Republic of the
Supreme Court
FIRST DIVISION
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CONTINENTAL CEMENT |
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G.R. No. 171660 |
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CORPORATION, |
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Petitioner, |
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Present: |
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versus - |
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LEONARDO-DE CASTRO, |
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PERALTA,⃰ |
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ASEA BROWN BOVERI, INC., |
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VILLARAMA,
JR., JJ. |
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BBC BROWN BOVERI,
CORP., |
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AND TORD B.
ERIKSON,⃰ ⃰ |
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Promulgated: |
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Respondents. |
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October 17, 2011 |
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D E C I S I O N
Except as
provided by law or by stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or
compensatory damages.[1]
This Petition
for Review on Certiorari[2]
under Rule 45 of the Rules of Court assails the Decision[3]
dated August 25, 2005 and the Resolution[4]
dated February 16, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 58551.
Factual Antecedents
Sometime in July 1990, petitioner
Continental Cement Corporation (CCC),
a corporation
engaged in the business of producing cement,[5]
obtained the services of respondents[6]
Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW
Kiln DC Drive Motor (Kiln Drive Motor).[7]
On October 23, 1991, due to the
repeated failure of respondents to repair the Kiln Drive Motor, petitioner
filed with Branch 101 of the Regional Trial Court (RTC) of
4.
On July 11,
1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the defendants
to be repaired under PO No. 17136-17137, x x x
The defendant, Tord
B. Eriksson, was personally directing the repair of the said Kiln Drive
Motor. He has direction and control of
the business of the defendant corporations.
Apparently, the defendant Asea Brown Boveri, Inc. has no separate
personality because of the 4,000 shares of stock, 3996 shares were subscribed
by Honorio Poblador, Jr. The four other
stockholders subscribed for one share of stock each only.
5.
After the
first repair by the defendants, the 160 KW Kiln Drive Motor was installed for
testing on October 3, 1990. On October
4, 1990 the test failed. The plaintiff removed
the DC Drive Motor and replaced it with its old motor. It was only on October 9, 1990 that the
plaintiff resumed operation. The
plaintiff lost 1,040 MTD per day from October 5 to October 9, 1990.
6.
On November
14, 1990, after the defendants had undertaken the second repair of the motor in
question, it was installed in the kiln.
The test failed again. The
plaintiff resumed operation with its old motor on November 19, 1990. The plaintiff suffered production losses for
five days at the rate of 1,040 MTD daily.
7.
The
defendants were given a third chance to repair the 160 KW Kiln DC Drive Motor.
On March 13, 1991, the motor was installed and tested. Again, the test failed. The plaintiff resumed operation on March 15,
1991. The plaintiff sustained production
losses at the rate of 1,040 MTD for two days.
8.
As a
consequence of the failure of the defendants to comply with their contractual obligation
to repair the 160 KW Kiln DC Drive Motor, the plaintiff sustained the following
losses:
(a)
Production
and opportunity losses - P10,600,000.00
This amount represents only about 25% of the
production losses at the rate of P72.00 per bag of cement.
(b) Labor
Cost and Rental of Crane - 26,965.78
(c) Penalties
(at P987.25 a day) for
failure to deliver the motor from
Aug. 29, 1990 to July 31, 1991. - 331,716.00
(d) Cost of
money interest of the
P987.25
a day from July 18, 1990
to
April 5, 1991 at 34% for 261 days - 24,335.59
Total Damages 10,983,017.42
9.
The plaintiff
has made several demands on the defendants for the payment of the
above-enumerated damages, but the latter refused to do so without valid
justification.
10. The plaintiff was constrained to file this action and has
undertaken to pay its counsel Twenty Percentum (20%) of the amount sought to be
recovered as attorneys fees.[10]
Respondents,
however, claimed that under Clause 7 of the General Conditions,[11]
attached to the letter of offer[12]
dated July 4, 1990 issued by respondent ABB to petitioner, the liability of
respondent ABB does not extend to consequential damages either direct or
indirect.[13]
Moreover, as to respondent Eriksson, there is no lawful and tenable reason for
petitioner to sue him in his personal capacity because he did not personally
direct the repair of the
Ruling of the Regional
Trial Court
On August 30, 1995, the RTC rendered
a Decision[15]
in favor of petitioner. The RTC rejected
the defense of limited liability interposed by respondents since they failed to
prove that petitioner received a copy of the General Conditions.[16]
Consequently, the RTC granted petitioners claims for production loss, labor
cost and rental of crane, and attorneys fees.[17]
Thus:
WHEREFORE, premises above considered, finding the complaint substantiated by plaintiff, judgment is hereby rendered in favor of plaintiff and against defendants, hereby ordering the latter to pay jointly and severally the former, the following sums:
P10,600,00.00
for loss of production;
P 26,965.78 labor cost and rental of crane;
P 100,000.00 attorneys fees and cost.
