NPC v. Nat’l Merchandising Corporation and Domestic Insurance Company of the Phil. 1.
1. Whether or not the delivery of sulfur was conditioned on the availability of a vessel
February 20, 2001 | Bellosillo, J.
Plaintiff-appellant: National Power Corporation
Defendants-appellants: National Merchandising Corporation and Domestic Insurance
Company of the Philippines.
Facts:
 Oct. 17, 1956: NPC and Namerco, as the representative of the International
Commodities Corporation (ICC) of New York, executed in Manila a contract for the
purchase by NPC form ICC of four thousand long tons of crude sulfur for its Maria
Cristina Fertilizer Plant in Iligan City at a total price of P450,716.
 On the same date, a performance bond (P90,143.20) was executed by the Domestic
Insurance Company (DIC) in favor of NPC to guarantee the seller’s obligation.
 It was stipulated in the contract of sale that the seller would deliver the sulfur at
Iligan within 60 days from notice of the establishment in its favor a letter of credit
for $212,120 and that failure to effect delivery would subject the seller and its surety
to the payment of liquidated damages at the rate of 2/5 of 1% of the full contract
price for the first thirty days of default and 4/5 of 1% for every day thereafter until
complete delivery is made.
 ICC was not able to deliver the sulfur due to its inability to secure shipping space.
 From Jan. 20-26, 1957, there was a shutdown of NPC’s fertilizer plant because there
was no sulfur. No fertilizer was produced.
 The general manager of NPC advised Namerco and DIC that under the contract of
sale “non-availability of bottom or vessel” was not a fortuitous event that would
excuse non-performance and that NPC would resort to legal remedies.
 The Government Corporate Counsel sent a letter to Sycip, the president of Namerco,
saying that the contract has been rescinded due to ICC’s non-performance of its
obligations and demanded from Namerco P360,572.80 as liquidated damages. He
explained that time was of the essence of the contract. A similar demand was made
upon the surety.
o The liquidated damages were computed on the basis of the 115-day period
between the deadline of the delivery of the sulfur and when Namerco was
notified of the rescission of the contract.
 Nov. 5, 1957: NPC sued ICC, Namerco, and DIC for the recovery of the stipulated
liquidated damages.
 TC: dismissed the case as to ICC for lack of jurisdiction because it was not doing
business in the Philippines.
 Melvin Wallick, the assignee of ICC, sued Namerco for damages in connection with
the same sulfur transaction. TC dismissed the action because the assignment in favor
of Wallick was champertous in character. (probably irrelevant)
Issues/Held:
to carry the shipment. – NO
 The invitation to bid issued by NPC provides that non-availability of a steamer
to transport the sulfur is not a ground for non-payment of the liquidated
damages in case of non-performance by the seller. It was also stipulated that
“prior to making his bid, a bidder shall have made previous arrangements
regarding shipments within the required time.”
 Namerco’s bid or offer is even more explicit. It provides that it was “responsible
for the availability of bottom or vessel” and that it “guarantees the availability
of bottom or vessel to ship the quantity of sulfur within the time specified in
this bid.”
 ICC, in its cable to Namerco, stated that the sale was subject to the availability
of a steamer. However, Namerco did not disclose that cable to NPC, and
contrary to its principal’s instruction, it agreed that non-availability of a
steamer was not a justification for non-payment of the liquidated damages.
2. Whether or not Namerco exceeded its authority as agent of ICC. – YES
 The defendants argue that it was incumbent upon NPC to inquire into the
extent of the agent’s authority and, for its failure to do so, it could not
claim any liquidated damages which, according to them, were provided for
merely to make the seller more diligent in looking for a steamer to
transport the sulfur.
 NPC argues that Namerco should have advised them of the limitations on
its authority to negotiate the sale.
 SC: Namerco is liable for damages because under Art. 1897, the agent who
exceeds the limits of his authority without giving the party with whom he
contracts sufficient notice of his powers is personally liable to such party.
o Even before the contract was signed, Namerco was already aware
that its principal was having difficulties in booking shipping space.
o One day before the contract was signed, ICC advised Namerco that
the latter should not sign the contract unless Namerco wished to
assume sole responsibility for the shipment.
o After Sycip signed the contract, ICC cabled Namerco that the firm did
not consider itself bound by the contract and that Namerco signed
the contract on its own responsibility.
o Some of the letters of ICC even bluntly told Namerco that it was never
authorized to enter into the contract and that it acted contrary to the
repeated instructions of ICC.
 Manresa: the agent who exceeds the limits of his authority is personally
liable and the third person who contracts with the agent in such a case
would be defrauded if he would not be allowed to sue the agent.
3. Whether or not the trial court erred in holding as enforceable the stipulation for
liquidated damages despite its finding that the contract was unenforceable. – NO
 Defendants cite Art. 1403 which provides that a contract entered into in o The contention that only nominal damages should be adjudged is
the name of another person by one who has acted beyond his powers is contrary to the intention of the parties because it is clearly provided
unenforceable. that liquidated damages are recoverable for delay and non-delivery.
 SC: Art. 1403 refers to the unenforceability of the contract against the o No proof of pecuniary loss is required for the recovery of liquidated
principal. In the instance case, the contract containing the stipulation for damages. NPC suffered damages because its production of fertilizer
liquidated damages is not being enforced against its principal but against was disrupted.
the agent and its surety. o On the other hand, nominal damages are damages in name only or
o Art. 1897 implies that the agent who acts in excess of his authority is are in fact the same as no damages. It would not be correct to hold
personally liable to the party with whom he contracted. This is that NPC suffered damages in name only or that the breach of
complemented by Art. 1898 which provides that “if the agent contract was merely technical in character.
contracts in the name of the principal, exceeding the cope of his o Liquidated damages should be equivalent to the amount of the
authority, and the principal does not ratify the contract, it shall be bidder’s bond posted by Namerco.
void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal. Dispositive:
o NPC was unaware of the limitations on the powers granted by ICC to WHEREFORE, the lower court’s judgment is modified and defendants National Merchandising
Namerco. Namerco never disclosed to NPC the instructions of its Corporation and Domestic Insurance Company of the Philippines are ordered to pay solidarily
principal and virtually acted in its own name and not as an agent and to the National Power Corporation the sum of P45,100.00 as liquidated damages. No costs.
it is, therefore, bound by the contract of sale which, however, is not
enforceable against its principal.
o Since Namerco is bound under the contract of sale, it follows that it
is bound by the stipulation for liquidated damages in that contract.
 Defendants argue that Namerco’s liability should be based on tort.
o SC: unjust and inequitable for Namerco to escape liability after it had
deceived NPC.
 Defendants also claim that DIC is not liable to NPC because its bond was
posted, not for Namerco but for ICC which is not liable on the contract of
sale.
o SC: it was Namerco that actually solicited the bond from DIC and
Namerco is being held liable under the contract because it virtually
acted in its own name. Namerco became the principal in the
performance bond, hence, DIC acted as surety for Namerco.
o The rule is that “want of authirty of the person who executes an
obligation as the agent or representative of the principal will not, as
a general rule, affect the surety’s liability thereon, especially in the
absence of fraud, even thought the obligation is not binding on the
principal.”
 Defendants further claim that they should be held liable only for nominal
damages, that interest should not be collected on the amount of damages,
and that the damages should be computed on the basis of a 45-day period
and not for a period of 115 days.
o SC: inequitable to collect interest on the damages especially
considering that the disposition of the case has been considerably
delayed due to no fault of the defendants.