G.R. No. L-16029; October 21, 1960
STANDARD-VACUUM OIL COMPANY, plaintiff, vs. LORETO PAZ and GLOBE ASSURANCE COMPANY, INC., defendants. GLOBE ASSURANCE COMPANY, INC., cross plaintiff-appellant, vs. LORETO PAZ and MAXIMA PAZ, cross defendants-appellees.

FACTS

On September 21, 1953, Loreto Paz entered into a Reseller Sales Agreement with Standard Vacuum Oil Company (Stanvac). On April 12, 1955, Paz executed another Reseller Sales Agreement with Stanvac. The sole witness for Stanvac testified that the 1955 agreement was exactly the same as the 1953 agreement, being a regular company form, and was merely a continuation of the first. About four months after the second agreement, on August 4, 1955, Globe Assurance Company, Inc. executed Undertakings of Suretyship (Exhibits “C” and “D”) in favor of Stanvac. Stanvac subsequently supplied petroleum products to Paz, who incurred an indebtedness of P13,984.78 as of April 1957. Stanvac filed a complaint against Paz as principal debtor and Globe as surety. The Court of First Instance of Manila rendered a joint and several judgment against Paz and Globe for the amount, plus interest and attorney’s fees. On Globe’s cross-claim, it also sentenced the spouses Loreto and Maxima Paz (as indemnitors) to reimburse Globe for any amount it pays to Stanvac. Globe appealed, contending its liability as surety was limited strictly to the obligations under the 1953 Reseller Sales Agreement specifically referred to in its suretyship contract and did not extend to obligations under the 1955 agreement.

ISSUE

Whether the liability of the surety, Globe Assurance Company, Inc., under its Undertaking of Suretyship extends to cover the obligations of the buyer, Loreto Paz, arising from the Reseller Sales Agreement executed on April 12, 1955.

RULING

Yes, the liability of the surety extends to the obligations under the 1955 agreement. The Court found Globe’s contention untenable. The 1955 agreement did not terminate the 1953 agreement, as evidenced by the parties leaving blank the spaces in the clause “This cancels and supersedes Reseller Sales Agreement No. …… dated………” found in the 1955 contract. The testimony established the 1955 agreement was a mere continuation or renewal of the first. Both agreements were identical and provided they would remain in force indefinitely, subject to 30 days’ written notice of cancellation. Therefore, the buyer’s obligation under the 1953 agreement (guaranteed by Globe) was a continuing one until cancelled, and the 1955 agreement merely continued it, leaving the surety’s liability unaffected.
Furthermore, the terms of the Undertaking of Suretyship itself were broader than the specific Reseller Sales Agreement. Paragraph 2 of the undertaking guaranteed not only the covenants in the Reseller Sales Agreement but also: (1) the payment of the purchase price of merchandise sold on credit to the buyer before and after August 4, 1955; (2) the payment of all sums advanced by Stanvac for the buyer’s account; and (3) the payment of all rentals under any lease agreement between the parties. Paragraph 3 expressly agreed to reimburse Stanvac for any loss suffered through any default of the buyer. The Court concluded the suretyship contract was more comprehensive than the sales agreement and covered liabilities incurred in connection with the business relationship between Stanvac and Paz. The payment by another insurance company on Paz’s total debt did not affect Globe’s liability, as the suretyship agreement expressly stated Globe’s liability would not be affected by any other security received by Stanvac. The decision of the lower court was affirmed.