G.R. No. 2422. December 14, 1905

The Banco Español Filipino, having made a loan of 110,000 pesos to
the firm of Donaldson Sim & Co. for six months’ time, from the 9th
of May, 1901, the date of the public instrument executed for this
purpose, and bearing interest at the rate of 8 per cent per annum,
payable at the expiration of each quarter, filed an action against said
firm for failure to pay the obligation when it became due. (Clauses 3,
4, and 5 of the contract, pp. 5 and 6 of the bill of exceptions.)

“On the 25th of March, 1904, judgment in default was
pronounced against the said firm of Donaldson Sim & Co., the same
being sentenced to pay the sum of P115,894.41, Philippine currency,
equivalent at that time to the sum of 127,479.45 pesos, Mexican
currency, this being the amount of the principal, 110,000 pesos,
Mexican currency, plus stipulated interest.” (Point 13 of the facts
agreed upon, p. 9 of the bill of exceptions.)

Jointly with the principal debtor, Donaldson Sim & Co., James H.
Threw had obligated himself in the instrument concerning said loan,
giving as security “to guarantee the payment of the said principal,
of the proper interest thereon, and of whatever obligations the firm of
Donaldson Sim & Co. might contract” three ships owned by him, named Chow Phya, Hercules, and Hebe. (Clause 6, p. 6 of the bill of exceptions.)

The instrument continues:

“In addition to the security furnished in the
preceding paragraph by James H. Threw, the mercantile firm of J. M.
Tuason & Co. represented in this act by one of the partners, Juan
Tuason y de la Paz, constituted itself joint surety of the firm
indebted, Donaldson Sim & Co., for the sum which the said firm
should be found to owe, after the partial payment of this loan with the
proceeds of the sale of said steamers, or for the total of the
obligation if the security of the steamers should disappear before the
partial settlement of said obligation.” (Clause 7, p. 6 of the bill of
exceptions.)

“On the 26th of April, 1904, the sheriff of the
city of Manila returned the writ of execution without having complied
therewith, as there was no property of the firm of Donaldson Sim &
Co. which could be attached.” (Point 15, facts agreed upon, p. 10.)

“On the same date a judgment by default was rendered against the
aforesaid James H. Threw, in the following terms: We therefore decide
and direct that the launches herein described, to wit, the steam launch
Chow Phya, at present called Aparri, the steam launch Hercules, and the steam launch Hebe,
be sold at public auctionr and that the proceeds of said sale be
applied to the payment of the said sum of P115,890.41, Philippine
currency, and that any surplus be paid to the defendant, James H.
Threw.’” (Point 16, facts agreed upon, p. 10.)

Further facts agreed upon are the following:

“That on the 7th of May, 1904, the sheriff of Manila sold at public auction, to the highest bidder, the launches Hebe and Hercules,
after having advertised said sale in the Manila press, and having
complied with all the formalities prescribed by the present Code of
Civil Procedure, Act No. 190; that the price realized at the sale of
the launches Hebe and Hercules was P1,250.00, which
sum was paid to the Banco Español Filipino, after deduction of the
sheriff’s fees, amounting to P16.50; that a writ of execution in terms
equal to those of that mentioned in paragraph 19 of this document was
issued on the 19th of July, 1904, by the clerk of the Court of First
Instance of Manila, addressed to the sheriff of the Province of
Cagayan; that on the 27th of September, 1904, the sheriff of Cagayan
sold at public auction to the highest bidder, the launch Chow Phya,
alias Aparri; after having advertised said sale in the press, and
having complied with all the formalities prescribed by the present Code
of Civil Procedure, Act No. 190; that the proceeds of the sale of the
steam launch Chow Phya, alias Aparri, after
deduction of the sheriff’s fees amounted to P3,440, Philippine
currency, which sum was paid to the Banco Español Filipino.” (Pp. 12
and 13, points 19 to 23 of the bill of exceptions.)

