Aerospace Chemical Industries, Inc. vs. Court of Appeals

Where the buyer has incurred delay in the performance of their obligation to pick up purchased goods, the buyer bears the risk of loss and the expenses for preservation and storage, notwithstanding the general rule that such risk remains with the seller prior to delivery. The Court held that petitioner was guilty of delay, which shifted the risk of loss under Article 1504(2) of the Civil Code, and that the sinking of petitioner's chartered vessel due to unseaworthiness did not excuse the delay, as the defect was inherent to the agent-vessel and not a fortuitous event.

Petitioner Aerospace Chemical Industries, Inc. purchased 500 metric tons (MT) of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation under a letter-contract dated June 27, 1986. The contract required the buyer to pay in Philippine currency five days prior to shipment and to secure the means of transport to lift the purchases from the seller's loadports in Basay, Negros Oriental (100 MT) and Sangi, Cebu (400 MT). The seller advised the buyer on August 6, 1986, that delay in withdrawal would incur incremental expenses of P2,000.00 per day. The buyer paid the full purchase price on October 3, 1986, but only managed to charter a vessel, M/T Sultan Kayumanggi, in November 1986. The vessel loaded only 227.51 MT across both ports before sinking due to severe listing and instability. The buyer subsequently chartered a second vessel, M/T Don Victor, but refused to lift the remaining 272.49 MT balance unless the seller also supplied an additional 227.51 MT to fill the new vessel's capacity, which the seller declined due to supply limitations.

• The Contract: On June 27, 1986, petitioner Aerospace Chemical Industries, Inc. agreed to purchase 500 MT of sulfuric acid from private respondent Philphos. The buyer was obligated to pay five days prior to shipment and to arrange its own shipping to lift the cargo from Basay (100 MT) and Sangi (400 MT). Laycan was initially set for July 1986.
• The Advisory: On August 6, 1986, Philphos sent an advisory letter stating that any delay in withdrawal would cost incremental expenses of P2,000.00 per day.
• The Payment: Petitioner paid the full purchase price of P553,280.00 on October 3, 1986.
• The First Vessel and Sinking: On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi. At Basay, the vessel heavily tilted to its port side after loading only 70.009 MT, forcing the master to stop loading. After undergoing repairs, the vessel proceeded to Sangi, Cebu, on December 18, 1986, where it again tilted, loading only 157.51 MT. The vessel subsequently sank with the 227.51 MT of sulfuric acid on board. Societe Generale de Surveillance (SGS) survey reports indicated the vessel was unstable, unseaworthy, and listing. Surveyor Eugenio Rabe testified that the weather in Basay during the loading was fair.
• The Demand: On December 12, 1986, Philphos sent a demand letter requiring petitioner to empty the Basay tanks by December 15, 1986, or be charged for tank waiting time, consequential costs, and incremental expenses.
• The Second Vessel and Additional Order: Petitioner chartered a second vessel, M/T Don Victor, with a 500 MT capacity. Instead of merely lifting the remaining 272.49 MT, petitioner demanded that Philphos supply an additional 227.51 MT to utilize the vessel's full capacity. Philphos refused the additional order due to "pyrite limitation" and delayed arrival of imported sulfuric acid, while reiterating the demand to lift the original balance.
• The Lawsuit: On May 4, 1989, petitioner filed a complaint for specific performance and/or damages. Philphos countered that petitioner was remiss in its shipping obligations and sought damages for storage and maintenance expenses totaling P628,000.00 (Basay maintenance and Sangi tank rental), which exceeded petitioner's unapplied advance payment.

• Petitioner maintained that it fully paid for 500 MT of sulfuric acid, yet Philphos delivered only 227.51 MT, constituting a breach by the seller.
• Petitioner argued that its failure to lift the cargo on time was due to force majeure—a storm that sank its chartered vessel—and thus it should be exempt from liability for damages.
• Petitioner contended that Philphos waived any prior delay by accepting the full payment without qualification on October 3, 1986, and by entering into an agreement for an additional 227.51 MT of sulfuric acid.
• Petitioner asserted that, under Article 1504 of the Civil Code, expenses for the storage and preservation of fungible goods must be borne by the seller until ownership is transferred.
• Petitioner challenged the appellate court's reliance on a photocopy of the alleged agreement to hold it liable for damages, arguing it violated the rules on evidence.

• Respondent countered that petitioner was obligated under the contract to arrange shipping and lift the sulfuric acid from the designated loadports.
• Respondent argued that petitioner's delay was unjustified because the sinking of M/T Sultan Kayumanggi was caused by the vessel's unseaworthiness, not a fortuitous event.
• Respondent maintained that it had no obligation to accommodate petitioner's additional order of 227.51 MT, and petitioner's refusal to lift the 272.49 MT balance unless the additional order was fulfilled constituted bad faith and delay.
• Respondent asserted that petitioner should be liable for the storage and maintenance expenses incurred due to the prolonged failure to lift the cargo.

