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RodzssenSupplyCo.,Inc.vs.FarEastBank&TrustCo.
*

G.R.No.109087.May9,2001.

RODZSSENSUPPLYCO.,INC.,petitioner,vs.FAREASTBANK
&TRUSTCO.,respondent.
Civil Law Obligations and Contracts When both parties to a
transaction are mutually negligent in the performance of their obligations,
thefaultofonecancelsthenegligenceoftheother.Whenbothpartiestoa
transactionaremutuallynegligentintheperformanceoftheirobligations,the
fault of one cancels the negligence of the other and, as in this case, their
rightsandobligationsmaybedeterminedequitablyunderthelawproscribing
unjustenrichment.

PETITIONforreviewoncertiorariofadecisionoftheCourtof
Appeals.
ThefactsarestatedintheopinionoftheCourt.
M.B.Mahinay&Associatesforpetitioner.
RomeoB.Esuerteforprivaterespondent.
PANGANIBAN,J.:
When both parties to a transaction are mutually negligent in the
performance of their obligations, the fault of one cancels the
negligence of the other. Thus, their rights and obligations may be
determinedequitably.Nooneshallenrichoneselfattheexpenseof
another.
TheCase
1

Before us is a Petition for Review on Certiorari under Rule


45 of
2
theRulesofCourt,assailingtheJanuary21,1993Decision
ofthe
3
CourtofAppeals (CA)inCAGRCVNo.26045.Thechallenged
_____________
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*THIRDDIVISION.
1Rollo,pp.936.
2Rollo,pp.3844.
3 First Division composed of Presiding Judge Lorna S. Lombosde La Fuente A.

(Division chairman and ponente) and Justices Jaime M. Lantin and Fortunato A.
Vailoces,bothofwhomconcurred.
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RodzssenSupplyCo.,Inc.vs.FarEastBank&TrustCo.

DecisionaffirmedwithmodificationtherulingoftheRegionalTrial
Court of Bacolod City in Civil Case No. 2296. The CA ruled as
follows:
WHEREFORE, the decision under appeal should be, as it is hereby
affirmed in all its aspects, except for the deletion of paragraph 2 of its
dispositive portion, which paragraph shall be replaced by a new paragraph
whichshallreadasfollows:
2.orderingthedefendanttopaytheplaintiffthesumequivalentto10%ofthetotal
amountdueandcollectible,asattorneysfeesand
4

Nopronouncementastocosts.

Ontheotherhand,thetrialcourthadrenderedthisjudgment:
1. Ordering the defendant to pay the plaintiff the sum of
P76,000.00, representing the principal amount being
claimed in this action, plus interest thereon at the rate of
12% per annum counted from October 1979 until fully
paid
2. Ordering the defendant to pay the plaintiff the sum
equivalent to 25% of the total amount due and collectible
and
5

3. Orderingthedefendanttopaythecostsofthesuit.

TheFacts
Thefactualandproceduralantecedentsofthecasearesummarized
bytheCourtofAppealsasfollows:
Inthecomplaintfromwhichthepresentproceedingsoriginated,itisalleged
that on January 15, 1979, defendant Rodzssen Supply, Inc. opened with
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plaintiffFarEastBankandTrustCo.a30daydomesticletterofcredit,LC
No. 52/0428/79D, in the amount of P190,000.00 in favor of Ekman and
Company, Inc. (Ekman) for the purchase from the latter of five units of
hydraulic loaders, to expire on February 15, 1979 that subsequent
amendmentsextendedthevalidityofsaidLCuptoOctober16,1979thaton
March16,1979,threeunitsofthehydraulicloaders
_____________
4Rollo,p.44.
5 RTC Decision, p. 7 RTC Records, pp. 246252. The August 15, 1989 Decision was

pennedbyJudgeRomeoS.Habaradas.

