Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-21651-21653 December 29, 1924
LOTHAR F. ENGEL, ET AL., plaintiffs-appellees,
vs.
MARIANO VELASCO and CO., defendant-appellant.
Crossfield and O'Brien and Fisher, DeWitt, Perkins and Brady for appellant.
Gibbs and McDonough for appellees.
STREET, J.:
The three consolidated actions now before us were instituted in the Court of First Instance of Manila by Lothar F. Engel, Carl J. Upmann and Max Kummer, of New York City, copartners under the firm name of Engel, Upmann & Co., against Mariano Velasco & Co., a general partnership engaged in merchantile business in the City of Manila, for the purpose of recovering various sums of money, with interest, for the alleged failure of the defendant to accept and pay for various consignments of merchandise ordered from the plaintiffs by the defendant. The defendant interposed answers in the three cases denying generally the allegations of the complaints and setting forth various special defenses, with counterclaims and an affirmative cross action. Upon hearing the proof the trial judge absolved the plaintiffs from the defendant's counterclaims and cross complaint and gave judgment for the plaintiffs to recover of the defendant the sum of P152,217.74, with interest at six per centum, to be calculated upon different portions of the total from specified dates. From this judgment the defendant appealed.
In reality this appeal involves twenty different causes of action, sixteen of which are set out in the plaintiff's three complaints, and four in the defendant's counterclaims and cross complaint. These various causes of action are set forth fully in the pleadings, and an analysis of each is found in the appealed decision. The record is necessarily voluminous beyond the ordinary, but the labor of handling so great a mass of matter is in some degree lessened by the circumstance that all of the different causes of action present features in common.
At the time of the transactions with which we are here concerned the plaintiffs were export brokers, or jobbers, of textile merchandise in the City of New York, while the defendant was the owner, as it still is, of a large store in Manila where general merchandise is sold both at wholesale and retail. In connection with this business the defendant from time to time has occasion to import textile fabrics on a large scale. In the beginning of the year 1920 commercial relations were established between the plaintiffs and the defendant, and in the succeeding three months the defendant sent to the plaintiffs numerous orders for merchandise. The general course of business between the two parties appears to have been this: The defendant would first obtain from the plaintiffs by cable information as to the prices of the goods desired, and would thereupon send a cablegram to the plaintiffs, instructing them to buy and hold specified qualities of goods in the amount and at the prices stated. Contemporaneously with the sending of the cablegram the defendant would dispatch by mail more extended instructions, confirming the cablegram and giving such other advice as was desirable. The cablegrams were written in cipher and were necessarily brief, while the letters of confirmation and advice were more extended, containing specifications as to patterns in the case of suitings and stampings in the case of fabrics commonly called coco blanco. Upon receipt of the cabled order, the plaintiffs cabled their acceptance in reply, indicating the approximate time of delivery or, if the goods could not be obtained, so advised. At or about the same time the plaintiffs placed an order for the same goods with the manufacturer, subject to subsequent specifications as to patterns and stampings.
Upon receiving the defendant's written order by mail the plaintiffs transmitted the instructions contained therein to the manufacturer for execution and at the same time prepared and forwarded to the defendant a formal written sales note, conforming in the main to the terms specified in the previous communications between the plaintiffs and the defendant. As a result of this procedure the plaintiffs became directly obligated to the manufacturer who produced the goods, while the defendant became obligated to the plaintiffs, assuming that all conditions essential to the creation of liability had been fulfilled.
It is said that as many as thirty-seven orders were given by the defendant to the plaintiffs beginning in the month of January, 1920. A murder of these orders were duly honored by the defendant upon the receipt of the goods and the price paid in due course. The causes of action stated in the three complaints have their origin in sixteen or seventeen orders nearly all of which were sent to the plaintiffs between February 5 and April 2, 1920, inclusive. These orders appears to have been promptly placed with the manufacturers by the plaintiffs, but delay occurred in the matter of shipment; and when delivery was finally tendered in Manila of the goods covered by the orders included in actions 19917 and 20637 of the lower court, acceptance was refused. These goods were thereupon sold by the plaintiffs in Manila and claim made upon the defendant for the difference between the amount realized and the contract price. The goods involved in the orders covered by case No. 20321 were never shipped from New York to Manila, and after it was found that said goods would not be here accepted, the plaintiffs caused the same to be sold in New York City.
The plaintiffs proceed upon the idea of breach of contract on the part of the defendant in its failure to accept and to pay for the goods covered by the orders above referred to. On the part of the defense a preliminary question is made with reference to the admissibility of so much of the correspondence as was conducted by cable, and for the rest it is claimed that the plaintiffs have not complied with the terms of the various orders and that the refusal of the defendant to accept and pay for the goods in question was justified.
To dispose first of the controversy regarding the admissibility of the cablegrams, reference must be made to paragraph 2 of article 51 of the Code of Commerce, as it stood prior to the enactment of Act No. 3098 of the Philippine Legislature by which said paragraph was repealed. The provision referred to is as follows:
Telegraphic correspondence shall only be the basis of an obligation between contracting parties who have previously admitted this medium in a written contract, and provided the telegrams fulfill the conventional conditions or conventional signs which may have been previously fixed and agreed to by the contracting parties.
This provision was in force at the time all of the orders involved in this litigation were given, and it is therefore insisted that the messages transmitted by cable are inadmissible against the defendant. In this connection it will be noted that no prior written agreement is in evidence by which the parties expressly admitted telegraphic correspondence as a basis of contract, though it is true that the private cable code used by the defendant in its cable correspondence with the plaintiffs had been supplied by the latter.
We are unable to concede to this provision the effect claimed for it by the defendant, namely, of eliminating entirely from the case so much of the correspondence as was conducted by cable. Upon examining the documentary proof, it will be found that upon sending its orders by cable, the defendant followed with letters of confirmation by mail, in which the various cables were referred to and in effect incorporated in the written correspondence. By reason of this circumstance it is proper to refer to the cablegrams in relation with the letters. There is nothing in the provision quoted from article 51 which prohibits parties to a contract from ratifying agreements effected by telegraphic communications; and subsequent ratification, or incorporation of the telegraphic communications in written letters of the same or later date, must be conceded to have all the effect of a previous written agreement under the provision quoted. Furthermore, it is apparent that even under the statute telegraphic communications conveying notification of acts done could not be ignored, where the basis of a contract has already been established, and the same must be true of telegraphic directions communicated by one contracting party to another in relation with the performance of the contract. In this connection we note that the attorneys for the defendant, while vigorously insisting upon the elimination of the telegraphic correspondence in general, have not hesitated to rely upon more than one cablegram passing between the parties.
