People v. Varadero de la Quinta
REITERATIONFacts
The Antecedents: The United States, through its Depot Quartermaster in Manila, invited proposals for the construction of two scows. The defendants, doing business as Varadero de la Quinta, submitted a proposal to build the scows for $15,850.00. This proposal was guaranteed by defendants Celerino B. Arellano and Cirilo Jose. The proposal stipulated that it would remain open for 60 days and that the construction would be completed within 90 working days after formal notification of award. The bid was opened on March 3, 1916. On April 17, 1916, Varadero de la Quinta was notified that its bid was accepted. On April 27, 1916, Varadero de la Quinta requested a six-month extension to commence work, citing a lack of suitable lumber. This request was denied, as the Quartermaster was informed that a sufficient supply of lumber was available. After further correspondence and unsuccessful attempts to furnish a satisfactory bond, Varadero de la Quinta was notified on May 17, 1916, that unless work commenced immediately and a satisfactory bond was provided by May 20, 1916, steps would be taken to protect the government's interests. The scows were eventually constructed by the Insular Collector of Customs at a cost of $22,830.88, resulting in an excess cost of $6,980.88 over the defendants' bid. Procedural History: The plaintiff (United States) filed an action to recover the excess cost of P13,961.76 (equivalent to $6,980.88 at the time). The Court of First Instance of Manila rendered a decision in favor of the plaintiff, ordering the defendants to pay the sum of P13,961.76 with interest and costs. The defendants appealed. The Petition: The defendants-appellants argued, among other things, that there was a misjoinder of parties defendant because the contract of Arellano and Jose was one of guaranty, not suretyship, and thus their liability could not be decided in the same action as the principal debtor. They also contended that the plaintiff's failure to immediately take advantage of the provision requiring a contract and bond within ten days constituted a waiver, and that the plaintiff should have waited until the 90-day period expired before taking action. Furthermore, they argued that Cho Chung Chee was not a principal in the action.
Issue(s)
Whether there was a misjoinder of parties defendant, considering the distinction between a contract of guaranty and a contract of suretyship. Whether the plaintiff's actions constituted a waiver or if the plaintiff should have waited for the full 90-day period before taking steps to secure the construction of the scows. Whether the defendants were excused from performance due to alleged impossibility of obtaining suitable lumber or due to the effects of war. Whether Cho Chung Chee was a principal liable in the action.
Ruling
The Supreme Court affirmed the decision of the Court of First Instance with a modification. The Court ruled that Cho Chung Chee was not liable as a principal. The judgment against Cho Chung Chac as principal and against Celerino B. Arellano and Cirilo Jose as guarantors was affirmed, ordering them to pay the sum of P13,961.76, with interest at 6% per annum from August 7, 1917, and costs. Execution against the guarantors would only issue after execution against the principals had been returned unsatisfied.
Ratio Decidendi
On the issue of misjoinder of parties defendant and the distinction between guaranty and suretyship: The Court acknowledged that the appellants might be technically correct in arguing that Arellano and Jose were guarantors rather than sureties. However, it held that the distinction between a surety and a guarantor, while existing in American law (surety as an original promisor, guarantor as a collateral undertaking), is not emphasized in English law and is more shadowy than substantial. The Court reasoned that adherence to strict pleading rules at that stage would merely delay the ultimate accounting of the guarantors. Crucially, the judgment itself provided that execution would not issue against the guarantors until execution against the principals was returned unsatisfied, indicating that their liability was indeed secondary and dependent on the principal's default. Therefore, the joinder, while perhaps technically imperfect, did not impede the administration of justice or lead to a different outcome. On the plaintiff's actions and the waiver argument: The Court found no merit in the contention that the plaintiff's failure to immediately take advantage of the ten-day provision for entering into a contract and furnishing a bond constituted a waiver. It also dismissed the argument that the plaintiff should have waited for the full 90-day period. The Court noted that the defendants never offered to complete the construction within the specified period after their bid was accepted; instead, their contention was that they were unable to obtain materials and required an extension. The proposal bound them to enter into a formal contract and provide a satisfactory bond within ten days of acceptance, or, in default thereof, to pay the difference in cost. The Court emphasized that time is of the essence in contracts for military supplies and that there was no basis for equitable relief from this agreement. On the alleged impossibility of performance and the effect of war: The Court rejected the defense of impossibility of performance. It reasoned that impossibility of performance was not known to both parties at the time of the contract, performance was not prevented by the acts of the United States, and the contract was not for an unlawful purpose. The Court cited the principle from Paradine v. Jane and Day v. United States, stating that when a party by their own contract creates a duty or charge upon themselves, they are bound to make it good, notwithstanding any accident or inevitable necessity, as they could have provided against it in their contract. The contractor takes the risk within the limits of their undertaking. The Court also noted that even if war conditions affected the contract, the contractor would still be held to their bargain unless the impossibility arose from a cause neither party could have reasonably contemplated and for which the contract made no provision. The Court found it fairly shown that suitable lumber was available in Manila, and therefore, the contractor could have secured it, even if at a higher cost. Mere increase in cost or unexpectedly burdensome conditions due to war were insufficient pleas for non-performance. On the liability of Cho Chung Chee: The Court found that the lower court erred in holding Cho Chung Chee liable as a principal. The record, including a stipulation and corroborating exhibits, indicated that Cho Chung Chac was the sole owner of Varadero de la Quinta, with Cho Chung Chee acting as attorney-in-fact. Therefore, the liability as principal rested solely on Cho Chung Chac.
Main Doctrine
A contractor and their guarantors are not excused from the consequences of non-performance of a contract with the government if the impossibility of performance was not known to both parties at the time of the contract, performance was not prevented by the government, the contract was not for an unlawful purpose, and war conditions do not affect the contract. Mere increase in the cost of performance or unexpectedly burdensome conditions are insufficient pleas for non-performance.