G.R. No. L-11491, August 23, 1918 ANDRES QUIROGA, plaintiff-appellant, vs.

PARSONS HARDWARE
CO., defendant-appellee.

Facts:

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.
Held:

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 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.
G.R. No. L-20871 April 30, 1971, KER & CO., LTD., petitioner, vs. JOSE B. LINGAD, as Acting Commissioner of
Internal Revenue

Facts:

petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo the sum of P20,272.33 as
the commercial broker's percentage tax, surcharge, and compromise penalty for the period from July 1, 1949 to
December 31, 1953. There was a request on the part of petitioner for the cancellation of such assessment, which request
was turned down. As a result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then
Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a commercial broker.
In the decision now under review, promulgated on October 19, 1962, the Court of Tax Appeals held petitioner taxable
except as to the compromise penalty of P500.00, the amount due from it being fixed at P19,772.33.

Such liability arose from a contract of petitioner with the United States Rubber International, the former being referred
to as the Distributor and the latter specifically designated as the Company. The contract was to apply to transactions
between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until terminated by either party
giving to the other sixty days' notice.2 The shipments would cover products "for consumption in Cebu, Bohol, Leyte,
Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being
precluded from disposing such products elsewhere than in the above places unless written consent would first be
obtained from the Company.3 Petitioner, as Distributor, is required to exert every effort to have the shipment of the
products in the maximum quantity and to promote in every way the sale thereof.4 The prices, discounts, terms of
payment, terms of delivery and other conditions of sale were subject to change in the discretion of the Company.5

Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the Distributor
will receive, accept and/or hold upon consignment the products specified under the terms of this agreement in such
quantities as in the judgment of the Company may be necessary for the successful solicitation and maintenance of
business in the territory, and the Distributor agrees that responsibility for the final sole of all goods delivered shall rest
with him. All goods on consignment shall remain the property of the Company until sold by the Distributor to the
purchaser or purchasers, but all sales made by the Distributor shall be in his name, in which the sale price of all goods
sold less the discount given to the Distributor by the Company in accordance with the provision of paragraph 13 of this
agreement, whether or not such sale price shall have been collected by the Distributor from the purchaser or
purchasers, shall immediately be paid and remitted by the Distributor to the Company. It is further agreed that this
agreement does not constitute Distributor the agent or legal representative 4 of the Company for any purpose
whatsoever. Distributor is not granted any right or authority to assume or to create any obligation or responsibility,
express or implied, in behalf of or in the name of the Company, or to bind the Company in any manner or thing
whatsoever.

Issue: whether the relationship thus created is one of vendor and vendee or of broker and principal.

Held:

According to the National Internal Revenue Code, a commercial broker "includes all persons, other than importers,
manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring about sales or
purchases of merchandise for other persons or bring proposed buyers and sellers together, or negotiate freights or
other business for owners of vessels or other means of transportation, or for the shippers, or consignors or consignees
of freight carried by vessels or other means of transportation. The term includes commission merchants." 16 The
controlling decision as to the test to be followed as to who falls within the above definition of a commercial broker is
that of Commissioner of Internal Revenue v. Constantino. 17 In the language of Justice J. B. L. Reyes, who penned the
opinion: "Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale
to customers, the price and terms of which were subject to the company's control, the relationship between the
company and the dealer is one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of such a view
follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the
establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or
agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the
attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely
as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to
sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has
the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon
sales made.' " 20 The opinion relied on the work of Mechem on Sales as well as Mechem on Agency. Williston and
Tiedman both of whom wrote treatises on Sales, were likewise referred to.

Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or
presence of these mutual requirements and obligations on any theory other than that of a contract of agency. Salisbury
was to furnish the mill and put the timber owned by him into a marketable condition in the form of lumber; Brooks was
to furnish the funds necessary for that purpose, sell the manufactured product, and account therefor to Salisbury upon
the specific terms of the agreement, less the compensation fixed by the parties in lieu of interest on the money
advanced and for services as agent. These requirements and stipulations are in tent with any other conception of the
contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be ignored. They were placed
there for some purpose, doubtless as the result of definite antecedent negotiations therefore, consummated by the
final written expression of the agreement." 21 Hence the Constantino opinion could categorically affirm that the mere
disclaimer in a contract that an entity like petitioner is not "the agent or legal representative for any purpose
whatsoever" does not suffice to yield the conclusion that it is an independent merchant if the control over the goods for
resale of the goods consigned is pervasive in character. The Court of Tax Appeals decision now under review pays fealty
to such an applicable doctrine.