NPC v National Merchandising

FACTS:
NAMERCO is the representative of New York firm International
Commodities Corporation. NAMERCO and NPC executed a contract for
purchase by NPC from the NY firm 4K long tons of crude sulfur for its Ma.
Cristina Fertilizer Plant for 450K. Domestic Insurance Company executed a
performance bond in favor of NPC to guarantee the seller's obligation.
The contract stipulated that sulfur was to be delivered at Iligan City
within 60 days from notice of establishment of a letter of credit and faulure
would subject the seller and the surety to pay liquidated damages.
On November 12, 1956, NPC advised President of Namerco of the
opening on Nov. 8 of a letter of credit. The notice was received by the NY
firm on Nov. 15. Thus the deadline was set on January 15. NY firm was not
able to supply and consequently, the NPC had to shut down the fertilizer
plant.
NPC informed Namerco that non-availability of vessel does not excuse
nonperformance. On May 8, 1957, the Government Corporation Counsel
rescinded the contract of the sale and later demanded from Namerco
payment of 360K as liquidated damages. Demand was made upon the
surety also.
The NPC sued the NY firm, Namerco and the insurance company for
liquidated damages. The TC dismissed the case against the NY firm as it
had no jurisdiction over it. It ordered the respondents to pay liquidated
damages. Meanwhile, Melvin Wallick, the assignee of the NY firm sued
Namerco. But this case the TC dismissed.
NAMERCO contends that the delivery of the sulfur conditioned on the
availability of a vessel to carry the shipment and acted within the scope of
authority as agent when it signed the contract of sale.
ISSUES:
1. WON the delivery of the sulfur was conditioned on the availability of a
vessel. NO
2. WON NAMERCO acted within the bounds of its authority. NO
3. WON the stipulation for liquidated damages was enforceable despite a
finding that the contract was executed by the agent in excess of its authority.
YES
4. WON Domestic Insurance Company is liable to NPC. YES

RATIO:
1. The invitation to bid issued by NPC provides that nonavailability of a
steamer to transport the sulfur is not a ground for non-payment of the
liquidated damages in case of nonperformance. NAMERCO's own bid was
even more explicity. True that the NY firm said that the sale was subject to
availability of a steamer but NAMERCO did not disclose this to NPC.
2. 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 and 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
80% thereof.
NAMERCO is liable for damages pursuant to CC1897 which
provides that the agent who exceed 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 NY firm 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. 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.
3. Article 1403 refers to the unenforceability of the contract against the
principal. Here, the contract containing the stipulation is not being enforced
against the principal but against the agent and its surety. CC 1897 implies
that the agent who acts in excess of his authority is personally liable to the
party with whom he contracted. CC 1898 does not apply as NPC was
unaware of the limitations on the powers granted by the NY firm to
NAMERCO. aj.amin.cha.janz.krizel.paco.vien.yen A&P Compiled Digests
No. 4 5
NAMERCO never disclosed to to 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.
4. It was NAMERCO that actually solicited the bond from the insurance
company and as earlier explained, NAMERCO is being held liable under
the contract because it virtually acted in its own name. It became the
principal in the performance of the bond. The insurance company acted as a

surety for NAMERCO. 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.