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Philippine Supreme Court Jurisprudence > Year 1982 > October 1982 Decisions > G.R. Nos. L-33819 and L-
33897 October 23, 1982 - NATIONAL POWER CORPORATION v. NATIONAL MERCHANDISING CORPORATION, ET
AL.
203 Phil. 159:
SECOND DIVISION
[G.R. Nos. L-33819 and L-33897. October 23, 1982.]
NATIONAL POWER CORPORATION, Plaintiff-Appellant, v. NATIONAL MERCHANDISING
CORPORATION and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, Defendants-
Appellants.
The Solicitor General, for Plaintiff-Appellant.
Sycip, Salazar, Luna Manalo & Feliciano, for Defendants-Appellants.
SYNOPSIS
Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant National Merchandising
Corporation (NAMERCO), the Philippine representative of New York-based International Commodities
Corporation, executed a contract of sale of sulfur with a stipulation for liquidated damages in case of
breach. Defendant-appellant Domestic Insurance Company executed a performance bond in favor of NPC
to guarantee the seller’s obligation. In entering into the contract, Namerco, however, did not disclose to
NPC that Namerco’s principal, in a cabled instruction, stated that the sale was subject to availability of a
steamer, and contrary to its principal’s instruction, Namerco agreed that non-availability of a steamer was
not a justification for non-payment of liquidated damages. The New York supplier was not able to deliver
the sulfur due to its inability to secure shipping space. Consequently, the Government Corporate Counsel
rescinded the contract of sale due to the supplier’s non-performance of its obligations, and demanded
payment of liquidated damages from both Namerco and the surety. Thereafter, NPC sued for recovery of
the stipulated liquidated damages. After trial, the Court of First Instance rendered judgment ordering
defendants-appellants to pay solidarity to the NPC reduced liquidated damages with interest.
The Supreme Court held that Namerco is liable fur 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 Court, however, further reduced the
solidary liability of defendants-appellants for liquidated damages.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN AGENT WHO EXCEEDS THE LIMITS OF HIS
AUTHORITY IS PERSONALLY LIABLE. — 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.
2. ID.; ID.; ID.; ID.; CASE AT BAR. — In the present case, Namerco, the agent of a New York-based
principal, entered into a contract of sale with the National Power Corporation without disclosing to the
NPC the limits of its powers and, contrary to its principal’s prior cabled instructions that the sale should
be subject to availability of a steamer, it agreed that non-availability of a steamer was not a justification
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October-1982 Jurisprudence
G.R. No. L-32999 October 15, 1982 - REPUBLIC OF
THE PHIL. v. TEODULO C. TANDAYAG
203 Phil. 1
G.R. No. L-53497 October 18, 1982 - PEOPLE OF
THE PHIL. v. GODOFREDO INGUITO, ET AL.
203 Phil. 6
G.R. No. L-56564 October 18, 1982 - FILOMENO
BARIAS v. EDUARDA ALCANTARA, ET AL.
203 Phil. 14
G.R. No. L-59847 October 18, 1982 - PHILIPPINES
INTER-FASHION, INC. v. NATIONAL LABOR
RELATIONS COMMISSION, ET AL.
203 Phil. 23
G.R. No. L-60800 October 18, 1982 - JAIME PELEJO,
ET AL. v. COURT OF APPEALS, ET AL.
203 Phil. 29
G.R. No. L-61676 October 18, 1982 - EDITHA B.
SALIGUMBA v. COMMISSION ON AUDIT, ET AL.
203 Phil. 34
G.R. No. L-39919 October 19, 1982 - PEOPLE OF
THE PHIL. v. REYNALDO DE LA CRUZ
203 Phil. 36
G.R. Nos. L-55249-50 October 19, 1982 -
PHILIPPINE GEOTHERMAL, INC. v. NATIONAL LABOR
RELATIONS COMMISSION, ET AL.
203 Phil. 56
G.R. No. L-48875 October 21, 1982 - PEOPLE OF
THE PHIL. v. DELFIN MUIT
203 Phil. 60
A.M. No. 2125-CTJ October 23, 1982 - CANDELARIA
VILLAMOR v. SILVINO LU. BARRO
203 Phil. 75
A.C. No. 2410 October 23, 1983
IN RE: RODOLFO PAJO
203 Phil. 79
G.R. No. L-29985 October 23, 1982 - PEOPLE OF
THE PHIL. v. MARIO M. BUNDALIAN
203 Phil. 83
G.R. No. L-30583 October 23, 1982 - EUTROPIO
ZAYAS, JR. v. LUNETA MOTOR COMPANY, ET AL.
203 Phil. 91
G.R. No. L-31053 October 23, 1982 - PHILIPPINE
NATIONAL BANK v. PEDRO SAMSON C. ANIMAS, ET
AL.
203 Phil. 100
G.R. No. L-31420 October 23, 1982 - PHILIPPINE
RABBIT BUS LINES, INC., ET AL. v. PATROCINIO
ESGUERRA, ET AL.
https://www.chanrobles.com/cralaw/1982octoberdecisions.php?id=550
for nonpayment of the liquidated damages. Namerco. therefore, is liable for damages.
3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH AN AGENT IS PUT UPON AN INQUIRY
AND MUST DISCOVER UPON HIS PERIL THE AUTHORITY OF THE AGENT IS NOT APPLICABLE WHERE THE
AGENT, NOT THE PRINCIPAL, IS SOUGHT TO BE HELD LIABLE ON THE CONTRACT. — The rule that every
person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the
agent would apply only in cases where the principal is sought to be held liable on the contract entered
