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On January 24, 1911, a contract was entered into by and between the Quiroga and J. Parsons granting
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 establishment in Iloilo, and shall
invoice them at the same price he has fixed for sales, in Manila, with a discount of 25% 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 60 days from
the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga. On the other hand,
freight, insurance, and cost of unloading from the vessel shall be paid by Mr. Parsons.
(D) If, before due date, Mr. Quiroga should request its payment, said payment when made shall be
considered as a prompt payment and therefore a deduction of 2% 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 15 days before hand of any alteration in price
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
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
ART. 2. 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 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 90 days to the other party.
The petitioner alleged that the defendant as his agent of his beds in Ilo-ilo the following obligations
were violated: 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. The said obligations are implied in a contract of commercial agency.
ISSUE: Whether the defendant, by reason of the contract 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 is essential was its cause and subject matter. The stipulations indicated in the contract
are precisely referring to the essential features of a contract of purchase and sale. It excludes the legal
conception of an agency of consignment. By virtue of the contract the defendant 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.
The contract is one of purchase and sale. By 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) just
means nothing, 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 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, it was Mariano Lopez Santos, a director of the corporation, who prepared the contract. But,
even supposing that Ernesto Vidal has stated the truth, the agreement is a clear 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.
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. 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, it is 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 didnt affect the price paid for them, and for its return it was not
considered that the defendant had a right, by virtue of the contract, to make this return.
As regards to the shipment of beds without previous notice, it is clear 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, the court said that they merely constituted a discount
on the invoice price, and the reason for this benefit is because 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 plaintiff has the right 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.
HELD: The contract was one of purchase and sale, and 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 is
GONZALO PUYAT & SONS, INC., petitioner,
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
This is a petition for the issuance of a writ of certiorari. Arco brought an action against Gonzalo at the
RTC 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 Arco 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 Gonzalo, are as follows:
In the year 1929, the "Teatro Arco", with its office in Manila, was engaged in the business of operating
cinematographs. In 1930, its name was changed to Arco Amusement Company.
Gonzalo Puyat & Sons, Inc., with office in Manila, was acting as exclusive agents in the Philippines for
the Starr Piano Company of Richmond, Indiana, U.S.A. This last company is engaged in
cinematographer equipment and machinery, and the Arco Amusement Company desiring to equip its

cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc.,a negotiation
between Arco and Gonzalo ensued.
it was agreed between the parties, on behalf of Gonzalo, Arco will order sound reproducing equipment
from the Starr Piano Company and that the Arco would pay the Gonzalo the price of the equipment, a
10% commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc.
Gonzalo sent a cable, 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 with the price, evidently the
list price of $1,700.
Gonzalo did not show Arco the cable of inquiry nor the reply but was just informed of the price of
$1,700. Being agreeable to this price, a letter dated November 19, 1929, formally authorized the order.
The equipment arrived and upon delivery of the same to the Arco 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 Arco to Gonzalo.
The following year, another ordered of sound reproducing equipment was placed by Arco with Gonzalo,
on the same terms as the first order. This was confirmed by the Arco thru its letter without date, which
stated that the Arco would pay for the equipment the amount of $1,600, plus 10 per cent commission,
plus all expenses incurred.
The equipment arrived in due time, and Gonzalo was 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
expenses actual paid by Gonzalo, but a mere estimate equivalent to 10 per cent of the price of $1,600
of the equipment.
3 years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against 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 reviewing the prices of machinery and cinematograph equipment, Arco was convinced
that the prices charged them by the defendant were much too high including the charges for out-ofpocket expense. Due to this, they sought to obtain a reimbursement, and Gonzalo failing on this they
brought the present action.
The trial court held that the contract between Arco and Gonzalo was one of outright purchase and sale.
The appellate court, however, held that the relation between Arco and Gonzalo was that of agent and
principal, Gonzalo acting as agent of the respondent in the purchase of the equipment in question, and
ordered Gonzalo to pay Arco of the alleged overpayments in the total sum of $1,335.52 or P2,671.04,
together with legal interest and to pay the costs of the suit in both instances.
The appellate court argued that even if the contract between the petitioner and the respondent was
one of purchase and sale, Gonzalo was guilty of fraud in concealing the true price and hence would still
be liable to reimburse Arco for the overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the appellate court:
The Court 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 contract should be regarded merely
as "dealer's" or "trader's talk", which can not bind either party.
