Facts

• E.R. Squibb & Sons Philippine Corporation (the supposed principal) and petitioner Green Valley Poultry & Allied Products, Inc. (which claimed to be its agent) entered into an agreement under which Green Valley was constituted the exclusive distributor of Squibb's veterinary products in a defined territory.
• The agreement provided, among other things, that Green Valley would order the products, that Squibb would ship them, and that Green Valley would pay within a fixed period — with a discount schedule and a stipulation that Green Valley was to "sell in its own name" in some respects while being described elsewhere in terms suggestive of agency.
• Green Valley sold the products on credit to its own customers, a number of whom failed to pay. (Its customers were third persons of its own choosing — whether their default fell on Squibb or on Green Valley is exactly what the characterisation of the contract decides.)
• It in turn failed to remit to Squibb the amount of the outstanding balance, roughly ₱48,374.
• Squibb sued for collection.
• Green Valley's defense was that it was a mere agent of Squibb; that the goods remained Squibb's property until sold; and that having sold them on credit in the ordinary course, it was accountable only for what it had actually collected, the risk of its customers' default falling on the principal.
• Trial court — for Squibb. The trial court ruled for Squibb.
• Intermediate Appellate Court — affirmed. The Intermediate Appellate Court affirmed.

Issue

Ruling

Ratio

• Assuming Green Valley's own theory, the result is against it. Article 1905§ provides:

The commission agent cannot, without the express or implied consent of the principal, sell on credit. Should he do so, the principal may demand from him payment in cash, but the commission agent shall be entitled to any interest or benefit which may result from such sale.

• Green Valley pointed to nothing in the agreement authorising it to extend credit, and no such consent could be implied from Squibb's conduct.
• Having sold on credit without authority, it must answer to Squibb in cash — the very consequence Article 1905§ prescribes.
• Article 1906§ reinforces the point by requiring an agent who is authorised to sell on credit to inform the principal, failing which the sale is deemed to have been made for cash.
• The risk of the customers' default therefore fell on Green Valley, not on Squibb.

• Read the other way, the arrangement made Green Valley a buyer of the products for resale on its own account.
• On that reading its liability is even plainer: as vendee it owed the purchase price, and its inability to collect from its own customers is a matter entirely between itself and them, in which Squibb has no concern.

• The Court declined to resolve definitively which characterization was correct, because both roads led to liability.
• This is the case's enduring utility: the distributor's attempt to occupy the more favourable position failed because neither position was favourable.

Doctrine

• Article 1905§ — the prohibition on credit sales. A commission agent may not sell on credit without the principal's express or implied consent. If he does, the principal may demand payment in cash, though the agent keeps any interest or benefit from the credit sale.
• Article 1906§ — the duty to inform. An agent authorised to sell on credit must so inform the principal, stating the buyers' names; otherwise the sale is deemed made for cash, and the agent bears the loss.
• Allocation of risk. The agent who extends unauthorised credit assumes the risk of non-collection; he cannot pass his customers' default to his principal.
• Alternative holdings. Where a distributorship is ambiguous, examine liability on both characterizations — agency and sale. Liability under either disposes of the case.