G.R. No. 178008 & G.R. No. 178042, October 9, 2013
SAN FERNANDO REGALA TRADING, INC., Petitioner, vs. CARGILL PHILIPPINES, INC., Respondent. (and the consolidated case)

FACTS

Petitioner San Fernando Regala Trading, Inc. (San Fernando) and respondent Cargill Philippines, Inc. (Cargill) were cane molasses traders. Cargill filed a complaint for sum of money and damages against San Fernando before the RTC of Makati, alleging breach of two contracts of sale:
1. Contract 5026 (dated July 15, 1996): Sale of 4,000 MT of molasses at ₱3,950/MT, with delivery period “April to May 1997” at the Ajinomoto wharf. Cargill claimed it delivered 951 MT in March 1997 and that on April 2, 1997, a barge with 1,174 MT arrived, but San Fernando refused to accept it, causing the barge to incur 71 days of demurrage (₱920,000) and forcing Cargill to sell the cargo at a loss.
2. Contract 5047: Sale of 5,000 MT of molasses at ₱2,750/MT, with delivery period “October-November-December 1996.” Cargill alleged San Fernando refused to accept delivery during this period.
Cargill presented evidence that San Fernando’s President, Quirino Kehyeng, advised them to wait as Ajinomoto’s tanks were full. On May 14, 1997, Cargill proposed amending both contracts to extend the delivery periods, but San Fernando rejected the proposals.
San Fernando, in its counterclaim, asserted that aside from the 951 MT, Cargill made no further deliveries under Contract 5026 and delivered nothing under Contract 5047. It claimed Cargill’s failure to deliver caused San Fernando to default on its resale contracts with Ajinomoto, resulting in lost profits (₱4,115,329.20 for Contract 5026 and ₱11,000,000 for Contract 5047).
The RTC dismissed Cargill’s complaint and granted San Fernando’s counterclaims, awarding unrealized profits, moral and exemplary damages (₱500,000 each), attorney’s fees (₱1,000,000), and litigation costs.
The Court of Appeals modified the RTC decision. It found that for Contract 5026, Cargill did attempt delivery of 1,174 MT on April 2, 1997, but San Fernando unjustifiably refused acceptance. Thus, San Fernando was not entitled to unrealized profits for this contract but was liable to reimburse Cargill for demurrage (₱892,732.50). For Contract 5047, the CA found Cargill in breach for failing to deliver during the agreed period (Oct-Dec 1996) and held it liable for San Fernando’s unrealized profits of ₱11,000,000. The CA deleted the awards for moral/exemplary damages, attorney’s fees, and litigation costs.
Both parties filed petitions before the Supreme Court.

ISSUE

The core issue revolves around the determination of which party breached their reciprocal obligations under Contracts 5026 and 5047, and the corresponding liabilities for damages.

RULING

The Supreme Court modified the CA decision, finding both parties liable for breach of their respective obligations under the two contracts.
1. For Contract 5026 (4,000 MT; April-May 1997 delivery):
* The Court found that both parties were in breach. Cargill breached by failing to deliver the full 4,000 MT within the stipulated period (it only delivered 951 MT in March and 1,174 MT in April, leaving a balance of 1,875 MT undelivered by the end of May 1997).
* San Fernando also breached its obligation to receive the 1,174 MT delivered on April 2, 1997. Its refusal was unjustified, as Ajinomoto continued to receive molasses from other suppliers during the barge’s standby period.
* Liability: Due to the mutual breach, the Court applied Article 1192 of the Civil Code. The reciprocal obligations were extinguished, and both parties were liable for damages proportionately. Cargill was held liable for San Fernando’s unrealized profit on the undelivered balance of 1,875 MT, calculated at ₱2,531,250. San Fernando was held liable for the demurrage paid by Cargill (₱892,732.50). The amounts were offset.
2. For Contract 5047 (5,000 MT; Oct-Nov-Dec 1996 delivery):
* The Court affirmed the CA’s finding that Cargill was solely in breach. It failed to deliver any molasses during the agreed period. Its subsequent proposal to extend the delivery period was rightly rejected by San Fernando, who was not obligated to accept a modification of the contract’s essential term (the period).
* Liability: Cargill was liable for San Fernando’s unrealized profits of ₱11,000,000 for this contract.
3. On Damages:
* The Supreme Court affirmed the CA’s deletion of awards for moral damages, exemplary damages, attorney’s fees, and litigation costs, due to lack of sufficient proof of bad faith.
DISPOSITIVE PORTION:
The Supreme Court ORDERED:
1. Cargill to pay San Fernando a net amount of ₱13,531,250, representing unrealized profits for both contracts (₱2,531,250 for Contract 5026 and ₱11,000,000 for Contract 5047), with 6% interest per annum from the filing of the Answer with Counterclaim until full payment.
2. The deletion of awards for moral/exemplary damages, attorney’s fees, and litigation costs stands.