PAZ P. ARRIETA AND VITALIADO ARRIETA, PLAINTIFFS AND APPELLEES, VS. NATIONAL RICE AND CORN CORPORATION, DEFENDANT AND APPELLANT, MANILA UNDERWRITERS INSURANCE CO., INC., DEFENDA…

This is an 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.

In accordance with Section 13 of Republic Act No. 3452, “the
National Rice and Corn Administration (NARIC) is hereby abolished and
all its assets, liabilities, functions, powers which are not
inconsistent with the provisions of this Act, and all personnel are
transferred” to the Rice and Corn Administration (RCA).

All references, therefore, to the NARIC in this decision must
accordingly be adjusted and read as RCA pursuant to the aforementioned
law.

On May 19, 1952, plaintiff-appellee participated in the public
bidding called by the NARIC for the supply of 20,000 metric tons of
Burmese rice. As her bid of $203.00 per metric ton was the lowest, she
was awarded the contract for the same. 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 $208.00 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.
The application was accompanied by a transmittal letter, the relevant
paragraphs of which read:

“In view of the fact that we do not have sufficient
deposit with your institution with which to cover the amount required
to be deposited as a condition for the opening of letters of credit, we
will appreciate it if this application could be considered a special
case.

“We understand that our supplier, Mrs. Paz P. Arrieta,
has a deadline to meet which is August 4, 1952, and in order to comply
therewith, it is imperative that the L/C be opened prior to that date.
We would therefore request your full cooperation on this matter.”

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.”

On August 4, 1952, the Philippine National Bank informed the
appellant corporation that its application, “for a letter of credit for
$3,614,000.00 in favor of Thiri Setkya 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” (Exh. J-pl.: Exh.
10-def., p. 19, Folder of Exhibits) Furthermore, the Bank represented
that it “will hold your application in abeyance pending compliance with
the above stated requirement.”

As it turned cut, however, the appellant corporation was not in any
financial position to meet the condition. As a matter of fact, in a
letter dated August 2, 1952, the NARIC bluntly confessed to the
appellee its dilemma: “In this connection, please be advised that our
application for the opening of the letter of credit has been presented
to the bank since July 30th but the latter requires that we first
deposit 50 % of the value of the letter amounting to approximately
$3,614,000.00 which we ore not in a position to meet.” (Italics
supplied. Exh. 9-Def.; Exh. 1-P1., p. 18, Folder of Exhibits)

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 appelee 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 5fo 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 tie 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.” (Exh. Y-Pl.; Exh. 25-Def., p. 38, Folder of Exhibits) This offer
for substitution, however, was rejected by the appellant in a
resolution dated November 15, 1952.

On the foregoing, the appellee sent a letter to the appellant,
demanding compensation for the damages caused her in the sum of
P286,000.00, U.S. currency, representing unrealized profit. The demand
having been rejected, she instituted this case now on appeal.

At the instance of the NARIC, a counterclaim was filed and the
Manila Underwriters Insurance Company was brought to the suit as a
third party defendant to hold it liable on the performance bond it
executed in favor of the plaintiff-appellees.

We find for the appellee.

It is clear upon the records that the sole and principal reason for
the cancellation of the allocation contracted by the appellee herein in
Rangoon, Burma was the failure if of the letter of credit to be opened
within the contemplated period. This failure must, therefore, be taken
as the immediate cause for the consequent damage which resulted. As it
is then, the disposition of this case depends on a determination of who
was responsible for such failure. Stated differently, the issue is
whether appellant’s failure to open immediately the letter of credit in
dispute amounted to a breach of the contract of July 1, 1952 for which
it may be held liable in damages.

Appellant corporation disclaims responsibility for the delay in
the opening of the letter of credit. On the contrary, it insists that
the fault lies with the appellee. Appellant contends that the disputed
negotiable instrument was not promptly secured because the appellee
failed to seasonably furnish data necessary and required for opening
the same, namely, “(1) the amount of the letter of credit, (2) the
person, company or corporation in whose favor it is to be opened, and
(3) the place and bank where it may be negotiated.” Appellant would
have this Court believe, therefore, that had these information been
forthwith furnished it, there would have been no delay in securing the
instrument.

