NATIONAL RICE & CORN CORPORATION (NOW RICE & CORN ADMINISTRATION), PETITIONER, VS. THE HONORABLE COURT OF APPEALS, DAVAO MERCHANDISING CORPORATION, FIELDMEN’S INSURANCE COMPANY …

The National Rice and Corn Corporation (NARIC) instituted in the
Court of First Instance of Manila on February 9, 1962 against the Davao Merchandising Corporation (DAMERCO) and Fieldmen’s Insurance Co. Inc. an action for recovery of a
sum of money representing the balance of the value of corn and rice exported by
the defendant Davao Merchandising Corporation, for
and in behalf of the NARIC, on a no-dollar remittance or barter basis, pursuant
to a contract whereby the defendant Davao
Merchandising Corporation agreed to act as an agent of the plaintiff in so
exporting such corn and rice and in importing collateral goods in exchange therefor, and to buy from the plaintiff the said collateral
goods.

The defendant Fieldmen’s Insurance Co.
Inc. filed an answer with a cross-claim against the Davao
Merchandising Corporation.

With leave of court, the Fieldmen’s
Insurance Co. Inc. filed a third-party complaint against Cesar Ceballos, Jesus C. Marquez and Bartolome
Cabangbang based on the Indemnity Agreements.

The defendant, Davao Merchandising
Corporation, filed an answer with counterclaims for damages caused to its
business standing and commercial credit allegedly by plaintiff’s false
allegations and unjustified request for a writ of preliminary attachment.  In the same answer, this said defendant
alleged as special defenses that its juridical relationship with the plaintiff
is governed by a contract, Exhibit “A”, wherein it was agreed that
this defendant would “act as agent” of the plaintiff “in exporting
the quantity and kind of corn and rice” mentioned herein, “as well as
in importing the collateral goods that will be imported thru barter on a back
to back letter of credit or no-dollar remittance basis”; that answering
defendant had agreed “to buy the aforementioned collateral goods”,
not the corn grains that were exported; that, therefore, this defendant had no
obligation to plaintiff until after such collateral goods had been imported;
that these defendants should not be made to pay plaintiff, since the collateral
goods worth more than US$480,000.00 had not been imported as a consequence of
the suspension of barter transactions and non-renewal of barter permits by the
new administration; and that the promissory notes sued upon by the plaintiff do
not reflect the true intent and relationship of the parties and is wanting of
consideration.

The writ of attachment which was issued on motion of the
plaintiff was subsequently set aside.

The trial court rendered judgment in favor of the plaintiff,
National Rice and Corn Corporation (NARIC), ordering the defendants, Davao Merchandising Corporation and Fieldmen’s
Insurance Co. Inc., to pay, jointly and severally, to the plaintiff, the sum of
P209,995.16 with interest at 8% per annum from September 1, 1961, until said
amount has been fully paid, plus the further sum of P10,000.00 as attorney’s
fees and the costs of the suit.  On the
cross-claim filed by defendant, Field-men’s Insurance Co. Inc., against its
co-defendant, Davao Merchandising Corporation, and on
the third-party-complaint filed by Fieldmen’s
Insurance Co. Inc. against Cesar B. Ceballos, Jesus
C. Marquez and Bartolome Cabangbang,
said Davao Merchandising Corporation and said
third-party-defendants were ordered to pay, jointly and severally, to Fieldmen’s Insurance Co. Inc. whatever amount the latter
may be obliged to pay the plaintiff under the judgment, plus 10% thereof as
attorney’s fees and the costs of the suit.^[3]

The defendants, Davao Merchandising
Corporation and Fieldmen’s Insurance Co. Inc.,
appealed from the decision of the Court of First Instance of Manila to the
Court of Appeals.

