CONSOLIDATED TEXTILE MILLS, INC., PLAINTIFF-APPELLANT, VS. REPARATIONS COMMISSION, DEFENDANT-APPELLEE, MABUHAY RUBBER CORPORA­TION, INTERVENOR.

The main issue posed in this appeal is:  Whether the rate of exchange to be adopted in
fixing the peso cost of
reparations goods procured by the Reparations Commission for the
applicant-end-user, Consolidated Textile Mills, Inc., should be reckoned on the
basis of the rate of exchange of the Philippine peso to the U.S. dollar
obtaining at the time the corres­ponding “Contract to Purchase” the
goods was entered into between the applicant and the Reparations Commission in
1961, or on the basis of the prevailing free market rate of exchange between
the said currencies at the time of the procurement of the goods in 1963.

In a complaint for declaratory judgment filed by Consolidated
Textile Mills, Inc. (referred to hereafter as Consolidated) in the Court of
first Instance of Manila, Civil Case No. 54375, against the Reparations
Commission (hereafter referred to as the
Commission), the plaintiff prayed for judgment dec­laring that the payment to
the defendant Reparations Commission for the goods worth $3,900,000.00 alloca­ted
to it, should be based on the official rate of exchange of 12.00 to $1.00.  The plaintiff was joined in its prayer by Mabuhay Rubber Corporation which, with leave of court,
intervened in the action with respect to other reparations goods worth $1,500,
000.00 allocated to it by the Commission under similar circumstances as those of the Consolidated.  The Commission contends that the peso cost of
the goods in question should be computed on the basis of the free market rate
of exchange which was about P4.00 to $1.00.

In a decision, dated February
22, 1964, the court a quo denied the claims of both
the plaintiff and the intervenor, and declared that
payments for the goods in question shall be subject to, and be based upon, the
free market rate of exchange of the Peso to the dollar as proposed by the
Commission.

The antecedents of the cast are not contro­verted.  Stripped of unessential details, the evidence
of record gives the following account of the environmental facts of the case:

Consolidated was an
applicant for reparation goods for which it filed Application No. 0953 with the
defendant Commission on March 2,
1961, for one set of
integrated textile mill equipment to the amount of $3,900,000.00.  Pursuant to the previsions of Republic Act 1789, otherwise known as the
Reparation Law, the application was given due course for consideration by the
Commission.  The applica­tion was
recorded as Item No. 6, Category II Pri­vate Sector, in the Fifth Reparations
Year Tentative Schedule which late became the Sixth Year Schedule because when
it was finally concluded with the Japanese Government, the Fifth Reparations
Year had already expired.  The same item
was still later carried over to the Seventh Year Agreed Schedule listed
as Item No. 19, Category II Private Sector – Textile Mill Equipment valued at
$3,900,000.00.  Im­plementing the
aforesaid allocation, on November 29, 1961, Consolidated and the Commission
entered into and executed a “Contract to Purchase” wherein it is made to appear that a down
payment of P390,000.00 was made
by Consolidated to the Commission, with a further stipulation that a
“Contract of Con­ditional Purchase and Sale” shall be executed which
shall supersede the
“Contract to Purchase”.  As
approved by the Commission in its Resolution of De­cember 12, 1961, the
procurement of textile machine­ries and equipment for Consolidated, provided
for an estimated contract value of THREE MILLION NINE HUNDRED THOUSAND U. S. DOLLARS; and as authorized in said Resolution, the Executive Director and
Secre­tary of the Commission issued the corresponding Procurement
Order directed to the Chief of the Reparations Mission in Japan on the
following day.

