GREEN VALLEY V.

IAC
D: In an agency to sell, the agent is liable to pay the principal for
goods sold by the agent without the principals consent. The
commission agent cannot without the express or implied consent of
the principal, sell on credit. Should he do so, the principal may
demand from him payment in cash, but the commission agent shall
be entitled to any interest or benefit, which may result from such
sale.
FACTS:
In 1969, GREEN VALEY POULTRY AND ALLIED
PRODUCTS entered into a letter agreement with SQUIBB
& SONS PHILIPPINE CORPORATION.
The details of the agreement state that Green Valley will be
the nonexclusive distributor of the products of Squibb
Veterinary Products.
As its distributor Green Valley is entitled to 10% discount on
Squibbs whole sale price and catalogue price. Green Valley
is also limited to selling Squibbs products to central and
northern Luzon.
Payment for purchases from Squibb will be due 60 days
from date of invoice, etc. For goods delivered to Green
Valley but unpaid, Squibb filed a suit to collect.
Squibb argues that their relationship with Green Valley is a
mere contract of sale as evidenced by the stipulation that
Green Valley was obligated to pay for the goods received
upon the expiration of the 60-day credit period.
Green Valley counters that the relationship between itself
and Squibb is that of an agency to sell.
ISSUE: W/N Green Valley is an agent of Squibb.
RULING: Whether viewed as an agency to sell or as a contract of
sale GREEN VALLEY is liable to Squibb for the unpaid products. If
it is a contract of sale then the Green Valley is liable by just merely
enforcing the clear words of the contract. If it is an agency then

Green Valley is liable because it sold on credit without authority

from its principal.
The Civil Code says: Art. 1905 The commission agent cannot
without the express or implied consent of the principal, sell on credit.
Should he do so, the principal may demand from him payment in
cash, but the commission agent shall be entitled to any interest or
benefit, which may result from such sale.

DOMINGO vs. DOMINGO

Petitioners: Vicente Domingo represented by his heirs
Respondents: Gregorio Domingo [Vicente Domingos agent
& broker]
Intervenor: Teofilo Purisima [Gregorio Domingos subagent]
Quick Summary:
Facts: Gregorio Domingo, Vicente Domingos broker and agent, received
P1,000 from Oscar de Leon as gift or propina. Oscar gave him said amount
after Gregorio succeeded in persuading Vicente to accept his offer to buy
the lot for P1.20 instead of P2.
Held: An agent who takes a secret profit in the nature of a bonus, gratuity
or personal benefit from the vendee, without revealing the same to his
principal, the vendor, is guilty of a breach of his loyalty to the principal and
forfeits his right to collect the commission from his principal, even if the
principal does not suffer any injury by reason of such breach of fidelity, or
that he obtained better results or that the agency is a gratuitous one, or
that usage or custom allows it. The fact that the principal may have been
benefited by the valuable services of the said agent does not exculpate the
agent who has only himself to blame for such a result by reason of his
treachery or perfidy. As a necessary consequence of such breach of trust,
Gregorio Domingo must forfeit his right to the commission and must return
the part of the commission he received from his principal.

Facts:
Vicente Domingo granted to Gregorio Domingo, a real
estate broker, the exclusive agency to sell his Lot No.
883, Piedad Estate in a document. Said lot has an area
of 88,477 sq. m.
According to the document, said lot must be sold for P2
per sq. m. Gregorio is entitled to 5% commission on
the total price if the property is sold:
by Vicente or by anyone else during the 30-day
duration of the agency or
by Vicente within 3 months from the termination of
the agency to a purchaser to whom it was
submitted by Gregorio during the effectivity of the
agency with notice to Vicente.
This contract is in triplicate with the original and
another copy being retained by Gregorio. The last copy
was given to Vicente.