The letters, by which Arco accepted the prices of $1,700 and $1,600, respectively, for the sound
reproducing equipment subject of its contract with Gonzalo, are clear in their terms and admitted by
Arco at the prices indicated which are fixed and determinate. Arco admitted in its complaint filed with

the RTC that Gonzalo 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 Arco and Gonzalo entered into an agreement, Gonzalo to secure from the United States, and
sell and deliver to Arco, certain sound reproducing equipment and machinery, under the agreement,
Arco was to receive the actual cost price plus 10%, and will also reimbursed the all out of pocket
expenses in connection with the purchase and delivery of such equipment, such as costs of telegrams,
freight, and similar expenses.
The trial judge stated that "whatever unforseen events might have taken place unfavorable to Arco,
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 might still
legally hold Arco to the prices fixed of $1,700 and $1,600."
This is incompatible with the pretended relation of agency between Gonzalo and Arco, 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, stated that Gonzalo was to receive 10% commission, this does not necessarily make
the Gonzalo an agent of the respondent, this provision is only an additional price which the Arco 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 Gonzalo an agent of the Arco in the purchase of equipment and machinery
from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that
Gonzalo 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 is only
pointing to a plain ordinary transaction where Arco enters into a contract of purchase and sale with the
Gonzalo, who was the exclusive agent of the Starr Piano Company in the United States.
It follows that the Gonzalo 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.
Arco 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. It is to be
observed that the 25% discount granted by the Starr piano Company to the petitioner is
available only to the Gonzalo as the former's exclusive agent in the Philippines.
Arco could not have secured this discount from the Starr Piano Company and neither there was a
willingness on Gonzalo to waive that discount in favor of Arco.
No reason is given by the Arco why Gonzalo 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.
Gonzalo 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 Arco was not even aware of such an
arrangement and, therefore, could not have offered to pay a 10 per cent commission to the
petitioner provided it was given the benefit of the 25 % 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 exorbitant (excessive) additional price that Arco sought to limit it
to 10%, and is estopped from questioning that additional price.

If Arco 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.
Arco could not have secured the equipment and machinery manufactured by the Starr Piano Company
except from Gonzalo alone; it willingly paid the price quoted; it received the equipment and machinery
as represented.
The fact that Gonzalo obtained a profit than Arco calculated before entering into the contract or
reducing the price agreed upon between the contracting parties. Not every concealment is fraud;
and short of fraud.
The petition is hereby, granted. The decision of the appellate court is accordingly reversed and the
petitioner is absolved from the respondent's complaint.
A petition for certiorari, to annul and set aside the Order issued by the respondent judge on 25 January
1977, dissolving the restraining order previously issued in Civil Case No. 105410 Of the
Court of First Instance of Manila against Metropolitan Waterworks and Sewerage System
(MWSS), et al., which dismissed Asbestos complaint and upheld the Order of 25 January
Petitioner Asbestos Integrated Manufacturing, Inc. (AIMI for short) is a manufacturing and trading
corporation 100% owned by Filipinos, engaged in the marketing of asbestos cement pressure pipes
manufactured by Asbestos Cement Products Philippines, Inc. (ACPPI for short)
The respondent Eternit Corporation (Eternit, for short) is a corporation, with 90% of its capital stock,
owned and controlled by aliens.
Sanvar Development Corporation (Sanvar, for short) is also a 100% Filipino-owned corporation, "to
carry on any business undertaking, transaction or operation commonly carried on or undertaken by
general contractors, sub-contractors etc." and whose secondary purpose, among others, is "to
engage in, operate, conduct and maintain the business of trading (buy and sell),
manufacturing or otherwise dealing in any and all kinds of commodities, wares, supplies,
merchandise of whatever description and to carry on such business as wholesaler, retailer,
importer, etc."
The respondent MWSS, is a government owned and controlled corporation.
On 18 May 1976, the MWSS, through its interim program of construction, improvement, repair and
expansion in order to ensure continuous and adequate supply of potable water to the inhabitants of
Metro Manila, conducted a public bidding for its asbestos cement pipe requirements.
Those which participated were the petitioner AIMI, and the respondent Sanvar.
In the bidding conducted, Sanvar submitted a total bid price of P373,122.30 while AIMI,
submitted a total bid price of P423,913.96, 13.6% higher than that of the former.
However, no award was made since "the pipes needed for the projects mentioned in this bidding, will
now come from the pipes to be supplied in the 27 September 1976, public bidding."