The appeal was docketed as CA-G.R. No. 33127-R.  On August 27, 1969, the Court of Appeals
rendered its decision modifying the decision appealed from in that the
liability of the appellant, Davao Merchandising
Corporation, was fixed at P199,690.97, with interest at 8% per annum from July
17, 1962, and the award of attorney’s fees in favor of the appellee,
National Rice and Corn Corporation, was reduced to P2,000.00.^[4]

On motion for reconsideration filed by the defendant-appellant
DAMERCO, the Court of Appeals promulgated a resolution on January 23, 1970, reversing the judgment appealed
from and rendering a new judgment dismissing the complaint as premature and for
lack of cause of action, without pronouncement as to costs.^[5]

The National Rice and Corn Corporation (now Rice and Corn
Administration) filed this petition for certiorari to review the
resolution of the Court of Appeals promulgated on January 23, 1970.

However, said petitioner did not file a brief but submitted the
following manifestation:

“COMES NOW the petitioner, through counsels and to this
Honorable Court, most respectfully manifests:

1.  That on August 24th instant, counsels for
petitioner received a notice requiring that within thirty (30) days from
receipt, to file printed brief, furnishing copies thereof to the respondents;

2.  That petitioner had already forwarded and
attached to the petition twelve (12) copies each of the Record on Appeal,
briefs of the parties, as well as all pleadings touching on the issue(s)
involved, as filed with the Court of Appeals;

3.  That considering further that the principal
issues are the interpretation of the contract, and/or in relation with the
promissory notes issued, the bonds posted, and the other evidence on record;
and the correctness of the conclusion drawn therefrom,
which issues have already been extensively and exhaustively discussed in
petitioner’s brief and Motion for Reconsideration as filed with the Court of
Appeals (Annex ‘K’ and ‘F’, petition), further invoking the reasons relied upon
by the learned Trial Court in its decision (pp. 219-277, RA) and the first decision
of the respondent Court of Appeals (Annex ‘A’-petition) in support of petitioner’s
stand;

4.  That considering finally that to make and
prepare another brief, the contents of which is practically the same as those
already discussed as above-stated would be repetitions.

WHEREFORE, PREMISES CONSIDERED, it is respectfully manifested
before this Honorable Court that herein petitioner is submitting the case on
the basis of the arguments contained in its Brief and Motion for Reconsideration
as filed with the Court of Appeals as well as the reasons relied upon by the
Trial Court in its decision and the first decision of the respondent Court of
Appeals, in support of its stand before this Honorable Court.

Quezon City,
Philippines, September 7, 1970.

Respectfully Submitted:

F. R. BAUTISTA &
F.G. CORDOBA, JR.

Counsels for the
Petitioner

c/o Legal
Department, RCA

424 Quezon Blvd. Ext. Quezon City

By:

FRANCISCO G. CORDOBA,
JR.”^[6]

The petition for certiorari alleges that the Court of
Appeals erred:

“(a).  In reversing its first decision, Annex ‘A’
hereof, and in denying petitioner’s motion for reconsideration, Annex ‘F’
hereof, upholding in effect respondents theory in the interpretation of the
contract, and/or in relation to the other evidences, mostly documentary in
nature, in arriving at the conclusion that respondent Damerco
acted merely as an agent in the exportation of the corn and importation of the
collateral goods and to buy the goods only upon their arrival in the
Philippines, and not that of a sale as contended by herein petitioner.

(b).   That the conclusion drawn are premised on
wrong assumptions, contrary to the evidence and the evident intention of the
parties to the contract.”^[7]

The petitioner has not made a clear showing that the Court of
Appeals erred in setting aside its original decision and rendering a new
judgment dismissing the complaint as premature and for lack of cause of action.

It is not disputed that the Davao
Merchandising Corporation merely acted as an agent of the National Rice and
Corn Corporation (NARIC) in exporting the rice and corn in question.  This fact is admitted in the counter-statement
of facts of the National Rice and Corn Corporation in its appellee’s
brief filed with the Court of Appeals.^[8]
It is also a fact that because of the change of administration in the
government, barter transactions were suspended. 
Hence, DAMERCO was not able to import the remaining collateral goods
worth about US$480,000.00.

