VISAYAN DISTRIBUTORS, INC., PLAINTIFF AND APPELLEE, VS. MARIANO R. FLORES, ET AL., DEFENDANTS AND APPELLANTS.

On November 9, 1946, the plaintiff-appellee (Visayan
Distributors, Inc.), herein to be referred to as appellee, and Mariano. R.
Flores (doing business under the name of Rizal Investment Corporation), herein
to be referred to as Flores, and Teofilo Abeto (doing business under the name of
Philippine Investment Co., Ltd), herein to be referred to as Abeto, entered into
a contract whereby Abeto and Flores bound themselves to deliver on November 18,
1946, to the appellee at the port of Romblon on board the vessel to be supplied
by the appellee 2,000 long tons of copra, to be paid by the appellee at $103.50
per ton f. o. b. appellee’s vessel at Romblon. The contract provided that the
appellee, upon satisfactory inspection of the copra, would advance to Abeto and
Flores the sum of P10,000 for initial weighing and checking expenses, plus
another P10,000 on the first day of loading. The contract also provided that the
appellee would furnish Abeto and Flores with 15,000 empty sacks to facilitate
the handling, weighing and loading of copra. The purchase price was to be paid
as follows:

“(a) 95 per cent of the total cost of copra to be paid upon
presentation of the following: Commercial Invoice. On-Board Bills of Lading.
Weight Certificate and/or Survey Eeport. 5 per cent upon acceptance of weight in
American port.

“(e) The balance of invoice value payable by an irrevocable
confirmed letter of credit with the China Banking Corporation in favor of the
sellers.”

The appellee, after the execution of the contract, advanced to
Abeto and Flores first the sum of P10,000 and later the sum of P3,000.

Under date of November 12, 1946, a surety bond was executed by
Abeto and Flores as principals, and by Rizal Surety and Insurance Co., (herein
to be referred to as Surety), for the sum of P30,000, to secure the full and
faithful performance of the contract of Abeto and Flores with the appellee.

With due notice to Abeto and Flores, the SS. PANAMAN was sent
by the appellee to, and arrived at the port of Romblon on November 17, 1946,
Abeto and Flores having been advised by the appellee that said steamer would be
ready to load the copra on November 18, 1946. Abeto and Flores were, however,
unable to deliver any amount of copra on said steamer with the result that the
SS. PANAMAN left Romblon without cargo.

The appellee had previously sent to Abeto and Flores in Romblon
26,875 empty copra sacks of which 2,908 were used by the appellee for
transporting copra to Cebu on the FS-156.

The appellee instituted in the Court of First Instance of
Manila on December 14, 1946, an action against Abeto and Flores and the Surety
for breach of contract. In its first amended complaint the appellee sought to
recover (1) the sum of P13,000, representing advances; (2) P55,500, representing
the value of empty sacks; (3) P150,000, as damages, and (4) the sum of P4,064,
deposited by the appellee with the Bureau of Customs in compliance with the
rules and regulations in connection with the sale and delivery of the copra in
question.

The Surety filed a cross-claim against Abeto and Flores, and a
third-party complaint against Gregorio Gutierrez, in virtue of the indemnity
agreement filed by the latter three in favor of the Surety.

After trial, the Court of First Instance of Manila rendered a
decision the dispositive parts of which read as follows:

“In view of all the foregoing, judgment is hereby rendered
sentencing defendant Teofilo Abeto, Mariano R. Flores, and the Rizal Surety
& Insurance Co., Inc., to pay plaintiff, jointly and severally, the sum of
P13,000 plus the further sum of P35,950 with interest on both amounts at the
legal rate from the date of the filing of the complaint, as well as the further
sum of P150,000 as damages, with costs of suit. The liability, however, of
defendant Rizal Surety & Insurance Co., Inc., shall be limited to P30,000
only.

