Andres Quiroga vs.

Parsons Hardware
Co.

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.

AVANCEÑA, J.
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.

Short Title
Andres Quiroga vs. Parsons Hardware Co.
G.R. Number
G.R. No. L-11491
Date of Promulgation
August 23, 1918
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