Quiroga vs Parsons

G.R. No. L-11491

Subject: Sales
Doctrine: Contract of Agency to Sell vs Contract of Sale
Facts: On Jan 24, 1911, plaintiff and the respondent entered into a contract making the latter an
“agent” of the former. The contract stipulates that Don Andres Quiroga, here in petitioner, grants
exclusive rights to sell his beds in the Visayan region to J. Parsons. The contract only stipulates
that J.Parsons should pay Quiroga within 6 months upon the delivery of beds.
Quiroga files a case against Parsons for allegedly violating the following stipulations: 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. 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.
Issue: Whether the contract is a contract of agency or of sale.
Held: In order to classify a contract, due attention 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. 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.
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.
 G.R. No. L-47538 June 20, 1941
GONZALO PUYAT & SONS, INC., petitioner,
vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco),
respondent.
Facts:
Arco Amusement Company is a business engaged in operating cinematographs.
Gonzalo Puyat & Sons, Inc, was acting as exclusive agents in the Philippines for Starr
Piano Company of Indiana, USA, and dealt with cinematographer equipment and
company.
Arco Amusement approached Gonzalo Puyat & Sons entered into an agreement
wherein Gonzalo Puyat will, on behalf of Arco Amusement, order sound reproducing
equipment from Starr Piano Company and that Arco Amusement will pay Gonzalo
Puyat, in addition to the price of equipment, a 10% commission plus all expenses.
Starr Piano quoted the list price of equipment as $1700 without discount to Gonzalo
Puyat, which then told Arco Amusement about it. Being agreeable, the two formalized
the transaction and Arco Amusement duly paid $1700 to Gonzalo Puyat.

Subsequently, Arco Amusement made another order again to Gonzalo Puyat for the
equipment on the same terms as the first order. The order stated that Gonzalo Puyat
would pay for the equipment the amount of $1600 which was supposed to be the exact
price quoted by Starr Piano plus 10% commission and expenses. Arco Amusement
duly paid $1600 plus 10% commission plus $160 for the expenses; the $160 does not
represent actual out-of-pocket expenses but a mere flat charge and rough estimate
made by Arco Amusement equivalent to 10% of the $1,600 price.

Arco Amusement subsequently discovered that the price quoted to them with regard
to their previous orders were not the net price but rather the list price, and that the
Gonzalo Puyat had obtained a discount from the Starr Piano Company. Moreover, by
reading reviews and literature on prices of machinery and cinematograph equipment,
Arco Amusement was convinced that the prices charged them were much too high.
For these reasons, they sought to obtain a reduction from Gonzalo Puyat rather than a
reimbursement, and failing in this they filed the complaint.

RTC: Contract between Arco Amusement and Gonzalo Puyat was one of outright
purchase and sale.

CA: Reversed RTC’s ruling; the relation between the two was that of agent and
principal, Gonzalo Puyat acting as agent of Arco Amusement, and sentenced Gonzalo
Puyat to pay the alleged overpayments.

Issue:
Whether or not the contract between Arco Amusement and Gonzalo Puyat was one of
purchase and sale, and not agency.

Held:
Yes. There was a contract of sale between the two.

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. The letters showing that Arco Amusement accepted the prices of
$1700 and $1600 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.

Whatever unforseen events might have taken place unfavorable to Arco Amusement,
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, Gonzalo Puyat might still legally hold Arco Amusement to the prices
fixed. 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).
The orders which state that the petitioner was to receive ten per cent (10%)
commission does not necessarily make Gonzalo Puyat an agent of Arco Amusement
as this provision is only an additional price which Arco Amusement bound itself to
pay, and which stipulation is not incompatible with the contract of purchase and sale.

