Continental Cement v. Asea Brown Boveri
REITERATIONFacts
The Antecedents: Petitioner Continental Cement Corporation (CCC) engaged the services of respondents Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor. Despite repeated attempts, respondents failed to successfully repair the motor, leading to multiple failures during testing and subsequent production losses for CCC. CCC filed a complaint for sum of money and damages against ABB, BBC Brown Boveri, Corp., and Tord B. Eriksson, alleging breach of contract and seeking recovery of production losses, labor costs, crane rental, penalties, and attorney's fees. Procedural History: The Regional Trial Court (RTC) ruled in favor of CCC, ordering the respondents to pay damages jointly and severally. The RTC rejected the defense of limited liability, finding that respondents failed to prove CCC received a copy of the General Conditions. On appeal, the Court of Appeals (CA) reversed the RTC's decision, applying an exculpatory clause in the General Conditions and ruling that there is no implied warranty on repair work, thus dismissing CCC's complaint. The Petition: CCC filed a petition for review on certiorari, assailing the CA's decision and resolution. Petitioner argued that the CA erred in applying the General Conditions, as it never agreed to be bound by them nor received a copy. Petitioner also contended that the CA erred in applying concepts of implied warranty and warranty against hidden defects, as the case involved a contract for repair, not sale, and Articles 1170 and 2201 of the Civil Code should apply.
Issue(s)
Whether the Court of Appeals gravely erred in applying the terms of the "General Conditions" of Purchase Orders Nos. 17136 and 17137 to exculpate the respondents from liability, and whether the petitioner is entitled to penalties, damages, and attorney's fees. Whether the Court of Appeals seriously erred in applying the concepts of ‘implied warranty’ and ‘warranty against hidden defects’ of the New Civil Code in order to exculpate the respondents from its contractual obligation, and the extent of respondent Eriksson's liability and the applicable interest rates.
Ruling
The petition is granted. The assailed Decision and Resolution of the Court of Appeals are reversed and set aside. Respondent ABB is ordered to pay petitioner the amount of ₱129,329.75, representing penalties for delay, with interest at 6% per annum from the date of filing of the complaint until finality of the decision, and 12% per annum thereafter until full payment.
Ratio Decidendi
On the applicability of the "General Conditions," entitlement to penalties and damages, and attorney's fees: The Court ruled that the respondents' contention of limited liability under Clause 7 of the General Conditions is unavailing because they failed to demonstrate that petitioner CCC was duly furnished with a copy of these General Conditions. Consequently, the General Conditions are not binding on petitioner. Having breached its contract, respondent ABB is liable for damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code. The Court found that petitioner is entitled to penalties as stipulated in the Purchase Orders, amounting to ₱987.25 per day of delay from August 30, 1990, until January 7, 1991, when the motor was actually delivered, totaling ₱129,329.75. However, the Court found petitioner not entitled to recover production loss, labor cost, and rental of the crane due to insufficient evidence. The Court held that petitioner is not entitled to attorney's fees because the RTC failed to provide a factual basis for the award in the body of its decision. On the application of ‘implied warranty’ and ‘warranty against hidden defects,’ the liability of respondent Eriksson, and the award of interest: The Court found no basis to exculpate the respondents based on implied warranty or warranty against hidden defects. Respondent Eriksson cannot be held jointly and severally liable for the penalties because there was no showing that he personally directed or participated in the repair, or that he was guilty of bad faith or gross negligence. The Court imposed interest at the rate of six percent (6%) per annum on the total amount due from the date of filing of the complaint until finality of the decision, and twelve percent (12%) per annum thereafter until full payment.
Main Doctrine
A party seeking to enforce a stipulation limiting liability must prove that the other party was duly furnished with and agreed to the terms of such stipulation. In the absence of such proof, the stipulation is not binding. Furthermore, penalties stipulated in a contract generally take the place of indemnity for damages, unless otherwise agreed upon, but damages may still be recovered if they are the natural and probable consequences of the breach and were foreseen or could have been foreseen at the time of contracting, provided they are proven with reasonable certainty.