SO ORDERED.[18]
Ruling of the
Court of Appeals
On appeal, the
CA reversed the ruling of the RTC. The
CA applied the exculpatory clause in the General Conditions and ruled that
there is no implied warranty on repair work; thus, the repairman cannot be made
to pay for loss of production as a result of the unsuccessful repair.[19] The fallo
of the CA Decision[20]
reads:
WHEREFORE, premises considered, the assailed August 30, 1995 Decision of the
Regional Trial Court of Quezon City, Branch 101 is hereby REVERSED and SET ASIDE. The October 23, 1991 Complaint is hereby DISMISSED.
SO ORDERED.[21]
Petitioner moved
for reconsideration[22]
but the CA denied the same in its Resolution[23]
dated February 16, 2006.
Issues
Hence, the
present recourse where petitioner interposes the following issues:
1. Whether x x x the [CA] gravely erred in applying the terms of
the General Conditions of Purchase Orders Nos. 17136 and 17137 to exculpate
the respondents x x x from liability in this case.
2. Whether x x x the [CA] 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 x x x from its contractual
obligation.[24]
Petitioners
Arguments
Petitioner
reiterates that the General Conditions cannot exculpate respondents because
petitioner never agreed to be bound by it nor did petitioner receive a copy of
it.[25]
Petitioner also imputes error on the part of the CA in applying the concepts of
warranty against hidden defects and implied warranty.[26] Petitioner contends that these concepts are
not applicable because the instant case does not involve a contract of sale.[27]
What applies are Articles 1170 and 2201
of
the Civil Code.[28]
Respondents
Arguments
Conversely,
respondents insist that petitioner is bound by the General Conditions.[29] By issuing Purchase Order Nos. 17136-37,
petitioner in effect accepted the General Conditions appended to respondent
ABBs letter of offer.[30] Respondents likewise defend the ruling of the
CA that there could be no implied warranty on the repair made by respondent ABB
as the warranty of the fitness of the equipment should be enforced directly
against the manufacturer of the Kiln Drive Motor.[31]
Respondents also deny liability for damages claiming that they performed their
obligation in good faith.[32]
Our Ruling
The petition has
merit.
Petitioner and
respondent ABB entered into a contract for the repair of petitioners Kiln
Drive Motor, evidenced by Purchase Order Nos. 17136-37,[33]
with the following terms and conditions:
a) Total
Price: P197,450.00
b) Delivery Date: August
29, 1990 or six (6) weeks from receipt of order and down payment[34]
c) Penalty: One
half of one percent of the total cost or Nine Hundred Eighty Seven Pesos and
Twenty five centavos (P987.25) per day of delay.
Respondent ABB,
however, not only incurred delay in performing its obligation but likewise failed
to repair the
Clause 7 of the General Conditions is not binding on petitioner
Respondents contend that under Clause 7 of the General Conditions their liability does not extend to consequential damages either direct or indirect.[35] This contention, however, is unavailing because respondents failed to show that petitioner was duly furnished with a copy of said General Conditions. Hence, it is not binding on petitioner.
Having breached
the contract it entered with petitioner, respondent ABB is liable for damages
pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state:
Art. 1167.
If a person obliged to do something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore, it may be decreed
that what has been poorly done be undone.
Art. 1170.
Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.
Art. 2201.
In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was
constituted.
In case of fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation.
Based on the
foregoing, a repairman who fails to perform his obligation is liable to pay for
the cost of the execution of the obligation plus damages. Though entitled,
petitioner in this case is not claiming reimbursement for the repair allegedly
done by Newton Contractor,[36]
but is instead asking for damages for the delay caused by respondent ABB.
Petitioner is entitled to
penalties under Purchase Order Nos. 17136-37
As per Purchase
Order Nos. 17136-37, petitioner is entitled to penalties in the amount of P987.25
per day from the time of delay, August 30, 1990, up to the time the Kiln Drive
Motor was finally returned to petitioner.
