G.R. No. 111211 - ABS-CBN Employees Union vs. National Labor Relations Commission

Case Summary (G.R. No. 111211)

Procedural Posture and Relief Sought

NPC sued for stipulated (liquidated) damages. The trial court ordered defendants to pay reduced liquidated damages (P72,114.56) plus legal interest and costs. Both sides appealed to the Supreme Court: NPC contesting the reduction and defendants contesting liability and amount. The Supreme Court modified the judgment, ultimately ordering Namerco and Domestic Insurance Company to pay solidarily P45,100 as liquidated damages and assessing no costs. (Applicable constitutional frame for decision: the 1973 Philippine Constitution, given the decision date in 1982.)

Core Contractual Facts and Chronology

On October 17, 1956 NPC and Namerco (as representative of the New York seller) entered a contract for 4,000 long tons of crude sulfur for NPC’s Maria Cristina Fertilizer Plant; a performance bond of P90,143.20 was issued by Domestic Insurance. The contract required delivery at Iligan City within 60 days from notice of establishment of a letter of credit (L/C) for $212,120. NPC opened the L/C (notice given Nov. 8, 1956; cable notice received Nov. 15, 1956), fixing the delivery deadline at January 15, 1957. The New York seller failed to deliver due to inability to secure shipping space; NPC’s plant experienced a shutdown from January 20–26, 1957. NPC rescinded the contract and demanded liquidated damages, computed by NPC on the basis of 115 days (Jan. 15–May 9, 1957) to arrive at P360,572.80. NPC filed suit on November 5, 1957. The New York seller was dismissed for lack of jurisdiction; litigation involved consolidated cases and lengthy procedural delays before final Supreme Court adjudication.

Relevant Contractual Clauses on Vessel Availability and Liquidated Damages

The invitation to bid, bidders’ proposal, and the contract expressly made availability of vessel the bidder’s responsibility and excluded lack or non-availability of bottom or vessel from force majeure and from any ground for extension of time or exemption from liquidated damages. Namerco’s bid specifically guaranteed availability of vessel within the required time. These contract documents were invoked by NPC to show the seller (or the contracting obligor) bore the risk of securing shipping.

Agency Authority: Evidence of Limits and Repudiation by Principal

Documentary evidence showed the New York principal repeatedly cabled and wrote limitations and instructions to Namerco: (1) delivery terms (C & F Manila rather than Iligan City), (2) sale subject to availability of steamer, and (3) L/C withdrawal terms. Namerco did not disclose those limitations to NPC and executed the contract agreeing to terms inconsistent with its principal’s instructions. The New York firm thereafter expressly disclaimed responsibility for the contract and disavowed Namerco’s authority, asserting Namerco had acted contrary to repeated instructions and that Namerco had assumed responsibility.

Legal Doctrines on Agent Acting Beyond Authority (Articles Cited)

The Court applied Civil Code provisions governing agency: article 1897 — the agent who exceeds his authority without giving sufficient notice is personally liable to the party with whom he contracts; article 1898 — where the agent contracts in the principal’s name exceeding authority and the principal does not ratify, the contract is void against the principal if the other party was aware of the limits; article 1403 — relates to unenforceability of contracts against the principal where an agent acts beyond powers (the Court interpreted article 1403 as affecting enforceability against the principal, not as absolving the agent of liability). The Court concluded that because NPC was unaware of the agent’s internal limitations and because Namerco effectively acted in its own name by exceeding authority, Namerco was personally bound by the contract terms (including the liquidated-damages stipulation).

Liability of the Surety

Domestic Insurance Company’s liability as surety was sustained. Namerco had solicited the insurance bond; having effectively acted in its own name and thereby become the principal obligor for performance, the domestic insurer’s bond operated as surety for Namerco. The Court noted the general principle (quoted from authority) that lack of authority of the person who executes an obligation as agent generally does not affect the surety’s liability, especially in the absence of fraud, and particularly where the agent has effectively become the principal or where third parties are induced to rely on the agent’s ostensible authority.

Parties’ Main Contentions and Court’s Rejection of Defenses

Defendants argued non-availability of vessel excused nonperformance and that NPC should have inquired into the scope of Namerco’s authority (imputing constructive notice). The Court rejected these defenses on the basis of the explicit contractual allocation of responsibility for vessel availability to the seller/contractor, Namerco’s own express bid and contract assurances, and the documentary record showing Namerco’s actual knowledge of its principal’s limitations and its deliberate failure to disclose those limitations to NPC. The Court emphasized that the rule imputing inquiry to parties dealing with an agent applies where principal liability is sought; it does not protect an agent who has exceeded authority and then invoked the principal’s lack of ratification.

Enforceability of Liquidated Damages and Grounds for Reduction

The Court recognized the parties’ stipulation for liquidated damages as enforceable against the agent (Namerco) who was bound by the contract it signed. The defendants’ argument that the contract was unenforceable as to the principal did not negate the agent’s personal obligation under article 1897. Nonetheless, the Court applied article 2227 of the Civil Code, which permits equitable reduction of liquidated damages that are iniquitous or unconscionable. The trial court had reduced the stipulated damages to 20% (yielding P72,114.56). The Supreme Court fu

Case Syllabus (G.R. No. 111211)

Citation and Panel

Reported at 203 Phil. 159, Second Division, G.R. Nos. L-33819 and L-33897, decided October 23, 1982.
Decision authored by Justice Aquino.
Concurrence by Justices Concepcion, Jr., Guerrero, Abad Santos, De Castro, and Escolin.
Justice Makasiar (Chairman) reserved his vote.