• Procedural Issues:
  • Whether the Supreme Court may review the factual findings of the Court of Appeals that contradict the findings of the trial court.
• Substantive Issues:
  • Whether petitioner committed breach of contract and delay in the performance of its obligation to lift the purchased sulfuric acid.
  • Whether the sinking of petitioner's chartered vessel constituted force majeure that would exempt it from liability.
  • Whether private respondent committed a breach of contract by refusing to supply the additional 227.51 MT of sulfuric acid.
  • Whether the award of damages to private respondent was proper, and from what date the delay should be computed.
  • Whether the expenses for the storage and preservation of the fungible goods should be borne by the seller under Article 1504 of the Civil Code.

• Procedural: The Court held that it may review the factual findings of the Court of Appeals when they contradict those of the trial court. However, upon review, the Court found the appellate court's conclusion that petitioner violated the contract amply supported by preponderant evidence.
• Substantive: The Court ruled that petitioner committed breach of contract and delay. Petitioner was obligated to charter a seaworthy vessel to lift the cargo. The sinking of M/T Sultan Kayumanggi did not constitute force majeure; SGS survey reports and the surveyor's testimony established that the vessel was unstable, unseaworthy, and listing, and that the weather was fair at the time of loading. Because the vessel was petitioner's agent, its defects were attributable to petitioner, which was incumbent upon replacing it seasonably after the failed loading.
• The Court found that private respondent committed no breach in refusing the additional 227.51 MT order. The seller had no obligation to agree to the additional order, and its inability to supply the extra quantity did not justify petitioner's refusal to lift the remaining 272.49 MT balance.
• Regarding the computation of damages, the Court held that the August 6, 1986 letter was a mere advisory, not a categorical extrajudicial demand, especially since Philphos accepted full payment without qualification on October 3, 1986. Delay commenced only after the categorical demand in the December 12, 1986 letter, which required petitioner to empty the tanks by December 15, 1986. Consequently, petitioner is liable for P272,000.00 in Sangi tank rental expenses from December 15, 1986 to August 31, 1987.
• The Court held that Article 1504 of the Civil Code does not exempt the buyer. The general rule that the seller bears the risk of loss before delivery does not apply where actual delivery has been delayed through the fault of the buyer. Under Article 1504(2), the goods are at the risk of the party at fault.
• Finally, the Court authorized a legal set-off. Petitioner's advance payment of P303,483.37 for the unlifted sulfuric acid was deducted by the P272,000.00 in rental damages owed to private respondent, leaving an excess of P31,483.37 to be refunded to petitioner.

• Mora (Delay) — To incur delay, the following requisites must be present: (1) the obligation is demandable and already liquidated; (2) the debtor delays performance; and (3) the creditor requires the performance judicially or extrajudicially. The Court applied this to determine that petitioner's delay commenced only upon a categorical extrajudicial demand on December 12, 1986, not upon a mere advisory on August 6, 1986.
• Risk of Loss in Sales (Art. 1504) — Unless otherwise agreed, goods remain at the seller's risk until ownership is transferred to the buyer. However, an exception exists where actual delivery has been delayed through the fault of either the buyer or seller, in which case the goods are at the risk of the party at fault. The Court applied this exception to hold the buyer liable for storage expenses incurred due to its delay in lifting the goods.
• Force Majeure — A fortuitous event exempts a debtor from liability. However, the sinking of a vessel due to unseaworthiness and inherent defects (e.g., listing, defective pumps) is not a fortuitous event, especially when weather conditions are fair. The Court held that because the chartered vessel was the buyer's agent, the buyer bore the consequences of the vessel's unseaworthiness.
• Parol Evidence Rule — Proof of verbal agreements offered to vary the terms of written agreements is inadmissible. The Court applied this to reject petitioner's claim that a verbal recommendation by the seller's employee modified the contract to require the seller to provide an additional 227.51 MT of sulfuric acid.

• "Since the third party surveyor was neither petitioner's nor private respondent's employee, his professional report should carry more weight than that of Melecio Hernandez, an employee of petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping requirements of the cargo from the private respondent's loadports to the petitioner's designated warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel was petitioner's agent. When it failed to comply with the necessary loading conditions of sulfuric acid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another seaworthy vessel."
• "However, the general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states: ... (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault."

• Mijares vs. CA, 271 SCRA 558 (1997) — Cited as controlling authority for the principle that the Supreme Court may review the factual findings of the Court of Appeals when they contradict those of the trial court.
• Gerales vs. Court of Appeals, 218 SCRA 638 (1993) — Followed for the parol evidence rule, holding that proof of verbal agreements offered to vary the terms of written agreements is inadmissible.
• SSS vs. Moonwalk Development and Housing Corporation, 221 SCRA 119 (1993) — Followed for the requisites of delay (mora) under Article 1169 of the Civil Code.
• Development Bank of the Philippines vs. Court of Appeals, 249 SCRA 331 (1995) — Followed to justify the allowance of a counterclaim or set-off in the same action, to avoid circuitry of action and multiplicity of suits.

• Article 1170, Civil Code — Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. Applied to hold petitioner liable for damages arising from its delay and negligence in lifting the sulfuric acid.
• Article 1169, Civil Code — Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Applied to determine the commencement of petitioner's delay upon extrajudicial demand.
• Article 1504, Civil Code — Governs the risk of loss in sales. The Court specifically applied paragraph (2), the exception stating that where actual delivery has been delayed through the fault of either the buyer or seller, the goods are at the risk of the party at fault, thereby placing the storage costs on the delinquent buyer.

Bellosillo, Mendoza, and Buena, JJ.