JOAQUIN T. ORTEGA, PLAINTIFF AND APPELLEE, VS. BAUANG FARMERS COOPERATIVE MARKETING ASSOCIATION, DEFENDANT AND APPELLANT.

Ortega versus Bauang Farmers Cooperative Marketing Association

The Case

This is a simple action for the collection of a sum of money, brought by Joaquin T. Ortega, a tobacco grower, against the Bauang Farmers Cooperative Marketing Association, commonly called the Bauang FACOMA. Ortega sold and delivered Virginia leaf tobacco to the cooperative and was never paid the balance of the purchase price. The cooperative admits the sale and the unpaid balance, but defends by saying that it bought the tobacco only as agent of the Agricultural Credit and Cooperative Financing Administration, the ACCFA, which is the real buyer and which alone should be sued. The case matters because it is the Supreme Court's classic ruling on the doctrine of the undisclosed principal under Article 1883 of the Civil Code, and on when an agent who contracts in his own name may nonetheless escape personal liability by showing that the seller actually knew of the agency.

Procedural History

Ortega filed his complaint for collection in the Court of First Instance of La Union. The cooperative answered, admitting the sale but raising the affirmative defense that the tobacco had been shipped to and received by the ACCFA under an agency contract, and that no final liquidation had yet been made between principal and agent. It then moved to bring the ACCFA in as a third party defendant, and the trial court, finding the ACCFA a necessary party, granted the motion. The ACCFA moved to strike out the third party complaint on the ground that it had been filed without leave of court, and a different judge of the same court granted that motion and ordered the third party complaint stricken out. The parties then submitted a stipulation of facts, and on the basis of the pleadings and that stipulation the trial court rendered judgment ordering the cooperative to pay Ortega the balance of three thousand one hundred thirty six pesos and ten centavos, with legal interest from the filing of the complaint, plus costs. The cooperative appealed to the Court of Appeals, but that court, finding the issues purely legal, certified the appeal to the Supreme Court, which is how the case reached this Court.

Facts

On the sixth of June, nineteen hundred fifty five, Ortega sold and delivered to the Bauang FACOMA two thousand six hundred forty three kilos of flue cured Virginia leaf tobacco, valued at seven thousand one hundred thirty six pesos and ten centavos. On the eighth and thirteenth of June, payments of one thousand three hundred twenty five pesos and two thousand six hundred seventy five pesos were made on account of the purchase price, leaving an unpaid balance of three thousand one hundred thirty six pesos and ten centavos. Despite repeated demands, that balance was never paid, and Ortega sued.

The cooperative's defense rested on a Memorandum Agreement between itself and the ACCFA, under which the cooperative acted as agent for the ACCFA in purchasing local Virginia leaf tobacco. The cooperative stressed that the two partial payments had in fact been made by the ACCFA itself, and that the ACCFA had filed an interpleader action in the same court, in which all the tobacco sellers of La Union for the year nineteen hundred fifty five, Ortega among them, were impleaded so that their claims could be settled in one proceeding.

But the parties stipulated to two facts that cut the other way. First, when Ortega sold and delivered his tobacco, he was not informed of the agency existing between the ACCFA and the cooperative. Second, the purchase invoice issued to him on delivery did not mention or disclose the ACCFA as a party to the sale or as in any way connected with the transaction, that being the standard receipt used by all FACOMAs in nineteen hundred fifty five.

Issues

• Whether or not the trial court erred in not dismissing the case against the cooperative, given that it acted merely as agent of the ACCFA.
• Whether or not the trial court erred in not including the ACCFA as a third party defendant.
• Whether or not the trial court erred in basing its decision on Article 1883 of the Civil Code.

Applicable Provisions

Article 1883 of the Civil Code provides:

If an agent acts in his own name, the principal has no right of action against the persons with whom said agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shall be understood to be without prejudice to the actions between the principal and agent.

This is the provision on which the trial court rested its judgment, and the provision the cooperative claims was misapplied, because the seller dealt with an agent who contracted in the agent's own name.

Ruling

On the first issue, the Court agreed with the cooperative and set aside the judgment against it. Although Ortega's attention was not called to the agency at the time of the purchase, the Court found reason to believe that he actually knew of it, and that the tobacco was bought not for the cooperative but for the ACCFA, the government agency charged with purchasing Virginia leaf tobacco to aid local growers. The Court noted that a FACOMA, as its name implies, is concerned mainly, if not exclusively, in the sale and marketing of the agricultural produce of farmers, and is not engaged in the buy and sell business for profit. It gave weight to the fact that the partial payments came from the ACCFA, not from the cooperative, and that the interpleader case, filed ahead of this collection case, was notice to the tobacco sellers of La Union, Ortega included, that the ACCFA was the real buyer and was ready to pay.

On the second issue, the Court held that the trial court had erred in striking out the third party complaint. It set aside that order and directed that the ACCFA be included as a party in the further proceedings on remand.

On the third issue, the Court did not sustain the trial court's reliance on Article 1883. The Court's reasoning turned on the reality of who the seller knew he was dealing with, and on the government policy, emphasized by the ACCFA's own motion, of avoiding a multiplicity of suits, and the delay and expense of separate actions, by consolidating all the tobacco claims in one proceeding.

Doctrine

Under Article 1883 of the Civil Code, when an agent contracts in his own name, the agent is directly bound to the person with whom he contracts, as if the transaction were his own, and neither the third person nor the principal may sue the other. But that rule presupposes that the third person did not know of the agency. Where the seller actually knows that the one buying is merely an agent acting for a disclosed or discoverable principal, the seller's remedy lies against the principal, and the agent is not personally bound. A bar candidate should also retain the procedural rule that a third party complaint filed without leave of court may be stricken out, but that where the third party is a necessary party, as the ACCFA was held to be, the better course is to include that party so that all claims may be settled in one action, in keeping with the policy against multiplicity of suits.

Disposition

The Supreme Court set aside the decision of the trial court, remanded the case for further proceedings, set aside the order striking out the third party complaint, and directed that the ACCFA be included as a party, with no costs.

Remember This

Memorize this line: an agent who contracts in his own name is the one directly bound under Article 1883, unless the third person actually knew of the agency, in which case the principal is the real party in interest. Examiners use this case to test the undisclosed principal rule and the policy against multiplicity of suits through the inclusion of necessary parties.