EN BANC

[G.R. No. 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.

SYLLABUS

1. SALES; INTERPRETATION OF CONTRACT. — For the classification

of contracts, due regard must be paid to their essential clauses. In the
contract in the instant case, what was essential, constituting its cause and
subject matter, was that the plaintiff was to furnish the defendant with the
beds which the latter might order, at the stipulated price, and that the
defendant was to pay this price in the manner agreed upon. 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 that
of the defendant, to pay their price. These features exclude the legal
conception of an agency or older to sell whereby the mandatary or agent
receives 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, Held: That this contract is
one of purchase and sale, and not of commercial agency.
2. ID., ID. — The testimony of the person who drafted this contract,
to the effect that his purpose was to be an agent for the beds and to collect
a commission on the sales, is of no importance to prove that the contract
was one of agency, inasmuch as the agreements contained in the contract
constitute, according to law, covenants of purchase and sale, and not of
commercial agency. 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.
3. ID.; ID. — The fact that the contracting parties did not perform
the contract in accordance with its terms, only shows mutual tolerance and
gives no right to have the contract considered, not as the parties stipulated
it, but as they performed it.
4. ID.; ID. — Only the acts of the contracting parties, subsequent to
and in connection with, the performance of the contract must be considered
in the interpretation of 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
5. ID.; ID. — The defendant obligated itself to order the beds from
the plaintiff by the dozen. Held: That the effect of a breach of this clause by
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 the defendant 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.

DECISION

AVANCEÑA, J : p

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 an allowance of a discount of 25 per cent of the invoiced
prices, as commission on the sales; 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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 within 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, reduces 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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
w o r d 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 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
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 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
purpose of making this return, the defendant, in its 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.

CD Technologies Asia, Inc. © 2021 cdasiaonline.com