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SUPREMECOURTREPORTSANNOTATED
RodzssenSupplyCo.,Inc.vs.FarEastBank&TrustCo.

were delivered to defendant for which plaintiff on March 26, 1979, paid
Ekman the sum of P114,000.00, which amount defendant paid plaintiff
before the expiry date of the LC that the shipment of the remaining two
unitsofhydraulicloadersvaluedatP76,000.00sentbyEkmanwasreadily
receivedbythedefendantbeforetheexpirydate[of]subjectLCthatupon
Ekmans presentation of the documents for the P76,000.00 representing
final negotiation on the LC before the expiry date, and after a series of
negotiations, plaintiff paid to Ekman the amount of P76,000.00 and that
upon plaintiffs demand on defendant to pay for said amount (P76,000.00),
defendantrefusedtopay...withoutanyvalidreason.Plaintiffpraysfor
judgmentorderingdefendanttopaytheabovementionedP76,000.00plusdue
interestthereon,plus25%oftheamountoftheawardasattorneysfees.
In the Answer, defendant interposed, interalia, by way of special and
affirmativedefensesthatplaintiffha[d]nocauseofactionagainstdefendant
thattherewasabreachofcontractbyplaintiffwhoinbadfaithpaidEkman,
knowing that the two units of hydraulic loaders had been delivered to
defendantaftertheexpirydateofsubjectLCandthatinviewofthebreach
ofcontract,defendantofferedtoreturntoplaintiffthetwounitsofhydraulic
loaders, presently still with the defendant but plaintiff refused to take
possessionthereof.
The trial courts ruling that plaintiff [was] entitled to recover from
defendant the amount of P76,000.00 was based on its following
findings/conclusions: (1) under the contract of sale of the five loaders
between Ekman and defendant, upon Ekmans delivery to, and acceptance
by, defendant of the two remaining units of the five loaders, defendant
became liable to Ekman for the payment of said two units. However, as
defendantdidnotpayEkman,thelatterpressedplaintiffforthepaymentof
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saidtwoloadersintheamountofP76,000.00.Inthehonestbeliefthatitwas
stillunderobligationtoEkmanforsaidamount,consideringthatEkmanhad
presented all the necessary documents, plaintiff voluntarily paid the said
amount to Ekman. Plaintiffs x x x voluntary and lawful act of payment
g[a]ve rise to a quasicontract between plaintiff and defendant and if
defendant should escape liability for said amount, the result would be to
allowdefendanttoenrichitselfatplaintiffsexpensexxx.
x x x. While defendant, indeed offered to return the two loaders to
plaintiff, x x x this offer was made 3 years after defendants receipt of the
goods,whenplaintiffpressedforpayment.Bysaidvoluntaryacceptanceof
the two loaders, estoppel works against defendant who should have refused
deliveryof,and/orimmediatelyofferedtoreturn,thegoods.
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RodzssenSupplyCo.,Inc.vs.FarEastBank&TrustCo.
Accordingly,judgmentwasrenderedinfavoroftheplaintiffandagainstthe
6
defendantxxx.

TheCARuling
TheCArejectedpetitionersimputationofbadfaithandnegligence
torespondentbankforpayingforthetwohydraulicloaders,which
hadbeendeliveredaftertheexpirationofthesubjectletterofcredit.
The appellate court pointed out that petitioner received the
equipment after the letter of credit had expired. To absolve
defendant from liability for the price of the same, the CA
explained, is to allow it to get away with its unjust enrichment at
theexpenseoftheplaintiff.
7
Hence,thisPetition.
Issues
Petitionerpresentsthefollowingissuesforresolution:
1. Whetherornotitisproperforabankinginstitutiontopaya
letterofcreditwhichhaslongexpiredorbeencancelled.
2. Whether or not respondent courts were correct in their
conclusion that there was a consummated sale between
petitionerandEkmanCo.
3. WhetherornotRespondentCourtofAppealswascorrectin
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evading the issues raised in the appeal that under the trust
receipt, petitioner was merely the depositary of private
respondent
with respect to the goods covered by the trust
8
receipt.
_____________
6Rollo,pp.3840.
7Toeliminateitsbacklog,theCourtonFebruary27,2001resolvedtoredistribute

longpendingcasestojusticeswhohadnone,andwhowerethustaskedtoprioritize
these old cases. Consequently, this case was raffled to the ponente for study and
report.
8PetitionersMemorandum,p.10p.120.Uppercaseusedintheoriginal.

