BASILAN LUMBER COMPANY, PETITIONER, VS. CAGAYAN TIMBER EXPORT COMPANY, ET AL., RESPONDENTS.

Basilan Lumber versus Cagayan Timber Export

The Case

This is an appeal by Basilan Lumber Company, the plaintiff and exporter of logs, against Cagayan Timber Export Company, the supplier, in an action for damages arising from breach of a contract for the sale and delivery of exportable logs. The supplier failed to furnish the full quantity agreed upon, and as a consequence the exporter incurred demurrage and dead freight under its own contract with a Japanese buyer. The question that gives this case its enduring value is narrow but sharp: may an obligee recover damages for a breach of contract when the loss has been caused, but the obligee has not yet actually paid it? The Supreme Court answers no, and in doing so fixes the meaning of the requirement that damages be duly proved.

Procedural History

The case began in the Court of First Instance of Manila, which rendered judgment in favor of the plaintiff, Basilan Lumber Company, awarding the amounts of demurrage and dead freight, together with legal interest and attorney's fees. The defendant appealed to the Court of Appeals, which reversed the judgment of the trial court and dismissed the complaint, holding that the damages claimed were not yet actual and had not been satisfactorily proved. The plaintiff then brought the matter to the Supreme Court by appeal from the decision of the Court of Appeals.

Facts

Basilan Lumber Company and Cagayan Timber Export Company entered into a contract dated April 25, 1951, whereby the latter agreed to deliver to the former 1,200,000 board feet of exportable logs not later than May 31, 1951. By an agreement dated July 3, 1951, the quantity was reduced to 500,000 board feet, to be delivered not later than July 15, 1951. By a further agreement dated August 22, 1951, the contract was again amended, increasing the quantity to 740,000 board feet, to be delivered on or about September 1, 1951, and it was agreed that a minimum of 50,000 board feet per gang per hatch per weather working day would be loaded.

The plaintiff had sold the logs to a Japanese buyer, through the East Asiatic Company as intermediary. The logs were to be loaded on the vessel Kanatsu Maru, chartered by the Japanese buyer, which arrived in the Philippines on September 9, 1951, at the agreed place of loading. The vessel stayed in port for a total of eight days, but only 483,672 board feet supplied by the defendant could be loaded. Although the vessel had four hatches and the loading should have lasted about two and a half days, it actually took seven days, because sufficient logs were not available at the loading place and because of poor stevedoring service.

Demurrage was fixed by the trial court at 4,141.16 dollars, and dead freight, corresponding to the freight on logs not delivered shipside, at 5,673.43 dollars, for a total of 9,814.59 dollars, or 19,629.18 pesos. The evidence showed that the agent through which the plaintiff sold the logs had already paid these amounts to the Japanese buyer, but there was no proof that the plaintiff had already paid its agent, or had already been required to pay.

Issues

• Whether or not an exporter may recover from a supplier the demurrage and dead freight for which the exporter is liable under its contract with a foreign buyer, even though the exporter has not yet actually paid those amounts.
• Whether or not the express stipulation in the contract, making the seller liable for whatever damages the buyer would be held liable to its buyers in Japan, entitles the buyer to demand compliance before it has itself suffered and paid the damage.

Applicable Provisions

Article 2199 of the Civil Code of the Philippines provides:

Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.

This is the provision on which the entire decision turns, for the Court reads the phrase duly proved as demanding proof of a loss actually suffered by the claimant.

Ruling

On the first issue, the Court held that the action cannot prosper. The Court stressed that Article 2199 requires that damages be duly proved, and observed that this requirement, which did not exist in the Civil Code of Spain, denies the grant of speculative damages, meaning damages not actually proved to have existed and to have been caused to the party claiming them. While the evidence showed that actual damage had been caused to the agent through which the petitioner sold the logs, since that agent had already paid the Japanese buyer, there was no proof that the respondent had already paid the agent, or had already been required to pay it. Until that happens, the damage to the petitioner may not be deemed to have actually been caused to it.

On the second issue, the Court held that the express terms of the agreement holding the seller liable for the damages it may cause the buyer are merely declaratory of the obligation assumed. They do not create an obligation that the obligee may demand compliance with upon breach of the contract and even before actual payment of damages by the one who breached it, because the obligee has not yet actually suffered the damage or paid the same to the person to whom damage was caused. It is only when the obligee actually suffers the damage that compliance with the obligation may be demanded.

Doctrine

Under Article 2199 of the Civil Code, a claimant is entitled to adequate compensation only for such pecuniary loss as he has duly proved. The rule a Bar candidate should carry into the examination room is this: actual or compensatory damages require satisfactory proof of the real existence of the loss, and speculative or prospective damages are not recoverable. Where the claimant's liability to a third person has been incurred but not yet paid, and no demand for payment has yet been made upon the claimant, the damage is not yet deemed actually caused to him, and he cannot recover it from the party who breached the contract. A stipulation making the seller liable for the damages the buyer may be held liable for to its own buyers is merely declaratory of the obligation assumed; it does not authorize the obligee to demand compliance before he has himself suffered and paid the damage.

Disposition

The Supreme Court affirmed the decision of the Court of Appeals, dismissing the complaint of Basilan Lumber Company, without costs.

Remember This

Memorize the line: damages must be duly proved, and there is no recovery for a loss the claimant has not yet actually suffered and paid. Examiners use this case to test the distinction between actual and speculative damages, and to ask whether an unpaid but already incurred liability to a third party may be recovered as compensatory damages.