Case Summary (G.R. No. 24543)
Petitioner and Respondent (procedural posture)
Plaintiff sued Bosque and Pomar as principals and France and Goulette as solidary sureties for P20,509.71 (with interest). Ruiz (Pomar) defaulted; judgment by default entered against him. Trial court rendered judgment for the plaintiff in the principal amount of P19,230.01 with stipulated interest and additional accrued interest; defendants Bosque, France, and Goulette appealed.
Key Dates and Places
Contract of sale executed on or before September 17, 1919; sale located in Manila (89 Escolta). Substitution of agency dated January 22, 1920. Payments, promissory notes, corporate transfers, and the contract identified as Exhibit 1 occurred during 1920–1922; partnership-to-corporation transfer dated April 21, 1922. Decision under review rendered by the trial court and appealed to the higher court.
Applicable Law
The case is decided under the law in force at the time of the dispute (Civil Code principles derived from Spanish law and relevant common law doctrines cited in the record). Specific provisions discussed include Civil Code articles concerning the effect of extension of time upon sureties (notably article 1851, with reference to article 1852). The court also invokes prevailing Spanish jurisprudence and English/American authorities cited in the record to explain the rule on extensions and the separate liability of sureties for distinct obligations.
Contract of Sale: terms, suretyship, and renunciations
Plaintiff sold the printing establishment to Bosque and Pomar for P55,000, payable in four instalments (P15,000 at possession; P10,000 at one year; P15,000 at two years; P15,000 at three years). Deferred instalments bore interest at 7% per annum. France and Goulette executed a solidary suretyship for the principals, expressly renouncing the benefit of exhaustion of the property of the principals (i.e., they waived the requirement that the creditor exhaust remedies against the principals’ assets first).
Substitution of agency and its limited scope
When Manuel Pirretas left the Philippines, he executed a partial substitution of agency (Exhibit B, dated January 22, 1920) that purported to transfer to Figueras Hermanos (or its legal representative) the powers previously granted to Pirretas. The substitution on its face limited Figueras Hermanos’s authority to effect collection of sums due under the sale (issuing receipts, vouchers, etc.). The instrument’s language explicitly confined the substitute authority to collection of the balance of the selling price.
Extension of time for the second instalment: promissory notes and interest change
Because the purchasers could not meet the second-instalment obligation when due, negotiations between the purchasers and representatives of Figueras Hermanos resulted in an arrangement: Figueras Hermanos accepted P5,800 on November 10, 1920, and took five promissory notes totaling P7,000 (maturing December 1, 1920–April 1, 1921). The deferred obligation under these notes was to bear 9% per annum instead of the contract rate of 7%. Those notes were paid in full by Bosque by December 24, 1921.
Transfer of business and Exhibit 1: alleged novation and release of sureties
The business was converted into a partnership, Guillermo Garcia Bosque, S. en C., and then a corporation, Bota Printing Company, Inc., which purportedly assumed the partnership’s obligations. Exhibit 1 (attached to defendants’ answer) recited a P32,000 indebtedness and purported to relieve France and Goulette of liability as sureties. Under Exhibit 1 the creditor (expressed as “p.p. Rosa Villa… M. T. Figueras”) allegedly accepted Bota Printing Co., Inc. as debtor for P20,000 and George Andrews as debtor for P12,000. Defendants contend Exhibit 1 effected a novation and discharge of both principals and sureties.
Central legal issue: whether Exhibit 1 bound the plaintiff (authority and ratification)
The principal legal question is whether Exhibit 1 bound Rosa Villa such that she released the sureties and was precluded from suing. The court examined the scope of the substituted agency (Exhibit B) and the manner Exhibit 1 was executed. The substitution authorized Figueras Hermanos to collect money; it did not confer authority to novate obligations or to discharge debtors or sureties without payment. On its face Exhibit B was limited; it did not authorize Figueras (personally) to novate the contract.