Records show that although the testing of Kiln Drive Motor was done on
March 13, 1991, the said motor was actually delivered to petitioner as early as
January 7, 1991.[37] The installation and testing was done only on
March 13, 1991 upon the request of petitioner because the Kiln was under repair
at the time the motor was delivered; hence, the load testing had to be
postponed.[38]
Under Article
1226[39]
of the Civil Code, the penalty clause takes the place of indemnity for damages
and the payment of interests in case of non-compliance with the obligation,
unless there is a stipulation to the contrary.
In this case, since there is no stipulation to the contrary, the penalty
in the amount of P987.25 per day of delay covers all other damages (i.e. production loss, labor cost, and
rental of the crane) claimed by petitioner.
Petitioner is not entitled to
recover production loss, labor
cost
and the
rental of crane
Article 1226 of
the Civil Code further provides that if the obligor refuses to pay the penalty,
such as in the instant case, [40]
damages and interests may still be recovered on top of the penalty. Damages claimed must be the natural and
probable consequences of the breach, which the parties have foreseen or could
have reasonably foreseen at the time the obligation was constituted.[41]
Thus, in
addition to the penalties, petitioner seeks to recover as damages production
loss, labor cost and the rental of the crane.
Petitioner avers
that every time the Kiln Drive Motor is tested, petitioner had to rent a crane
and pay for labor to install the motor.[42] But except for the Summary of Claims for
Damages,[43]
no other evidence was presented by petitioner to show that it had indeed rented
a crane or that it incurred labor cost to install the motor.
Petitioner
likewise claims that as a result of the delay in the repair of the Kiln Drive
Motor, its production from August 29, 1990 to March 15, 1991 decreased since it
had to use its old motor which was not able to produce cement as much as the
one under repair;[44]
and that every time the said motor was installed and tested, petitioner had to
stop its operations; thereby, incurring more production losses.[45]
To support its claim, petitioner presented its monthly production reports[46]
for the months of April to June 1990 showing that on the average it was able to
produce 1040 MT of cement per day.
However, the production reports for the months of August 1990 to March
1991 were not presented. Without these production reports, it cannot be
determined with reasonable certainty whether petitioner indeed incurred
production losses during the said period.
It may not be amiss to say that competent proof and a reasonable degree
of certainty are needed to justify a grant of actual or compensatory damages;
speculations, conjectures, assertions or guesswork are not sufficient.[47]
Besides,
consequential damages, such as loss of profits on account of delay or failure
of delivery, may be recovered only if such damages were reasonably foreseen or
have been brought within the contemplation of the parties as the probable
result of a breach at the time of or prior to contracting.[48]
Considering the nature of the obligation in the instant case, respondent ABB,
at the time it agreed to repair petitioners Kiln Drive Motor, could not have
reasonably foreseen that it would be made liable for production loss, labor
cost and rental of the crane in case it fails to repair the motor or incurs delay
in delivering the same, especially since the motor under repair was a spare
motor.[49]
For the
foregoing reasons, petitioner is not entitled to recover production loss, labor
cost and the rental of the crane.
Petitioner is not entitled to
attorneys fees
Neither
is petitioner entitled to the award of attorneys fees. Jurisprudence requires that the factual basis
for the award of attorneys fees must be set forth in the body of the decision
and not in the dispositive portion only.[50]
In this case, no explanation was given
by the RTC in awarding attorneys fees in favor of petitioner. In fact, the
award of attorneys fees was mentioned only in the dispositive portion of the decision.
Respondent
Eriksson cannot be made jointly and severally liable for the penalties
Respondent
Eriksson, however, cannot be made jointly and severally liable for the
penalties. There is no showing that respondent Eriksson directed or
participated in the repair of the Kiln Drive Motor or that he is guilty of bad
faith or gross negligence in directing the affairs of respondent ABB. It is a basic principle that a corporation
has a personality separate and distinct from the persons composing or
representing it; hence, personal liability attaches only in exceptional cases,
such as when the director, trustee, or officer is guilty of bad faith or gross
negligence in directing the affairs of the corporation.[51]
In sum, we find
petitioner entitled to penalties in the amount of P987.25 per day from
August 30, 1990 up to January 7, 1991 (131 days) or a total amount of P129,329.75
for the delay caused by respondent ABB. Finally,
we impose interest at the rate of six percent (6%) on the total amount due from
the date of filing of the complaint until finality of this Decision. However, from the finality of judgment until
full payment of the total award, the interest rate of twelve percent (12%)
shall apply.[52]
WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August 25,
2005 and the Resolution dated February 16, 2006 of the Court of Appeals in
CA-G.R. CV No. 58551 are hereby REVERSED
and SET ASIDE. Respondent ABB is ORDERED to pay petitioner the amount
of P129,329.75, with interest at
6% per annum to be computed from the date of the filing of the complaint until
finality of this Decision and 12% per annum thereafter until full payment.
