507 Phil. 424
GARCIA, J.
After a protracted trial that lasted for four (4) years, the trial court rendered judgment in favor of herein respondent, as plaintiff and against the petitioners and their co-defendants, thus:
- Sometime in July and August 1989, [petitioners Mavest U.S.A. and Mavest Manila Liaison Office] entered into a series of transactions with [respondent] Sampaguita Garment Corporation, whereby the former would furnish from abroad raw materials to be manufactured by the latter into finished products, for shipment to [petitioners'] foreign buyers, Sears Roebuck and JC Penney.
- Each transaction was embodied in a purchase order [PO] specifying the style and description, as follows;
- Style 33303 (SZ-217), 100% Cotton Pigment Twill
Shorts, [PO] dated August 9, 1989 . . . . ;- Style 45712 (S/44759), Nylon Swim Trunks, [PO] dated July 24, 1989 . . . . ;
- Style 45714 (S/SZ-218), Nylon Swim Trunks, [PO] dated July 24, 1989 . . . . ;
- Style 45715 (S/SZ219), Nylon Swim Trunks, [PO] dated July 24, 1989 . . . . ;
- Style 7511, Solid Woven Hooded Jacket, (PO] dated July 12, 1989 . . . . ;
- Style Nos. DJ-1 BR and DJ-1 XT, Cotton Woven Pants [PO] dated August 10, 1989 . . . . ;
as well as the quantity, mode and date of delivery.- Styles (33303, 45712, 45714, 45715) were upon the orders of Sears Roebuck ,while Styles (7511, DJ-1 BR and DJ-1 XT) were upon the orders of JC Penney.
- The orders of Sears Roebuck were duly paid in full by way of letter of credit. The JC Penney orders consisting of 8,000 pcs. Cotton Woven Pants (Styles DJ-1 BR and DJ-1 XT x x x at $3.65 per piece or a total of $29,200.00 were not covered by a letter of credit.
- Despite shipment and receipt by JC Penney of said orders, no payment was made, thus prompting [respondent] to send demand letters which remained unheeded.
- On April 27, 1990, [respondent] filed a complaint for collection of a sum of money amounting to US$29,200.00 with damages [before the Regional Trial Court at Makati City against the herein petitioners and two (2) others, namely, MAVEST International Co., LTD and Patrick Wang, former General Manager of MLO].
- In their Answer with Counterclaim filed on June 21, 1990, [petitioners and their two co-defendants] countered that "plaintiff [Sampaguita Garment Corporation] has already been paid by virtue of legal compensation, and that it is plaintiff which owes defendants US5, 799.57 due to the damages and losses it (sic) incurred as a result of the breaches committed in the previous shipments to Sears Roebuck. The damages and losses refer to: i) failure to observe specifications and quantity requirements; ii) delay in shipping out the garments; iii) over declaration of value in Style No. 33303; iv) shortshipment of garments; v) failure to return raw materials for the unshipped garments, amounting to US$34,999.57. Moreover, [petitioners and their co-defendants] alleged that they also suffered losses on account of delays in the JC Penney shipments.
- During the pre-trial, the parties came up with the following stipulation of facts:
xxx xxx xxx"1. That the defendant(s) ordered from plaintiff an aggregate volume of 8,000 pieces Youngmen's Cotton Woven Pants at US$29,200.00 and which were delivered to JC Penney Corporation of California, the consignee;However, as further proposed by the plaintiff, the defendant(s) denied that the goods were accepted by the consignee and that it was properly inspected by them."
2. That the total costs of the goods remained unpaid, subject to the defense of compensation.- On September 9, 1991, a partial stipulation of facts duly signed by counsels of both parties was submitted, with the following statements:
"22. That all the foregoing garments Style Nos. 45712, 45714, 45715, 7511 and SZ-217 were airshipped after inspection and acceptance and upon the instruction of defendant Mavest Int'l. Corp, as evidenced by the following documents to be marked as plaintiffs exhibits xxx".- On August 6, 1993, [petitioners and their co-defendants] filed an Amended Answer (To Conform To Evidence) with counterclaim . . . .
- In said Amended Answer with Counterclaim, [defendants] alleged that "by virtue of legal compensation, plaintiff has already been paid as, in fact, it still owes defendants US$101,259.47, more or less". (Words in bracket, underscoring and italicization ours).
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants ordering the defendants jointly and severally to pay plaintiff, as follows:Therefrom, petitioners and their co-defendants a quo appealed to the Court of Appeals (CA) whereat their recourse was docketed as CA-G.R. No. 48232-CV. And, in a decision[2] dated 10 December 1996, the appellate court modified that of the trial court in the sense that petitioners' co-defendants were in effect released from any liability and the award of attorney's fees and costs of suit deleted. Dispositively, the appellate court's decision reads:
1) the amount of US$29,200.00 or its equivalent in Philippine Pesos at the time of payment plus interest at the rate of six percent (6%) per annum from the time of filing of this complaint until fully paid as actual damages;
2) the amount of P300,000.00 as and for attorney's fees; and
3) costs of suit.
SO ORDERED.
WHEREFORE, the appealed decision in Civil Case No. 90-1131 is AFFIRMED with the following MODIFICATIONS:Undaunted, petitioners are now with us via the instant recourse, contending that the appellate court erred –No costs.
- The complaint against defendants Mavest International Co., Ltd. and Patrick Wang is DISMISSED;
- {Petitioner] Mavest-U.S.A., Inc./Mavest Manila Liaison Office is ordered to pay [respondent] the amount of US$29,200.00 or its equivalent in Philippine Pesos at the time of payment plus interest at the rate of six percent (6%) per annum from the time of filing of this complaint until fully paid as actual damages;
- The attorney's fees and costs of suit are deleted.