Appellant’s explanation has neither force nor merit. In the first
place, the explanation reaches into an area of the proceedings into
which We are not at liberty to encroach. The explanation refers to a
question of fact. Nothing in the record suggests any arbitrary or
abusive conduct on the part of the trial judge in the formulation of
the ruling. His conclusion on the matter is sufficiently borne out by
the evidence presented. We are denied, therefore, the prerogative to
disturb that finding, consonant to, the time honored tradition of this
Tribunal to hold trial judges better situated to make conclusions on.
questions of fact. For the record, We quote hereunder the lower court’s
ruling on the point:

“The defense that the delay, if any in opening the
letter of credit was diue to the faiHure of plaintiff to name the
supplier, the amount and the bank is not tenable. Plaintiff stated in
Court that these facts were, known to defendant even before the
contract was executed because these facts were necessarily revealed to
the defendant before she could qualify as a bidder. She stated too
that she had given the necessary data immediately after the execution
of Exh. “A” (the contract of July 1, 1952) to Mr. Gabriel Belmonte,
General Manager of the NARIC, both orally and in writing and that she
also pressed for the opening of the letter of credit on these
occasions. These, statements have not been controverted’ and defendant
NARIC, notwithstanding its previous intention to do so, failed to
present Mr. Belmonte to testify or refute this. * * *.”

Secondly, from the correspondence and communications which form part
of the record of this case, it is clear that what singularly delayed
the opening of the stipulated letter of credit and which, in turn,
caused the cancellation of the allocation in Burma, was the inability
of the appellant corporation to meet the condition imposed by the Bank
for granting the same.

We do not think the appellant corporation can refute the fact that
had it been able to put up the 50% 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 “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.”
(Italics supplied)

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. We base this judgment upon
the letter which accompanied the application filed by the appellant
with the bank, a part of which letter was quoted earlier in this
decision. In the said accompanying correspondence, appellant admitted
and owned that it did “not have sufficient deposit with your
institution (the PNB) with which to cover the amount required to be
deposited as a condition for the opening of letters of credit. * * *.”

A number of logical inferences may be drawn from the aforementioned
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 fill and every, consequences that would result from the
representation. As aptly observed by the trial court:

“* * * Having called for bids for the importation of rice involving
Trillions, $4.260.000.00 to be exact it should have ascertained its
ability and capacity to comply with the inevitable requirements in cash
to pay for such importation. Having announced the bid, it must be
deemed to have impliedly assured suppliers of its capacity and facility
to finance the importation within the required period, especially since
it had imposed on the supplier the 90-day period within which the
shipment of the rice must be brought into the Philippines. Having
entered into the contract, it should have taken steps immediately to
arrange for the letter of credit for the largo amount involved and
inquired into the possibility of its issuance.”

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 (De la
Cruz vs. Seminary of Manila, 18 Phil. 330; Municipality of Moncada vs. Cajuigan, 21 Phil. 184; De la Cavada vs. Diaz, 37 Phil. 982; Maluenda & Co. vs. Enriquez, 46 Phil. 916; Pasumil vs. Chong, 49 Phil. 1003; Pando vs. Gimenez, 54 Phil. 459; Acme Films vs.
Theaters Supply, 63 Phil. 657.) 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
dafective 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.

We have carefully examined and studied the oral and documentary
evidence presented in this case and upon which the lower court based
its award. Under the contract, the NARIC bound itself to buy 20,000
metric tons of Burmese rice at “$203.00 U. S. Dollars per metric ton,
all net shipped weight, and all in U. S. currency, C.I.F. Manila. * *
*.” On the other hand, documentary and other evidence establish with
equal certainty that the plaintiff-appellee was able to secure the
contracted commodity at the cost price of $180.70 per metric ton from
her supplier in Burma. Considering freights, insurance and charges
incident to its shipment here and the forfeiture of the 5% deposit,
the award granted by the lower court is fair and equitable. For a
clearer view of the equity of the damages awarded, We reproduce below
the testimony of the appellee, adequately supported by the evidence and
record:

“Q.—Will you please tell the court, how much is. the damage you suffered?