SO
ORDERED.
MARIANO C.
Associate Justice
WE CONCUR:
RENATO
C. CORONA
Chief Justice
Chairperson
|
TERESITA J. LEONARDO-DE
CASTRO Associate Justice |
DIOSDADO M. PERALTA Associate
Justice |
MARTIN S. VILLARAMA, JR.
Associate Justice
C E R T I F I C A T I O N
Pursuant
to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.
RENATO
C. CORONA
Chief Justice
⃰ In lieu of Associate Justice Lucas P. Bersamin, per Special Order No. 1110 (Revised) dated September 30, 2011.
⃰ ⃰ Sometimes
referred as Tord B. Eriksson in some parts of the records.
[1] Civil Code, Article 2199.
[2] Rollo, pp. 30-166 with Annexes A to M inclusive.
[3]
[4]
[5]
[6] The two corporations merged on June 10,
1988, with Asea Brown Boveri, Inc. as the surviving entity. (
[7]
[8]
[9]
[10]
[11]
Clause 7. GENERAL LIABILITY AND MAINTENANCE GUARANTEE
All
machinery and apparatus for our manufacture is guaranteed to be of high grade
material and of good and careful workmanship and we undertake to correct and
make good any defect or defects which may develop under normal and proper use
within the guarantee period and which are due solely to faulty design,
material, or workmanship, provided always that we are notified immediately
after the defect is discovered and that such defective parts are promptly
returned. The repaired or new parts will be delivered free or in the case of
goods for exports f.o.b. Defective parts thus replaced remain our property.
Unless otherwise stated in the tender or order confirmation the guarantee
period is twelve months for all ordinary machinery and apparatus operated under
normal conditions. The guarantee period is reckoned from the date delivery is
made, or if delivery cannot be made on account of delays caused by
circumstances beyond our control, from the date the goods are ready for
dispatch at our premises. All liability on our part ceases at the termination
of the guarantee period.
Our
liability is in all cases limited as provided in these conditions and does not
extend to consequential loss either direct or indirect, nor to expenses for
repair or replacements or otherwise paid or incurred without our written authority.
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]
[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]
[30]
[31]
[32]
[33]
[34] Down payment was made on July 18, 1990; TSN dated July 27, 1994, Direct Examination of Jessica Alonzo, p. 12.
[35] Rollo, p. 89.
[36] TSN dated June 15, 1994, Direct Examination of Engr. Juanito Fernando, p. 9.
[37] Records, p. 391.
[38]
[39] Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.
[40] Rollo, pp. 81 and 88.
[41] Civil Code, Article 1174.
[42] TSN dated July 27, 1994, Direct Examination of Jessica Alonzo, p. 9.
[43] Records, p. 343.
[44] TSN dated July 27, 1994, Direct Examination of Jessica Alonzo, pp.4-11.
[45]
[46] Records, pp. 340-342.
[47] Citytrust Banking Corporation v. Villanueva, 413 Phil. 776, 787 (2001).
[48] Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836, 844 (1952), citing Chapman v. Fargo, L.R.A. (1918 F) p. 1049.
[49] TSN dated June 15, 1994, Direct Examination of Engr. Juanito Fernando, pp. 4-5.
[50]
Mercury
Drug Corporation v. Baking, G.R. No. 156037, May 25, 2007, 523 SCRA 184,
192.
[51] Queensland-Tokyo Commodities, Inc. v. George, G.R. No. 172727, September 8, 2010, 630 SCRA 304, 315.
[52] Duarte v. Duran, G.R. No. 173038,
September 14, 2011, citing Tropical
Homes, Inc. v. Court of Appeals, 338 Phil. 930, 943-943 (1997), and Eastern Shipping Lines, Inc. v. Court of
Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95-97.