8/19/23, 10:45 AM [ G.R. Nos. L-33819 and L-33897.

October 23, 1982 ]

203 Phil. 159

SECOND DIVISION
[ G.R. Nos. L-33819 and L-33897. October 23, 1982 ]
NATIONAL POWER CORPORATION, PLAINTIFF-APPELLANT, VS.
NATIONAL MERCHANDISING CORPORATION AND DOMESTIC
INSURANCE COMPANY OF THE PHILIPPINES, DEFENDANTS-
APPELLANTS.
DE CIS ION

AQUINO, J.:

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

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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).

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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 xxx xxx

"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

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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
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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:

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"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 prin­‐
cipal 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.

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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.
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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.

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