On February
28, 1962, the Office of the President issued a
directive addressed to both the
Commission and the National Economic Council enjoining further implementation
of all items in the Sixth Year Agreed Schedule, except those for small scale
industries, pending reexamination of the said items in the light of the new
socio economic development program of
the new administration.  Another direct­ive
of the same import was addressed to the Chief of the Reparations Mission in Japan
on May 29, 1962.  On September 13, 1962, the Commission adopted Resolution
No. 692 by virtue of which bids of Japanese suppliers of the machineries and
equipment allocated to Conso­lidated were approved.  And in conformity with the then existing
requirement of the Commission, Consolidated submitted a guarantee bond in the amount of P1,170,000.00
representing 15% of the total
alloca­tion to it in the sum of
$3,900,000.00.  The corresponding
procurement contracts (with the suppliers) were verified by the General Auditing
Office of the Philippines
on February 29, 1963, and approved by the Commission on March 1, 1963.  The same were ve­rified by the Japanese
Government on April 1, 1963,
In signed by the Chief of the
Reparations Mission in Japan
on that same day.  These procurement
contracts involved a total amount of $3,357.191.00.  The Consolidated having known before hand
that the aforesaid procurement contracts did not totally exhaust its allocation
of $3,900,000.00, in its letter dated January
16, 1962, and July 13,
1962, requested the Commission to allow it to make use of the ba­lance of its allocation.  The request was granted, and on May 28, 1963, the Commission
resolved to authorize the procurement of additional reparations goods for
Consolidated in an amount equivalent to its balance of $542,809.00.

On March 28, 1963,
a Presidential Directive signed by the Executive Secretary was issued provi­ding,
among others, that the free market rate shall be applied without exception to
all items appearing in the Seventh Year Reparations Schedule including those
items which had appeared in previous schedules. 
It was in pursuance of this directive that the Com­mission required the
Consolidated to pay, before de­livery of the goods, the difference between the
down-payment computed at the rate of P2.00 to $1.00 and that as computed on the
basis of the free market rate of exchange. 
This demand precipitated a disagree­ment between the parties.

On July 1, 1963,
Consolidated filed a petition for declaratory relief in the Court of First
Instance of Manila against the Commission, seeking for a judi­cial declaration
as to the rate of exchange that should be applied to ascertain the peso price
of the reparations goods allocated to it. 
Upon plaintiff’s motion, the court issued a writ of preliminary in­junction
on August 28, 1963, supplemented by another on September 28, 1963 whereby
defendant Commission was ordered, among others, to refrain from specify­ing in
the “conditional contract of purchase
and sale” to be executed by the parties the peso value of the reparations goods allocated to
the plaintiff; the writ further enjoined the defendant Commission from
requiring the plaintiff to pay the difference of the 5% down payment based on the free market rate and the amount
actually deposited by the latter for the said purpose.

Partial shipments of the reparations goods subject of the
procurement contracts aforementioned have since then arrived in the Philippines
and delivered to the plaintiff.  In
accordance with the writ of preliminary injunction issued by the court, on Octo­ber
4, 1963, the parties Consolidated and the Commission, executed a “Contract
of Conditional Purchase and
Sale” of the goods covered by the reparations al­location of
$3,900,000.00, without indicating therein the peso value thereof pending the
judicial determi­nation of the
question regarding the applicable ex­change rate, which contract is dated
October 4, 1963.  At the same time, the
plaintiff has submitted the cor­responding insurance coverage and performance
bond based on the value of the goods computed at the cur­rent rate of foreign
exchange, subject to the condi­tion that the same shall be reduces in the event
the court should decide to apply the P2.00 to $1.00 rate of exchange to the
goods allocated to the plaintiff; and the plaintiff likewise agreed to pay in
cash all amounts due and payable under the contract computed at the rate of
P2.00 to $1.00 with a bond to cover the
amounts in excess thereof demanded by the defend­ant Commission on the basis of the current rate of exchange.

On February 22, 1964, the Court of First In­stance of
Manila rendered the decision appealed from which, as stated in the first
paragraph of this opi­nion, sustained the right of the Reparations Commission
to apply the current rate of exchange in deter­mining the equivalent peso price
to the U. S. dollar of the reparations goods allocated to and procured from
Japan for the plaintiff.  Plaintiff moved
for a reconsideration of the decision by adopting as its own, the Motion for
Reconsideration and New Trial filed by the intervenor
Mabuhay Rubber Corporation, which the court
denied in its order dated July
15, 1964.  A second motion for reconsideration dated July 27, 1964, was filed by the intervenor which, was again concurred in and adopted by the
plaintiff as its own.  But, because the intervenor had thereafter moved for a suspension of the
proceedings in connection with its second motion for reconsidera­tion,
whereupon, plaintiff withdrew as party to the second motion for reconsideration
and filed a notice of
appeal.  Hence, this appeal by the
Consolidated Textile Mills, Inc., from the decision.

