Radio Corporation v. Roa
REITERATIONFacts
The Antecedents: Jesus R. Roa became indebted to Philippine Theatrical Enterprises, Inc. in the sum of P28,400, payable in seventy-one equal monthly installments of P400, commencing thirty days after December 11, 1931. On the same date, the debt and contract were assigned to Radio Corporation of the Philippines (RCP). The contract included an accelerating clause stating that upon failure to pay any installment, the whole amount remaining unpaid shall immediately become due and payable, and the mortgage and surety bond may be foreclosed. Ramon Chavez, Andres Roa, and Manuel Roa acted as sureties for Jesus R. Roa. Procedural History: The Court of First Instance of Manila rendered judgment in favor of RCP, ordering Jesus R. Roa to pay specific sums and attorney's fees, and ordering Jesus R. Roa, Ramon Chavez, Andres Roa, and Manuel Roa to pay jointly and severally P10,000 plus costs. Chavez and the Roas appealed the P10,000 joint and several liability. The Petition: The appellants (Chavez, Andres Roa, Manuel Roa) argued that the court erred in holding them liable for P10,000 and costs, asserting that the extension granted to Jesus R. Roa for an overdue installment, without their consent, should have released them from all subsequent liabilities, including the P10,000. They also raised issues regarding the immediate maturity of the debt upon default and the release of sureties due to the unauthorized removal of photophone equipment.
Issue(s)
Whether the extension of time granted by the creditor to the principal debtor for a single installment, in the presence of an automatic acceleration clause, results in the discharge of the sureties from the entire obligation under Article 1851 of the Civil Code.
Ruling
The Supreme Court reversed the judgment of the trial court as to the appellants Ramon Chavez, Andres Roa, and Manuel Roa, absolving them from the P10,000 joint and several liability and costs. The Court found that the extension granted to Jesus R. Roa for the February 1932 installment, without the consent of the guarantors, effectively extended the payment of the entire indebtedness, thereby discharging the guarantors in conformity with Article 1851 of the Civil Code.
Ratio Decidendi
On Issue 1: The Supreme Court held that the sureties are entirely discharged from their liability. The Court distinguished this case from Villa v. Garcia Bosque, where the acceleration clause was merely 'potestative' (giving the creditor the right to treat the debt as due). In the present case, the contract expressly provided that the whole unpaid balance 'automatically' and 'immediately' becomes due and payable upon failure to pay one installment. Since the February 1932 installment was not paid, the entire balance of the debt matured 'ipso facto' on that date. When the plaintiff's agent subsequently wrote to the debtor on March 15, 1932, acknowledging a partial payment and granting an extension for the balance of the February installment until April, this constituted an extension for the payment of the whole amount of the indebtedness. Under Article 1851 of the Civil Code, an extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the latter's liability. The Court emphasized that it is unimportant whether the extension proved prejudicial; the mere suspension of the right to sue, even for a short period, prevents the surety from being subrogated to the rights of the creditor to collect from the principal immediately. Because the creditor tied its own hands from proceeding promptly, the sureties were released from their bond for the entire matured amount.
Main Doctrine
An extension of time granted to the principal debtor by the creditor, without the consent of the guarantor, extinguishes the latter's liability, especially when the contract contains an accelerating clause that makes the entire indebtedness due upon default of any installment, and the extension effectively suspends the creditor's right to immediately foreclose or collect the entire amount.