G.R. No. L-5018. November 28, 1953
REPUBLIC OF THE PHILIPPINES, PLAINTIFF AND APPELLEE, VS. LITTON & CO., ET AL., DEFENDANTS AND APPELLANTS.
PARAS, C.J.:
is an appeal by the defendants Litton & Co., G. Litton and Central
Surety Co., from a decision of the Court of First Instance of Manila
the dispositive part of which reads as follows:
“WHEREFORE,
judgment is hereby rendered in favor of the plaintiff and against the
defendants for the sum of One hundred sixty-seven thousand and one
hundred ninety-nine pesos and sixty-five centavos (P167,199.65),
ordering the defendants to pay to the plaintiff said amount, out of
which the sum of Forty thousand six hundred four pesos (P40,604) shall
be paid jointly and severally by Litton &, Co., or George Litton
and the Central Surety Co., Inc. and the rest by Litton & Co., or
George Litton, and against its co-defendant Litton & Co. and/or
George Litton for any amount which said Central Surety Co., Inc., shall
have paid to the plaintiff as a result of this judgment. With costs
against the defendants.”
The allegations of the parties in
their respective pleadings are correctly recited in the following
passages of the appealed decision:
“The
complaint alleges in the first cause of action that on December 22,
1945, the defendants Litton & Co. and George Litton, managing
partner or agent of the defendant partnership, entered into a contract
with the plaintiff to supply and deliver to the latter on or before
March 1, 1946, 96,000 padlocks at P1.87 each, in accordance with the
specifications and under the terms and conditions set forth in the said
contract; that to guarantee and secure the faithful performance of
their obligation, the co-defendant Central Surety Co., Inc., executed
on January 3, 1946, a surety bond in favor of the plaintiff for
P35,904; that the defendant Litton & Co. delivered on or about
April 8, 1946, 34,200 padlocks only, which is much less than the
quantity called for in the contract, and failed to deliver the balance
of 61,800 padlocks which were to he used during the elections of April
23, 1946.“The complaint further alleges that for such
failure of the defendant Litton & Co., the plaintiff was compelled
to make open market purchases of 25,613 padlocks, thereby incurring
losses and damages in the amount of P176,243.41, representing the
difference between the price actually paid for said open market
purchases and the price which the government would have paid to Litton
& Co. in accordance with the contracts; that due notice was served
on the co-defendant Central Surety Co., Inc., of said failure on the
part of Litton & Co. and of the co-defendant’s liability on its
bond, and that notwithstanding repeated demands made by the plaintiff
upon the defendants’, they failed and refused to pay the aforesaid
amount.“In its second cause of action the plaintiff
alleges that on December 26, 1945, a contract was entered into between
the plaintiff and the defendants Litton & Co., and George Litton,
its managing agent or partner, whereby said defendants undertook to
deliver to the plaintiff on or before March 1, 1946, quantities of
indelible pencils, lead pencils, bottles of ink, pen points, chalks,
clips, etc., with a total value of P25,979.55, subject to the terms and
conditions of said contract; that to guarantee and secure the faithful
performance of that contract by Litton & Co., the Central Surety
Co., Inc., executed on January 3, 1946, a surety bond in favor of the
plaintiff in the sum of P4,700; and that the defendant Litton &
Co., in violation of the terms and conditions of said contract failed
to deliver the articles called for on or before the stipulated date,
said articles to be used during the elections of April 23, 1945.“The
plaintiff further alleges that for such default and failure of the
defendants, the plaintiff was compelled to make open market purchases
of said articles, thereby having suffered damages and losses in the sum
of P20,164.17, representing the difference between the price of said
articles purchased in the open market and the price stipulated in the
contract; that the co-defendant Central Surety Co., Inc., was duly
notified of the failure of Litton &, Co. to deliver said articles,
and its liability under its bond; and that notwithstanding demands made
