NATIONAL POWER CORPORATION, PLAINTIFF-APPELLANT, VS. NATIONAL MERCHANDISING CORPORATION AND DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, DEFENDANTS-APPELLANTS.

This case is about the recovery of liquidated damages from a
seller’s agent that allegedly exceeded its authority in negotiating the sale.

Plaintiff National Power Corporation appealed on questions of law
from the decision of the Court of First Instance of Manila dated October 10,
1966, ordering defendants National Merchandising Corporation and Domestic
Insurance Company of the Philippines to pay solida­rily
to the National Power Corporation reduced liquidated damages in the sum of P72,114.56 plus legal rate of in­terest from the filing of the
complaint and the costs (Civil Case No. 33114).

The two defendants appealed from the same decision allegedly
because it is contrary to law and the evidence. 
As the amount originally involved is P360,572.80
and defendants’ appeal is tied up with plaintiff’s appeal on questions of law,
defendants’ appeal can be enter­tained under Republic Act No. 2613 which
amended section 17 of the Judiciary Law.

On October 17, 1956, the National Power Corporation and National
Merchandising Corporation (Namerco) of 3111 Nagtahan Street, Manila, as the representative of the
International Commodities Corporation of 11 Mercer Street, New York City (Exh. C), executed in Manila a contract for the purchase by
the NPC from the New York firm of four thousand long tons of crude sulfur for
its Maria Cristina Fertilizer Plant in Iligan City
at a total price of P450,716 (Exh.
E).

On that same date, a performance bond in the sum of P90,143.20 was executed by the Domestic Insurance Company in
favor of the NPC to guarantee the seller’s obligations (Exh.
F).

It was stipulated in the contract of sale that the seller would
deliver the sulfur at Iligan City within sixty
days from notice of the establishment in its favor of 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 two-fifth of one
percent of the full contract price for the first thirty days of default and
four-fifth of one percent for every day thereafter until complete delivery is
made (Art. 8, p. 111, Defendants’ Record on Appeal).

In a letter dated November
12, 1956, the NPC advised John Z. Sycip,
the president of Namerco, of the opening on November
8 of a letter of credit for $212,120 in favor of International Commodities
Corporation which would expire on January
31, 1957 (Exh. I).  Notice of that letter of credit was
received by cable by the New York
firm on November 15, 1956
(Exh. 80-Wallick). 
Thus, the deadline for the delivery of the sulfur was January 15, 1957.

The New York
supplier was not able to deliver the sulfur due to its inability to secure
shipping space.  During the period from January 20 to 26, 1957 there was a
shut­down of the NPC’s fertilizer plant because there
was no sulfur.  No fertilizer was
produced (Exh. K).

In a letter dated February
27, 1957, the general manager of the NPC advised Namerco and the Domestic Insurance Company that under
Article 9 of the contract of sale “nonavailability
of bottom or vessel” was not a fortuitous event that would excuse
nonperformance and that the NPC would resort to legal remedies to enforce its
rights (Exh. L and M).

The Government Corporate Counsel in his letter to Sycip dated May 8,
1957 rescinded the contract of sale due to the New
York supplier’s nonperformance of its obligations (Exh. G).  The same
counsel in his letter of June 8, 1957 demanded from Namerco
the payment of 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 (Exh. H and H-1).

The liquidated damages were computed on the basis of the 115-day
period between January 15, 1957, the deadline for the delivery of the sulfur at
Iligan City, and May 9, 1957 when Namerco
was notified of the rescission of the contract, or P54,085.92 for the first
thirty days and P306,486.88 for the remaining eighty-five days.  Total: 
P360,572.80.

On November 5, 1957,
the NPC sued the New York firm, Namerco and the Domestic Insurance Company for the recovery
of the stipulated liquidated damages (Civil Case No. 33114).

The trial court in its order of January 17, 1958 dismissed the case as to the New
York firm for lack of jurisdiction because it was not
doing business in the Philippines
(p. 60, Defendants’ Record on Appeal).

On the other hand, Melvin Wallick, as
the assignee of the New York corporation and after the latter was dropped as a defendant
in Civil Case No. 33114, sued Namerco for damages in
connection with the same sulfur transaction (Civil Case No. 37019).  The two cases, both filed in the Court of
First Instance of Manila, were con­solidated. 
A joint trial was held.  The lower
court rendered separate decisions in the two cases on the same date.

