Case Summary (G.R. No. 220613)
Parties
Petitioner seeks to enforce a P 8.5 million performance bond issued by Respondent in favor of SBDI to secure PASSI’s payment obligations.
Key Dates
• Distributor Agreement effective April 16, 2001–April 16, 2003 (and renewable annually)
• Demand letters to PASSI and WGC: January–February 2002
• RTC decision: September 7, 2011
• CA decision reversing RTC: April 14, 2015
• Supreme Court decision: November 11, 2021
Applicable Law
• 1987 Philippine Constitution (decision after 1990)
• Civil Code of the Philippines (Articles 1169, 1170, 1216, 2047)
• Rule 8, Revised Rules of Court (specific denial, documentary evidence)
• Jurisprudence on suretyship, sales invoices, material alteration of principal contracts
Contractual Arrangement
• Distributor Agreement: PASSI to purchase and pay for petroleum products within 15 days, credit limit ₱5 million per year.
• Item 6.3: PASSI to furnish a performance bond from a bonding company chosen by SBDI to secure outstanding accounts and faithful performance.
• Default clause: Unpaid amounts become immediately due without further notice.
Performance Bond and Default
PASSI secured an ₱8.5 million bond from WGC. Upon PASSI’s nonpayment of ₱100.26 million, SBDI sent demand letters to both PASSI and WGC. PASSI did not settle, and WGC refused payment. SBDI sued WGC alone for sum of money.
Regional Trial Court Ruling
RTC (Makati, Branch 136) rendered judgment ordering WGC to pay ₱8.5 million plus 6% annual interest from July 12, 2002, ten percent attorney’s fees, and costs. RTC dismissed WGC’s counterclaim.
Court of Appeals Ruling
CA held SBDI failed to prove actual delivery to PASSI, noting that sales invoices alone do not establish delivery. Alternatively, CA found material alterations in the Distributor Agreement—credit limit raised to ₱8.5 million and delivery frequency changed—without WGC’s consent, releasing WGC from liability.
Issues on Appeal
Whether CA erred in ruling that WGC’s surety obligation was extinguished due to (1) insufficient proof of delivery, and (2) material alteration of the Distributor Agreement without WGC’s consent.
Nature of Suretyship and Governing Principles
• Suretyship (Art. 2047): surety binds to fulfill principal debtor’s obligation; liability is joint and several but strictly limited to bond terms.
• Demand on surety suffices; principal’s prior failure not prerequisite.
• Material alteration of a principal contract that makes the surety’s obligation more onerous releases the surety; non-material changes do not.
Proof of Delivery and Validity of Sales Invoices
• SBDI presented forty-four signed sales invoices indicating “Received goods in good condition,” supported by testimony on standard company practice.
• PASSI’s silence and absence of protest to repeated billing and demand letters imply acceptance of delivery.
• Under Rule 8, R.R.C., WGC failed to specifically deny genuineness and due execution of the invoices; such failure deems them admitted.
• Load-order manifest not exclusive proof; sales invoices bearing the distributor’s acknowledgment are competent and sufficient.
Material Alterations of Principal Contract
• Alleged changes—delivery frequency and credit term extension—were not material or onerous:
– Delivery clause contemplated “approximately equal monthly quantities” but did not fix delivery frequency; actual deliveries followed PASSI’s orders.
– Extending payment term from 15 to 30 days reduced risk, benefitting the surety.
• WGC knew PASSI sought an ₱8.5 million bond despite the original ₱5 million limit; WGC issued the bond, binding itself to the ₱8.5 million guarantee.
• No supplemental agreement altered principal contract; CA’s finding of unauthorized material alterations is unsupported and contrary to admissions
Case Syllabus (G.R. No. 220613)
Case Title and Citation
- G.R. No. 220613, November 11, 2021
- FIRST DIVISION
- Petitioner: Subic Bay Distribution, Inc. (SBDI)
- Respondent: Western Guaranty Corporation (WGC)
Antecedents and Factual Background
- SBDI and Prime Asia Sales and Services, Inc. (PASSI) executed a Distributor Agreement dated April 16, 2001, effective for two years and renewable annually.
- Under Item 6.3, PASSI was required to secure a performance bond from a bonding company chosen by SBDI to guarantee prompt payment and faithful performance.
- Credit terms: payment within 15 days; credit limit set at ₱5 million.
- PASSI obtained an ₱8.5 million performance bond from WGC.
- PASSI defaulted on payment of petroleum product deliveries amounting to ₱100,256,601.17.
Procedural History
- SBDI sent demand letters to PASSI (January 7 and February 11, 2002) and to WGC (January 15, February 12, and February 27, 2002) for payment under the bond.
- SBDI sought help from the Insurance Commission; WGC refused payment.
- SBDI filed a complaint for sum of money before the Regional Trial Court (RTC) – Makati City, Branch 136.
- WGC filed an answer alleging collusion, failure to implead PASSI, and that material alterations in the Distributor Agreement released it from liability.
RTC Decision
- RTC Branch 136 ruled on September 7, 2011:
• Ordered WGC to pay SBDI ₱8.5 million plus 6% annual legal interest from July 12, 2002 until full payment;
• Awarded 10% of the total amount due as attorney’s fees;
• Imposed cost of suit;
• Dismissed WGC’s counterclaim for lack of merit.
Court of Appeals Ruling
- Decision dated April 14, 2015 (CA-G.R. CV No. 101337) reversed the RTC, holding that:
• SBDI failed to prove actual delivery or acceptance of petroleum products by PASSI;
• Sales invoices alone cannot prove delivery because invoices may be prepared independently of actual transfer;
• Material alterations to the Distributor Agreement occurred—credit limit increased from ₱5 million to ₱8.5 million and delivery frequency changed from “equal monthly quantities” to daily/weekly—without WGC’s consent;
• Material alterations discharged WGC from suretyship liability. - Resolution dated September 17, 2015 denied SBDI’s motion for reconsideration.
Issues Presented
- Whether the