In that public bidding, Sanvar submitted a total bid price of P2,653,360.00 while AIMI,
submitted a total bid price of P3,259,492.00, which is 22.84% higher than the bid of
Sanvar. As a result, the contract to supply the asbestos cement pressure pipes was awarded to
AIMI, claiming that Sanvar is a mere dealer or distributor or marketing arm of the alien-owned Eternit
and filed a petition against the MWSS, Eternit and Sanvar before the Court of First Instance of Manila,

to nullify the award and to restrain the respondents from enforcing the same. The
Petitioner invoked the Retail Trade Nationalization Act (Rep. Act No. 1180), the Flag Law
(Com. Act No. 138), the Anti-Dummy Act (Com. Act No. 108), and the law reserving to
Filipinos and Filipino-owned corporations the exclusive right to enter into contracts with
any government owned or controlled corporation, company, agency or municipal
corporation for the supply of materials, equipment, goods, and commodities (Rep. Act No.
5183) in support of its petition.
The trial court issued an order on 12 November 1976, a restraining order to the respondents
Respondents filed separate motions for the (1) dismissal of the petition; (2) lifting of the restraining
order issued, and (3) denial of the prayer for the issuance of a writ of preliminary injunction.
On 25 February 1977, the trial court, lifted the restraining order issued and denied the motion for the
issuance of a writ of preliminary injunction.
AIMI filed a motion for reconsideration of the order and after hearing the parties on the incident, the
trial court issued an order, giving the respondents " 31 January 1977, within which to file their
comment or opposition to the motion for reconsideration, subject to the condition that if no deliveries
of asbestos pipes have not yet been made, no deliveries shall commence until after this incident is
finally resolved, and that if deliveries have started, the same should be stopped in the meanwhile, and
that no payments on said deliveries shall be made until the Court will issue its order hereof which shall
be not later than Wednesday, 2 February 1977."
On 2 February 1977, the trial court denied the motion for reconsideration and dismissed the complaint.
Hence, the present recourse.
On 7 February 1977, the Court issued a TRO, against the respondent "from executing the covering
contracts for the questioned bids and from accepting any pipes deliveries from respondents Sanvar
and/or Eternit under the contract awards or paying respondents Sanvar and/or Eternit for pipes
deliveries if these had been made, and/or from otherwise implementing in any way said MWSS board
resolution awarding the bids to Eternit through Sanvar"
ISSUE: whether or not Sanvar is an alter ego or the marketing arm of Eternit so that it is prohibited by
law from entering into a contract with the MWSS for the supply of asbestos cement pressure pipes.
The court finds that the evidence presented by the petitioner is not sufficient to support the conclusion
that Sanvar is an alter ego of Eternit.
Although plaintiff's bid is higher than Sanvar's, the award should be given it because of the Flag Law
and other laws calculated to protect Filipino Industrialists from the cut-throat competition of more
powerful and more financed alien enterprises.
Among plaintiff's evidence on the alleged relationship of principal and agent between Eternit and
Sanvar are the dealership agreement of the two which describes it as " for the operation of a dealerowned outlet for the sale of Eternit construction materials'" and portions of the Confidential
Statement for Determining Prospective Bidder's Responsibility, which is MWSS Form No.
EO-4 and accomplished by Sanvar, viz: the typewritten words 'distributor of Eternit
products, Eternit Corporation Mandaluyong, Rizal', supplied by Sanvar, after the words,
which form part of the official form, manufacturer's exclusive agent of Eternit Products
such as roofing material and that which states that the bidder has been in business as
"manufacturer's representatiue or agent" for "2 years"
Furthermore, the materials sold by Sanvar to Rudy Pagdanganan La Paz Gaissue, Invictus Inc., and
Ayala Group, all in 1975, were supplied by Eternit.
In the interpretation of a contract the evident intention of the parties prevails over the words which
appear contrary to it (Article 1370, Civil Code); as a general rule that essence of a contract determines
what law should apply to the relation between the parties and not what they prefer to call that
relationship. (American Rubber Co. vs. Collector of Customs, 64 SCRA 560).

To ascertain the meaning or import of a contract the whole of it, and not mere portions thereof, must
be taken into account. (Ruiz vs. Sheriff of Manila, 34 SCRA 63).
