G.R. No. L-23859 - Consolidated Textile Mills, Inc. vs. Reparations Commission et al.

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-23859             February 22, 1968

CONSOLIDATED TEXTILE MILLS, INC.,plaintiff-appellant,
vs.
REPARATIONS COMMISSION,defendant-appellee,
MABUHAY RUBBER CORPORATION,intervenor.

San Juan, Africa & Benedicto and Tañada & Carreon for plaintiff-appellant.

Office of the Solicitor General for defendant-appellee.

ANGELES,J.:

          The main issue posed in this appeal is: Whether the rate of exchange to be adopted in fixing the peso cost of reparations goods procured by the Reparations Commission for the applicant-end-user, Consolidated Textile Mills, Inc., should be reckoned on the basis of the rate of exchange of the Philippine peso to the U.S. dollar obtaining at the time the corresponding "Contract to Purchase" the goods was entered into between the applicant and the Reparations Commission in 1961, or on the basis of the prevailing free market rate of exchange between the said currencies at the time of the procurement of the goods in 1963.

          In a complaint for declaratory judgment filed by Consolidated Textile Mills, Inc. (referred to hereafter as Consolidated) in the Court of First Instance of Manila, Civil Case No. 54375, against the Reparations Commission (hereafter referred to as the Commission), the plaintiff prayed for judgment declaring that the payment to the defendant Reparations Commission for the goods worth $3,900,000.00 allocated to it, should be based on the official rate of exchange of P2.00 to $1.00. The plaintiff was joined in its prayer by Mabuhay Rubber Corporation which, with leave of court, intervened in the action with respect to other reparations goods worth $1,500,000.00 allocated to it by the Commission under similar circumstances as those of the Consolidated. The Commission contends that the peso cost of the goods in question should be computed on the basis of the free market rate of exchange which was about P4.00 to $1.00.

          In a decision, dated February 22, 1964, the courta quodenied the claims of both the plaintiff and the intervenor, and declared that payments for the goods in question shall be subject to, and based upon, the free market rate of exchange of the peso to the dollar as proposed by the Commission.

          The antecedents of the case are not controverted. Stripped of unessential details, the evidence of record gives the following account of the environmental facts of the case:

          Consolidated was an applicant for reparation goods for which it filed Application No. 0953 with the defendant Commission on March 2, 1961, for one set of integrated textile mill equipment to the amount of $3,900,000.00. Pursuant to the provisions of Republic Act 1789, otherwise known as the Reparations Law, the application was given due course for consideration by the Commission. The application was recorded as Item No. 6, Category II Private Sector, in the Fifth Reparations Year Tentative Schedule which later became the Sixth Year Schedule because when it was finally concluded with the Japanese Government, the Fifth Reparations Year had already expired. The same item was still later carried over to the Seventh Year Agreed Schedule listed as Item No. 19, Category II Private Sector — Textile Mill Equipment value at $3,900,000.00. Implementing the aforesaid allocation, on November 29, 1961, Consolidated and the Commission entered into and executed a "Contract to Purchase" wherein it is made to appear that a down payment of P390,000.00 was made by Consolidated to the Commission, with a further stipulation that a "Contract of Conditional Purchase and Sale" shall be executed which shall supersede the "Contract to Purchase". As approved by the Commission in its Resolution of December 12, 1961, the procurement of textile machineries and equipment for Consolidated, provided for an estimated contract value of THREE MILLION NINE HUNDRED THOUSAND U.S. DOLLARS; and as authorized in said Resolution, the Executive Director and Secretary of the Commission issued the corresponding Procurement Order directed to the Chief of the Reparations Mission in Japan on the following day.

          On February 28, 1962, the Office of the President issued a directive addressed to both the Commission and the National Economic Council enjoining further implementation of all items in the Sixth Year Agreed Schedule, except those for small scale industries, pending re-examination of the said items in the light of the new socio-economic development program of the new administration. Another directive of the same import was addressed to the Chief of the Reparations Mission in Japan on May 29, 1962. On September 13, 1962, the Commission adopted Resolution No. 692 by virtue of which bids of Japanese suppliers of the machineries and equipment allocated to Consolidated were approved. And in conformity with the then existing requirement of the Commission, Consolidated submitted a guarantee bond in the amount of P1,170,000.00 representing 15% of the total allocation to it in the sum of $3,900,000.00. The corresponding procurement contracts (with the suppliers) were verified by the General Auditing Office of the Philippines on February 29, 1963, and approved by the Commission on March 1, 1963. The same were verified by the Japanese Government on April 1, 1963, and signed by the Chief of the Reparations Mission in Japan on that same day. These procurement contracts involved a total amount of $3,357,191.00. The Consolidated having known before hand that the aforesaid procurement contracts did not totally exhaust its allocation of $3,900,000.00, in its letter dated January 16, 1962, and July 13, 1962, requested the Commission to allow it to make use of the balance of its allocation. The request was granted, and on May 28, 1963, the Commission resolved to authorize the procurement of additional reparations goods, for Consolidated in an amount equivalent to its balance of $542,809.00.

