DANFOSS, INC. V. CONTINENTAL CEMENT CORP., G.R. NO. 143788, 9/9/05

TOPIC: UNDER CAUSE OF ACTION, IN CONTRAST WITH THE BLOSSOM CASE, THIS IS A CASE WHERE THE PRINCIPLE OF ANTICIPATORY BREACH CANNOT BE APPLIED

DANFOSS, INC. V. CONTINENTAL CEMENT CORP., G.R. NO. 143788, 9/9/05

NATURE OF THE CASE: The CA affirmed the decision of the RTC that the CCC’s (herein respondent) complaint for damages against Danfoss. So, the case was elevated to the Supreme Court on appeal of the said ruling of the CA and the CA’s denial for Danfoss’ motion for reconsideration.

FACTS: Mechatronics Instruments and Controls, Inc. (MINCI) is an agent of Danfoss, Inc.’s products here in the Philippines. On September 1997, CCC ordered two unit 132 KW Danfoss Brand Frequency Converter/Inverter from MINCI to be used in the Finish Mill of its Cement Plant in Bulacan. In the terms of conditions of the original purchase order, the two unit Frequency Converter shall be delivered by Danfoss  within 8 to 10 weeks from the opening of the letter of credit. The letter of credit opened by CCC in favour of Danfoss on September 9, 1997.

            On September 17, 1997, MINCI informed CCC that its order are already ready for shipment and MINCI requested to amend the letter of credit changing the port of origin/loading from Singapore to Denmark (Singapore is the Asian Regional Office of Danfoss, the Head Office of the company is Denmark). CCC complied and the port of origin in the letter of credit was changed.

            On November 6, 1997, MINCI relayed to CCC that Danfoss Inc. was still checking the status of their order. CCC replied that every delay in the delivery of the order will cause loss to their company, so CCC requested for early work out and immediate shipment to avoid further loss.

            But, on November 9, 1997, Danfoss Inc. informed MINCI through fax, that the reason for the delivery problems was that some of the supplied components for the new VLT 5000 series (this may be a part of the converter which is the subject thing in this case or a machine to create the converter) did not meet the agreed quality standard. So, Danfoss was canvassing for another supplier for the said VLT 5000 series. In the fax, there was no clear message as to when normal production will resume.

            Upon receiving the relayed information, CCC surmised that Danfoss would not be able to deliver their order. There was also no definite commitment of the delivery from Danfoss and MINCI, so CCC informed MINCI that they intend to cancel its order. The order was cancelled on November 13, 1997.

            Hence the complaint for damages filed by CCC with the RTC of Quezon City against Danfoss and MINCI on November 5, 1998. In reply, Danfoss filed a motion to dismiss the complaint.

CCC: Due to the “impending” delay in the delivery of its order, it suffered more than P8 million and was compelled to look for another supplier.

Danfoss: The case should be dismissed on the ground that it did not state a cause of action.

1)     The letter of credit was opened on September 9, 1997, so, since the agreed delivery period is 8 to 10 weeks from the opening of the letter of credit, the due date is until November 19, 1997.

2)     Although Danfoss was having a problem with its supplier prior  to CCC’s cancellation of its order, CCC only surmised that Danfoss could not deliver within the due date agreed upon.

3)     Neither Danfoss nor CCC agreed to change the date of delivery. Only the port of origin was changed in the letter of credit. Danfoss has until November 19, 1997 to deliver the order, CCC cancelled the order on November 13, 1997.

4)     CCC never made an extrajudicial demand for the delivery of its order on its due date as it cancelled the order before the due date.

5)     Damages sought for by CCC could not have accrued yet since the order was cancelled before the delivery was actually delayed.

RTC: Judgment in favor of CCC. According to the RTC:

“...the issue of whether or not the defendants incur delay in the delivery of the equipment in question within the period stipulated is a debatable question which necessitates actual trial on the merits where the parties have to adduce evidence in support of their respective stance.

            While the defendants contend that the stipulated period of delivery had not lapsed yet when the plaintiff cancelled its order of the two equipments in question as the cancellation took place seven (7) days before the expiry date of the defendants’ obligation to deliver, the plaintiff’s position is that the acts of the defendants had made compliance with their obligation to deliver within the period stipulated, impossible, hence, there was no need for a demand as the law provides that “when demand would be useless, as when the obligor has rendered it beyond his power to perform.”  The plaintiff’s contention if properly and strongly supported by evidence during the hearing of the merits of the case may well negates (sic) the defendant’s contrary stand.”

CA: Affirmed the decision of the RTC and denied the Motion for Reconsideration of Danfoss.

ISSUE: WON there was a cause of action in the complaint filed by CCC against Danfoss and WON the principle of anticipatory breach can be applied in the case.

HELD: No, there was no cause of action in the complaint for damages filed by CCC.

“In order to sustain a dismissal on the ground of lack of cause of action, the insufficiency must appear on the face of the complaint.  And the test of the sufficiency of the facts alleged in the complaint to constitute a cause of action is whether or not, admitting the facts alleged, the court can render a valid judgment thereon in accordance with the prayer of the complaint. For this purpose, the motion to dismiss must hypothetically admit the truth of the facts alleged in the complaint.”

            The RTC erred in ruling that “the issue of whether or not the defendants incurred delay in the delivery of the equipment within the period stipulated was a debatable question.” How could Danfoss be liable for damages when Danfoss had not yet breached his obligation to deliver the order of CCC, aside from the fact that the obligation was already negated when CCC cancelled the order before the prestation became due and demandable? Thus, there was no breach and there was no damage caused by Danfoss.

            The principle of anticipatory breach cannot be applied here because the obligation was single and indivisible – to deliver two units of frequency converter by November 19, 1997. There was no showing that Danfoss refused to deliver, and on the contrary, Danfoss made an effort to make good in its obligation by looking for other suppliers who could provide the parts needed to make the timely delivery of the order. Thus, the case was prematurely filed.

            CCC’s fear that Danfoss might not be able to deliver its order on time was not the cause of action referred to by the Rules and jurisprudence.

            PETITION GRANTED. THE CA’S DECISIONS ARE REVERSED AND SET ASIDE.