by the plaintiffs upon said defendants, they refused to pay the
aforesaid amount of P20.164.17.“The plaintiff prays under
the first cause of action that judgment be rendered in its favor and
against the defendant Litton & Co. ordering the latter to pay the
sum of P176,243.41 with legal interest thereon from the filing of the
complaint until fully paid, and that out of said amount the Central
Surety Co., Inc., be ordered to pay jointly and severally with Litton
& Co. the sum of P35,904; and with respect to the second cause of
action, the plaintiff prays that Litton & Co. be ordered to pay to
the plaintiff the sum of P20,164.17 with legal interest thereon from
the filing of the complaint and that out of said amount the sum of
P4,700 be paid jointly and severally by Litton & Co. and the
Central Surety Co., Inc. The plaintiff further prays that in default of
Litton & Co. to pay the aforesaid amounts, George Litton personally
be ordered to pay the same as managing partner and/or agent of Litton
& Co.“In their joint answer, defendants Litton &
Co., and George Litton allege that the contracts mentioned in the
complaint are not the real contracts between the parties and do not
express the real agreement between them; that it was agreed by and
between the parties that the defendants, Litton & Co. and/or George
Litton, would deliver the padlocks and the supplies called for in the
two contracts provided the plaintiff should obtain shipping priority
and the necessary export license to bring said articles from the United
States to the Philippines, which terms and conditions were not embodied
in the alleged contracts; that the defendant Central Surety Co., Inc.,
executed the two surety bonds under the same terms and conditions; and
that the failure of said defendants to deliver the balance of the
96,000 padlocks and the stationery and office supplies called for in
the contracts was due to plaintiff’s failure to secure on time shipping
priority and export license and also to fortuitous events and force majeure, beyond the control of said defendants.“The
defendants further allege that the purchases of padlocks by the
plaintiff in the open market were made at exorbitant prices, much in
excess of their ceiling prices which should not be more than 70 per
cent over the landed costs; that the defendants are not liable for the
alleged losses and damages resulting from said purchases, as their
delay or failure to deliver the padlocks was due to plaintiff’s fault
and to circumstances beyond their control.“By way of
counterclaim the defendants Litton & Co. and/or George Litton
allege that after the elections of April 23, 1946, more specifically on
May 11, 14, and 16, the defendants delivered to the plaintiff 9,096
padlocks at P1.87 each, or with a total price of P17,009.52 and that
the plaintiff, notwithstanding repeated demands by said defendants,
failed and refused to pay said amount; and as additional counterclaim
the said defendants allege that on various dates in April and May,
1946, stationery and office supplies were delivered to the plaintiff at
the agreed price of P9.806.94, and that notwithstanding repeated
demands upon the plaintiff, it refused and failed to pay said amounts.“The
defendants Litton & Co, and George Litton pray that the complaint
be dismissed and that the plaintiff be ordered to pay to said
defendants the sum of P17,009.52 under the first counterclaim and the
sum of P9,806.94 under the second counterclaim.“The
plaintiff, in its answer to the counterclaims, admits their existence
and its liability under the same, but alleges that the total amount of
the counterclaims should be credited to plaintiff’s claim against the
defendants.“In its answer the defendants Central Surety
Co., Inc., admits the execution of the two surety bonds above stated,
but denies its liability under the same. It also alleges, as an
affirmative defense, that plaintiff’s cause of action is barred by the
expiration of the period stipulated in the bond. This defense was first
urged in a motion to dismiss, which was denied upon the grounds stated
in the orders of August 30 and September 8, 1948. The answer of the
Central Surety Co., Inc., includes a cross-claim against the defendant
George Litton for whatever amount the plaintiff may collect from the
Central Surety Co., Inc., in this case.”
