G.R. No. 25950 , December 24, 1926
E. AWAD, plaintiff-appellant, vs. FILMA MERCANTILE CO., INC., defendant-appellee.

FACTS

1. Plaintiff E. Awad delivered merchandise valued at P11,140 to Chua Lioc (doing business as Hang Chua Co.) to be sold on commission.
2. On September 8, 1924, Chua Lioc, representing himself as the owner, sold the same merchandise to defendant Filma Mercantile Co., Inc. for P12,155.60.
3. From the purchase price, Filma deducted P5,497.98 to pay off Chua Lioc’s debts to the Philippine Manufacturing Co. and to itself, leaving a balance of P6,657.52 payable to Chua Lioc on October 9, 1924.
4. Upon discovering the sale, Awad’s representative notified Filma that the merchandise belonged to Awad and demanded payment. Filma refused, stating it had purchased the goods in the ordinary course of business and owed the balance to Chua Lioc.
5. Subsequently, two other creditors of Chua Lioc (Philippine Trust Co. and E. Awad himself in a separate case) obtained writs of attachment/garnishment against the P6,657.52 balance held by Filma.
6. Awad filed the present action against Filma to recover the value of the merchandise (P11,140). The trial court dismissed the complaint, holding that Awad was only entitled to the garnished balance (P6,657.52), which Filma was holding subject to court orders in the garnishment cases.

ISSUE

Did the defendant Filma Mercantile Co., Inc. acquire valid title to the merchandise purchased from Chua Lioc, thereby precluding the plaintiff E. Awad from recovering the goods or their full value directly from Filma?

RULING

NO, the plaintiff cannot recover directly from the defendant. The Supreme Court affirmed the trial court’s dismissal of the complaint.

1. Application of the Code of Commerce: The Court applied Article 246 of the Code of Commerce, which governs transactions where an agent acts in his own name. It provides that when an agent transacts business in his own name, he is directly liable to the persons with whom he transacts, and those persons have no right of action against the agent’s undisclosed principal (and vice versa). The rights and liabilities between the principal and agent are reserved to them.

2. Chua Lioc as an Agent Acting in His Own Name: Since Awad delivered the goods to Chua Lioc to sell on commission, and Chua Lioc sold them to Filma in his own name without disclosing Awad as his principal, the transaction fell under Article 246. Consequently, Filma’s contractual relationship was solely with Chua Lioc. Awad (the principal) had no direct right of action against Filma (the third party), and Filma had no direct liability to Awad.

3. Presumption of Good Faith: The Court rejected Awad’s argument that Filma was not a purchaser in good faith. It found the circumstances cited by Awad insufficient to overcome the presumption that Filma purchased the merchandise in the ordinary course of business without knowledge of Awad’s ownership.

4. Remedy of the Principal: Awad’s remedy was against his agent, Chua Lioc, for the proceeds of the sale or for breach of their agreement. The balance of the purchase price held by Filma was correctly subjected to garnishment proceedings initiated by Awad and other creditors against Chua Lioc. The Court held that the trial court correctly limited Awad’s claim against Filma to the garnished fund (P6,657.52), which Filma was duty-bound to hold subject to the outcome of those proceedings.

DISPOSITIVE PORTION:
The appealed judgment is affirmed, with costs against the appellant.