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SUPREMECOURTREPORTSANNOTATED
RodzssenSupplyCo.,Inc.vs.FarEastBank&TrustCo.

TheCourtsRuling
WeaffirmtheCourtofAppeals,butlowertheinterestratetoonly6
percentanddeletetheawardofattorneysfees.
FirstIssue:
EfficacyofLetterofCredit
Petitioner asserts that respondent bank was negligent in paying for
the two hydraulic loaders, when it no longer had any obligation to
do so in view of the expiration and cancellation of the Letter of
Credit.
Petitioner Rodzssen Supply Inc. applied for and obtained an
irrevocable 30day domestic Letter of Credit from Far East Bank
andTrustCompanyInc.onJanuary15,1979,infavorofEkmanand
Company Inc., in order to finance the purchase of five units of
hydraulicloadersintheamountofP190,000.Originallysettoexpire
on February 15, 1979, the subject Letter of Credit was amended
severaltimestoextenditsvalidityuntilOctober16,1979.
The Letter of Credit expressly restricted the negotiation to
respondent bank and specifically instructed Ekman and Company
Inc. to tender the following documents: (1) delivery receipt duly
acknowledgedbythebuyer,(2)accepteddraft,and(3)dulysigned
commercialinvoices.Likewise,theinstrumentcontainedaprovision
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9

withregardtoitsexpirationdate.
Forthefirstthreehydraulicloadersthatweredelivered,thebank
paidtheamountspecifiedintheletterofcredit.Thepresentdispute
pertainsonlytothelasttwohydraulicloaders.
Clearly, the bank paid Ekman when the former was no longer
boundtodosounderthesubjectLetterofCredit.Therecordsshow
that respondent paid the latter
P76,000 for the last two hydraulic
10
loadersonMarch14,1980, fivemonthsaftertheexpirationofthe
11
LetterofCreditonOctober16,1979. Infact,onDecember27,
______________
9RTCRecords,p.5.
10RTCRecords,p.140.
11Ibid.,p.193.

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RodzssenSupplyCo.,Inc.vs.FarEastBank&TrustCo.

1979, the bank had informed Rodzssen of the cancellation of the


commercialpaperandcreditedP22,800totheaccountofthelatter.
The amount represented the marginal deposit, which petitioner had
beenrequiredtoputupfortheunnegotiatedportionoftheLetterof
12
CreditP76,000forthetwohydraulicloaders.
ThesubjectLetterofCredithadbecomeinvaliduponthelapseof
13
the period fixed therein. Thus, respondent should not have paid
Ekmanitwasnotobligedtodoso.Inthesamevein,ofnomoment
was Ekmans presentation, within the prescribed period, of all the
documents necessary for collection, as the Letter of Credit had
alreadyexpiredandhadinfactbeencancelled.
SecondIssue:
WasPetitionerLiabletoRespondent?
Bethatasitmay,weagreewiththeCAthatpetitionershouldpay
respondent bank the amount the latter expended for the equipment
belatedlydeliveredbyEkmanandvoluntarilyreceivedandkept by
petitioner.
Respondent banks right to seek recovery from petitioner is
anchored,notupontheinefficaciousLetterofCredit,butonArticle
2142oftheCivilCodewhichreadsasfollows:
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Certain lawful, voluntary and unilateral acts give rise to the juridical
relationofquasicontracttotheendthatnooneshallbeunjustlyenrichedor
benefitedattheexpenseofanother.

Indeed, equitable considerations behoove us to allow recovery by


respondent.True,iterredinpayingEkman,butpetitioneritselfwas
not without fault in the transaction. It must be noted that the latter
hadvoluntarilyreceivedandkepttheloaderssinceOctober1979.
Petitioner claims that it accepted the late delivery of the
equipment, only because it was bound to accept it under the
companystrustreceiptarrangementwithrespondentbank.
______________
12Ibid.,p.187.
13Vitug,PandectofCommercialLawandJurisprudence,revisededition,p.17.

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SUPREMECOURTREPORTSANNOTATED
RodzssenSupplyCo.,Inc.vs.FarEastBank&TrustCo.

