G.R. No. 171660 ; October 17, 2011
CONTINENTAL CEMENT CORPORATION, Petitioner, vs. ASEA BROWN BOVERI, INC., BBC BROWN BOVERI, CORP., AND TORD B. ERIKSON, Respondents.

FACTS

Petitioner Continental Cement Corporation (CCC) engaged respondents Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor in July 1990. Despite three attempts at repair (October 1990, November 1990, and March 1991), the motor repeatedly failed upon testing, causing CCC production losses. CCC filed a complaint for sum of money and damages against the respondent corporations and Tord B. Eriksson, ABB’s Vice-President. CCC claimed damages for production losses, labor and crane rental costs, and penalties for delay. Respondents defended by invoking Clause 7 of the “General Conditions,” which purportedly limited their liability by excluding consequential damages, and argued Eriksson should not be sued personally. The Regional Trial Court (RTC) ruled in favor of CCC, awarding damages, finding the General Conditions not binding as respondents failed to prove CCC received a copy. The Court of Appeals (CA) reversed the RTC, applying the exculpatory clause and ruling there was no implied warranty on repair work, thus dismissing the complaint.

ISSUE

1. Whether the Court of Appeals gravely erred in applying the terms of the “General Conditions” to exculpate the respondents from liability.
2. Whether the Court of Appeals seriously erred in applying the concepts of ‘implied warranty’ and ‘warranty against hidden defects’ to exculpate the respondents.

RULING

The Supreme Court granted the petition, reversing the Court of Appeals and reinstating the RTC decision with modification.
1. On the General Conditions: The Supreme Court ruled that Clause 7 of the General Conditions was not binding on petitioner CCC. Respondents failed to show that CCC was duly furnished with a copy of said General Conditions. Therefore, the exculpatory clause limiting liability for consequential damages could not be invoked.
2. On Liability and Applicable Law: The contract between CCC and ABB was a contract for repair, not sale. The applicable provisions are Articles 1167, 1170, and 2201 of the Civil Code on obligations and damages. Respondent ABB breached its contract by failing to repair the motor despite repeated attempts and by incurring delay. As a repairman who failed to perform its obligation, ABB is liable for damages. The concepts of implied warranty or warranty against hidden defects under the Civil Code’s provisions on sale are inapplicable.
3. On Damages: The Court held CCC was entitled to damages. However, it disallowed the claim for unrealized profits (production losses) due to lack of sufficient evidence. The claim for labor cost and rental of crane was granted as it was duly proven. The stipulated penalty for delay in the purchase orders (₱987.25 per day) was also awarded, as it was demandable under Article 1226 of the Civil Code, and functioned as liquidated damages. The award of attorney’s fees was deleted for lack of justification. Respondent Eriksson was held not personally liable as he acted in his corporate capacity.
The respondents ABB and BBC Brown Boveri, Corp. were held jointly and severally liable to pay CCC the labor and crane rental costs (₱26,965.78) and the stipulated penalty for delay.