G.R. No. 220613 . November 11, 2021
SUBIC BAY DISTRIBUTION, INC., PETITIONER, VS. WESTERN GUARANTY CORP., RESPONDENT.

FACTS

Petitioner Subic Bay Distribution, Inc. (SBDI) entered into a Distributor Agreement with Prime Asia Sales and Services, Inc. (PASSI) where PASSI would purchase petroleum products on credit, with a credit limit not exceeding P5,000,000.00. The agreement required PASSI to post a performance bond. In compliance, PASSI secured a performance bond from respondent Western Guaranty Corporation (WGC). When PASSI defaulted on its payments, SBDI demanded payment from PASSI and also sought to recover the bond amount of P8.5 Million from WGC through demand letters. After WGC refused to pay, SBDI filed a complaint for sum of money against WGC. The Regional Trial Court (RTC) ruled in favor of SBDI, ordering WGC to pay the bond amount. The Court of Appeals reversed the RTC decision, ruling that SBDI failed to prove actual delivery of the petroleum products to PASSI and that there were material alterations in the Distributor Agreement (specifically, an increase in the credit limit to P8.5 Million and a change from monthly to daily/weekly delivery terms) made without WGC’s consent, which released WGC from its surety obligation.

ISSUE

Did the Court of Appeals commit reversible error when it deemed as extinguished respondent’s liability under the contract of surety?

RULING

Yes. The Supreme Court granted the petition and reversed the Court of Appeals decision, reinstating the RTC judgment with modification on the interest rate. The Court held that the factual findings of the Court of Appeals were contrary to those of the trial court, warranting a review. On the first issue, the Court found that delivery of the petroleum products was sufficiently proven by sales invoices signed by PASSI’s agents confirming receipt, the volume and frequency of transactions, and PASSI’s failure to deny receipt despite demands from WGC itself. On the second issue, the Court ruled there was no material alteration of the principal contract that would release the surety. The increase in credit limit and change in delivery schedule were not alterations of the Distributor Agreement itself but were merely subsequent transactions made within the framework of the existing agreement, which allowed for a credit limit “not exceeding” P5 Million and did not expressly prohibit daily or weekly deliveries. The surety bond guaranteed payment for withdrawals “in accordance with terms and conditions of the agreement,” and these subsequent transactions did not violate that condition. Furthermore, WGC failed to prove that such alterations increased its risk or were made without its consent. Therefore, WGC’s liability as surety was not extinguished.