Cacho v. Valles
REITERATIONFacts
The Antecedents: The National Sporting Club, Inc. executed a promissory note for P9,360 payable four months after date to Jose Ma. Cacho. Below the Club's signature, five individuals, including Baldomero Roxas, signed a personal guaranty stating, "We guarantee this obligation." Procedural History: The promissory note was not paid at maturity. Jose Ma. Cacho filed an action against the National Sporting Club and the guarantors. The Club and four of the guarantors defaulted. Baldomero Roxas interposed a defense, claiming the benefit of division among co-sureties and demanding that the property of the National Sporting Club be exhausted before he be held liable for his aliquot part. The trial court initially rendered judgment against the five guarantors, requiring each to pay their pro rata share. Subsequently, upon motion, the trial court modified its decision, declaring that in case any surety turned out to be insolvent, his part would fall proportionately upon the other sureties. The Appeal: Baldomero Roxas appealed the trial court's order modifying the dispositive part of its decision, arguing that the trial judge erred in holding him responsible for more than his aliquot proportion of the debt, given that the guaranty did not stipulate solidary liability.
Issue(s)
Whether, in the case of insolvency of one or more of several simple sureties, the remaining solvent sureties can be made to pay the entire debt or the share of the insolvent surety. Whether the trial court erred in modifying its judgment to make solvent sureties liable for the proportionate share of an insolvent co-surety.
Ruling
The Supreme Court reversed and set aside the trial court's order of June 20, 1922, reinstating the original judgment of May 9, 1922. The Court held that Baldomero Roxas is only liable for his aliquot part of the debt, and the solvent sureties are not liable for the share of an insolvent co-surety unless specific conditions are met.
Ratio Decidendi
On Issue 1: The Court held that under Articles 1137 and 1138 of the Civil Code, where there is a concurrence of two or more simple debtors, each is liable only for his aliquot part of the obligation. This principle extends to co-sureties under Article 1837 of the Civil Code, which explicitly states that the liability shall be divided among them all, and the creditor can claim from each surety only his proportional part, unless liability in solidum has been expressly stipulated. The Court clarified that the benefit of division is lost in cases of bankruptcy or insolvency of the principal debtor, or when a surety binds himself solidarily with the debtor or other co-sureties, or when a co-surety becomes bankrupt. However, mere insolvency, which implies the exhaustion of assets or inability to collect upon execution, is distinct from declared bankruptcy. The record did not show that any of the sureties were declared bankrupt, thus the benefit of division was not lost. On Issue 2: The Court found error in the trial court's modification of its judgment, which made solvent sureties liable for the proportionate share of any insolvent surety. The Court reasoned that Article 1844 of the Civil Code, which might have been the basis for the trial court's decision, is inapplicable because it deals with a situation where one surety has already paid the debt to the creditor and is seeking contribution from co-sureties. In this case, no surety had paid the debt. Furthermore, the third paragraph of Article 1844 requires that the surety paying the debt should have done so by virtue of judicial proceedings or when the principal debtor should have become insolvent or bankrupt, none of which had occurred. The Court emphasized that the obligation of a surety cannot be extended beyond its specified limits, and doubtful intendments should not be adopted against him.
Main Doctrine
In the absence of a stipulation for solidary liability, co-sureties are only liable for their aliquot share of the debt. The benefit of division is a right granted to simple sureties, meaning each surety is only bound to pay a proportional part of the debt. This benefit is lost only under specific circumstances enumerated in the Civil Code, such as the bankruptcy of a co-surety, but not merely upon the insolvency of a co-surety unless such insolvency is equivalent to bankruptcy or the surety has been declared bankrupt.