Ker

and

Co.

Ltd.

vs.

Lingad

(G.R.

No.

L-20871

April

30,

1971)

Was it a contract of agency or a contract of sale? CONTRACT OF AGENCY or BROKERAGE. 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 companys 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 agents commission upon sales made. Quiroga vs. Parsons Hardware (G.R. No. L-11491 August 23, 1918)

Was it a contract of agency or a contract of sale? CONTRACT OF SALE. Payment was to be made at the end of sixty days, or before, at the plaintiffs 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. 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 plaintiffs beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with

______________________________________________Quiroga v. Parsons Hardware [G.R. No. 11491. August 23, 1918.] En Banc, Avancena (J): 5 concur Facts: On 24 January 1911, in Manila, a contract was entered into by and between the Quiroga and J. Parsons

(to whose rights and obligations Parsons Hardware later subrogated itself) for the exclusive sale of Quiroga Beds in the Visayan Islands. Quiroga was to furnish the Parson with the beds (which the latter might order, at the price stipulated) and that Parson was to pay the price in the manner stipulated. The price agreed upon was the one determined by Quiroga 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 Quirogas request, or in cash, if Parson so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. <The case facts are bereft of details regarding the event that led to the controversy of the case, the litigation in the lower courts, up to appeal> Quiroga alleges that Parson violated its obligation 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. None of these, except the obligation to order the beds by the dozen and in no other manner, are expressly set forth in the contract. Quiroga maintains that Parsons is his agent for the sale of his bed in Iloilo, and such obligations implied in a contract of commercial agency. The Supreme Court held 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 Court thus affirmed the judgment appealed from, with costs

against the appellant. 1. Essential clauses given due regard to classify a contract; Contract of purchase and sale In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, the clauses, constituting its cause and subject matter, are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of Quiroga to supply the beds, and, on the part of Parson, 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 Quiroga and Parson, 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. 2. Commission on sale merely a discount, other clauses are not incompatible with contract of purchase and sale The contract by and between the defendant and the plaintiff is one of purchase and sale. Besides the clause made in the basis of a commission on sales, none of the other clauses of the contract is found to substantially support Quirogas contention. None of these conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else 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 Quirogas 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. 3. Classification of a contract defined by law, and not one called by the parties The agreements contained in the document that has been drafted, constitute a contract of purchase and sale, and not one of commercial agency. In the classification of the contract, 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. 4. Acts subsequent to contract suppletory, not considered when essential agreements are set forth in the contract The acts of the parties merely show that, on the part of each 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. 5. Effect of breach, and effect of subsequent consent to such breach In respect to the defendants 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.