lawphil

Touay is Satuiuay, Febiuaiy u2, 2u1S

Republic of the Philippines
S0PRENE C00RT
Nanila

EN BANC

u.R. No. L-1S64S }anuaiy S1, 1964

PAZ P. ARRIETA anu vITALIAB0 ARRIETA, plaintiffs-appellees,
vs.
NATI0NAL RICE ANB C0RN C0RP0RATI0N, uefenuant-appellant,
NANILA 0NBERWRITERS INS0RANCE C0., INC., uefenuant-appellee.

Teehankee anu Caiieon foi plaintiffs-appellees.
The uoveinment Coipoiate Counsel foi uefenuant-appellant.
Isiuio A. veia foi uefenuant-appellee.

REuALA, }.:

This is an appeal of the uefenuant-appellant NARIC fiom the uecision of the tiial
couit uateu Febiuaiy 2u, 19S8, awaiuing to the plaintiffs-appellees the amount of
$286,uuu.uu as uamages foi bieach of contiact anu uismissing the counteiclaim anu
thiiu paity complaint of the uefenuant-appellant NARIC.

In accoiuance with Section 1S of Republic Act No. S4S2, "the National Rice anu Coin
Auministiation (NARIC) is heieby abolisheu anu all its assets, liabilities, functions,
poweis which aie not inconsistent with the piovisions of this Act, anu all peisonnel
aie tiansfeiieu "to the Rice anu Coin Auministiation (RCA).

All iefeiences, theiefoie, to the NARIC in this uecision must accoiuingly be aujusteu
anu ieau as RCA puisuant to the afoiementioneu law.

0n Nay 19, 19S2, plaintiff-appellee paiticipateu in the public biuuing calleu by the
NARIC foi the supply of 2u,uuu metiic tons of Buimese iice. As hei biu of $2uS.uu
pei metiic ton was the lowest, she was awaiueu the contiact foi the same.
Accoiuingly, on }uly 1, 19S2, plaintiff-appellee Paz P. Aiiieta anu the appellant
coipoiation enteieu into a Contiact of Sale of Rice, unuei the teims of which the
foimei obligateu heiself to uelivei to the lattei 2u,uuu metiic tons of Buimess Rice
at $2uS.uu pei metiic ton, CIF Nanila. In tuin, the uefenuant coipoiation committeu
itself to pay foi the impoiteu iice "by means of an iiievocable, confiimeu anu
assignable lettei of cieuit in 0.S. cuiiency in favoi of the plaintiff-appellee anuoi
suppliei in Buima, immeuiately." Bespite the commitment to pay immeuiately "by
means of an iiievocable, confiimeu anu assignable Lettei of Cieuit," howevei, it was
only on }uly Su, 19S2, oi a full month fiom the execution of the contiact, that the
uefenuant coipoiation, thiu its geneial managei, took the fiist to open a lettei of
cieuit by foiwaiuing to the Philippine National Bank its Application foi Commeicial
Lettei Cieuit. The application was accompanieu by a tiansmittal lettei, the ielevant
paiagiaphs of which ieau:

In view of the fact that we uo not have sufficient ueposit with youi institution with
which to covei the amount iequiieu to be uepositeu as a conuition foi the opening
of letteis of cieuit, we will appieciate it if this application coulu be consiueieu
special case.

We unueistanu that oui suppliei, Nis. Paz P. Aiiieta, has a ueauline to meet which is
August 4, 19S2, anu in oiuei to comply theiewith, it is impeiative that the LC be
openeu piioi to that uate. We woulu theiefoie iequest youi full coopeiation on this
mattei.

0n the same uay, }uly Su, 19S2, Nis. Paz P. Aiiieta thiu counsel, auviseu the
appellant coipoiation of the extieme necessity foi the immeuiate opening of the
lettei cieuit since she hau by then maue a tenuei to hei suppliei in Rangoon, Buima,
"equivalent to S% of the F.0.B. piice of 2u,uuu tons at $18u.7u anu in compliance
with the iegulations in Rangoon this S% will be confiscateu if the iequiieu lettei of
cieuit is not ieceiveu by them befoie August 4, 19S2."

0n August 4, 19S2, the Philippine National Bank infoimeu the appellant coipoiation
that its application, "foi a lettei of cieuit foi $S,614,uuu.uu in favoi of Thiii Setkya
has been appioveu by the Boaiu of Biiectois with the conuition that maiginal cash
ueposit be paiu anu that uiafts aie to be paiu upon piesentment." (Exh. }-pl.; Exh.
1u-uef., p. 19, Foluei of Exhibits). Fuitheimoie, the Bank iepiesenteu that it "will
holu youi application in abeyance penuing compliance with the above stateu
iequiiement."

As it tuineu out, howevei, the appellant coipoiation not in any financial position to
meet the conuition. As mattei of fact, in a lettei uateu August 2, 19S2, the NARIC
bluntly confesseu to the appellee its uilemma: "In this connection, please be auviseu
that oui application foi opening of the lettei of cieuit has been piesenteu to the
bank since }uly Suth but the lattei iequiies that we fiist ueposit Su% of the value of
the lettei amounting to apioximately $S,614,uuu.uu which we aie not in a position
to meet." (Emphasis supplieu. Exh. 9-Bef.; Exh. 1-Pe., p. 18, Foluei of Exhibits)

Consequently, the cieuit instiument applieu foi was openeu only on Septembei 8,
19S2 "in favoi of Thiii Setkya, Rangoon, Buima, anuoi assignee foi $S,614,uuu.uu,"
(which is moie than two months fiom the execution of the contiact) the paity
nameu by the appellee as beneficiaiy of the lettei of cieuit.1wph1.t

As a iesult of the uelay, the allocation of appellee's suppliei in Rangoon was
cancelleu anu the S% ueposit, amounting to S24,uuu kyats oi appioximately
P2uu,uuu.uu was foifeiteu. In this connection, it must be maue of iecoiu that
although the Buimese authoiities hau set August 4, 19S2, as the ueauline foi the
iemittance of the iequiieu lettei of cieuit, the cancellation of the allocation anu the
confiscation of the S% ueposit weie not effecteu until August 2u, 19S2, oi, a full half
month aftei the expiiation of the ueauline. Anu yet, even with the 1S-uay giace,
appellant coipoiation was unable to make goou its commitment to open the
uisputeu lettei of cieuit.

The appellee enueavoieu, but faileu, to iestoie the cancelleu Buimese iice
allocation. When the futility of ieinstating the same became appaient, she offeieu to
substitute Thailanu iice insteau to the uefenuant NARIC, communicating at the same
time that the offei was "a solution which shoulu be beneficial to the NARIC anu to us
at the same time." (Exh. X-Pe., Exh. 2SBef., p. S8, Foluei of Exhibits). This offei foi
substitution, howevei, was iejecteu by the appellant in a iesolution uateu Novembei
1S, 19S2.

0n the foiegoing, the appellee sent a lettei to the appellant, uemanuing
compensation foi the uamages causeu hei in the sum of $286,uuu.uu, 0.S. cuiiency,
iepiesenting uniealizeu piofit. The uemanu having been iejecteu she instituteu this
case now on appeal.

At the instance of the NARIC, a counteiclaim was fileu anu the Nanila 0nueiwiiteis
Insuiance Company was biought to the suit as a thiiu paity uefenuant to holu it
liable on the peifoimance bonu it executeu in favoi of the plaintiff-appellee.

We finu foi the appellee.

It is cleai upon the iecoius that the sole anu piincipal ieason foi the cancellation of
the allocation contiacteu by the appellee heiein in Rangoon, Buima, was the failuie
of the lettei of cieuit to be openeu with the contemplateu peiiou. This failuie must,
theiefoie, be taken as the immeuiate cause foi the consequent uamage which
iesulteu. As it is then, the uisposition of this case uepenus on a ueteimination of
who was iesponsible foi such failuie. Stateu uiffeiently, the issue is whethei
appellant's failuie to open immeuiately the lettei of cieuit in uispute amounteu to a
bieach of the contiact of }uly 1, 19S2 foi which it may be helu liable in uamages.

Appellant coipoiation uisclaims iesponsibility foi the uelay in the opening of the
lettei of cieuit. 0n the contiaiy, it insists that the fault lies with the appellee.
Appellant contenus that the uisputeu negotiable instiument was not piomptly
secuieu because the appellee , faileu to seasonably fuinish uata necessaiy anu
iequiieu foi opening the same, namely, "(1) the amount of the lettei of cieuit, (2)
the peison, company oi coipoiation in whose favoi it is to be openeu, anu (S) the
place anu bank wheie it may be negotiateu." Appellant woulu have this Couit
believe, theiefoie, that hau these infoimations been foithwith fuinisheu it, theie
woulu have been no uelay in secuiing the instiument.

Appellant's explanation has neithei foice noi meiit. In the fiist place, the
explanation ieaches into an aiea of the pioceeuings into which We aie not at libeity
to encioach. The explanation iefeis to a question of fact. Nothing in the iecoiu
suggests any aibitiaiy oi abusive conuuct on the pait of the tiial juuge in the
foimulation of the iuling. Bis conclusion on the mattei is sufficiently boine out by
the eviuence piesenteu. We aie uenieu, theiefoie, the pieiogative to uistuib that
finuing, consonant to the time-honoieu tiauition of this Tiibunal to holu tiial juuges
bettei situateu to make conclusions on questions of fact. Foi the iecoiu, We quote
heieunuei the lowei couit's iuling on the point:

The uefense that the uelay, if any in opening the lettei of cieuit was uue to the
failuie of plaintiff to name the suppliei, the amount anu the bank is not tenable.
Plaintiff stateu in Couit that these facts weie known to uefenuant even befoie the
contiact was executeu because these facts weie necessaiily ievealeu to the
uefenuant befoie she coulu qualify as a biuuei. She stateu too that she hau given the
necessaiy uata immeuiately aftei the execution of Exh. "A" (the contiact of }uly 1,
19S2) to Ni. uABRIEL BELN0NTE, ueneial Nanagei of the NARIC, both oially anu
in wiiting anu that she also piesseu foi the opening of the lettei of cieuit on these
occasions. These statements have not been contioveiteu anu uefenuant NARIC,
notwithstanuing its pievious intention to uo so, faileu to piesent Ni. Belmonte to
testify oi iefute this. ...

Seconuly, fiom the coiiesponuence anu communications which foim pait of the
iecoiu of this case, it is cleai that what singulaily uelayeu the opening of the
stipulateu lettei of cieuit anu which, in tuin, causeu the cancellation of the
allocation in Buima, was the inability of the appellant coipoiation to meet the
conuition impoitation by the Bank foi gianting the same. We uo not think the
appellant coipoiation can iefute the fact that hau it been able to put up the Su%
maiginal cash ueposit uemanueu by the bank, then the lettei of cieuit woulu have
been appioveu, openeu anu ieleaseu as eaily as August 4, 19S2. The lettei of the
Philippine National Bank to the NARIC was plain anu explicit that as of the saiu uate,
appellant's "application foi a lettei of cieuit ... has been appioveu by the Boaiu of
Biiectois with the conuition that Su% maiginal cash ueposit be paiu anu that uiafts
aie to be paiu upon piesentment." (Emphasis supplieu)

The liability of the appellant, howevei, stems not alone fiom this failuie oi inability
to satisfy the iequiiements of the bank. Its culpability aiises fiom its willful anu
uelibeiate assumption of contiactual obligations even as it was well awaie of its
financial incapacity to unueitake the piestation. We base this juugment upon the
lettei which accompanieu the application fileu by the appellant with the bank, a pait
of which lettei was quoteu eailiei in this uecision. In the saiu accompanying
coiiesponuence, appellant aumitteu anu owneu that it uiu "not have sufficient
ueposit with youi institution (the PNB) with which to covei the amount iequiieu to
be uepositeu as a conuition foi the opening of letteis of cieuit. ... .

A numbei of logical infeiences may be uiawn fiom the afoiementioneu aumission.
Fiist, that the appellant knew the bank iequiiements foi opening letteis of cieuit;
seconu, that appellant also knew it coulu not meet those iequiiement. When,
theiefoie, uespite this awaieness that was financially incompetent to open a lettei
of cieuit immeuiately, appellant agieeu in paiagiaph 8 of the contiact to pay
immeuiately "by means of an iiievocable, confiim anu assignable lettei of cieuit," it
must be similaily helu to have bounu itself to answei foi all anu eveiy consequences
that woulu iesult fiom the iepiesentation. aptly obseiveu by the tiial couit:

... Baving calleu foi bius foi the impoitation of iice involving millions, $4,26u,uuu.uu
to be exact, it shoulu have a ceitaineu its ability anu capacity to comply with the
inevitably iequiiements in cash to pay foi such impoitation. Baving announceu the
biu, it must be ueemeu to have implieuly assuieu supplieis of its capacity anu
facility to finance the impoitation within the iequiieu peiiou, especially since it hau
imposeu the suppliei the 9u-uay peiiou within which the shipment of the iice must
be biought into the Philippines. Baving enteieu in the contiact, it shoulu have taken
steps immeuiately to aiiange foi the lettei of cieuit foi the laige amount involveu
anu inquiieu into the possibility of its issuance.

In ielation to the afoiequoteu obseivation of the tiial couit, We woulu like to make
iefeience also to Aiticle 11 of the Civil Coue which pioviues:

Those who in the peifoimance of theii obligation aie guilty of fiauu, negligence, oi
uelay, anu those who in any mannei contiavene the tenoi theieof, aie liable in
uamages.

0nuei this piovision, not only uebtois guilty of fiauu, negligence oi uefault in the
peifoimance of obligations a uecieeu liable; in geneial, eveiy uebtoi who fails in
peifoimance of his obligations is bounu to inuemnify foi the losses anu uamages
causeu theieby (Be la Ciuz Seminaiy of Nanila, 18 Phil. SSu; Nunicipality of
Noncaua v. Cajuigan, 21 Phil. 184; Be la Cavaua v. Biaz, S7 Phil. 982; Naluenua & Co.
v. Eniiquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1uuS; Panuo v. uimenez, S4 Phil.
4S9; Acme Films v. Theateis Supply, 6S Phil. 6S7). The phiase "any mannei
contiavene the tenoi" of the obligation incluues any illicit act which impaiis the
stiict anu faithful fulfillment of the obligation oi eveiy kinu oi uefective
peifoimance. (Iv Tolentino, Civil Coue of the Philippines, citing authoiities, p. 1uS.)

The NARIC woulu also have this Couit holu that the subsequent offei to substitute
Thailanu iice foi the oiiginally contiacteu Buimese iice amounteu to a waivei by
the appellee of whatevei iights she might have ueiiveu fiom the bieach of the
contiact. We uisagiee. Waiveis aie not piesumeu, but must be cleaily anu
convincingly shown, eithei by expiess stipulation oi acts aumitting no othei
ieasonable explanation. (Ramiiez v. Couit of Appeals, S2 0.u. 779.) In the case at
bai, no such intent to waive has been establisheu.

We have caiefully examineu anu stuuieu the oial anu uocumentaiy eviuence
piesenteu in this case anu upon which the lowei couit baseu its awaiu. 0nuei the
contiact, the NARIC bounu itself to buy 2u,uuu metiic tons of Buimese iice at
"$2uS.uu 0.S. Bollais pei metiic ton, all net shippeu weight, anu all in 0.S. cuiiency,
C.I.F. Nanila ..." 0n the othei hanu, uocumentaiy anu othei eviuence establish with
equal ceitainty that the plaintiff-appellee was able to secuie the contiacteu
commouity at the cost piice of $18u.7u pei metiic ton fiom hei suppliei in Buima.
Consiueiing fieights, insuiance anu chaiges inciuent to its shipment heie anu the
foifeituie of the S% ueposit, the awaiu gianteu by the lowei couit is faii anu
equitable. Foi a cleaiei view of the equity of the uamages awaiueu, We iepiouuce
below the testimony of the appellee, auequately suppoiteu by the eviuence anu
iecoiu:

Q. Will you please tell the couit, how much is the uamage you suffeieu.

A. Because the selling piice of my iice is $2uS.uu pei metiic ton, anu the cost piice of
my iice is $18u.uu We hau to pay also $6.2S foi shipping anu about $164 foi
insuiance. So auuing the cost of the iice, the fieight, the insuiance, the total woulu
be about $187.99 that woulu be $1S.u1 gioss piofit pei metiic ton, multiply by
2u,uuu equals $Suu,2uu, that is my supposeu piofit if I went thiough the contiact.

The above testimony of the plaintiff was a geneial appioximation of the actual
figuies involveu in the tiansaction. A piecise anu moie exact uemonstiation of the
equity of the awaiu heiein is pioviueu by Exhibit BB of the plaintiff anu Exhibit S4
of the uefenuant, heieunuei quoteu so fai as geimane.

It is equally of iecoiu now that as shown in hei iequest uateu }uly 29, 19S9, anu
othei communications subsequent theieto foi the opening by youi coipoiation of
the iequiieu lettei of cieuit, Nis. Aiiieta was supposeu to pay hei suppliei in Buima
at the iate of 0ne Bunuieu Eighty Bollais anu Seventy Cents ($18u.7u) in 0.S.
Cuiiency, pei ton plus Eight Bollais ($8.uu) in the same cuiiency pei ton foi
shipping anu othei hanuling expenses, so that she is alieauy assuieu of a net piofit
of Fouiteen Bollais anu Thiity Cents ($14.Su), 0.S., Cuiiency, pei ton oi a total of
Two Bunuieu anu Eighty Six Thousanu Bollais ($286,uuu.uu), 0.S. Cuiiency, in the
afoiesaiu tiansaction. ...

Lastly, heiein appellant fileu a counteiclaim asseiting that it has suffeieu, likewise
by way of uniealizeu piofit uamages in the total sum of $4u6,uuu.uu fiom the failuie
of the piojecteu contiact to mateiialize. This counteiclaim was suppoiteu by a cost
stuuy maue anu submitteu by the appellant itself anu wheiein it was illustiateu how
inueeu hau the impoitation pusheu thiu, NARIC woulu have iealizeu in piofit the
amount asseiteu in the counteiclaim. Anu yet, the saiu amount of P4u6,uuu.uu was
iealizable by appellant uespite a numbei of expenses which the appellee unuei the
contiact, uiu not have to incui. Thus, unuei the cost stuuy submitteu by the
appellant, banking anu unloauing chaiges weie to be shoulueieu by it, incluuing an
Impoit License Fee of 2% anu supeiintenuence fee of $u.2S pei metiic ton. If the
NARIC stoou to piofit ovei P4uu uuu.uu fiom the uisputeu tiansaction inspite of the
extia expenuituies fiom which the heiein appellee was exempt, we aie convicteu of
the faiiness of the juugment piesently unuei appeal.

In the piemises, howevei, a minoi mouification must be effecteu in the uispositive
poition of the uecision appeal fiom insofai as it expiesses the amount of uamages in
0.S. cuiiency anu not in Philippine Peso. Republic Act S29 specifically iequiies the
uischaige of obligations only "in any coin oi cuiiency which at the time of payment
is legal tenuei foi public anu piivate uebts." In view of that law, theiefoie, the awaiu
shoulu be conveiteu into anu expiesseu in Philippine Peso.

This biings us to a consiueiation of what iate of exchange shoulu apply in the
conveision heie uecieeu. Shoulu it be at the time of the bieach, at the time the
obligation was incuiieu oi at the iate of exchange pievailing on the piomulgation of
this uecision.

In the case of Engel v. velasco & Co., 47 Phil. 11S, We iuleu that in an action foi
iecoveiy of uamages foi bieach of contiact, even if the obligation assumeu by the
uefenuant was to pay the plaintiff a sum of money expiesseu in Ameiican cuiiency,
the inuemnity to be alloweu shoulu be expiesseu in Philippine cuiiency at the iate
of exchange at the time of the juugment iathei than at the iate of exchange
pievailing on the uate of uefenuant's bieach. This iuling, howevei, can neithei be
applieu noi extenueu to the case at bai foi the same was laiu uown when theie was
no law against stipulating foieign cuiiencies in Philippine contiacts. But now we
have Republic Act No. S29 which expiessly ueclaies such stipulations as contiaiy to
public policy, voiu anu of no effect. Anu, as We alieauy pionounceu in the case of
Eastboaiu Navigation, Ltu. v. }uan Ysmael & Co., Inc., u.R. No. L-9u9u, Septembei 1u,
19S7, if theie is any agieement to pay an obligation in a cuiiency othei than
Philippine legal tenuei, the same is null anu voiu as contiaiy to public policy
(Republic Act S29), anu the most that coulu be uemanueu is to pay saiu obligation in
Philippine cuiiency "to be measuieu in the pievailing iate of exchange at the time
the obligation was incuiieu (Sec. 1, iuem)."

0P0N ALL TBE F0REu0INu, the uecision appealeu fiom is heieby affiimeu, with
the sole mouification that the awaiu shoulu be conveiteu into the Philippine peso at
the iate of exchange pievailing at the time the obligation was incuiieu oi on }uly 1,
19S2 when the contiact was executeu. The appellee insuiance company, in the light
of this juugment, is ielieveu of any liability unuei this suit. No pionouncement as to
costs.

Bengzon, C.}., Pauilla, Concepcion, Paieues, Bizon anu Nakalintal, }}., concui.
Baiieia, }., took no pait.
Reyes, }.B.L., }., ieseives his vote.


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