“The court, likewise, sentences defendants Abeto and Flores and
third-party defendant Gregorio Gutierrez to reimburse, also jointly and
severally, unto said defendant Rizal Surety & Insurance Co., Inc., whatever
amount the latter may pay to plaintiff, pursuant to the foregoing judgment, with
interest thereon at the rate of 12 percent per annum, plus the further sum
equivalent to 15 per cent of said amount as and for attorney’s fees.”

From this decision Abeto and Flores as well as the Surety, have
appealed, the first two having filed their own brief, and the Surety having
filed a separate brief.

Abeto and Flores contend that they had the copra called for in
their contract with the appellee on November 18, 1946, but that they refused to
deliver the same on the ground that the appellee was insolvent and failed to
guarantee the payment of the purchase price by a letter of credit called for in
the contract,—a contention also availed of by the Surety. It is very
significant, however, that Abeto and Flores had not made in their answer even
the slightest hint that they had copra in the port of Romblon on November 18,
1946. Upon the other hand, they merely invoked the defense that the contract of
November 9, 1946, was cancelled by another agreement made on November 22, 1946,
calling for the delivery of only 500 tons of copra,, and that, at any rate,
their failure to comply with the contract of November 9, 1946, was excused by
force majeure (the abrogation of the copra trade agreement between the United
States and the Philippines). Even in their letter to counsel for the appellee
(Exhibit 1), Abeto and Flores absolutely failed to mention the alleged fact that
they had the necessary quantity of copra on the date specified in their
contract.

The conspicuous circumstance that the appellee’s vessel SS.
PANAMAN left the port of Romblon with its hold empty, without any written notice
or advice from Abeto and Flores that they had the necessary copra which they
would deliver only upon the payment of its purchase price in accordance with the
terms of their contract, militates against the contention of Abeto and Flores
and the Surety, that copra was available.

The evidence for Abeto and Flores tends to show that they, thru
Ignacio Liso, contracted with copra suppliers for the delivery of some 2,000
tons to the port of Romblon upon the arrival of landing barges; that Lizo merely
paid the necessary deposit to the suppliers who thereupon signed the necessary
contracts and the corresponding receipts for the advance payment; that said
copra bought from various suppliers, which were not delivered to the appellee
under their contract, were later sold to Escudero & Co., and the Nacoco. The
fact, however, that none of the alleged contracts or receipts signed by the
copra suppliers, and the invoices of Escudero & Co. and the Nacoco was
presented in evidence during the trial, is a strong indication negativing the
alleged existence of copra on or about November 18, 1946.

The Surety relies upon the provision in the contract between
the appellee and Abeto and Flores, to the effect that the bond “can be
foreclosed if copra does not exist by the time Buyer’s vessel is ready to load.”
This is complemented by the proposition that 159,834 kilos of copra were
delivered by Abeto and Flores to the appellee under their contract of sale. The
Surety’s position is evidently erroneous, if we bear in mind the fact that Abeto
and Flores have not pretended that the said quantity of copra was a part of the
sale under the contract of November 9, 1946. Indeed, in the receipt signed by
Abeto and Flores for the partial payment of said 159,834 kilos of copra, it is
expressly admitted that the quantity was without prejudice to their contract for
2,000 tons of copra, dated November 9, 1946. The Surety also supposes that the
159,834 kilos of copra delivered to the appellee had been paid by the latter in
the total amount of P33,000, represented, first, by the sums of P10,000 and
P3,000 advanced by the appellee after the execution of the contract of November
9, 1946, and, secondly, by the sum of P20,000 paid by the appellee upon loading
said copra. This supposition is again at war with the theory of Abeto and
Flores, who specifically admitted that said copra was in virtue of a separate
deal and who, as a matter of fact, still hold the appellee liable for the unpaid
balance of P13,000. Indeed, the alleged failure of the appellee to pay the
balance of P13,000 is taken by Abeto and Flores as an evidence of appellee’s
insolvency which justified Abeto and Flores in refusing to deliver the copra
called for in the contract of November 9, 1946.

