G.R. No. 225438 , January 20, 2021
Voltaire Hans N. Bongcayao, doing business under the name and style of VHB Biopro Enterprises, and Pete Nicomedes Prado, Petitioners, vs. Confederation of Sugar Producers Cooperatives (CONFED), Jose J. Jison and Prudential Guarantee and Assurance, Inc., Respondents.

FACTS

On October 16, 2007, respondent CONFED, through its General Manager Jose J. Jison, sent a Letter of Intent to petitioner VHB Biopro Enterprises (represented by Voltaire Hans N. Bongcayao) regarding the purchase of urea fertilizers. On December 11, 2007, the parties executed a Sales and Purchase Agreement wherein VHB Biopro committed to supply and deliver 250,000 bags of urea fertilizer to CONFED at Bredco Port, Bacolod City, after CONFED opened a domestic letter of credit. The agreement required VHB Biopro to procure a Performance Bond from respondent Prudential Guarantee and Assurance, Inc. (PGAI) in the amount of P5,000,000.00 to guarantee its contractual obligations. VHB Biopro, represented by petitioner Pete Nicomedes Prado, procured the bond from PGAI on December 26, 2007, securing payment with a real estate mortgage. CONFED opened the required domestic letter of credit on January 14, 2008. However, VHB Biopro failed to deliver the urea fertilizers. Consequently, CONFED demanded payment from PGAI on the Performance Bond, and PGAI paid CONFED P5,000,000.00 on April 2, 2008. Upon being notified of the claim, VHB Biopro and Prado filed a Complaint before the Regional Trial Court (RTC) seeking the nullification of the Sales and Purchase Agreement, arguing it was ambiguous because it did not specify the time frame for CONFED’s acceptance of delivery and payment of the balance, and to enjoin PGAI from foreclosing on the bond. They alleged that Jison had verbally assured them the balance would be payable within seven days from delivery. CONFED denied such assurances, maintained the contract was clear, and asserted its right to claim the bond due to VHB Biopro’s default. CONFED also counterclaimed for damages. PGAI claimed it rightfully paid as a surety and sought reimbursement from VHB Biopro and Prado under their indemnity agreement.

ISSUE

Whether the Court of Appeals erred in reversing the RTC Decision and in awarding compensatory damages to CONFED.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ Decision. The Court held that the Sales and Purchase Agreement was clear and unambiguous. The terms regarding payment were explicitly stated in Article 09: 50% of the total shipment value was payable upon submission of specified documents covering 50% of the shipment, and the balance of 50% was due “upon completion of delivery and final acceptance by the buyer of the Total Shipment Quantity.” The Court found no violation of the principle of mutuality of contracts, as the agreement did not make inspection and payment dependent solely on CONFED’s will; “final acceptance” was to be made in accordance with the contract’s inspection procedures. Petitioners’ failure to deliver the fertilizers constituted a clear breach of contract, which justified CONFED’s call on the Performance Bond. PGAI’s payment to CONFED was proper under its suretyship obligation. On the award of damages, the Court modified the CA’s decision. It upheld the grant of compensatory damages for lost profits but reduced the amount from P30,000,000.00 to P10,000,000.00, finding the original award excessive and not fully supported by evidence. The Court denied CONFED’s claims for moral damages and attorney’s fees for lack of merit. PGAI’s counterclaims were also dismissed for lack of evidence.