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RepublicofthePhilippines
SUPREMECOURT
Manila

THIRDDIVISION

G.R.No.109087May9,2001

RODZSSENSUPPLYCO.INC.,petitioner,
vs.
FAREASTBANK&TRUSTCO.,respondent.

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 determined equitably. No one shall
enrichoneselfattheexpenseofanother. 1wphi1.nt

TheCase

BeforeusisaPetitionforReviewonCertiorari1underRule45oftheRulesofCourt,assailingtheJanuary21,1993
Decision2 of the Court of Appeals3 (CA) in CAGR CV No. 26045. The challenged Decision affirmed with
modificationtherulingoftheRegionalTrialCourtofBacolodCityinCivilCaseNo.2296.TheCAruledasfollows:

"WHEREFORE,thedecisionunderappealshouldbe,asitisherebyaffirmedinallitsaspects,exceptforthe
deletion of paragraph 2 of its dispositive portion, which paragraph shall be replaced by a new paragraph
whichshallreadasfollows:

'2.orderingthedefendanttopaytheplaintiffthesumequivalentto10%ofthetotalamountdueand
collectible,asattorney'sfeesand'

"Nopronouncementastocosts."4

Ontheotherhand,thetrialcourthadrenderedthisjudgment:

"1.OrderingthedefendanttopaytheplaintiffthesumofP76,000.00,representingtheprincipalamountbeing
claimed in this action, plus interest thereon at the rate of 12% per annum counted from October 1979 until
fullypaid

"2. Ordering the defendant to pay the plaintiff the sum equivalent to 25% of the total amount due and
collectibleand

"3.Orderingthedefendanttopaythecostsofthesuit."5

TheFacts

ThefactualandproceduralantecedentsofthecasearesummarizedbytheCourtofAppealsasfollows:

"In the complaint from which the present proceedings originated, it is alleged that on January 15, 1979,
defendantRodzssenSupply,Inc.openedwithplaintiffFarEastBankandTrustCo.a30daydomesticletter
ofcredit,LCNo.52/0428/79D,intheamountofP190,000.00infavorofEkmanandCompany,Inc.(Ekman)
for the purchase from the latter of five units of hydraulic loaders, to expire on February 15, 1979 that
subsequentamendmentsextendedthevalidityofsaidLCuptoOctober16,1979thatonMarch16,1979,
three units of the hydraulic loaders were delivered to defendant for which plaintiff on March 26, 1979, paid
EkmanthesumofP114,000.00,whichamountdefendantpaidplaintiffbeforetheexpirydateoftheLCthat
theshipmentoftheremainingtwounitsofhydraulicloadersvaluedatP76,000.00sentbyEkmanwas'readily
received by the defendant' before the expiry date [of] subject LC that upon Ekman's presentation of the
documentsfortheP76,000.00'representingfinalnegotiation'ontheLCbeforetheexpirydate,and'aftera
seriesofnegotiations',plaintiffpaidtoEkmantheamountofP76,000.00andthatuponplaintiff'sdemandon
 defendant to pay for said amount (P76,000.00), defendant' refused to pay ... without any valid reason'.
Plaintiff prays for judgment ordering defendant to pay the abovementioned P76,000.00 plus due interest
thereon,plus25%oftheamountoftheawardasattorney'sfees.

"IntheAnswer,defendantinterposed,interalia,bywayofspecialandaffirmativedefensesthatplaintiffha[d]
no cause of action against defendant that there was a breach of contract by plaintiff who in bad faith paid
Ekman,knowingthatthetwounitsofhydraulicloadershadbeendeliveredtodefendantaftertheexpirydate
ofsubjectLCandthatinviewofthebreachofcontract,defendantofferedtoreturntoplaintiffthetwounitsof
hydraulicloaders,'presentlystillwiththedefendant'butplaintiffrefusedtotakepossessionthereof.

"Thetrialcourt'srulingthatplaintiff[was]entitledtorecoverfromdefendanttheamountofP76,000.00was
basedonitsfollowingfindings/conclusions:(1)underthecontractofsaleofthefiveloadersbetweenEkman
anddefendant,uponEkman'sdeliveryto,andacceptanceby,defendantofthetworemainingunitsofthefive
loaders,defendantbecameliabletoEkmanforthepaymentofsaidtwounits.However,asdefendantdidnot
payEkman,thelatterpressedplaintiffforthepaymentofsaidtwoloadersintheamountofP76,000.00.Inthe
honest belief that it was still under obligation to Ekman for said amount, considering that Ekman had
presented all the necessary documents, plaintiff voluntarily paid the said amount to Ekman. Plaintiff's 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 allow defendant to enrich itself at
plaintiff'sexpensexxx.

