G.R. No. 45253 - Fidelity and Surety Company of the Philippine Islands vs. Sanchez

On November 23, 1929, defendant Isabelo G. Sanchez was appointed as the traveling agent of the Radio Corporation of the Philippines, a domestic corporation based in Manila.
Under a contract (Exhibit A), Sanchez was entrusted with the sale of radios, radio accessories, phonographs, and phonograph records, with the total consignment value not to exceed P2,000, and with the obligation to liquidate the goods within 30 days from receipt.
In addition to receiving a commission of 15%, Sanchez was also given the privilege of purchasing unsold merchandise at a 35% discount.

To secure Sanchez’s performance of his contractual obligations, he executed a surety bond (Exhibit B) in favor of the Radio Corporation of the Philippines, with Fidelity and Surety Company of the Philippine Islands acting as surety.
Moreover, to guarantee that he would reimburse any amount paid by the plaintiff in case of his non-compliance with his obligations, Sanchez, along with his co-defendants Catalino Miranda and Bonifacio Timbol, executed another bond (Exhibit C).

Sanchez failed to report and remit the proceeds from the sale of the consigned goods, amounting to P784.17 plus legal interest, as stipulated under the terms of the agency contract.
Consequently, upon the demand by the Radio Corporation of the Philippines, the plaintiff, Fidelity and Surety Company of the Philippine Islands, paid the sum of P784.17 in fulfillment of the obligation under the bond (Exhibit B).

After the non-compliance by Sanchez and his co-defendants with the reimbursement obligation under the bond (Exhibit C), the plaintiff sought to recover the paid amount by initiating a suit in the Court of First Instance of Manila.
The lower court rendered a judgment ordering the defendants to pay jointly and severally:

The principal amount of P784.17 with interest at 10% per annum (from March 1, 1933).
An additional penalty of P250 for attorney’s fees.
The costs of the suit.

The defendants (Sanchez, Miranda, and Timbol) appealed on the basis of alleged errors committed by the lower court.
They raised six specific issues:

The improper exclusion of the Radio Corporation of the Philippines as a necessary party.
The contention that the Radio Corporation’s failure to set up a counterclaim in a related suit (in the Court of First Instance of Pampanga) constituted a waiver, precluding its future claims.
The argument that the payment made by the plaintiff to the Radio Corporation of the Philippines was for its own account and at its own risk, thus releasing the defendants from liability.
The claim that the payment was improper and that the claim should be directed against the Radio Corporation of the Philippines instead.
The suggestion that the proper remedy for the plaintiff was the deposit of the amount with the court clerk under sections 120 and 121 of the Code of Civil Procedure.
An objection to the sentencing of the defendants to pay jointly and severally the sum, interest, attorney’s fees, and costs.

Sanchez’s admitted failure to remit the proceeds, as evidenced by the stipulation of facts, confirmed his breach of the contract and corresponding surety bond obligations.
The quoted clauses from Exhibits A and B clarified the duties of the parties:

Under Exhibit A, Sanchez was obligated to make timely remittances and return unsold goods in good condition.
Under Exhibit B, the surety (Fidelity and Surety Company) guaranteed the payment to the Radio Corporation of the Philippines up to P2,000.

After the plaintiff paid the dues to the Radio Corporation of the Philippines, it was held that the corporation ceased to have any active interest in the dispute.
The non-joinder of the Radio Corporation as a party was justified since it had no claim against either the defendants or the plaintiff at that stage.

Whether the lower court erred in not including the Radio Corporation of the Philippines as a necessary party in the suit.
Whether the Radio Corporation’s failure to file a counterclaim in a related suit (filed by Sanchez in the Court of First Instance of Pampanga) constituted a waiver or estoppel, thereby relinquishing its claim.
Whether the payment made by the plaintiff to the Radio Corporation of the Philippines was improper or should be treated as having been made at the plaintiff’s own risk.
Whether the claim against Sanchez was proper or if it should have been directed against the Radio Corporation of the Philippines following the payment.
Whether the plaintiff ought to have, instead, deposited the amount with the Clerk of Court in accordance with sections 120 and 121 of the Code of Civil Procedure.
Whether it was correct for the lower court to sentence the defendants to pay jointly and severally the sum of P784.17 with interest, along with a penalty for attorney’s fees and costs.