G.R. No. L-5018 - Republic vs. Litton

On December 22, 1945, the plaintiff and defendants (Litton & Co. and George Litton) entered into a contract for the supply and delivery of 96,000 padlocks at ₱1.87 each, with a strict deadline on or before March 1, 1946.
To secure performance, the co-defendant Central Surety Co., Inc. executed a surety bond on January 3, 1946, for ₱35,904.
On December 26, 1945, a second contract was formed for various stationery and office supplies valued at ₱25,979.55, similarly requiring delivery on or before March 1, 1946, and secured by a surety bond of ₱4,700.

The complaint alleged that Litton & Co. delivered only 34,200 padlocks on or about April 8, 1946, well short of the required 96,000 padlocks, and failed to deliver the remaining 61,800 padlocks for use during the April 23, 1946, elections.
As a consequence, the plaintiff was forced to procure 25,613 padlocks from the open market at a higher cost, incurring damages of ₱176,243.41.
In the stationery contract, the failure to deliver on time led to open-market purchases and consequent additional losses of ₱20,164.17.

The defendants contended that the contracts did not represent the true agreement, arguing that delivery was conditioned on the plaintiff obtaining export license and shipping priority.
A letter dated December 12, 1945, stated that shipment from the United States in January 1946 was contingent upon the availability of export license and shipping space, and that the award had to be given within three (3) days of the letter.
A subsequent note on December 15, 1945, clarified that if the plaintiff provided a certification of urgent need, the first delivery of 30,000 padlocks could arrive by mid-February and the balance (66,000) by March 1, 1946.
Additional defenses included allegations that any delay was partly attributable to the plaintiff’s failure to secure timely shipping arrangements and the impact of force majeure.
Litton & Co. and George Litton also pursued counterclaims, alleging that deliveries made after the elections (including 9,096 padlocks and additional stationery) were accepted by the plaintiff without payment, seeking recovery respectively in the amounts of ₱17,009.52 and ₱9,806.94.
The defendant Central Surety Co., Inc. admitted the execution of the bonds but denied liability, also asserting that the plaintiff’s cause of action was barred by the expiration of the stipulated period in the bonds.

Litton’s performance included the delivery of 34,200 padlocks on April 8, 1946, along with additional shipments such as 2,000 boxes of paper clips on April 20 and 22, 1946.
The contract’s “Important Conditions” provided that delay in delivery would subject the contractor to penalties—either by deducting a liquidated damage of 0.1% per day or by authorizing the plaintiff to procure the supplies in the open market and recover the price difference.
The plaintiff did, in fact, impose a penalty for delayed delivery and proceeded to buy additional supplies at higher market prices due to the non-performance.
While the Philippine Government did undertake efforts (e.g., facilitating export license and shipping priority) due to the election urgency, these actions were seen as friendly assistance rather than obligations assumed by the plaintiff.

Whether the contract between the parties was unconditional, obligating Litton & Co. (and George Litton) to deliver 96,000 padlocks and the specified stationery on or before March 1, 1946, without dependence on the timely issuance of export license and shipping priority.

Whether the alleged condition—that delivery was contingent on the plaintiff obtaining an export license and shipping space—was a true part of the agreement or merely a representation in the bidding process and subsequent correspondence.

The validity and application of contractual penalties, including the imposition of liquidated damages for delay and the plaintiff’s right to procure supplies from the open market at higher prices to cover the shortfall.

How to properly offset or credit the amounts due under the defendant’s counterclaims for the post-election deliveries against the damages claimed by the plaintiff.