The failure of the defendant to accept and pay for all the goods ordered and shipped to Manila was undoubtedly due, as will hereafter more fully appear, to the inability of the defendant to command the funds necessary to meet the obligations, but when confronted with the necessity of dishonoring the orders, the responsible officers of the defendant put forth various pretexts to justify its position. Several of these excuses are manifestly of trivial import, but inasmuch as they have been called upon to do service in the defendant's answer and cross complaint, they will be examined by us in due time.
The principal defense, and the one which requires most attentive consideration, is that which has relation to the belated dates of shipment of the goods from New York City, in the case of those goods which were actually dispatched, and the failure of the plaintiffs to dispatch in the stipulated time such of the goods as never left New York. In this connection we note that the dates for delivery, or shipment, specified in the different sales notes relating to the goods which were in fact sent to Manila, run through the months of May, June, July, August, September and December, while the actual dates of departure of said goods from New York City were in September, October and December, 1920, and there was one shipment which, for reasons to be explained, occurred as late as May, 1921.
Upon giving its orders the defendant in each case specified the time when delivery was desired, adding in nearly every instance, the words "sooner, if possible." In conformity with the suggestion contained in these words the plaintiffs, in specifying the time of delivery and their sales notes, nearly always added the same words, "sooner, if possible." It resulted that the plaintiffs were at liberty to ship all of the ordered goods at an earlier date than that specified, if practicable; and except for the circumstances presently to be mentioned, they were obligated to make deliveries at least as soon as the dates specified for the delivery or shipment of each order.
Upon the delays that actually occurred in shipment, as above indicated, the defense claims that delivery was not made within the time specified in the contract and that as a consequence the defendant should be absolved from all liability. The answer to this question requires an exposition of events that occurred between the time when the orders in question were given and the time when the goods were shipped, and of the manner in which the relations of the parties to this contract were effected by said occurrences, as revealed in their correspondence by cable and by letters.
It will be remembered that the early months of the tear 1920 constituted a period of unparalleled activity in industrial and merchantile circles. The prices of textile fabrics, in common with other commodities, had reached very high levels in said period, and it seemed to many merchants that the extraordinarily prosperous conditions through which the world of industry was then passing would continue for a considerable time. Now, all of the defendant's orders with which we are here concerned were given while prices were rising and before the peak was reached in May, 1920. The defendant company appears to have had a large business, and in connection with its own requirements as a dealer in merchandise, both at wholesale and retail, it had adopted a practice of giving orders in its own name for the shipment of goods to other merchants, its customers in the Philippine Islands, who did not have a high merchantile rating and who could not command the credit facilities necessary to enable them to import goods upon their own account. The officers in charge of the defendant company appear at about the same time to have conceived the ambition of gaining complete control of the textile market in the Philippine Islands, and this circumstance possible accounts in part for the large orders which were transmitted by the defendant to the plaintiffs.
A touch of reaction was felt by the trade in Manila in the month of May, owing to the fact that the banks about that time were becoming somewhat wary, and credit facilities were not so easily commanded by importers as before. The situations in this respect became more delicate as weeks passed, and the textile market soon began to decline. In September and October the real crash came, enormous declines in value being registered in all lines. The last three orders here in litigation were given by the defendant in the first half of the month of May, 1920, and in the two months that followed the officers of the defendant company apparently began to feel that they had overdone the matter of giving orders. Thus, on July 7, 1921, the defendant cabled the plaintiffs to delay as much as possible the shipments of its orders of coco blanco (Amsinck red), and in letter of the same date, explanatory of this cablegram, the defendant said: "During the last two months business is absolutely dead in textiles as well as in other lines and we don't think there will be a change for the better in the next few months. There is no ready money available here and the banks refuse to open credit, claiming that they have no gold on hand." And in a postscript to the same letter the defendant added: "P. S. — In view of the bad situation of the market we beg you to retard the shipment of coco blanco and coco encarnado as much as possible."
It will be noted that part of the goods mentioned in these communications were goods that had been ordered by the defendant for direct shipment upon the defendant's account to Chua Soco, one of the large customers of the defendant in Manila. Others of the goods referred to were goods that were intended for the defendant's own store. In a later cablegram, on July 19, the defendant, referring specifically to the Chua Soco orders, directed that shipment should not be made earlier than September; and in a letter explanatory of this cablegram, the defendant said:lawphi1.net
Referring to our cablegram regarding Chua Soco please note, that present hauling (sic?) conditions are in such a state, that it is impossible for us or any one else to open up a credit in gold anywhere.
This has nothing to do at all with the standing of a commercial house, but the banks here claim, that they have no gold at present and a change of the present situation cannot be expected before a month from now.
In view of the present situation, Mr. Chua Soco begs that the shipment of this orders covered by the two credits in question be postponed until September, which month means the end of the rainy season here and in October, November, when these goods would arrive, business is picking up as usual at that time of the year.
At an early stage of the correspondence between the plaintiffs and the defendant the latter had agreed to supply through banking agencies in New York confirmed letters of credit to cover the price of such goods as the defendant should order to be sent upon its account directly to defendant's customers, like Chua Soco, in Manila. As for the goods which were to be shipped directly to the defendant, no express undertaking to supply confirmed letters of credit appears to have been made, but the first letter written by the defendant to the plaintiffs (Exhibit A) contained the following paragraph concerning the discounting of the drafts to be drawn on the defendant for the goods to be ordered by it:
Should there be any difficulty in discounting your drafts on us then please cable and we shall arrange this matter by wire.
This communication is important; for as will be seen, the solution of the cases before us depends mainly upon the failure of the defendant to supply the draft discounting facilities promised in this paragraph. Certainly, it was not contemplated that the plaintiffs should handled the vast amount of merchandise involved in these transactions on its own unassisted credit; and the credit of the defendant was so highly esteemed in banking circles that no trouble was expected in the matter of the necessary banking arrangements. An indication of the plaintiffs' position was conveyed in its letter of April 16 to the defendant, as follows:
Whereas we had the good fortune of being able to make a favorable arrangement with our own bank for a fairly large drafts credit when our business was in its infancy, it was our plan to make use of this credit partially for your business but find this impossible since we require this credit exclusively for our business in Central and South America which has grown very large of late.
It is with regret therefore that we have to ask you to take the necessary steps to open credits in our favor against orders in excess of $40,000 to $50,000, which we believe will be easy at your end.
In May, 1920, the plaintiffs ascertained from the bank which had been handling the defendant's paper in New York City that it would not discount drafts thereafter drawn by the plaintiffs upon the defendant for amounts in excess of $50,000, in the absence of confirmed letters of credit from Manila. The plaintiffs thereupon cabled this information to the defendant and asked it to make necessary arrangements. On June 18 the plaintiffs advised that the same bank (American Foreign Banking Corporation) would take no further drafts without security and asked the defendant if it had opened credit. To this the defendant replied that it had sent forward credit for $50,000 through the Philippine National Bank.
On September 14, 1920, the defendant cabled the plaintiffs as follows:
Quite impossible at present obtained credit. Can you ship draw at sixty days sight payable in exchange for documents?
