G.R. No.

L-20871 April 30, 1971

KER & CO., LTD., petitioner, vs.

JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.

FACTS:

It was shown that 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. A request on the
part of petitioner for the cancellation of such assessment was turned down. Then, it filed a petition for review with the Court of Tax Appeals. then
Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a commercial broker.

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 shipments would cover products for consumption only in designated locations allowed by the
company unless written consent would first be obtained from the company. The prices, discounts, terms of payment, terms of delivery and other
conditions of sale were subject to change in the discretion of the Company.

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 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 created is one of vendor and vendee or of broker and principal.

RULING:

The relationship between them is one of brokerage or agency. There are circumstances that are irreconcilably antagonistic to the idea of an
independent merchant such as: petitioner can dispose of the products of the Company only to certain persons or entities and within stipulated limits,
unless excepted by the contract or by the Rubber Company, that it merely receives, accepts and/or holds upon consignment the products, which
remain properties of the latter company, that sales made by petitioner are subject to approval by the company. 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."

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…" 

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.'
G.R. No. 75198 October 18, 1988

SCHMID & OBERLY, INC., petitioner, vs. RJL MARTINEZ FISHING CORPORATION, respondent.

FACTS:

RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric generators for some of its boats and SCHMIID
sold electric generators of different brands, negotiations between them for the acquisition thereof took place. The parties had two separate
transactions over "Nagata"-brand generators.

The first transaction was the sale of three (3) generators. In this transaction, it is not disputed that SCHMID was the vendor of the generators. The
company supplied the generators from its stockroom; it was also SCHMID which invoiced the sale. The second transaction, which gave rise to the
present controversy, involves twelve (12) "Nagata"-brand generators. It was stipulated that payment would be made by confirming an irrevocable
letter of credit in favor of NAGATA CO. RJL MARTINEZ agreed with the terms of the quotation and opened a letter of credit in favor of NAGATA CO.

For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of the twelve generators to RJL MARTINEZ.

All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ informed SCHMID about this
development. In turn, SCHMID brought the matter to the attention of NAGATA CO. In July 1976, NAGATA CO. sent two technical representatives
who made an ocular inspection and conducted tests on some of the burned out generators, which by then had been delivered to the premises of
SCHMID.

As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded the cost of the generators and paid
damages. SCHMID in its reply maintained that it was not the seller of the twelve (12) generators and thus refused to refund the purchase price
therefor. Hence, on February 14, 1977, RJL MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12)
generators and, as such vendor, was liable under its warranty against hidden defects.

Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the vendor in the second transaction and
was liable under its warranty.

ISSUE:

Whether the second transaction between the parties was a sale or an indent transaction.

RULING:

SCHMID was not a vendor, but was merely an indentor, in the second transaction. The Civil Code defines a contract of sale, thus:

ART. 458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.

It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or promise. "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." An indentor, on the other hand, is a middlemen in the same class as
commercial brokers and commission merchants.

RJL MARTINEZ admitted that the generators were purchased "through indent order". The proposal of NAGATA CO. rejected by SCHMID that the
latter undertake the repair of the nine (9) other defective generators, with the former supplying the replacement parts free of charge and
subsequently reimbursing the latter for labor costs, cannot support the conclusion that SCHMID is vendor of the generators of the second transaction
or was acting "within the purview of a seller."

Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did not replace any of the twelve (12)
generators, but merely rendered assistance to both RJL TINES and NAGATA CO. so that the latter could repair the defective generators.

WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition is GRANTED and the appealed Decision and
Resolution of the Court of Appeals are REVERSED. The complaint of RJL Martinez Fishing Corporation is hereby DISMISSED.