THE COMMONWEALTH OF THE PHILIPPINES, PLAINTIFF AND APPELLEE, VS. THE FAR EASTERN SURETY & INSURANCE COMPANY, DEFENDANT AND APPELLANT.

The Court of Appeals forwarded this case because the issues
raised are questions of law. Appellant itself admits the substantial correctness
of the findings of the trial judge as follows:

“On August 20 and October 1, 1935, the Vda. de Tiu Seng and Tan
Kiang, a sociedad en comandita, as principal and the Far Eastern Surety
& Insurance Co., Inc., as surety, executed two bonds (Exhibits ‘A’ and
‘A-1’) by which they bound themselves jointly and severally to pay the
government the sum of P10,000, which was the amount due from Tiu Seng (for the
sake of brevity we shall use the name Tiu Seng for the Vda. de Tiu Seng and Tan
Kiang) as internal revenue taxes and surcharge. These bonds were filed before
the indebtedness was accurately ascertained. It was afterwards found by the
Collector of Internal Revenue thatlthe amount due from Tiu Seng was P30,512.64.
Demand for payment of this amount was made, but without success. However, a
compromise was effected on November 6, 1936, by which the tax due was reduced to
P12,874.17. Tiu Seng proposed to the Collector that said amount be paid on
installments as follows: P2,874.17 on January 30, 1937, and the balance of
P10,000 on monthly payments of P500 each, beginning February 17, 1937. Finally,
it was agreed that the payment be made as follows: P2,874.17 on January 20, 1937
and the balance of P10,000 within a period of 10 months at the rate of P1,000
per month. Under this agreement, Tiu Seng has paid the Collector the total
amount of P11,644.12, leaving a balance of P1,230.05, the amount which the
plaintiff now seeks to recover from the defendant, the Far Eastern Surety &
Insurance Co., Inc.

“The issue in this case is whether said sum of P1,230.05 is
covered by the two bonds above mentioned.”

Within the framework of the above statement of facts attorney
for appellant vigorously argues the proposition that it merely guaranteed the
payment of P10,000 to the Commonwealth of the Philippines (now the Republic),
without undertaking to pay any balance of the obligation of the principal
debtor, and that after such sum had been fully satisfied, as in this case, it
had no further liability. It is an admitted circumstance that Tiu Seng had
delivered, after the executiom of the bonds, the total amount of P11,644.12 to
the Bureau of Internal Revenue.

It must be observed, however, at this juncture that the trial
judge upheld the plaintifffs contention that the amounts paid should be applied
first to the unsecured portion of Tiu Seng’s liability, thus leaving unpaid and
covered by the bonds the sum of P1,230.05, which may legally be collected from
defendant as a solidary surety.

Appellant’s proposition, which is the crux of this appeal,
would undoubtedly be unassailable had all the payments been made specifically
on account of the debt secured by the bond. But although it is agreed that
the payments were made on account of taxes there is no proof as to the
imputation thereof. This point is decisive; for, in effect Tiu Seng had two
liabilities to the Commonwealth: one for the sum not covered by the bonds and
another for the sum secured thereby. Parenthetically it should be observed that
under the law (Article 1826, Civil Code) the obligation of the guarantor may be
less than that of the principal.

The problem is, consequently, one concerning the application of
payments. And the rules to be invoked are:

“A person owing several debts of the same kind to a single
creditor may declare, at the time of making a payment, to which of them it is to
be applied.

“If the debtor should accept from the creditor a receipt which
recites the application to be given the payment, he cannot contest it, unless
there should be ground for treating the contract as void.” (Article 1172, Civil
Code.)

“When the payment cannot be applied in accordance with the
preceding rules, that which, among the matured debts, is the most burdensome to
the debtor shall be deemed paid.

“If such debts should be equally burdensome, the payment shall
be applied to all of them pro rata.” (Article 1174, Civil
Code.)

Manresa, commenting on Article 1174, says that when a person
has two debts, one as sole debtor and another as solidary co-debtor his more
onerous obligation to which first payments are to be applied is the debt as sole
debtor. (Cod. Civil, Vol. VIII, 4th Ed. p. 290). That view is exactly what this
Court followed in Hongkong and Shanghai Banking Corporation vs. Aldanese (48
Phil., 990) on which the trial judge relied correctly. No difference is
perceivable between this litigation and the Aldanese case. In both the problem
of application of payments is involved. This Court has held:

“Where in a bond the debtor and surety have bound themselves
solidarily, but limiting the liability of the surety to a lesser amount than
that due from the principal debtor, any such payment as the latter may have made
on account of such obligation must be applied first to the unsecured portion of
the debt, for, as regards the principal debtor, the obligation is more onerous
as to the amount not secured.” (Hongkong & Shanghai Banking Corporation vs.
Aldanese, 48 Phil., 990.)

No valid reason has been demonstrated to justify departure from
the above ruling.

Judgment affirmed, with costs, provided that the money shall be
turned over by defendant-appellant to the Republic of the Philippines as the
successor of the Commonwealth. So ordered.

Moran, C.J., Paras, Feria, Pablo, Perfecto, Tuason,
Montemayor, and Reyes, JJ., concur.