NATIONAL SHIPYARDS & STEEL CORPORATION, PLAINTIFF-APPELLEE, VS. CARIDAD J. TORRENTO AND MUTUAL SECURITY INSURANCE CORPORATION, DEFENDANTS-APPELLANTS.

On December 5, 1958,
defendant Caridad J. Torrento
applied with the National Shipyards & Steel Corporation (hereinafter
referred to as NASSCO) for the purchase on credit of 60 tons of steel bars,
3/8″ deformed or plain, at P430.00 per ton, for a 120-day period.

A contract of purchase and sale was executed on January 13, 1959, but was
subsequently amended when plaintiff exhausted its stock of 3/8″ plain
steel bars.  As amended, the quantity of
steel bars stated to be 60 metric tons in the original contract was changed to
59.31 metric tons; the price was changed from P430.00 to P435.00 per metric
ton; and the specification of the steel bars was also changed from “plain,
round or corrugated” to “deformed“.

Pursuant to the stipulation in the contract that the value of steel bars sold to defendant Torrento should be secured by a surety bond issued by a
reputable bonding company, defendant Torrento as
principal and MUTUAL SECURITY INSURANCE CORPORATION, as surety executed in favor of plaintiff a
surety bond (S. 1754) on January 23, 1960. 
When it was noted that the undertaking under the bond was only P25,000.00, whereas the contract called for the payment of
P25,800.00, defendant surety executed a supplemental bond increasing the amount
to P25,800.00.

On February 6, 1959, when
NASSCO could no longer supply the steel bars called for in the contract of
purchase and sale inasmuch as its stock of 3/8″ deformed steel bars had
been exhausted, the plaintiff and defendant Torrento
executed a supplemental agreement, the pertinent provisions of which read:

“x x x Whereas the NASSCO has agreed to sell to the vendee and the
vendee has agreed to buy from the NASSCO… 
Fifty Nine and thirty one hundreths (59.31) metric tons of steel bars on credit basis
for size and price as follows:

3/8″ deformed 20
ft. or

30 ft. at P435.00 per
ton

“Whereas, after consummation of said contract, only the
following amount of steel bars were delivered to the vendee, as follows:

20.67 M.T. 3/8″ deformed

and that there
were no more available stock of steel bars of size 3/8″ x 20′ or 30′
deformed.

“Now therefore, for and in considera­tion of the foregoing
premises, the parties hereby agree to modify and/or amend their said contract
as follows:

“1.  That the NASSCO shall sell to the vendee and
the vendee shall buy from the NASSCO, 38.50 tons of steel bars on credit basis
subject to availability of stock in the following sizes and prices, to wit:

25 M.T. -1/2″
x 30 deformed

at P440.00 per
ton

13.50 M.T. – 5/8″ x 30 de­formed at
P430.00 per ton

“2.  That aside from the above amendment and/or
modification, the said contract shall not be affected, altered, or modified in
any way.”

Pursuant to the contract of purchase and sale and the
supplemental contract, NASSCO delivered to defendant Torrento
steel bars in the total value of P25,794.09.  The 120-day period for payment lapsed.  Demand letters were sent, but defendant
surety made no reply.  Defendant Torrento did not question her liability, but only asked for
a 3-month extension to settle her account.

Action was brought to recover the unpaid contract price from
defendant Torrento and her surety.  On October
18, 1960, the lower court rendered judgment:  “ordering the defendants, jointly and
severally, to pay the plaintiff the sum of P25,794.09,
with interest thereon at the rate of 12% per annum, from August 29, 1959 until full payment, and the costs
of suit.  On the cross-claim, judgment is
hereby rendered, ordering the cross-defendant Caridad
J. Torren­to to pay the cross-plaintiff Mutual
Security Insurance Corporation whatever sums the latter would pay the plain­tiff
by virtue of this judgment, with interest thereon at the rate of 12% per annum,
from the date of payment to plaintiff, until full payment, and the costs of
this suit.”

Defendants interposed an appeal to the Court of Appeals, which
later on certified the case to Us on the ground that
the errors assigned raise only questions of law.

Appellant Torrento maintains that
plaintiff has no cause of action against her for the reason that inasmuch as
she had paid the corresponding premium on the surety bond, the right of action,
in case of her default, is ex­clusively against her surety.  Further, with respect to the cross-claim of
the Surety, Torrento claims that it was error for the
lower court to take cognizance of the same even before payment by said surety
to NASSCO had been made.  In other words,
Torrento argues that the cause of action alleged in
the cross-claim does not arise until after pay­ment has been made by the surety
to the plaintiff.

