Case Summary (G.R. No. L-17074)
Applicable Law and Key Dates
The case was decided on March 31, 1964, and thus the applicable constitutional framework is the 1935 Philippine Constitution. The contract at the center of the dispute was executed on November 16, 1959, following a Board resolution passed on November 3, 1959. Subsequent relevant resolutions included Resolution No. 524 (November 3, 1959), Resolution No. 530 (November 19, 1959), and Resolution No. 14 (January 12, 1960). The Federation filed the action for specific performance and preliminary injunction in 1960, and a supplemental answer indicated a ruling favoring the Federation on October 15, 1960.
Background of the Contract and Transactions
The Federation requested the President of the Philippines to intervene in having NAMARCO allocate $2,001,031.00 from its $10,000,000.00 special allocation granted by the Central Bank to import commodities for distribution to Federation members. The conditions for this allocation were: (a) cash payment by the Federation of procurement cost plus 5% markup; (b) Federation to bear handling and storage charges; and (c) distribution in accordance with NAMARCO’s rules. The NAMARCO Board passed Resolution No. 524 authorizing importation, followed by a contract executed between NAMARCO and the Federation on November 16, 1959. The Federation paid an advance and subsequent payments exceeding P2,000,000.00 for imported goods stored in the Pasig River Bodegas under approved arrangements.
Dispute Arises and Litigation Initiated
After a change in NAMARCO's management in January 1960, the corporation refused to release goods to the Federation as stipulated in the contract, opting instead to distribute them to other outlets. The Federation sought specific performance and a preliminary injunction to restrain NAMARCO from reallocating the goods and removing them from storage. The Court of First Instance issued the injunction on the ground that the Federation had complied with contractual payment obligations by depositing the estimated costs plus markup into court for the release of goods.
NAMARCO’s Defenses and Contentions
NAMARCO challenged the contract on several grounds:
- It was executed without proper authority from the Board and lacked Auditor General approval.
- Resolution No. 530 allegedly prohibited “forward sale” transactions, rendering the contract void or modified.
- The contract’s distribution scheme conflicted with NAMARCO’s regulations requiring allocation only to regular NAMARCO outlets.
- The Federation breached the contract terms.
Court’s Analysis on Contract Validity and Approvals
The court found that the contract was validly authorized as it stemmed from Resolution No. 524, which was passed following the President’s endorsement. Furthermore, the Board gave formal approval to the contract on January 12, 1960, through Resolution No. 14, which specifically approved the sale contract subject to the earlier resolutions. The court held that Resolution No. 530 did not nullify or modify the contract terms unilaterally, explaining that the resolution allowed distribution to regular outlets, which included Federation members as admitted by NAMARCO. Additionally, the contract provision permitting distribution by the Federation did not contravene Resolution No. 530.
Auditor General’s Non-Disapproval
As to the Auditor General’s approval, the contract was forwarded to the Auditor for examination according to Administrative Order No. 290. The Auditor deferred action pending the outcome of the pending litigation and never disapproved the contract. Thus, the lack of Auditor General approval was not deemed fatal to the contract's validity.
Federation’s Compliance and Contract
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Parties and Nature of the Case
- Petitioner: National Marketing Corporation (NAMARCO), a government-owned and controlled corporation organized under Republic Act No. 1345.
- Respondents: Federation of United NAMARCO Distributors, Inc. (the Federation), a private corporation consisting of bona fide distributors and retailers of NAMARCO goods, together with individual members joined as respondents.
- The case centers on the enforcement of a contract of sale between NAMARCO and the Federation pertaining to the importation and distribution of commodities funded by a special allocation from the Central Bank.
- NAMARCO filed a petition for certiorari questioning interlocutory orders and the issuance of a writ of preliminary injunction granted by the Court of First Instance which restrained NAMARCO from allocating commodities to other distributors and ordered the release of goods to the Federation.
Factual Background and Contract Formation
- On August 8, 1959, the Federation’s Board of Directors requested the President of the Philippines to intervene in setting aside US$2,001,031 from NAMARCO’s $10,000,000 special allocation from the Central Bank for importation of specific commodities.
- The request included conditions such as payment by the Federation in cash plus 5% markup, assumption of handling and storage charges by the Federation, and distribution among Federation members in accordance with NAMARCO’s rules.
- The President endorsed the request favorably, leading to NAMARCO Board Resolution No. 524 on November 3, 1959 authorizing the importation.
- On November 16, 1959, a contract of sale was executed between NAMARCO and the Federation comprising a detailed commodity list and embodying conditions stated in Resolution No. 524.
- Federation arranged storage of the imported goods at the "Pasig River Bodegas" with NAMARCO’s approval and bore storage costs.
- Payments exceeding P2,000,000 were made by the Federation to NAMARCO, with corresponding invoices issued and goods subsequently released by the warehouse to the Federation.
- Around end of January 1960, new NAMARCO management refused to release further goods to the Federation, aiming to allocate them to distributors outside the Federation.
Legal Proceedings and Issues Raised
- The Federation and its members filed for specific performance and obtained a writ of preliminary injunction directing NAMARCO not to reallocate the goods and to release those already stored.
- NAMARCO interposed defenses asserting:
- The contract was unauthorised by the Board and unapproved by the Auditor General.
- Resolution No. 530, adopted October 19, 1959, restricted distribution to regular NAMARCO outl