Nature:

Facts: 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.

Contention of the Petitioner:

Contention of the Respondent:

Ruling of the RTC:

Ruling of the CA:

Issue: 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.

Ruling of SC: The judgment appealed from is affirmed, with costs against the
appellant.

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.

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.:

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.