In a contract dispute between poultry farmers and Universal Robina Corporation (URC), the Supreme Court ruled that the farmers were responsible for losses due to stunted chicken growth because they failed to prove that URC’s poultry feeds were defective. The Court emphasized that under their agreement, URC was only liable if the loss was due to their fault. This decision underscores the importance of proving negligence when seeking to be excused from contractual obligations, especially in agricultural agreements.

When Defective Chicken Feed Becomes a Matter of Contractual Obligation

This case, Marianito Padilla and Alfredo Javaluyas v. Universal Robina Corporation, revolves around a disagreement between poultry farmers (Padilla and Javaluyas) and URC concerning the stunted growth of broiler chickens. The farmers claimed that URC supplied them with low-quality feeds, leading to significant losses, while URC insisted that the stunted growth was due to other factors. The central legal question is whether the farmers successfully proved that URC was at fault for the chickens’ condition, thus absolving them from their financial obligations under their contract.

The factual background is essential to understanding the dispute. The farmers and URC had a long-standing business relationship governed by Continuing Credit Accommodation with Real Estate Mortgage (CCAREM) agreements. Under these agreements, URC supplied day-old chicks and poultry feeds to the farmers on credit. The farmers would then raise the chickens, and URC had the option to buy them back at an agreed price. Liquidation occurred after harvest, with the proceeds from the chicken sales offsetting the farmers’ credit purchases. If the purchases exceeded the value of the chickens, the farmers paid the balance; otherwise, they received a payback. Critically, the CCAREM stipulated that the farmers bore the risk of loss unless the damage to the chickens was due to URC’s fault.

Over time, the farmers began experiencing problems with the growth of the chickens. They attributed the stunting to low-quality feeds supplied by URC, alleging that the feeds had high aflatoxin content and that they received class B chicks. URC rejected the stunted chickens, leading to further financial losses for the farmers. When the farmers refused to pay their outstanding obligations, URC initiated foreclosure proceedings on the real estate mortgages they had provided as security under the CCAREMs.

The farmers responded by filing a Complaint for Damages, arguing that URC’s alleged fault in supplying defective feeds extinguished their obligation to pay. The Regional Trial Court (RTC) initially sided with the farmers, declaring the CCAREMs unconscionable and against public policy. The RTC viewed the arrangement as a growing agreement where URC retained ownership of the chicks and should therefore bear the loss. However, the Court of Appeals (CA) reversed this decision, finding that the farmers had not provided sufficient evidence to prove URC’s fault.

The Supreme Court upheld the CA’s decision, emphasizing that the burden of proof lies with the party making the allegations. In this case, the farmers had to prove by a preponderance of evidence that URC was negligent or at fault for the stunted growth of the chickens. The Court cited the case of Nutrimix Feeds Corporation v. Court of Appeals, which established that a manufacturer of animal feeds cannot be held liable for damages unless it is proven that the product was defective. The defect must be demonstrated through solid evidence, including proof that the feeds were not tampered with or altered.

The Supreme Court found that the farmers failed to meet this burden of proof. While they claimed that URC had admitted to supplying defective feeds during a meeting, the Court determined that the testimony supporting this claim was based on hearsay. Specifically, a former URC employee testified that the company’s Satellite Farm Manager had discussed problems with the feeds. However, this testimony was deemed inadmissible to prove the truth of the matter because it relied on the knowledge of someone who was not presented as a witness.

Furthermore, URC presented evidence suggesting that the poultry feeds passed quality control and that the farmers may have added other ingredients to the feeds. This possibility of tampering further undermined the farmers’ claim that the stunted growth was solely attributable to URC’s negligence. The Court also noted the absence of expert testimony from veterinarians or nutritionists to confirm that the feeds were indeed contaminated or otherwise defective.

In light of these evidentiary shortcomings, the Supreme Court concluded that the farmers had not proven URC’s fault by a preponderance of evidence. As a result, they remained liable for their outstanding obligations under the CCAREMs. The Court’s decision reinforces the principle that parties to a contract are bound by its terms unless they can demonstrate a valid legal excuse for non-performance. In this case, the farmers’ failure to prove URC’s negligence meant they could not escape their contractual obligations.

This case highlights the importance of thorough documentation and expert consultation in agricultural contracts. Farmers who suspect that their suppliers are providing defective products should gather concrete evidence, such as laboratory tests and expert opinions, to support their claims. They should also carefully review the terms of their contracts to understand their rights and obligations in the event of a dispute. For businesses like URC, this case emphasizes the need to maintain rigorous quality control standards and to ensure that their contracts clearly allocate risk and responsibility.

FAQs

What was the key issue in this case?	The key issue was whether the poultry farmers provided sufficient evidence to prove that Universal Robina Corporation (URC) was at fault for the stunted growth of their chickens due to defective feeds, thus absolving them of their financial obligations under their contract.
What is a CCAREM?	A CCAREM stands for Continuing Credit Accommodation with Real Estate Mortgage. It’s an agreement where URC extended credit for poultry supplies to farmers, secured by a real estate mortgage on the farmers’ properties.
Who bore the burden of proof in this case?	The poultry farmers bore the burden of proving, by a preponderance of evidence, that URC was negligent or at fault for the stunted growth of the chickens.
What evidence did the farmers present to support their claim?	The farmers presented testimony from a former URC employee who claimed that the company had admitted to supplying defective feeds during a meeting, along with notices of auction sale and condemnation reports.
Why did the Supreme Court reject the farmers’ claim?	The Supreme Court rejected the farmers’ claim because the testimony supporting the alleged admission of defective feeds was based on hearsay, and the farmers failed to provide expert evidence or disprove URC’s quality control measures.
What is the significance of the Nutrimix Feeds Corporation case?	The Nutrimix Feeds Corporation case established that a manufacturer of animal feeds cannot be held liable for damages unless it is proven that the product was defective and that the product was not tampered.
What was the Supreme Court’s ruling in this case?	The Supreme Court ruled in favor of Universal Robina Corporation, holding that the poultry farmers were liable for their outstanding obligations under the CCAREMs because they failed to prove URC’s fault.
What is preponderance of evidence?	Preponderance of evidence means that the evidence presented by one party is more credible and convincing than the evidence presented by the other party, leading the court to believe that it is more likely than not that the facts are as asserted by that party.
What are the practical implications of this ruling for farmers?	Farmers must maintain thorough documentation and seek expert consultation to support claims of defective products from suppliers, and carefully review contract terms to understand their rights and obligations.

Ultimately, the Supreme Court’s decision serves as a reminder of the importance of strong evidence in contractual disputes. Parties seeking to be excused from their obligations must provide convincing proof of the other party’s fault or negligence. This case also highlights the need for clear and unambiguous contract terms that allocate risk and responsibility in agricultural agreements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: MARIANITO PADILLA AND ALFREDO JAVALUYAS v. UNIVERSAL ROBINA CORPORATION, G.R. No. 214805, December 14, 2017