Visayan Surety & Insurance Corporation v. Cruz
REITERATIONFacts
The Antecedents: Visayan Surety & Insurance Corporation (plaintiff-appellee) filed an action against Fructuosa Tabares, Panfilo Sabellano, and Roman A. Cruz (appellant) based on a written bond executed by them. The bond stipulated that the undersigned jointly and severally applied to the Corporation to be guarantors of a bond in the sum of P5,300 in favor of The Bachrach Motor Co., Inc. The defendants agreed to indemnify the Corporation for any loss, costs, payments, and expenses, including 15% attorney's fees, that may arise from guaranteeing the bond. Procedural History: The Court of First Instance of Manila rendered a decision sentencing the defendants, including appellant Roman A. Cruz, to pay jointly and severally the plaintiff the sum of P2,511.84, plus 15% thereof for attorney's fees, with legal interest and costs. Roman A. Cruz appealed this decision to the Supreme Court. The Appeal: The appellant, Roman A. Cruz, contended that the court erred in not holding that he only guaranteed the obligation of his co-defendants by virtue of the note they executed in favor of Bachrach Motor Co., Inc. He also argued that a subsequent contract between the plaintiff and his co-defendants novated the contract of guaranty without his knowledge or consent. Furthermore, he claimed the court erred in rendering judgment against him and in denying his motion for a new trial.
Issue(s)
Whether the appellant, Roman A. Cruz, is solidarily liable with his co-defendants under the bond executed in favor of the plaintiff. Whether the contract entered into between the plaintiff and defendants Tabares and Sabellano on May 12, 1934, constituted a novation of the original contract of guaranty signed by the appellant.
Ruling
The Supreme Court affirmed the decision of the lower court. It held that Roman A. Cruz is jointly and severally liable with his co-defendants under the bond. The Court found no novation of the contract of guaranty.
Ratio Decidendi
On Issue 1: The Supreme Court held that the appellant is solidarily liable. The Court emphasized that the terms of the written contract, specifically the phrase "jointly and severally," must be followed. The appellant's argument that his signature placement indicated a subsidiary role was deemed weak. The Court clarified that while the contract was one of guaranty, the liability contracted was solidary in character, making him directly and personally answerable for the entire obligation, pursuant to Articles 1137, 1138, and 1837 of the Civil Code. The intention of the contracting parties, as expressed in the clear terms of the bond, was to create a solidary obligation. On Issue 2: The Supreme Court ruled that the contract entered into between the plaintiff and defendants Tabares and Sabellano on May 12, 1934, did not operate as a novation of the original contract of guaranty. The Court explained that the purpose of this subsequent contract was to facilitate the payment of the plaintiff's advances to Bachrach Motor Co., Inc., and it did not contain any stipulation substantially contrary to or amendatory of the clauses of the original guaranty contract. According to Article 1204 of the Civil Code, for an obligation to be extinguished by another, it must be expressly declared, or the old and new obligations must be incompatible in every respect, neither of which conditions were met in this case. The Court also noted that the agreement regarding the disposition of the Austin cars did not substantially alter the original note, as the note itself did not prohibit the owners from disposing of the automobiles.
Main Doctrine
The Supreme Court affirmed the solidary liability of a guarantor who signs a bond 'jointly and severally' with the principal debtors. The Court emphasized that the literal meaning of the contract's terms must be followed, and the appellant's attempt to argue for a subsidiary liability based on signature placement was rejected. Moreover, the Court clarified that a subsequent contract does not effect a novation of a prior obligation unless expressly stated or if the obligations are incompatible in every respect, thereby upholding the original contract of guaranty.