G.R. No. 103437 November 25, 1994
Iligan Cement Corporation, petitioner, vs. The Court of Appeals, Hon. Zosimo Z. Angeles, Presiding Judge, Regional Trial Court, Branch 58, Manila and Beta Electric Corporation, respondents.

FACTS

Petitioner Iligan Cement Corporation (ICC) undertook a plant rehabilitation program. For Phase I, it decided to install power factor correction equipment. Based on a study by its safety engineer and consultant, Engr. Fernando Munasque, ICC provided general specifications to prospective suppliers. After evaluation, ICC accepted the quotation of respondent Beta Electric Corporation (Beta) for a three-step power factor correction equipment, including its proposal for installation, commissioning, and testing. Purchase orders were issued accordingly. Beta submitted proposed construction and wiring diagrams for ICC’s approval. The equipment was delivered, installed, and, on November 2, 1985, switched on in the presence and with the approval of ICC’s engineering staff. A chattering sound was heard, and a fire ensued, causing extensive damage to other equipment, although the capacitor itself remained intact. A Technical Committee, formed by both parties and chaired by Engr. Alejandro Jimenez, found that the fire was “caused by arcing faults and restrikes arising from overvoltage produced by switching the 600 KVAR capacitors into the 4160-volt system which is susceptible to arcing faults and whose equipment are not well protected against overvoltage.” The committee also noted the fire could have been avoided “had a technical audit been made before the capacitors were considered.” ICC filed a complaint for damages against Beta, alleging that Beta’s duty included making a prior technical audit. Beta contended it performed all contractual obligations, as the design and specifications were exclusively made by ICC’s own experts, ICC approved the drawings, and the energization was cleared with ICC.

ISSUE

Whether Beta Electric Corporation is liable for damages arising from the fire that occurred after switching on the power factor correction equipment.

RULING

No, Beta Electric Corporation is not liable. The contract between the parties is governed by the Civil Code provisions on contracts for a piece of work. Under Article 1713, a contractor is responsible for damages caused by defects in the work, use of inferior materials, or violation of contract terms. Petitioner ICC failed to present evidence of any defect in the capacitor, use of inferior materials, or violation of contract terms by Beta. The Court of Appeals affirmed that Beta did not breach its contractual obligation. The capacitor was undamaged after the fire, indicating it was built according to ICC’s design. The Technical Committee’s findings attributed the fire to overvoltage caused by the weak and inadequate electrical system of ICC’s cement plant, including a lack of protective relays, which its circuit breakers failed to isolate. The installation and wiring plans were done under ICC’s supervision and with its approval. ICC had its own engineering staff and consultants who designed the equipment specifications based on their study of the plant’s electrical system. The duty to conduct a periodic technical audit was ICC’s responsibility, and such an audit was not part of Beta’s contract for supply, installation, commissioning, and testing. The courts did not substitute their judgment for the Technical Committee’s findings but used those findings to determine legal responsibility. The petition was denied, and the decision of the Court of Appeals was affirmed.