Ban Kiat & Co. v. Atkins, Kroll & Co.
REITERATIONFacts
The Antecedents: Ban Kiat & Company (plaintiff) sold galvanized iron roofing to Atkins, Kroll & Company (defendant). The plaintiff sued to recover the purchase price of $5,623.77 Singapore currency. The defendant filed a counterclaim for damages due to alleged breach of contract concerning the same transaction. Procedural History: The trial court found the debt due to the plaintiff but awarded damages to the defendant on its counterclaim. Both parties appealed, with the plaintiff dissatisfied with the counterclaim award and the defendant claiming the damages were inadequate. The Petition: The core of the dispute revolved around the defendant's cross-complaint for damages arising from the plaintiff's alleged breach of contract in supplying galvanized iron roofing that did not conform to the agreed specifications (dimensions and gauge).
Issue(s)
Whether the four-day prescriptive period under Article 336, paragraph 2 of the Code of Commerce is still in force and bars the defendant's counterclaim for deficiencies in the first and third shipments. Whether the defendant is entitled to damages for the breach of contract by the plaintiff in supplying galvanized iron roofing that did not conform to the agreed specifications. What is the proper measure of damages recoverable by the defendant on its counterclaim?
Ruling
The Supreme Court affirmed the trial court's judgment in favor of the plaintiff for the purchase price but modified the decision regarding the counterclaim. The Court ruled that the four-day prescriptive period under Article 336, paragraph 2 of the Code of Commerce is no longer in force, having been abrogated by the Code of Civil Procedure. Consequently, the defendant's counterclaim is maintainable for all three shipments. The Court awarded damages to the defendant in the amount of $6,308.40 Singapore currency, instead of the P1,999.50 awarded by the trial court, with legal interest. Judgment for the excess, in Philippine currency, was to be determined based on prevailing exchange rates.
Ratio Decidendi
On the applicability of Article 336, paragraph 2 of the Code of Commerce: The Court held that the provision in Article 336, paragraph 2 of the Code of Commerce, which requires a purchaser to bring an action for defects in merchandise within four days of receipt, is a provision governing the prescription of actions. As such, it has been necessarily abrogated by Section 43 in relation to Section 39 of the Code of Civil Procedure. The Court distinguished this provision from others in the Code of Commerce that establish conditions precedent to the accrual of a right of action, such as those requiring protests or reservations. The Court reasoned that the right of action arises from the breach of duty by the vendor and exists from the time default occurs, and the institution of an action does not create the right itself. Therefore, the four-day period is purely prescriptive and has been abolished by the Code of Civil Procedure. On the defendant's entitlement to damages for breach of contract: The Court found the liability of Ban Kiat & Company for damages resulting to Atkins, Kroll & Company due to breach of contract to be undeniable. The facts clearly showed that the galvanized iron roofing supplied did not conform to the agreed dimensions and gauge, as confirmed by surveys and certificates. The defendant was compelled to make concessions to its buyers and suffered a proven loss as a result of this non-conformity. On the measure of damages: The Court stated that the legal measure of damages is the difference in value in the Manila market of the article contracted for and that delivered. While the profits actually realized by Atkins, Kroll & Company fell short of their expectations, the Court held that the damages recoverable should not exceed the amount claimed by Atkins, Kroll & Company in its statement of account dated June 22, 1920. This was because the price quoted by Ban Kiat & Company likely reflected the market price of sheets of the dimensions actually supplied (8 feet by 26 inches), rather than the contracted dimensions (8 feet by 3 feet). The Court considered this statement of account, made with full knowledge of the circumstances, as a fair estimate of the damages, preventing recovery in excess of that amount.
Main Doctrine
The four-day prescriptive period for actions concerning defects in merchandise under Article 336, paragraph 2 of the Code of Commerce, has been abrogated by the Code of Civil Procedure and is now governed by the general rules on prescription of actions for breach of contract.