Granting that petitioner was bound under such arrangement to


accept the late delivery of the equipment, we note its unexplained
inaction for almost four years with regard to the status of the
ownershiporpossessionoftheloaders.Bewilderingwasitslackof
action to validate the ownership and possession pf the loaders, as
well as its stolidity over the purported failed sales transaction.
Significanttooisthefactthatitformalizeditsoffertoreturnthetwo
pieces of equipment only after respondents demand for payment,
whichcamemorethanthreeyearsafteritaccepteddelivery.
Whenbothpartiestoatransactionaremutuallynegligentinthe
performance of their obligations, the fault of one cancels the
negligence of the other and, as in this case, their rights and
obligationsmaybedeterminedequitablyunderthelawproscribing
unjustenrichment.
PaymentofInterest
We, however, disagree with both the CA and the trial courts
impositionof12percentinterestonthesumtobepaidbypetitioner.
14
InEasternShippingLinesv.CA, theCourtlaiddownthefollowing
guidelinesintheimpositionofinterest:
xxxxxxxxx
2. When an obligation, not constituting a loan or forbearance of money,
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isbreached,aninterestontheamountofdamagesawardedmaybeimposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable certainty.
Accordingly,wherethedemandisestablishedwithreasonablecertainty,the
interest shall begin to run from the time the claim is made judicially or
extrajudicially(Art.1169,CivilCode)butwhensuchcertaintycannotbeso
reasonably established at the time the demand is made, the interest shall
begintorunonlyfromthedatethejudgmentofthecourtismade(atwhich
timethequantificationofdamagesmaybe
_____________
14234SCRA88,July12,1994,perVitug,J.SeealsoKengHuaPaperProductsCo.,Inc.

v. Court of Appeals, 286 SCRA 257, February 12, 1998 Eastern Assurance and Surety
Corporationv.CA,GRNo.127135,January18,2000,322SCRA73CrisminaGarmentsv.
CA,304SCRA356,March9,1999.

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RodzssenSupplyCo.,Inc.vs.FarEastBank&TrustCo.

deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finalityuntilitssatisfaction,thisinterimperiodbeingdeemedtobebythen
anequivalenttoaforbearanceofcredit.

Althoughthesumofmoneyinvolvedinthiscasewaspayabletoa
bank,thepresentfactualmilieuclearlyshowsthatitwasnotaloan
or forbearance of money. Thus, pursuant to established
jurisprudenceandArticle2009oftheCivilCode,petitionerisbound
topayinterestat6percentperannum,computedfromApril7,1983,
thetimerespondentbankdemandedpaymentfrompetitioner.From
thefinalityofthejudgmentuntilitssatisfaction,theinterestshallbe
12percentperannum.
AttorneysFees
Consideringthatnegligenceisimputabletobothparties,bothshould
bear their respective costs of the suit. We15also delete the award of
attorneysfeesinfavorofrespondentbank.
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WHEREFORE, the Petition is DENIED and the assailed


Decision of the Court of Appeals AFFIRMED with the following
MODIFICATIONS:
1. Petitioner Rodzssen Supply Co., Inc. is ORDERED to
reimburse Respondent Far East Bank and Trust Co., Inc.
P76,000 plus interest thereon at the rate of 6 percent per
annum computed from April 7, 1983. After this judgment
becomesfinal,theinterestshallbe12percentperannum.
2. The award of attorneys fees in favor of respondent is
DELETED.
3. Nopronouncementastocosts.
_______________
15Art.2208,CivilCode.

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SUPREMECOURTREPORTSANNOTATED
DevelopmentBankofthePhilippinesvs.CourtofAppeals

SOORDERED.
Melo (Chairman), Vitug, GonzagaReyes and Sandoval
Gutierrez,JJ.,concur.
Petitiondenied,judgmentaffirmedwithmodifications.
Note.Wheretherehasbeenbreachofcontractbythebuyer,the
seller has a right of action for damages. (Aerospace Chemical
Industries,Inc.vs.CourtofAppeals,315SCRA92[1999])
o0o

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