This is the appellant’s
theory:  The “Contract to
Purchase” the reparations goods in question was concluded at a time
(November, 1961) when the rate of exchange obtaining between the peso
and the dollar was in the ratio of 2:1, whereas the directive of the President
requiring the Reparations Commission to apply the current free market rate of
exchange of the peso to the dollar
computing the peso cost of reparations goods allocated to it was issued
when such rate is about P4.00 to $1.00. This would increase the cost of the
goods by two-fold which – to the mind of the appellant – spells a clear
impairment of the obligation under its contract with the Reparations
Commission;^[1]
to apply the directive of the President retroactively to its case would amount
to a denial of due process;^[2]
and with the circumstance that the said directive would be made to apply
indiscriminately to all items appearing in the Seventh Year Reparations
Schedule without regard to the time the applications were made as appears in
previous schedules, it would surely man, according to the appellant, a total
disregard of the principle of equal protection of the law.^[3]

For a clear understanding of the issues, we shall reproduce
herein the terms of the “contract to purchase” claimed to have been
impaired, and the text o the directive of the President that allegedly im­pairs
it.

The “Contract to Purchase” which was executed by the
parties on November 29, 1961,
reads as follows:

“KNOW ALL MEN BY THESE PRESENTS:

“This CONTRACT, made and executed in the City of Manila,
Philippines, this 29 day of November, 1961, by and between:

“The REPARATIONS COMMISSION, a government en­tity vested
with juridical personality to enter in­to contract, being domiciled at and with
head office at the 5th Floor, DBP Bldg. No. 2, Port Area, Manila,
Philippines, represented
in this instance by Its Chairmen, Rodolfo Maslog,
acting for and by authority of the said Commission and hereinafter referred to
as the PARTY OF THE FIRST PART,

– and –

“CONSOLIDATED TEXTILE MILLS, INC., a corpora­tion duly
organized land existing under the laws of the Philippines,
with head office and business ad­dress at Suite 206-214
L & S Bldg., 1414 Dewey Blvd.  Manila,
represented in this instance by Felix K. Lirag, its
authorized representative and hereinafter referred to as the PARTY OF THE
SECOND PART,

“W I T N E S S E T H :

“That the PARTY OF THE SECOND PART is an ap­plicant for
reparations goods, more particularly described in Application No. 0953, filed
with the PARTY OF THE FIRST PART and incorporated herein as an integral part of
this contract by way of refer­ence,

“That the PARTY OF THE FIRST PART is giving due course to the aforesaid
application of the PARTY OF THE SECOND PART, and in consideration of the same,
and for the added consideration of the procurement for and delivery to the
PARTY OF THE SECOND PART of the goods and/or services subject of the said applica­tion, in whole or in
part, the PARTY OF THE SECOND PART
HEREBY ENGAGES itself to perform the following:

“a)  To
make, a down payment to the PART OF THE FIRST PART for the project
applied for which shall not be
less than 2% of the value of the project if it does
not exceed P50,000 and 5%
of the value if the project exceeds P50,000. (PARTY OF THE SECOND PART has paid
under O. R. No. 0125246, dated November 29, 1961, the amount of P390,000.00 by
way of down pay­ment);

“b)  That no procurement order will be issued until
and unless this contract is signed by the PARTY OF THE SECOND PART and the down
payment here­in required is actually paid and other requirements of law are
complied with;

“c)  That upon his failure to pay the down payment,
said application shall be deemed cancelled or withdrawn and, as a further
penalty for such failure, no other application
shall likewise be accepted by the PARTY OF THE FIRST PART;

“d)  To take delivery of the goods applied for when
procured, immediately upon arrival in the Phil­ippines and to inspect the goods
upon delivery to ascertain whether or not they are in accordance with the
approved plans and specifications and if not, to file the corresponding claim against the supplier;

“e)  That if he fails to take delivery, or backs out from the procurement of the reparations goods when the same are already
in the process of manufacture, he shall forfeit his down payment and he shall
also be barred from subsequently applying
for reparation goods;

“f)   That after the issuance of the procurement order and before the verification of the Procurement
Contract by the PART OF THE FIRST PART, the PARTY OF THE SECOND PART shall
deposit with the PARTY OF THE FIRST
PART the approximate value of all necessary costs and charges incident
to the application for, and the
procurement, production, delivery and acquisition of, the goods concerned;

“g)  To enter into a Contract of Conditional
Purchase and Sale with the PARTY OF
THE FIRST PART for the goods
accordingly procured, and when said Contract of Conditional Purchase and Sale
is thus executed, same shall supersede the
instant Contract to Purchase;

“That the parties to this contract further cove­nant and agree
that this contract shall be automatic­ally cancelled and inoperative if the
goods applied for is not actually procured by reason of
any fortuitous circumstance.

