In the case of San Fernando Regala Trading, Inc. v. Cargill Philippines, Inc., the Supreme Court addressed the issue of breach of contract in the context of a sale of goods, specifically cane molasses. The court determined the liabilities of both parties for failing to fulfill their obligations under two separate contracts, emphasizing that failure to deliver the agreed quantity of goods constitutes a breach, and a buyer’s unjustified refusal to accept delivery also results in liability for damages. This ruling clarifies the importance of fulfilling contractual obligations in sales agreements and the consequences of failing to do so.

Molasses Mishaps: Who Bears the Loss When Deliveries Go Wrong?

Cargill Philippines, Inc. and San Fernando Regala Trading, Inc., both involved in the cane molasses trade, found themselves in a legal battle over alleged breaches of contract. Cargill claimed that San Fernando refused to accept deliveries, while San Fernando countered that Cargill failed to deliver the agreed-upon quantities of molasses. This dispute stemmed from two contracts: Contract 5026 for 4,000 metric tons (MT) of molasses and Contract 5047 for 5,000 MT. The central issue revolved around whether Cargill fulfilled its delivery obligations under these contracts and, if not, who was liable for the resulting damages.

The factual backdrop reveals that Cargill entered into Contract 5026 on July 15, 1996, agreeing to sell 4,000 MT of molasses to San Fernando at P3,950.00 per MT, with delivery scheduled for April to May 1997. Subsequently, they entered into Contract 5047 for 5,000 MT at P2,750.00 per MT, with an earlier delivery period of October to December 1996. Cargill asserted that it attempted to deliver the molasses under both contracts but was thwarted by San Fernando’s refusal to accept them, allegedly due to full storage tanks at Ajinomoto, the intended recipient. San Fernando, however, maintained that Cargill failed to make the required deliveries, leading to losses in their own supply agreements with Ajinomoto.

The Regional Trial Court (RTC) initially sided with San Fernando, finding Cargill liable for breach of contract and awarding damages for unrealized profits, moral and exemplary damages, attorney’s fees, and litigation costs. However, the Court of Appeals (CA) partially reversed this decision, holding that Cargill was not entirely in breach of Contract 5026 since an initial delivery was made and San Fernando refused a subsequent delivery. The CA also found Cargill liable for breach of Contract 5047, as no deliveries were made within the agreed period. Both parties then appealed to the Supreme Court, leading to a comprehensive review of their respective obligations and liabilities.

The Supreme Court, in its analysis, addressed whether Cargill was guilty of breaching its obligation to deliver the molasses under both contracts. Regarding Contract 5026, the Court noted that Cargill was obligated to deliver 4,000 MT of molasses during the period of April to May 1997. Since Cargill only delivered a total of 2,125 MT, the Court deemed Cargill to have breached Contract 5026 with respect to the undelivered balance of 1,875 MT of molasses.

However, the Court also acknowledged that San Fernando refused to accept a delivery of 1,174 MT of molasses on April 27, 1997, which resulted in demurrage charges for Cargill. Therefore, the Supreme Court determined that San Fernando should reimburse Cargill for these demurrage charges. Addressing Cargill’s failure to deliver the remaining 1,875 MT of molasses under Contract 5026, the Court held that Cargill must compensate San Fernando for the latter’s unrealized profits, calculated based on the profit San Fernando would have made had it been able to sell the molasses to Ajinomoto.

The Court emphasized the importance of adhering to the agreed-upon place and manner of delivery, citing Article 1521 of the Civil Code, which states that a stipulation designating the place and manner of delivery is controlling on the contracting parties. Further, Article 1497 of the Civil Code provides that the thing sold is understood as delivered to the buyer when it is placed in the buyer’s control and possession at the agreed place of delivery. Cargill’s argument that it had sufficient inventories to complete the deliveries was deemed insufficient, as it failed to present evidence of attempts to deliver the remaining balance at the agreed-upon location.

