Asiatic Petroleum Co. v. Hizon
REITERATIONFacts
The Antecedents: The Asiatic Petroleum Company (Philippine Islands), Ltd. (plaintiff) filed a civil action against Justino A. David, as principal debtor, and Francisco Hizon y Singian, as surety, to recover a balance of P51,560.12 due upon liquidation of accounts. David was an agent for the plaintiff selling petroleum products in San Fernando, Pampanga, and surrounding areas. Hizon executed a surety agreement (Exhibit B-1) to answer jointly and severally for David's obligations under the agency contract (Exhibit B). Procedural History: The Court of First Instance of Pampanga rendered judgment in favor of the plaintiff, ordering David to pay P40,786.98 and Hizon, as surety, to pay a portion not exceeding P5,000. Appeals were filed by both the plaintiff (contending Hizon should be liable for the full amount) and Hizon (claiming complete absolution). The Petition: The core of the dispute revolved around the extent of David's agency. Hizon contended that he only agreed to be surety for debts incurred by David as agent for San Fernando alone, not for the broader territory subsequently indicated in the agency contract. The Supreme Court's analysis focused on whether the agency contract was altered after Hizon signed the surety agreement.
Issue(s)
Whether Francisco Hizon y Singian is liable as a surety for the entire debt incurred by Justino A. David. Whether the alteration of the agency contract (Exhibit B) after the surety contract (Exhibit B-1) was executed, without the consent of the surety, releases Hizon from his obligation.
Ruling
The Supreme Court reversed the appealed judgment in so far as it awarded P5,000 against Francisco Hizon y Singian, completely absolving him from the complaint. The Court found that the agency contract was materially altered without Hizon's consent, thereby releasing him from his suretyship obligation.
Ratio Decidendi
On the issue of Hizon's liability as a surety for the entire debt: The Court found that Hizon's liability was limited to the obligations incurred by David as selling agent at San Fernando. This conclusion was based on evidence showing that the agency contract (Exhibit B) was altered after Hizon signed the surety agreement (Exhibit B-1). Specifically, the names of other municipalities (Guagua, Angeles, San Simon, Capas, Magalang, and Mabalakat) were inserted into Exhibit B after Hizon had acknowledged his suretyship. A comparison of Exhibit B with a copy of the agency contract preserved in the division of archives revealed that these additional places were absent from the archived copy, supporting Hizon's claim that his suretyship was only for the San Fernando agency. On the issue of whether the alteration of the agency contract releases Hizon: The Court held that any agreement between the creditor and the principal debtor which essentially varies the terms of the principal contract, without the consent of the surety, will release the surety from liability. This is a fundamental principle in the law of suretyship, applicable under both civil and common law. The extension of David's agency to other places beyond San Fernando constituted a material alteration that increased the potential liability of Hizon. Since this change was made without Hizon's knowledge or consent, it nullified his suretyship obligation entirely. The Court emphasized that the trial court's reasoning for holding Hizon liable to the extent of P5,000, based on his alleged intention to bind himself to that amount, was invalid because the surety contract itself was nullified by the subsequent alteration of the principal contract. Therefore, Hizon was discharged in toto.
Main Doctrine
A surety is released from liability if the principal contract is materially altered without the surety's consent, as such alteration prejudices the surety's interests and violates fundamental principles of suretyship law.