Encarnacion Construction & Industrial Corporation vs. Phoenix Ready Mix Concrete Development & Construction, Inc.

A contract of adhesion is not void per se and is binding as an ordinary contract, absent proof that the weaker party was imposed upon, deprived of the opportunity to bargain on equal footing, or otherwise disadvantaged by the dominant bargaining party. Where the agreement expressly requires that quality claims be made at the time of delivery, failure to do so constitutes a waiver of such claims, precluding the party from later refusing payment on grounds of substandard quality.

Encarnacion Construction & Industrial Corporation (ECIC) is a construction company that undertook the construction of the Valenzuela National High School (VNHS) Marulas Building. Phoenix Ready Mix Concrete Development and Construction, Inc. (Phoenix) is a supplier of ready-mix concrete. The two entities had an ongoing commercial relationship, having entered into multiple agreements for the supply of ready-mix concrete under the same terms and conditions prior to the two agreements at issue in this case.

On January 27 and March 25, 2009, Phoenix and ECIC entered into two separate Contract Proposals and Agreements for the delivery of various quantities of ready-mix concrete, with agreed strengths of 3000 and 3500 psi G-3/4 7D PCD, in connection with the construction of the VNHS Marulas Building. The agreements contained terms and conditions on their reverse side, including Paragraph 15, which provided that any claim on the quality, strength, or quantity of the transit mixed concrete delivered must be made at the time of delivery, and that failure to make such a claim constitutes a waiver on the part of the second party. The first page of the agreement, signed by ECIC's owner and proprietor Ramon Encarnacion, expressly stated that the terms and conditions stipulated on the reverse side form part of the contract and are equally binding. Prior to these two agreements, the parties had already entered into three similar agreements under the same terms and conditions.

ECIC received the ready-mix concrete deliveries in due course, the last delivery being on April 29, 2009. ECIC used the delivered concrete to complete the third floor slab of the VNHS building. Thereafter, the City Engineer's Office of Valenzuela inspected the site and, after tests conducted by the Philippine Geoanalytics Testing Center showed that samples taken from the third floor slab failed to reach the required comprehensive strength of 6,015 psi in 100 days, ordered the dismantling and reconstruction of the third floor. The City Engineer's Office sent letters to ECIC dated May 20 and May 29, 2009 informing it of the appearance of hairline cracks on the third floor.

Despite written demands from Phoenix, ECIC refused to pay for the delivered concrete. ECIC raised the alleged defects only on June 16, 2009—or 48 days after the last delivery date—and only after it had already been notified by the City Engineer's Office. ECIC claimed it incurred additional expenses amounting to ₱3,858,587.84 for the dismantling and reconstruction. Phoenix, for its part, offered the explanation that the hairline cracks resulted from ECIC's failure to observe the proper procedure for applying and curing the delivered concrete, causing what Phoenix's witness described as "plastic (cement) shrinkage caused by the rapid evaporation of the water component and other factors." Phoenix then filed a complaint for sum of money against ECIC for the payment of ₱982,240.35, plus interest and attorney's fees. ECIC filed an answer with counterclaim for damages, contending that the delivered concrete was substandard and that the agreement was a void contract of adhesion.

• Contract of Adhesion: ECIC maintained that Paragraph 15 of the Agreement is void for being a contract of adhesion, one party having imposed a ready-made form on the other with no opportunity to bargain.
• Substandard Concrete: ECIC argued that the ready-mix concrete Phoenix delivered for the third floor slab of the VNHS building was substandard, as tests showed the hardened concrete failed to reach the required comprehensive strength, causing it to incur additional expenses of ₱3,858,587.84 for dismantling and reconstruction.
• Docket Fees on Counterclaim: ECIC contended that it paid the necessary docket fees for its counterclaim well within a reasonable time from its filing on June 18, 2010, and thus the RTC should not have automatically dismissed the counterclaim.
• Waiver of Right to Question Quality: ECIC argued that it did not waive its right to question the strength of the delivered concrete, as various tests confirmed the concrete was substandard.

• Validity of Contract of Adhesion: Whether Paragraph 15 of the Agreement is void for being a contract of adhesion.
• Waiver of Quality Claims: Whether ECIC waived its right to question the quality of the delivered concrete by failing to make a claim at the time of delivery as required by Paragraph 15.
• Counterclaim for Damages: Whether the CA erred in denying ECIC's counterclaim for damages.

• Validity of Contract of Adhesion: No. Contracts of adhesion are not invalid per se and are binding as ordinary contracts; ECIC failed to show it was disadvantaged or deprived of the opportunity to bargain on equal footing.
• Waiver of Quality Claims: Yes. ECIC's failure to make any claim on the quality or strength of the delivered concrete at the time of delivery, as required by Paragraph 15, constitutes a waiver thereof.
• Counterclaim for Damages: No. ECIC failed to convincingly prove its counterclaim, having neither raised the alleged defect within the stipulated period nor established that the hairline cracks were caused by the concrete's inferior quality rather than its own improper curing procedures.

• Validity of Contract of Adhesion: A contract of adhesion is one wherein one party imposes a ready-made form on the other, whose participation is limited to affixing a signature. Such contracts are not void per se; they are binding as ordinary contracts. The Court has struck down contracts of adhesion only when the weaker party was imposed upon by the dominant bargaining party and reduced to a "take it or leave it" alternative, completely deprived of the opportunity to bargain on equal footing. Here, there was no proof that ECIC was disadvantaged or inexperienced in dealing with Phoenix, nor that Encarnacion was uneducated, under duress, or forced when he signed. The natural presumption that one does not sign a document without first informing himself of its contents and consequences was not rebutted. Moreover, the parties had previously entered into three similar agreements under the same terms, giving Encarnacion ample opportunity to read, review, and reject or modify the stipulations. The terms were plain, clear, and unambiguous. The absence of Encarnacion's signature on the second page did not render the terms inoperative, because the first page— which bore his signature—expressly provided that the terms on the reverse side form part of the contract and are equally binding.

