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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 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
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complain for having acted thus at his own free will.

DECISION

AVANCEA , 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 rst 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 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.
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"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 beds, was
necessarily obliged to pay their price within the term xed, 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
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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 falsi cation. He testi ed 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 classi cation of the contract. But it must be
understood that a contract is what the law de nes 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 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 bene t 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 ll 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
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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 af rmed, with
costs against the appellant. So ordered.
Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

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