          On March 28, 1963, a Presidential Directive signed by the Executive Secretary was issued providing, among others, that the free market rate shall be applied without exception to all items appearing in the Seventh Year Reparations Schedule including those items which had appeared in previous schedules. It was in pursuance of this directive that the Commission required the Consolidated to pay, before delivery of the goods, the difference between the down payment computed at the rate of P2.00 to $1.00 and that as computed on the basis of the free market rate of exchange. This demand precipitated a disagreement between the parties.

          On July 1, 1963, Consolidated filed a petition for declaratory relief in the Court of First Instance of Manila against the Commission, seeking for a judicial declaration as to the rate of exchange that should be applied to ascertain the peso price of the reparations goods allocated to it. Upon plaintiff's motion, the court issued a writ of preliminary injunction on August 28, 1963, supplemented by another on September 28, 1963 whereby defendant Commission was ordered, among others, to refrain from specifying in the "conditional contract of purchase and sale" to be executed by the parties the peso value of the reparations goods allocated to the plaintiff; the writ further enjoined the defendant Commission from requiring the plaintiff to pay the difference of the 5% down payment based on the free market rate and the amount actually deposited by the latter for the said purpose.

          Partial shipments of the reparations goods subject of the procurement contracts aforementioned have since than arrived in the Philippines and delivered to the plaintiff. In accordance with the writ of preliminary injunction issued by the court, on October 4, 1963, the parties, Consolidated and the Commission, executed a "Contract of Conditional Purchase and Sale" of the goods covered by the reparations allocation of $3,900,000.00, without indicating therein the peso value thereof pending the judicial determination of the question regarding the applicable exchange rate, which contract is dated October 4, 1963. At the same time, the plaintiff has submitted the corresponding insurance coverage and performance bond based on the value of the goods computed at the current rate of foreign exchange, subject to the condition that the same shall be reduced in the event the court should decide to apply the P2.00 to $1.00 rate of exchange to the goods allocated to the plaintiff; and the plaintiff likewise agreed to pay in cash all amounts due and payable under the contract computed at the rate of P2.00 to $1.00 with a bond to cover the amount in excess thereof demanded by the defendant Commission on the basis of the current rate of exchange.

          On February 22, 1964, the Court of First Instance of Manila rendered the decision appealed from which, as stated in the first paragraph of this opinion, sustained the right of the Reparations Commission to apply the current rate of exchange in determining the equivalent peso price to the U.S. dollar of the reparations goods allocated to and procured from Japan for the plaintiff. Plaintiff moved for a reconsideration of the decision by adopting as its own, the Motion for Reconsideration and New Trial filed by the intervenor Mabuhay Rubber Corporation, which the court denied in its order dated July 15, 1964. A second motion for reconsideration dated July 27, 1964, was filed by the intervenor which was again concurred in and adopted by the plaintiff as its own. But, because the intervenor had thereafter moved for a suspension of the proceedings in connection with its second motion for reconsideration, whereupon, plaintiff withdrew as party to the second motion for reconsideration and filed a notice of appeal. Hence, this appeal by the Consolidated Textile Mills, Inc., from the decision.

          This is the appellant's theory: The "Contract to Purchase" the reparations goods in question was concluded at a time (November, 1961) when the rate of exchange obtaining between the peso and the dollar was in the ratio of 2:1, whereas the directive of the President requiring the Reparations Commission to apply the current free market rate of exchange of the peso to the dollar in computing the peso cost of reparations goods allocated to it was issued when such rate is about P4.00 to $1.00. This would increase the cost of the goods plaintiff two-fold which — to the mind of appellant — spells a clear impairment of the obligation under its contract with the Reparations Commission;¹to apply the directive of the President retroactively to its case would amount to a denial of due process;²and with the circumstance that the said directive would be made to apply indiscriminately to all items appearing in the Seventh Year Reparations Schedule without regard to the time the applications were made as appears in previous schedules, it would surely mean, according to the appellant, a total disregard of the principle of equal protection of law.³

          For a clear understanding of issues, we shall reproduce herein the terms of "contract to purchase" claimed to have been impaired, and the text of the directive of the of President that allegedly impairs it.

          The "Contract to Purchase" which was executed by the parties on November 29, 1961, reads as follows:1äwphï1.ñët

— and —

WITNESSETH: