Subic Bay Distribution v. Stronghold Insurance Company

Summary

This consolidated case involves surety bond obligations in a petroleum products distribution agreement. Subic Bay Distribution sued Stronghold Insurance for payment under surety bonds when Prime Asia defaulted on petroleum purchases. The Supreme Court affirmed the dismissal of Subic Bay's complaint, ruling that Stronghold was discharged from liability because Subic Bay materially altered the distributor agreement by increasing the credit limit beyond PHP5,000,000.00 and extending payment terms beyond 15 days without Stronghold's knowledge or consent. Under Article 2079 of the Civil Code, such material alterations without the surety's consent extinguish the guaranty. The Court emphasized that surety contracts are strictly construed and that the eight bonds constituted a continuing surety for transactions within agreed parameters, not consent to exceed those limits. The third-party complaint was also dismissed as it was dependent on Stronghold's liability to Subic Bay.