Mr. Enrique L. Lim

January 9, 1995 Mr. Enrique L. Lim Lim and Lim Corporation 71-73 Rodriguez Ave., Quezon City S i r : This refers to your letter of December 21, 1994, which was received by the Commission on January 5, 1995 requesting opinion on the query posed therein. As stated, your proposed corporation which is 60% Filipino owned and 40% foreign owned intends to engage in the business of supplying and delivery of industrial hardware . Your query is whether sales of industrial hardware to the following: (a) hardware stores; (b) contractors to be used in their projects; and (c) shipyard company to be used in the repair of ocean vessels, are considered wholesale or retail transactions. Under RA 1180 as amended by P.D. 714, otherwise known as the Retail Trade Nationalization Law, if there are foreign stockholders in the corporation, its selling activities shall be limited only to "wholesale." It cannot engage in "retail" business. Section 4 of said Law defines "retail business" as follows: "SECTION 4. As used in this act, the term "retail business" shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption , but shall not include: (a) a manufacturer, processor, laborer or worker selling to the general public the products manufactured, processed, or produced by him if his capital exceed five thousand pesos. (b) a farmer or agriculturist selling the product of his farm. (c) a manufacturer or processor selling to industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or to produce or manufacture goods which are in turn sold by them. (d) a hotel-owner or keeper operating a restaurant, irrespective of the amount of capital, provided that the restaurant is necessarily included in, or incidental to, the hotel business." (Emphasis supplied) Thus, for sale transactions to be considered as retail, the following elements should concur: (1) The seller should be habitually engaged in selling ; (2) The sale must be direct to the general public ; (3) The object of the sale is limited to merchandise, commodities or goods for consumption . In the case of Marsman & Company, Inc. vs. First Coconut Central Company, Inc., GR. No. L-39841, June 20, 1988, the Supreme Court ruled that: " . . . The last element refers to the subject of the retailer's activities or what he is selling, i.e., consumption goods or consumer goods . Consumer goods may be defined as "goods" which are used or bought for use primarily for personal, family or household purposes . Such goods are not intended for resale or further use in the production of other products . In other words, consumer goods are goods which by their very nature are ready for consumption . Producer goods have been defined as "goods (as tools and raw material) that are factors in the production of other goods and that satisfy wants only indirectly-called auxiliary goods, instrumental goods, intermediate goods." They are by their very nature not sold to the public for consumption. As such, the sale of producer goods used for industry or business is classified as a wholesale transaction . Wholesaling has been defined as " selling to retailers or jobbers rather than to consumers or a sale in large quantity to one who intends to resell ." xxx xxx xxx. That the sales to Industrial or commercial users do not fall within the scope of the Retail Trade Nationalization Law is further confirmed by Presidential Decree No. 714 promulgated on May 28, 1975 amending said law when the latter provided in its preamble that " Whereas, it is believed to be not within the intendment of said nationalization law to include within its scope sales made to industrial or commercial users or consumers ." (Emphasis supplied) Applying the above ruling, the sale of industrial hardware to the entities mentioned in your letter are considered "wholesale", provided that in the case of the transaction under letter (a) the sale to the hardware stores must be in a large quantity intended to be resold to the general public. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner