Lorenzo Shipping Corp. v. BJ Marthel International, Inc.
REITERATIONFacts
The Antecedents: Respondent BJ Marthel International, Inc. (BJ Marthel) supplied petitioner Lorenzo Shipping Corporation (LSC) with spare parts for marine engines. In 1989, BJ Marthel provided LSC with a quotation for various machine parts, including cylinder liners, with a stated delivery of "within 2 months after receipt of firm order" and terms of payment of "25% upon delivery, balance payable in 5 bi-monthly equal installments." LSC issued Purchase Order No. 13839 for one cylinder liner at P477,000.00, with payment terms of "25% DOWN PAYMENT 5 BI-MONTHLY INSTALLMENT[S]". Instead of a down payment, LSC issued ten postdated checks. LSC later issued Purchase Order No. 14011 for another cylinder liner, also without a specified delivery date. One of the postdated checks issued by LSC was dishonored due to insufficient funds. BJ Marthel ordered the two cylinder liners from its principal in Japan. On April 20, 1990, BJ Marthel delivered the two cylinder liners to LSC's warehouse, with the sales invoices bearing the notation "subject to verification." BJ Marthel sent a Statement of Account, but LSC did not settle the payment for the two cylinder liners. BJ Marthel sent demand letters, which LSC countered with an offer to pay only P150,000.00, claiming late delivery and the scrapping of the vessel M/V Dadiangas Express. BJ Marthel filed a complaint for sum of money and damages. Procedural History: The Regional Trial Court (RTC) dismissed BJ Marthel's complaint, holding that BJ Marthel was bound by its quotation regarding payment and delivery terms and that BJ Marthel agreed to the cancellation of the contract by returning the postdated checks. The Court of Appeals (CA) reversed the RTC decision, holding that time was not of the essence, BJ Marthel did not incur delay as no demand was made, and there was no evidence of cancellation. The CA ordered LSC to pay BJ Marthel P954,000.00 plus interest. The Petition: LSC filed a petition for review, raising issues of whether BJ Marthel incurred delay and whether the contract was validly rescinded by LSC.
Issue(s)
Whether time was of the essence in the contract of sale of the cylinder liners. Whether Lorenzo Shipping Corporation validly rescinded the contract of sale due to alleged late delivery. Whether Lorenzo Shipping Corporation waived its right to claim for delay by accepting the delivered cylinder liners.
Ruling
The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. It held that time was not of the essence in the contract of sale, the delivery was made within a reasonable time, and Lorenzo Shipping Corporation waived any claim of delay by accepting the cylinder liners. Consequently, Lorenzo Shipping Corporation could not validly rescind the contract.
Ratio Decidendi
On the issue of whether time was of the essence: The Court held that time is of the essence in a contract only when it is made a material element, either by express stipulation or by the apparent intention of the parties. In this case, while the initial quotation from BJ Marthel mentioned a delivery within two months, the subsequent purchase orders prepared by LSC omitted specific delivery dates. The testimonies of BJ Marthel's witnesses indicated that the terms were renegotiated, and LSC's own purchase orders did not reflect the urgency it now claimed. The Court emphasized that the intention of the parties is primordial in interpreting contracts, and the omission of specific delivery dates in the purchase orders, coupled with the significant lapse of time between the quotation and the purchase orders, indicated that time was not of the essence. The Court cited Smith, Bell & Co., Ltd. v. Matti to support the principle that when the time of delivery is not fixed or is stated in general terms, time is not of the essence and delivery must be made within a reasonable time. On the issue of whether Lorenzo Shipping Corporation validly rescinded the contract due to alleged late delivery: The Court ruled that LSC could not validly rescind the contract because BJ Marthel did not fail to perform its obligation. The Court found that time was not of the essence, and the delivery on April 20, 1990, was within a reasonable period, considering BJ Marthel had to order the liners from Japan and that the supplier was experiencing a heavy volume of work. Furthermore, the Court noted that LSC did not notify BJ Marthel of its intention to rescind the contract. The act of BJ Marthel in opening an irrevocable letter of credit on February 23, 1990, belied LSC's claim of cancellation. The Court reiterated that the right to rescind is not unbridled and must be based on a failure to perform an obligation, as provided in Article 1191 of the Civil Code. On the issue of waiver of delay by acceptance: The Court held that LSC's acceptance of the cylinder liners when delivered to its warehouse on April 20, 1990, constituted a waiver of any claimed delay. The Court stated that even where time is of the essence, a breach in that respect may be waived by the other party's subsequent conduct treating the contract as still in force. By receiving the cylinder liners, LSC clearly considered the contract of sale to be subsisting. The Court found that LSC's receipt of the goods, even if marked "subject to verification," indicated that it no longer had grounds to claim cancellation due to delay. This act unequivocally waived the claimed delay in the delivery of the items.
Main Doctrine
In a contract of sale, time is of the essence only when it is made a material element of the contract, either by express stipulation or by the conduct of the parties. If time is not of the essence, delivery must be made within a reasonable time. Furthermore, the acceptance of the goods despite a claimed delay constitutes a waiver of such delay.