In Civil Case No. 37019, the trial court dismissed Wallick’s action for damages against Namerco
because the assignment in favor of Wallick was champertous in character. 
Wallick appealed to this Court.  The appeal was dismissed because the
record on appeal did not disclose that the appeal was perfected on time (Res.
of July 11, 1972 in L-33893).

In this Civil Case No. 33114, although the records on appeal were
approved in 1967, inexplicably, they were elevated to this Court in 1971.  That anomaly initially contributed to the
delay in the adjudication of this case.

Defendants’ appeal, L-33819.  – They contend that the delivery of the
sulfur was conditioned on the avail­ability of a vessel to carry the shipment
and that Namerco acted within the scope of its
authority as agent in signing the contract of sale.

The documentary evidence belies these contentions.  The invitation to bid issued by the NPC
provides that non-availability of a steamer to transport the sulfur is not a
ground for nonpayment of the liquidated damages in case of nonperformance by
the seller:

“4. Responsibility for availability of
vessel.  – The availability of
vessel to transport the quantity of sulfur within the time specified in item 14
of this specification shall be the responsibility of the bidder.  In case of award of contract, failure to ship
on time allegedly due to non-availability of vessels shall not exempt the
Contractor from payment of liquidated damages provided in item 15 of this
specification.”

“15. Liquidated damages.  – x x x     x x x     x x x

“Availability of vessel being a responsibility of the
Contractor as specified in item 4 of this specifi­cation, the terms
‘unforeseeable causes beyond the control and without the fault or negligence of
the Contractor’ and ‘force majeure‘ as used herein
shall not be deemed to embrace or include lack or non-availability of bottom or
vessel.  It is agreed that prior to
making his bid, a bidder shall have made previous arrangements regarding
shipments within the required time.  It
is clearly understood that in no event shall the Contractor be exempt from the
payment of liquidated damages herein specified for reason of lack of bottom or
vessel.  Lack of bottom or non-availability
of vessel shall, in no case, be considered as a ground for extension of
time.  x x x.” (Exh. A, pp. 13,
18-19, Defendants’ Record on Appeal).

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” (Exh.
B, p. 22, Defendants’ Record on Appeal).

In the contract of sale itself item 15 of the invitation
to bid is reproduced in Article 9 which provides that “it is
clearly understood that in no event shall the seller be entitled to an
extension of time or be exempt from the payment of liquidated damages herein
specified for reason of lack of bottom or vessel” (Exh.
E, p. 36, Record on Appeal).

It is true that the New York
corporation in its cable to Namerco
dated August 9, 1956 stated
that the sale was subject to availability of a steamer (Exh.
N).  However, Namerco did not disclose that cable to the NPC and,
contrary to its principal’s instruction, it agreed that non-availability of a
steamer was not a justification for nonpayment of the liquidated damages.

The trial court rightly concluded that Namerco
acted beyond the bounds of its authority because it violated its principal’s
cabled instructions (1) that the delivery of the sulfur should be “C &
F Manila”, not “C & F Iligan
City”; (2) that the sale be subject to the availability of a steamer and
(3) that the seller should be allowed to withdraw right away the full amount of
the letter of credit and not merely eighty percent thereof (pp. 123-124, Record
on Appeal).

The defendants argue that it was incumbent upon the 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 the defendants,
were provided for merely to make the seller more diligent in looking for a
steamer to transport the sulfur.

The NPC counter-argues that Namerco
should have advised the NPC of the limitations on its authority to negotiate
the sale.

We agree with the trial court that Namerco
is liable for damages because under article 1897 of the Civil Code 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.

The truth is that even before the contract of sale was signed Namerco was already aware that its principal was having
difficulties in booking shipping space. 
In a cable dated October 16, 1956, or one day before the contract of
sale was signed, the New York supplier advised Namerco
that the latter should not sign the con­tract unless it (Namerco)
wished to assume sole respon­sibility for the shipment (Exh.
T).

Sycip, Namerco’s
president, replied in his letter to the seller dated also October 16, 1956,
that he had no choice but to finalize the contract of sale because the NPC
would forfeit Namerco’s bidder’s bond in the sum of
P45,100 posted by the Domestic Insurance Company if the contract was not
formalized (Exh. 14, 14-A and Exh.
V).

Three days later, or on October 19, the New
York firm cabled Namerco
that the firm did not consider itself bound by the
contract of sale and that Namerco signed
the contract on its own responsibility (Exh. W).

In its letters dated November 8 and 19, 1956, the New
York corporation informed Namerco that since the latter acted contrary to the former’s cabled instructions, the former disclaimed
responsibility for the contract and that the responsibility for the sale rested
on Namerco (Exh. Y and Y-1).

