GR L 15645; (January, 1964) (Digest)
G.R. No. L-15645; January 31, 1964
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees, vs. NATIONAL RICE AND CORN CORPORATION, defendant-appellant, MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
FACTS
Plaintiff Paz P. Arrieta won a public bidding and entered into a contract with the National Rice and Corn Corporation (NARIC) on July 1, 1952, to supply 20,000 metric tons of Burmese rice. A critical term obligated NARIC to pay immediately via an irrevocable, confirmed, and assignable letter of credit in U.S. currency. Arrieta had made a 5% tender to her Burmese supplier, which would be forfeited if the letter of credit was not received by August 4, 1952. NARIC failed to open the letter of credit by this deadline. Its application to the Philippine National Bank was approved on August 4 but conditioned on a 50% marginal cash deposit, which NARIC admitted it was “not in a position to meet.” The letter of credit was only opened on September 8, 1952, resulting in the cancellation of the Burmese rice allocation and the forfeiture of Arrieta’s deposit. Arrieta’s subsequent offer to substitute Thai rice was rejected by NARIC.
ISSUE
The primary issue is whether NARIC is liable for damages due to its failure to timely open the required letter of credit, thereby causing the breach of the supply contract.
RULING
The Supreme Court affirmed NARIC’s liability for breach of contract but modified the monetary award. The legal logic is twofold. First, NARIC’s failure to establish the letter of credit as stipulated was the direct and proximate cause of the contract’s failure. The contract explicitly required immediate opening of the credit. NARIC’s inability to meet the bank’s deposit condition, confessed in its own correspondence, constituted a clear breach of its essential obligation, which excused Arrieta from further performance and entitled her to damages for lost profits. The Court found the awarded amount of $286,000, representing unrealized profit, to be fair and reasonable based on the contract price and evidence presented.
Second, the Court modified the judgment regarding currency conversion pursuant to Republic Act No. 529 . This law voids stipulations for payment in foreign currency as contrary to public policy, mandating that obligations be discharged in Philippine currency. Following its precedent in Eastboard Navigation, Ltd. v. Juan Ysmael & Co., Inc., the Court held that where such a void stipulation exists, the obligation must be paid in Philippine pesos at the rate of exchange prevailing when the obligation was incurred—July 1, 1952, the contract date—not at the judgment date. Consequently, the award was converted to Philippine currency at that rate. The Court also relieved the surety, Manila Underwriters Insurance Co., from liability under the performance bond in light of this judgment against NARIC.