NATIONAL MARKETING CORPORATION, PLAINTIFF-APPELLANT, VS. ALTO TRADING DEVELOPMENT CORPORATION AND THE ALTO SURETY & INSURANCE CO., INC., DEFENDANTS-APPELLEES.

What is to be determined in
this appeal is the correctness of a lower court decision absolving from
liability defendants Atlas Trading Development Corporation (herein­after referred to as Atlas) and Alto Surety
& Insurance Company (hereinafter referred to as Alto), the former under a
contract for the sale of galvanized
steel sheets and the latter under a performance bond.

While the plaintiff-appellant is the National Marketing
Corporation, the action was originally started by its pre­decessor Philippine
Relief and Trade Rehabilitation Administration (hereinafter referred to as the Pratra).  In its
complaint dated June 14, 1950, it alleged: 
On July 21, 1948, defend­ant Atlas offered to sell to the plaintiff 8,000 metric tons of
galvanized sheets at the price of U.S. $247 per ton of 1,000 kilos, CIF Manila,
to be shipped beginning August, 1948;^[1]
on July 24, 1948, the plaintiff made an
order and agreed to purchase the galvanized sheets offered by defendant
Atlas with the condition that the seller should furnish a performance bond in
favor of the plaintiff in the amount of P100,000.00;^[2] on August 5, 1948, the plaintiff and
defendant Atlas as sales brokers for West India Commercial Corp. of New
York City, N. Y., U. S. A., executed a contract of purchase
and sale wherein the said defendant obligated itself to sell 8,000 metric tons
of galvanized steel sheets, at the price of U. S. $247 per ton of 1,000 kilos
CIF Manila;^[3]
under the afore­mentioned contract, defendant Atlas obligated itself to furnish
in favor of Pratra
a performance bond in the sum of
P100,000.00 to guarantee the faithful compliance of all the terms and
conditions of the said contract, with defendant Alto as surety;^[4]
in compliance with its undertakings in the contract, the plaintiff on August 26, 1948, opened a letter of credit with the Philippine National Bank for the
amount of U. S. $1,976,000.00 in
favor of the West India Commercial Corp. of New York, United States.^[5]

Neither defendant Atlas nor its supposed principal the West India
Commercial Corp. of New York
delivered the 8,000 metric tons of galvanized steel sheets involved in the
contract.^[6]
The aforementioned contract having provided that in case of violation of any of
its terms and conditions, the buyer will be entitled to recover liquidated
damages in the amount of 20% of the total contractual value of the merchandise
therein described, U. S. $1,976,000.00, 20% of which is U.S. $395,200.00 or
P790,400.00,^[7]
plaintiff sought to recover the
same from Atlas.  It likewise prayed that defendants Alto be
condemned to pay the plaintiff the amount of P100,000.00, the amount of the performance bond.

In the answer of defendant Atlas, filed on July 15, 1950, it
admitted making the offer, adding however that plaintiff was duly
informed that it was acting in its
repre­sentative capacity;^[8] that an order to purchase the
galvanized steel sheets was in fact made by plaintiff;^[9]
that such a contact of purchase and sale as set forth in paragraph 4 of the
complaint was in fact
executed, although the date of the execution was not on August 5, 1948 but on
August 21, 1948, with the further allegation that its terms and conditions were
“modified, altered and supplemented by another agreement dated August 20,
1948;” that while there was opened on Augusta 26, 1948, a letter of
credit for the amount of U. S. $1,976,000.00 in favor of West India Commercial
Company of New York, U. S. A. by the Philippine National Bank, acting on
plaintiff’s application, such letter of credit being in favor of the
beneficiary, West India Commercial Company of New York, U.S.A., it could not be
utilized in view of what was considered
“serious dis­crepancies between the terms of the said letter of credit and the
contract;” no delivery of the 8,000 metric tons of galvanized steel
sheets, was made as there was no obligation to do so, but even if it
arose, “delivery was made impossible by the prior rescission of the
contracts by plaintiff.”^[10]
It further set up five special
defenses and a counterclaim for P100,000.00.

