G.R. No. L-5018 November 28, 1953
Republic of the Philippines, plaintiff-appellee, vs. Litton & Co., et al., defendants-appellants.

FACTS

The Republic of the Philippines entered into two contracts with Litton & Co. (through its managing partner George Litton). The first contract, dated December 22, 1945, was for the delivery of 96,000 padlocks by March 1, 1946, secured by a surety bond from Central Surety Co., Inc. for P35,904. The second contract, dated December 26, 1945, was for the delivery of various stationery and office supplies by March 1, 1946, secured by another surety bond for P4,700. Litton & Co. delivered only 34,200 padlocks on April 8, 1946, and 2,000 boxes of paper clips on April 20 and 22, 1946, but failed to deliver the remaining 61,800 padlocks and other supplies on time for the April 23, 1946 elections. The plaintiff was compelled to make open market purchases of these items, incurring excess costs of P176,243.41 for the padlocks and P20,164.17 for the supplies. The plaintiff sued to recover these amounts. The defendants contended that the real agreement included a condition that the plaintiff would obtain shipping priority and export licenses from the United States, which the plaintiff failed to secure on time, and that the failure was due to fortuitous events. They also counterclaimed for payment of P17,009.52 for 9,096 padlocks and P9,806.94 for stationery delivered after the elections, which the plaintiff admitted but sought to offset against its claims. The trial court ruled in favor of the plaintiff, awarding the claimed damages minus the amounts of the counterclaims and a penalty previously collected, holding the defendants jointly and severally liable within the limits of the surety bonds.

ISSUE

Whether the defendants are liable for damages due to their failure to deliver the contracted items on time, and if so, the extent of such liability.

RULING

Yes, the defendants are liable. The Supreme Court affirmed the trial court’s judgment with modification. The Court held that Litton & Co. was not excused from performance; the condition regarding shipping priority and export licenses was not part of the written contracts, and the plaintiff’s efforts to assist did not constitute an assumption of the obligation. The plaintiff was authorized under the contract to make open market purchases upon the contractor’s default. However, on equitable considerations, the Court reduced Litton’s liability for damages by P90,000, roughly representing the difference between the contract price and the open market price for the quantity of padlocks and supplies that arrived but were delivered late due to berthing delays. The Court noted the purchases were made at “black market prices” over ceiling rates, and the performance bonds were for much smaller amounts. The liability of the surety company is co-extensive with that of the principal debtor, Litton & Co. Thus, the appealed judgment was affirmed with the stated modification.