On the same date the defendant wrote the plaintiffs a letter in which it said:
We beg to confirm our telegrams of even date translation of which find attached.
We have tried our best to obtain credits from the banks but without success so far and we don't know when conditions will change. Unless a firm does also export business it is impossible to get credits in gold.
We hope, that you will be able to ship our orders as we are sure that within three to five months from now there will be a shortage of goods in this market.
In reply to the cablegram of September 20, the plaintiffs, on September 25, cabled the defendant as follows:
Not able to make arrangements draft credit. Please arrange by wire a credit for us as soon as possible $100,000. Goods now ready for shipment $50,000.
On September 29, 1920, in reply to plaintiffs cablegram of September 25, the defendant cabled as follows:
Upon no consideration whatever bank give credit for the present on account of imports. No one knows how long it will take conditions to alter. Will telegraph immediately there is any change.
On October 6, plaintiffs in reply to defendant's above quoted cable of September 29 cabled:
Cannot hold goods long time. We cannot discount drafts. We must pay prompt. Do the best possible. Please arrange by wire a credit for us.
On October 27, plaintiffs further wired defendant as follows:
We are informed credit can be arranged apply to China Banking Corporation. Are much in need of $75,000.
On October 30, defendant in reply to the foregoing cable, wrote a letter in which, among other things, it said:
We beg to acknowledge receipt of your cablegram as per translation enclosed. As already mentioned in our former letters, it is impossible to get a credit, also not from the Chinese Banking Corporation. We have tried every thing possible to get credit, but it is an impossibility for us as well as for our competitors. The market is at a standstill and no business transactions are made at all.
Meanwhile the goods to supply the defendant's orders were coming in upon the plaintiffs from the factories, and it was necessary for the plaintiffs to meet its obligations. Confronted with the breakdown of the defendant's credit, the plaintiffs had no other recourse than to act upon defendant's cable of September 14 and ship the goods out with drafts at sixty days on the defendant. In making these shipments the plaintiffs were not able to discount the drafts in full, but were able to obtain advances for a certain percentage. Necessarily, when the drafts were dishonored, the plaintiffs were compelled to take them up and refund the amount advanced upon them. All of the goods involved in cases 19917 and 20637 of the lower court appear to have been dispatched in the manner, upon dates and in amounts as follows:
Goods to the value of $20,510.02, loaded Sept. 25, 1920; $17,740.74 on Bolton Castle, which sailed Oct. 14; and $2,769.28 on S.S. Telemachus, which sailed Sept. 25.
Goods to the value of $29,632.82, loaded in early part of November on S.S. Satsuma, which sailed Dec. 4.
Goods to have value of $15,539.04, loaded end of November or early part of December on S.S. Duquesne, which sailed Dec. 9.
Goods to the value of $12,351,68, loaded on S.S. Haleric, which sailed on May 8, 1921.
On November 6 the plaintiff informed the defendant by cable of the first shipment above noted, against sixty-day sight drafts. In reply to this advice the defendant, on November 9, cabled the plaintiffs as follows:
Cease all shipments. We cannot meet drafts, due to money scarcity.
On the same day the defendant wrote to the plaintiffs to the following effect:
We beg to confirm our cablegram of even date translation of which please find enchosed. Business at present is at a standstill and there is no hope, as far as we can see, that business will get better within the first two months.
At present we are not selling one-twentieth part of that what we sell in regular times and as business has been like this for the last three months you will be able to figure out what this means for us.
There is absolutely no money obtained here in the Philippines; also the banks have no money and will not give credit or extend drafts.
We are very sorry indeed, as this is the first time that we ever had to stop our orders; but if our orders are coming forward, we shall not be able to take up the drafts for the want of money or credit. Of course everybody else is in the same fix.
Upon receipt of defendant's cable of November 9 plaintiffs answered:
We expect payment of all drafts. $30,000 is all on board steamer. We shall draw on you at sixty days sight. We cannot hold goods longer. We have much need of money because pending orders must be paid by us.
In reply to the foregoing cable of the plaintiffs, defendant again cabled as follows:
It is now impossible pay drafts. Quite a panic in the market. Bank cancel loan, refuse credit.
In the letter of December 13 the plaintiffs, in explanation of the course pursued by them, made this statement:
In view of your cable of September 14, in which you authorized us to draw sixty days sight drafts, we made our arrangements accordingly. In order to meet your wishes we delayed our shipments as long as we were able to; however, we could not hold them back for any further length of time and were compelled to get the goods under way.
The shipment aboard the Duquesne, of December 9, appears to have been made, notwithstanding the defendant's cablegram of November 9, because the plaintiffs had already been compelled to take delivery and pay for the goods thus shipped and because the only reason given in the cable of November 9 for stopping shipments was money scarcity, and it was believed by plaintiffs that Mr. Kummer, who was then on his way to Manila, would be able by extensions of time to arrange for payment by defendant.
The last shipment on the Haleric, made on May 8, 1921, was of coco encarnado under order No. 707. The material included in this order was specially stamped under instructions from defendant for the Manila trade with Tagalog stamping and could not be advantageously disposed of in any other market. Said goods had been retained in New York pending efforts of Mr. Kummer to arrange matters with defendant, and upon his ascertaining that he could not do so, were shipped to Manila for sale here.
The goods which are the subject of action in case No. 20321 of the lower court are said to have been held in New York on account of the plaintiff's inability to get further advances from the banks, the factories meanwhile having been prevailed upon to withhold delivery. Finally, after the plaintiff's negotiations with the defendant in Manila had proved fruitless, it was decided that these goods could be disposed of more advantageously in the New York market, and they were accordingly sold there for the account of the defendant.
From the correspondence exhibited above it is plain that the defendant is not in a position successfully to invoke delay in the making of shipments as ground for its release from the obligation to pay for the merchandise. When the defendant found itself caught with these large orders in a paralyzed market, the only hope that presented itself to the defendant's officers was that the shipments might be delayed for a few months until business should improve, as was expected would be the case in the autumn. The requests for delay contained in the cables and letters of July 7 and September 14 were accordingly dispatched, and the plaintiffs were kept well informed as to the situation in which the defendant was placed. The requests for delay, as well as the proven inability of the defendant to comply with its promise to supply the credit necessary to move the goods, completely enervate the delay in the shipments of the goods, considered as a ground for the dissolution of the defendant's obligations. It should be noted that the cable and the letter of September 14 were dispatched at a date subsequent to the times originally stipulated for shipments of most of the goods, indicating that the defendant waived the delay in delivery. Upon referring to the plaintiffs' acceptances it will be noted that only one small shipment of moderate amount was to be shipped in December, while only three others were scheduled for dates as late as September. All the other shipments had been intended for dates then already past, namely, in May, June, July and August.
