ARRIETA V NATIONAL RICE AND CORN CORP

REGALA; January 31, 1964

NATURE
Appeal of the defendant-appellant NARIC from the
decision of the trial court dated February 20, 1958,
awarding to the plaintiffs-appellees the amount of
$286,000.00 as damages for breach of contract and
dismissing the counterclaim and third party
complaint of the defendant-appellant NARIC.
FACTS
- On May 19, 1952, plaintiff-appellee participated
and won in the public bidding called by the NARIC
for the supply of 20,000 metric tons of Burmese
rice. Accordingly, on July 1, 1952, plaintiff-appellee
Paz P. Arrieta and the appellant corporation
entered into a Contract of Sale of Rice, under the
terms of which the former obligated herself to
deliver to the latter 20,000 metric tons of Burmese
Rice at $203.00 per metric ton, CIF Manila. In turn,
the defendant Corporation committed itself to pay
for the imported rice "by means of an irrevocable,
confirmed and assignable letter of credit in U.S.
currency in favor of the plaintiff-appellee and/or
supplier in Burma, immediately."
- Despite the commitment to pay immediately "by
means of an irrevocable, confirmed and assignable
Letter of Credit," however, it was only on July 30,
1952, or a full month from the execution of the
contract, that the defendant corporation, thru its
general manager, took the first step to open a
letter of credit by forwarding to the Philippine
National Bank its Application for Commercial Letter
of Credit. On the same day, July 30, 1952, Mrs. Paz
P. Arrieta, thru counsel, advised the appellant
corporation of the extreme necessity for the
immediate opening of the letter of credit since she
had by then made a tender to her supplier in
Rangoon, Burma "equivalent to 5% of the F.O.B.
price of 20,000 tons at $180.70 and in compliance
with the regulations in Rangoon this 5% will be
confiscated if the required letter of credit is not
received by them before August 4, 1952."
- It turned out however, the appellant corporation
was not in any financial position to meet the
condition, which it candidly admitted in a
communication with PNB. Consequently, the credit
instrument applied for was opened only on
September 8, 1952 "in favor of Thiri Setkya,
Rangoon, Burma, and/or assignee for
$3,614,000.00," (which is more than two months
from the execution of the contract) the party
named by the appellee as beneficiary of the letter
of credit. As a result of the delay, the allocation of
appellee's supplier in Rangoon was cancelled and
the 5% deposit, amounting to 524,000 kyats or
approximately P200,000.00 was forfeited. In this
connection, it must be made of record that
although the Burmese authorities had set August 4,
1952 as the deadline for the remittance of the
required letter of credit, the cancellation of the
allocation and the confiscation of the 5% deposit
were not effected until August 20. 1952, or, a full
half month after the expiration of the deadline.
And yet, even with that 15-day grace, appellant
corporation was unable to make good its
commitment to open the disputed letter of credit.
- The appellee endeavored, but failed, to restore
the cancelled Burmese rice allocation. When the
futility of reinstating the same became apparent,
she offered to substitute Thailand rice instead to
the defendant NARIC, communicating at the same
time that the offer was "a solution which should be
beneficial to the NARIC and to us at the same
time." This offer for substitution, however, was
rejected by the appellant in a resolution dated
November 15, 1952. Appellee sent a letter to the
appellant, demanding compensation for the
damages caused her in the sum of $286,000.00,
U.S. currency, representing unrealized profit. The
demand having been rejected, she instituted this
case now on appeal.
ISSUE
WON the lower court erred in holding NARIC liable
for damages for breach of contract
HELD
- YES. We do not think the appellant corporation
can refute the fact that had it been able to put up
the 50 c/o marginal cash deposit demanded by the
bank, then the letter of credit would have been
approved, opened and released as early as August
4, 1952. The letter of the Philippine National Bank
to the NARIC was plain and explicit that as of the
said date, appellant's it "application for a letter of
credit . . . has been approved by the Board of
Directors with the condition that 50% marginal
cash deposit be paid and that drafts are to be paid
upon presentment." The liability of the appellant,
however, stems not alone from this failure or
inability to satisfy the requirements of the bank. Its
culpability arises from its willful and deliberate
assumption of contractual obligations even as it
was well aware of its financial incapacity to
undertake the presentation.
- A number of logical inferences may be drawn
from NARICs admission. First, that the appellant
knew the bank requirements for opening letters of
credit; second, that appellant also knew it could
not meet those requirements. When, therefore,
despite this awareness that it was financially
incompetent to open a letter of credit immediately,
appellant agreed in paragraph 8 of the contract to
pay immediately "by means of an irrevocable,
confirmed and assignable letter of credit," it must
be similarly be held to have bound itself too
answer for all and every consequences that would
result from the representation.
- In relation to the aforequoted observation of the
trial court, We would like to make reference also to
Article 1170 of the Civil Code which provides:
"Those who in the performance of their obligation
are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof,
are liable in damages.
- Under this provision, not only debtors guilty of
fraud, negligence or default in the performance of
obligations are decreed liable: in general, every
debtor who fails in the performance of his
obligations is bound to indemnify for the losses and
damages caused thereby. The phrase "in any
manner contravene the tenor" of the obligation
includes any illicit act which impairs the strict and
faithful fulfillment of the obligation, or every kind
of defective performance. (IV Tolentino, Civil Code
of the Philippines, citing authorities, p. 103.)
- The NARIC would also have this Court hold that
the subsequent offer to substitute Thailand rice for
the originally contracted Burmese rice amounted
to a waiver by the appellee of whatever rights she
might have derived from the breach of the
contract. We disagree. Waivers are not presumed,
but must be clearly and convincingly shown, either
by express stipulation or acts admitting no other
reasonable explanation. (Ramirez vs. Court of
Appeals, 98 Phil., 225; 52 Off. Gaz. 779). In the case
at bar, no such intent to waive has been
established.
- In the premises, however, a minor modification
must be effected in the disposition portion of the
decision appealed from insofar as it expresses the
amount of damages in U.S. currency and not in
Philippine Peso. Republic Act 529 specifically
requires the discharge of obligations only "in any
coin or currency which at the time of payment is
legal tender for public and private debts." In view
of that law, therefore, the award should be
converted into and expressed in Philippine Peso.
Disposition UPON ALL THE FOREGOING, the
decision appealed from is hereby affirmed, with
the sole modification that the award should be
converted into the Philippine peso at the rate of
exchange prevailing at the time the obligation was
incurred or on July 1, 1952 when the contract was
executed. The appellee insurance company, in the
light of this judgment, is relieved of any liability
under this suit.
No pronouncement as to costs.