Regarding Contract 5047, the Court upheld the CA’s ruling that Cargill was in breach of contract. The contract stipulated delivery within October, November, and December 1996. Cargill’s subsequent proposal on May 14, 1997, to move the delivery dates to May, June, and July 1997, was a tacit admission of its default. San Fernando’s refusal to agree to this change further solidified Cargill’s breach. As a result, the Court found Cargill liable to San Fernando for the unrealized profits, calculated based on the profit San Fernando would have made had Cargill delivered the 5,000 MT of molasses.

The Court also addressed the issue of damages, concurring with the CA’s deletion of the RTC’s award of moral and exemplary damages, attorney’s fees, and costs of litigation. The Court noted that moral damages are generally not awarded to corporations unless the offender debased the corporation’s good reputation, which San Fernando failed to prove. Additionally, the Court found no evidence of bad faith on Cargill’s part, which is a prerequisite for recovering moral damages in contractual breaches.

The Court stated that exemplary damages are only warranted if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. The evidence did not sufficiently establish that Cargill’s failure to deliver the molasses on time was attended by such wickedness. Similarly, the Court upheld the deletion of attorney’s fees and costs of litigation, as these are typically awarded only when exemplary damages are granted.

FAQs

What was the key issue in this case?	The key issue was determining whether Cargill breached its contractual obligations to deliver molasses to San Fernando under two separate contracts and, if so, who was liable for the resulting damages. The court had to assess the actions and inactions of both parties in relation to the agreed-upon terms of the contracts.
What were the two contracts involved in this case?	The two contracts were Contract 5026 for 4,000 metric tons of molasses to be delivered in April-May 1997, and Contract 5047 for 5,000 metric tons of molasses to be delivered in October-December 1996. These contracts formed the basis of the dispute over non-delivery and refusal to accept deliveries.
Did Cargill deliver the full amount of molasses required under Contract 5026?	No, Cargill only delivered 2,125 metric tons out of the 4,000 metric tons required under Contract 5026. The Supreme Court held that this partial delivery constituted a breach of contract with respect to the undelivered balance of 1,875 metric tons.
Why did San Fernando have to reimburse Cargill for demurrage charges?	San Fernando had to reimburse Cargill because it refused to accept a delivery of 1,174 metric tons of molasses on April 27, 1997, which resulted in Cargill incurring demurrage charges. The Court found that San Fernando’s refusal was unjustified, making them liable for the resulting demurrage.
Was Cargill found liable for breach of Contract 5047?	Yes, the Supreme Court upheld the Court of Appeals’ ruling that Cargill was in breach of Contract 5047. Cargill failed to deliver any of the 5,000 metric tons of molasses within the agreed period of October-December 1996.
Why were moral and exemplary damages not awarded to San Fernando?	Moral damages were not awarded because San Fernando, as a corporation, failed to prove that Cargill’s actions had debased its reputation or that Cargill acted in bad faith. Exemplary damages were not awarded because the evidence did not establish that Cargill’s failure to deliver the molasses was attended by wanton, fraudulent, reckless, oppressive, or malevolent conduct.
What is the significance of the delivery location in this case?	The delivery location was significant because the Court emphasized that the seller must deliver the goods to the agreed-upon place to fulfill its contractual obligation. Failure to deliver the goods to the specified location constitutes a breach of contract, regardless of the seller’s capacity to deliver.
What was the final outcome of the case?	The Supreme Court partially granted the petitions and modified the Court of Appeals’ decision. San Fernando was ordered to pay Cargill for demurrage and unrealized profits on the rejected delivery, while Cargill was ordered to pay San Fernando for unrealized profits due to the breach of both contracts.

The Supreme Court’s decision in San Fernando Regala Trading, Inc. v. Cargill Philippines, Inc. serves as a clear reminder of the importance of fulfilling contractual obligations in sales agreements. The case underscores the need for both sellers and buyers to adhere to the agreed-upon terms, including delivery schedules and locations, to avoid liability for breach of contract. It also demonstrates how courts assess damages and allocate liabilities when both parties contribute to the non-performance of contractual obligations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: SAN FERNANDO REGALA TRADING, INC. VS. CARGILL PHILIPPINES, INC., G.R. No. 178042, October 09, 2013