“IN WITNESS WHEREOF,
the parties have hereunto set their hands this 29 day of November, 1961,
in the City of Manila, Philippines.”

On the other hand,
the directive of the Office of the President to the Chairman of the Reparations
Commission on March
28, 1963, which is
claimed by the appellant to have impaired its contractual rights under the
foregoing contract, is as follows:

“Sir:

“This has reference to
your letter dated November 26,
1962 requesting clari­fication regarding the imposition of the free
market rate on items to be procured by
the Reparations Commission.

“The following rules shall govern:

1. The free market
rate shall be applied without exception to all items appearing in the Seventh
Year Schedule, including those items which had appear­ed in previous schedules.

“2.
The previous exchange rate shall be applied to those items in previous
schedules, but not carried over in the Seventh Year Schedule, even if the contract
of conditional purchase and sale has not yet been signed.

“Our letter of October
9, 1962 (last paragraph), as clarified by the above rules, shall be
considered as a directive for all intents and purposes.”

Appellant contends that
from the time it filed its application in 1961 for the aforesaid reparations
goods up to the time the corresponding Procurement Contracts for the same goods
were approved by the Commission in 1963, it was expressly understood and agreed
by both parties that the official rate of exchange of P2.00 for $1.00 would be
the measure of its obligation under the “Contract to Purchase” earlier quoted.  It specifically points out the fact that the
Commission had required it to make down payment of P390,000.00 and to
post a
guarantee bond in the amount of
P1,170,000.00, representing 5% and 15%, respectively, of the estimated contract value of its
$3,900,000.00 alloca­tion as computed
at the exchange rate of P2.00 to $1.00.  It
argues, therefore, that to apply the cur­rent free market rate of exchange of the peso to the dollar to
its case as directed by the Office of the President and imposed upon it by the
Commission – thereby increasing by about two (2) times the peso cost of the
reparations goods allocated to it – would clearly impair the obligation it has
assumed under the “contract to purchase” aforequoted.

The gravamen
of appellant’s contention is anchored
on the proposition that under the
“contract to purchase”
earlier quote, the Commission is
under obli­gation to procure, sell and deliver the goods,
which said appellant had requisitioned or applied for at the rate of P2.00 for
every $1.00 of the procurement cost of said reparations item.  In a word, appellant holds the view that the
said “contract to purchase” is a bilateral promise to buy and sell at
the rate of P2.00 to $1.00 and is as good as a perfected sale.  In this posture, therefore, it argues with
vehemence that the appellee Commission cannot
unilaterally alter the consideration of
the perfected sale by applying a
rate of exchange which was not
agreed upon, nor contemplated by
the parties when they executed the
a­foresaid “contract to purchase”. 
Unfortunately, however, an examination
of that “contract to purchase” does not support appellant’s assumption and contention.  On the contrary, it reveals all the earmarks
of a mere preliminary agreement. 
Admittedly, both the objects to be procured and the price to be paid were not specifically
described therein.  It is like­wise
significant to note that in the “contract to purchase” there is no
stipulation as to what rate of exchange should govern in the determination of
the peso equivalent of the dollar value of the reparations to be procured thereunder.  It is, we hold, obvious from the face of the agreement that it does not contain,
and was not intended to contain, all of the important terms and conditions of
future contract.  It was really
incomplete, for it left out material terms thereof for future determination.  Hence, it was indeed necessary that the parties should, as they did stipulation the very same
“contract to purchase” relied upon heavily by the appellant, that
before the delivery of the goods, a contract of conditional pur­chase and sale
shall be executed by the parties to the agreement which shall supersede the
said contract to purchase.