Nature of the Case and Relief Sought

Action to recover stipulated (liquidated) damages for alleged nonperformance (non-delivery) of a sale of sulfur.
Plaintiff-appellant: National Power Corporation (NPC).
Defendants-appellants: National Merchandising Corporation (Namerco) and Domestic Insurance Company of the Philippines (surety).
Relief originally sought by NPC: full liquidated damages as computed by NPC officials (P360,572.80) plus legal interest from filing and costs.
Lower court originally ordered defendants to pay reduced liquidated damages of P72,114.56 with legal interest from filing and costs; both parties appealed to the Supreme Court.

Procedural History

Contract executed on October 17, 1956 between NPC and Namerco as representative of International Commodities Corporation (New York) for purchase of sulfur (Exh. E).
Performance bond of P90,143.20 executed by Domestic Insurance Company in favor of NPC (Exh. F).
NPC advised of opening of letter of credit on November 12, 1956; cable received by New York firm November 15, 1956 (Exh. I; Exh. 80-Wallick).
NPC rescinded the contract by Government Corporate Counsel’s letter dated May 8, 1957 (Exh. G); demand for liquidated damages dated June 8, 1957 (Exh. H and H-1).
NPC sued November 5, 1957 (Civil Case No. 33114).
Trial court dismissed case as to the New York firm for lack of jurisdiction on January 17, 1958.
Separate suit by Melvin Wallick (assignee of New York firm) against Namerco (Civil Case No. 37019) was consolidated with NPC’s case; Wallick’s suit later dismissed on appeal procedural ground.
Records on appeal to Supreme Court approved in 1967 but elevated in 1971, contributing to delay.
Both defendants and plaintiff appealed: defendants’ appeal (L-33819) and NPC’s appeal (L-33897). Defendants’ appeal entertainable under R.A. No. 2613 due to amount involved.

Material Facts — Contract and Price

Contract dated October 17, 1956: purchase by NPC from New York firm through Namerco of 4,000 long tons of crude sulfur for Maria Cristina Fertilizer Plant, Iligan City, at total price of P450,716 (Exh. E).
Performance bond by Domestic Insurance Company in sum of P90,143.20 to guarantee seller’s obligations (Exh. F).
Stipulation: seller to deliver sulfur at Iligan City within sixty (60) days from notice of establishment in its favor of a letter of credit for $212,120; failure to deliver subject seller and surety to payment of liquidated damages at rate of two-fifths of one percent for first thirty days and four-fifths of one percent for every day thereafter until complete delivery (Article 8, p. 111, Defendants’ Record on Appeal).

Invitation to Bid, Bid, and Contractual Clauses on Vessel Availability

Invitation to bid (Exh. A) provided that availability of vessel to transport sulfur within specified time is responsibility of bidder; failure to ship on time allegedly due to non-availability of vessels shall not exempt contractor from payment of liquidated damages (item 4).
Invitation to bid (item 15 reproduced) explicitly states that non-availability of bottom or vessel is not included in force majeure; bidders must have prior arrangements for shipment; lack of bottom or non-availability of vessel shall not be ground for extension of time (Exh. A, pp. 13, 18-19).
Namerco’s bid (Exh. B) expressly stated it was responsible for availability of bottom or vessel and guaranteed availability to ship within specified time (Exh. B, p. 22).
Contract of sale reproduced item 15 in Article 9, providing that seller shall not be entitled to extension of time or be exempt from payment of liquidated damages due to lack of bottom or vessel (Exh. E, p. 36, Record on Appeal).

Timeline of Letter of Credit, Delivery Deadline, and Non-Delivery Consequences

Letter of credit for $212,120 opened November 8, 1956; NPC advised Namerco by letter of November 12, 1956; New York firm received cable November 15, 1956 (Exh. I; Exh. 80-Wallick).
Deadline for delivery at Iligan City thereby fixed as January 15, 1957 (sixty days from notice).
New York supplier unable to deliver due to inability to secure shipping space.
Consequence: NPC’s fertilizer plant shut down January 20–26, 1957 due to lack of sulfur; no fertilizer produced during that shutdown (Exh. K).
Liquidated damages computation by NPC: 115-day period from January 15, 1957 (deadline) to May 9, 1957 (notification of rescission): P54,085.92 for first 30 days; P306,486.88 for remaining 85 days; total P360,572.80.
NPC rescinded contract May 8, 1957 (Exh. G); demand for payment June 8, 1957 (Exh. H and H-1).

Communications and Evidence Regarding Agent’s Authority

New York corporation’s cable dated August 9, 1956 stated sale was subject to availability of a steamer (Exh. N); Namerco did not disclose this cable to NPC.
Cable from New York supplier to Namerco dated October 16, 1956 advised Namerco not to sign contract unless Namerco wished to assume sole responsibility for shipment (Exh. T).
Namerco’s president Sycip replied October 16, 1956 that Namerco had to finalize contract to avoid forfeiture of bidder’s bond of P45,100 posted by Domestic Insurance Company (Exh. 14, 14-A and Exh. V).
On October 19, 1956 New York firm cabled Namerco that it did not consider itself bound and that Namerco signed on its own responsibility (Exh. W).
November 8 and 19, 1956 letters from New York corporation informed Namerco that because Namerco acted contrary to cabled instructions the New York firm disclaimed responsibility and that responsibility rested on Namerco (Exh. Y and Y-1).
November 26 and December 11, 1956 letters further stated Namerco was never authorized to enter into contract and had acted contrary to repeated instructions; vice-president of New York firm said Namerco “has acted strictly contrary to our repeated instructions” and “you have no one but yourselves to blame” (Exh. U and Z).
New York firm certified by letter April 26, 19