The words "dealership" and "dealer-owned" derived from "deal" which means to do a
distributing or retailing business or to have intercourse on business relations (Webster's
New Collegiate Dictionary).
as appearing in evidence of the plaintiff, it is clear from many explicit and unmistakable provisions
spread over the entire agreement between Eternit and Sanvar:
The letter of Sanvar, to the MWSS, the letter of the regional manager of Eternit to MWSS and the
"letter of the Branch Manager of Eternit to Sanvar, the letter all to the effect that Sanvar is the
exclusive distributor of pipes manufactured by Eternit, DO NOT DETRACT A WHIT FROM
Since Sanvar, is a corporation wholly owned or controlled by Filipino citizens, it is not an alter ego of
Republic Act No. 5183, bars aliens and alien owned or controlled corporations from
participating in biddings to supply the government or its instrumentalities with materials,
equipment, goods, and commodities, as well as the Anti-Dummy Act (Com. Act No. 108)
and the Retail Trade Nationalization Act (Rep. Act No. 1180), cannot be invoked against
Neither can the petitioner find support in the Flag Law. Under said law, Commonwealth Act No. 138,
preference is given (a) in favor of manufactured and unmanufactured articles, materials or supplies of
the growth or production of the Philippines (b) in favor of domestic entities.
The Flag Law may be invoked only against a bidder who is not a domestic entity, as defined
in the law, or against a domestic entity who offers imported articles, materials or supplies
or those made or produced in the Philippines from imported materials. But, where all the
materials, goods or supplies offered in the bids submitted are produced, made and
manufactured in the Philippines substantially from articles, materials or supplies of the
growth of the Philippines, and the bidders are domestic entities, as in the instant case, the
Flag Law finds no application.
According to the Opinion of the Secretary of Justice, Hon. Jose W. Diokno:
1. The Flag Law CA 138) establishes only two types of preference:
(a) One in favor of manufactured and unmanufactured articles, materials or supplies of the growth or
production of the Philippines.
(b) The other, in favor of domestic entities, that is, citizens of the Philippines or corporate bodies or
commercial companies, duly organized and registered under the laws of the Philippines, 75% of whose
capital is owned by citizens of the Philippines, and who are habitually established in business engaged
in the manufacture or sale of the merchandise covered by their bid.
2. The two contending bidders at the bid in question were Amon Trading and C & C Construction
Supply, both of whom offered asbestos cement pipes produced and manufactured in the Philippines,
substantially from articles, materials and supplies of the growth, production or manufacture of the
Philippines. Both therefore qualify as domestic bidders, as that term is defined in Section 2(c) of the
Flag Law (CA 138), so that neither is entitled over the other to the preference provided for in Section 3
of the law.

The fact that the pipes offered by Amon Trading Corporation are manufactured by Eternit Corporation,
a foreign owned corporation, while the pipes offered by C & C Commercial Corporation, a Philippine
owned corporation, does not entitle the latter to preference over the former, since both brands of pipes
are manufactured in the Philippines of raw materials that are of Philippine origin, and it is not the
nationality of the manufacturer, but the place of manufacture, that determine whether the first
type of preference granted by the Flag Law applies.
4. As to the second type of preference, both Amon Trading Corporation and C & C Construction Supply,
are equally qualified as domestic entities, as that term is defined by the Flag Law (CA 138), because
both are 100% Filipino owned corporations, both were habitually established in business, and engaged
in the sale of the asbestos cement pipes covered by their respective bids to both Government and
private entities. Neither may, therefore, legitimately claim over the other the second type of
preference granted by Section 4 of the Flag Law (CA 138).
7. The professed motive for Opinion No. 263, Series of l961of this Department, which is to prevent
foreign manufacturers in the Philippines from subverting the Flag Law by designating Filipino firms as
their representatives or sole distributors in Government bids, IT REQUIRES NOT ONLY THAT THE
ENGAGED IN THE LINE OF BUSINESS COVERED BY HIS BID. Obviously, such a bidder cannot be
considered a dummy or front for a foreign manufacturer. Moreover, such a Filipino bidder, being
habitually engaged in the line of business covered by his bid, is entitled to as much
protection as a Filipino manufacturer who bids directly or through a Filipino distributor.
But, even if the petitioner were to be given a preference, pursuant to the Flag Law, the petitioner
would still not be entitled to an award since its bid is 22.84% higher than the bid of Sanvar.
Petitioner's bid would still be higher by 7.84%, over the 15% margin or mark-up given by the Flag Law
to the bid of a domestic entity over that of a non-domestic entity.
In this connection, also, we agree with MWSS that the petitioner's handwritten offer in its
Bidder's Tender to the effect that:
6. We are also willing to offer to supply your requirements for a period of 1 year with an
additional discount of 10% from the above unit price and is not called for in the bid and hence
may not be considered in favor of petitioner.
HELD: The petition is hereby DISMISSED.