The Court of Appeals found in its resolution promulgated on
January 23, 1970 that the contract in question, Exhibit “A” or
“1”, sustains the contention of the Davao
Merchandising Corporation that the intention of the parties was for the Davao Merchandising Corporation to act (1) as agent of the
NARIC (National Rice and Corn Corporation) in the exportation of the corn and
rice, and (2) as the purchaser of the collateral goods to be imported from the
proceeds of the sale of the corn and rice because:

“Clearly from the preamble of said contract, bids were
previously called for the purchase of corn and rice to be exported as
well as of the imported commodities that will be brought in, but said biddings
did not succeed in attracting good offers. 
That was in July and August of 1959. 
Subsequently, herein defendant Damerco made an
offer, not a bid, which the President of the Philippines,
the Cabinet and the Naric Board of Directors accepted
as the most advantageous to the Naric.  Now, to be sure, the contract designates the Naric as the seller and the Damerco
as the buyer.  These designations,
however, are merely nominal, since the contract thereafter sets forth the role
of the ‘buyer’ (Damerco) ‘as agent of the seller’ in
exporting the quantity and kind of corn and rice as well as in importing the
collateral goods thru barter on a back to back letter of credit or no-dollar
arrangements with other government agencies as authorized by the Cabinet
Directive dated October 13, 1959, and ‘to pay the aforementioned collateral
goods x x x.’ (Exhibits 1-A
and 1-B.)

The foregoing provisions of the contract plainly support the conten­tion
of the Damerco that what it committed to do was to
buy the collateral goods, which will be paid from the proceeds of the corn and
rice exported on a no-dollar or back to back letter of credit arrangement per
the Naric Charter which authorizes it to engage in
barter agreements and so import such goods tax free (RA 633).  It appears that the Naric
had on stock eight thousand metric tons of corn which it could not dispose of
due to its poor quality.  This was the
prime consideration why NARIC called for bids for its exportation.  Now, as the preamble of the contract Exhibit
A states, the Naric called for bids for the purchase
of the corn and rice.  It wanted a good
price therefor in order to avoid losses.  But precisely because of the poor quality of
the corn, a direct purchase of said corn even with the privilege of importing
commodities did not attract good offers. 
That was where Damerco came in with its offer
to act as agent in the exportation of the corn, with the agent answering for
the price thereof and shouldering all expenses incidental thereto, provided it
can import commodities, paying the NARIC therefor
from the price it offered for the corn. 
In other words, the primary consideration of Damerco
was not the purchase of the corn but the purchase of the commodities to be
imported from the proceeds of the corn. 
Note that since the corn would be exported on a no-dollar or back to
back letter of credit, the Damerco would actually
receive NO money either in dollars or in pesos for the corn exported.  This arrangement, i.e., barter or no-dollar
transaction had a dual purpose.  First,
it will facilitate exportation because otherwise no foreigner would buy the
corn at the price asked by the NARIC, especially if the same were to be paid
here in dollars.  Secondly, the Damerco can easily recover its expenses of exportation and
at the same time make a modest profit from the collateral goods – essential,
semi-essential and none essential exported in the proportion fixed by the
Central Bank.  On the other hand, the
NARIC gets better than the market price for its corn and at the same time
avoids the risks and expenses of exportation which it would otherwise take and
pay if it were to export the corn itself, not to mention the fact that it did
not attract good offers under its previous invitation to bid whereby the bidder
would directly purchase the corn and rice.