"xxx.Whiledefendant,indeedofferedtoreturnthetwoloaderstoplaintiff,xxxthisofferwasmade3years
after defendant's receipt of the goods, when plaintiff pressed for payment. By said voluntary acceptance of
thetwoloaders,estoppelworksagainstdefendantwhoshouldhaverefuseddeliveryof,and/orimmediately
offeredtoreturn,thegoods.

"Accordingly,judgmentwasrenderedinfavoroftheplaintiffandagainstthedefendantxxx."6

TheCARuling

The CA rejected petitioner's imputation of bad faith and negligence to respondent bank for paying for the two
hydraulic loaders, which had been delivered after the expiration of the subject letter of credit. The appellate court
pointedoutthatpetitionerreceivedtheequipmentaftertheletterofcredithadexpired."Toabsolvedefendantfrom
liability for the price of the same," the CA explained, "is to allow it to get away with its unjust enrichment at the
expenseoftheplaintiff."

Hence,thisPetition.7

Issues

Petitionerpresentsthefollowingissuesforresolution:

"1.Whetherornotitisproperforabankinginstitutiontopayaletterofcreditwhichhaslongexpiredorbeen
cancelled.

"2. Whether or not respondent courts were correct in their conclusion that there was a consummated sale
betweenpetitionerandEkmanCo.

"3.WhetherornotRespondentCourtofAppealswascorrectinevadingtheissuesraisedintheappealthat
underthetrustreceipt,petitionerwasmerelythedepositaryofprivaterespondentwithrespecttothegoods
coveredbythetrustreceipt."8

TheCourt'sRuling

WeaffirmtheCourtofAppeals,butlowertheinterestratetoonly6percentanddeletetheawardofattorney'sfees.

FirstIssue:

EfficacyofLetterofCredit

Petitionerassertsthatrespondentbankwasnegligentinpayingforthetwohydraulicloaders,whenitnolongerhad
anyobligationtodosoinviewoftheexpirationandcancellationoftheLetterofCredit.

PetitionerRodzssenSupplyInc.appliedforandobtainedanirrevocable30daydomesticLetterofCreditfromFar
EastBankandTrustCompanyInc.onJanuary15,1979,infavorofEkmanandCompanyInc.,inordertofinance
thepurchaseoffiveunitsofhydraulicloadersintheamountofP190,000.OriginallysettoexpireonFebruary15,
1979,thesubjectLetterofCreditwasamendedseveraltimestoextenditsvalidityuntilOctober16,1979.
TheLetterofCreditexpresslyrestrictedthenegotiationtorespondentbankandspecificallyinstructedEkmanand
CompanyInc.totenderthefollowingdocuments:(1)deliveryreceiptdulyacknowledgedbythebuyer,(2)accepted
draft, and (3) duly signed commercial invoices. Likewise, the instrument contained a provision with regard to its
expirationdate.8

Forthefirstthreehydraulicloadersthatweredelivered,thebankpaidtheamountspecifiedintheletterofcredit.
Thepresentdisputepertainsonlytothelasttwohydraulicloaders.

Clearly,thebankpaidEkmanwhentheformerwasnolongerboundtodosounderthesubjectLetterofCredit.The
recordsshowthatrespondentpaidthelatterP76,000forthelasttwohydraulicloadersonMarch14,1980,10five
monthsaftertheexpirationoftheLetterofCreditonOctober16,1979.11Infact,onDecember27,1979,thebank
had informed Rodzssen of the cancellation of the commercial paper and credited P22,800 to the account of the
latter. The amount represented the marginal deposit, which petitioner had been required to put up for the
unnegotiatedportionoftheLetterofCreditP76,000forthetwohydraulicloaders.12

The subject Letter of Credit had become invalid upon the lapse of the period fixed therein.13 Thus, respondent
should not have paid Ekman it was not obliged to do so. In the same vein, of no moment was Ekman's
presentation,withintheprescribedperiod,ofallthedocumentsnecessaryforcollection,astheLetterofCredithad
alreadyexpiredandhadinfactbeencancelled.

SecondIssue:

WasPetitionerLiabletoRespondent?

Bethatasitmay,weagreewiththeCAthatpetitionershouldpayrespondentbanktheamountthelatterexpended
fortheequipmentbelatedlydeliveredbyEkmanandvoluntarilyreceivedandkeptbypetitioner.

Respondentbank'srighttoseekrecoveryfrompetitionerisanchored,notupontheinefficaciousLetterofCredit,but
onArticle2142oftheCivilCodewhichreadsasfollows:

"Certainlawful,voluntaryandunilateralactsgiverisetothejuridicalrelationofquasicontracttotheendthat
nooneshallbeunjustlyenrichedorbenefitedattheexpenseofanother."