The attorneys for the defendant submit the surmise that the plaintiffs were really not in a position to have shipped the goods anyway, owing to the previous urgent demand in all markets for textile goods, — a demand which abated only when the reaction came in the autumn. How much truth there may be in this suggestion it is unnecessary to inquire. The defendant could have tested the matter by standing strictly on its contract, without further compromising itself by requests for delayed shipments. We may observe in passing that it is not necessary to hold that the original contracts were abrogated and a new agreement substituted by mutual agreement of the parties as a consequence of the communications above mentioned; and all discussion of the question whether the minds of the parties ever met in a completely new agreement, with the condition that the plaintiffs should ship against sixty-day sight drafts, is superfluous. It is enough to say that delay in the shipment of the goods was favorable to the defendant and was in effect requested by it.
Other contentions advanced for the defendant as justifications of the nonacceptance of the goods are based upon minor deviations in the consignments from the literal terms of the defendant's orders. In this connection we note: (1) That the length of some of the pieces of merchandise shipped by the plaintiffs were not exactly fifty yards as specified in the written order, but deviated therefrom in some instances to the extent of several yards; (2) that some of the orders of the defendant were delivered in single shipments whereas partial shipments had been specified in the orders, and vice versa; (3) that the plaintiffs had shipped some of the goods in question after they had received the cablegram of November 9 instructing them to cease shipments; (4) and, finally, that the dates of contemplated delivery specified in the sales notes did not conform in all respects to the exact terms of the written orders.
As to the deviation in the lengths of pieces, it appears that manufacturers of fabrics of the kind here in question do not put up the goods in pieces of exactly fifty yards length, the practice being to make the pieces of about the specified lengths. In conformity with this usage, the private code of the plaintiffs, which was being used by the defendant, was so constructed that the code words referring to particular qualities of goods indicated pieces of a length of about fifty yards; and the defendant's cablegrams therefore called for pieces of this length. In preparing the written orders, however, corresponding to some of these cablegrams, the individual in charge of defendant's correspondence department by mistake indicated lengths of fifty yards without qualification, instead of about fifty yards, in some of the orders. The plaintiffs' sales notes corresponded with the cabled order, with the result that some deviation from the stated length was discovered in these lots, the pieces being longer than had been called for. As the goods were to be paid for by the yard, the resulting price was somewhat greater than in otherwise would have been.
With reference to the irregular deliveries, namely, delivery by partial shipments where delivery of the whole was called for, or of the whole where partial shipments were called for, we note that in one or more instances the defendant's written orders specified the manner of delivery, and that these instructions were not in all cases observed by the plaintiffs. The explanation given of this is that in view of the delays that had occurred the plaintiffs considered that the advice to ship part of an order on one boat and part on the following boat had lapsed. Furthermore, in view of the confessed inability of the defendant to finance the shipments, the plaintiffs say that they shipped as much as they could on their own credit were not able to ship all; and, therefore, in the exercise of a fair discretion, and with a view to relieving the defendant as much as possible, they thought best to distribute their shipments over several classes of goods rather than to ship one or more larger orders entire.
In regard to the plaintiffs shipment of goods after the receipt of the cablegram of November 9 from the defendant instructing the plaintiffs to cease shipment, the plaintiffs suggest that said cablegram was not interpreted as a flat repudiation of the contract but was taken rather as a temporary cry of distress, owing to the inability of the defendant to meet its financial engagements; and it was believed that the plaintiffs' representative, Mr. Kummer, could adjust the matter by making arrangements for long extensions in Manila. Some of the goods were therefore forwarded that might have been stopped; but others had already been embarked and the shipment could not be recalled though the sailing of the vessel occurred after the cablegram was received.
None of the contentions above referred to, nor others of less moment, constitutes in our opinion any sufficient ground for absolving the defendant from liability. None of these contentions came to light in the defendant's correspondence; and even while negotiations were being conducted in the early months of 1921 between Kummer, the plaintiffs' representative, and the defendant, no word of complaint from the defendant was heard upon any of these points. Even the question about the undue delay in the shipment of the goods was never raised by the defendant until the drafts covering the goods shipped in the autumn began to arrive in Manila and were presented by the bank to the defendant. Then finding itself without funds and unable to confront the situation, the defendant put forth the claim that the shipment of the goods had been out of time. That this was a mere pretext, and felt to be such, appears clearly from the testimony of the individual who had charge of the correspondence in the defendant's import department. We may add that when Mr. Kummer was engaged in negotiations with the defendant in Manila, its manager made no complaint or recrimination against the plaintiffs on any score, except as to the quality of the goods covered by one order; and its refusal to accept the goods was placed exclusively on the ground of money scarcity and the drop in prices. When Kummer, by way of compromise, offered to extend the drafts from six to nine months the defendant's manager refused, with the observation that if the matter were left to the course of law, the litigation could be protracted probably for these years, thereby assuring the defendant cheap money — or words to that effect.
There is another feature of the case which is pertinent to all of the contentions now advanced by the defendant as a justification of its denial liability. It will be remembered that the plaintiffs were brokers, and the proof shows that the defendant considered them in the light of agents. The cabled orders themselves show that the defendant treated the plaintiffs as agents for making these purchases. "Buy and hold" was the formula uniformly used in these instructions. The defendant's officers were well aware that under the conditions then existing, buyers could not be dictators and that the merchant who undertook to stand on precise details on every point would probably not get any goods. The contract relation between plaintiffs and defendant was technically that of seller and buyer, but in considering the acts of the parties in the course of performance and the interpretation to be placed on the contracts, it is not improper to bear in mind that the plaintiffs were acting as agents of the defendant in the placing of orders. In this capacity the plaintiffs undoubtedly possessed a certain discretion, which was recognized as necessary by the defendant. It was chiefly for this reason no doubt that the defendant acquiesced in such deviations on the part of the plaintiffs from written orders as have been made the subject of criticism.
A situation requiring a few words of comment is revealed in the contention contained in the third cause of action in case No. 20637 of the lower court, which relates to an alleged excessive shipment of Turkish red. In this connection it appears that in February, 1920, the defendant had dispatched a letter to the plaintiffs, requesting prices and samples for twenty cases of a hundred pieces each of Turkish red, twenty-five inches wide and twenty-four yards per piece. In response to this the plaintiffs quoted on two thousand pieces. Later the defendant cabled an order, followed by a letter, directing the shipment of one thousand pieces. Upon this order the plaintiffs purchased and held for the defendant enough of the unfinished material to make one thousand pieces of fifty yards each, explaining in their letter of May 14 that all prints are usually sold in pieces of fifty yards length.
It appears that the plaintiffs intended to inclose the sales note relating to this transaction in this letter, but apparently the sales note was not so inclosed, as the same document, produced in evidence by the defendant, bears date of May 25, having probably been forwarded by later mail. In the natural course of events the letter of the plaintiffs of May 14, 1920, explaining what had been done, must have reached the defendant at least by the first days of July; and it was on July 7, 1920, that the defendant cabled to the plaintiffs to delay as much as possible the shipment of coco blanco and Turkish red. Instructions to the same effect were contained in a letter of the same date confirming said cablegram. Neither in this letter nor in any subsequent communication did the defendant make any complaint as to the excessive quantity of the Turkish red which had been bought for it by the plaintiffs. On the contrary, as we have already seen, in its letter of September 14 the defendant expressed the earnest hope that the plaintiffs would be able to ship the orders ("our orders") upon drafts at sixty-day sight. Upon the facts stated the trial judge held that the defendant was estopped from rejecting the surplus or any part of the order. His conclusion on this point appears to us to be correct. If not satisfied with what had been done by the plaintiffs, it was the duty of the defendant to have indicated its dissent, and under the circumstances it is estopped from now making a question as to excess in the shipment.
What has been thus far said is sufficient, we believe, to dispose of the main contentions advanced in justification of the defendant's refusal to accept the goods; and other less important contentions advanced in its behalf must necessarily be determined upon similar considerations. Moreover, the same considerations that are fatal to the defense in the controversies presented in the plaintiff's three original complaints are also decisive against the contentions advanced by the defendant in its counterclaims and cross complaint, with a single exception now to be discussed.
The goods involved in the controversy now to be considered were intended for Chua Soco and were paid for upon arrival in Manila from a letter of credit that had been supplied by the defendant. As there was no default in the matter of payment for these goods, they are not involved in any of the plaintiffs' actions. The controversy was therefore presented by the defendant itself in its independent cross complaint (first cause of action).
It appears that the finishers of textile goods are accustomed to use a certain unbleached cloth, or grey sheeting, as a basis for two different finished goods, namely, the cambric finish and the madapolan finish. The only difference between the two is that the cambric finish is smooth while the madapolan finish is somewhat coarse and stiff. The cost of the two different finishes appears from the testimony of Mr. Kummer to be the same. The defendant's order called for quality No. 5119, which indicates a cambric finish. This order was not accompanied by stamping instructions, this matter being left to future directions. Upon receiving the order for quality No. 5119, the plaintiffs bought grey sheetings in sufficient quantity to supply the order, supposing that the goods were to be given a cambric finish. Later, the stamping instructions were received, accompanied by a model of the label to be placed on the goods. This label bore the words "Extra Madapolan."
Upon receiving this model, seeing that the brand indicated madapolan finish, the plaintiffs naturally concluded that the defendant intended a modification of its order upon this point. The conclusion was the more reasonable as the distinction between cambric finish and madapolan finish is well known to the trade, and it would be a misrepresentation for any seller to textile goods to put upon the market cambric goods under the madapolan brand. The plaintiffs accordingly gave the goods the madapolan finish and stamped it with a label conforming to the model supplied by the defendant.
When thirteen cases of these goods reached Manila they were rejected by Chua Soco, for whom they had been ordered, and were thrown back on the defendant's hands and sold by it at a loss. There can be no question that Chua Soco had a right to reject the goods because he had ordered cambric finish from the defendant, and the goods were different from what he had ordered. But it is quite evident that the defendant has no cause of complaint against the plaintiffs, upon either legal or moral grounds. When the defendant's manager sent the stamping instructions, he was perhaps inadvertent to the distinction between cambric finish and madapolan finish; but the error was his, and the loss resulting from the failure of Chua Soco to accept the goods cannot be shifted upon the plaintiffs, who appear to have acted in good faith. We need only add that the claim put forth by the defendant to the effect that, apart from the finish, the goods comprised in this consignment were materially inferior in quality to the kind contracted for is not established by a preponderance of the evidence. We note that there were really twenty cases of goods involved in the order which is now under discussion, and only thirteen cases were actually shipped to Manila. The other seven were never shipped, and no damages were claimed by the plaintiffs with respect to these. This circumstance materially reduces the excess contained in the plaintiffs' acceptance over the amount which the defendant had actually ordered, though not otherwise affecting the legal aspects of the case. In view of the course that events took, the failure of the plaintiffs to ship the seven cases was beneficial to the defendant and cannot now be made the subject to complaint.
The foregoing discussion suffices to dispose of the grounds upon which the appellant seeks to justify its refusal to accept the goods, though we are aware that a number of points have been vigorously pressed in the voluminous briefs of the appellant which have not been touched upon in this opinion. The general discussion, however, indicates what the solution of those matters would necessarily be if analyzed in accordance with the ideas here accepted. For the rest we are content to refer to the lengthier exposition contained in the opinion of the trial court with which, barring one or two points, we fully agree. We accordingly proceed to consider these features of the case that are connected with the consequences of the defendant's breach of contract.
When the plaintiffs' efforts to induce the defendant to accept and pay for the goods finally proved fruitless, they elected to treat the contract as broken and to sue for damages, and at the same time, in order to limit the loss, they proceeded to sell the goods in Manila and New York for the best prices obtainable, after notification of the defendant.
The right of a seller to treat the contract as abrogated in case of nonacceptance by the buyer and to sue for damages for the breach, without the formality of a judicial rescission, is not called in question in this case by the attorneys for the defendant; and the matter needs no comment here further than to say that this practice has of late years been sanctioned by this court in more than one case involving the breach of a mercantile contract.
While the defendant has not called in question the diligence of the plaintiffs with respect to obtaining the best prices procurable for the goods at the time sold, criticism is made with respect to the time at which the sales took place; and it is insisted that the sales were made so long after defendant's default that the prices received afford no just basis for estimating the market prices of the goods at the time of default. It is true that considerable time elapsed between default and the dates of the sales; but it does not appear that it would have been practicable to have made the sales sooner, and the proofs shows that the market price of textiles at the time the sales were effected were at least equal to the market price at the date of defendant's default, while the two lots which were sold latest sold for higher price. The defendant was therefore not prejudiced by this delay.
With respect to the goods which were actually dispatched to Manila the trial court allowed interest at the rate of six per centum per annum upon the total amount due, estimated from the respective dates when the goods were embarked from New York City. In the case of the goods which were retained in New York City interest at the legal rate was allowed from the time when the manufacturers delivered the goods to the plaintiffs. This was the time when the plaintiffs had to pay for the goods, and the time when they were prepared to ship, as they would have been sooner, but for the course pursued by the defendant. We see no error in the action of the court upon this point. By the terms of the contract the price was to be due when the goods were placed on board the vessels for shipment; and except for default of the defendant in failing to make timely arrangement for payment, all of the goods which were dispatched would have been at its disposal from the date of embarkation. By article 341 of the Code of Commerce delay in the payment of the price of merchandise obligates the purchaser to pay the legal rate of interest on the amount due to the seller.
The last point necessary to be discussed in this opinion has relation to a question which is treated in the briefs under the topic "Exchange," but which is really rather a problem in the conversion of the plaintiffs' claim for damages, as estimated in American currency, into Philippine currency. This matter is not discussed in the appealed decision, as no question was raised in the lower court as to the propriety of the method of computation used by the plaintiffs in their complaint and the accompanying bill of particulars.
The facts necessary to make this question intelligible are as follows: The prices charged by the plaintiffs for the goods covered expressed in American currency, and it was agreed that on the shipment of the goods the plaintiffs should draw on the defendant in Manila for the amount due. As we have already seen the defendant had promised to arrange the necessary credit, through proper banking channels, to enable the plaintiffs to negotiate the drafts, and it was the duty of the defendant to accept and pay said drafts in Manila. The goods covered by the orders which are the subject of action in case No. 20321 were never shipped to Manila, and in the complaint in said case the plaintiffs did not ask to be allowed "Exchange." As a consequence the court did not there allow this item, and the question which we are now to consider is not in any wise involved in that case. In case Nos. 19917 and 20637 the goods were shipped and drafts drawn on the defendant in Manila for the value thereof. All of the drafts so drawn were expressed in dollars, United States currency, and some were stamped as "Payable at the bank's selling rate for sight drafts on New York." In accordance with banking practice it would have been necessary of course for the defendant, in case it had accepted the drafts, to have satisfied the same by paying an amount of Philippine currency equivalent to the value of the drafts expressed in dollars, as of the date of payment.
It is a well-known fact in our economic history that during the period when these transactions occurred, Philippine currency had become depressed, owing to the depletion of our gold-standard fund; and it was proved by the plaintiffs at the hearing of this cause, and not questioned by the defendant, that at the time when the defendant's default occurred American currency commanded a premium of thirteen and one-half per centum above parity in relation to Philippine pesos. In the liquidation submitted by the plaintiffs, in connection with its complaints in the two causes above mentioned, the plaintiffs' claims for damages in dollars, as of the date of the defendant's defaults, are converted into Philippine currency upon the basis of the premium then commanded by American currency.
It further appears that when the drafts drawn by the plaintiffs on the defendant were dishonored, the plaintiffs' representative, Mr. Kummer, took up at the banks in Manila some of these drafts, amounting to twenty thousand dollars ($20,000), for which he paid in Philippine currency at the rate of premium for dollars as above indicated. The depression in the Philippine currency is now past, and the court takes judicial notice of the fact that Philippine pesos have again returned to parity with American gold, which means that the Philippine peso is now worth fifty cents gold in Manila.
Upon the foregoing facts the defendant-appellant contends that there is error in the judgment of the court below, in that, in the liquidation of the account, as submitted by the plaintiffs and adopted by the lower court, the defendant is charged, in the conversion of American currency into Philippine currency, with a premium at the rate of thirteen and one-half per centum; and it is insisted for the defendant that the plaintiffs can only be allowed a judgment which should either be expressed in American currency or which should be expressed in Philippine currency at the rate now current of two pesos for one dollar.
The question thus presented has certain perplexing aspects, but two propositions seem to be clear beyond the possibility of dispute. The first is that the judgment of this court should be expressed in the Philippine currency, which is the lawful currency of these Islands and the only currency in universal use. The circumstance that gold coins of the United States are by law made a legal tender in these Islands for all debts, public and private, at the rate of one dollar for two pesos (Admin. Code, sec. 1612) does not effect the proposition that the judgments of the courts here should be expressed in our own currency. When the sheriff is dispatched with execution in hand to make money in satisfaction of a judgment, he is commanded to collect the debt or make the money in Philippine currency and not in dollars or in the money of any other country.
The second obvious thing is that the question now before us is not a question of exchange, or reexchange, in the sense merely of a charge for the transmission of money between Manila and New York. The question is chiefly one of monetary equivalence, and although this equivalence would be commonly determined by the rate of exchange for drafts, nevertheless, it is not the cost of transmitting this money from Manila to New York which the plaintiffs is primarily entitled to recover, but the equivalent of the plaintiffs' claim stated in Philippine currency. This conducts us to the real point which is to be decided, which is whether, in converting the plaintiffs' claim from dollars to pesos, we shall take the value prevailing at the time of defendant's breach or that prevailing supposedly at the date of this judgment.
It should be explained here that on September 26, 1924, this court promulgated an opinion, written by this ponente, in which the decision of the lower court in the cases now before us was in all respects affirmed, but a petition for a reconsideration was filed by the appellant and the court was so far impressed with the merit of the petition that it caused the cases to be set for reargument upon this point only; and the majority of the Justices participating in the decision of those cases are now of the opinion that the plaintiffs' claim for damages will be properly satisfied if the exchange allowed by the lower court be eliminated from the judgment. Our former decision will therefore be modified to this extent and the exchange disallowed. The author of the opinion is compelled to record his dissent for the judgment of the court on this point, upon which he is in accord with the view expressed in the dissenting opinion of Mr. Justice Johns.
The ground upon which the court rules against the allowance of exchange may be briefly expressed as follows: As the actions before us are actions for the recovery of damages the plaintiffs are entitled to recover a sum of money which, with the interest allowed, will constitute indemnity for the damage occasioned by defendant's breach of contract. The obligation assumed by the defendant was to pay to the plaintiffs a sum of money expressed in American currency; and the indemnity to be allowed should be expressed in Philippine currency at the present rate of exchange rather than at the rate prevailing on the date of the defendant's breach. Otherwise the plaintiffs upon collecting the judgment would be able to convert the amount received into a larger sum of American money than would have been received by them if the contract had been in all respects fulfilled by the defendant.
Authority to the effect that in cases of this kind the conversion is to be effected at the rate prevailing at the time of judgment is found in the following cases: Hawes vs. Woolcock (26 Wis., 629); Lee vs. Wilcocks (5 Serg. & R. [Pa.], 48); Marburg vs. Marburg (26 Md., 8; 90 Am. Dec., 84); The Saigon Maru (267 Fed., 881); The Hurona (268 Fed., 910); Liberty National Bank of New York vs. Burr (270 Fed., 251); Kirsch & Co. vs. Allen, H. & Co. ( [1920], 89 L.J.K.B.N.S., 265).
In Hawes vs. Woolcock (26 Wis., 629, 635), the court said:
Perhaps a strict application of logical reasoning to the question would lead to the result that the premium should be estimated at the rate when the note fell due. That was when the money should have been paid, and when the default in performing the contract occurred. This conclusion would be supported by the analogy derived from the rule of damages on contracts to deliver specific articles, fixing the market price at the time when they ought to have been delivered as the criterion. This rule might sometimes be to the advantage of the holder of the note, as in the present case. In other cases, where the premium was less at the time the note became due than at the time of trial, it would be to his detriment. And in view of these uncertainties and fluctuations in the rate, upon grounds of policy as well as for its tendency to do as complete justice between the parties as is possible, we have come to the conclusion that the true rule in such case is to give judgment for such an amount as will, at the time of the judgment, purchase the amount due on the note in the funds or currency in which it is payable. To accomplish this, of course, the premium should be estimated at the rate prevailing at the time of trial. By this rule the holder would neither gain nor lose by the fluctuations in the rate but whenever he obtained a judgment would obtain it for a sum which would then procure him the exact amount to which he was entitled in the proper currency. This does complete justice between the parties and seems, therefore, to indicate the true extent to which the difference of exchange in such cases should affect the amount of recovery.
