G.R. No. L-10517 June 28, 1957.
PEARL ISLAND COMMERCIAL CORPORATION, plaintiff-appellee, vs. LIM TAN TONG and MANILA SURETY & FIDELITY CO., INC., defendants-appellants.

FACTS

In June 1951, plaintiff Pearl Island Commercial Corporation, a manufacturer of “Bee Wax” floor wax, entered into a contract (Exhibit A) with defendant Lim Tan Tong. The contract designated Tong as the sole distributor of the product in specified Visayas and Mindanao provinces, with the plaintiff agreeing not to appoint another distributor in that territory. The plaintiff would sell the wax to Tong at factory price, F.O.B. Manila, and Tong could resell it at any price. Payment was due within sixty days from shipment. A key provision required Tong to furnish a surety bond at his expense to cover shipments that were damaged or unmerchantable. Loss due to fortuitous events while goods were in transit would be shouldered by the plaintiff.
On the same day the contract was executed (June 16, 1951), defendant Manila Surety & Fidelity Co., Inc., with Tong as principal, filed a surety bond (Exhibit B) in the amount of P5,000 in favor of the plaintiff. The bond was conditioned on the faithful performance of Tong’s duties as the exclusive agent for the plaintiff in the Visayas-Mindanao provinces. For its security, the Surety Company obtained an indemnity agreement from Ko Su Kuan and Marciano Du.
On June 18, 1951, plaintiff shipped 299 cases of Bee Wax, valued at P7,107, to Tong, who received them. Tong failed to remit the full value within sixty days. After a demand, he paid only P770, leaving a balance of P6,337, which he admitted having but refused to remit, claiming the plaintiff owed him a larger amount. The plaintiff filed an action to recover the balance from Tong and to recover the bond amount of P5,000 from the Surety Company. The Surety Company filed a cross-claim against Tong and a third-party complaint against Ko Su Kuan and Marciano Du.
The trial court rendered judgment ordering Tong and the Surety Company to pay the plaintiff P5,000 jointly and severally, plus interest and attorney’s fees; ordering Tong to pay the plaintiff the remaining P1,337; and ordering Tong, Ko Su Kuan, and Marciano Du to indemnify the Surety Company for the P5,000, plus attorney’s fees and costs. The Surety Company appealed.

ISSUE

Whether the trial court erred in holding the Surety Company liable on its bond, contending that the contract between the plaintiff and Tong was one of purchase and sale, not agency, and thus the bond guaranteeing faithful performance as an agent did not cover the obligation to pay for the merchandise.

RULING

The Supreme Court affirmed the trial court’s decision. The Court held that the Surety Company was liable on its bond. While the contract (Exhibit A) was titled “Contract of Purchase and Sale” and contained provisions for sale and purchase, it also designated Tong as the sole distributor within a specific territory, and a paragraph required him to furnish a surety bond to cover shipments. More importantly, the surety bond itself (Exhibit B) expressly stated that Tong “has been appointed as exclusive agent” for the plaintiff. Therefore, the Surety Company understood the relationship to be, at least partly, one of agency and could not deny liability. The Court found that, whether Tong acted as purchaser or agent, the Surety Company’s bond ultimately guaranteed payment for the shipments received by Tong, which was the plaintiff’s primary concern. Tong admitted receiving the goods and retaining the balance of their value. The Surety Company’s liability was limited to the bond amount of P5,000. Furthermore, the Surety Company was adequately protected by the judgment allowing it to recover from the indemnitors, Ko Su Kuan and Marciano Du.