“A.—Because
the selling price of my rice is $203.00 per metric ton, and the cost
price of my rice is $180.00. We had to pay also $6.25 for shipping and
about $164 for insurance. So adding the cost of the rice, the freight,
the insurance, the total “would be about $187.99 that would be $15.01
gross profit per metric ton, multiply by 20,000 equals $300,200, that
is my supposed profit if I went through with the contract.”

The above testimony of the plaintiff was a general approximation of
the actual figures involved in the transaction. A, precise and more
exact demonstration of the equity of the award herein is provided by
Exhibit HH of the plaintiff and Exhibit 34 of the defendant, hereunder
quoted so far as germane:

“It is equally of record of now that as shown in her
request, dated July 29, 1959, and other communications subsequent
thereto for the opening by your corporation of the required letter of
credit, Mrs. Arrieta was supposed to pay her supplier in Burma at the
rate of One Hundred Eighty Dollars and Seventy Cents ($180.70) in TLS,
Currency, per ton plus Eight Dollars ($8.00) in the same currency per
ton for shipping and other handling expenses, sb that she is already
assured of a net profit of Fourteen Dollars and Thirty Cents (114.30),
U.S. Currency, per ton or a total of Two Hundred and Eighty Six
Thousand Dollars ($288,000.00), U.S. Currency, in the aforesaid
transaction. * * *.”

Lastly, herein appellant filed a counterclaim asserting that it has
suffered, likewise by way of unrealized profit, damages in the total
sum of $406,000 from the failure of the projected contract to
materialize. This counterclaim was supported by a cost study made and
submitted by the appellant itself and wherein it was illustrated how
indeed, had the importation pushed thru, NARIC would have realized in
profit the amount asserted in the counter-claim. And yet, the said
amount of P406,000.00 was realizable by the appellant despite a number
of expenses which the appellee, under the contract, did not have to
incur. Thus, under the cost study submitted by the appellant, banking
and unloading charges were to be shouldered by it, including an Import
License Fee of 2% and superintendence fee of $0.25 per metric ton. If
the NARIC stood to profit over P400.000.00 from the disputed
transaction inspite of the above extra expenditures from which the
herein appellee was exempt, We are convinced of the fairness of the
judgment presently under appeal.

In the premises, however, a minor modification must be effected in
the dispositive 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.

This brings us to a consideration of what rate of exchange should
apply in the conversion here decreed. Should it be at the time of the
breach, at the time the obligation was incurred or at the rate of
exchange prevailing on the promulgation of this decision.

In the case of Engel vs. Velasco & Co., 47 Phil. 115,
We ruled that in an action for recovery of damages for breach of
contract, even if the obligation assumed by the defendant was to pay
the plaintiff a sum of money expressed in American currency, the
indemnity to be allowed should be expressed in Philippine currency at
the rate of exchange at the time of the judgment rather than at the
rate of exchange prevailing on the date of defendant’s breach. This
ruling, however, can either be applied nor extended to the case at bar
for the same was laid down when there was no law against stipulating
foreign currencies in Philippine contracts. But now we have Republic
Act No. 529 which expressly declares such stipulations as contrary to
public policy, void and of no effect. And, as We already pronounced in
the case of Eastboard Navigation, Ltd., vs. Juan Ysmael &
Co., Inc., 102 Phil. 1, if there is any agreement to pay an obligation
in the currency other than Philippine legal tender, the same is null
and void as contrary to public policy (Republic Act 529), and the most
that could be demanded is to pay said obligation in Philippine currency
“to be measured in the prevailing rate of exchange at the time the
obligation was incurred (Sec. 1, Idem.).”

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.

Bengzon, C. J., Padilla, Concepcion, Paredes, Dizon, and Makalintal, JJ., concur.