Yulo v. Chua Chuco
REITERATIONFacts
The Antecedents: Maria Pacheco Vda. de Yulo, as administratrix of the estate of her deceased husband Jose Yulo y Regalado, filed a complaint against Chua Chuco, Maximo P. Gonzales, and Luis Amador. The defendants were sureties for the deceased Lucio Echaus in a civil case (No. 7914) where Philippine Trust Co. (PTC) obtained a judgment for P18,000.00. Lucio Echaus and Jose Yulo y Regalado executed a promissory note and a mortgage (Annex B) to secure the payment of P18,000.00 with 9% interest, payable in installments. Lucio Echaus died insolvent. PTC then filed a case against his administrator (Civil Case No. 6345) and obtained a judgment for P18,000.00 plus 9% interest and P3,500.00 for attorney's fees. Due to the insolvency of Lucio Echaus's estate, PTC pressed Jose Yulo y Regalado for payment. Jose Yulo y Regalado, to delay PTC's action, executed another mortgage (Annex C) with PTC for P23,500.00 (the original debt plus accrued interest) payable in installments, mortgaging Lot No. 534. Maria Pacheco, as administratrix and heir, and her daughters (also heirs) have paid P11,011.70 of this amount. The plaintiffs (Maria Pacheco and her daughters) are now demanding from the defendants (original sureties of Lucio Echaus) payment of three-fourths (3/4) of P23,500.00, or P17,625.00, representing their supposed share. Procedural History: The defendants filed a motion for new trial under Rule 38, alleging excusable negligence for their non-appearance at the scheduled hearing due to their lawyer's illness. The trial court denied this motion and proceeded to hear the case ex parte, rendering a decision against the defendants. The defendants appealed this decision. The Petition: The defendants-appellants contend that the trial court erred in (1) denying their motion for a new trial, (2) not declaring them released from their obligation as sureties, and (3) ordering them to pay P13,500.00 jointly and severally with interest and costs.
Issue(s)
Whether the defendants-appellants' motion for a new trial should have been granted. Whether the defendants-appellants were released from their obligation as sureties. Whether the defendants-appellants are liable for the amount claimed by the plaintiffs.
Ruling
The Supreme Court revoked the appealed decision and granted a new trial. The appellees were ordered to pay the costs.
Ratio Decidendi
On the issue of the motion for a new trial: The Court found that while it was not strictly a matter of right for the defendants to be granted a postponement, their belief that their petition would be considered with liberality was justified, given that the court had previously granted a similar privilege to the plaintiffs without a properly filed motion. The Court noted that the non-appearance of the defendants was excusable and that they appeared to have a valid defense. Therefore, the denial of the motion for a new trial was deemed an error. On the issue of release from obligation as sureties: The Court held that the obligation of the defendants-appellants as sureties under Annex A was extinguished. The original surety bond (Annex A) was for P18,000.00. However, the Philippine Trust Company required a mortgage (Annex B) instead of the surety bond, and granted Lucio Echaus installment terms with interest. This constituted a novation of the contract, as the new agreement was incompatible with the original surety bond. Article 1851 of the Civil Code states that an extension of time granted by the creditor to the principal debtor without the consent of the surety extinguishes the surety's obligation. The Court found no proof that the defendants consented to this extension or the subsequent agreements. On the issue of liability for the claimed amount: The Court found the plaintiffs' claim unsustainable. The defendants had no intervention in the execution of the mortgage under Annex C, nor did they consent to it. While Jose Yulo y Regalado's heirs might have had the right to seek reimbursement from the sureties for their proportional share of the P18,000.00 if Jose Yulo had paid it under Annex A, they could not claim three-fourths of P23,500.00, which was a new obligation incurred by the administratrix of Jose Yulo's estate. The Court concluded that the original sureties should be absolved.
Main Doctrine
A surety is released from his obligation when the creditor grants an extension of time to the principal debtor without the consent of the surety, as provided for in Article 1851 of the Civil Code. Furthermore, the execution of a new contract that is incompatible with the original contract constitutes novation, which extinguishes the original obligation and releases the sureties.