The first
delivery made by Litton was on April 18, 1946, consisting of 34,200
padlocks which were fully paid by the plaintiff. The latter, however,
imposed upon Litton for his delayed delivery a penalty equal to 1/10 of
one per cent per day of the total value of said padlocks in accordance
with paragraph 4 of the “Important Conditions” appearing at the back of
the contract, which reads as follows:
“4. Contractor’s
failure to make delivery, when due, will authorize the Purchasing Agent
to, in his discretion, impose a penalty. If he decides to do so, either
of the following penalties shall be imposed: (a) to deduct for
each day of delay in delivery after the period granted, a liquidated
damage in the amount of 1/10 of 1 per cent per day of the total value
of the contract, or, if the contract has been partially filled within
the stipulated time, the total value of the unfilled portion thereof;
or (b) to make an open market purchase of the supplies that the
contractor failed to deliver and to charge to him the excess in price,
if any. In either case, the Government reserves the right to rescind
the contract. The contractor hereby authorizes the purchasing agent to
deduct the value of the penalty imposed from any money due, or which
may become due, the contractor, or to recover from the contractor’s
bond filed under this contract, if there is any.”
On
April 20 and 22, 1946, Litton further delivered 2,000 boxes of paper
clips costing P180. As no other deliveries were made, and under the
authority contained in the above-quoted paragraph 4, the plaintiff
purchased in the open market within a few days before the elections the
following:
Articles Padlocks Pencils, indelible Pencils, lead Pen points, Esterbrook Ink, stamp pad TOTAL
The sum of P176,243.41, sought to be recovered under the first cause of
action and the sum of P20,164.17 claimed under the second cause of
action respectively represent the difference between the prices of the
foregoing articles stipulated in Litton’s contract and the prices paid
by the plaintiff in the open market.
The trial court allowed
the plaintiff’s claim as to both causes of action, but granted Litton’s
counterclaims in the total sum of P26,816.45 representing the unpaid
price of padlocks and stationery delivered to the plaintiff after the
elections, and deducted also the sum of P2,391.47 which the plaintiff
collected from Litton as penalty for delayed delivery (before the
elections) of 34,200 padlocks.
The principal issue, reduced
in its simplest form, is whether, as contended by the
plaintiff-appellee, the defendant George Litton (whose business name is
Litton & Co.) unconditionally bound himself to supply and deliver
to the plaintiff 96,000 padlocks and a quantity of stationery and
office supplies on or before March 1, 1946, or whether, as claimed by
the defendants, the contract was for George Litton to deliver the said
articles subject to the condition that the plaintiff would timely
obtain the corresponding export license and shipping priority.
The theory of the plaintiff is that Litton’s contract is evidenced by
purchase order No. 1896, dated December 22, 1045, for 96,000 padlocks
at P1.87 each “Delivery: not later than March 1, 1946,” and by purchase
order No. 3826 for stationery and office supplies dated December 26,
1945, “Delivery—On or before March 1, 1946.” Upon the other hand,
Litton claims that these two purchase orders do not represent the true
agreement and that his bid (previously accepted by the plaintiff) was
conditioned by his letter dated December 12, 1945, and worded as
follows: “Reference to Circular Proposal No, 13 to be opened at 10
a.m., December 13, 1945, we enclose herewith two copies of our bid on
the above proposal. For all items in which we gave you a quotation,
shipment will be made from the United States during the month of
January, 1946, provided we are able to obtain export license and
shipping space and provided further we are given the award within three
(3) days from today. This will enable goods to arrive in Manila for
delivery during March.” Litton’s defense is therefore that he is
excused by the plaintiff’s failure to obtain in due time the export
license and shipping priority.
The trial court held that
although the conditions specified in the letter of December 12 were
considered by the plaintiff in connection with its orders, it was still
Litton’s sole obligation to obtain the necessary export license and
shipping space; and that although the plaintiff made certain efforts to
expedite the issuance of the necessary license, the same “were in the
nature of a friendly assistance to the defendants and can in no way be
interpreted or construed as if the plaintiff were the party bound to
secure for itself the export license or shipping space.”
