G.R. No. 197762 - Career Executive Service Board vs. Civil Service Commission

Petitioner: Menzi & Co., Inc., a corporation engaged in the sale of merchandise on credit.
Respondent: Quing Chuan, acting as the administrator of the intestate of Quing Tong Co., which had executed a bond as surety.

King Meng purchased merchandise from Menzi & Co. on credit.
On October 3, 1932, an existing indebtedness of P3,168.80 was recorded against King Meng.

To secure the credit transaction, Menzi & Co. required King Meng to have a surety bond executed for P10,000 by Quing Tong Co.
The bond contained specific conditions, including:

Guaranteeing the payment for merchandise and goods purchased by King Meng in his own name or that of King Yap Yek.
Payment according to the terms set forth in the invoices, including an interest rate of 12% on the value of the merchandise from the date of maturity.

Following the initial indebtedness, King Meng made additional purchases amounting to P32,453.70 on various dates.
Combining the additional purchases with the initial debt resulted in a total indebtedness of P35,622.30.
King Meng made payments totaling P35,264.60.

Menzi & Co. applied King Meng’s payments first to the original indebtedness of P3,168.80 and then to the successive purchases.
This method of application created a remaining balance of P358 claimed by the corporation, along with accrued interest and attorney’s fees.
The crucial issue arose as to whether such payment application was appropriate, considering there were two distinct debts—one preexisting and non-guaranteed and the other incurred after the bond's execution and subject to the surety’s guarantee.

At the trial court level, a judgment was rendered in favor of Menzi & Co., Inc.
On appeal, the Court of Appeals reversed the trial court’s decision, absolving the administrator of the intestate of Quing Tong Co. from liability based on the bond.
The Supreme Court, in its decision authored by Justice Concepcion, examined the issue further in light of the proper application of payments and the extent of the surety’s liability.

Whether the surety (Quing Tong Co.) is liable for debts incurred by King Meng before the execution of the bond.
The limits of a surety bond, specifically whether it extends to preexisting indebtedness not covered by the bond’s conditions.

Whether the payments made by King Meng should have been applied in the order implemented by Menzi & Co.
The question of which indebtedness is deemed the “most burdensome” under the relevant law—particularly given the different interest rates attached to the two debts.

Whether, in the absence of an agreement to the contrary, the payments should first be applied to the indebtedness that is more burdensome (i.e., the debt that accrues a higher interest rate).