The reasoning contained in the passage above quoted not only approves itself to the sense of justice but appears to be more in harmony with the rule expressed in article 1170 of the Civil Code than the contrary doctrine.
The cause will therefore be returned to the lower court with instructions to enter a judgment eliminating the premium of thirteen and one-half per centum charged against the defendant in the plaintiff's liquidation of the claims contained in actions Nos. 19917 and 20637. In all other respects the judgment is affirmed.
Avanceña and Villamor, JJ., concur.
Separate Opinions
MALCOLM, J., concurring:
I concur but wish to explain my viewpoint with reference to defendant's liability for exchange at the rate of thirteen and one-half per cent.
The contract of the parties called for payment in United States dollars. The merchandise was to be delivered by plaintiffs to defendant at New York. The court is powerless to vary the terms of the contract in the slightest.
Section 1612 of the Administrative Code makes United States currency legal tender for all debts. Section 1613 of the same Code makes Philippine currency legal tender for all debts "unless otherwise specially provided by contract." Article 1170 of the Civil Code provides that payments of debts of money shall be made in the specie stipulated. The court is powerless to vary the terms of the law in the slightest.
The decision in Clemons vs. Nolting ([1922], 42 Phil., 702), is in point. It was there held: "When the dollar sign ($) is used in a written contract made in the United States, it signifies dollars in the money of the United States, and the contract can be discharged only by the payment of the required amount in United States money or in Philippine pesos of an equivalent commercial value, unless otherwise specifically provided in the contract. It would be ruinous to the commercial interests of the Philippine Islands to declare that the payment of debts of money could be made in other specie than that stipulated in the contract." (Syllabus.) The court should not depart from the doctrines announced in the Clemons vs. Nolting case.
It would be a remarkable condition of affairs if under the American flag, parties may not pay their debts, as stipulated in the contract, in American currency. United States currency cannot be classified as foreign in the Philippines. United States currency cannot be treated as a commodity in the Philippines. The Philippine Islands is not a foreign country but is an integral part of the United States.
When the court enforces the contract as made by the parties and when the court enforces the law as made by the legislature, it merely performs a simple duty which does exact justice to the litigants.
OSTRAND, J., concurring and dissenting:
In the main I agree with the majority of the court, but I think the defendant has fully established its first cause of action in the cross-complaint and is entitled to a recovery thereon.
There is very little dispute as to the facts of the transaction which forms the subject-matter of this cause of action. On February 12, 1920, the defendant ordered by samples from the plaintiff for the account of one Chua Soco, 20 cases of coco blanco to be shipped as soon as possible. The same was designated "Quality No. 5119" and called for "cambric finish." On April 1, 1920, the plaintiff accepted the order and agreed to deliver the merchandise to Chua Soco in June, 1920, or sooner if possible. On August 7, 1920, the plaintiffs shipped 13 of the 20 cases ordered. Upon the arrival of the shipment in Manila it was found that the cloth was of "Madapolan" instead of cambric finish and Chua Soco refused to accept the goods. The defendant was compelled to pay the draft accompanying the bill of lading to a total amount of P20,154.36 and thereupon wrote the plaintiff letter Exhibit 203 in which it stated:
Referring to our Order No. 566 for 20 cases Coco blanco quality No. 5119, 36, which arrived here per s/s Jason, please note that our Customer, Mr. Chua Soco, refused acceptance of the 20 (13) cases, claiming, that the Coco is not up to sample.
There is no doubt in our mind, that there is a great difference between the original sample and the goods furnished; the original sample is very fine and smooth in finish whereas the merchandise delivered is very starchy, giving the Coco a cheap appearance.
We are doing our best to get Chua Soco to accept the 20 (13) cases but we doubt that we will succeed without giving a decided reduction in price.
In answer to this letter the plaintiffs referred the defendant to Mr. Kummer who was then on his way to Manila. No settlement was reached with Mr. Kummer and the goods received were sold at the best price then obtainable, P6,933.20, or P13,221.16 less than the amount of the draft paid by the defendant.
The rule is well-known that unless goods ordered by sample correspond to the sample they may be rejected by the buyer. Though it is argued that the merchandise shipped was of equal quality and value with that shown in the sample, it is admitted that they were of different finish and appearance, the cambric being a glazed and the madapolan a rough finish is more saleable in this country and commands a slightly higher price.
The plaintiffs explain that they were led to give the cloth a madapolan finish by the circumstance that the defendant sent them a design of a label to be placed on the outside of the bolts of cloth, which design bore the words "Extra Madapolan" in large letters and that they therefore concluded that the defendant desired a madapolan finish. The majority of the court accepts this explanation and regards it as sufficient justification for the substitution of madapolan for cambric finish. It is upon this point that I feel constrained to dissent.
In effect, the court holds that, under the circumstances, the plaintiff had a right to assume that there was a novation of the original contract. Novations are not favored by the law and it is an old and wholesome rule that they are never presumed. It would therefore seem that the plaintiffs should have been cautious in accepting the circumstances mentioned as a manifestation of an intention on the part of the defendant to change the very definite original agreement. The order was a large one and laid down in Manila the goods ordered would have cost the buyer some P30,000. In these circumstances it would not be unreasonable to require or expect the plaintiffs before acting upon their, to my mind, rather far-fetched conclusions, should have cabled the defendant and definitely ascertained the latter's intentions. They had plenty of time to do so and the expense and trouble would have been comparatively trifling. They could also, with perfect safety, have adhered to the original agreement and shipped goods with cambric finish. I cannot for a moment imagine that we would have entertained with patience a refusal on the defendant's part to accept the goods on the ground that its action in asking that they be marked "Extra Madapolan" constituted a change in the contract of purchase. Incidentally, I may say that it is a poor rule that does not work both ways.
It is suggested in the majority opinion that it would be a misrepresentation for any seller of textiles to put on the market cambric goods under a madapolan brand and that the plaintiffs could not suppose that the defendant intended to practice deception of that sort upon the public. Inasmuch as the cambric finish appears to be in nowise inferior to the madapolan finish and the sheeting was of the same quality, such a deception, if any, would be harmless and could hardly be due to a desire to mislead. Just what may have been the reason for the purchaser's desire to have the cloth marked "Madapolan" does not appear in the record, but madapolan being a Spanish term, there may be localities in these Islands where textiles of that grade, irrespective of finish, are known by that name. Spanish names for textiles are still extensively used in this country and the name may have been more suitable for Chua Soco's trade than would the English mark "Cambric."