The letters of the New York
firm dated November 26 and December
11, 1956 were even more revealing. 
It bluntly told Namerco that the latter was
never authorized to enter into the contract and that it acted contrary to the
re­peated instructions of the former (Exh. U and Z).  Said the
vice-president of the New York
firm to Namerco:

“As we have pointed out to you before, you have acted strictly
contrary to our repeated instructions and, however regretfully, you have no
one but yourselves to blame.”

The rule relied upon by the defendants-appellants that every
person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent would apply in this case if the principal is
sought to be held liable on the contract entered into by the agent.

That is not so in this case. 
Here, it is the agent that is sought to be held liable on a contract of
sale which was expressly repudiated by the principal because the agent took
chances, it exceeded its authority and, in effect, it acted in its own
name.

As observed by Castan Tobeñas, an agent “que haya traspasado los limites del mandato,
lo que equivale a obrar sin mandato” (4 Derecho Civil Español, 8th Ed.,
1956, p. 520).

As opined by Olivieri, “si el mandante contesta o impugna el negocio juridico concluido por el mandatario con el tercero, aduciendo el exceso de los limites im­puestos,
es justo que el mandatario, que ha tratado con engaño al tercero, sea responsable personalmente respecto de él de las consecuencias de tal falta de aceptación
por parte del mandante.  Tal responsabilidad del mandatario se informa en el principio de la falta de garantia de la existencia del mandato y de la cualidad de mandatario, garantia impuesta coactivamente por la ley, que
quiere que aquel que contrata
como mandatario esté obligado a garantizar al tercero la efectiva existencia de los poderes que
afirma se halla investido, siempre que el tercero mismo sea de buena fe.  Efecto de tal
garantía es el resarcimiento de los daños causados al tercero como
consecuencia de la negativa
del mandante
a reconocer lo actuado por el mandatario.” (26,
part II, Scaevola, Codigo
Civil, 1951, pp. 358-9).

Manresa
says that the agent who exceeds the limits of his authority is personally
liable “porque realmente
obra sin poderes” 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 (11 Codigo
Civil, 6th Ed., 1972, p. 725).

The defendants also contend that the trial court erred in holding
as enforceable the stipulation for liquidated damages despite its finding that
the contract was executed by the agent in excess of its authority and is,
therefore, allegedly unenforceable.

In support of that contention, the defendants cite article 1403
of the Civil Code which provides that a contract entered into in the name of
another person by one who has acted beyond his powers is unenforceable.

We hold that defendants’ contention is untenable because article
1403 refers to the unenforceability of the contract against the principal.  In the instant case, the contract containing
the stipulation for liquidated damages is not being enforced against its
principal but against the agent and its surety.

It is being enforced against the agent because article 1897
implies that the agent who acts in excess of his authority is personally liable
to the party with whom he contracted.

And that rule is complemented by article 1898 of the Civil Code
which provides that “if the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is aware
of the limits of the powers granted by the principal”.

As priorly discussed, Namerco, as agent, exceeded the limits of its authority in
contracting with the NPC in the name of its principal.  The NPC was unaware of the limitations on the
powers granted by the New York
firm to Namerco.

The New York corporation in its letter of April 26, 1956 said:

“We hereby certify that National Merchandising Corporation x x x are our exclusive
representatives in the Philippines
for the sale of our products.

“Furthermore, we certify that they are empowered to present
our offers in our behalf in accordance with our cabled or written
instructions.” (Exh.
C).

Namerco never disclosed to the NPC
the cabled or written instructions of its principal.  For that reason and because Namerco exceeded the limits of its authority, it virtually
acted in its own name and not as agent and it is, therefore, bound by the
contract of sale which, however, is not enforceable against its principal.

If, as contemplated in articles 1897 and 1898, Namerco is bound under the contract of sale, then it
follows that it is bound by the stipulation for liquidated damages in that
contract.

Defendants’ contention that Namerco’s
liability should be based on tort or quasi-delict, as
held in some American cases, like Mendelsohn vs.
Holton, 149 N.E. 38, 42 ALR 1307, is not well-taken.  As correctly argued by the NPC, it would be
unjust and inequitable for Namerco to escape
liability after it had deceived the NPC.

Another contention of the defendants is that the Domestic
Insurance Company is not liable to the NPC because its bond was posted, not for
Namerco, the agent, but for the New
York firm which is not liable on the contract of
sale.

