G.R. No. L-33438 - Republic Resources and Development Corp. vs. Court of Appeals

Case Summary (G.R. No. L-33438)

Factual Background

The Court of Appeals, adopting and recounting the material antecedents, stated that United Geophysical Company, S.A. (Costa Rica) was duly organized under the laws of Costa Rica and succeeded United Venezuela, a corporation licensed by the Securities and Exchange Commission to engage in geological and geophysical work in the Philippines. Under the seismograph service contract dated 15 December 1959, United Venezuela undertook to render geophysical surveys in search of sub-surface structures favorable to the accumulation of oil and gas. Republic Resources agreed to pay a contract fee of U.S.$23,000.00 per month, with fifty percent (50%) payable in U.S. dollars and fifty percent (50%) payable in Philippine pesos. The agreement further required Republic Resources to reimburse the contractor at cost plus 5% for the return to the point of origin of expatriate personnel, equipment, and supplies used in conducting the surveys.

The record showed that Republic Resources paid in full the contract fees payable in Philippine pesos for the whole year of 1960. However, it paid only the dollar-denominated contract fees for January to July 1960 and a portion of the fee for August 1960. It did not pay the dollar contract fees for part of August to December 1960, which the Court of Appeals quantified as $34,908.33, and it likewise failed to pay the $3,713.33 representing the cost plus 5% for returning equipment from the Philippines to Australia, the point of origin, as shown in Exhibit E. After several demands, Republic Resources made a partial payment on 8 November 1963 of $10,000.00, with a request that the balance be reduced to be allegedly condonable. The parties’ efforts at amicable settlement did not prosper.

On 11 January 1965, United Geophysical Company, S.A. (Costa Rica) filed the action to recover the unpaid balance of U.S.$28,622.66. During the pendency of the case, Republic Resources renewed an offer to pay the outstanding account if the obligation were reduced to $20,000, payable in two equal installments, but the plaintiff accepted conditionally, requiring court approval and submission of the payment to be secured by a surety bond. The proposed settlement was not acted upon, and the defendant proceeded to file an answer with counterclaim.

Trial Court Proceedings

The case was set for trial on 2 April 1966. Neither Republic Resources nor its counsel appeared. As a result, the trial court allowed the plaintiff to present evidence ex parte and treated the case as submitted for decision. Republic Resources later petitioned to reopen the case, and the trial court granted the motion, resetting the reception of the defendant’s evidence to 14 May 1966. On that date, instead of presenting evidence, Republic Resources moved for postponement to secure the deposition of a vital witness residing in the United States. The trial court granted the motion, but the defendant failed to secure the deposition despite a reasonable lapse of time. The plaintiff moved to reset the hearing, and it was set for 24 November 1966.

On 24 November 1966, Republic Resources again sought postponement, which the trial court granted. The case was finally set for hearing on 8 December 1966. Again, neither the defendant nor its counsel appeared. The trial court ordered the case submitted for decision based on the evidence already presented by the plaintiff. On 20 March 1967, the trial court rendered judgment ordering Republic Resources to pay: the principal sum of $28,622.66, converted into Philippine pesos at the exchange rate prevailing at the time of payment, plus legal interest from 8 November 1962, and “whatever fees the commercial banks will charge” for transmitting the amount from the Philippines to the plaintiff’s principal office in Pasadena, California, U.S.A.; and attorney’s fees of P5,000.00 plus 20% of the amount due; and costs. The defendant’s counterclaim was dismissed.

Proceedings Before the Court of Appeals

On appeal, Republic Resources assigned several errors, including alleged failure of the trial court to clearly state facts and law, error in finding continued liability in the amount of P28,622.66, error in awarding attorney’s fees, and deprivation of its day in court. The Court of Appeals, in a decision promulgated on 26 January 1971, affirmed the trial court in all respects except for reducing the attorney’s fees award to P10,000.00. The Supreme Court later noted that petitioner received a copy of the appellate decision on 27 January 1971. After its first and second motions for reconsideration were denied, Republic Resources filed a petition for review on certiorari under Rule 45.

The Parties’ Contentions in the Supreme Court

Republic Resources did not dispute the factual findings of the Court of Appeals. It challenged only the legal conclusions drawn therefrom. It raised two principal questions: first, whether the Court of Appeals erred in holding that the obligation of $28,622.66 should be paid at the exchange rate prevailing at the time of payment; and second, whether the Court of Appeals erred in ruling that liability for interest on the unpaid obligation should begin from 8 November 1962.

The Supreme Court rejected the petition for multiple procedural and substantive reasons. It first characterized the recourse as dilatory, observing that the petitioner had not presented evidence despite accommodations extended by the trial court. It further held that the grounds raised before the Supreme Court were not assigned as errors before the Court of Appeals, emphasizing that a party could not raise an issue at the Supreme Court if it had not raised the same in the lower courts. Finally, it addressed the merits by applying R.A. No. 529 and the distinction between obligations incurred before and after its enactment, thereby sustaining the Court of Appeals’ determination on the rate of exchange and the related conversion principle.

Legal Basis and Reasoning

On the rate of exchange governed by R.A. No. 529, the Court held that the statute declared void only the particular “provision contained in, or made with respect to, any domestic obligation” that purported to require payment in gold or in a particular kind of coin or currency other than Philippine currency, or in an amount of money of the Philippines measured by such proscribed currency. The Court clarified that the declaration of nullity applied to the proscribed payment provision, not to the contract or agreement containing the proscribed provision.

