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.
AVANCEA, 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.

Republic of the PhilippinesSUPREME COURTManila

EN BANC
G.R. No. L-47538

June 20, 1941

GONZALO PUYAT & SONS, INC., petitioner, vs.ARCO AMUSEMENT COMPANY (formerly known as Teatro
Arco), respondent.
Feria & Lao for petitioner.J. W. Ferrier and Daniel Me. Gomez for respondent.
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of reviewing its Amusement
Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."
It appears that the respondent herein brought an action against the herein petitioner in the Court of First Instance of
Manila to secure a reimbursement of certain amounts allegedly overpaid by it on account of the purchase price of sound
reproducing equipment and machinery ordered by the petitioner from the Starr Piano Company of Richmond, Indiana,
U.S.A. The facts of the case as found by the trial court and confirmed by the appellate court, which are admitted by the
respondent, are as follows:
In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the Philippine Islands, with its office in
Manila, was engaged in the business of operating cinematographs. In 1930, its name was changed to Arco Amusement
Company. C. S. Salmon was the president, while A. B. Coulette was the business manager. About the same time, Gonzalo
Puyat & Sons, Inc., another corporation doing business in the Philippine Islands, with office in Manila, in addition to its
other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, U.S. A.
It would seem that this last company dealt in cinematographer equipment and machinery, and the Arco Amusement
Company desiring to equipt its cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc.,
thru its then president and acting manager, Gil Puyat, and an employee named Santos. After some negotiations, it was
agreed between the parties, that is to say, Salmon and Coulette on one side, representing the plaintiff, and Gil Puyat on the
other, representing the defendant, that the latter would, on behalf of the plaintiff, order sound reproducing equipment from
the Starr Piano Company and that the plaintiff would pay the defendant, in addition to the price of the equipment, a 10 per
cent commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of the plaintiff,
the defendant sent a cable, Exhibit "3", to the Starr Piano Company, inquiring about the equipment desired and making the
said company to quote its price without discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price,
evidently the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff the cable of
inquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being agreeable to this price, the plaintiff, by
means of Exhibit "1", which is a letter signed by C. S. Salmon dated November 19, 1929, formally authorized the order. The
equipment arrived about the end of the year 1929, and upon delivery of the same to the plaintiff and the presentation of
necessary papers, the price of $1.700, plus the 10 per cent commission agreed upon and plus all the expenses and charges,
was duly paid by the plaintiff to the defendant.
Sometime the following year, and after some negotiations between the same parties, plaintiff and defendants, another order
for sound reproducing equipment was placed by the plaintiff with the defendant, on the same terms as the first order. This
agreement or order was confirmed by the plaintiff by its letter Exhibit "2", without date, that is to say, that the plaintiff
would pay for the equipment the amount of $1,600, which was supposed to be the price quoted by the Starr Piano
Company, plus 10 per cent commission, plus all expenses incurred. The equipment under the second order arrived in due
time, and the defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and
charges. This amount of $160 does not represent actual out-of-pocket expenses paid by the defendant, but a mere flat
charge and rough estimate made by the defendant equivalent to 10 per cent of the price of $1,600 of the equipment.
About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against the defendant herein
Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company discovered that the price quoted to them by the
defendant with regard to their two orders mentioned was not the net price but rather the list price, and that the defendants
had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of machinery
and cinematograph equipment, said officials of the plaintiff were convinced that the prices charged them by the defendant

