Sandoval Shipyards v. Philippine Merchant Marine Academy
REITERATIONFacts
The Antecedents: Philippine Merchant Marine Academy (PMMA) contracted with Sandoval Shipyards, Inc., through its agent Rimport Industries, Inc., for the construction of two 9.10-meter lifeboats. The contract stipulated the use of 45-HP Gray Marine diesel engines and a delivery period of 45 working days. PMMA made payments totaling P1,685,200.00. Upon inspection, PMMA discovered that the lifeboats were equipped with surplus Isuzu diesel engines instead of the agreed Gray Marine engines, lacked necessary manuals, and had engine compartment construction non-conformities. Further inspection by the Commission on Audit revealed corrosion, deterioration, missing components, and the incorrect engine type, despite full payment except for retention. Petitioners failed to rectify these issues, leading PMMA to file a complaint for rescission of contract with damages. Procedural History: The Regional Trial Court (RTC), Branch 146, Makati City, in Civil Case No. 99-052, ruled that the case was for breach of contract, not rescission. The RTC found petitioners liable for actual damages of P1,516,680.00, a penalty for delay, and attorney's fees. Petitioners appealed to the Court of Appeals (CA) via Rule 41, arguing errors in the RTC's classification of the case, dismissal for failure to attend mediation, findings of non-compliance, and award of attorney's fees. The CA partly granted the appeal by deleting the attorney's fees, finding a substantial breach of contract but deeming mutual restitution impossible as PMMA never validly received the lifeboats. Petitioners' motion for reconsideration, asserting substitution of engines and implied acceptance, was denied by the CA. The Petition: Petitioners filed a Petition for Review on Certiorari under Rule 45, seeking to reverse the CA's decision and resolution. They rehashed their previous arguments and added that the judge who penned the decision did not preside over the trial, thus lacking firsthand assessment of witness testimonies. They contended that this warranted a factual review of Rosario's testimony, the progress report, and the delivery receipt. The Supreme Court, however, held that the fact that a different judge penned the decision does not constitute an exception to the rule against factual review in a Rule 45 petition. The Court affirmed the CA's findings that petitioners committed a substantial breach of contract by installing incorrect engines and failing to deliver as agreed, and that rescission was warranted but mutual restitution was impossible, requiring petitioners to return the payment received.
Issue(s)
Whether a factual review is warranted despite the trial judge not being the one who heard the witnesses. Whether the case is for rescission and not damages/breach of contract. Whether failure to attend mediation proceedings warrants a dismissal of the case.
Ruling
The Supreme Court denied the Petition for Review on Certiorari, affirming the Decision and Resolution of the Court of Appeals. The Court held that the fact that the judge who penned the decision did not hear the witnesses is not an exception to the rule that the Supreme Court does not pass on questions of fact. The Court also affirmed that the case involved a substantial breach of contract warranting rescission, and that mutual restitution was impossible as the respondent never validly received the lifeboats, but the petitioners must return the payments made. Finally, the Court ruled that the dismissal of the case for failure to attend mediation was not warranted as there was no finding of willful or flagrant disregard of the rules.
Ratio Decidendi
On the issue of factual review: The Court reiterated that in a Rule 45 Petition, only questions of law may be raised, as the Supreme Court is not a trier of facts. The fact that the trial judge who penned the decision was different from the one who received the evidence does not automatically warrant a factual review. The Court cited jurisprudence holding that a judge who did not hear the case can still render a valid decision by relying on the transcripts of stenographic notes and calibrating them with common experience and knowledge. Therefore, petitioners' contention that this procedural circumstance necessitates a factual review was rejected. On whether the case is for rescission and not damages/breach of contract: The Court clarified that the cause of action is the act or omission violating the rights of another, which in this case was the petitioners' failure to comply with the Ship Building Contract. Rescission or damages are part of the reliefs sought. Both the RTC and CA found a substantial breach of contract by petitioners, specifically the installation of surplus diesel engines contrary to specifications and the failure to deliver within the agreed time. This substantial breach warranted rescission. The Court noted that rescission entails mutual restitution, but this was rendered impossible because the respondent never validly received the lifeboats, as the delivery to Rosario was invalid. However, petitioners, having received payments totaling ₱1,516,680.00, were ordered to return this amount to the respondent. On whether failure to attend mediation proceedings warrants a dismissal of the case: The Court held that while A.M. No. 01-10-5-SC-PHILJA provides for sanctions, including dismissal, for failure to attend mediation, such a sanction is not automatically imposed. The Court found no evidence that the respondent's absence from the mediation was a willful or flagrant disregard of the rules, intended to delay the litigation, or indicated a lack of interest in amicable settlement. In fact, the CA found that parties had exerted efforts to amicably settle during pre-trial. Therefore, the RTC's decision not to dismiss the complaint was deemed appropriate.
Main Doctrine
A substantial breach of a shipbuilding contract, such as the installation of non-conforming engines and failure to deliver within the agreed period, warrants rescission. However, rescission requires mutual restitution; if the injured party never received the object of the contract, restitution of the object is impossible, but the injured party is entitled to recover payments made. Failure to attend mediation proceedings does not automatically warrant dismissal unless there is a finding of willful or flagrant disregard of the rules.