Case Summary (G.R. No. 14918)
Key Facts
On August 20 and October 1, 1935, Tiu Seng, represented by Vda. de Tiu Seng and Tan Kiang, entered into two bonds (Exhibits 'A' and 'A-1') with the Far Eastern Surety & Insurance Company, binding them to pay the government P10,000 for internal revenue taxes and surcharges. The full amount owed by Tiu Seng was later ascertained to be P30,512.64. A compromise was later reached, reducing the tax liability to P12,874.17, to be paid in installments.
Payment Agreements and Dispute
Following negotiations, Tiu Seng agreed to pay a total of P11,644.12 towards the tax obligation, leaving a balance of P1,230.05. The central issue in the case is whether this remaining amount is covered by the bonds executed in favor of the Commonwealth. The defendant asserts that their liability was limited to the initial guaranteed amount of P10,000, while the plaintiff seeks to impose liability on the surety for the unpaid balance.
Legal Issues and Arguments
The defendant's primary argument is based on the notion that once the amount due under the bonds was satisfied, their obligation ceased. However, the trial judge contended that these payments should first be applied to the unsecured portion of Tiu Seng’s total tax liabilities, thus leaving the amount owed under the bonds subject to collection. The central question therefore revolves around the application of these payments.
Application of Payment Principles
Legal principles articulated in the Civil Code are relevant here. Specifically, Article 1826 discusses that the obligation of a guarantor may indeed be less than that of the principal debtor. Article 1172 outlines that a debtor can specify which debt a payment should be applied to, and Article 1174 states that if there is no indication otherwise, payments should be allocated to the debt that is the most burdensome.
Relevant Case Law and Judicial Precedent
The court referenced the case of Hongkong and Shanghai Banking Corporation vs. Aldanese, where similar issues regarding the application of payments arose. In that precedent, the court held that when a surety's liability is limited, payments made by the principal debtor should first be applied to the unsecu
...continue readingCase Syllabus (G.R. No. 14918)
Case Overview
- The case was decided by the Supreme Court of the Philippines, en banc, on April 13, 1949, under G.R. No. L-979.
- The Commonwealth of the Philippines is the plaintiff and appellee, while the Far Eastern Surety & Insurance Company is the defendant and appellant.
- The key legal issue revolves around the application of payments made by Tiu Seng to his tax liabilities and whether the remaining unpaid amount of P1,230.05 is covered by the surety bonds executed by the defendant.
Facts of the Case
- On August 20 and October 1, 1935, the Vda. de Tiu Seng and Tan Kiang, as a sociedad en comandita (limited partnership), executed two surety bonds with the Far Eastern Surety & Insurance Co., Inc.
- These bonds secured the payment of P10,000 for internal revenue taxes and surcharges due from Tiu Seng to the government.
- The bonds were filed before the exact amount of indebtedness was determined.
- The Collector of Internal Revenue subsequently assessed the total tax liability of Tiu Seng to be P30,512.64.
- A demand for payment went unfulfilled. However, a compromise was reached on November 6, 1936, reducing the tax due to P12,874.17.
- Tiu Seng proposed an installment payment plan, ultimately payin