G.R. No. L-21109; June 26, 1967
NATIONAL SHIPYARDS & STEEL CORPORATION, plaintiff-appellee, vs. CARIDAD J. TORRENTO and MUTUAL SECURITY INSURANCE CORPORATION, defendants-appellants.

FACTS

On December 5, 1958, defendant Caridad J. Torrento applied to purchase 60 tons of steel bars on credit from the National Shipyards & Steel Corporation (NASSCO). A contract was executed on January 13, 1959, later amended to specify 59.31 metric tons of 3/8″ deformed bars at P435.00 per ton. Pursuant to the contract, Torrento, as principal, and Mutual Security Insurance Corporation, as surety, executed a surety bond (later supplemented) in favor of NASSCO for P25,800.00. On February 6, 1959, as NASSCO’s stock of 3/8″ deformed bars was exhausted, the parties executed a supplemental agreement. It modified the contract to sell Torrento 38.50 tons of different sized deformed bars (25 M.T. of 1/2″ and 13.50 M.T. of 5/8″) at different prices (P440.00 and P430.00 per ton, respectively), while stipulating that all other terms of the original contract remained unchanged. NASSCO delivered steel bars valued at P25,794.09. After the 120-day credit period lapsed without payment despite demands, NASSCO filed an action to recover the amount from Torrento and the surety. The lower court rendered a joint and several judgment against both defendants and upheld the surety’s cross-claim against Torrento. Defendants appealed.

ISSUE

1. Whether NASSCO has a cause of action directly against defendant Torrento despite the existence of a surety bond.
2. Whether the lower court erred in taking cognizance of the surety’s cross-claim against Torrento before the surety had made payment to NASSCO.
3. Whether the execution of the supplemental agreement without the surety’s knowledge and consent released the surety from liability due to a material alteration of the principal contract.

RULING

1. Yes, NASSCO has a cause of action directly against Torrento. The surety bond expressly bound the principal and surety jointly and severally (in solidum) to NASSCO. Under Article 2047 of the Civil Code, such a contract constitutes suretyship, and pursuant to Article 1216, the creditor may proceed against any solidary debtor. The Court cited jurisprudence establishing that when a surety binds itself jointly and severally, the creditor may sue the surety alone or together with the principal.
2. No, the lower court did not err. This issue was not raised in the court a quo and therefore could not be raised for the first time on appeal. Furthermore, the record showed that Torrento did not dispute the cross-claim or cross-examine the witness on the indemnity agreement that was its basis.
3. No, the surety was not released from liability. The supplemental agreement did not effect a material alteration of the original contract. The changes pertained only to the diameter and price of the steel bars due to the unavailability of the originally specified stock. The quantity of bars, their length and deformed quality, the period of payment, and the total amount of liability remained unchanged. The alteration did not impose more onerous conditions or add any new liability upon the principal debtor. Citing Pacific Tobacco Corporation vs. Lorenzana and Visayan Distributors, Inc. vs. Flores, the Court held that a surety is not released by a change that does not make its obligation more onerous. The decision of the lower court was affirmed.