into by the agent. The said rule is not applicable in the instant case since it is the agent, not the
principal, that is sought to be held liable on the 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.
4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT WHO ACTED BEYOND HIS POWERS IS
UNENFORCEABLE ONLY AS AGAINST THE PRINCIPAL BUT NOT AGAINST THE AGENT AND ITS SURETY. —
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, 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 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 complimented 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." 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, it 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.
5. ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS THE LIMITS OF HIS AUTHORITY IS BASED
ON CONTRACT AND NOT ON TORT OR QUASI-DELICT; CASE AT BAR. — Defendant’s contention that
Namerco’s liability should be based on tort or quasi-delict, as held in some American cases, like
Mendelson v. Holton, 149 N.E. 38,42 ACR 1307, is not well-taken. As correctly argued by the NPC, it
would be unjust and inequitable for Namerco to escape liability of the contract after it had deceived the
NPC by not disclosing the limits of its powers and entering into the contract with stipulations contrary to
its principal’s instructions.
6. ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION CONTRACTED BY AN AGENT WHO
EXCEEDED HIS AUTHORITY IS NOT AFFECTED THEREBY. — The contention of the defendants that the
Domestic Insurance Company is not liable to the NPC because its bond was posted, not to Namerco, the
agent, but for the New York firm which is not liable on the contract of sale, cannot be sustained because
it was Namerco that actually solicited the bond from the Domestic Insurance Company and, Namerco is
being held liable under the contract of sale because it virtually acted in its own name. 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 thereon, especially in the absence of fraud, even though the
obligation is not binding on the principal." (72 C.J.S. 525).
7. CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON NOT WARRANTED WHERE THE
DISPOSITION OF THE CASE HAS BEEN DELAYED DUE TO NO FAULT OF DEFENDANTS. — 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, defendant’s contention that interest should not be collected on the amount of
damages is meritorious. It should be manifestly iniquitous 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
8. ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY LOSS IS REQUIRED FOR RECOVERY
THEREOF. — No proof of pecuniary lost is required for the recovery of liquited damages. The stipulatian
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-delivey of the sulfur. So, they fixed the liquidated damages to be paid
as indemnity to the NPC.
9. ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. — 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 "as merely technical in character since the
NPC suffered damages because its production of fertilizer "as disrupted or diminished by reason of the
non-delivery of the sulfur.
DECISION
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 P72,114.66 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 (450,716 (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.
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The New York supplier was not able to deliver the sulfur due to its inability to secure shipping space.
203 Phil. 107 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).
G.R. No. L-31832 October 23, 1982 - SOCIAL
SECURITY SYSTEM v. SSS SUPERVISORS’ UNION, ET In a letter dated February 27, 1957, the general manager of the NPC advised Namerco and the Domestic
AL.
Insurance Company that under Article 9 of the contract of sale "non-availability of bottom or vessel" was
203 Phil. 112
not a fortuitous event that would excuse non-performance and that the NPC would resort to legal
remedies to enforce its rights (Exh. L and M).
G.R. No. L-32377 October 23, 1982 - LUCAS BUISER
v. PEOPLE OF THE PHIL., ET AL. 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 non-performance of its obligations (Exh. G). The same counsel in his
203 Phil. 117 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
G.R. No. L-32719 October 23, 1982 - RUFILA Q. (Exh. H and H-1).
ARANAS v. FEDERICO ENDONA, ET AL.
The liquidated damages were computed on the basis of the 115-day period between January 15, 1957,
203 Phil. 120 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
G.R. No. L-33192 October 23, 1982 - GERVACIO
LUIS QUE v. COURT OF FIRST INSTANCE OF RIZAL, eighty-five days. Total: P360,572.80.
BRANCH IX, ET AL.
On November 5, 1957, the NPC sued the New York firm, Namerco and the Domestic Insurance Company
203 Phil. 128 for the recovery of the stipulated liquidated damages (Civil Case No. 33114).

