23
23. Engineering and Machinery Corp. v. CA
[G.R. No. 52267. January 24, 1996.]
DOCTRINE
FACTS
Pursuant to the contract between the Engineering and
Machinery Corporation (the Corporation) and Almeda, the
former undertook to fabricate, furnish and install the air-
conditioning system in the latter’s building in consideration of
P12,000.00. The Corporation was to furnish the materials,
labor, tools and all services required in order to so fabricate
and install said system. The system was completed and
accepted by Almeda, who paid in full the contract price.
Almeda 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, Almeda was
able to secure judicial rescission thereof.
The ownership of the building having been decreed back to
Almeda, he re-acquired possession. 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, Almeda commissioned Engineer David R. Sapico
to render a technical evaluation of the system in relation to
the contract with the Corporation. 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.”
Almeda filed an action for damages against the Corporation
with the then CFI Rizal. The complaint alleged that the air-
conditioning system installed by the Corporation did not
comply with the agreed plans and specifications, hence,
Almeda prayed for rectification cost, damages and attorney’s
fees.
The Corporation moved to dismissed the case, alleging
prescription, but which was denied by the Court.
The trial court rendered a decision, which ordered the
Corporation to pay Almeda the amount needed to rectify the
faults and deficiencies of the air-conditioning system installed
by the Corporation in Almeda’s building, plus damages,
attorney’s fees and costs).
Petitioner appealed to the Court of Appeals, which affirmed
the decision of the trial court. Hence, it instituted a petition
for review on certiorari.
ISSUE
WON the contract is a contract of sale or for a piece of work.
RULING
Contract in question is one for a piece of work.
RATIO
Page 1 of 2
It is not the Corporation’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.
Contract for a piece of work distinguished from a contract of
sale
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 it. 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 sale.
“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. 8411).
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 work.
Obligations of a contractor for a piece of work
The obligations of a contractor for a piece of work are set
forth in Articles 1714 and 1715 of the Civil Code.
Remedy against violation of the warranty against hidden
defects
The provisions on warranty against hidden defects, referred
to in Article 1714, are found in Articles 1561 and 1566.
The remedy against violations of the warranty against hidden
defects is either to withdraw from the contract (rehibitory
action) or to demand a proportionate reduction of the price
(accion quanti minoris), with damages in either case.
Prescriptive period as specified in express warranty, or in
the absence of which, 4 years; Prescriptive period of 6
months for rehibitory action is applicable only in implied
warranties
While it is true that Article 1571 of the Civil Code provides for
a prescriptive period of six months for a rehibitory action, a
 23
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, 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.
Original complaint is one for arising from breach of a written
contact and not a suit to enforce warranty against hidden
defects; Article 1715 in relation to Article 1144 apply,
prescription in 10 years; Action not prescribed
The lower courts opined and so held 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. Thus, 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, the governing law
therefore is Article 1715. 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 10 years. Since the governing
contract was executed on 10 September 1962 and the
complaint was filed on 8 May 1971, it is clear that the action
has not prescribed.
Acceptance of the work by the employer does not relieve
the contractor of liability for any defect in the work
The mere fact that Almeda accepted the work does not, ipso
facto, relieve the Corporation from liability for deviations
from and violations of the written contract, as the law gives
him 10 years within which to file an action based on breach
thereof. As held by the Court of Appeals, “as the breach of
contract consisted in appellant’s omission to install the
equipment [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 Almeda 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.”

Page 2 of 2