We
are convinced that George Litton undertook to deliver the padlocks and
stationery in question not later than March 1, 1946. It is significant
that in the Circular Proposal No. 13 issued on November 27, 1945, to
local dealers, calling for bids, it was expressly stated that the
articles were for election purposes, and the bidder was therefore
required to “state the shortest time of delivery, which should not be
later than March 1, 1946. Deliveries made before March 1 will be
preferred.” It is then preposterous to suppose that delivery after the
elections would ever be contemplated or accepted. More significant is
the fact that on December 15, 1945, or subsequent to the letter of
December 12, relied upon by Litton, and after he was informed by the
committee on award that his bid would be accepted if the condition
mentioned in said letter was eliminated, Litton wrote a note to the
purchasing agent, stating as follows:
“Sir:
“We have the honor to inform you that the Padlocks, 1 5/8″ X 1 5/8”,
rustless, Eagle brand, are manufactured in the United States.“For
immediate shipment our principals have 30,000 pieces for the first
delivery arriving in Manila about the middle of February, and the
balance of 66,000 not later than March 1, 1946.“It
is, however, understood that your Office will give us a letter
certifying that the padlocks are urgently needed by the Philippine
Government so that the export license can be secured without delay,
thus making the first shipment of 30,000 arriving in Manila about the
middle of February, 1946.“Please let us know immediately so we can notify our principals for immediate shipment as above stated.
“Very truly yours, “(Sgd.)
The
foregoing letter shows that Litton merely expected the plaintiff to
give a certification that the padlocks were urgently needed by the
Philippine Government so as to warrant the early issuance of the
license. Moreover, Litton subsequently filed two performance bonds,
executed by him as principal and the Central Surety Co., as surety.
With reference to the padlocks, the bond recited in part as follows:
“WHEREAS,
the above bounden principal, on 22nd day of December, 1945, entered
into a Contract with the Division of Purchase and Supply, Department of
Finance, Manila, to fully and faithfully guarantee the delivery of
96,000 padlocks, * * * No. 13, Order No. 1896, said delivery to be made
not later than March 1, 1946.“WHEREAS, said Division of
Purchase and Supply requires said principal to give a good and
sufficient bond in the above stated sum to secure the full and faithful
performance on his part of said LITTON & COMPANY;“NOW,
THEREFORE, if the principal shall well and truly perform and fulfill
the undertakings, covenants, terms, conditions, and agreements
stipulated in said contract, then, this obligation shall be null and
void; otherwise it shall remain in full force and effect.”
With reference to the stationery, the bond provided as follows:
“WHEREAS,
the above bounden principal, on 26th day of December, 1945, entered
into a contract with the Division of Purchase and Supply, Department of
Finance, Manila, to fully and faithfully guarantee the delivery of the
following:
Pcs. Pencils, indelible, hard, U. S. make. Pcs. Pencils, lead, medium No. 2, w/erasers, U. S. make. Bots. Ink, stamp pad, violet, 2-oz. bottle U. S. make Bots. Ink, stamp pad, violet, 2-oz. bottle U. S. make Pcs. Chalks, white, enameled 1-gross to box, U. S. make. Pcs. Pen points, Esterbrook No. 14, or equal, 1-gross to box, U. S. make. Boxes Clips, paper Gem No. 1, 100 clips to box, U. S. make. Cones Pins, office, No. 4, U. S. make. strictly in accordance with Circular Proposal No. 13; Order No. 3826. Said delivery to be made on or before March 1, 1946.
“WHEREAS,
said Division of Purchase and Supply requires said principal to give a
good and sufficient bond in the above stated sum to secure the full and
faithful performance on his part of said LITTON & COMPANY:“NOW,
THEREFORE, if the principal shall well and truly perform and fulfill
all the undertakings, covenants, terms, conditions, and agreements
stipulated in said contract then, this obligation shall be null and
void; otherwise, it shall remain in full force and effect.”