Defendant Alto denied the allegations of the complaint on the ground
that it had no knowledge or information suffi­cient to form a belief as to what
was therein contained ex­cept the execution of the bond for and on behalf of
the West India Commercial Corporation of New York to guarantee the latter’s
performance of its obligation, if any, under the contract which, having been
executed and acknowledged on August 21, 1948 and not on August 5, 1948 as
alleged, could not be the basis of any obligation.  On the assumption how­ever that the latter
contract could be the one referred to in the bond, it alleged that it did so for and on behalf of the West India
Commercial Corporation of New York to guarantee the performance of its
obligation, if any, and that it
never incurred any obligation at all under the contract which was the basis of
the complaint “as it was never a party to it, nor did it authorize any one
to obligate it in any manner whatsoever,” and that plaintiff “having
discharged the West India Commercial Corporation of New York from liability on
said contract, [defendant Alto] is and must likewise be discharged, the
obligation of the surety being merely accessory to that of the principal.”

After trial, the lower court promulgated a decision on July 29, 1962 dismissing the
complaint.  In absolving defend­ant
Atlas, it held that it “was duly authorized to act as agent or broker of the West India Commercial Company in
entering into the contract of purchase and sale.”^[11]
Even if its liability could be held to be direct, the Pratra,
having demanded payment of damages from West India Commercial Cor­poration ands
not from it, waived whatever claim it might have against Atlas.  The above circumstances taken in connection
with what the lower court found to be a
discrepancy in the letter of credit in favor of the West India Commercial
Cor­poration, which it held to be a condition precedent for the obligation of the
latter under such contract to arise, such discrepancy consisting of no period
of grace of 60 days for delivery having been provided for, although
subsequently corrected but only after the first delivery was “already
impossible physically for the West India Commercial Company to make on time” led it to
conclude that for all legal intents and purposes, such contract of purchase and
sale “had not been operative up to the time it was rescinded by the Pratra on September 23, 1948, due to the failure of the
latter to perform the condition precedent of establishing a sufficient letter of credit.”^[12]
No liability could therefore attach to defendant
Atlas.

The same conclusion was reached as far as defendant Alto was
concerned.  Thus:  “As to the defendant Alto Surety, we hold that judgment cannot
be rendered against it.  Alto Surety posted its bond for the
West India Commercial Corporation and
not for the defendant Atlas.  And as the West India Commercial
Corporation is not a party in
this suit, there is nothing for the Alto Surety to answer.  The case against the Alto Surety and
Insurance Co., Inc., is also dismissed.”^[13]

The facts as found by the lower court are in accordance with the evidence. 
The lay as applied cannot be characterized as erroneous.  The judgment must be affirmed.

It being undisputed that no such delivery of the 8,000 metric
tons of galvanized steel sheets contracted for was ever made, the decisive
question is whether liability could he deemed
to have arisen.  If the answer were in
the affirmative the next question would be, who is to be held accountable?  Defendant Atlas was absolved from any
responsibility by the lower court.  It
justified the non-delivery because of the discrepancy between what was provided
for in the contract of the purchase and sale^[14]
and the letter of credit,^[15]
which under the contract had to be opened. 
As noted in the Brief submitted by Atty. Domingo Zavalla for defendant
Atlas, distinguished for its clarity and lucidity, the failure of the letter of
credit to comply with what was agreed
upon is very apparent and noticeable.” 
Under the contract, the shipment of the galvanized steel sheets could be
made during a period from August, 1948 to February, 1949 with a grace of 60 days, i.e., “all shipments within 60 days of the above
schedule would be accepted as good delivery.”^[16]
The letter of credit on the other hand did not provide for such a period of
grace of 60 days for late shipment.  The
corrected letter of credit was received by them West lndia
Corporation only on September 7, 1948.  As the first shipment was supposed to have
been made in August, it was impossible for the West India Commercial
Corporation to make it on time.   Under
the above circumstances the correctness of the assertion in a radiogram of West
India Commercial Corporation sent to defendant Atlas stating that serious
discrepancy “from contact” would prevent it from “using letter
of credit in present form” cannot be denied.

