Fabrica de Cerveza v. Hizon
REITERATIONFacts
The Antecedents: La Fabrica de Cerveza de San Miguel (plaintiff) commenced an action to recover P14,052.16 from Abelardo Hizon, its agent, for "Royal Soft Drinks" and beer furnished to him, and from other defendants as sureties for Hizon's obligations. Hizon, along with other defendants, filed a demurrer which was overruled. They answered, denying the allegations. Hizon counterclaimed, asserting a credit in his favor upon liquidation and P25,000 in damages for the plaintiff's alleged wrongful termination of his agency. Procedural History: The case was tried, and by agreement, a referee was appointed to receive evidence. The referee's report concluded that Hizon owed the plaintiff P12,586.62. The court, based on this report, rendered judgment for the plaintiff against all defendants for P12,586.62, jointly and severally. The court later set aside its decision to allow parties to discuss the referee's report, then revived the judgment after finding motions for reconsideration without merit. The Petition: Appellants Abelardo Hizon and his co-defendants appealed the judgment. Abelardo Hizon argued the lower court erred in overruling his demurrer and denying his counterclaim for damages due to agency termination. The other appellants contended they should not be held liable, that their liability was limited to their respective bonds, that they should not be liable for obligations prior to their bonds, and that they were denied an opportunity to object to the referee's report.
Issue(s)
Whether the demurrer to the complaint was properly overruled. Whether Abelardo Hizon is entitled to damages for the termination of his agency. Whether the sureties' liability is limited to the amounts specified in their respective bonds. Whether the sureties are liable for obligations contracted by Abelardo Hizon prior to the execution of their bonds. Whether the document designated as Exhibit I is a mortgage or a bond. Whether the defendants were denied an opportunity to present evidence in support of their objections to the referee's report.
Ruling
The Supreme Court modified the judgment. It affirmed the liability of Abelardo Hizon for the full amount of P12,586.62. However, it ruled that the sureties' liability is limited to the proportional parts of the P12,586.62 that are covered by the amounts of their respective bonds. The judgment was affirmed in all other respects.
Ratio Decidendi
On Issue 1: The Court found the demurrer to be without merit, stating that the complaint was neither ambiguous nor insufficient to constitute a cause of action. The allegations clearly outlined the plaintiff's claim for the recovery of sums due for goods furnished to the agent and the liability of the sureties. On Issue 2: The claim for damages by Abelardo Hizon was dismissed. The Court found no evidence of damages presented during the trial. Moreover, the agency contracts explicitly reserved the plaintiff's right to cancel the agency for sufficient cause, and Hizon's failure to comply with his payment obligations constituted such cause. His acquiescence to the cancellation further weakened his claim. On Issue 3: The Court agreed with the appellants that their liability as sureties was limited to the amounts specified in their respective bonds. The bonds clearly stated that the sureties bound themselves "hasta la referida cantidad de [amount]" (up to the said amount of [amount]), indicating a ceiling on their obligation, not a joint and several liability for the principal's entire debt. On Issue 4: The contention that the sureties should not be held liable for obligations contracted prior to the execution of their bonds was rejected. The bonds explicitly covered "los saldos de las cuentas que dicho Abelardo Hizon contraiga o haya contraido" (the balances of the accounts that said Abelardo Hizon contracts or has contracted), thereby encompassing pre-existing debts. On Issue 5: The Court held that Exhibit I, despite being labeled as a "hipoteca" (mortgage), was in spirit, intent, and purpose a bond. This conclusion was based on the fact that Abelardo Hizon, the principal debtor, signed the document as "Obligado Principal," and the other signatories were identified as "Fiador" (Surety), indicating a suretyship agreement rather than a pure mortgage where Hizon would have no interest. On Issue 6: The Court found no merit in the contention that the defendants were denied an opportunity to present evidence or object to the referee's report. The record showed that the court allowed extensive discussion of the report, granted a hearing for objections, and even set aside its initial decision to provide further opportunity. The failure of the defendants' counsel to appear at the scheduled hearing was noted.
Main Doctrine
The Supreme Court affirmed that the liability of sureties is strictly limited to the amounts stipulated in their respective bonds, even when the principal debtor's total obligation exceeds these amounts. Furthermore, the Court held that an agency contract can be validly terminated by the principal for sufficient cause, particularly when the agent fails to meet their financial obligations and the contract explicitly reserves the right to cancel. The Court also clarified that documents intended as bonds, even if labeled as mortgages, will be treated as bonds if their spirit, intent, and purpose align with suretyship.