G.R. No. L-33632 October 23, 1982 - FAUSTO The trial court in its order of January 17, 1958 dismissed the case as to the New York firm for lack of
MONTESA, ET AL. v. COURT OF APPEALS, ET AL. jurisdiction because it was not doing business in the Philippines (p. 60, Defendants Record on Appeal).

203 Phil. 138 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
G.R. No. L-33756 October 23, 1982 - SABINO sulfur transaction (Civil Case No. 37019). The two cases, both filed in the Court of First Instance of
RIGOR, ET AL. v. EDUARDO ROSALES, ET AL.
Manila, were consolidated. A joint trial was held. The lower court rendered separate decisions in the two
203 Phil. 149
cases on the same date.

G.R. Nos. L-33819 and L-33897 October 23, 1982 -
NATIONAL POWER CORPORATION v. NATIONAL
MERCHANDISING CORPORATION, ET AL.
203 Phil. 159
G.R. No. L-36181 & L-36748 October 23, 1982 -
MERALCO SECURITIES CORPORATION v. VICTORINO
SAVELLANO, ET AL.
203 Phil. 173
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.

G.R. Nos. L-36481-2 October 23, 1982 - AMPARO C. The documentary evidence belies these contentions. The invitation to bid issued by the NPC provides that
SERVANDO, ET AL. v. PHILIPPINE STEAM non-availability of a steamer to transport the sulfur is not a ground for non-payment of the liquidated
NAVIGATION CO. damages in case of non-performance by the seller.

203 Phil. 184 "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
G.R. No. L-37203 October 23, 1982 - PEOPLE OF award of contract, failure to ship on time allegedly due to non-availability of vessels shall not exempt the
THE PHIL. v. CARLITO SADIWA, ET AL. Contractor from payment of liquidated damages provided in item 15 of this specification." cralaw virtua1aw library

203 Phil. 192 "15. Liquidated damages. — . . .

G.R. No. L-37255 October 23, 1982 - PEOPLE OF
THE PHIL. v. VICTOR B. ASIBAR, ET AL.
203 Phil. 210
G.R. No. L-37323 October 23, 1982 - PEOPLE OF
THE PHIL. v. CRISPINIANO MAURO
203 Phil. 223
"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 nonavailability 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 nonavailability of vessel shall, in no case, be considered as a
ground for extension of time. . . . ."
cralaw virtua1aw library

G.R. No. L-38297 October 23, 1982 - PEOPLE OF Namerco’s bid or offer is even more explicit. It provides that it was "responsible for the availability of
THE PHIL. v. MARIO CAPALAC 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).
203 Phil. 229

G.R. No. L-39631 October 23, 1982 - JESUSA In the contract of sale itself item 15 of the invitation to bid is reproduced in Article 9 which provides that
LIQUIDO, ET AL. v. COURT OF APPEALS, ET AL. "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,
203 Phil. 239 p. 36, Record on Appeal).