The Surety maintains that the recital in the receipt signed by
Abeto and Flores covering the partial payment of 159,834 kilos of copra, to the
effect that said quantity was without prejudice to ‘their obligation to deliver
2,000 tons of copra, should be construed as meaning merely that Abeto and Flores
did not waive the stipulation requiring the appellee to obtain a letter of
credit. Such construction is not borne out by the terms of the receipt which
protects expressly the rights of the appellee under the contract of November 9,
1946, and would be tenable only if the receipt provided that the delivery of
159,834 kilos of copra was without prejudice to the right of Abeto and Flores
regarding the letter of credit called for in their contract.

The alleged absence of a letter of credit to secure the payment
of the purchase price is invoked both by Abeto and Flores and by the Surety. In
the first place, there is evidence to the effect that a letter of credit was
available, although it was not actually assigned to Abeto and Flores, in the
absence of copra ready for loading on the SS. PANAMAN. In the second place, the
alleged fact, constituting a defense, was not pleaded by Abeto and Flores and
the Surety, so much so that, when an attempt was made during the trial to prove
the absence1 of the letter of credit, counsel for the appellee objected, and the
objection was sustained by the trial court; and although the Surety was allowed
to amend its answer to plead the absence of the letter of credit as an excuse
for the failure of Abeto and Flores to comply with their contract, no amended
answer was filed by the Surety. The latter, however, contends that amendment was
no longer necessary because its answer already alleged violation on the part of
the appellee of its contract, and because counsel for the appellee admitted
“that the letter of credit has not been established for lack of compliance by
defendants, Mr. Mariano Flores and Mr. Teofilo Abeio and the companies they
represent with the terms and conditions of the contract.” The alleged violation
by the appellee of its contract, set up as a defense in the Surety’s answer, is
a mere conclusion. As to the admission of counsel for the appellee, it may be
stated that the same must be taken in conjunction with the previous testimony of
Peter Cang Hocho, a witness for the appellee, that the letter of credit was
available, though not assigned to Abeto and Flores.

Moreover, it appears that under the terms of the contract of
November 9, 1946, it is only the balance of the invoice value which should be
payable by an irrevocable letter of credit, and the contract called for payment
of 95 per cent of the total purchase price upon presentation of the commercial
invoice, on board bills of lading, wage certificate and/or survey report, and 5
per cent upon acceptance of weight in American port. Said balance of the invoice
value appears to be merely 5 per cent of the contract price, and the same could
not of course be accurately determined before the quantity of copra to be loaded
on November 18, 1946, was known. At any rate, Abeto and Flores admit in their
brief (p. 14) that the contract did not obligate the appellee to secure the
payment of the purchase price.

Abeto and Flores, on the other hand, contend that they were
excused from delivering copra on November 18, 1946, because the appellee was
insolvent, in that part of the purchase price of the 159,834 kilos of copra
delivered to the appellee remained unpaid, reliance being placed on articles
1466 and 1467 of the old Civil Code. The contention is untenable, it appearing
that there is no conclusive proof showing that Abeto and Flores, in definite
terms, had warned the appellee that they would not deliver the copra called for
in their contract until they were sure of being paid in accordance with said
contract. Moreover, even assuming that the appellee still owed Abeto and Flores
something upon account of the 159,834 kilos of copra delivered before November
18, 1946, said fact is not a positive evidence of insolvency,^[1] not to mention
the circumstance that the contract is essentially a cash transaction, 95 per
cent of the purchase price being required to, be paid in cash and only 5 per
cent by an irrevocable letter of credit. Of course, the appellee was not to be
expected to tender payment before the presentation of the documents called for
in the contract, namely, commercial invoice, on board bills of lading, and wage
certificate and/or survey report.

The Surety also claims that it “was released from liability
under its bond because Abeto ard Flores and the appellee novated their contract
of November 9, 1946, without the consent of the Surety. In the main, the Surety
alleges that the appellee advanced P10,000 to Abeto and Flores before the
inspection of copra, and thereafter made another advance payment of P3,000, in
addition to the fact that the manner of payment was changed from a letter of
credit to cash, and that 26,875 empty copra sacks were delivered to Abeto and
Flores instead of only 15,000 as stipulated in the contract. With reference to
the payment of P10,000, it appears that the same was made with the knowledge of
the Surety, as shown by Exhibit A which contains a recital added in the
handwriting of Andres U. Cang, Treasurer and General Manager of the appellee,
worded as follows:

“N. B.

With due agreement of Rizal Investment Corp., it is agreed that
upon delivery of thirty thousand pesos (P30,000) BOND, the P10,000 cash will be
delivered to Mr. M. Flores of the Rizal Investment Corp. 

(Sgd.) “A. U. C.”

It is noteworthy that a duplicate copy of Exhibit A (Exhibit
D-l), attached to the bond Exhibit D and referred to therein as forming part
thereof, contains said recital and bears the dry seal of the Surety, initialed
by one of its officials.

As to the advance payment of P3,000, suffice it to state that
said payment could not adversely affect the position of the Surety or render the
obligation more onerous, and therefore could not have the effect of releasing
the bond (Bank of the Philippine Islands vs. Albaladejo y Cia., 53 Phi]., 141;
Bank of the Philippine Islands vs. Gooch and Redfern, 45 Phil., 514).

In respect of the 26,875 empty sacks, it may be pointed out
that although the contract bound the appellee to furnish Abeto. and Flores with
only 15,000 sacks, the excess could likewise have no adverse effect insofar as
the Surety was concerned, it appearing that the Surety is not being charged with
the value of such excess intended to be used by the appellee for any proper
purpose. Indeed, the liability of the Surety under the bond is limited to
P30,000, easily covered by the first advance payment of P10,000 and the value of
15,000 empty copra sacks, at the proven price of P1.50 per sack.

The allegation that the manner of payment of the purchase price
was altered, is patently without merit, since, as already hereinbefore noted,
the payment under the contract of November 9, 1946, was essentially in cash, and
the letter of credit could not be assigned to Abeto and Flores without first
determining the amount of copra to be loaded on the appellee’s vessel on
November 18, 1946.

As to the amount of damages awarded by the lower court, there
seems to be no room for controversy. The sum of P150,000 has been positively
established by the testimony of Peter Gang Hocho, as profits which the appellee
lost as a result of the breach of contract on the part of Abeto and Flores. The
evidence for the appellee to the effect that there was already a contract of
sale for the entire amount of copra which Abeto and Flores covenanted to deliver
to the appellee under the contract of November 9, 1946, which would give the
appellee such profits, remains uncontradicted in the record. On the o’ther hand,
the receipt by Abeto and Flores, thru their representatives Ignacio B. Lizo and
Isaias Ruiz, of the 23,957 empty copra sacks, is conclusively shown by Exhibts I
and E-2, in addition to the bills of lading covering the shipment of said sacks
(Exhibits L and M) admitted by Abeto and Flores.

It is contended for Abeto and Flores that their liability for
damages, if any, is limited to the sum of P30,000 fixed in the Surety bond. This
contention is patently without merit, because while the bond was intended to
secure the full and faithful performance by Abeto and Flores of their
obligations under the contract of November 9, 1946, the amount of P30,000
specified in the bond did not limit the extent of the damages to be recovered by
the appellee in case of breach on the part of Abeto and Flores. However, the
liability of the Surety is limited to said amount.

Wherefore, the appealed judgment is affirmed, and it is so
ordered with costs against the appellants.

Pablo, Bengzon, Padilla, Montemayor, Jugo, Bautista Angelo, and
Labrador, JJ., concur.

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[1] The insolvency referred to by the law may be before or after the sale, provided it is discovered after the perfection of the contract. It must be a judicially declared insolvency, or one inferred from such acts as petitioning for suspension of payments, or as a result of all his properties having been attached in a civil or criminal proceeding. Anything short of this will not be sufficient to exempt the vendor from making the delivery of the thing (Tolentino, Commentaries and Jurisprudence on the Civil Code, 1947, Vol. II, p. 862, citing Manresa, pp. 140-142.