(Last of two parts)
“Not all changes in the principal contract would work to absolve a surety from liability”
“In the alternative, the Court of Appeals decreed that there was a substantial alteration in the conditions set forth in the Distributor Agreement, particularly as regards the credit term and credit limit.” Under the Agreement, “[SBDI] granted PASSI a P5 million credit limit but this limit was increased to P8.5 Million [while] the original credit term… was for monthly deliveries[,] but… [SBDI] sought to collect covered deliveries made on a daily/weekly basis, as shown by the invoices.”
“As decreed, not all changes in the principal contract would work to absolve a surety from liability.
“This liability is not extinguished when the modifications in the principal contract do not substantially or materially alter the principal’s obligations… [considering that] the touchstone for contrariety would be an irreconcilable incompatibility between the old and new obligations.”
“By the language of the contract, delivery was not set on a monthly basis. The phrase ‘equal monthly quantities’ referred to the volume of products which [SBDI] bound itself to deliver to PASSI per month and not on the frequency of delivery.”
As “to the second alleged material alteration pointed out by the Court of Appeals, i.e., the extension of the credit term from 15 days to 30 days by [SBDI] was deemed by the Court of Appeals to be more onerous to [WGC).”
“But this extension should actually give PASSI more time to settle its obligations and reduce the risk of default in the payment of its purchases. Consequently, this, too, is more favorable to [WGC] as surety.”
“Now, as for the alleged increase of PASSI’s credit limit from P5 million to P8.5 million, the records should be set straight. [WGC] was aware of the variance between the credit limit indicated in the Distributor Agreement (P5 Million) and the amount of performance bond actually applied for by PASSI (P8.5 Million).”
“In fact, [WGC] admitted that it issued the surety bond despite this variance because PASSI undertook to have the Distributor Agreement amended to increase its credit limit, albeit, it did not eventually succeed. But notwithstanding PASSI’s failure to have the contract amended, [WGC] cannot negate its liability under the contract of surety.”
“[WGC’s] theory that [SBDI] and PASSI colluded so that the former may run after [WGC’s] bond is specious.” “A creditor’s right to proceed against the surety exists independently of his right to proceed against the principal… [which means] that the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously” (op. cit.) citing Article 1216 of the Civil Code).