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Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11491 August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.

Crossfield & O'Brien for appellee.

AVANCEA, J.:

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the
plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later
subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH

MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN
THE VISAYAN ISLANDS.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J.
Parsons under the following conditions:

(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and
shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and
allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons
shall order the beds by the dozen, whether of the same or of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the
date of their shipment.

(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance,
and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons.

(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be
considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of
the invoice.

The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to
pay in cash.

(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which
he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect
he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the
alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be
increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which
the order was given.

(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.

ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties,
Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the
 preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised
with the Visayan group.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the
towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr.
Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting
parties on a previous notice of ninety days to the other party.

Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter
of this appeal and both substantially amount to the averment that the defendant violated the following obligations:
not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to
conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same;
and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on
the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to
the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the
defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of
commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by
reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what
was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the
beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a
discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or
before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional
discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase
and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to
pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or
agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from
the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price
within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds.

It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of
purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff
claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this
contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these
clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1
mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also
used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the
Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible
with the contract of purchase and sale.

The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation
and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his
testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one
of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and,
when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his
beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez
Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the
truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the
agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of
purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his
classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what
it is called by the contracting parties.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without
previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its
commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on
the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and
it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the
acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be
considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in
the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain
kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange
for the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the
plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a
right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is
insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the
plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they merely
constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the
plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of
advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the
effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under
other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted
thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was
one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not
imposed upon the defendant, either by agreement or by law.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

The Lawphil Project - Arellano Law Foundation