Subsequently, Gregorio authorized Teofilo Purisima to

look for a buyer without notifying Vicente. Gregorio
promised Teofilo of the 5% commission.
Teofilo introduced Oscar de Leon to Gregorio as a
porspective buyer.
Oscar submitted a written offer which was very much
lower than the P2 per sq. m. price.
Vicente directed Gregorio to tell Oscar to raise his
offer.
After several conferences between Gregorio and Oscar,
Oscar raised his offer to P1.20 per sq. m. or P109,000
in total. Vicente agreed to said offer.
Upon Vicentes demand, Oscar issued a P1,000 check
to him as earnest money. Vicente, then, advanced
P300 to Gregorio.
Subsequently, Vicente asked for an additional P1,000
as earnest money, which Oscar promised to deliver to
Vicente.
The written agreement, Exhibit C, between the parties
was amended.
Oscar will vacate on or about September 15, 1956
his house and lot at Denver St., QC, which is part of
the purchase price
Later on, it was again amended to state that Oscar will
vacate his house and lot on Dec. 1, 1956 because his
wife was pregnant at that time.
Oscar gave Gregorio P1,000 as a gift or propina for
succeeding in persuading Vicente to sell his lot at
P1.20 per sq. m. gregorio did not disclose said gift or
propina to Vicente.
Moreover, Oscar did not pay Vicente the additional
P1,000 Vicente asked from him as earnest money.
The deed of sale was not executed since Oscar gave
up on the negotiation when he did not receive his
money from his brother in the US, which he
communicated to Gregorio.
Gregorio did not see Oscar for several weeks thus
sensing that something fishy might be going on.

So, he went to Vicentes house where he read a portion

of the agreement to the effect that Vicente was still
willing to pay him 5% commission, P5,450.
Thereafter, Gregorio went to the Register of Deeds of
QC, where he discovered that a Deed of sale was
executed by Amparo de Leon, Oscars wife, over their
house and lot in favor of Vicente.
After discovering that Vicente sold his lot to Oscars
wife, Gregorio demanded in writing the payment of his
commission.
Gregorio also conferred with Oscar. Oscar told him that
Vicente went to him and asked him to eliminate
Gregorio in the transaction and that he would sell his
property to him for P104,000.
In his reply, Vicente stated that Gregorio is not entitled
to the 5% commission because he sold the property
not to Gregorio's buyer, Oscar de Leon, but to another
buyer, Amparo Diaz, wife of Oscar de Leon.
CA: exclusive agency contract is genuine. The sale of
the lot to Amparo de Leon is practically a sale to Oscar.

Issue:
WON Gregorios act of accepting the gift or propina from
Oscar constitutes a fraud which would cause the forfeiture
of his 5% commission [YES]
Ratio:
Gregorio Domingo as the broker, received a gift or
propina from the prospective buyer Oscar de Leon,
without the knowledge and consent of his principal,
Vicente
Domingo.
His
acceptance
of
said
substantial monetary gift corrupted his duty to
serve the interests only of his principal and
undermined his loyalty to his principal, who gave
him partial advance of P3000 on his commission. As a
consequence, instead of exerting his best to persuade
his prospective buyer to purchase the property on the
most advantageous terms desired by his principal,
Gregorio Domingo, succeeded in persuading his

principal to accept the counter-offer of the prospective

buyer to purchase the property at P1.20 per sq. m.
The duties and liabilities of a broker to his
employer are essentially those which an agent
owes to his principal.
An agent who takes a secret profit in the nature
of a bonus, gratuity or personal benefit from the
vendee, without revealing the same to his
principal, the vendor, is guilty of a breach of his
loyalty to the principal and forfeits his right to
collect the commission from his principal, even if
the principal does not suffer any injury by
reason of such breach of fidelity, or that he
obtained better results or that the agency is a
gratuitous one, or that usage or custom allows
it.
Rationale: prevent the possibility of any wrong not
to remedy or repair an actual damage
agent thereby assumes a position wholly
inconsistent with that of being an agent for
hisprincipal, who has a right to treat him, insofar as
his commission is concerned, as if no agency had
existed
The fact that the principal may have been
benefited by the valuable services of the said
agent does not exculpate the agent who has
only himself to blame for such a result by reason
of his treachery or perfidy.
As a necessary consequence of such breach of
trust, Gregorio Domingo must forfeit his right to
the commission and must return the part of the
commission he received from his principal.

Decisive Provisions

 Article 18911 and 19092 CC

The modification contained in the first paragraph
Article 1891 consists in changing the phrase "to pay"
to "to deliver", which latter term is more
comprehensive than the former. Paragraph 2 of Article
1891 is a new addition designed to stress the highest
loyalty that is required to an agent condemning as
void any stipulation exempting the agent from the duty
and liability imposed on him in paragraph one thereof.
Article 1909 demand the utmost good faith, fidelity,
honesty, candor and fairness on the part of the agent,
the real estate broker in this case, to his principal, the
vendor. The law imposes upon the agent the absolute
obligation to make a full disclosure or complete
account to his principal of all his transactions and other
material facts relevant to the agency, so much so that
the law as amended does not countenance any
stipulation exempting the agent from such an
obligation and considers such an exemption as void.
The duty of an agent is likened to that of a trustee.
This is not a technical or arbitrary rule but a rule
founded on the highest and truest principle of morality
as well as of the strictest justice.
Situations where the duty mandated by Art 1891
does not apply
agent or broker acted only as a middleman with the
task of merely bringing together the vendor and
1

Every agent is bound to render an account of his transactions and to

deliver to the principal whatever he may have received by virtue of the
agency, even though it may not be owing to the principal. Every stipulation
exempting the agent from the obligation to render an account shall be void.

The agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts, according to
whether the agency was or was not for a compensation.

vendee, who themselves thereafter will negotiate on

the terms and conditions of the transaction
agent or broker had informed the principal of the gift or
bonus or profit he received from the purchaser and his
principal did not object
Teofilo Purisimas entitlement to his share in the 5%
commission
Teofilo can only recover from Gregorio his share of
whatever amounts Gregorio Domingo received by
virtue of the transaction as his sub-agency contract
was with Gregorio Domingo alone and not with Vicente
Domingo, who was not even aware of such sub-agency.
Since Gregorio already received a total of P1,300 from
Oscar and Vicente, P650 of which should be paid by
Gregorio to Teofilo.
Dispositive: CA decision reversed.

January 1979: Eduardo Gomez opened an account with Golden

Savings and deposited over a period of 2 months 38 treasury warrants
totalling P1,755,228.37.
all drawn by the Philippine Fish Marketing Authority and
purportedly signed by its General Manager and countersigned by its
Auditor:
6 - directly payable to Gomez
32 - indorsed by their respective payees, followed
by Gomez as second indorser
June 25 - July 16, 1979: all warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and deposited to its Savings
in the Metrobank branch
They were then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing
More than 2 weeks after the deposits, Castillo asked if the warrants
were cleared.
She was told to wait.
Gomez was also not allowed to withdraw from his account
exasperated over Gloria's repeated inquiries and also as an
accommodation for a "valued client," Metrobank allowed Golden Savings
to make the following withdrawals:

July 9, 1979 - P508,000.00

July 13, 1979 - P310,000.00

July 16, 1979 - P150,000.00

Gomez was also allowed to withdraw a total amount of P1,167,500
(latest on July 16, 1979)
July 21, 1979: Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury on July 19, 1979,
and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account. - refused
CA affirmed RTC: favored Golden Savings

ISSUE: W/N Metrobank can claim a refund from Golden Savings

Metrobank V. CA And Golden Savings & Loan Assoc. Inc (1991)
FACTS:

HELD: NO. Affirmed. withdrawn must be charged not to Golden Savings but
to Metrobank, which must bear the consequences of its own negligence. But the
balance of P586,589.00 should be debited to Golden Savings, as obviously

Gomez can no longer be permitted to withdraw this amount from his deposit
because of the dishonor of the warrants

Metrobank was negligent in giving Golden Savings the impression

that the treasury warrants had been cleared and that, consequently, it was
safe to allow Gomez to withdraw

It "presumed" that the warrants had been cleared simply

because of "the lapse of one week."

There was no reason why it should not have waited until the
treasury warrants had been cleared
Art. 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged 'with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.

Golden Savings acted with due care and diligence

Forgery cannot be presumed. It must be established by clear, positive

and convincing evidence. -here not proven

treasury warrants in question are not negotiable instruments

stamped on their face is the word "non-negotiable"

indicated that they are payable from a particular fund

Sec. 1. Form of negotiable instruments. An instrument to be negotiable
must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. An unqualified order or promise to
pay is unconditional within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made
or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.

PNB v. MANILA SURETY & FIDELITY CO., INC and CA

By allowing the assigned funds to be exhausted without notifying the
surety (Manila Surety), the Bank (PNB) deprived Manila Surety of
any possibility of recoursing against the security. PNB thereby
exonerated Manila Surety, pursuant to Article 2080.
FACTS:
1. PNB opens a Letter of Credit and advances $120K to Edgington
Oil Refinery for 8000 tons of hot asphalt.
2. Adams & Taguba Corp. (ATACO) wished to buy 2,000 tons worth
of hot asphalt valued at P279,000.00 so that it can fill a purchase
order by the Bureau of Public Works (BPW). ATACO had sold it
to BPW for P431,466.52.
3. ATACO assigns PNB as its attorney-in-fact and irrevocably
authorizes PNB to collect on its behalf from BPW amounts owed
to ATACO until its debt (P279K) was liquidated. Moreover, the
hot asphalt was delivered under a trust receipt guaranteed by
Manila Surety & Fidelity Co. up to the amount of P75,000.00
4. After ATACO delivered the hot asphalt to BPW, PNB was able to
collect Php 106,382.01 from BPW (21 Apr 1948 18 Nov 1948).
However, for some unexplained reason, PNB ceased to
collect from BPW.
5. In 1952, PNB discovers that ATACO had allowed other creditors
to collect funds due to ATACO under the same purchase order to
a total of Php 311,230.41, such that PNB could no longer collect
the balance from BPW.
6. After its demands for payment to ATACO & Manila Surety were
refused, PNB sues to recover the balance of Php 158,563.18
plus interests and costs.
7. CFI: Orders ATACO & Manila Surety to pay PNB P174,462.34
less P8,000.00 and orders ATACO to pay Manila Surety any
amount in excess of 75K that Manila Surety pays to PNB plus
5% interest. Only Manila Surety appeals.
8. CA: PNB was negligent in having stopped collecting from BPW,
thereby allowing the funds to be exhausted by other collectors to

the prejudice of the surety. This exonerates Manila Surety from

liability (Art 20803)

9. PNB: Power of attorney merely an additional security in its favor.

It was Manila Surety's responsibility to make sure that ATACO
fulfills its obligation. It did not have an obligation to Manila Surety
to collect from ATACO.

ISSUE(S): WoN Manila Surety is liable to PNB for ATACO's

uncollected debt? NO

RATIO:
1. PNB's duty as the holder of an exclusive and irrevocable power
of attorney was to collect from BPW, and not from ATACO (the
principal). Therefore, its negligence in performing this duty
makes it liable for the damages which ATACO incurred. In fact,
PNB's power to collect was expressly made irrevocable, so that
BPW could very well refuse to make payments to the principal
(ATACO) and may even reject demands for payment by the
surety.

2. PNB's negligence of its duty releases Manila Surety from liability.

(Art 2080)
DISPOSITIVE:
CA decision AFFIRMED. Costs against PNB.
FABIOLA SEVERINO vs. GUILLERMO SEVERINO & FELICITAS
VILLANUEVA
Putative Principal: Melecio Severino
Putative Agent:Guillermo Severino
Putative 3rd Person: *Paano ito in relation to this case?

3 Art. 2080. The guarantors, even though they

be solidary, are released from their obligation
whenever by some act of the creditor they cannot
be subrogated to the rights, mortgages and
preferences of the latter.

