National Power Corporation vs. National Merchandising Corp.

Facts: National Power Corporation (buyer) entered into contract with National Merchandising Corp (Agent) for purchase of 4,000 ong tons of sulfur (NewYork Firm Principal). To secure it, a performance bond was executed by Domestic Insurance Company (surety). It was stipulated that seller will deliver the object within 60 days. In addition, there will a payment of liquated damages in case of failure to deliver. Buyer advised the agent and surety that nonavailability of bottom or vessel was not a fortuitous event (so seller will still be liable). Although contrary to the instructions of the Principal, the agent still entered into the contract in behalf of the Principal. The seller failed to deliver the sulfur (object) because of unavailability of vessel. Buyer then sued Principal, Agent and Surety for the recovery of liquidated damages. Trial court dismissed the case as to Principal because of lack of jurisdiction. (Wallick assignee of Principal sued agent for damages for the same transaction but was dismissed because the assignment was champertous in character). Issue: W/N the Principal or the surety is liable for the liquidated damages or not Held: No! It is the agent only that is liable Ratio: The court concluded that Agent acted beyond the bounds of its authority because it violated its principals instructions: (1) that the delivery should be C & F Manila and not C & F Iligan; (2) sale be subject to the availabilty of a steamer (vessel); (3) seller should be allowed to withdraw right away the full amount of the letter of credit and not merely 80% thereof. Agent argued that the buyer should know or ask the scope of the agents authority. But the buyer contends that the agent must have advised the buyer of the limitations on its authority. The court was in favor of the buyer. Agent was liable for damages because he 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. Agent contends that the contract is unenforceable as to the buyer is concern because agent exceeds in his authority, but the court said it is unenforceable as to the principal-agent relationship. And the liquidated damages was enforced against the agent and surety and not to the principal. But the court said that the surety was not liable because he is bound to the seller and not to the agent. And since the agent is at fault here (meaning personally liable) then the surety is not liable. The liquidated damages were reduced to 20% of the total amount because the courts has the right to reduce it if found to be unconscionable. The seller were not able to deliver not because of failure to secure shipping space and not because of the agent.