G.R. No. L-8086; October 31, 1957
PACIFIC TOBACCO CORPORATION, plaintiff-appellee, vs. RICARDO D. LORENZANA and VISAYAN SURETY & INSURANCE CORPORATION, defendants. VISAYAN SURETY & INSURANCE CORPORATION, cross claimant and third party plaintiff-appellant, vs. RICARDO D. LORENZANA, cross defendant, CALIXTO C. LORENZANA, JOSE M. LORENZANA and BENIGNO GUTIERREZ, third party defendants.

FACTS

The Pacific Tobacco Corporation (plaintiff) and Ricardo D. Lorenzana entered into a contract on January 16, 1952, whereby Lorenzana would sell and distribute the company’s tobacco products in Manila and Rizal Province. The contract stipulated that Lorenzana’s account balance with the company should not exceed P3,000 at any time, and all accounts were payable within 30 days from the invoice date. To guarantee his faithful performance, Lorenzana posted a surety bond for P3,000 issued by the Visayan Surety and Insurance Corporation (defendant/appellant). The plaintiff delivered products to Lorenzana amounting to P15,645.64, of which he paid P13,559.33, leaving a balance of P2,086.31. After Lorenzana failed to pay the full balance despite a proposed installment arrangement, the plaintiff filed a complaint against Lorenzana and the surety for recovery of the amount, plus interest and attorney’s fees. The surety filed an amended answer with a cross-claim against Lorenzana and a third-party complaint against Calixto C. Lorenzana, Jose M. Lorenzana, and Benigno Gutierrez (as counter-guarantors), denying liability and asserting defenses including laches, waiver, and estoppel. Lorenzana, in his answer, claimed the contract was modified to allow sales throughout Luzon, that his services were terminated without the required 30-day notice, and that this prevented him from collecting from his customers. At the hearing, Lorenzana failed to appear. The lower court found that sending some cigarettes to San Fernando, La Union, did not release the surety from liability, as the contract did not expressly prohibit sales outside Manila and Rizal, and the deviation caused no injury to the surety. The court ordered Lorenzana and the surety to pay the plaintiff jointly and severally, and ordered the third-party defendants to indemnify the surety.

ISSUE

Whether the deviation from the territorial scope of the distribution contract (i.e., sales outside Manila and Rizal) discharges the compensated surety (Visayan Surety and Insurance Corporation) from its liability under the bond.

RULING

No. The deviation does not discharge the compensated surety. The rule of strictissimi juris, which may relieve an individual surety, is not applied to compensated sureties. A compensated surety must prove that the departure from the contract terms resulted in injury, loss, or prejudice to it. In this case, there was no proof that the delivery of cigarettes to San Fernando, La Union, caused the surety any loss or injury or contributed to the distributor’s failure to pay his accounts. The contract did not expressly prohibit sales outside the specified territory. Therefore, the surety remains liable. The decision of the lower court is affirmed.