FACTS:
Melecio Severino owned 428 hectares of the land, which was administered by
his brother, Guillermo Severino. After Melecio's death, Guillermo continued to
occupy the land.
Cadastral proceedings were then instituted for the registration of the lands titles
within the surveyed area. In the said proceedings, Guillermos lawyer Hofilea
filed answers in behalf of Guillermo claiming that Melecios lots were the
property of his client. Since no opposition was made in the said proceedings, the
titles were eventually decreed in Guillermos favor.
Fabiola Severino (the alleged natural daughter of Melecio) filed an action to
compel Guillermo to convey to her four parcels land, or in default to pay
damages for wrongfully causing said land to be registered in his own name.
Felicitas Villanueva, in her capacity as administratrix of the estate of Melecio,
filed a complaint in intervention claiming in the same relief as the original
plaintiff, except in so far as she prays that the conveyance be made, or
damages paid, to the estate instead of to the plaintiff Fabiola Severino.
The lower court rendered a judgment:
Recognizing the plaintiff Fabiola Severino as the acknowledged natural child
Melecio Severino and
Ordering the Guillermo to convey to Felicitas (as administratix of Melecios
estate):
o 428 hectares of the land in question
o Proceeds in his possession of a certain mortgage placed thereon by him and
to pay the costs.
From this judgment, only Guillermo appeals.
MAIN ISSUE: Whether or not Guillermo ought to reconvey the property to the
administratix Felicitas Villanueva?
RULING: YES. Guillermo came into possession of the property as the agent of
Melecio.
1. The relations of an agent to his principal are fiduciary and it is an
elementary and very old rule that in regard to property forming the subjectmatter of the agency, he is estopped from acquiring or asserting a title
adverse to that of the principal. His position is analogous to that of a
trustee and he cannot consistently, with the principles of good faith, be
allowed to create in himself an interest in opposition to that of his principal
or cestui que trust.
2. That Guillermo came into the possession of the property in question as
the agent of Melecio Severino in the administration of the property, is
clear and cannot be disputed.

a.

In the case Montelibano vs. Severino, Guillermos testimony is

conclusive in this respect. He stated under oath that from 1902-1913,
he had been in charge and occupation of the land as the encargado or
administrator of Melecio Severino and that he had always known the
land as the property of Melecio Severino.
b. In his answer filed in the same case, Guillermo, through his attorney,
disclaimed all personal interest in the land and averred that it was
wholly the property of his brother Melecio.
3. Guillermo argues that his title has become res judicata through the decree
of registration and cannot now be disturbed; however, the Court disagrees.
a. According to the Land Registration Act, this decree becomes
conclusive after 1 year from the date of the entry if it is not disputed
and no one attempts to disturb the decree or the proceedings upon
which it is based.
b. Felicita, as administratix, raises the principle of equity and contends
that the legal title so acquired inured to the benefit of the estate of
Melecio Severino (Guillermos principal and cestui que trust). She
thus asks that this superior equitable right be made effective by
compelling the defendant, as the holder of the legal title, to transfer it
to the estate.
4. Here, the Court acknowledges that torrens titles carry a strong presumption
in favor of their regularity or validity. However, once it is cleary proven
that a fiduciary relation existed and a consequent breach of trust
occurred, there is no reason why the Court should not make such needed
reparation.
a. As long as the land stands registered in the name of the party guilty of
the breach of trust and no rights of innocent third parties are adversely
affected, reparation can take place (in the form of a conveyance or
transfer of the title to the cestui que trust).
Judgment appealed from is AFFIRMED (with some additional directions to its
dipositive clauses) with the costs against the appellant. The right of Fabiola
Severino to establish in the probate proceedings her status as Melecios
recognized natural child is reserved.

Del Rosario v La Bedania

D: A subagent is not obliged to fulfill more than the contents of the

mandate and to answer for the damages caused to the principal by his
failure to do so.
FACTS:
Bernard Gabelman was the Philippine agent of International
Films by virtue of a power of attorney in 1933. In the same
year, International Films, through its agent, leased the film
entitled, Monte Carlo Madness, to Lyric Film to be shown
in different theaters. One of the conditions was that Lyric
Film would answer for the loss of the film whatever the
cause.
After the last showing of the film, Gabelman requested Albo,
chief of the film department of Lyric Film, to permit him to
deposit the film in the latters vault under Gabelmans
responsibility, since this would not be covered by the
insurance, which Lyric Film carries.
In 1933, Gabelman was succeeded by Lazarus Joseph as
agent of International Films. Upon his possession of the
agency, he asked for the return of the films White Devils,
Congress Dances, and Monte Carlo Madness.
However, Lyric Film only returned the first 2 movies, since
Monte Carlo Madness would still be shown in Cebu.
Subsequently, the bodega of Lyric Film burned down before
it was shown in Cebu, together with the film Monte Carlo
Madness.
ISSUE: W/N Lyric Film is liable to International Films for the
destruction by fire of the film

INTERNATIONAL FILMS (CHINA) V. LYRIC FILM

HELD: NO. Preponderance of evidence has shown that the verbal

agreement between Gabelman and Albo was that the film would
remain deposited in the safety vault of Lyric Film under the
responsibility of Gabelman and that Lyric Film, as his subagent,
could show it in his theaters.