Finally, the most important point of those agreed upon, containing
the whole question now submitted to this court for decision by appeal,
is that which appears on page 14 of the bill of exeptions, under No.
28, which is as follows :

“From the facts above set forth the following questions of law have
arisen, which the parties concerned submit to the court for its
decision, each reserving, however, the right to make appeal to the
Supreme Court, by means of the proper bill of exceptions, in case of
adverse judgment:

“(a) The Banco Español Filipino insists
that from the facts represented arises the obligation of the firm of J.
M. Tuason & Co., as joint surety of the firm of Donaldson Sim &
Co., to pay to the said Banco Espafiol Filipino the total amount of the
judgment rendered on the 25th of March, 1904, against the firm of
Donaldson Sim & Co., in favor of the bank, in the Court of First
Instance of Manila, to wit, the sum of one hundred and fifteen thousand
eight hundred and ninety-four pesos and forty-one centavos, Philippine
currency, with interest thereon at the stipulated rate, from the date
of said judgment until payment, minus the sum of four thousand six
hundred and ninety-three pesos and fifty centavos, Philippine currency,
the net proceeds realized by the bank from the sale of the launches
pledged, discounting interest on the amount of each of said sales from
the date of each auction, and the said Banco Español Filipino petitions
the court to render judgment against the firm of J. M, Tuason &
Co., sentencing it to pay the sums claimed, and the costs of the trial.

“(b)
The firm of J. M. Tuason & Co. maintains that from the facts
represented in this document no action arises in favor of the Banco
Español Filipino, for the following reasons, to wit:

“(1)
Because, as it appears from the facts set forth in paragraphs 8 and 9
of this instrument, the time of the obligation of the debtor
principally obligated was tacitly extended, without the consent of the
surety.

“(2) Because, as it appears from the facts set forth
in the eighth clause of the instrument of the 9th of May, 1901, the
Banco Español Filipino, in obtaining the sale at public auction of the
steam launches given by James H. Threw as security for the indebtedness
of Donaldson Sim & Co., should have subjected itself to the prices
fixed for said sale in the aforesaid eighth clause of the instrument.
Defendant therefore prays for judgment in his favor and the denial of
the petition of the Banco Español Filipino, and that the latter be
sentenced to pay the costs of the proceedings.”

The court having considered the surety responsible, and having
sentenced the firm of J. M. Tuason & Co. to pay the unpaid balance
of the debt, the said defendant appealed from the said sentence and
represents to this court, as errors of law of said sentence, the
following points:

“(1) The court erred in finding that the surety of J. M. Tuason & Co., was not extinguished.

“(2)
The court erred in rendering judgment against J. M. Tuason & Co.
for the sum of one hundred and eighteen thousand eight hundred and
thirty-five pesos and thirty three centavos, Philippine currency.

“(3)
The court erred in deciding that there exists an estoppel against the
allegation by J. M. Tuason & Co. in alleging as a defense the
violation of the contract by the Banco Español Filipino in selling the
launches without fixing a price.”

As to the first point, the same is based on numbers 8 and 9 of the
facts agreed upon, to wit, upon the expiration of the obligation, on
the 9th of November, 1901, the Banco Español Filipino had not required
the principal debtor to pay the amount of the loan, nor did it file an
action, but continued drawing the stipulated interest until the month
of March, 1902, and that all this was done without the express consent
of J. M. Tuason & Co., which facts constitute a tacit extension of
the obligation. As a legal basis, article 1851 of the Civil Code is
given, according to which “The extension granted to the debtor by the creditor, without the consent of the surety, extinguishes the security.”

The decisions en casacion of the supreme court of Spain is
jurisprudence properly interpreting the Spanish Civil Code. The
following doctrine is laid down in the judgment of March 22, 1901:

“The court which pronounced sentence in this case
has not violated article 1851 of the Civil Code, because the mere
circumstance that the creditor does not demand the compliance with the
obligation immediately upon the same becoming due, and that he more or
less delays his action, does not mean or reveal an intention to grant
an extension to the debtor, as according to article 1847 the obligation
of the surety extinguishes at the same time as that of the debtor, and
for the same causes as the other obligations.”

Deferring the filing of the action does not imply a change in the
efficacy of the contract or liability of any kind on the part the
debtor. It is merely, without demonstration or proof to the contrary,
respite, waiting, courtesy, leniency, passivity, inaction. It does not
constitute novation, because this must be express. It does not engender
liability, because on the part of the creditor such can not arise
except from delay, and for this class of delay interpellation on the
part of the party who considers himself injured thereby is necessary.
In order that this waiting or inaction, of itself beneficial to the
parties obligated, can be interpreted as injurious to any of them, it
is altogether necessary that this be represented by means of a protest
or interpellation against the delay. Without action of this kind it
continues to be what it is, merely a failure of the creditor to act,
which in itself does not create liability. It can not do so, as we see
in the aforesaid sentencia de casacion.