Defects in execution of Exhibit 1 and evidence of lack of authority
Exhibit 1 was signed by M. T. Figueras purporting to act for the plaintiff, but the substitution granted authority only to Figueras Hermanos or its legal representative; the record lacks proof that M. T. Figueras was the legal representative of Figueras Hermanos or acted in that capacity. Moreover, documentary correspondence in the record shows Figueras acted contrary to express instructions from Pirretas (and thus contrary to the principal’s intent): Figueras’s own letters show he intended to secure the guaranty of France and Goulette, and Pirretas’s letters (from Barcelona) confirm the plaintiff’s willingness to accept arrangements only with the guaranty of France and Goulette intact. These defects and contrary instructions demonstrate Figueras lacked authority to execute the release/novation on behalf of the plaintiff.
Ratification and application of payments received from the corporation
Defendants argued that the plaintiff ratified Exhibit 1 by accepting P14,000 paid by Bota Printing Co., Inc. The court rejected this contention. The corporate assumption of the partnership’s debts rendered Bota a primary debtor; plaintiff therefore lawfully accepted payments from the corporation and applied them to the third instalment under the original contract. Most payments were made before the execution of Exhibit 1; the plaintiff was entitled to accept and retain those sums without thereby ratifying Exhibit 1 or releasing the sureties. The later small payment (P200) did not alter that result.
Effect of extension of time on the sureties’ liability
France and Goulette asserted that the execution of the new promissory notes for the second instalment (and the consequent extension of time) discharged them as sureties for all obligations. The court recognized the general rule under article 1851 of the Civil Code (and supporting jurisprudence) that an extension of time without a surety’s consent will discharge the surety as to the obligation extended. However, the extension and novation effected by the promissory notes related only to the second instalment and accrued interest, which were subsequently paid in full; consequently the extension cannot operate to discharge the sureties with respect to other instalments that are the subject of the present suit. The court further noted established authority that an extension as to one obligation does not generally affect a surety’s liability for distinct obligations in a series of instalments.
Contract clause regarding acceleration (clause f) and its effect
The sale contract contained a clause (f)
...continue readingCase Syllabus (G.R. No. 24543)
Court, Citation, and Decision Author
- Reported at 49 Phil. 126, G.R. No. 24543, decided July 12, 1926.
- Decision written by Justice Street.
- Judgment of the trial court affirmed; costs against the appellants.
- Justices Avancena, C. J., Villamor, Ostrand, Johns, Romualdez, and Villa-Real concurred.
Procedural Posture
- Action instituted in the Court of First Instance of Manila by plaintiff Rosa Villa y Monna (widow of Enrique Bota) to recover P20,509.71 with interest as balance due on purchase price of a printing establishment and bookstore.
- Defendants named: principals Guillermo Garcia Bosque and Jose Pomar Ruiz; sureties R. G. France and F. H. Goulette.
- Defendant Jose Pomar Ruiz defaulted after publication; judgment by default entered against him.
- Other defendants (Bosque, France, Goulette) answered with general denial and special defenses.
- Trial court awarded plaintiff P19,230.01 (capital) with stipulated 7% per annum interest, plus P1,279.70 as accrued unpaid interest as of suit institution with 6% per annum interest on that accrued interest.
- Guillermo Garcia Bosque, R. G. France, and F. H. Goulette appealed.
Parties and Capacities
- Plaintiff: Rosa Villa y Monna, widow of E. Bota, resident of Barcelona, Spain; owner of the business sold; acted through attorney-in-fact Manuel Pirretas y Monros.
- Purchasers/Principals: Guillermo Garcia Bosque and Jose Pomar Ruiz, residents of Manila.
- Solidary sureties: R. G. France and F. H. Goulette, who expressly renounced benefit of exhaustion of the property of the principals in the sale contract.
- Attorney-in-fact originally: Manuel Pirretas y Monros (acting for plaintiff); he later left the Philippine Islands and purportedly substituted Figueras Hermanos (Exhibit B).
- Representative who negotiated settlement: M. T. Figueras (individual who signed Exhibit 1 purporting to bind the plaintiff).
Subject Matter of the Suit — Property and Sale
- Property: printing establishment and bookstore known as "La Flor de Cataluna, Viuda de E. Bota," located at 89 Escolta, Manila, including machinery, motors, bindery, type material, furniture, and stock.
- Sale executed on September 17, 1919 (date stated as prior to September 17, 1919); purchaser possession date and payment schedule set in sale contract.
Terms of the Original Contract of Sale
- Total purchase price: P55,000.