“The instrument sued on is what is known as an agreement to
make an agreement.  Such agreements are
usually pro­visional or temporary; it being the in­tention of the parties at
some later date to set out in a more formal way the terms and conditions of the
pro­posed agreement.  If all the
conditions of the postponed agreement are speci­fied in such agreement, it is
an agreement praesenti.  (McKell v. Chesapeake & Ohio Ry.
Co., 175 Fed. 321, 91 C. C. A. 109, 20 Ann. Cas.
1097.)  But where the conditions of the
deferred contract are not set out in the provisional one, or where material
conditions are omit­ted, it is not a contract in praesenti,
because the minds have not met and may never meet.”^[4]

With
this authority in mind, and considering the sur­rounding circumstances
of the of case already stated, it is
our considered opinion that the Secretary of Just­ice was right, clod the court below did not err, in holding
that “existing contracts to purchase repara­tions goods are, at best,
preliminary agreements which do not definitely stipulate try contract price;
nor do they carry any provision as
to the rate to be used for the
conversion into pesos of the dollar
value of the reparations goods.”

Even from the standpoint that the “contract to
purchase” is a perfected contract between the parties, as contended by the
appellant, it can only be so with respect to the rights and obligations therein
stipula­ted and agreed upon by the parties. 
We find that the Commission had assumed under the “contract to
purchase” the obligation to give due course to appellant’s appli­cation
for the goods in question and to procure and deliver the same after appellant
shall have executed a contract of conditional purchase and sale of the goods
accordingly procured which, may be in whole or in part of the item specified in
the procurement order.  Before the
contemplated contract of conditional purchase and sale may be executed, certain
essential points must necessarily be threshed out first between them, as the
terms of payment, and the rate of exchange to be used in determining the peso
cost of the goods over which the minds of the parties may or may not meet.  And since the parties made no mention whatsoever
in the “contract of purchase” about the rate of exchange to be
adopted in fixing the peso cost of the goods, it becomes necessary that a final
contract of conditional purchase and sale be subsequently executed by them be­fore
delivery of the goods wherein the dollar price of the goods may be reduced into
its peso equivalent.

But it is pointed out by the appellant that in the “contract
to purchase” under consideration, it was required and made to pay a down
payment of P390, 000.00, and that thereafter, it was again made to put a
guarantee bond in the amount of P1,170,000.00. 
Ap­pellant therefore contends that since these amounts correspond to 5%
and 15%, respectively, of the $3,900,000.00 contract value of the reparations
goods it has applied for as required
it the existing rules and re­gulations of the Commission, and were arrived at
by using the then prevailing P2.00 to $1.00 rate of ex­change, it may
reasonably be inferred therefrom that the parties
intended are understood that the same ra­tio (2:1) of the peso to the dollar
would be used in ascertaining peso price of the goods after the same shall have been subsequently procured
from Japan.  Hence its insistence that rate exchange may no longer be altered or change in conditional purchase and sale to be executed by the parties before the delivery of the
contention should
be denied.  From the fact alone that the
exchange rate of P2.00 to P1.00 had
been used in the computation of the above-mentioned amounts of down
payments and guarantee bond as
required in the then regulations of the Reparations Commission, is cannot be
lightly inferred that the parties bound themselves to use the same rate of
exchange in all their future dealings relative to the same goods.  The parties could have so provided the same in
the contract had they wanted to, which they did not.  And certainly, we cannot write something into the “contract to purchase”
and make its provisions cover
points not expressly stipulated therein, such as the conversion rate of the
peso to the dollar to be used to determine the equivalent in Philippine pesos
of the dollar price of the goods which, at the time the said “contract to
purchase” was entered into,
had not even then been definitely ascertained. 
It logic­ally follows, therefore, that the circumstances point­ed out by
the appellant can not be determinative
of the question regarding rate of exchange
that should govern the transaction in question.

