GR L 24856; (November, 1986) (Digest)
G.R. No. L-24856 November 14, 1986
NATIONAL POWER CORPORATION, plaintiff-appellant, vs. EIN CHEMICAL CORPORATION and PHILIPPINE INTERNATIONAL SURETY CO., defendants-appellees.
FACTS
The National Power Corporation (NPC) awarded EIN Chemical Corporation a contract to supply 3,691 long tons of crude sulfur by May 10, 1956. EIN posted a performance bond from Philippine International Surety Co. NPC opened a letter of credit for EIN on May 8, 1956. EIN, anticipating failure to deliver, requested and was granted extensions of the letter of credit’s expiry date, first to June 30 and then to September 30, 1956. EIN ultimately delivered only 1,000 long tons on August 19, 1956, for which it was paid.
NPC subsequently disqualified EIN from a new bidding and filed a suit for damages for breach of contract. The trial court dismissed the complaint, ruling that the extension of the letter of credit’s expiry date implied an extension of the delivery period, that NPC had a duty to open the letter of credit first before EIN’s delivery obligation arose, and that EIN was not in bad faith, citing a scarcity of shipping vessels (“lack of bottoms”).
ISSUE
Whether or not EIN committed a breach of contract entitling NPC to damages.
RULING
Yes, EIN committed a breach of contract. The Supreme Court reversed the trial court, holding that the extensions of the letter of credit’s expiry date did not constitute extensions of the fixed delivery date of May 10, 1956. The contract terms showed no relationship between the opening of the letter of credit and the delivery deadline; the credit was opened within a reasonable time after contract signing. If the parties intended to extend the delivery date, they could have expressly stipulated a new deadline, which they did not.
The Court found EIN’s defenses unmeritorious. NPC had no duty to inform EIN, an experienced supplier, of shipping times from US ports. The problem of “lack of bottoms” was a foreseeable business risk for EIN, not a fault of NPC. NPC’s leniency in granting extensions did not waive its contractual rights or excuse EIN’s failure to fully deliver. Consequently, EIN and its surety were held jointly and severally liable for the amount of the performance bond and for liquidated damages covering the period from the partial delivery until NPC procured the sulfur from other sources.