G.R. No. 21044. December 11, 1923

The
only question presented by this appeal is: What is the effect of
changing the rate of interest of a contract to pay money? The facts are
brief and may be stated as follows:

On the 14th day of
October, 1918, the said Charles D. Gooch entered into a contract with
the plaintiff, by virtue of which the latter conceded to the former a
“credit in current account” of not to exceed P10,000, upon condition
that the former should pay interest at the rate of eight per cent (8%)
“upon all sums so taken, computed upon average daily balances and
payable upon the last day of each quarter of the calendar year.” Mr.
Gooch further promised to give security for the payment of the
principal and interest of said loan and to pay whatever sum might be
and remaining due upon the demand of the said bank. On the same day the
defendant James R. Redfern signed a bond with his codefendant Charles
D. Gooch, by virtue of the terms of which, they were held and bound
jointly and severally unto the Bank of the Philippine Islands in the
sum of P10,000 to be paid in accordance with the terms of the said
contract between Mr. Gooch and the plaintiff. Finally a demand was made
by the bank for the payment of the principal and interest of said loan.
Payment was not made and the present action was commenced. The
defendants interposed a general and special defense. Trial was had and
judgment was rendered in favor of the plaintiff and against the
defendants for the sum of P8,804.35, with interest at 12 per cent from
the 17th day of July, 1922, and costs. From that judgment the defendant
James R. Redfern appealed and alleges that the lower court committed an
error in not relieving him from liability as surety, because of certain
changes made in the principal obligation by the plaintiff, without his
knowledge or consent.

It was proved during the trial of the
cause that while Gooch was operating on his credit account, the bank on
April 12, 1920, raised the interest rate on advances to 9 per cent, and
later, on February 10, 1922, raised it to 12 per cent per annum. It is
further proved that the bank charged the interest to Gooch monthly
rather than quarterly as provided in the contract. It is not denied
that these changes were made without the knowledge or consent of Mr.
Redfern. The original contract was not actually altered or changed. The
plaintiff simply notified Mr. Gooch that he would have to pay the
additional rate of interest after a certain date. The change in the rate of interest was a collateral agreement between the bank and Mr. Gooch.

Did said change in the rate of interest have the effect of relieving
Mr. Redfern from liability under his bond? The appellant insists that
it did, and cites some very convincing authorities in support of his
contention. There is no allegation nor intimation that the change in
the rate of interest was fraudulently done. No charge of fraud was made.

While the general rule of the effect of an alteration in a written
contract of the character before us is as the appellant states it to
be, yet, nevertheless, when the alteration was not made fraudulently,
it will not relieve the parties from their original obligation. Mr.
Justice Lawrence, in the case of Elliott vs. Blair (47 Ill.,
342), said: “If the alteration were material, but not fraudulently
done, the party may recover upon the original consideration.” To the
same effect may be cited the following cases: (Clough vs. Seay, 49 Iowa, 111; Sullivan vs. Rudisill, 63 Iowa, 158; 2 Corpus Juris, 1181; 32 Cyc. of Law and Pr., 185, 186; Cambridge Savings Bank vs. Hyde, 131 Mass., 77; 2 Cyc. of Law and Pr., 183.)

It will be noted that the original contract was not actually altered or
changed. The plaintiff simply notified Mr. Gooch that he would have to
pay the additional rate of interest. Mr. Gooch was under no obligation
to pay the extra rate of interest. He promised to pay the extra rate of
interest perhaps to avoid an immediate demand for the payment of the
principal. The change of the rate of interest was a collateral
agreement between the Bank and Mr. Gooch. When he promised to pay the
extra rate of interest on demand of the plaintiff, it was his contract,
separate and apart from his original contract. His agreement to pay the
additional rate of interest was an additional burden upon him. It was
an obligation assumed by him, and in no way affected the original
contract of the appellant. The appellant’s liability remained
unchanged. (Keene’s Admr. vs. Miller, 103 Ky., 628; Parson on Bills & Notes, 571; Chitty on Bills, 212; Matteson vs. Ellsworth, 33 Wis., 488.)

Mr. Redfern was still liable together with his principal for whatever
sum remaining due under his bond at the time of the demand of the
plaintiff, calculated in accordance with the terms of the bond. The
record is, therefore, hereby ordered to be returned to the lower court,
with direction that the plaintiff be given an opportunity to show by
proper and competent evidence the amount which was due at the time of
the demand in accordance with the terms of the contract and bond, with
the privilege, of course, on the part of the appellant to present
whatever proof he may have per contra. And without any finding as to
costs it is so ordered.

Street, Malcolm, Avanceña, Villamor, Johns, and Romualdez, JJ., concur.