Green Valley Poultry & Allied Products, Inc. vs. Intermediate Appellate Court

A commission agent who sells on credit without the express or implied consent of the principal is liable to the principal for payment in cash, pursuant to Article 1905 of the Civil Code, regardless of whether the underlying relationship is characterized as an agency to sell or a contract of sale.

E.R. Squibb & Sons Philippine Corporation is a supplier of veterinary products, and Green Valley Poultry & Allied Products, Inc. was appointed as its non-exclusive distributor for the Central Luzon, Northern Luzon, and Cagayan Valley areas under a letter agreement dated November 3, 1969. The agreement specified discount structures, territorial limits, a bond requirement, a 60-day payment term, and a 30-day termination clause. The dispute arose from goods delivered to Green Valley that remained unpaid, leading Squibb to file a collection action.

On November 3, 1969, E.R. Squibb & Sons Philippine Corporation appointed Green Valley Poultry & Allied Products, Inc. as a non-exclusive distributor for Squibb Veterinary Products, as recommended by Dr. Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal Health Division Sales Supervisor. The appointment was embodied in a letter agreement setting out the terms of the distributorship. Green Valley was entitled to a discount structure: a 10% discount off the feed store price yielding the wholesale price, and a further 10% discount off the wholesale price yielding the distributor price. Exceptions applied to certain products, including Afsillin Improved and Narrow-Spectrum Injectable Antibiotics, which carried different commission or pricing terms. Deals and Special Offers were also excluded from the standard price structure, with a 5% distributor commission allowed when the distributor furnished copies of each sale to a feedstore, drugstore, or other account.

The agreement confined Green Valley's distribution to the Central Luzon and Northern Luzon areas, including the Cagayan Valley, and prohibited transfers of stock to other parts of Luzon, Visayas, or Mindanao, which were covered by other appointed distributors. Green Valley was required to follow strictly the stipulation that the maximum discount it could give to its direct and turnover accounts would not exceed 10%. It was also required to accept turnover orders from Squibb representatives for delivery to customers within its area and to notify the Squibb representative within 48 hours if a turnover order could not be served for credit or other valid reasons. A bond of P20,000.00 from a mutually acceptable bonding company was required, and payment for purchases was due 60 days from the date of invoice, with no post-dated checks accepted. The agreement was terminable by either party on 30 days' notice.

Goods were subsequently delivered to Green Valley under this arrangement but were left unpaid. Squibb filed a collection suit to recover the unpaid amounts. The trial court rendered judgment in favor of Squibb, ordering Green Valley to pay P48,374.74 plus P96.00 with interest at 6% per annum from the filing of the action, attorney's fees of P5,000.00, and costs. The Court of Appeals affirmed this judgment. Both lower courts upheld Squibb's position that the agreement was a contract of sale, thereby obligating Green Valley to pay for the goods received upon the expiration of the 60-day credit period.

• Nature of the Contract: Petitioner maintained that the contract with Squibb was a mere agency to sell and that it never purchased goods from Squibb.
• Goods on Consignment: Petitioner argued that the goods received were on consignment only, with the obligation to turn over the proceeds, less its commission, or to return the goods if not sold.
• Prematurity of the Action: Petitioner contended that since it had sold the goods but had not been able to collect from the purchasers thereof, the action for collection was premature.

• Nature of the Contract: Respondent countered that the contract was one of sale, obligating Green Valley to pay for the goods received upon the expiration of the 60-day credit period.

• Contract Characterization: Whether the letter agreement between Squibb and Green Valley constituted a contract of sale or an agency to sell.
• Liability Under Either Theory: Whether Green Valley is liable for the unpaid goods regardless of whether the contract is characterized as a sale or an agency to sell.

• Contract Characterization: The Court declined to definitively categorize the contract as either a sale or an agency to sell, finding it unnecessary to resolve the dispute.
• Liability Under Either Theory: Yes. Green Valley is liable under either characterization—if a sale, it owed payment upon expiration of the 60-day credit period; if an agency to sell, it sold on credit without the principal's authority, making it liable in cash under Article 1905 of the Civil Code.

• Contract Characterization: The Court found it unnecessary to resolve whether the agreement was a contract of sale or an agency to sell, because the liability of Green Valley was indubitable under either theory. The dispute over contract characterization was therefore immaterial to the outcome.
• Liability Under Either Theory: Adopting Green Valley's own theory that the contract was an agency to sell, the Court found Green Valley liable because it sold on credit without authority from its principal. Article 1905 of the Civil Code provides that a commission agent cannot, without the express or implied consent of the principal, sell on credit; if it does so, the principal may demand payment in cash, though the commission agent retains any interest or benefit resulting from the sale. Since Green Valley sold the goods on credit without Squibb's consent, Squibb could demand payment in cash. Under Squibb's theory that the contract was a sale, Green Valley was simply obligated to pay for the goods upon the expiration of the 60-day credit period. Either way, liability attached.

• Liability of Commission Agent for Unauthorized Credit Sales — Under Article 1905 of the Civil Code, a commission agent cannot, without the express or implied consent of the principal, sell on credit. If the agent does so, the principal may demand payment in cash from the agent, while the agent retains any interest or benefit from the sale. The Court applied this provision by adopting the petitioner's own theory that the contract was an agency to sell and concluding that, because Green Valley sold on credit without Squibb's authority, Squibb could demand cash payment directly from Green Valley.

• "We do not have to categorize the contract. Whether viewed as an agency to sell or as a contract of sale, the liability of Green Valley is indubitable." — This passage captures the Court's ratio decidendi: the dispute over contract characterization was rendered immaterial because liability attached under either theory.
• "Adopting Green Valley's theory that the contract is an agency to sell, it is liable because it sold on credit without authority from its principal. The Civil Code has a provision exactly in point." — This passage demonstrates the Court's use of the petitioner's own framing against it, applying Article 1905 to establish liability even under the theory most favorable to the petitioner.

• Article 1905, Civil Code of the Philippines — Provides that a commission agent cannot, without the express or implied consent of the principal, sell on credit; if the agent does so, the principal may demand payment in cash, while the agent is entitled to any interest or benefit resulting from the sale. The Court applied this provision by adopting the petitioner's own theory that the contract was an agency to sell and concluding that Green Valley's unauthorized credit sales rendered it liable for cash payment to Squibb.

Aquino, Concepcion, Jr., Escolin, and Cuevas, JJ., concurred. Makasiar (Chairman), reserved his vote.