishes materials is governed by pertinent provisions on warranty against hidden defects in a contract of sale, the action filed was not for enforcement of warranties against hidden defects but for breach of the contract itself. The complaint alleged that the petitioner failed to install items and parts required by the contract and deviated from the agreed plans and specifications, which directly affected the system's operational effectiveness. Therefore, the governing law is Article 1715 of the Civil Code, and in the absence of a specific prescriptive period therein, the general law on prescription, Article 1144 of the Civil Code, applies. This provision states that actions upon a written contract prescribe in ten (10) years. Since the contract was executed on September 10, 1962, and the complaint was filed on May 8, 1971, the action was filed within the ten-year prescriptive period and thus had not prescribed. On acceptance of work and apparent defects: The Court reiterated that the factual findings of the trial court and the Court of Appeals are final and conclusive, and it will not re-examine them unless exceptional circumstances exist, none of which were present in this case. The Court affirmed the appellate court's finding that the defects in the installation were not apparent at the time of delivery and acceptance. The nature of an air-conditioning system installed in a multi-story building makes it impossible to determine by simple inspection whether it was furnished and installed according to agreed specifications. Furthermore, the private respondent was not an expert who could readily recognize such defects. Therefore, the mere acceptance of the work did not ipso facto relieve the petitioner from liability for deviations from and violations of the written contract, as the law provides a ten-year period to file an action for breach thereof.
Main Doctrine
A contract for fabrication and installation of an air-conditioning system, where the contractor manufactures the system based on specific plans and specifications for the customer, is a contract for a piece of work, not a contract of sale. The prescriptive period for actions arising from a breach of such contract is ten (10) years under Article 1144 of the Civil Code, not the six-month period for redhibitory actions under Article 1571.