We find both arguments
without merit.  The surety bond (Exhibit
C and C-1) states in very clear terms that both principal and surety are held
and firmly bound unto the NASSCO in the sum of P25,800.00 for the payment of which
they bind themselves, jointly and severally. “If a person binds
himself solidarily with the principal debtor, x x x the contract is called suretyship” (Art. 2047, C.C.), in which case the
provisions of the Civil Code with respect to joint and solidary
obligations apply; and Article 1216 of the Civil Code provides that “the
creditor may proceed against any of the solidary
debtors or all of them simultaneously.  x x x“.  It has been repeatedly held that although as
a rule sureties x x x are
only subsidiarily liable for an obligation,
nevertheless, if they bind themselves jointly and severally, or in
solidum, with the principal debt­or, the
creditor may bring an action against anyone of them, either alone or together
with the principal debtor (Molina vs. de la Riva, 7 Phil. 345; Chinese Chamber
vs. Pua Te Ching, 16 Phil.
406; La Yebana vs. Valenquela,
67 Phil. 482; Chunaco vs. Tria,
63 Phil. 500).

With respect to the contention that the lower court erred in
taking cognizance of the surety’s cross-claim, suffice it to say that this
point was not raised in the court a quo and, consequently may not
be raised for the first time on appeal. 
Besides, as the lower court also stated in its decision, “defendant
Torrento made no effort to dispute this (cross-claim)
of defendant surety and did not even bother to cross-examine the witness who
identified the said indemnity agreement,” which is the basis of the
cross-claim.

For its part, appellant surety company maintains that the
execution of the supplemental agreement of February 6, 1959 without its knowledge and consent
released it from any liability under the surety bond as there was a material al­teration
of the principal contract.  We find the
contention without merit.  The court a quo
analyzed the factual set-up as follows:

“x x x An
examination and comparison of the contract and the supplemental agree­ment will
reveal that the only change or alteration consists of the following: Instead of
the original stipulation for the purchase and sale of 3/8, 20′ or 30′, deformed
steel bars, at P435.00 per ton, which kind of steel bars were no longer
available in stock, the supplemental agreement provides for the sale by the
plaintiff to defendant Torrento of other sizes of deformed steel bars at prices of
P430.00 and P440.00 per metric ton. 
Specifically, the changes are in the diameter of the steel bars which originally was 3/8″, to 1/2 and 5/8″; and the
price from P435.00 per ton, to P430.00 per ton for the 1/2″ bars.  The
amount of steel bars to be sold
to defendant Torrento remained the same. 
The length and the
deformed quality of the bars likewise remained unchanged.  It
is even specifically provided in Par. 2 of the supplemental agreement that
“aside from the above amendments and/or modifications, the said contract
(referring to the ori­ginal contract) shall not be affected, altered or
modified in any way.” There was no alteration in the principal con­dition of
the contract.  The period of
payment was not changed, and the amount of the liability of the prin­cipal
debtor and of the surety
was also untouched.  There was no added burden imposed upon or
assumed by the buyer.” (underlining supplied)

The court then concluded:

“x x x In
short, the supplemental agreement did not result in the principal debtor’s
assuming more onerous conditions than those stipulated in the original
contract, and for which the surety fur­nished the bond.  There was consequently, no material or
essential alteration of the original contract which could result in the release
of the surety from the obliga­tion under the said bond.”

We see no error in the
ruling of the lower court just quoted.

In Pacific Tobacco Corporation vs. Lorenzana,
et al., G.R. L-8086, October 31, 1961
it was held:  “for purposes of
releasing a surety’s obligation, there must be a material alteration of
the contract in connection with which the bond is given, a change which imposes
some new obligation on the party
promising or takes away some obligation already imposed, changing the legal
effect of the original contract and not merely the farm thereof.  x x x To allow compensated surety companies to collect and retain premiums for their services and
then repudiate their obligations
on slight pretexts which have no relation to the risk, would be most unjust and
immoral, and would be a perversion of the wise and just rules designed for the
pro­tection of voluntary sureties.”

While it is the rule that the liability of a surety is limited by
the terms of the surety bond fixing its liability and that such liability
cannot be extended by implica­tion, it should be noted in the present case that
although the technical specifications of the items to be purchased have been
changed, it clearly appears that such changes are not substantial and have not
added any other liability to that originally assumed.  A surety is not released by a change in the
contract which does not have the effect of making its obligation more
onerous.  (Visayan
Distributors Inc. vs. Flores, 92 Phil. 145).

Wherefore, the appealed decision is hereby affirmed, with
costs against defendants-appellants.

Concepcion, C.J., Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez, and
Ruiz Castro, JJ., concur.