were much too high including the charges for out-of-pocket expense. For these reasons, they sought to obtain a reduction
from the defendant or rather a reimbursement, and failing in this they brought the present action.
The trial court held that the contract between the petitioner and the respondent was one of outright purchase and sale, and
absolved that petitioner from the complaint. The appellate court, however, by a division of four, with one justice
dissenting held that the relation between petitioner and respondent was that of agent and principal, the petitioner acting
as agent of the respondent in the purchase of the equipment in question, and sentenced the petitioner to pay the respondent
alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the
filing of the complaint until said amount is fully paid, as well as to pay the costs of the suit in both instances. The appellate
court further argued that even if the contract between the petitioner and the respondent was one of purchase and sale, the
petitioner was guilty of fraud in concealing the true price and hence would still be liable to reimburse the respondent for the
overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the appellate court:
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos, entre la recurrente y la recurrida
existia una relacion implicita de mandataria a mandante en la transaccion de que se trata, en vez de la de vendedora a
compradora como ha declarado el Juzgado de Primera Instncia de Manila, presidido entonces por el hoy Magistrado
Honorable Marcelino Montemayor.
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo que dicha relacion fuerra de
vendedora a compradora, la recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto al precio de
$1,700 y $1,600 de las maquinarias y equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr Piano
Company of Richmond, Indiana.
We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of purchase
and sale, and not one of agency, for the reasons now to be stated.
In the first place, the contract is the law between the parties and should include all the things they are supposed to have
been agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's
talk", which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161;
Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2, by
which the respondent accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject
of its contract with the petitioner, are clear in their terms and admit no other interpretation that the respondent in question
at the prices indicated which are fixed and determinate. The respondent admitted in its complaint filed with the Court of
First Instance of Manila that the petitioner agreed to sell to it the first sound reproducing equipment and machinery. The
third paragraph of the respondent's cause of action states:
3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant (petitioner) entered into an
agreement, under and by virtue of which the herein defendant was to secure from the United States, and sell and deliver to
the herein plaintiff, certain sound reproducing equipment and machinery, for which the said defendant, under and by
virtue of said agreement, was to receive the actual cost price plus ten per cent (10%), and was also to be reimbursed for all
out of pocket expenses in connection with the purchase and delivery of such equipment, such as costs of telegrams, freight,
and similar expenses. (Emphasis ours.)
We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the defendant
(petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the
Starr Piano Company to properly fill the orders as per specifications, the plaintiff (respondent) might still legally hold the
defendant (petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with the pretended relation of agency
between the petitioner and the respondent, because in agency, the agent is exempted from all liability in the discharge of
his commission provided he acts in accordance with the instructions received from his principal (section 254, Code of
Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the
agency without fault or imprudence on his part (article 1729, Civil Code).
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission, this does not
necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which the
respondent bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale. (See
Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)

In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and machinery from the
Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that the petitioner is the exclusive agent
of the same company in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the
purchaser. The facts and circumstances indicated do not point to anything but plain ordinary transaction where the
respondent enters into a contract of purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano
Company in the United States.
It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any difference between the
cost price and the sales price which represents the profit realized by the vendor out of the transaction. This is the very
essence of commerce without which merchants or middleman would not exist.
The respondents contends that it merely agreed to pay the cost price as distinguished from the list price, plus ten per cent
(10%) commission and all out-of-pocket expenses incurred by the petitioner. The distinction which the respondents seeks
to draw between the cost price and the list price we consider to be spacious. It is to be observed that the twenty-five per cent
(25%) discount granted by the Starr piano Company to the petitioner is available only to the latter as the former's exclusive
agent in the Philippines. The respondent could not have secured this discount from the Starr Piano Company and neither
was the petitioner willing to waive that discount in favor of the respondent. As a matter of fact, no reason is advanced by the
respondent why the petitioner should waive the 25 per cent discount granted it by the Starr Piano Company in exchange for
the 10 percent commission offered by the respondent. Moreover, the petitioner was not duty bound to reveal the private
arrangement it had with the Starr Piano Company relative to such discount to its prospective customers, and the
respondent was not even aware of such an arrangement. The respondent, therefore, could not have offered to pay a 10 per
cent commission to the petitioner provided it was given the benefit of the 25 per cent discount enjoyed by the petitioner. It
is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home
office, sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an
exhorbitant additional price that the respondent sought to limit it to 10 per cent, and the respondent is estopped from
questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain, it alone must
bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground
alone. The respondent could not secure equipment and machinery manufactured by the Starr Piano Company except
from the petitioner alone; it willingly paid the price quoted; it received the equipment and machinery as represented; and
that was the end of the matter as far as the respondent was concerned. The fact that the petitioner obtained more or less
profit than the respondent calculated before entering into the contract or reducing the price agreed upon between the
petitioner and the respondent. Not every concealment is fraud; and short of fraud, it were better that, within certain limits,
business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the
business world.
The writ of certiorari should be, as it is hereby, granted. The decision of the appellate court is accordingly reversed and the
petitioner is absolved from the respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly
known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc., defendants-appellee," without pronouncement
regarding costs. So ordered.
Avancea, C.J., Diaz, Moran and Horrilleno, JJ., concur.