Facts:

The case involves the Bank of the Philippine Islands (BPI) as the plaintiff and appellant, and Albaladejo y Cia., S. en C., along with its sureties, including Isidro Martinez, as defendants. On September 27, 1919, Albaladejo y Cia. obtained a credit of P100,000 from BPI, which was secured by a bond executed by sureties Florencio Gordillo and Isidro Martinez. The bond specified that the principal amount would accrue interest at 8% per annum and required periodic payments, with a stipulation for a term of repayment of three months after demand.

OnApril 16, 1920, BPI raised the interest on the loan from 8% to 9% per annum. Initial payments continued until December 31, 1920, at which point the total capital debt amounted to P100,681.68. However, payments ceased thereafter, prompting BPI to file a lawsuit on January 15, 1925, against Albaladejo y Cia. and its partners for recovery of P136,536.26, inclusive of accrued interest at the new rate of 9%. During the case proceedings, the pa

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Facts:

Transaction and Bond Execution

• On September 27, 1919, Albaladejo & Co., a limited copartnership, obtained a current account credit of up to P100,000 from the Bank of the Philippine Islands at an interest rate of 8% per annum.
• To secure this credit, on September 30, 1919, Florencio Gordillo and Isidro Martinez, both residents of Manila, executed a bond as sureties for the principal obligation of Albaladejo & Co.
• The bond explicitly bound both the copartnership (as principal) and the sureties, together with their heirs and assigns, for the full sum of P100,000, with a stipulated condition regarding the repayment within three months after demand along with quarterly interest payments.

Terms and Conditions of the Bond

• The bond provided that if Albaladejo & Co. paid P100,000 within three months and made quarterly interest payments at 8% per annum, the surety’s obligation would become void.
• Otherwise, if the principal and accrued interest were not fully paid as required, the bond would remain in full force and effect.
• The bond was duly executed and acknowledged, with signatures from representatives of Albaladejo & Co. and the sureties, witnessed by designated individuals.

Subsequent Developments and Alterations

• On April 16, 1920, the bank unilaterally increased the interest rate from 8% to 9% per annum.
• Evidence (Exhibit C) showed that interest payments were made up to December 31, 1920, at which point the principal debt had grown to P100,681.68, after which payments were suspended.
• On January 15, 1925, the bank commenced legal action against Albaladejo & Co., its partners, and the sureties for the recovery of P136,536.26 representing the principal plus accrued interest at the new rate.

Litigation and Procedural History

• During the pendency of the case, Albaladejo & Co. along with its partners were declared insolvent and discharged from their debts, resulting in the dismissal of the case against them.
• The court below rendered judgment against the sureties Florencio Gordillo and Isidro Martinez, ordering them jointly and severally liable for the sum of P136,533.26 with interest at 9% per annum from January 1, 1921, plus the costs.
• On appeal, Isidro Martinez advanced several assignments of error questioning the lower court’s rulings on:
• The duty of the sureties to investigate the account and oppose any extension of time by the bank.
• The alleged novation arising from the bank’s unilateral actions—the interest rate increase and the purported extension of time—arguing these acts should release the sureties from liability.

Issue:

Duty and Responsibility of the Sureties

• Whether the sureties had a duty to actively inquire into the status of the principal debt and negotiate any extension of time with the creditor bank.
• Whether such an inquiry or failure to act could relieve them of their obligations.

Effect of the Bank’s Unilateral Actions

• Whether the bank’s increase of the interest rate from 8% to 9% per annum, effected without the consent of the sureties, constitutes a novation of the original obligation.
• Whether the alleged extension of time or delay by the bank in enforcing its rights over the principal debtor effectively released the sureties from their bond.

Novation and Discharge of Surety Liability

• Whether a purported novation—arising from the bank’s actions and the resulting delay—can be established to discharge the sureties from their contractual obligations.
• The legal effect of the bank’s inaction or delay in its recovery efforts against the principal debtor on the sureties’ continuing liability.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)