That contention cannot be sustained because it was Namerco that actually solicited the bond from the Domestic
Insurance Company and, as explained already, Namerco
is being held liable under the contract of sale because it virtually acted in
its own name.  It became the prin­cipal
in the performance bond.  In the last
analysis, the Domestic Insurance Company acted as surety for Namerco.

The rule is that “want of authority 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 though the obligation is not binding on the
principal” (72 C.J.S. 525).

Defendants’ other contentions are 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
forty-five-day period and not for a period of one hundred fifteen days.

With respect to the imposition of the legal rate of interest on
the damages from the filing of the complaint in 1957, or a quarter of a
century ago, defendants’ con­tention is meritorious.  It would be manifestly inequitable to collect
interest on the damages especially considering that the disposition of this
case has been considerably delayed due to no fault of the defendants.

The contention that only nominal damages should be adjudged is
contrary to the intention of the parties (NPC, Namerco
and its surety) because it is clearly pro­vided that liquidated damages are
recoverable for delay in the delivery of the sulfur and, with more reason, for
non-delivery.

No proof of pecuniary loss is required for the recovery of
liquidated damages.  The stipulation for
liquidated damages is intended to obviate controversy on the amount of
damages.  There can be no question that
the NPC suffered damages because its production of fertilizer was disrupted or
diminished by reason of the non-delivery of the sulfur.

The parties foresaw that it might be difficult to ascertain the
exact amount of damages for non-delivery of the sulfur.  So, they fixed the liquidated damages to be
paid as indemnity to the NPC.

On the other hand, nominal damages are damages in name only or
are in fact the same as no damages (25 C.J.S. 466).  It would not be correct to hold in this case
that the NPC suffered damages in name only or that the breach of contract was
merely technical in character.

As to the contention that the damages should be computed on the
basis of forty-five days, the period required by a vessel leaving Galveston,
Texas to reach Iligan City, that point need not be
resolved in view of our conclusion that the liquidated damages should be equivalent
to the amount of the bidder’s bond posted by Namerco.

NPC’s appeal, L-33897.  – The trial court reduced the liquidated
damages to twenty percent of the stipulated amount.  The NPC contends that it is entitled to the
full amount of liquidated damages in the sum of P360,572.80.

In reducing the liquidated damages, the trial court relied on
article 2227 of the Civil Code which provides that “liquidated damages,
whether intended as an indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable”.

Apparently, the trial court regarded as an equitable
consideration the persistent efforts of Namerco and
its principal to charter a steamer and that the failure of the New
York firm to secure shipping space was not attributable
to its fault or negligence.

The trial court also took into account the fact that the selling
price of the sulfur was P450,716 and that to
award as liquidated damages more than eighty percent of the price would not be
altogether reasonable.

The NPC contends that Namerco was an
obligor in bad faith and, therefore, it should be responsible for all damages
which could be reasonably attributed to its nonperformance of the obligation as
provided in article 2201 of the Civil Code.

On the other hand, the defendants argue that Namerco
having acted as a mere agent, was not liable for the liquidated damages
stipulated in the alleged unenforceable contract of sale; that, as already
noted, Namerco’s liability should be based on tort or
quasi-delict and not on the contract of sale; that if
Namerco is not liable, then the insurance company,
its surety, is likewise not liable; that the NPC is entitled only to nominal
damages because it was able to secure the sulfur from another source (58-59 tsn November 10, 1960) and that the reduced award of
stipulated damages is highly iniquitous, considering that Namerco
acted in good faith and that the NPC did not suffer any actual damages.

These contentions have already been resolved in the preceding
discussion.  We find no sanction or justification
for NPC’s claim that it is entitled to the full
payment of the liquidated damages computed by its official.

Ruling on the amount of damages.  – A painstaking evaluation of the equities of
the case in the light of the arguments of the parties as expounded in their
five briefs leads to the conclusion that the damages due from the defendants
should be further reduced to P45,100 which is
equivalent to their bidder’s bond or to about ten percent of the selling price
of the sulfur.

WHEREFORE, the lower court’s judgment is modified and
defendants National Merchandising Corporation and Domestic Insurance Company of
the Philippines
are ordered to pay solidarily to the National Power
Corporation the sum of P45,100.00 as liquidated
damages.  No costs.

SO ORDERED.

Concepcion, Jr., Guerrero, Abad Santos, De Castro, and
Escolin, JJ., concur.

Makasiar, (Chairman), J., reserve
his vote.