As the agreement is one of sub-agency, Lyric Film cannot be held

liable to International Films because it was not obliged to fulfill more
than the contents of the mandate and to answer for the damages
caused to International Films by his failure to do so.
The fact that the film was not insured against fire does not constitute
fraud or negligence on the part of Lyric Film, because as subagent, it
received no instruction to that effect from International Films, as its
principal, and the insurance of the film does not form part of the
obligation imposed upon it by law.

CERVANTES VS CA
FACTS:

PAL issued to Cervantes a round trip ticket for ManilaHonolulu-Los Angeles-Honolulu-Manila. This ticket expressly
provide an expiry date of 1 year from issuance or until
March 27, 1990.
The ticket was issued in compliance w/ a Compromise
Agreement entered between PAL & Cervantes in 2 previous
suits between them.
On March 3, 1990, $ days before the expiry date, Cervantes
used it. Upon his arrival to LA, on the same day, he
immediately booked his LA-Manila return ticket w/ PAL office
which was confirmed for April 2, 1990 flight.
Cervantes learned that the same PAL plane would make a
stop-over in San Francisco and because he would be in San
Francisco on April 2, 1990, he made arrangements w/ PAL
for him to board the flight in San Francisco instead of
boarding it in LA.
When Cervantes checked in at PAL counter in San Francisco
he was not allowed to board. PAL personnel made a notation
on his ticket TICKET NOT ACCEPTED DUE TO EXPIRATION OF
VALIDITY.
Aggrieved, Cervantes filed a complaint for damages for
Breach of Contract of Carriage. The RTC dismissed the
complaint w/c was upheld by the CA.
ISSUE: 1. WON the act of the PAL agents in confirming the
ticket of Cervantes extended the period of validity.
RULING: The SC ruled in the negative.

The plane ticket itself provides that it is not valid after March
27, 1990. It is also stipulated in paragraph 8 of the
Conditions of Contract that 8. This ticket is good for carriage
for one year from date of issue, except as otherwise
provided in this ticket, in carrier's tariffs, conditions of
carriage, or related regulations. The fare for carriage

hereunder is subject to change prior to commencement of

carriage. Carrier may refuse transportation if the applicable
fare has not been paid. 6

In the case of Lufthansa vs. Court of Appeals, the SC held

that the "ticket constitute the contract between the parties.
It is axiomatic that when the terms are clear and leave no
doubt as to the intention of the contracting parties,
contracts are to be interpreted according to their literal
meaning."

In his effort to evade this inevitable conclusion, petitioner

theorized that the confirmation by the PAL's agents in Los
Angeles and San Francisco changed the compromise
agreement between the parties.

As aptly by the appellate court:

. . . on March 23, 1990, he was aware of the risk that his

ticket could expire, as it did, before he returned to the
Philippines.'
The 2 personnel from PAL did not have an authority to
extend the validity of the ticket. Cervantes knew this from
the start when he called up the Legal Department of
appellee in the Philippines before he left for the United
States of America. He had first hand knowledge that the
ticket in question would expire on March 27, 1990 and that
to secure an extension, he would have to file a written
request for extension at the PAL's office in the Philippines. ).
Despite this knowledge, he persisted to use the ticket in
question."

Since the PAL agents are not privy to the said Agreement
and Cervantes knew that a written request to the legal
counsel of PAL was necessary, he cannot use what the PAL
agents did to his advantage. The said agents, according to
the Court of Appeals, 10 acted without authority when they
confirmed the flights of the petitioner.

Under Article 1989 11 of the New Civil Code, the acts an

agent beyond the scope of his authority do not bind the
principal, unless the latter ratifies the same expressly or
impliedly. Furthermore, when the third person (herein
petitioner) knows that the agent was acting beyond his
power or authority, the principal cannot be held liable for
the acts of the agent. If the said third person is aware of
such limits of authority, he is to blame, and is not entitled to
recover damages from the agent, unless the latter
undertook to secure the principal's ratification.