The Court then applied the statute’s explicit distinction. For obligations incurred prior to the enactment of R.A. No. 529 (enacted on 16 June 1950), the statute provided that such obligations would be discharged in Philippine currency measured at the prevailing rates of exchange at the time the obligation was incurred, with an exception for loans made in foreign currency payable in the same currency, in which case the exchange rate prevailing at the stipulated payment date would apply. For obligations incurred after the enactment of R.A. No. 529, the Court relied on Kalalo vs. Luz (34 SCRA 337 (1970)), which ruled that the statute did not provide for the rate of exchange for payment of obligations incurred after enactment, and therefore the exchange rate at the time of payment should govern. The Court supported this conclusion by referencing Engel vs. Velasco & Co. (47 Phil. 115), where the Court had held that even if the defendant’s obligation was to pay a sum expressed in American currency, the indemnity in Philippine currency should be expressed using the exchange rate at the time of judgment rather than at the rate prevailing on the date of breach, and by citing American authorities on the principle that the value in domestic money of a foreign-currency payment is fixed with respect to the exchange rate at the time of payment.

The Court further stated that this ruling modified Arrieta, et al. vs. National Rice and Corn Corporation (10 SCRA 79 (1964)), where the Court had previo

Case Syllabus (G.R. No. L-33438)

Parties and Procedural Posture

Republic Resources and Development Corporation filed a petition under Rule 45 of the Rules of Court to review a Court of Appeals decision.
The Court of Appeals decision affirmed the trial court’s judgment in Civil Case No. 59543 except for a reduction in attorney’s fees.
United Geophysical Company, S.A. (Costa Rica) served as plaintiff-appellee before the trial court and respondent before the Supreme Court.
The underlying trial court judgment was issued by Branch XVI of the then Court of First Instance of Manila (later Regional Trial Court).
The Court of Appeals decision was promulgated on 26 January 1971, and petitioner received notice on 27 January 1971.
Petitioner’s first and second motions for reconsideration were denied, prompting the Rule 45 petition.

Key Factual Allegations

United Geophysical Company, S.A. (Venezuela), later succeeded by the United Geophysical Company, S.A. (Costa Rica), was licensed to engage in geological and geophysical work in the Philippines.
On 15 December 1959, United Venezuela and Republic Resources and Development Corporation executed a seismograph service contract with approval of the Director of Mines.
The contract required geophysical surveys for a minimum period of 12 months commencing January 1960 in search of sub-surface geological structures favorable to accumulation of oil and gas.
The agreed contract fee was U.S.$23,000.00 per month, with 50% payable in U.S. dollars and 50% payable in Philippine pesos.
The contract also required reimbursement of returning expatriate personnel, equipment and supplies at cost plus 5%.
Republic Resources paid in full the Philippine peso contract fees for 1960, but it paid only dollar fees from January to July 1960 and part of the fee for August 1960.
The unpaid dollar fees from part of August to December 1960 amounted to $34,908.33, and the reimbursement component was $3,713.33.
After demands, Republic Resources made a part payment of $10,000.00 on 8 November 1963, leaving a balance of $28,622.66 as alleged.
Republic Resources also made offers to reduce the balance through amicable settlement, and the parties exchanged proposals involving reductions and installment payments.
United Geophysical accepted a proposed settlement conditional upon court approval and securing payment by a surety bond, but Republic Resources did not act on the counter-proposal.
Republic Resources filed an answer with counterclaim, but it repeatedly failed to appear at scheduled hearings.

Trial Court Proceedings

The trial court set the case for trial on April 2, 1966, but Republic Resources and counsel did not appear, resulting in ex parte reception of plaintiff’s evidence.
The case was deemed submitted for decision after plaintiff-appellee was allowed to present evidence ex parte.
Republic Resources filed a petition to reopen, which the trial court granted, and the case was set again for reception of defendant’s evidence on May 14, 1966.
On May 14, 1966, Republic Resources sought postponement to secure a deposition of a vital witness in the United States, and the trial court granted the request.
Republic Resources failed to secure the deposition despite lapse of a reasonable period.
On motion of plaintiff, the case was re-set for hearing on November 24, 1966, and Republic Resources again sought postponement, which the trial court granted.
The case was finally set for hearing on December 8, 1966, but Republic Resources and counsel again did not appear.
The trial court ordered the case submitted for decision on the evidence already presented by plaintiff-appellee.

Judgment of the Trial Court

The trial court ordered Republic Resources to pay the principal sum of $28,622.66, converted into Philippine pesos at the exchange rate prevailing at the time of payment.
The trial court imposed legal interest on the principal from November 8, 1962.
The trial court also required whatever fees commercial banks will charge for transmitting the sum from the Philippines to plaintiff’s principal office at Pasadena, California, U.S.A.
The trial court awarded attorney’s fees consisting of P5,000.00 plus 20% of the amount due.
The trial court dismissed defendant’s counterclaim.

Court of Appeals Resolution

The Court of Appeals affirmed the trial court’s decision in all respects, except it modified the award for attorney’s fees.
The Court of Appeals reduced attorney’s fees to P10,000.00.
The appellate decision sustained the rest of the trial court’s rulings, including the conversion mechanism and the start of interest.

Issues Raised in Supreme Court

Petitioner argued that the Court of Appeals erred in holding that the $28,622.66 obligation should be paid at the rate of exchange prevailing at the time of payment.
Petitioner also argued that the Court of Appeals erred in holding that interest on the unpaid obligatio