NPC v National Merchandising

Doctrine: An agent becomes personally liable when by his wrong or omission, he deprives the third
person with whom he contracts of any remedy against the principal; otherwise, the third person would
be defrauded if he would not be allowed to recover from the agent.

Facts:

1. October 17, 1956: National Power Corp (NPC) and National Merchandising Corp. (NAMERCO), as the
representative of the International Commodities Corporation of New York (New York Company –
Principal) executed a contract for the purchase of 4,000 long tons of crude sulfur worth P450, 716 for
NPC’s Fertilizer plant in Iligan City.

2. A performance bond was executed by the Domestic Insurance Company, in favor of NPC to guarantee
NAMERCO’s obligation.

3. In the sale contract, it was stipulated that NAMERCO would deliver the sulfur at Iligan City within 60
days from notice of the establishment in its favor of a letter of credit and failure to deliver would subject
NAMERCO and Domestic Insurance to the payment of damages.

4. LC was opened in Nov 12, 1956. Deadline for delivery was Jan. 15, 1957. NEW YORK CO. WAS UNABLE
TO DELIVER due to its inability to secure shipping space. NPC had no sulfur so their fertilizer plant had to
shut down.

5. NPC advised NAMERCO that non-availability of a bottom/vessel was not a fortuitous event that would
excuse nonperformance and that NPC would resort to legal remedies.

6. Government Corporate counsel rescinded the contract due to New York’s non-performance,
liquidated damages ordered was P360, 572.80 because time was of the essence.

7. NPC sued New York Co., NAMERCO and Domestic Insurance for the recovery of damages. Trial Court
dismissed the case as to New York for lack of jurisdiction because it wasn’t doing business in the Phils.
But TC held that NAMERCO acted beyond the bonds of its authority because it violated the Principal’s
instructions.

8. According to the TC, NAMERCO’S contention was that the delivery of sulfur was conditioned on the
availability of a vessel to carry the shipment.

But evidence shows the contrary. The Invitation to Bid issued by NPC provided that non-availability of
vessel is not a ground for nonperformance and non-payment of damages. NAMERCO’s Bid was even
more explicit when it stated that it would be responsible for and guarantees the availability of the
vessel. New York Co. however, in its cable to NAMERCO, stated that the sale was SUBJECT TO THE
AVAILABILITY OF THE VESSEL. NAMERCO didn’t disclose this to NPC and went on ahead with the
agreement with NPC that non-availability of a vessel was not justification for nonpayment of damages,
CONTRARY TO NEW YOTK’S INSTRUCTIONS (not following instructions si NAMERCO)

9. Both NPC and NAMERCO appealed on questions of law and for the amount of damages.

CA: SC ordered NAMERCO and domestic insurance to pay solidarity to the NPC the sum of 45,000.
Issue: WON NAMERCO acted beyond its limits as New York Company’s representative. (YES)

Ruling:

NAMERCO’s CONTENTIONS (highlighted with yellow) AND SC’S RATIO (underlined with red):

1. NPC should have inquired into the extent of agent’s authority - NAMERCO is liable for damages
because under art. 1887 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
PARTIES.

Even before the sale was signed, NAMERCO knew that the principal had problems securing
shipping space, New York cabled NAMERCO instructing it not to sign the contract unless t
wished to assume sole responsibility.

2. Every person dealing with an agent is put upon inquiry and must discover upon his own peril the
authority of an agent – this rule’s not applicable in this case since the principal isn’t the one
being sought to be held liable, rather it’s NAMERCO / the agent. Agent is liable because New
York repudiated the sale, NAMERCO took chances and went beyond its authority therefore,
acting in his own name.

3. TC erred in holding enforceable the stipulation for liquidated damages despite its findings that
the contract was executed by an agent who exceeded his authority. Should be unenforceable –
Enforceable because it is enforced against the agent and the surety, not against the principal.
Art. 1897 says: “The agent who acts in excess of his authority is personally liable to the party
with whomhe contracted.”

Complimented by Art 1898: “if the agent contracts in the name of the principal, exceeding the
scope of 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”

According to New York Company’s letter they certified NAMERCO to be their exclusive
representatives in the Phils. for the sale of their products; that they are empowered to present
offers in New york’s behalf in accordance with their cabled, written instructions. (So yun lang
ang auth. Ng NAMERCO, not to sign contracts contrary pa to their instructions...)

4. Regarding damages, SC ruled that P45,100 is the amount of liquidated damages / 10% of the
selling price of sulfur. Because NAMERCO’S liability should be based on tort / quasi delict and
not on a contract of sale; NAMERCO was in good faith, made persistent efforts to charter a
vessel, Art. 2227 provides that liquidated damages, whether penalty or indemnity, shall be
equitably reduce if iniquitous / unconscionable.