NPC v. NAMERCO
CASE
The recovery of liquidated damages from a sellers agent that allegedly exceeded its
authority in negotiating the sale.
Plaintiff NPC appealed on questions of law from the decision of the CFI-Manila
dated October 10, 1966, (wow! Kabirthday ko pa.) ordering defendants to pay
solidarily to NPC reduced liquidated damages in the sum of P72,114.56 plus legal
rate of interest from the filing of the complaint and the costs. 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 plaintiffs appeal on questions of law.
FACTS
On October 17, 1956, NPC and Namerco of 3111 Nagtahan Street, Manila, as the
representative of the International Commodities Corporation of 11 Mercer
Street, New York City 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
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 sellers
obligations.
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 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.
Letter 11/12/1956 - 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. Notice of that
letter of credit was received by cable by the New York firm on November 15, 1956.
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 NPCs fertilizer plant because there was no sulfur. No fertilizer was
produced.
Letter O2/27/1957 - 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.
The Government Corporate Counsel in his letter to Sycip dated May 8, 1957
rescinded the contract of sale due to the New York suppliers nonperformance of its
obligations. 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.
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.
Cases - RTC
Civil Case No. 33114: The NPC sued the New York firm, Namerco and the
Domestic Insurance Company for the recovery of the stipulated liquidated damages.
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.
Civil Case No. 37019: 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.
The two cases were consolidated. The lower court rendered separate decisions in the
two cases on the same date.
Decisions:
Civil Case No. 37019: dismissed Namerco because the assignment in favor of
Wallick was champertous (cham-per-tuhs - a sharing in the proceeds of litigation by
one who agrees with either the plaintiff or defendant to help promote it or carry it

on.) 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.
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.
ISSUES:
1. W/N the delivery of the sulfur was conditioned on the availability of a
vessel to carry the shipment - NO
2. W/N Namerco acted within the scope of its authority as agent in signing
the contract of sale - NO
RATIO - The documentary evidence belies these contentions.
1st Issue
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.
Namercos 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
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
2nd Issue (sinama ko yung mga ibang discussions kasi minsan out of this world
magtanong si Sir)
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. However, Namerco did


1)
2)
3)

not disclose that cable to the NPC and, contrary to its principals instruction, it
agreed that non-availability of a steamer was not a justification for nonpayment of
the liquidated damages.
Namerco acted beyond the bounds of its authority because it violated its
principals cabled instructions:
The delivery of the sulfur should be C & F Manila, not C & F Iligan City
The sale be subject to the availability of a steamer and
The seller should be allowed to withdraw right away the full amount of the letter of
credit and not merely eighty percent thereof.
Defendants contention: it was incumbent upon the NPC to inquire into the extent
of the agents 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.
NPCs counter-argument: Namerco should have advised the NPC of the
limitations on its authority to negotiate the sale.
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.
Sycip, Namercos 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 Namercos bidders bond in the sum of P45,100 posted by the
Domestic Insurance Company if the contract was not formalized.
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.
In its letters dated November 8 and 19, 1956, the New York corporation informed
Namerco that since the latter acted contrary to the formers cabled instructions, the
former disclaimed responsibility for the contract and that the responsibility for the
sale rested on Namerco.
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.
VP of the NY 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. (epitome ng intrimitidang palaka
@Karen)

Who should be held liable for the liquidated damages?

Answer to the defendants contention 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.
Manresa says that 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.
Unenforceable contract? Yes against the principal. But it is enforceable
against NAMERCO and the surety.

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.

This 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.

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.

It would be unjust and inequitable for Namerco to escape liability after it

had deceived the NPC.
Domestic Insurance Companys liability

Contention: 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 suretys liability thereon, especially in the absence
of fraud, even though the obligation is not binding on the principal.
Nominal vs. Liquidated damages
Contention: 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.
Nominal damages: On the other hand, nominal damages are damages in
name only or are in fact the same as no damages. 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.

NPCs appeal, L-33897. (Lahat nung mga sa taas sa isang appeal yun. Kasi diba
nga consolidated. Basically gusto ng NPC na full amount yung iaward sa kanila pero
binabaan ng CFI to 20% so nag-appeal sila. Ito ngayon yung decision ng SC.
Maraming sinabi pero wala na yun. Di important.)

We find no sanction or justification for NPCs claim that it is entitled to

the full payment of the liquidated damages computed by its official.

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 bidders bond or to about
ten percent of the selling price of the sulfur.
WHEREFORE, the lower courts 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.