Case Summary (G.R. No. 108129)
Petitioner
Aerospace purchased 500 metric tons (MT) of 98–99% sulfuric acid in bulk (100 MT Ex-Basay, 400 MT Ex-Sangi) and agreed to pay in Philippine currency five days prior to shipment; the buyer was to arrange transport to lift the cargo from the seller’s designated loadports.
Respondent
Philippine Phosphate Fertilizer Corp. (Philphos) supplied sulfuric acid at specified FOB loadports, issued routine advisories and demands regarding withdrawal, and claimed incremental storage and maintenance costs arising from delayed lifting.
Key Dates and Contract Terms
- Contract confirmed June 27, 1986 (letter-form): 500 MT (100 MT Basay, 400 MT Sangi); prices US$50/MT (Basay) and US$54/MT (Sangi); payment in PHP five days prior to shipment; buyer to secure transport; laycan July (approximate).
- August 6, 1986: seller advisory re P2,000/day incremental expense for delay.
- October 3, 1986: buyer paid P553,280.00 for 500 MT.
- December 12, 1986: seller’s letter demanding withdrawal and warning to vacate Basay by December 15, 1986 or charge storage and consequential costs.
Payment, Demands, and Subsequent Communications
Petitioner paid in full on October 3, 1986. Seller repeatedly notified petitioner about incremental costs for delayed withdrawal (Aug. 6 advisory; Dec. 12 categorical demand). Petitioner thereafter sent letters (Jan. 26, 1987; Mar. 20, 1987; May 15, 1987; July 6, 1988) requesting replacement or additional quantities after loading failures and a sinking. Seller’s July 22, 1988 reply refused lifting ex-Isabel due to pyrite limitation and delayed imports. Counsel’s demand for delivery or refund was sent Jan. 25, 1988; seller replied Mar. 8, 1988 insisting on lifting the remaining 30 MT at Basay or payment of maintenance and storage commencing Aug. 1, 1986.
Initial Shipment Attempts and Vessel Problems
Petitioner chartered M/T Sultan Kayumanggi (Nov. 19, 1986): only 70.009 MT withdrawn at Basay due to heavy listing; repairs attempted; at Sangi (Dec. 18, 1986) only 157.51 MT withdrawn; the vessel later sank with 227.51 MT on board. SGS survey reports (Dec. 17, 1986; Jan. 2, 1987) and attending surveyor Eugenio Rabea’s incident report documented listing, pump failures, tank explosion/repair attempts, and instability; weather at Basay was reported as fair.
Petitioner’s Efforts to Replace Lost Cargo
After the sinking, petitioner chartered M/T Don Victor (capacity ~500 MT) and repeatedly requested an additional 227.51 MT to complete the vessel’s capacity so it could lift the remaining 272.49 MT. Petitioner alleged that seller’s personnel encouraged full-capacity loading; seller denied a binding agreement to supply the additional quantity and invoked supply limitations.
Trial Court Judgment
Petitioner filed a complaint for specific performance and/or damages (May 4, 1989). The Regional Trial Court found for petitioner, concluding that the sinking was force majeure and absolved petitioner from the obligation to lift the remaining cargo. Trial court awarded: P306,060.77 (value of 272.49 MT), P91,818.23 (unrealized profits), exemplary damages P30,000, and attorney’s fees P30,000 (all with 12% interest from applicable dates). Defendant’s counterclaims were dismissed.
Court of Appeals Decision
The Court of Appeals reversed. It held petitioner guilty of delay and negligence for failing to lift the full 500 MT by the agreed time and for not immediately replacing the unseaworthy vessel. The CA found no basis to treat the vessel’s sinking as force majeure relieving plaintiff. The CA dismissed petitioner’s complaint and granted seller’s counterclaim for maintenance and tank rental charges (computing P324,516.63), finding the seller entitled to damages for the buyer’s delay.
Issues on Review to the Supreme Court
The Supreme Court distilled the contested points: whether petitioner breached the contract despite payment and partial delivery; whether alleged subsequent acceptance of an additional 227.51 MT constituted waiver of prior delay; whether the CA erred in awarding damages (including reliance on a photocopy of an alleged agreement); and whether storage/preservation costs for fungible goods should be borne by seller under Article 1504 of the Civil Code.
Standard of Review and Weight of Factual Findings
The Court acknowledged that where CA findings conflict with trial court findings it may review the facts, but it found the CA’s conclusions supported by preponderant evidence. The independent SGS survey and the attending surveyor’s reports were credited over petitioner’s employee testimony regarding the cause of the vessel’s sinking and the weather conditions. Those reports showed the vessel was unseaworthy and unstable; sinking was attributable to vessel defects, not an unforeseeable force majeure event.
Parol Evidence, Burden of Proof, and Alleged Contract Modification
Petitioner’s claim that seller’s shipping officer verbally recommended ordering an additional 227.51 MT was unproven and insufficient to alter the written contract. The Court reiterated the rule that oral agreements intended to vary a written contract must be proven clearly and that the parol evidence rule bars using unproven verbal statements to modify written terms. The Court therefore rejected petitioner’s contention that an alleged verbal modification excused its refusal to lift the remaining contracted quantity.
Determination of Delay and Its Commencement
The Court held that seller’s December 12, 1986 letter constituted a categorical extrajudicial demand to lift the cargo and to vacate Basay by December 15, 1986; the Aug. 6, 1986 advisory did not suffice as a categorical demand. Given the December 12 demand and a reasonable transit allowance (three days), the Court fixed December 15, 1986 as the proper commencement date for computing delay-related liability. Expenses incurred by seller before December 15, 1986 were ordinary business expenses for which petitioner was not liable.
Liability for Storage and Preservation (Article 1504 Exception)
Petitioner invoked Article 1504 (fungible goods rule that seller bears preservation risk until ownership transfer), but the Court applied Article 1504’s exception: when actual delivery is delayed through the buyer’s fault, the goods are at the risk of the defaulting party. Because peti
Case Syllabus (G.R. No. 108129)
Procedural History
- Petition for review to the Supreme Court from the Court of Appeals decision dated August 19, 1992 (CA G.R. CV No. 33802) which set aside the Regional Trial Court (RTC) of Pasig, Branch 151 judgment favoring petitioner.
- RTC rendered judgment in favor of petitioner (Aerospace) ordering defendant (Philphos) to pay sums for undelivered sulfuric acid, unrealized profits, exemplary damages and attorney’s fees; dismissed defendant’s counterclaims.
- Court of Appeals reversed, dismissed petitioner’s complaint, found petitioner guilty of delay and negligence, and awarded defendant damages representing maintenance cost and tank rental charges (originally P324,516.63) with costs against plaintiff-appellee.
- Motion for reconsideration to the Court of Appeals denied on December 21, 1992.
- Petition filed before the Supreme Court (G.R. No. 108129). Decision penned by Justice Quisumbing; final disposition announced by the Supreme Court with concurrence of Bellosillo (Chairman), Mendoza, and Buena, JJ.
Parties and Roles
- Petitioner: Aerospace Chemical Industries, Inc. (buyer of sulfuric acid).
- Private respondent: Philippine Phosphate Fertilizer Corporation (Philphos) (seller of sulfuric acid).
- Third-party surveyor: Societe Generale de Surveillance (SGS) Far East Limited (conducted surveys and produced reports).
- Vessels involved: M/T Sultan Kayumanggi (initially chartered by petitioner; listed, partially loaded and later sank with cargo) and M/T Don Victor (subsequently chartered by petitioner; capacity ~500 MT).
Contract Terms (Letter-Form Agreement, 27 June 1986)
- Commodity: Sulfuric Acid in Bulk; Concentration: 98–99% H2SO4.
- Quantity: 500 MT total — 100 MT ex-Basay, 400 MT ex-Sangi.
- Price: US$50.00/MT FOB Cotcot, Basay, Negros Oriental; US$54.00/MT FOB Sangi, Cebu.
- Payment: Cash in Philippine currency payable to Philphos (Makati) at PCIB selling rate at time of payment at least five (5) days prior to shipment date.
- Shipping Conditions: Laycan July (beginning July 1986); Loadports Cotcot, Basay and Atlas Pier, Sangi.
- Other terms: “To be mutually agreed upon.” Letter signed by Philphos (Herman J. Rustia Sr., Manager) and conformed by Aerospace (Melecio Hernandez, Manager).
Chronology of Key Factual Events
- June 27, 1986: Letter contract executed.
- August 6, 1986: Philphos sent advisory to petitioner to withdraw sulfuric acid at Basay, stating incremental expense of P2,000 per day for delay.
- October 3, 1986: Petitioner paid P553,280.00 for 500 MT of sulfuric acid.
- November 19, 1986: Petitioner chartered M/T Sultan Kayumanggi to lift cargo.
- M/T Sultan Kayumanggi loaded only 70.009 MT at Basay due to heavy port-side tilt; loading stopped; vessel underwent repairs.
- On subsequent voyage to Sangi, M/T Sultan Kayumanggi withdrew 157.51 MT but again tilted; further loading aborted.
- Two SGS survey reports (dated December 17, 1986 and January 2, 1987) attest to these loading failures and vessel condition.
- Later (date not specified), M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board.
- December 12, 1986: Philphos demand letter requested petitioner retrieve remaining sulfuric acid at Basay so tanks could be emptied on or before December 15, 1986, warning of charges for storage and incremental expenses for delay.
- January 26 and March 20, 1987: Letters from Melecio Hernandez (for petitioner) requesting permission to lift balance (approximately 272.49 MT) and asking for an additional order of 227.51 MT to complete a 500 MT lift from one safe berth (Atlas Pier, Sangi), offering to pay prevailing price for the additional quantity.
- May 15, 1987 and July 6, 1988: Additional petitioner letters reiterating request to pick up 272.49 MT and to order additional 227.51 MT; petitioner stated it had paid charter for full 500 MT capacity.
- July 22, 1988: Philphos (Herman Rustia) replied refusing to accommodate lifting ex-Isabel due to “Pyrite limitation and delayed arrival of imported Sulfuric Acid from Japan.”
- July 25, 1988: Petitioner’s counsel sent demand letter threatening legal action if deliveries were not made.
- January 25, 1988: Petitioner’s counsel sent demand for delivery of 272.49 MT or return of purchase price of P307,530.00 (note: record contains multiple stated figures of advance/balances).
- May 4, 1989: Petitioner filed complaint for specific performance and/or damages with RTC Pasig, Branch 151.
Contentions by Parties (Counterclaims, Claims, and Defenses)
- Philphos counterclaimed that petitioner failed to arrange shipping timely and thus owed damages for maintenance and tank rental charges and other incremental costs.
- Counterclaim calculation presented at trial:
- Advanced Payment by Aerospace (Oct. 3, 1986): P553,280.00
- Less shipments (70.009 MT and 151.51 MT): deduction of P249,796.63 → balance P303,483.37.
- Charges claimed: Basay Maintenance (Aug. 15–Dec. 15, 1986; P2,000/day × 122 days = P244,000.00) and Sangi Tank Rental (Aug. 15, 1986–Aug. 15, 1987; P32,000/mo × 12 mos. = P384,000.00) → total charges P628,000.00 → receivable/counterclaim (P324,516.63).
- Counterclaim calculation presented at trial:
- Petitioner’s defenses:
- Paid purchase price in full; Philphos delivered only 227.51 MT — breach of contract.
- Failure to pick up balance due to force majeure (storm and sinking vessel) excused performance.
- Alleged Philphos employee recommended buying additional 227.51 MT (verbal), implying waiver of prior delay; petitioner relied on such advice when chartering vessel.
- Argued storage and preservation expenses of fungible goods are seller’s responsibility under Article 1504 Civil Code.
RTC Findings and Judgment (Trial Court)
- Trial court found for petitioner, holding petitioner absolved from obligation to pick up remaining sulfuric acid because failure was due to force majeure (vessel sinking).
- Trial court concluded Philphos breached contract by failing to accommodate petitioner’s additional order to replace the sunken purchases.
- Judgment ordered Philphos to pay:
- P306,060.77 — value of undelivered 272.49 MT paid by plaintiff;
- P91,818.23 — unrealized profits;
- P30,000 — exemplary damages;
- P30,000 — attorney’s fees and litigation expenses;
- 12% interest per annum on specified sums from specified dates until paid.
- Defendant’s counterclaims dismissed for lack of merit.
- Trial court reasoning included:
- Force majeure absolved plaintiff from lifting obligation.
- Alleged P2,000/day incremental expense for delayed lifting not proven.
- Philphos accepted an additional order after the sinking and delayed sending statements of account, implying waiver or acceptance of payment without reservation.
Court of Appeals Findings and Judgment (August 19, 1992)
- Court of Appeals reversed the trial court, finding petitioner guilty of delay and negligence.
- Key conclusions:
- Plaintiff had obligation to withdraw full 500 MT on or before August 15, 1986.
- Philphos warned plaintiff on August 6, 1986 about P2,000/day incremental expenses for dela