CASE DIGEST: FUCC vs. Bayanihan Auto (G.R. No. 164985; January 15, 2014)

CASE DIGEST: FIRST UNITED CONSTRUCTORS CORPORATION AND BLUE STAR CONSTRUCTION CORPORATION, Petitioners, v. BAYANIHAN AUTOMOTIVE CORPORATION, Respondent. G.R. No. 164985; January 15, 2014.

FACTS: Petitioner First United Constructors Corporation (FUCC) and petitioner Blue Star Construction Corporation (Blue Star) were associate construction firms sharing financial resources, equipment and technical personnel on a case-to-case basis. From May 27, 1992 to July 8, 1992, they ordered six units of dump trucks from the respondent, a domestic corporation engaged in the business of importing and reconditioning used Japan-made trucks, and of selling the trucks to interested buyers who were mostly engaged in the construction business.

On September 19, 1992, FUCC ordered from the respondent one unit of Hino Prime Mover that the respondent delivered on the same date. On September 29, 1992, FUCC again ordered from the respondent one unit of Isuzu Transit Mixer that was also delivered to the petitioners. For the two purchases, FUCC partially paid in cash, and the balance through post-dated checks.

Upon presentment of the checks for payment, the respondent learned that FUCC had ordered the payment stopped.The respondent immediately demanded the full settlement of their obligation from the petitioners, but to no avail. Instead, the petitioners informed the respondent that they were withholding payment of the checks due to the breakdown of one of the dump trucks they had earlier purchased from respondent, specifically the second dump truck delivered on May 27, 1992.

Due to the refusal to pay, the respondent commenced this action for collection on April 29, 1993, seeking payment of the unpaid balance in the amount of P735,000.00 represented by the two checks.

RTC finds the petitioner liable. CA affirmed the judgment of the RTC.
ISSUE: Did the petitioners validly exercise the right of recoupment through the withholding of payment of the unpaid balance of the purchase price of the two purchases?

HELD: The Supreme Court affirms the decision of the CA.


Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election: (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price; (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid. When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of article 1191.

Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon which one is sued by means of a legal or equitable right resulting from a counterclaim arising out of the same transaction.7It is the setting up of a demand arising from the same transaction as the plaintiff claim, to abate or reduce that claim. DENIED.
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