This, then, is the background of the transaction between the
parties.  The importation and purchase of
the Damerco of the collateral goods was the main
consideration in its entering into the contract.  For how else explain its purchase of the
NARIC corn which nobody else wanted? 
Indeed, the mode of payment supports the theory of herein defendant Damerco.  Damerco was (1) to open a domestic letter of credit in the
amount of Seven Hundred Twenty Thousand Pesos (P720,000.00) representing half
of 8,000 metric tons of corn, which domestic letter of credit shall be
available to the NARIC, drawing therefrom through
sight draft without recourse – 50% of the value of the letter of credit 30 days
after the issuance of the export permit or the effectivity of the contract, whichever is later shall be
cashed; and the remaining 50% shall be cashed in the same manner 90 days after
the issuance of the export permit or the effectivity
of the contract, whichever is later; and (2) to cause the establishment of a foreign
letter or letters of credit covering at least the sum of $360,000.00
representing half of the cost of 8,000 metric tons of corn in favor of the
NARIC, which shall be made available to the latter on sight draft or drafts
without recourse, accompanied by shipping documents, in the following
proportions:  50% of the value of the
letter or letters of credit shall be cashed; and 60 days after the issuance of
the export permit or the effectivity of
the contract, whichever is later, the remaining 50% of the said letter or
letters of credit shall be cashed (Par. 4 [a], Exhibit 1).

Note that the availability of said letter or letters of credit to
the NARIC was dependent upon the issuance of the export permit.  The payment therefor
depended on the importation of the collateral goods, that is after its arrival
as estimated to take from 30 to 90 days. 
Indeed, the contract sought to be enforced under the barter negotiations
has reciprocal stipulations, which must be given force and effect (Rule 130,
Sec. 9, Rules of Court; Luna vs. Linstoc, 74 Phil.
15; Colmenar vs. Cosca, 76
Phil. 857).  And the contract being onerous,
any doubt shall be settled in favor of the greatest reciprocity of interests
(Art. 1378, Civil Code; Liong vs. Aguilar et al., 48
O.G. 1041; Perez vs. Cortez, 15 Phil, 211; De la Cruz et al. vs. Tanguilat, 47 O.G. 4300).

There is no question that almost half of the collateral goods were
imported and the Damerco paid for the collateral
goods as they were received.  However,
and it is not disputed by plaintiff, due to the inferior quality of the corn,
it had to be replaced with more acceptable stock (pp. 28-30, tsn., June 17, 1963). 
This caused such delay that the letters of credit expired without the
NARIC being able to draw the full amount therefrom.  This is an important point to bear in mind
particularly in determining the reason behind the issuance of the checks.  x x x “^[9]

The contract between the NARIC and the DAMERCO, Exhibit
“A”, is bilateral and gives rise to a reciprocal obligation.  The said contract, Exhibit “A”,
consists of two parts:  (1) the
exportation by the DAMERCO as agent for the NARIC of the rice and corn; and (2)
the importation of collateral goods by barter on a back to back letter of
credit or no-dollar remittance basis.  It
is evident that the DAMERCO would not have entered into the agreement were it
not for the stipulation as to the importation of the collateral goods which it
could purchase.  The DAMERCO expected to
make a modest profit out of its purchase of the collateral goods thereby
covering up whatever expenses and losses it may incur in the exportation of the
rice and corn.  Under paragraph 9 of the
contract, Exhibit “A”, all expenses incident to the exportation of
the corn and rice such as taxes, levies, fees, charges, labor for haulage and
losses shall be for the account of DAMERCO, as well as expenses incident to
importation.  The contract also provided
that DAMERCO should mill the palay at its own expense
[Par. 3(b)].  It is iniquitous to compel
the DAMERCO to make a full accounting of the purchase price of the rice and
corn exported without first requiring the NARIC, now succeeded by Rice and Corn
Administration, to secure from the proper government agency the license to
enable the DAMERCO to import the remaining collateral goods.  It would be unfair, to say the least, because
then the DAMERCO would suffer a loss consisting of the substantial expenses
incurred in the exportation of the rice and corn without the corresponding
expected profits from the remaining collateral goods worth about
US$480,000.00.  This was thoroughly
explained by the Court of Appeals thus:

“It appears that we were also misled to believe that the Damerco was buying the corn because the contract provides
that the price of the corn subject matter thereof, shall be one hundred and
eighty (P180.00) pesos, Philippine currency, per ton or P1,440,000.00 for the
8,000 metric tons ‘As Is’ F.O.B. Cebu.  A closer look at the pertinent provisions of
the contract, however, reveals that said price was given tentatively for the
purpose of fixing the price in barter. 
Indeed, paragraph 3(c) of the contract provides that the C & F
Manila price of the imported commodities shall be equal to the total peso price
offered for the corn in consideration of the high price offered by Damerco for said corn. 
Then it sets the value of the imported commodities not to exceed the sum
of P2,880,000.00 equivalent to the peso value of the corn and rice
product.  It should likewise be stressed
that the aforesaid exportation and importation was on a ‘no-dollar remittance
basis’.  In other words, the agent,
herein defendant Damerco, was not to be paid by its
foreign buyer in dollars but in commodities. 
Damerco could not get paid unless the
commodities were imported, and Damerco was not
exporting and importing on its own but as agent of the plaintiff, because it is
the latter alone which could export and import on barter basis according to its
charter (Sec. 3, Republic Act 663).  Thus, unless Damerco
was made an agent of the plaintiff, the former could not export the corn and
rice nor import at the same time the collateral goods.  This was precisely the intention of the
parties, that is, the high price offered by the Damerco
was in consideration of its privilege of buying the collateral goods.  The contract itself clearly provides the Damerco was to export the rice and corn, AND TO BUY THE collateral
goods.  There is nothing in the
contract providing unconditionally that Damerco was
buying the rice and corn.  Indeed, if the
main consideration was simply the purchase of the corn, there would be no
necessity to execute such a complicated contract.  To be more specific, if the agreement was
just a sale of corn to Damerco, the contract need not
specify that Damerco was to buy the collateral
goods.”

x                    x                      x

“But the fact is the Damerco was
able to export all the rice and corn and had indeed paid for the collateral
commodities as they were received. 
Having exported all the corn on a no-dollar or barter agreement at its
expense, Damerco has complied with what was incumbent
upon it under the contract.  It had
imported almost half of the commodities stipulated with about $480,000.00 worth
of commodities yet to be brought into the country when barter transactions were
stopped by a new succeeding administration. 
Of the P1,428,451.13, value of the corn exported, only P199,690,97
remains unliquidated (Exhibit M), as of July 16, 1962, as found in our
decision sought to be reconsidered.  This
means that defendant as of July 16,
1962 must have paid in advance some P760,309.03 on the collateral
goods yet to be imported.  To our mind,
therefore, this act of the Government left the Damerco,
and the NARIC for that matter, holding so to speak the proverbial bag.  Equity then is on Damerco’s
side.  Indeed, by suspending barter
transactions, the Government actually prevented the Damerco
from realizing profits by the eventual sale of the collateral goods worth
$480,000.00 equivalent then to more than P960,000.00.

We have heretofore shown that the checks issued as well as the
promissory notes – now made the basis of the complaint – were issued for the
purpose of securing the unpaid part of the price of the corn and as guaranty
that Damerco will purchase the corresponding collateral
goods.  When the letters of credit lapsed
due to delay imputable to NARIC and not to Damerco,
the latter replaced them with postdated checks merely as a token of good
faith.  This had to be done because the
NARIC was left without security on the ‘cost of the corn’.  Indeed, the very contract itself speaks
clearly of the intention of the parties in such wise that Damerco’s
role was to be an agent of the NARIC in exporting the corn and importing the
collateral goods, and the payment dovetailed with the arrival of the collateral
goods.  Even the subsequent set of
extending the period of the promissory notes to nine months, strongly argues in
favor of this intention.  When said
promissory notes were executed, the Government had not yet suspended barter
transactions, hence the nine-month extension believed sufficient to effect the
importation of the remaining collateral goods. 
Had not the Government suspended barter transactions, there is no doubt
the Damerco would have been able to bring in those
collateral goods, fully paid for except some P200,000.00.