Ker and Co., LTD vs Lingad

GR No. L-20871 April 30, 1971

Facts:
CIR assessed the sum of P20,272.33 as the commercial broker’s percentage tax, surcharge, and compromise
penalty against Ker & Co. Ker and Co. requested for the cancellation of the assessment and filed a petition for
review with the Court of Tax Appeals. The CTA ruled that Ker and Co is liable as a commercial broker. Ker has a
contract with US rubber. Ker is the distributor of the said company. Ker was precluded from disposing the products
elsewhere unless there has been a written consent from the company. The prices, discounts, terms of payment,
terms of delivery and other conditions of sale were subject to change in the discretion of the Company.
Issue:
Whether the relationship of Ker and Co and US rubber was that of a vendor- vendee or principal-broker

Ruling:
The relationship of Ker and Co and US rubber was that of a principal-broker/ agency. Ker and Co is only an agent of
the US rubber because it can dispose of the products of the Company only to certain persons or entities and within
stipulated limits, unless excepted by the contract or by the Rubber Company, it merely receives, accepts and/or
holds upon consignment the products, which remain properties of the latter company, every effort shall be made
by petitioner to promote in every way the sale of the products and that sales made by petitioner are subject to
approval by the company. 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 company’s control, the
relationship between the company and the dealer is one of agency.

SONNY LO vs KJS ECO-FORMWORK SYSTEM PHIL, INC.

Facts:
Lo, doing business under the name San’s Enterprises, ordered scaffolding equipments
from KJS worth P540,425.80. Lo paid a downpayment of P150,000 and the balance was
to be paid in 10 monthly installments.
KJS delivered the scaffoldings to Lo, who paid the first two installments. However, his
business encountered financial difficulties and he was unable to settle his obligation
despite oral and written demands.
Lo and KJS executed a Deed of Assignment, whereby Lo assigned to KJS his receivables
in the amount of P335,462.14 from Jomero Realty Corporation. The agreement also
stipulated: “The ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times
hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and
expense, execute and do all such further acts and deeds as shall be reasonably necessary
to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR
has in accordance with the true intent and meaning of these presents.”
When KJS tried to collect the said credit from Jomero, it refused to honor the Deed of
Assignment because it claimed that Lo was also indebted to it. KJS sent a letter to Lo
demanding payment but he refused claiming that his obligation had been extinguished
when they executed the Deed of Assignment.
KJS filed an action for recovery of a sum of money against Lo with the RTC, which
dismissed the complaint on the ground that the assignment of credit extinguished the
obligation. However, the CA held that the Deed of Assignment did not extinguish the
obligation of Lo.

Issue: W/N the Deed of Assignment extinguished Lo’s obligation.

Held:
NO, he failed to comply with his warranty. In dacion en pago as a special mode of
payment, the debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. The undertaking really partakes in one sense of the
nature of sale – the creditor is really buying the thing or property of the debtor, payment
for which is to be charged against the debtor’s debt.
The assignment of credit, which is in the nature of a sale of personal property, produced
the effects of a dation in payment, which may extinguish the obligation. However, as in
 any other contract of sale, the vendor or assignor is bound by certain warranties.
Paragraph 1 of Article 1628 of the Civil Code provides: The vendor in good faith shall be
responsible for the existence and legality of the credit at the time of the sale, unless it
should have been sold as doubtful; but not for the solvency of the debtor, unless it has
been so expressly stipulated or unless the insolvency was prior to the sale and of common
knowledge.
Lo, as assignor, is bound to warrant the existence and legality of the credit at the time of
the sale or assignment. When Jomero claimed that it was no longer indebted to Lo since
the latter also had an unpaid obligation to it, it essentially meant that its obligation to Lo
has been extinguished by compensation. As a result, KJS alleged the non-existence of the
credit and asserted its claim to Lo’s warranty under the assignment. Lo was therefore
required to make good its warranty and pay the obligation.
Furthermore, Lo breached his obligation under the Deed of Assignment as he did not
“execute and do all such further acts and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has
in accordance with the true intent and meaning of these presents.” By warranting the
existence of the credit, Lo should have ensured its performance in case it is found to be
inexistent. He should be held liable to pay to KJS the amount of his indebtedness
Judgment Affirmed.

LO V. KJS ECO-FRAMEWORK SYSTEM PHIL INC G.R. NO 149420 (2003)

FACTS: Respondent KJS Eco-Framework System is a corporation engaged in the sale of steel
scaffoldings, while petitioner Sonny Lo, doing business under the name of San’s Enterprises, is a
building contractor.
1. In February 1990, petitioner ordered scaffolding equipments from the respondent amounting to
P540, 425.80. He paid a down payment of P150,000 and the balance was to be paid in 10 monthly
installments
2. However, Lo was only able to pay the first 2 monthly installments due to financial difficulties
despite demands from the respondent
3. In October 1990, petitioner and respondent executed a deed of assignment whereby petitioner
assigned to respondent his receivables of P335,462.14 from Jomero Realty Corp
4. But when respondent tried to collect the said credit from Jomero Realty Corp, the latter refused to
honor the deed of assignment because it claimed that the petitioner was also indebted to it. As
such, KJS sent Lo a demand letter but the latter refused to pay, claiming that his obligation had
been extinguished when they executed the deed of assignment
5. Subsequently, respondent filed an action for recovery of sum of money against petitioner.
6. Petitioner argued that his obligation was extinguished with the execution of the deed of assignment
of credit. Respondent alleged that Jomero Realty Corp refused to honor the deed of assignment
because it claimed that the petitioner had outstanding indebtedness to it
7. The trial court dismissed the complaint on the ground that the assignment of credit extinguished
the bligation
8. Upon appeal, CA reversed the trial court decision and held in favor of KJS. CA held that
a. Petitioner failed to comply with his warranty under the deed
b. The object of the deed did not exist at the time of the transaction, rendering it void under Art 1409
NCC
c. Petitioner violated the terms of the deed of assignment when he failed to execute and do all acts
necessary to effectually enable the respondent to recover the collectibles

ISSUE: WON the deed of assignment extinguished the petitioner’s obligation

HELD: No, the petitioner’s obligation was not extinguished with the execution of the deed of
assignment.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against the
debtor.

In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor
who accepts it as equivalent of payment of an outstanding debt. In order that there be a valid
dation in payment, the following are the requisites: (1) There must be the performance of the
prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal
thing or a real right or a credit against the third person; (2) There must be some difference between
the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an
agreement between the creditor and debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that due. The undertaking really partakes
in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtor’s debt. As such, the vendor in good
faith shall be responsible, for the existence and legality of the credit at the time of the sale but not
for the solvency of the debtor, in specified circumstances.

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal
property, produced the effects of a dation in payment which may extinguish the obligation.
However, as in any other contract of sale, the vendor or assignor is bound by certain
warranties. More specifically, the first paragraph of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the credit at the time
of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor,
unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of
common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and
legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no
longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant
that its obligation to petitioner has been extinguished by compensation. In other words, respondent
alleged the non-existence of the credit and asserted its claim to petitioner’s warranty under the
assignment. Therefore, it necessary for the petitioner to make good its warranty and pay the
obligation.

Furthermore, the petitioner breached his obligation under the Deed of Assignment, to execute and
do all such further acts and deeds as shall be reasonably necessary to effectually enable said
ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true
intent and meaning of these presents.

Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the
performance thereof in case the same is later found to be inexistent. He should be held liable to
pay to respondent the amount of his indebtedness.

AQUINTEY v. SPOUSES TIBONG Case Digest

AQUINTEY v. SPOUSES TIBONG
G.R. No. 166704,December 20, 2006

FACTS: On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint for sum of money
and damages against respondents. Agrifina alleged that Felicidad secured loans from her on several
occasions at monthly interest rates of 6% to 7%. Despite demands, spouses Tibong failed to pay their
outstanding loans of P773,000,00 exclusive of interests. However, spouses Tiong alleged that they
had executed deeds of assignment in favor of Agrifina amounting to P546,459 and that their debtors
had executed promissory notes in favor of Agrifina. Spouses insisted that by virtue of these
documents, Agrifina became the new collector of their debts. Agrifina was able to collect the total
amount of P301,000 from Felicdad’s debtors. She tried to collect the balance of Felicidad and when
the latter reneged on her promise, Agrifina filed a complaint in the office of the barangay for the
collection of P773,000.00. There was no settlement. RTC favored Agrifina. Court of Appeals affirmed
the decision with modification ordering defendant to pay the balance of total indebtedness in the
amount of P51,341,00 plus 6% per month.

ISSUE: Whether or not the deeds of assignment in favor of petitioner has the effect of payment of the
original obligation that would partially extinguish the same

RULING: Substitution of the person of the debtor ay be affected by delegacion. Meaning, the debtor
offers, the creditor accepts a third person who consent of the substitution and assumes the obligation.
It is necessary that the old debtor be released fro the obligation and the third person or new debtor
takes his place in the relation . Without such release, there is no novation. Court of Appeals correctly
found that the respondent’s obligation to pay the balance of their account with petitioner was
extinguished pro tanto by the deeds of credit. CA decision is affirmed with the modification that the
principal amount of the respondents is P33,841.

178 SCRA 188, G.R. No. 82508

September 29, 1989

FILINVEST CREDIT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY BANG,*respondents

FACTS:
Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel produced
from crushed rocks and used for construction purposes. They intended to buy rock crusher from Rizal
Consolidated Corporation which carried a cash price tag of P550,000.00. They applied for financial assistance
from herein petitioner Filinvest Credit Corporation, who agreed to extend financial aid on the certain conditions.
A contract of lease of machinery (with option to purchase) was entered into by the parties whereby the private
respondents agreed to lease from the petitioner the rock crusher for two years starting from July 5, 1981, payable
as follows: P10,000.00 – first 3 months, P23,000.00 – next 6 months, P24,800.00 – next 15 months. It was
likewise stipulated that at the end of the two-year period, the machine would be owned by the private
respondents. Thus the private respondent issued in favor of the petitioner a check for P150,550.00, as initial
rental (or guaranty deposit), and 24 postdated checks corresponding to the 24 monthly rentals. In addition, to
guarantee their compliance with the lease contract, the private respondent executed a real estate mortgage over
two parcels of land in favor of the petitioner. The rock crusher was delivered to the spouses.

However, 3 months later, the souses stopped payment when petitioner had not acted on the complaints of the
spouses about the machine. As a consequence, petitioner extra-judicially foreclosed the real estate mortgage.
The spouses filed a complaint before the RTC. The RTC rendered a decision in favor of private respondent. The
petitioner elevated the case to CA which affirmed the decision in toto. Hence, this petition.

ISSUES:
1. Whether or not the nature of the contract is one of a contract of sale.\
2. Whether or not the remedies of the seller provided for in Article 1484 are cumulative.

HELD:
1. Yes. The intent of the parties to the subject contract is for the so-called rentals to be the installment payments.
Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the
property of the private respondents. This form of agreement has been criticized as a lease only in name.
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in
that form, for one reason or another, have frequently restored to the device of making contracts in the form of
leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-
called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon
vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily
be regarded as payment of the price in installments since the due payment of the agreed amount results, by the
terms of bargain, in the transfer of title to the lessee.

2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2 or more installments,
may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2)
cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now
settled that the said remedies are alternative and not cumulative, and therefore, the exercise of one bars the
exercise of the others. Indubitably, the device – contract of lease with option to buy – is at times resorted to as a
means to circumvent Article 1484, particularly paragraph (3) thereof. Through the set-up, the vendor, by
retaining ownership over the property in the guise of being the lessor, retains, likewise the right to repossess the
same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment
of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More
important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep
all the installments-cum-rentals already paid.