G.R. No. 188633 ; April 10, 2013
SANDOVAL SHIPYARDS, INC. and RIMPORT INDUSTRIES, INC. represented by ENGR. REYNALDO G. IMPORTANTE, Petitioners, vs. PHILIPPINE MERCHANT MARINE ACADEMY (PMMA), Respondent.

FACTS

On 19 December 1994, respondent Philippine Merchant Marine Academy (PMMA) entered into a Ship Building Contract with petitioner Sandoval Shipyards, Inc., through its agent Rimport Industries, Inc. (collectively, petitioners). The contract obligated petitioners to construct two 9.10-meter lifeboats with 45-HP Gray Marine diesel engines for delivery within 45 working days from contract signing and payment of a mobilization fund. Respondent paid the contract price of ₱1,685,200 in installments: ₱236,694 as mobilization fund, ₱504,947.20 for the first progress billing, and ₱386,600 as final payment.
On 10 August 1995, a PMMA faculty member, Angel Rosario, who claimed verbal authorization from the PMMA president, allegedly received the lifeboats. However, an inspection in November 1995 revealed that petitioners had installed surplus Japan-made Isuzu C-240 diesel engines instead of the specified Gray Marine engines. Other deficiencies were noted, including the lack of a manual for the electric starting systems and non-conformity of the engine compartment with the approved plan. Petitioners were notified and requested an extension for delivery until January 1996. A Commission on Audit inspection on 18 July 1996 confirmed the use of Isuzu engines and noted the lifeboats were corroding and deteriorating.
After repeated demands for compliance went unheeded, respondent filed a Complaint for Rescission of Contract with Damages before the Regional Trial Court (RTC). The RTC, in its 10 April 2006 Decision, treated the action as one for breach of contract, finding petitioners liable for actual damages (₱1,516,680), a penalty for delay, and attorney’s fees (₱200,000). On appeal, the Court of Appeals (CA) affirmed the finding of substantial breach warranting rescission but deleted the award of attorney’s fees for lack of factual basis. The CA also found the alleged delivery to Rosario invalid, as he was not a duly authorized representative under the contract, and noted the lifeboats remained in petitioners’ possession in Navotas. Petitioners’ Motion for Reconsideration was denied.

ISSUE

1. Whether a factual review is warranted because the trial judge who penned the Decision was different from the judge who heard the evidence.
2. Whether the case is for rescission and not for damages/breach of contract.
3. Whether failure to attend mediation proceedings warrants dismissal of the case.

RULING

The Supreme Court DENIED the Petition and AFFIRMED the CA Decision and Resolution.
1. On the factual review: The Petition, being under Rule 45, can only raise questions of law. The fact that the trial judge who wrote the Decision was not the one who heard the evidence is not among the recognized exceptions that would warrant a factual review by the Supreme Court. Citing Decasa v. CA, the Court held that a judge can validly render a judgment based on the records and transcripts of the case.
2. On the nature of the action: The Court agreed with the CA that petitioners committed a clear and substantial breach of the contract by installing Isuzu engines instead of the stipulated Gray Marine engines. This breach warranted the rescission of the contract under Article 1191 of the Civil Code. Rescission requires mutual restitution. However, the Court upheld the CA’s finding that there was no valid delivery of the lifeboats to respondent, as the receipt by Angel Rosario was ineffective—he was not the authorized representative specified in the contract. Therefore, petitioners could not demand the return of the lifeboats, which remained in their possession. The Court also rejected petitioners’ claim of implied acceptance based on the alleged christening of the boats, as this was contradicted by the evidence showing the boats were never in respondent’s custody.
3. On mediation: The Court found no merit in petitioners’ claim that respondent’s failure to attend mediation proceedings should have led to the dismissal of the case. The records showed that both parties had exerted efforts to settle amicably during the pretrial. Therefore, the RTC’s decision not to dismiss the complaint was appropriate.
WHEREFORE, the Petition for Review on Certiorari was DENIED. The Decision dated 26 February 2009 and Resolution dated 06 July 2009 of the Court of Appeals were AFFIRMED.