G.R. No. 56515 - United Democratic Opposition vs. Commission on Elections

Pacific Tobacco Corporation, a domestic corporation engaged in manufacturing and distributing tobacco products, had offices at Grace Park, Caloocan, Rizal.
Ricardo D. Lorenzana entered into a distributor agreement with Pacific Tobacco Corporation on January 16, 1952.
Visayan Surety & Insurance Corporation (V.S. & I.C.) acted as the surety in a bond posted by Lorenzana.

Lorenzana was appointed sole distributor of cigarettes, cigars, and other tobacco products in the territory of Manila and Rizal Province.
The Company would deliver products to Lorenzana, but the outstanding balance shall not exceed P3,000.00.
Accounts were payable within 30 days from sales invoice date.
Lorenzana was to sell only the Company's products; selling competing products would allow the Company to terminate the contract.
Lorenzana was bound to sell at least P20,000 worth of products every month; failure to meet this quota authorized the Company to terminate with 20 days’ notice.
To guarantee faithful performance, Lorenzana was required to post a surety bond of P8,000, with P3,000 to cover faithful settlement of accounts and P6,000 to guarantee return of delivery truck.

During 1952, the Company delivered P15,645.64 worth of products to Lorenzana; he paid P13,559.33 leaving a balance of P2,086.31.
Lorenzana proposed installment payments (initially P100/month, reduced to P25/month), paying P250 in total before defaulting on further payments.
The Company filed suit on October 30, 1953, against Lorenzana and Visayan Surety & Insurance Corporation for recovery of the balance, legal interest, attorney’s fees (P500), and costs.

Visayan Surety and Insurance Corporation denied material allegations, raising affirmative defenses including laches, waiver, and estoppel, and contended bond liability did not cover damages or attorney’s fees.
It filed an amended answer with a cross-claim against Lorenzana and third-party complaint against Calixto D. Lorenzana, Jose M. Lorenzana, and Benigno C. Gutierrez as counter-guarantors seeking indemnity.
Lorenzana denied refusing to pay, asserting partial payment pursuant to a verbal installment agreement.
Lorenzana alleged a modification of the territorial scope to include all Luzon, beyond Manila and Rizal, without consent to terminate. He claimed wrongful termination and incurrence of transportation expenses to collect accounts from customers.
The third-party defendants generally admitted the allegations but denied liability for attorney’s fees as excessive and objected to responsibility for Lorenzana’s obligation.

Lorenzana failed to appear and testify despite notice but was represented by counsel.
Evidence showed delivery of goods worth approximately P1,870 to San Fernando, La Union — outside the Manila and Rizal territory stipulated in the contract.
No proof was established that these goods were actually sold or caused injury to the surety.
The contract did not expressly prohibit sales outside the designated territory.

The Court of First Instance ruled that the limited delivery to San Fernando did not release the surety from liability, as the contract’s territorial restrictions were not rigid and no loss to the surety was shown.
Ordered Lorenzana and the Visayan Surety & Insurance Corporation to pay the principal amount, legal interest, attorney’s fees, and costs jointly and severally.
Ordered indemnification by Lorenzana and the third-party defendants in favor of Visayan Surety & Insurance Corporation based on indemnity bonds.

Visayan Surety & Insurance Corporation appealed, arguing the delivery of goods to places outside the contracted territory altered the contract and discharged its bond liability.
The core issue became whether such an alleged alteration was material to release the surety from liability.

Whether the delivery of products by Pacific Tobacco Corporation to Lorenzana in a place beyond the agreed territory (Manila and Rizal) constitutes an alteration of the contract sufficient to release the surety from liability under the bond.

Whether the surety bond covering the faithful settlement of accounts applies if the distributor sells or distributes products outside the stated territory.

Whether the rule of strictissimi juris strictly applies to the surety bond in this context to the benefit of the surety.

Whether the alleged deviation caused any injury or loss to the surety, warranting its release from liability.