An examination of the
evidence of record reveals that the appellant stated the value of the goods in its
application filed with the Reparations
Commission as $3,904,915,42; and the Reparations Commission had referred to the
cost of the goods in dollars only in
all, its subsequent actions on
the said application.  Thus, when the
Commission approved the application on December 12, 1961, it “resolved to
approve the procurement of textile machineries and equipment for Consolidated Textile Mills, Inc at the
estimated contract value of the U. S. dollars THREE MILLION NINE HUNDRED THOUSAND ($3,900,000.00)”.  The same amount of $3,900, 000.00 appears in
the procurement order for the goods issued
by the Reparations Commision on the following day, addressed to the Chief
of the Reparations Mis­sion in Japan.   Biddings were subsequently conducted in
Japan for the supply of the goods, as a result of which the Philippine and
Japanese Governments approved
the procurement contracts involving a total amount of $3,357,191.00.  And thereafter, herein appellant ap­plied for
additional equipments is the sum of $542,809.00 to make use of the balance of the $3,900,000.00 previously allocated to it.  It is
therefore, clear that the goods in
question were acquired by the Reparations
Commission for herein appellant in
the amount of $3,900,000.00.

“Contracts which are by their terms payable in foreign money,
if they are enforced in the United States, must be paid in United States money
equivalent, according to the acts of Con­gress, to the amount stipulated in the
contract.  It has been held, however,
that the exchange of currency or the rate of ex­change determines the
purchasing power or the equivalent of the currency
of one country as mea­sured by or in the currency of another. 
As the rate which nor­mally affects business transact­ions
fluctuates from day to day, it is more
commonly expressed as the current rate
of exchange; but when the rate is established by contract or otherwise,
it is a fixed rate and controls all mat­ters
within the scope of its operation.”^[5]

From
the foregoing circumstances, and in the light of the authority just quoted, it is seen that the real value
of the reparations goods procured
for herein appellant is $3,900,000.00 which should be the basis of the peso
value of said goods to be specified in the contract of conditional purchase and sale entered into between the parties.  The sum of $3,900,000.00 is the amount the
Reparations Commission is supposed to
pay to the Japanese suppliers of the goods. 
The appellant may not expect the Reparations Commission to part with the
goods for any amount less than what it will actually pay, or is supposed
to pay therefor in
Japan, in the same way that the Reparations Com­mission cannot compel
herein appellant to pay more than the value of the goods.  This being so, and considering the failure of
the parties to stipulate in the “contract to
purchase” the rate of exchange to be used in determining the peso value or
cost of the said goods, it would surely be fair and just, and in keeping with the substance of the
obligation that here­in appellant should pay for the goods in its equivalent
peso cost based on the free market rate of exchange of the peso to the dollar
at the time of the procurement in Japan. 
Neither would the circumstance that by so applying the current rate of
exchange obtaining at the time of procurement, the acquisition cost of machine­ries
as reflected in its original project studies would be doubled, carry the day
for herein appellant.  The fact still
remains that the Reparations Commission would not be unjustly enriched thereby
at appellant’s expense for the reason that what appellant would pay would only
be equal to what the Reparations Commission is supposed to pay for the goods to
the Japanese suppliers.

In fine, it is the opinion of the Court, that whether the
“contract to purchase “be treated as a mere preliminary agreement of the parties, or as a perfected contract
which bound the Reparations Commission to procure and then sell the
goods, and herein appel­lant to purchase the said goods, we have arrived at the same conclusion – that for the failure of
the agreement to specify therein the rate of exchange to be adopted in
computing the dollar value of
the goods to its peso equivalent – the
adoption of the free mar­ket rate by the Reparations Commission to ascertain the peso cost of the goods would not spell impairment
of any obligation thereunder.  Consequently, we do not find it necessary to dwell
at length on the discussion of the
principle of non-impairment of obligation so elaborately expounded by appellant
in its brief; and so, with the alleged denial of due process and equal
protection of the laws.

WHEREFORE, AND CONSIDERING ALL THE FOREGOING, the decision
of the trial court is affirmed.  On
equitable considerations, no pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Sanchez, and
Ruiz Castro, JJ., concur.

^[1]
First Assignment of Error.

^[2]
Second Assignment of Error.

^[3]
Third Assignment of Error.

^[4]
Peer v Hughes, 25 Ariz. 105, 213 P. 691. 
See also the holdings in the following cases which are of similar
import:  Griffin Grocery Co. v.
Kingfisher Mill & Electric Co. 168 Okla. 157, 32 (2d) 63; Hi-way Moto Co. v. Service
Motor Co. 68 Utah 65, 249 P. 133; Owens v. Wilson,
135 Okla. 38, 273. P. 895.

^[5]
36 Am. Jur. 471.