But that is neither here nor there. It was the plaintiff's duty to abide by the express contract and execute the order according to instructions. If they had any objections to so doing they should have advised the defendant. It is a wholesale purchaser's privilege to determine what marks are to be put on the goods and there is nothing illegal about it as long as the use of the mark does not constitute unfair competition or an infringement of trade-marks. In this case it does not appear that anyone would have been prejudiced by having the goods marked "Madapolan" and there was not necessarily any moral obliquity involved in so using that mark.
It is also intimated that Chua Soco might have rejected the goods on the ground that they were stamped "Madapolan," and that, therefore, as far as the defendant was concerned the result or loss would have been the same whether a cambric or a madapolan finish had been given the cloth. But how do we know that the design in question originated with the defendant? Is it not more reasonable to suppose that Chua Soco, the purchaser suggested the design?
But assuming for the sake of argument that the defendant had designed the label without consulting Chua Soco, it is to be observed that the label was placed on the outside of each bolt and that if Chua Soco, upon the receipt of the goods should have objected to the label it would have been an easy matter to meet the objection by removing the stamped portion of each piece of cloth and relabeling the bolts. The reduction in the length of the pieces through this process would have been insignificant and would not, under the rule laid down elsewhere in this case, have constituted a valid ground for the rejection of the shipment.
The decision of the court tends to establish an embarrassing precedent. Merchants ordering goods from other countries have a right to demand that care be exercised in executing their orders. The distance and expense of shipment renders it difficult to correct errors after the goods have reached their destination. Sellers or shippers should under these circumstances be held strictly to their contracts and the courts should not encourage carelessness on their part by unwarranted leniency in applying the law.
In the present case the plaintiffs, through their carelessness and unwarranted assumptions, shipped goods which admittedly were not in accordance with samples, thereby breaching their contract with the defendant and furnishing the latter's customer a valid excuse for rejecting the goods. The defendant not only lost its commission on the sale but is in addition mulcted to the extent of over thirteen thousand pesos. I apprehend that the court will experience considerable difficulty in finding a precedent for its judgment upon the cause of action here discussed.
Romualdez, J., concurs.
JOHNS, J., dissenting:
The undersigned was not present when this case was first submitted and took part only in the determination of the motion for reconsideration. The present opinion is therefore confined to a single point, namely, whether upon converting the plaintiff's claim into Philippine currency, the plaintiffs are entitled to recover exchange computed as of the date of default or whether the conversion must be effected at the rate now prevailing.
All of the legal learning that is of much value on the subject is collected in the annotation found in 11 A.L.R., 363, appended to the case of Di Ferdinando vs. Simon Smits & Co. (89 L.J.K.B.N.S., 1039). This case comes from the English Court of Appeals and is very instructive, having been decided in the light of numerous decisions dealing with the extraordinary fluctuations of the currency of different countries in the last few years. The position sustained in said decision is that in an action brought in England for breach of contract to be performed abroad, the measure of damages is the loss in English currency to the plaintiffs at the time and place where the contract ought to have been performed. Where, therefore, the plaintiff, a merchant in Italy, obtained judgment against the defendants in London, for damages for nondelivery and conversion of goods entrusted to them for carriage to the plaintiff at Milan, it was declared that the damages ought to be assessed in such a sum in sterling as would give the plaintiff the proper compensation in Italian lire, at the rate of exchange prevailing on the date when the goods ought to have been delivered to the plaintiff, and not at the rate prevailing at the date of the judgment. In conformity with this doctrine are the decisions in Barry vs. Van Den Hurk ( [1920], 2 K.B., 709; 89 L.J.K.B.N.S., 899), and Lebeaupin vs. Crispin ( [1920], 2 K.B., 714; 89 L.J.K.B.N.S., 1024). In this connection it should be noted that the earlier case of Kirsch & Co. vs. Allen, H. & Co. ( [1920], 89 L.J.K.B.N.S., 265), which adopted the view now sustained by this court, was in effect overruled in Di Ferdinando vs. Simon Smith & Co., supra.
The reasoning contained in these English cases appears to me to be not only sound but in harmony with all legal analogies; and the exchange should in my opinion be computed as of the date of the defendant's breach. As was said by the English court in Lebeaupin vs. Crispin, supra:
To hold otherwise would produce extraordinary results. The damages payable would depend partly on the date when the plaintiff issued his writ, partly on the length of the interlocutory proceedings, partly on the illness or good health of the parties as the trial approached, partly on the number of prior cases which occupied the time of the court, and partly on whether the judge reserved his decision or not. They might depend also on whether judgment was entered for the plaintiff by the judge of first instance, or by the court of appeal, or by the House of Lords. Such a state of things would, I think, be most unsatisfactory. It would encourage a plaintiff to hasten or postpone the trial according to his view of the money market, and he might gamble on the rate of exchange. If the damages are fixed as at the date of breach where the contract is wholly to be performed in England, such also, I think, should be the result where the breach is out of England. There should not be varying rules in such a case. If the damages are once crystallized at the date of breach, then a definite date is given for the ascertainment of exchange, and the amount found payable at the hearing is awarded without regard to the fluctuations of the possible date of trial.
It can be admitted that if a contract were made in this country for the payment of a sum certain in a particular kind of currency, as, e. g., American gold coin, the creditor, if he should elect, would be entitled to have the value of the stipulated coin computed in the lawful currency of this country at the rate prevailing at the time of judgment. But the cases now before us are damage suits, in which the plaintiffs seek to recover damages by reason of the defendant's default in failing to accept and pay for merchandise. Where the action takes this form the idea of giving specific performance in American currency, — which seems to underlie the decision of the court — is inappropriate. The obligation of the defendant should be considered fixed at the time of the breach and the equivalent of the two currencies should be computed as of that date.
The mistake of the court upon the point which is the subject of criticism appears to be due to a desire to relieve the defendant from the effect of an adverse fluctuation in Philippine currency between the date of the default and the date of the judgment, — a fluctuation resulting from a rise in the fundamental value of the peso. But courts have never consciously attempted to relieve debtors from rises in the value of currency any more than they have attempted to relieve creditors from the effects of depreciation; and a little reflection will, I think, show that the idea is fallacious. Certainly, if the case were one of a domestic creditor suing a local debtor upon an obligation created while pesos were depreciated, it would never occur to anybody that the debt could now be scaled in order to relieve the debtor from the effects of the rise in the value of our money. But because the creditor in this case is a resident of a country whose currency has remained on a gold basis, and the fluctuation of pesos is thus made visible by reference to the external standard, the damages must, according to the present decision, be reduced. In my opinion this is erroneous. The original judgment, affirming the appealed decision was, upon this point, correct.
Street, J., concurs.
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