Therefore, as we see it, Damerco executed
the promissory notes only as a token of good faith that it will abide by its
agreement to import the collateral goods in exchange for the corn exported, and
to buy the same upon its arrival in the Philippines.  Its only purpose was to give the NARIC some
sort of security while the unimported collateral
goods have not yet been actually brought into the country.  The promissory notes were clearly intended to
hold the Damerco to its obligation to import and buy
the collateral goods.  However, this
obligation became unenforceable when the importation of the collateral goods
became legally impossible due to the suspension of barter transactions and the
refusal to renew the barter permit by the government of which NARIC (succeeded
by the Rice and Corn Administration [NCA], Sec. 13, RA 3452), was an
agency.  It was not the fault of the Damerco that it failed to import the collateral goods, on
which it must have paid P760,309.03, leaving a balance of almost P200,000.00
(Exhibit M).  It was the duty of the
NARIC, now RCA, to bring in those collateral goods and make the necessary
represen­tations therefor with the Republic of the Philippines.  Until such importation, the obligation of Damerco to pay the promissory notes is unenforceable (Article
1266, Civil Code); hence the present action is premature.”^[10]

It is clear that if after DAMERCO had spent big sums incident to
carrying out the purpose of the contract, the importation of the remaining
collateral goods worth about US$480,000.00 could not be effected due to suspen­sion
by the government under a new administration of barter transactions, the NARIC
(now Rice and Corn Administration) ought to make the necessary representations
with the government to enable DAMERCO to import the said remaining collateral
goods.  The contract, Exhibit
“A”, has reciprocal stipulations which must be given force and
effect.^[11]

In Customs Commissioner vs. Auyong Hian^[12]
where the President of the Philippines
acting through his Cabinet cancelled arbitrarily a license to import goods
under “no-dollar remittance basis”, the Supreme Court said:

“x x x In
fact, if the cancellation were to prevail, the importer would stand to lose the
license fee he paid amounting to P12,000.00, plus the value of the shipment
amounting to P21,820.00.  This is grossly
inequitable.  Moreover, ‘it has been held
in a great number of cases that a permit or license may not arbitrarily be
revoked x x x where, on the
faith of it, the owner has incurred material expense.'”

The Court of Appeals did not err in holding that the NARIC (Now
RCA) has no cause of action until it has secured the necessary import permit
and it brings in the remaining collateral goods worth about US$480,000.00.

WHEREFORE, the petition for review is denied and the
resolution of the Court of Appeals promulgated on January 23, 1970 appealed from is hereby affirmed, without
pronouncement as to costs.

SO ORDERED.

Teehankee, (Chairman), Makasiar, Guerrero, De Castro, and Melencio-Herrera, JJ., concur.

^[1]
Written by Justice Eulogio S. Serrano and concurred
in by Presiding Justice Julio Villamor and Justice
Juan P. Enriquez, Annex “A”, Rollo,
pp. 41-54.

^[2]
Resolution written by Justice Juan P. Enriquez and concurred in by Presiding
Justice Julio Villamor, Justice Nicasio
A. Yatco and Justice Jose M. Mendoza.  Justice Eulogio S.
Serrano dissented.  Annex “B”, Rollo, pp. 76-95.

^[3]
Joint Record on Appeal, pp. 226-227, Rollo, p.
203.

^[4] Rollo, p. 53.

^[5] Rollo, p. 95.

^[6] Rollo, pp. 221-222.

^[7]
Petition, Rollo, pp. 20-21.

^[8]
Annex “K”, Rollo, p. 205.

^[9] Rollo, pp. 77-83.

^[10] Rollo, pp. 87-94.

^[11]
De Luna vs. Linatoc, 74 Phil. 15; Colmenar vs. Cosca, 76
Phil. 857.

^[12]
105 Phil. 561, 564.