In a decision of this Court,^[17]
it was held that the failure to open a letter of credit within a period
agreed upon suffices to prevent a binding juridical the from being
created.  That case, dealing with offer
and acceptance,
reiterated the principle that to bind the offeror,
“the offeree must comply with the
conditions of the offer.” The situation before us deals with a perfected
contract.  Here the time element does not
enter into the failure of one party to live up to the terms of the contract.  What was manifest was the discrepancy between
what was agreed upon in the contract and the letter of credit, the effectivity of which requires that “all
conditions contained [in it] be strictly complied with, however
onerous they may be.”^[18]
The above principle is deemed “absolutely necessary for the protection of
the banking and mercantile community.” There is a New York Supreme Court
decision to the effect that a “material variance between the letter of
credit and the sales agreement would excuse non-performance by the seller.”^[19]

Plaintiff-appellant must
have been mindful of the force end applicability
of the above controlling principle.  In
its Brief, Its sought to avoid its application by alleging
that by its very nature “a letter of credit cannot contain all the particulars nor can it embody all the agreements
previously entered into by the parties for the terms and con­ditions of their agreement are already
contained in separate documents.”^[20] Plaintiff-appellant would then allege that no such period of allowance or
grace for the late shipment was provided for because the same was
already embodied in the contract of purchase and sale, Exhibit C.^[21]
Such an argument is far from persuasive. 
An authoritative excerpt from Zollman on Banks
and Banking argues to the contrary.  Thus: 
“Where, therefore, legal relations arise from a letter of credit,
such letter contains the entire
contract of the parties, and their resulting obligations should be
measured by its provisions.  It
constitutes the complete agreement,
and is independent of the contract sale between the buyer and the
seller, and is unaffected by any breach of contract on the
part of the seller or the buyer or by any controversy which may arise
between the buyer and seller or by
any other tran­saction between
the buyer and seller.^[22]

It
follows then that the lower
court was correct in holding that no liability was incurred under the contract
of purchase and sale because of such failure to make the delivery.  Such
being the case, the question of whether
or not defendant Atlas, which acted as a sales broker, could be held liable for the alleged breach
need not be passed upon.

As for the surety,
defendant Alto, the judgment must like­wise be affirmed for the obvious reason
that as
no accountabi­lity of the
principal arose from the failure to make the deli­very of
the galvanized steel sheets, it was equally exempt from liability.

WHEREFORE, the judgment appealed from is
affirmed.  With­out pronouncement as to costs.

Concepcion, C.J., Reyes, Dizon, Makalintal, Zaldivar, Sanchez, Castro, and
Angeles, JJ., concur.

Benzon J., is on leave.

^[1]
Par. 2, Complaint, Annex A.

^[2]
Par. 3, Complaint, Annex B.

^[3]
Par. 4, Complaint, Annex C.

^[4]
Par. 5, Complaint, Annex D.

^[5]
Par. 6, Complaint.

^[6]
Par. 7, Complaint.

^[7]
Pars. 8 & 9, Complaint.

^[8]
Par. 2, Answer.

^[9]
Par. 3, Answer.

^[10]
Pars. 4, 6 & 7, Answer and Annex 1-Atlas.

^[11]
Decision, Record on Appeal, p. 88.

^[12]
Decision, Record on Appeal, p. 95.

^[13]
Decision, Record on Appeal, p.
98.

^[14]
Exhibit C.

^[15]
Exhibit E-2.

^[16]
Exhibit C, par. I, D.

^[17]
Sycip v. National Coconut Corp. and Board of
Liquidators, G.R. No. L-6618, April
28, 1956.

^[18]
According to Zollman: 
“Such a letter may be made conditional.  It is absolutely necessary for the protection
of the banking ad mercantile community that all conditions contained in the
letter be strictly complied with, however onerous they may be.  The seller should strictly observe the terms and conditions
under which
the credit is to become available, and, unless he does this, he will, have no
cause of action against the bank for refusing to honor his draft.” 8 Zollman, Banks and Banking, 11-12.

^[19]
Bennett v. Kazvini et al., 119 New York Supp.
2d 530, 533-534.  The opinion cited the
following cases:  Isaiou
Trading Corp. v. Standard Rice Co., 208 App. Div. 20, 202 N.Y.S. 849; Catz American Co. v. March, 272 App. Div. 134, 69 N.
Y. S. 2d 805; see also Ernesto Foglino & Co. v.
Webster, 217 App. Div. 282, 294-295, 216 N. Y. S. 225, 234-235.

^[20]
Appellant’s Brief, p. 30.

^[21]
Ibid.

^[22]
Op. Cit., pp. 24-25.