G.R. No. 52267 ; January 24, 1996
Engineering & Machinery Corporation, petitioner, vs. Court of Appeals and Ponciano L. Almeda, respondent.

FACTS

Pursuant to a 1962 contract, petitioner Engineering & Machinery Corporation undertook to fabricate, furnish, and install a central air-conditioning system in respondent Ponciano Almeda’s building for P210,000. The system was completed and accepted, with full payment made in 1963. Almeda later sold the building but re-acquired possession in 1971 after a judicial rescission. Upon re-possession, he learned from the previous occupants of the system’s defects. A technical evaluation commissioned by Almeda confirmed the system failed to meet the contract’s specified performance standards.
Consequently, Almeda filed a complaint for damages on May 8, 1971. Petitioner moved to dismiss, arguing the action was based on hidden defects in a sale and had prescribed under the six-month period in Articles 1566 and 1567, in relation to Article 1571, of the Civil Code. Respondent countered that the contract was one for a piece of work under Article 1713, thus the ten-year prescriptive period under Article 1144(1) applied. The trial court and the Court of Appeals ruled in favor of Almeda, holding the action was timely filed.

ISSUE

The primary issue is whether the contract is one of sale or for a piece of work, which determines the applicable prescriptive period for filing an action based on its breach.

RULING

The Supreme Court ruled the contract is one for a piece of work, not a contract of sale. The legal logic hinges on the nature of the contractor’s obligation. In a contract for a piece of work, the contractor binds himself to execute work using his own materials, labor, and skill, and the ownership of the thing created is transferred to the employer only upon delivery and acceptance. Here, petitioner undertook to fabricate and install a system using its own materials and labor, which aligns with this definition.
Consequently, the general rule on prescription for written contracts applies. Under Article 1144(1) of the Civil Code, actions upon a written contract prescribe in ten years. The breach consisted of omissions and deviations from the contract specifications, which were not apparent upon simple inspection at the time of delivery. Since the contract was executed on September 10, 1962, and the complaint was filed on May 8, 1971, the action was filed well within the ten-year period. The Court affirmed that acceptance of the work does not automatically relieve the contractor of liability for latent deviations from the contract specifications. The petition was denied.