• Waiver of Quality Claims: Paragraph 15 expressly required that any claim on the quality, strength, or quantity of the delivered concrete be made at the time of delivery, and that failure to do so constitutes a waiver. ECIC failed to make any claim at the stipulated time, raising the alleged defects only 48 days after the last delivery date and only after being notified by the City Engineer's Office. The lack of justifiable explanation for this delay reinforced the conclusion that ECIC had waived its right to claim defects. By signing the first page of the Agreement and thereby accepting Phoenix's proposed contract, ECIC signified its conformity to the entirety of the stipulated terms, including those on the reverse side.

• Counterclaim for Damages: The other issues ECIC raised were essentially factual in nature and thus not proper for a petition for review on certiorari under Rule 45, which requires that only questions of law be raised. ECIC failed to demonstrate that any recognized exception to the factual-bar rule applied. In any event, the evidence did not support ECIC's claim that the hairline cracks resulted from the substandard quality of the delivered concrete. While tests showed the hardened concrete failed to reach the required comprehensive strength, ECIC failed to account for the intervening period between the pouring of the concrete and the appearance of the cracks. As the claiming party, it was incumbent upon ECIC to prove causation. Phoenix offered a more plausible explanation—that ECIC failed to observe proper application and curing procedures, resulting in plastic shrinkage caused by rapid evaporation of the water component. All told, ECIC failed to convincingly prove its counterclaim.

• Contracts of Adhesion — A contract of adhesion is one wherein one party imposes a ready-made form of contract on the other, whose participation is limited to affixing a signature. Such contracts are not invalid per se and are binding as ordinary contracts. They may be struck down as void only when the weaker party has been imposed upon by the dominant bargaining party, reduced to a "take it or leave it" alternative, and completely deprived of the opportunity to bargain on equal footing. The validity or enforceability of the impugned contract must be determined by the peculiar circumstances of each case and the situation of the parties. In this case, the Court found no disadvantage or inequality, given ECIC's prior dealings with Phoenix under identical terms and the absence of any indication that Encarnacion was coerced or inexperienced.

• Presumption of Knowledge of Contract Contents — The natural presumption is that one does not sign a document without first informing himself of its contents and consequences. This presumption was not rebutted by ECIC, whose owner signed the Agreement with full knowledge of its import, particularly given the parties' prior transactions under the same terms.

• Factual-Bar Rule in Rule 45 Petitions — Under Rule 45 of the Rules of Court, only questions of law may be raised in a petition for review on certiorari. Factual questions are not proper subjects of such appeal, as it is not the Court's function to re-analyze and calibrate evidence already considered by the lower courts. Recognized exceptions exist (e.g., findings based on speculation, grave abuse of discretion, conflicting findings), but the party seeking review must demonstrate that a factual review is justified. ECIC failed to do so.

• "Contracts of adhesion are not invalid per se as they are binding as ordinary contracts." — This passage states the controlling rule on contracts of adhesion, affirming their general enforceability absent a showing of disadvantage or inequality of bargaining position.

• "While the Court has occasionally struck down contracts of adhesion as void, it did so when the weaker party has been imposed upon in dealing with the dominant bargaining party and reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing." — This defines the exception under which a contract of adhesion may be invalidated, setting the threshold for proving inequality of bargaining position.

• "The natural presumption is that one does not sign a document without first informing himself of its contents and consequences." — This articulates the presumption of knowledge that binds a party who signs a contract, which ECIC failed to rebut.

• Equitable PCI Bank vs. Ng Sheung Ngor, 565 Phil. 520 (2007) — Cited for the definition of a contract of adhesion and the rule that such contracts are not invalid per se.
• Cabanting vs. BPI Family Savings Bank, Inc., G.R. No. 201927, Feb. 17, 2016 — Followed for the principle that contracts of adhesion are binding and may be struck down only when the weaker party is imposed upon; also cited for the presumption that one does not sign a document without informing himself of its contents.
• Spouses Poltan vs. BPI Family Savings Bank, Inc., 546 Phil. 257 (2007) — Followed for the same principles on contracts of adhesion and the presumption of knowledge of contract contents.
• Spouses Miano vs. Manila Electric Company (MERALCO), G.R. No. 205035, Nov. 16, 2016 — Cited for the rule that only questions of law may be raised in a Rule 45 petition and that factual questions are not proper subjects of certiorari.
• Prudential Bank (now Bank of the Philippine Islands) vs. Rapanot, G.R. No. 191636, Jan. 16, 2017 — Cited for the recognized exceptions to the factual-bar rule in Rule 45 petitions.

• Rule 45, Rules of Court — Governs petitions for review on certiorari before the Supreme Court, limiting review to questions of law. Applied to bar ECIC's factual challenges, as it failed to demonstrate that any recognized exception justified a factual review.
• Paragraph 15, Contract Proposals and Agreements — The contractual stipulation requiring that any claim on the quality, strength, or quantity of delivered concrete be made at the time of delivery, with failure constituting a waiver. Applied to find that ECIC waived its right to question the concrete's quality by raising defects only 48 days after the last delivery.

Carpio, Acting C.J. (Chairperson), Peralta, Caguioa, and Reyes, Jr., JJ., concurred.