These
bonds, prepared by the surety company on the basis of data furnished by
Litton, made express reference to and guaranteed the fulfillment of the
contracts entered into on December 22 and 26, 1945, the very purchase
orders Nos. 1896 and 3826; and under said bonds delivery was to be made
on or before March 1, 1946. This negatives the contention that the
delivery of the padlocks and stationery was subject to any contingency,
much less to plaintiff’s ability to secure export license and shipping
priority.
Moreover, undoubtedly foreseeing his inability to
meet the deadline, Litton wrote a letter to the purchasing agent dated
February 28, 1946, asking for an extension of time; and inferring to
said letter he testified that “I asked for an extension because I could
not deliver the goods on March 1, 1946.” Said extension, which was
ignored by the purchasing agent,[1] was sought under paragraph 2 of “Important Conditions” of the contracts.
It is true that the Philippine Government exerted some efforts[2] with
a view to the granting by the United States authorities of the
necessary export license and shipping space, but the same do not prove
that it was plaintiff’s obligation to do so or that Litton’s duty to
deliver the articles on or before March 1, 1946 was conditional. Said
efforts were merely in furtherance of Litton’s letter of December 15,
1945 in which he asked the plaintiff to certify that the padlocks were
urgently needed by the Philippine Government so that the export license
might be secured speedily. Neither does the fact that the license was
issued in the name of the plaintiff show that the latter assumed the
obligation of obtaining the same, the detail being undoubtedly formal.
As a matter of fact, it was the U. S. exporter Gindoff & Co., after
failing to get a license directly, that caused its issuance in the name
of the Philippine Government. At any rate, according to Litton’s letter
of December 12, 1945, shipment would be made from the United States
during the month of January, 1946, provided he would obtain export
license and shipping space; and it is admitted in the brief for the
appellants that all the padlocks and stationery were placed in the New
York docks in said month in spite of the delay in the issuance of the
license, with the result that Litton’s complaint about any delay on the
part of the plaintiff is immaterial. Again, even in said letter of
December 12, Litton announced that, when shipment was made in January,
the goods would “arrive in Manila for delivery during March, 1946.” We
may also add that, as regards the stationery, no export license was
required.
Upon the whole, we are of the opinion that
Litton’s contract with the plaintiff was unconditional. Indeed, in
paragraph 2 of the “Important conditions” appearing at the back of the
purchase orders, the following provision is made: “2. The stipulated
delivery period shall not be exceeded. However, should there be delay
in delivery, due to an act of the Government, to force majeure,
or to a condition clearly beyond contractor’s control, the Purchasing
Agent may grant a reasonable time for extension, if applied before
default is incurred. Deliveries made within the extended period of time
shall not be subject to any of the penalties herein below provided.”
This makes Litton liable in all eventualities; and said clause is
authorized by article 1105 of the old Civil Code which provides that
“outside of the cases mentioned in the law and of those in which the
obligation so declares, no one shall be responsible for events which
could not be foreseen, or which having been foreseen were unavoidable.”
The result is that the appellants cannot invoke the delay in the
issuance of the export license by the proper authorities, the fact that
the ships carrying the supplies were not allowed to berth at the piers,
or that one of the ships had to pass by Shanghai upon orders of the War
Shipping Commission, and another vessel was stranded on Bonin Islands.
The contention that paragraph 2 of the “conditions” contained at the
back of the contracts is contrary to law and public morals, because it
makes Litton liable for any delay due even to an act of the Government,
is of no moment, since it is not pretended in this case that Litton’s
default was caused by such an act.
It is also argued that
the election of the plaintiff to impose the penalty equivalent to 1/10
of one per cent of the total value of the padlocks delivered on April
8, 1946, precluded the plaintiff from imposing the other form of
penalty, namely, to make open market purchases and to charge to the
contractor the corresponding difference in price. This argument is
without merit, because the first penalty is applicable to mere delay in
delivery, and not to total failure to deliver, whereas the second
penalty may be imposed in either case. To adopt Litton’s theory would
deprive the plaintiff of its right to purchase in the open market the
supplies which Litton had failed to deliver.