G.R. No. L-43309 October 23, 1982 - SIMEON
OLBES v. WORKMEN’S COMPENSATION COMMISSION,
ET AL.
203 Phil. 244
G.R. No. L-43805 October 23, 1982 - PEOPLE OF
THE PHIL. v. GREGORIO ROMERO, JR.
203 Phil. 255
G.R. No. L-48143 October 23, 1982 - DOMINGO D.
TOGONON v. GOVERNMENT SERVICE INSURANCE
SYSTEM, ET AL.
203 Phil. 262
G.R. No. L-57467 October 23, 1982 - PEOPLE OF
THE PHIL. v. FRANCIS MILITANTE, ET AL.
203 Phil. 269
G.R. No. L-57641 October 23, 1982 - ANTOLIN A.
JARIOL, ET AL. v. COURT OF APPEALS, ET AL.
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 nonavailability 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.

203 Phil. 273 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
G.R. No. L-59264 October 23, 1982 - ALEJANDRO before the contract of sale was signed, the New York supplier advised Namerco that the latter should not
GRONIFILLO v. COURT OF APPEALS, ET AL. sign the contract unless it (Namerco) wished to assume sole responsibility for the shipment (Exh. T).
203 Phil. 284 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
G.R. No. L-59906 October 23, 1982 -
BUENAVENTURA SAN JUAN v. MANUEL E. sum of P45,100 posted by the Domestic Insurance Company if the contract was not formalized (Exh. 14,
VALENZUELA 14-A and Exh. V).

203 Phil. 287
G.R. No. L-60018 October 23, 1982 - DOLE
PHILIPPINES, INC. v. VICENTE LEOGARDO, JR.
203 Phil. 290
G.R. No. L-45553 October 25, 1982 - PEOPLE OF
THE PHIL. v. WILFREDO LISONDRA
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.

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It bluntly told Namerco that the latter was never authorized to enter into the contract and that it acted
203 Phil. 299 contrary to the repeated instructions of the former (Exh. U and Z). Said the vice-president of the New
York firm to Namerco: chanrobles virtual lawlibrary

G.R. No. L-60083 October 27, 1982 - CRISPINA

PEÑAFLOR v. DOMINGO PANIS "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."
203 Phil. 307
cralaw virtua1aw library

G.R. No. L-47363 October 28, 1982 - FRANCISCO A.
FUENTES, ET AL. v. OSCAR LEVISTE, ET AL.
203 Phil. 313
G.R. No. L-57429 October 28, 1982 -
INTERNATIONAL HARDWOOD AND VENEER CO. OF
THE PHILIPPINES v. VICENTE LEOGARDO
203 Phil. 324
G.R. No. L-30882 October 29, 1982 - PEOPLE OF
THE PHIL. v. CONSTANTE F. ANIES
203 Phil. 332
G.R. No. L-31757 October 29, 1982 - PEOPLE OF
THE PHIL. v. PIO MARCOS
203 Phil. 357
G.R. No. L-36186 October 29, 1982 - PEOPLE OF
THE PHIL. v. NORBERTO QUINTO
203 Phil. 362
G.R. No. L-38989 October 29, 1982 - PEOPLE OF
THE PHIL. v. ROMEO CASTRO
203 Phil. 374
G.R. No. L-60121 October 29, 1982 - CARLOS PO,
ET AL. v. EMETERIO YU, ET AL.
203 Phil. 382
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 it 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 dew 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 el des las consecuencias de tal falta
de aceptacion por parte del mandate. 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 quire que aquel que contrata como mandatario este 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 garantia 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,
Scaveola, 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 it principal but against the agent and its surety.

It is being enforced against the agent because article 1807 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."

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 the 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. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

The New York corporation in its letter of April 26, 1956 said: jgc:chanrobles.com.ph

"We hereby certify that National Merchandising Corporation . . . 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 v. 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 nondelivery.

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

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3/10/2019 G.R. Nos. L-33819 and L-33897 October 23, 1982 - NATIONAL POWER CORPORATION v. NATIONAL MERCHANDISING CORP…
question that the NPC suffered damages because its production of fertilizer was disrupted or diminished
by reason of the nondelivery of the sulfur. chanrobles.com.ph : virtual law library

The parties foresaw that it might be difficult to ascertain the exact amount of damages for nondelivery 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 the 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. chanrobles law library : red

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.

Makasiar (Chairman), Concepcion Jr., Guerrero, Abad Santos, De Castro, and Escolin, JJ., concur.

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