Who Bears the Loss? Examining Fault in Poultry Growing Contracts

When a poultry grower's chickens die or fail to thrive, who absorbs the financial loss? A 2017 Supreme Court decision provides important guidance for agricultural contract growers and suppliers. In Padilla v. Universal Robina Corporation (G.R. No. 214805, December 14, 2017), the Court ruled that growers must prove the supplier's fault to escape payment obligations under a continuing credit agreement.

The Business Arrangement

Universal Robina Corporation (URC) supplied day-old chicks and poultry feeds on credit to poultry farmers, including petitioners Marianito Padilla and Alfredo Javaluyas. The farmers provided labor, housing, electricity, and water to raise the chicks for about 50 days. URC had the option to buy back full-grown chickens meeting target weight at an agreed price per kilo. Settlement occurred within 15 days after harvest, offsetting the value of chickens against credit purchases.

The parties executed documents called "Continuing Credit Accommodation with Real Estate Mortgage" (CCAREM). These agreements contained a crucial risk-of-loss clause: if purchased items were lost, damaged, or destroyed without the supplier's fault—including death of chicks from sickness, disease, theft, typhoon, or flood—the grower bore the risk and remained obligated to pay.

The Dispute

In 1993, the farmers reported stunted growth and high mortality among their chickens. They claimed URC supplied low-quality feeds with high aflatoxin content and inferior "class B" chicks. URC rejected the stunted chickens that failed to meet target weight, and the farmers incurred unpaid obligations. When URC moved to foreclose on the mortgaged properties, the farmers sued for damages.

The trial court ruled for the farmers, declaring the CCAREMs unconscionable contracts of adhesion. It reasoned that URC retained ownership of the chicks, making it a growing agreement rather than a sale. Since neither party proved fault, each should bear their own losses.

The Court of Appeals reversed, holding that the farmers failed to prove URC's fault. The appellate court ordered the farmers to pay their outstanding obligations plus interest and attorney's fees.

The Supreme Court's Ruling

The Supreme Court affirmed the Court of Appeals, denying the farmers' petition. The Court emphasized that the CCAREMs governed the parties' rights, and the farmers did not challenge their validity.

Under paragraph 5 of the CCAREM, URC was accountable only if the loss or damage resulted from its fault. The farmers bore the burden of proving this by preponderance of evidence—a standard they failed to meet.

Evidence Matters

The farmers relied heavily on testimony from Eduardo Del Pilar, a former URC employee. Del Pilar claimed that during a company meeting, URC's Satellite Farm Manager discussed problems with the feeds and ordered condemnation of stunted chickens.

The Court found this testimony insufficient. Del Pilar's account was hearsay because it was not based on his personal knowledge but on what the Satellite Farm Manager told him. The alleged admission could establish only that the utterance occurred, not its truth. Moreover, the farmers presented no veterinarians or nutritionists to confirm that URC's feeds were contaminated.

The Court cited Nutrimix Feeds Corporation v. Court of Appeals (484 Phil. 330, 2004), which held that a feed manufacturer cannot be held liable for product damage absent proof the product was defective. Evidence of tampering or mixing feeds with other ingredients could defeat an implied warranty claim. URC's witness testified that farmers sometimes added ingredients to the feeds, and URC maintained its feeds passed quality control.

Practical Takeaways

• Contracts govern risk allocation. When a written agreement clearly assigns risk of loss to the grower, courts will enforce it unless the grower proves the supplier's fault.
• Burden of proof is on the grower. Allegations of defective feeds or chicks require credible evidence—expert testimony, laboratory results, or documentary proof—not just self-serving claims.
• Hearsay cannot establish fault. A witness repeating what another person said about defective products is inadmissible to prove the truth of that claim.
• Implied warranties require proof of defect. A feed supplier's implied warranty of fitness does not create automatic liability; the grower must show the product was actually defective and caused the loss.
• Contracts of adhesion are not automatically void. Courts will respect terms that are clear and voluntarily signed, even if one party drafted them.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.