Menzi & Co. v. Quing Chuan
REITERATIONFacts
The Antecedents: King Meng purchased merchandise on credit from Menzi and Co., Inc. On October 3, 1932, his account showed a balance of P3,168.80. The plaintiff corporation required a bond for P10,000, which Quing Tong Co provided, guaranteeing payment for merchandise King Meng would purchase, with interest at 12% on the value of the merchandise from the date of maturity. King Meng subsequently purchased merchandise totaling P32,453.70. Including the preexisting debt, the total amounted to P35,622.30. King Meng made payments totaling P35,264.60. Procedural History: The plaintiff corporation applied the payments first to the original indebtedness of P3,168.80 and then to the successive purchases, resulting in a balance of P358. The trial court ruled in favor of the plaintiff. However, the Court of Appeals reversed this decision, absolving the administrator of the surety Quing Tong Co.'s intestate. The Petition: The case reached the Supreme Court on the issue of the extent of the surety's liability.
Issue(s)
Whether the plaintiff corporation correctly applied the payments made by King Meng. Whether the surety is liable for the balance of the original indebtedness.
Ruling
The appealed judgment of the Court of Appeals is affirmed. The administrator of the intestate of Quing Tong Co. is absolved from the complaint.
Ratio Decidendi
On the application of payments: The Supreme Court held that the plaintiff corporation's application of payments was erroneous. According to Article 1174 of the Civil Code, in the absence of any agreement to the contrary, payments made by a debtor, when there is more than one indebtedness, should be applied to the most burdensome of the matured debts. The debt of P32,453.70 was more burdensome than the old indebtedness of P3,168.80 because it earned interest at 12 percent, whereas the old debt did not earn interest. Furthermore, the period for payment of the invoices was one week, after which they became due and payable. Therefore, the various payments made by King Meng should have been applied first to the amount of the goods taken one week earlier. On the surety's liability for the original indebtedness: Consequently, the amount claimed by the plaintiff was the balance of the former indebtedness of P3,168.80. The Court ruled that the surety is not liable for this amount because the bond given by him cannot be extended to debts incurred before the execution thereof. The surety's obligation is limited to the debts contracted subsequent to the execution of the bond.
Main Doctrine
In the absence of agreement to the contrary, payments made by a debtor, when there is more than one indebtedness, should be applied to the most burdensome of the matured debts, which is the one earning interest.