SO ORDERED. (Words in bracket ours).
The interrelated first, second and fifth assigned errors converged on petitioners' main submission that the amount of US$29,200.00 claimed by respondent for garments delivered to J.C. Penney is compensable and has in fact been compensated by the damages/losses petitioners suffered from previous transactions involving deliveries to Sears Roebuck. Expounding, petitioners assert that respondent, with respect to the Sears Roebuck shipment, inter alia failed to observe the specifications and quantity requirements, missed delivery dates and incurred delay in the shipment of certain goods. Upon this postulate, petitioners argue that the unpaid amount due respondent has thereby been extinguished by reason of legal compensation.I
IN AFFIRMING THE TRIAL COURT'S DECISION THAT LEGAL COMPENSATION DOES NOT APPLY IN THIS CASE;II
IN APPLYING ARTICLE 1719 OF THE NEW CIVIL CODE AS SUPPORT TO THE TRIAL COURT'S FINDING THAT PETITIONERS ACCEPTED THE FINISHED GARMENTS WITHOUT PROTEST AND IN NOT CONSIDERING THE SAME AS AN EXERCISE TO MITIGATE DAMAGE;III
IN NOT ACCORDING PROBATIVE VALUE TO THE EVIDENCE SUPPORTING PETITIONERS' DAMAGE;IV
IN HOLDING THAT MAVEST LIAISON OFFICE IS SOLIDARILY LIABLE WITH MAVEST USA, INC.;V
IN RULING THAT PETITIONERS ARE LIABLE TO PAY RESPONDENT ACTUAL DAMAGES IN THE AMOUNT OF US$29,200.00 OR ITS EQUIVALENT IN PHILIPPINES PESOS AT THE TIME OF PAYMENT PLUS INTEREST AT THE RATE OF SIX PERCENT (6%) PER ANNUM FROM THE TIME OF FILING OF THE COMPLAINT UNTIL FULLY PAID AND IN NOT HOLDING RESPONDENT LIABLE TO PAY PETITIONERS.
It is likewise observed that [petitioners] had acknowledged their obligation to [respondent] in the amount of US$29,200.00. On February 15, 1990, defendant Patrick Wang, general manager of Mavest Manila Liaison Office, wrote [respondent] stating that they "would not want to give the impression that we are holding the payment for DJ-1 Twill Pants. x x x We honor our word that we will issue corresponding check valued at US$29,200.00". (Words in bracket ours).Not to be overlooked on the acknowledgment-of-debt angle is what the parties stipulated during the pre-trial conference before the trial court, to wit:
In contrast, petitioners failed to establish respondent's purported liability to them which would have then set the automatic operation of legal compensation in motion. As may be recalled, petitioners' unyielding stance is that respondent is indebted to them to the liquidated tune of US$34,999.57, the money value of the damages/losses they incurred respecting the previous shipments to Sears Roebuck. These damages/losses, they add, arose out of respondent's alleged failure to observe specifications and quantity requirements; short shipment and delay in shipment; and other breaches of contract. It cannot be overemphasized, however, that, as found by the appellate court, petitioners appeared not to have objected to the quality or quantity of the work done by respondent or to the production or delivery schedule it observed. In fact, their actuations relative to the Sears Roebuck shipments, particularly their having paid in full for such shipments, argue against the notion of respondent reneging on its faithful part of the bargain. Aptly wrote the Court of Appeals in this regard:
- That the defendant ordered from plaintiff an aggregate volume of 8,000 pieces of young men's cotton woven pants at US$3.65 per piece or a total amount of US$29,200.00 and which were delivered to JC Penney Corporation of California, the consignee;
- That the total cost of the goods remains unpaid, subject to the defense of compensation.[8]
Defendants [petitioners] base their defense of compensation, as in set-off, on previously delivered goods covered by different [POs]. However, these [POs] had been completely settled and paid before this case was instituted. It was also established that defendants accepted those deliveries made without any qualification, protest or challenge. All goods were properly inspected by the defendants and/or the defendants' buyers. The acceptance of the goods by defendants' buyers . . . is an indication that they were satisfied with the goods delivered, thus, the consummation of the contract with respect to the goods accepted. The defendants never informed plaintiff [respondent] that they had suffered any loss with respect to the previous shipments sent to their buyers. Therefore, the defendants cannot now claim compensation for the damages they allegedly incurred for the plaintiff's allegedly incurred (Underscoring and words in bracket added]It may be that petitioners' acceptance of the goods delivered does not preclude them from subsequently raising objections about the existence of hidden defects in the finished and delivered products of respondent. In fact, Article 1719 of the Civil Code admits of two (2) exceptions to the rule that acceptance relieves the contractor of liability for any defect in the work, to wit: (1) the defect is hidden and the employer is not, by his special knowledge, expected to recognize the same; and (2) the employer expressly reserves his right against the contractor by reason of hidden defects.
Given the foregoing perspective, we rule without hesitancy that what petitioners take as losses and damages incurred while transacting with respondent cannot plausibly be categorized as respondent's compensable debt to them. And since the parties are not mutually creditors and debtors of each other, there can be no valid set-off. In short, petitioners still owe respondent the amount of US$29,200.00.
- That all the foregoing garments Style Nos. 45712, 45714, 45715, 7511 and SZ 217 were airshipped after inspection and acceptance and upon the instruction of defendant Mavest Int'l Corp., as evidenced by the following documents to be marked as plaintiff's exhibits, xxx..[9] (Emphasis supplied)