- Payment schedule:
- P15,000 on November 1 next ensuing upon contract execution (date of taking possession).
- P10,000 at one year from same date (second instalment).
- P15,000 at two years.
- P15,000 at three years.
- Deferred instalments bear interest at 7% per annum.
- France and Goulette obligated as solidary sureties for all balances including interest, expressly renouncing benefit of exhaustion of principals' property (i.e., solidary sureties).
Performance and Subsequent Events: Payment, Substitution of Agency, and Promissory Notes
- First instalment (P15,000) paid as agreed.
- In 1920 Manuel Pirretas y Monros left the Philippine Islands for a prolonged visit to Spain.
- On January 22, 1920, Pirretas executed a document purporting to be a partial substitution of agency (Exhibit B), transferring to "the mercantile entity Figueras Hermanos, or the person, or persons, having legal representation of the same," powers previously conferred on Pirretas — expressly to collect sums due to plaintiff for the sale of the bookstore and printing establishment, issuing receipts and other documents for collections.
- When the second instalment and accrued interest came due, purchasers (Bosque and Ruiz) were unable to pay in full.
- Negotiations occurred between purchasers and Alfredo Rocha, representative of Figueras Hermanos, acting as attorney-in-fact for the plaintiff.
- Agreement reached: Figueras Hermanos accepted P5,800 on November 10, 1920, and received five promissory notes for the balance, payable on the following dates and amounts:
- December 1, 1920: P1,000
- January 1, 1921: P1,000
- February 1, 1921: P1,000
- March 1, 1921: P2,000
- April 1, 1921: P2,000
- Total of these notes: P7,000.
- It was agreed those deferred instalments would bear 9% per annum (instead of the 7% in the original contract).
- These notes were not paid promptly at maturity but the balance upon them was finally paid in full by Bosque on December 24, 1921.
Conversion of Business and Corporate Assumption of Liabilities
- The owners of "La Flor de Cataluna" appear to have converted the business into a limited partnership under the style "Guillermo Garcia Bosque, S. en C."
- A corporation, Bota Printing Company, Inc., was formed to take over the business.
- On April 21, 1922, the partnership conveyed all its assets to Bota Printing Co., Inc., for the purported consideration of P15,000.
- Bota Printing Co., Inc., obligated itself to pay all debts of the partnership, including the sum of P32,000 due to the plaintiff (as represented in Exhibit 1 recitals).
Exhibit 1 — Agreement (Purported Novation and Release)
- Exhibit 1 (attached to defendants' answer) recited:
- Guillermo Garcia Bosque, S. en C., indebted to Rosa Villa, viuda de E. Bota, in the amount of P32,000, for which France and Goulette were jointly and severally bound.
- The partnership transferred all assets to Bota Printing Co., Inc., in which George Andrews was a principal stockholder.
- Stipulations in Exhibit 1:
- France and Goulette are to be relieved from all liability on their contract as sureties.
- In lieu thereof, the creditor (Dona Rosa Villa y Monna) accepts Bota Printing Co., Inc., as debtor to the extent of P20,000, which indebtedness was expressly assumed by it.
- George Andrews undertook to be debtor to the extent of P12,000, to be paid at the rate of P200 per month.
- Signatures/Execution:
- Name of partnership "Guillermo Garcia Bosque, S. en C." affixed by Guillermo Garcia Bosque.
- Name of Bota Printing Co., Inc. signed by G. Andrews; G. Andrews also signed in his individual capacity.
- Plaintiff's name affixed by M. T. Figueras as "p.p. Rosa Villa, viuda de E. Bota, M. T. Figueras, party of the second part."
- Defendants France and Goulette relied upon Exhibit 1 as a complete defense (release); Bosque also relied upon Exhibit 1 as a novation relieving him of personal liability.
Main Legal Issue Presented
- Whether Exhibit 1 (the agreement purporting to release sureties and effect a novation) binds the plaintiff Rosa Villa y Monna.
- If Exhibit 1 binds the plaintiff, she would have no right of action against the defendants named.
Court’s Analysis — Scope of Substituted Power (Exhibit B) and Authority of Figueras
- Exhibit B (partial substitution of agency) purported to confer on Figueras Hermanos (or their legal representative) the powers previously conferred on Pirretas; the face of Exhibit B limits the su