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Reparations Commission v.

Universal Deep Sea Fishing (1978)

Topic: Application
SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)

The Reparations Commission (RC) awarded 6 trawl boats to Universal which were
delivered two at a time, each delivery being covered by a Contract of Condition
Purchase and Sale providing for identical schedules of payments. The first installment
represented 10% of the total cost was to be paid 24 months after delivery and the
balance of the total cost to be paid in 10 equal installments, which, in the schedule were
numbered as "1", "2", "3", etc., the first of which was due one year after the first
To guarantee the faithful compliance with the obligations under said contract, a
performance bond of P53, 643.00, with Universal as principal and Manila Surety &
Fidelity Co., Inc., as surety, was executed in favor of RC.
On August 10, 1962, RC sued Universal and its surety to recover various amounts of
money due under the contracts. Universal claimed that the amounts were not yet due
and demandable. The surety company also contended that the action is premature, but
set up a crossclaim against Universal for reimbursement of whatever amount of money it
may have to pay the plaintiff by reason of the complaint, including interest, and for the
collection of accummulated and unpaid premiums on the bonds with interest thereon.
With leave of court first obtained, the surety company filed a third-party complaint
against Pablo S. Sarmiento, one of the indemnitors in the indemnity agreements.
Sarmiento denied personal liability claiming that he signed the indemnity agreements in
question in his capacity as acting general manager of Universal.
The trial court rendered judgment against Universal. Hence, this appeal.
Universal contended that there is an obscurity in the terms of the contracts in question
which were caused by RC as to the amounts and due dates of the first installments
which should have been first fixed before a creditor can demand its payment from the
Universal points to the Schedule of Payment of the M/S UNIFISH 1 and M/S UNIFISH 2,
which states that the amount of first installment is P53,642.84 and the due date of its
payment is May 8, 1961. However, the amount of the first of the succeeding itemized
installments is P56,597.20 and the due date is May 8, 1962. In the case of the M/S
UNIFISH 3 and M/S UNIFISH 4, the first installments are P68,777.77 and due in July,

1961 and P72,565.68 and due in July, 1962, respectively. In the contract for the
purchase and sale of the M/S UNIFISH 5 and M/S UNIFISH 6, the amounts indicated as
first installments are P54,500.00 and P57,501.57, and the due dates of payment are
October 17, 1961 and October 17, 1962, respectively.

WoN the first installments under the 3 contracts of conditional purchase and sale of
reparations goods were already due and demandable when the complaint was filed
o YES.
o The terms of the contracts for the purchase and sale of the reparations vessels
are very clear and leave no doubt as to the intent of the contracting parties. Thus,
in the contract concerning the M/S UNIFISH 1 and M/S UNIFISH 2, the parties
expressly agreed that the first installment representing 10% of the purchase price
or P53, 642. 84 shall be paid within 24 months from the date of complete delivery
of the vessels or on May 8, 1961, and the balance to be paid in ten (10) equal
yearly installments. The amount of P56,597.20 due on May 8, 1962, which is also
claimed to be a "first installment," is but the first of the ten (10) equal yearly
installments of the balance of the purchase price (citing Reparations Commission
vs. Northern Lines, Inc., et al.).
WON Universal is liable for payment of premiums on the bonds executed by Manila
o YES. The payment of premiums on the bonds to the surety company had been
expressly undertaken by UNIVERSAL in the indemnity agreements executed by
it in favor of the surety company. The premium is the consideration for furnishing
the bonds. The obligation to pay the same subsists for as long as the liability
o Universal should pay P7,251.42 to Manila Surety.
WON the P10,000 down payment made by Universal to RC for UNIFISH 1 and 2 can be
applied to the first installment guaranteed by the surety
o NO.
o Manila Surety contends that the down payment of P10,000 made by Universal
can be applied to the first installment for UNIFISH 1 and 2 (an indebtedness
guaranteed by Manila Surety), thus reducing its liability from P53,643.00 to
P43,642.00, because Art 1254 stipulates that where the creditor or debtor does
not specify to which liability a payment shall be applied, it shall be deemed to
apply to the most onerous debt [in this case, the most immediate, which is the
first installment for UNIFISH 1 and 2].
o The Court held that Arts. 1252 to 1254 apply to persons owing several debts to
one creditor, not to sureties whose obligation is both contingent and singular.
o The standing obligation of Universal is not just the first installment, but also the
10 equal yearly installments. Thus, given that both the first installment and the
first of the 10 installments have both accrued, the P10,000 down payment cannot
be applied to just one of them.

The Supreme Court found the terms of the contracts clear and left no doubt as to
the intent of the contracting parties that the first installment due 24 months after
delivery was different from the first of the ten (10) equal yearly installments of the
balance of the purchase price (which are not designated as "first", "second",
"third", etc., installments).
WoN Sarmiento is personally liable having merely executed the indemnity agreements
o YES. Sarmiento appears to have signed the indemnity agreement twice the first,
in his capacity as acting general manager of UNIVERSAL, and the second, in his
individual capacity.