Case Digest: Lorenzo Shipping v. BJ Marthel, 443 SCRA 163, G.R. No. 145483

Lorenzo Shipping v. BJ Marthel, 443 SCRA 163, G.R. No. 145483, November 19, 2004

Subject: Obligations and Contracts

FACTS

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the cargo vessel M/V Dadiangas Express. The respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing, and selling of various industrial commodities. It is also an importer and distributor of different brands of engines and spare parts.

In 1989, petitioner asked respondent for a quotation for various machine parts.

Petitioner issued a two separate Purchase Orders. Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated checks to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to represent the full payment of the first cylinder liner while the liner was subject to term of payment to be "25% upon delivery, balance payable in 5 bi-monthly equal installments." Both purchase orders did not state the date of the cylinder liner's delivery.

In January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same was dishonored by the drawee bank due to insufficiency of funds. Petitioner claimed that it replaced said check with a good one, the proceeds of which were applied to its other obligation to respondent. For its part, respondent insisted that it returned said postdated check to petitioner.

Respondent thereafter placed the order for the two (02) cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., and delivered the two (02) cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales invoices evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the signature of Eric Go, petitioner's warehouseman, appeared.

Respondent thereafter sent a Statement of Account to petitioner. While the other items listed in said statement of account were fully paid by petitioner, the two-cylinder liners delivered to petitioner on 20 April 1990 remained unsettled. Consequently, respondent sent a demand letter to petitioner requiring the latter to pay the value of the cylinder liners subjects of this case. Instead of heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter dated 12 March 1991 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale.

Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages before RTC of Makati City.

Petitioner alleged that time was of the essence in the delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items "within two (2) months after receipt of firm order" from petitioner.

RTC dismissed the action upon findings that respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of payment and delivery of the cylinder liners. It also declared that respondent had agreed to the cancellation of the contract of sale when it returned the postdated checks issued by petitioner.

Aggrieved, respondent filed an appeal with the CA which reversed and set aside RTC’s decision. The appellate court brushed aside petitioner's claim that time was of the essence in the contract of sale between the parties herein considering the fact that a significant period of time had lapsed between respondent's offer and the issuance by petitioner of its purchase orders. There was no evidence of the alleged cancellation of orders by petitioner and that the delivery of the cylinder liners on 20 April 1990 was reasonable under the circumstances.

Petitioner insists that although its purchase orders did not specify the dates when the cylinder liners were supposed to be delivered, nevertheless, respondent should abide by the term of delivery appearing on the quotation it submitted to petitioner. Petitioner theorizes that the quotation embodied the offer from respondent while the purchase order represented its (petitioner's) acceptance of the proposed terms of the contract of sale. Thus, petitioner is of the view that these two documents "cannot be taken separately as if there were two distinct contracts."

Hence this petition.

ISSUE

Whether or not there was late delivery of the subjects of the contract of sale to justify petitioner to disregard the terms of the contract considering that time was of the essence thereof.

RULING

No, there was late delivery.

Under the law, the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

In this case, there is no showing that petitioner notified respondent of its intention to rescind the contract of sale between them. Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it notified respondent of the cancellation of the contract of sale. Truly, no prudent businessman would pursue such action knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by the other party.