Neither can we
sustain the claim of Litton that there was mutual mistake on the part
of the parties, in that both did not foresee the impossibility of
compliance for causes beyond their control. Litton, an experienced
businessman and aware of the difficulties and restrictions in bringing
U. S. goods to the Philippines at the time he entered into his contract
with the plaintiff, chose to bind himself to deliver the articles in
question, undoubtedly in the expectation of and in return for the
profits that would accrue under the contract.
A faint
attempt has been made to show that Litton was merely an agent or broker
of the U. S. exporter Gindoff & Co. There is absolutely no point in
this aspect of the case, since in his bid, contracts, and performance
bonds, Litton appears to be the sole contracting party.
According to the records, four of the vessels carrying the stationery
and padlocks arrived in Manila on or before April 1, 1946, one vessel
arrived in Manila on May 29, after deviating to Shanghai upon order of
the War Shipping Commission, and the last vessel, carrying a cargo of
padlocks, was stranded on Bonin Islands and its cargo was transferred
to another vessel which arrived in Manila five months later. At the
time the plaintiff made purchases in the open market two vessels, the SS Tarn, carrying stationery, and the SS Adrastus,
loaded with padlocks, were inside the breakwater ready for unloading,
but due to lack of berthing space at the piers, their cargo was
unloaded and delivered to the plaintiff only after the elections. The
total price of the padlocks delivered to the plaintiff computed at
P1.87 each, is P17,009.52, and the total price of the stationery
delivered to the plaintiff after the elections, is P9,806.94, and these
amounts have not been paid by the plaintiff which claims that they
should be deducted from the damages due from Litton. While Litton was
not excused from performing his obligation, on purely equitable
considerations we hereby reduce the damages awarded by the trial court
by the sum of P90,000. This roughly represents the difference between
the stipulated unit price of P1.87 under Litton’s contract and the
price paid in the open market by the plaintiff for the quantity of
padlocks delivered by Litton to and accepted by the plaintiff after the
elections, which articles were loaded in the SS. Adrastus which
arrived in Manila on April 1, but was able to berth only on May 5. We
are influenced by the fact that the purchases made by the plaintiff, at
the time when a quantity of padlocks and stationery were inside the
breakwater ready for unloading, were at black market prices, or over
the ceiling rates fixed by the Government, in addition to the
circumstance that the performance bonds required from Litton were only
in the sums of P35,904 and P4,700. Of course, under the contract, the
plaintiff was authorized to make open market purchases as a result of
Litton’s default, and in view of the attending urgency the plaintiff
was compelled to pay higher prices; and Litton’s criticism against said
purchases is therefore not well taken. At any rate, Litton had not
taken any steps to protect himself or minimize his damages by buying in
the open market at lower prices than those paid by the plaintiff for
the articles needed in the elections which Litton failed to deliver on
time.
The position of the surety company is dependent upon
that of Litton. As a matter of fact, said company had adopted Litton’s
brief. What we have stated as to Litton is therefore decisive as
against the liability of the surety.
Wherefore, with the
modification that Litton’s liability for damages is reduced by P90,000,
the appealed judgment is in all other respects affirmed. So ordered
with costs against the appellants.
Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes, Jugo, Bautista Angelo and Labrador, JJ., concur.
[1]
Under paragraph 2 of “Important conditions” of the contracts, the
purchasing agent had the discretion to grant or not to grant any
extension.
[2]
For instance, the Chairman of the Commission on Elections wrote a
letter dated December 18, 1945, to the President of the Philippines
recommending that arrangements be made with the Resident Commissioner
of the Philippines in the U. S. so that Gindoff & Co. (Litton’s
agent in the U. S.) might be allowed to ship the padlocks immediately;
and said letter was referred by the Office of the President to the
Resident Commissioner, requesting assistance in securing priority in
shipping space and export license from the U. S. authorities.