G.R. No. L-12376; August 22, 1958
Joe’s Radio and Electrical Supply, plaintiff-appellee, vs. Alto Electronics Corporation and Alto Surety and Insurance Co., Inc., defendants-appellants.

FACTS

On May 23, 1953, plaintiff-appellee Joe’s Radio and Electrical Supply entered into a dealership agreement with Bolinao Electronics Corporation for the purchase of 500 television sets in two shipments of 250 sets each. The agreement required advance partial payments from the appellee and provided that upon the seller’s failure to deliver, it would return the advance payments with 6% interest plus liquidated damages equivalent to 20% of the total cost of 250 sets. Alto Electronics Corporation was later subrogated to the rights and obligations of Bolinao. On August 31, 1953, Alto Surety & Insurance Co., Inc. issued a surety bond to guarantee Alto Electronics Corporation’s performance. The first shipment of 250 sets was fully delivered and paid for. Appellee then deposited P66,150 as advance payment for the second shipment. No delivery was made for the second batch, prompting the appellee to file suit on January 30, 1954.
Pending trial, on July 2, 1954, the parties entered into a subsequent agreement wherein Alto Electronics Corporation admitted its indebtedness of P70,008.75 (representing the advance plus interest) and agreed to liquidate it by delivering 66 television sets of various models within 90 days. The surety company signed in conformity. Alto Electronics Corporation delivered only 13 sets (valued at P20,629.98), leaving an unpaid balance of P49,378.77. It later delivered two more sets valued at P2,928.24, which the appellee accepted “as deposit pending receipt of letter of approval from the appellant surety company.” Due to the failure to fully comply, the appellee reactivated the suit by filing an amended and supplemental complaint. The trial court ruled in favor of the appellee, ordering the appellants to pay jointly and severally the principal sum, interest, and liquidated damages, with the surety’s liability limited by its bond.

ISSUE

1. Whether the value of the two television sets accepted “as deposit” should be credited to the principal obligation.
2. Whether the subsequent agreement (Exhibit “G”) constituted a novation of the original dealership agreement.
3. Whether the stipulation for liquidated damages and interest from the original agreement was carried over to the subsequent agreement.
4. Whether the appellants are jointly and severally liable for the principal sum, interest, and liquidated damages as awarded by the trial court.

RULING

1. On the first issue: No. The Supreme Court held that the value of the two television sets should not be credited. The appellee’s conditional acceptance, made to avoid potentially releasing the surety by granting an extension without its consent, was proper. Since the delivery was made after the period in the agreement and was accepted only as a deposit pending the surety’s approval, ownership did not transfer, and no unqualified acceptance occurred. The debtor did not object to this condition, implying concurrence. General principles on payment allow such acceptance when performance is incomplete or irregular.
2. On the second issue: No. The subsequent agreement was not a novation but a supplement to the original agreement. It did not extinguish the original obligation but provided a new method of payment for the existing debt arising from the failure to deliver the second shipment. The surety’s conformity to the new agreement indicated it remained bound.
3. On the third issue: Yes, but with modification. The stipulation for liquidated damages (20%) from the original agreement was tacitly carried over to the subsequent agreement, as the latter did not expressly renounce it. However, the Court found the awarded amount of P39,780 (20% of the total cost of the entire undelivered second shipment of 250 sets) to be excessive and inequitable. The correct basis should be the amount of the advance payment for which the appellee was deprived of use (P70,008.75), less the value of the partial performance (13 sets valued at P20,629.98), leaving a balance of P49,378.77. Liquidated damages should be 20% of this balance, amounting to P15,719.
4. On the fourth issue: Yes, but modified. The appellants are jointly and severally liable, but the awards are adjusted:
* For the principal sum of P49,378.77, interest at 6% per annum shall run from April 2, 1955 (the date of the amended and supplemental complaint), not from July 2, 1954.
The liquidated damages are reduced to P15,719, with legal interest from April 2, 1955.
The liability of the surety company is limited to the amount of its bond (P66,150).
DISPOSITIVE PORTION:
The decision of the trial court was affirmed with modifications: (1) interest on P49,378.77 starts from April 2, 1955; (2) liquidated damages are reduced to P15,719 with legal interest from April 2, 1955. No costs.