G.R. No. 16482 ; February 1, 1922
Smith, Bell & Co., Ltd., plaintiff-appellant, vs. The Philippine National Bank, defendant-appellee.

FACTS

Smith, Bell & Co. (plaintiff) sold eight Anderson expellers to Fred M. Harden for P80,000, with shipment from the U.S. scheduled for February or March 1919. To secure payment, the Philippine National Bank (defendant) issued a letter on April 27, 1918, addressed to the plaintiff, undertaking to pay the amount upon delivery of the expellers, provided they were new Anderson expellers and in first-class working order in Manila. Subsequently, at Harden’s request, the plaintiff changed the order from “end-drive” to “side-drive” expellers. Upon the expellers’ arrival in July 1919, Harden inspected them and informed the bank they were not as ordered, leading the bank to refuse acceptance and payment. The plaintiff then sold the machinery at a loss and sued the bank for damages.

ISSUE

Whether the Philippine National Bank is liable to Smith, Bell & Co. for the purchase price or damages arising from its refusal to accept and pay for the expellers, despite the change in specifications from “end-drive” to “side-drive” made at Harden’s request.

RULING

Yes, the bank is liable. The Supreme Court reversed the trial court’s decision. The bank’s undertaking was an independent and direct obligation to the plaintiff, not a subsidiary one. The change from “end-drive” to “side-drive” was made at Harden’s instruction and did not relieve the bank of liability, as the expellers delivered were new Anderson expellers in first-class working order, complying with the bank’s letter. The bank’s purpose was to supply credit for Harden’s order, and Harden had the authority to modify the specifications. The plaintiff is entitled to recover damages amounting to P23,705.34 (comprising the difference between the contract price and resale price, plus storage, insurance, and moving expenses), with legal interest from March 8, 1920.