G.R. No. L-45980; April 20, 1939
MARIA MARTINEZ, petitioner, vs. THE YEK TONG LIN FIRE & MARINE INSURANCE CO., respondent.

FACTS

Petitioner Maria Martinez, a licensed broker, sold 11,000 shares of Baguio Gold Mining Co. to Jesus Lontoc, who acted as manager of Central Brokerage Co., Inc. The shares were purchased on behalf of the corporation, as evidenced by corporate checks and Lontoc’s instructions to transfer the shares in his name. The corporation failed to pay the full price of P3,758.70, leaving a balance of P3,258.70 after a partial payment. Respondent Yek Tong Lin Fire & Marine Insurance Co. had executed a surety bond for Central Brokerage Co., Inc., guaranteeing its compliance with brokerage obligations, including a clause prohibiting the broker from purchasing and selling securities for its own account. The Court of Appeals held Central Brokerage Co., Inc. liable to Martinez but absolved the surety, finding no violation of the bond’s terms.

ISSUE

Whether respondent surety company is liable under its bond for the acts of Central Brokerage Co., Inc., which purchased and sold shares for its own account in violation of paragraph (c) of the bond.

RULING

Yes. The Supreme Court reversed the Court of Appeals and held the surety jointly and severally liable. The evidence established that Central Brokerage Co., Inc., through its manager Jesus Lontoc, purchased the shares for its own account and subsequently resold them, violating paragraph (c) of the surety bond, which prohibited such transactions. The surety’s bond expressly guaranteed compliance with this obligation. Therefore, the surety was liable for the resulting loss to Martinez. The Court reinstated the trial court’s judgment ordering both the principal and the surety to pay Martinez the balance due.

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