G.R. No. 52267             January 24, 1996

ENGINEERING & MACHINERY CORPORATION, petitioner,
vs.
COURT OF APPEALS and PONCIANO L. ALMEDA, respondent.

DECISION

PANGANIBAN, J.:

Is a contract for the fabrication and installation of a central air-conditioning system in a building, one of "sale" or "for a piece of work"? What is the prescriptive period for filing actions for breach of the terms of such contract?

These are the legal questions brought before this Court in this Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision¹ of the Court of Appeals² in CA-G.R. No. 58276-R promulgated on November 28, 1978 (affirming in toto the decision³ dated April 15, 1974 of the then Court of First Instance of Rizal, Branch II⁴ , in Civil Case No. 14712, which ordered petitioner to pay private respondent the amount needed to rectify the faults and deficiencies of the air-conditioning system installed by petitioner in private respondent's building, plus damages, attorney's fees and costs).

By a resolution of the First Division of this Court dated November 13, 1995, this case was transferred to the Third. After deliberating on the various submissions of the parties, including the petition, record on appeal, private respondent's comment and briefs for the petitioner and the private respondent, the Court assigned the writing of this Decision to the undersigned, who took his oath as a member of the Court on October 10, 1995.

The Facts

Pursuant to the contract dated September 10, 1962 between petitioner and private respondent, the former undertook to fabricate, furnish and install the air-conditioning system in the latter's building along Buendia Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by private respondent, who paid in full the contract price.

On September 2, 1965, private respondent sold the building to the National Investment and Development Corporation (NIDC). The latter took possession of the building but on account of NIDC's noncompliance with the terms and conditions of the deed of sale, private respondent was able to secure judicial rescission thereof. The ownership of the building having been decreed back to private respondent, he re-acquired possession sometime in 1971. It was then that he learned from some NIDC, employees of the defects of the air-conditioning system of the building.

Acting on this information, private respondent commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with petitioner. In his report, Sapico enumerated the defects of the system and concluded that it was "not capable of maintaining the desired room temperature of 76ºF - 2ºF (Exhibit C)"⁵ .

On the basis of this report, private respondent filed on May 8, 1971 an action for damages against petitioner with the then Court of First Instance of Rizal (Civil Case No. 14712). The complaint alleged that the air-conditioning system installed by petitioner did not comply with the agreed plans and specifications. Hence, private respondent prayed for the amount of P210,000.00 representing the rectification cost, P100,000.00 as damages and P15,000.00 as attorney's fees.

Petitioner moved to dismiss the complaint, alleging that the prescriptive period of six months had set in pursuant to Articles 1566 and 1567, in relation to Article 1571 of the Civil Code, regarding the responsibility of a vendor for any hidden faults or defects in the thing sold.

Private respondent countered that the contract dated September 10, 1962 was not a contract for sale but a contract for a piece of work under Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the same Code, the complaint was timely brought within the ten-year prescriptive period.

In its reply, petitioner argued that Article 1571 of the Civil Code providing for a six-month prescriptive period is applicable to a contract for a piece of work by virtue of Article 1714, which provides that such a contract shall be governed by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale⁶ .

The trial court denied the motion to dismiss. In its answer to the complaint, petitioner reiterated its claim of prescription as an affirmative defense. It alleged that whatever defects might have been discovered in the air-conditioning system could have been caused by a variety of factors, including ordinary wear and tear and lack of proper and regular maintenance. It pointed out that during the one-year period that private respondent withheld final payment, the system was subjected to "very rigid inspection and testing and corrections or modifications effected" by petitioner. It interposed a compulsory counterclaim suggesting that the complaint was filed "to offset the adverse effects" of the judgment in Civil Case No. 71494, Court of First Instance of Manila, involving the same parties, wherein private respondent was adjudged to pay petitioner the balance of the unpaid contract price for the air-conditioning system installed in another building of private respondent, amounting to P138,482.25.

Thereafter, private respondent filed an ex-parte motion for preliminary attachment on the strength of petitioner's own statement to the effect that it had sold its business and was no longer doing business in Manila. The trial court granted the motion and, upon private respondent's posting of a bond of F'50,000.00, ordered the issuance of a writ of attachment.

In due course, the trial court rendered a decision finding that petitioner failed to install certain parts and accessories called for by the contract, and deviated from the plans of the system, thus reducing its operational effectiveness to the extent that 35 window-type units had to be installed in the building to achieve a fairly desirable room temperature. On the question of prescription, the trial court ruled that the complaint was filed within the ten-year court prescriptive period although the contract was one for a piece of work, because it involved the "installation of an air-conditioning system which the defendant itself manufactured, fabricated, designed and installed."

Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. Hence, it instituted the instant petition.

The Submissions of the Parties

In the instant Petition, petitioner raised three issues. First, it contended that private respondent's acceptance of the work and his payment of the contract price extinguished any liability with respect to the defects in the air-conditioning system. Second, it claimed that the Court of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such defects. Third, it insisted that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred by prescription under Article 1571 of the Civil Code, which provides for a six-month prescriptive period.

Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether there was an acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple inspection, involve questions of fact which have been passed upon by the appellate court.

The Court's Ruling

The Supreme Court reviews only errors of law in petitions for review on certiorari under Rule 45. It is not the function of this Court to re-examine the findings of fact of the appellate court unless said findings are not supported by the evidence on record or the judgment is based on a misapprehension of facts⁷ of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such defects. Third. it insisted that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred by prescription under Article 1571 of the Civil Code, which provides for a six-month prescriptive period.

Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether here was an acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple inspection, involve questions of fact which have been passed upon by the appellate court.

The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below.⁸

We see no valid reason to discard the factual conclusions of the appellate court. . . . (I)t is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide.⁹ (Emphasis supplied)

Hence, the first two issues will not be resolved as they raise questions of fact.

Thus, the only question left to be resolved is that of prescription. In their submissions, the parties argued lengthily on the nature of the contract entered into by them, viz., whether it was one of sale or for a piece of work.

Article 1713 of the Civil Code defines a contract for a piece of work thus:

By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material.

A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order, of the person desiring it¹⁰ . In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale¹¹ .

Thus, Mr. Justice Vitug¹² explains that -

A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made upon previous orders of customers will not argue against the imposition of the sales tax if such articles are ordinarily manufactured by the taxpayer for sale to the public (Celestino Co. vs. Collector, 99 Phil. 841).

To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work¹³ .

Clearly, the contract in question is one for a piece of work. It is not petitioner's line of business to manufacture air-conditioning systems to be sold "off-the-shelf." Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers.

The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code, which provide:

Art. 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale.

Art. 1715. The contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contractor fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost.

The provisions on warranty against hidden defects, referred to in Art. 1714 above-quoted, are found in Articles 1561 and 1566, which read as follows:

Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.

xxx       xxx       xxx

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold.

The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to demand a proportionate reduction of the price (accion quanti manoris), with damages in either case¹⁴ .

In Villostas vs. Court of Appeals¹⁵ , we held that, "while it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties"; and where there is an express warranty in the contract, as in the case at bench, the prescriptive period is the one specified in the express warranty, and in the absence of such period, "the general rule on rescission of contract, which is four years (Article 1389, Civil Code) shall apply"¹⁶ .

Consistent with the above discussion, it would appear that this suit is barred by prescription because the complaint was filed more than four years after the execution of the contract and the completion of the air-conditioning system.

However, a close scrutiny of the complaint filed in the trial court reveals that the original action is not really for enforcement of the warranties against hidden defects, but one for breach of the contract itself. It alleged¹⁷ that the petitioner, "in the installation of the air conditioning system did not comply with the specifications provided" in the written agreement between the parties, "and an evaluation of the air-conditioning system as installed by the defendant showed the following defects and violations of the specifications of the agreement, to wit:

GROUND FLOOR:

"A. RIGHT WING:

Equipped with Worthington Compressor, Model 2VC4 directly driven by an Hp Elin electric motor 1750 rmp, 3 phase, 60 cycles, 220 volts, complete with starter evaporative condenser, circulating water pump, air handling unit air ducts.

Defects Noted:

1. Deteriorated evaporative condenser panels, coils are full of scales and heavy corrosion is very evident.

2. Defective gauges of compressors;

3. No belt guard on motor;

4. Main switch has no cover;

5. Desired room temperature not attained;

Aside from the above defects, the following were noted not installed although provided in the specifications.

1. Face by-pass damper of G.I. sheets No. 16. This damper regulates the flow of cooled air depending on room condition.

2. No fresh air intake provision were provided which is very necessary for efficient comfort cooling..

3. No motor to regulate the face and by-pass damper.

4. Liquid level indicator for refrigerant not provided.

5. Suitable heat exchanger is not installed. This is an important component to increase refrigeration efficiency.

6. Modulating thermostat not provided.

7. Water treatment device for evaporative condenser was not provided.

8. Liquid receiver not provided by sight glass.

B. LEFT WING:

Worthington Compressor Model 2VC4 is installed complete with 15 Hp electric motor, 3 phase, 220 volts 60 cycles with starter.

Defects Noted:

Same as right wing. except No. 4, All other defects on right wing are common to the left wing.

SECOND FLOOR: (Common up to EIGHT FLOORS)

Compressors installed are MELCO with 7.5 Hp V-belt driven by 1800 RPM, -220 volts, 60 cycles, 3 phase, Thrige electric motor with starters.

As stated in the specifications under, Section No. IV, the MELCO compressors do not satisfy the conditions stated therein due to the following:

1. MELCO Compressors are not provided with automatic capacity unloader.

2. Not provided with oil pressure safety control.

3. Particular compressors do not have provision for renewal sleeves.

Out of the total 15 MELCO compressors installed to serve the 2nd floor up to 8th floors, only six (6) units are in operation and the rest were already replaced. Of the remaining six (6) units, several of them have been replaced with bigger crankshafts.

NINTH FLOOR:

Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60 cycles, 1750 rpm, Higgs motors with starters.

Defects Noted are similar to ground floor.

GENERAL REMARKS:

Under Section III, Design conditions of specification for air conditioning work, and taking into account "A" & "B" same, the present systems are not capable of maintaining the desired temperature of 76 = 2ºF (sic).

The present tenant have installed 35 window type air conditioning units distributed among the different floor levels. Temperature measurements conducted on March 29. 1971, revealed that 78ºF room (sic) is only maintained due to the additional window type units.

The trial court, after evaluating the evidence presented, held that, indeed, petitioner failed to install items and parts required in the contract and substituted some other items which were not in accordance with the specifications¹⁸ , thus:

From all of the foregoing, the Court is persuaded to believe the plaintiff that not only had the defendant failed to install items and parts provided for in the specifications of the air-conditioning system be installed, like face and by-pass dampers and modulating thermostat and many others, but also that there are items, parts and accessories which were used and installed on the air-conditioning system which were not in full accord with contract specifications. These omissions to install the equipments, parts and accessories called for in the specifications of the contract, as well as the deviations made in putting into the air-conditioning system equipments, parts and accessories not in full accord with the contract specification naturally resulted to adversely affect the operational effectiveness of the air-conditioning system which necessitated the installation of thirty-five window type of air-conditioning units distributed among the different floor levels in order to be able to obtain a fairly desirable room temperature for the tenants and actual occupants of the building. The Court opines and so holds that the failure of the defendant to follow the contract specifications and said omissions and deviations having resulted in the operational ineffectiveness of the system installed makes the defendant liable to the plaintiff in the amount necessary to rectify to put the air conditioning system in its proper operational condition to make it serve the purpose for which the plaintiff entered into the contract with the defendant.

The respondent Court affirmed the trial court's decision thereby making the latter's findings also its own.

Having concluded that the original complaint is one for damages arising from breach of a written contract - and not a suit to enforce warranties against hidden defects - we here - with declare that the governing law is Article 1715 (supra). However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions "upon a written contract" prescribe in ten (10) years. Since the governing contract was executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed.

What about petitioner's contention that "acceptance of the work by the employer relieves the contractor of liability for any defect in the work"? This was answered by respondent Court¹⁹ as follows:

As the breach of contract which gave rise to the instant case consisted in appellant's omission to install the equipments (sic), parts and accessories not in accordance with the plan and specifications provided for in the contract and the deviations made in putting into the air conditioning system parts and accessories not in accordance with the contract specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of the work, considering further that plaintiff is not an expert to recognize the same. From the very nature of things, it is impossible to determine by the simple inspection of air conditioning system installed in an 8-floor building whether it has been furnished and installed as per agreed specifications.

Verily, the mere fact that the private respondent accepted the work does not, ipso facto, relieve the petitioner from liability for deviations from and violations of the written contract, as the law gives him ten (10) years within which to file an action based on breach thereof.

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. No costs.

SO ORDERED.

Narvasa, C.J., Davide Jr., Melo and Francisco, JJ., concur.

Footnotes
¹ Rollo, pp. 36-51.
² Special Tenth Decision, composed of J. Porfirio V. Sison, ponente, and JJ. Mariano Serrano and Rodolfo A. Nocon, members.
³ Record on Appeal, pp. 497-510.
⁴ Judge Pedro C. Navarro presiding.
⁵ CA Decision, p. 6; rollo, p. 40.
⁶ Record on Appeal, p. 94.
⁷ Navarro vs. Court of Appeals., 209 SCRA 612 (June 8, 1992), citing Remalante vs. Tibe, et al., 158 SCRA 138 (February 25, 1988).
⁸ Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development Corp., G.R. No. 112130, March 31, 1995; J. Flerida Ruth P. Romero, ponente.
⁹ South Sea Surety and Insurance Company, Inc. vs. Hon. Court of Appeals, et al., G.R. No. 102253, June 2, 1995; J. Jose C. Vitug, ponente.
¹⁰ Aquino and Aquino, The Civil Code of the Philippines, 1990 ed., vol. 3, p. 246.
¹¹ Comissioner of Internal Revenue vs. Engineering Equipment and Supply Co., 64 SCRA 590 (June 30, 1975); Inchausti & Co. vs. Ellis Cromwell, 20 Phil. (October 16, 1911).
¹² Vitug, Compendium on Civil Law and Jurisprudence, 1993 ed., p. 581.
¹³ Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1992 ed., vol. 5, p. 286, citing 4 Colin & Capitant 477.
¹⁴ Art. 1567, Civil Code.
¹⁵ 210 SCRA 490 (June 26, 1992).
¹⁶ Id., citing Moles vs. Intermediate Appellate Court, 169 SCRA 777 (January 31, 1989).
¹⁷ Record on Appeal, pp. 3-8.
¹⁸ Record on Appeal, pp. 508-509.
¹⁹ Rollo, p. 48-49.