Awad v. Filma Mercantile Co.
REITERATIONFacts
The Antecedents: E. Awad & Co. (plaintiff) delivered merchandise valued at P11,140 to Chua Lioc, doing business as Hang Chua Co., for sale on commission. Chua Lioc, representing himself as the owner, sold the merchandise to Filma Mercantile Co., Inc. (defendant) for P12,155.60. The defendant paid P5,497.98 by assuming Chua Lioc's debts to Philippine Manufacturing Co. and to the defendant itself, leaving a balance of P6,657.52 payable on October 9, 1924. The defendant received the merchandise and offered it for sale. Procedural History: D. J. Awad, representative of the plaintiff, learned the goods were being sold by the defendant and informed the defendant's treasurer, asserting ownership by E. Awad & Co. and demanding payment. The defendant, in a letter dated September 18, 1924, acknowledged the balance due but stated they purchased the goods in the ordinary course of business and would pay Chua Lioc unless legal action was taken by the plaintiff. On the same date, Philippine Trust Company initiated civil case No. 26934 against Chua Lioc and garnished the balance due from the defendant. On October 7, E. Awad filed civil case No. 27016 against Chua Lioc for the invoice value of the merchandise and also obtained a writ of attachment, garnishing the same balance. The present action was filed on November 26, 1924, by the plaintiff demanding P11,140. The defendant's answer asserted good faith purchase, lack of knowledge of the acquisition of the merchandise by Chua Lioc, and that the balance was attached in the two prior cases, holding the money subject to court orders. The Petition: The plaintiff appealed the dismissal of their case by the lower court, which held that the plaintiff was only entitled to the P6,657.52 balance, which the defendant could retain subject to court orders in the attachment cases.
Issue(s)
Whether an undisclosed principal has a right of action against a third party who purchased merchandise from an agent who transacted in his own name without disclosing the agency.
Ruling
The Supreme Court affirmed the judgment of the lower court, holding that the defendant purchased the merchandise in good faith and that the balance due was subject to attachment in prior cases. The Court ruled that the plaintiff was only entitled to the sum of P6,657.52, which the defendant was holding subject to the orders of the court.
Ratio Decidendi
On Issue 1: The Supreme Court held that the case is governed by Article 246 of the Code of Commerce, which explicitly states that when an agent transacts business in his own name, he is directly liable to the person with whom he deals as if the business were for his own account. The law further provides that in such cases, the third party shall have no right of action against the principal, nor shall the principal have a right of action against the third party. Applying this to the facts, because Chua Lioc sold the merchandise to Filma Mercantile Co., Inc. in his own name and without disclosing E. Awad & Co. as the principal, no legal relationship was established between Awad and Filma. The Court noted that although this rule differs from common law principles in the United States, it is the settled law in the Philippines as seen in Pastells & Regordosa vs. Hollman & Co. and Lim Tiu vs. Ruiz y Rementeria. Furthermore, the Court found that the circumstances cited by the appellant were insufficient to overcome the presumption of good faith on the part of the defendant. Therefore, while the liabilities between the principal and the agent are reserved, the principal cannot maintain a direct action against the third party for the purchase price.
Main Doctrine
When an agent transacts business in his own name, he is directly liable to third parties as if the business were for his own account, and such third parties have no right of action against the principal, nor the principal against them, subject to the liabilities between the principal and the agent.