Indeed,equitableconsiderationsbehooveustoallowrecoverybyrespondent.True,iterredinpayingEkman,but
petitioneritselfwasnotwithoutfaultinthetransaction.Itmustbenotedthatthelatterhadvoluntarilyreceivedand
kepttheloaderssinceOctober1979.

Petitionerclaimsthatitacceptedthelatedeliveryoftheequipment,onlybecauseitwasboundtoacceptitunderthe
company'strustreceiptarrangementwithrespondentbank.

Grantingthatpetitionerwasboundundersucharrangementtoacceptthelatedeliveryoftheequipment,wenoteits
unexplainedinactionforalmostfouryearswithregardtothestatusoftheownershiporpossessionoftheloaders.
Bewildering was its lack of action to validate the ownership and possession of the loaders, as well as its stolidity
over the purported failed sales transaction. Significant too is the fact that it formalized its offer to return the two
pieces of equipment only after respondent's demand for payment, which came more than three years after it
accepteddelivery.

When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one
cancelsthenegligenceoftheotherand,asinthiscase,theirrightsandobligationsmaybedeterminedequitably
underthelawproscribingunjustenrichment.

PaymentofInterest

We,however,disagreewithboththeCAandthetrialcourt'simpositionof12percentinterestonthesumtobepaid
bypetitioner.InEastern Shipping Lines v. CA,14 the Court laid down the following guidelines in the imposition of
interest:

"xxxxxxxxx

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amountofdamagesawardedmaybeimposedatthediscretionofthecourtattherateof6%perannum.No
interest,however,shallbeadjudgedonunliquidatedclaimsordamagesexceptwhenoruntilthedemandcan
be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty,theinterestshallbegintorunfromthetimetheclaimismadejudiciallyorextrajudicially(Art.1169,
CivilCode)butwhensuchcertaintycannotbesoreasonablyestablishedatthetimethedemandismade,the
interest shall begin to run only from the date the judgment of the court is made (at which time the
 quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computationoflegalinterestshall,inanycase,beontheamountfinallyadjudged.

3.Whenthejudgmentofthecourtawardingasumofmoneybecomesfinalandexecutory,therateoflegal
interest,whetherthecasefallsunderparagraph1orparagraph2,above,shallbe12%perannumfromsuch
finalityuntilitssatisfaction,thisinterimperiodbeingdeemedtobebythenanequivalenttoaforbearanceof
credit."

Althoughthesumofmoneyinvolvedinthiscasewaspayabletoabank,thepresentfactualmilieuclearlyshows
thatitwasnotaloanorforbearanceofmoney.Thus,pursuanttoestablishedjurisprudenceandArticle2009ofthe
Civil Code, petitioner is bound to pay interest at 6 percent per annum, computed from April 7, 1983, the time
respondent bank demanded payment from petitioner. From the finality of the judgment until its satisfaction, the
interestshallbe12percentperannum. 1wphi1.nt

Attorney'sFees

Consideringthatnegligenceisimputabletobothparties,bothshouldbeartheirrespectivecostsofthesuit.Wealso
deletetheawardofattorney'sfeesinfavorofrespondentbank.15

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED with the
followingMODIFICATIONS:

1.PetitionerRodzssenSupplyCo.,Inc.isORDEREDtoreimburseRespondentFarEastBankandTrustCo.,
Inc.P76,000plusinterestthereonattherateof6percentperannumcomputedfromApril7,1983.Afterthis
judgmentbecomesfinal,theinterestshallbe12percentperannum.

2.Theawardofattorney'sfeesinfavorofrespondentisDELETED.

3.Nopronouncementastocosts.

SOORDERED.

MeloVitug,GonzagaReyes,andSandovalGutierrez,JJ.,concur.

Footnotes:

1Rollo,pp.936.

2Rollo,pp.3844.

3 First Division composed of Presiding Justice Lorna S. Lombosde La Fuente (Division chairman and
ponente)andJusticesJaimeM.LantinandFortunatoA.Vailoces,bothofwhomconcurred.

4Rollo,p.44.

5 RTC Decision, p. 7 RTC Records, pp. 246252. The August 15, 1989 Decision was penned by Judge
RomeoS.Habaradas.

6Rollo,pp.3840.

7 To eliminate its backlog, the Court on February 27, 2001 resolved to redistribute longpending cases to
justiceswhohadnone,andwhowerethustaskedtoprioritizetheseoldcases.Consequently,thiscasewas
raffledtotheponenteforstudyandreport.

8Petitioner'sMemorandum,p.10rollo,p.120.Uppercaseusedintheoriginal.

9RTCRecords,p.5.

10RTCRecords,p.140.

11Ibid.,p.193.

12Ibid.,p.187.

13Vitug,PandectofCommercialLawandJurisprudence,revisededition,p.17.