“In accordance with the provisions of number 4 of
article 1843, the surety, even before payment, may proceed against the
principal debtor when the debt has become demandable because the term
in which it should have been paid has expired.”

In view of this action, which is a protection against the risk of
possible insolvency on the part of the principal debtor, it is very
clearly seen that the law does not even grant the surety the right to
sue the creditor for delay, as protection against the risks of possible
insolvency on the part of the debtor; but in view of the efficacy of
the action of the contract against the surety, beginning with the date
when the obligation becomes due, his vigilance must be exercised rather
against the principal debtor.

The receipt of interest stipulated in the same contract after the
obligation has become due does not constitute novation, it being merely
a compliance with the obligation itself. It, therefore, does not affect
the efficacy of the contract, the fulfillment of which the creditor has
deferred without however, granting any extension thereof. It extends
the time for the fulfillment or payment, but not the term of the
obligation, which can be made effective at any time, because by his
liberality he has not incurred any obligation restricting the exercise
of his action. This is not even the case when all the interest received
covers a fixed period, providing that it be interest due. It
would, however, be different if the interest had been.paid in advance,
covering a definite period, because in that case his action would be
barred during said period by his own act, which would have created a
new term of the obligation, and a tacit extension of time. However, we
now abstain from discussing this point, as it is not the question now
to decide whether or not the obligation of the surety would, become
extinguished. However it may be, against this delay on the part of the
creditor, in the present case obligatory, the surety could always
exercise the preventive action of number 4 of article 1843, to guard
himself from any risk which he might run by reason of such act
performed without his consent, this being the direct action to which he
is entitled by reason of the contract entered into by him.

Lastly, even if the delay in the present case were due to an
extension of the term of the obligation, expressly granted by the
creditor to the principal debtor, the surety could nevertheless not
consider himself relieved from the security, deeming the same
extinguished. The surety was one of the parties to the contract, and
one of the clauses of the contract, the fourth, reads as follows:

“The term of duration of this contract is six
months, beginning with this date, and may be extended at the will of
the creditor.”

In view of this knowledge and consent, the surety ought to have been
prepared for any delay, and it should not have surprised him if such
delay had been the effect of this clause of the contract- that is, an
express extension of the term of the obligation.

As to the second point, the fact on which the same is based in the
brief is the eighth clause of the contract, which reads as follows:

“That by agreement with the manager of the Banco
Español Filipino of this city, James H. Threw fixes th value of the
vessels pledged as security as follows: 70,000 pesos for the launch Chow Phya, and 25,000 pesos for each of the launches denominated Hercules and Hebe,
and declares that said values shall be the prices for the sale of the
said launches, which must take place if this loan has become due and an
extension thereof has not been agreed upon, for the nonpayment of the
amount of said loan, waiving, therefore, any other valuation of said
vessels, and any action in this respect.”

The legal grounds on which this point is based are the
interpretation of the above clause of the contract, and of the
provisions of law concerning pledges.

One of the facts agreed upon, designated with the number 24, is as follows:

“When the sale of said launches at public auction
took place, no price was fixed, but they were adjudged to the highest
bidder, the proceeds of said sales being the real value of said
launches in the condition in which they were at the dates of the
respective sales.”

The two security clauses of the contract, and the eighth clause
thereof, which serves as basis for the appeal, having been reproduced
literally, it will be clearly seen that this eighth clause took the
place of a formality prescribed by the Code of Civil Procedure then in
force (article 1465), which they endeavored to avoid by making use of
the right granted by the same article. The debtor therefore merely
declares the value of his property pledged as security, waiving the
aforesaid proceedings of valuation, and the action to which he would be
entitled in default thereof. The purpose of said clause was also to fix
beforehand the lowest price for which the notary could sell the things
pledged in extrajudicial public auction, but this we need not discuss
at present.

This formality being repealed by the present Code of Civil
Procedure, to which the sale at public auction of the launches
furnished as security had to be adjusted, and the sale having taken
place in the manner ordered by the judge and prescribed by law, without
the sentence ordering said sale having been objected to in any manner,
no one has infringed any law or violated any contract. Besides the
creditor did not bind himself in the contract not to request a sale
except under a fixed price.

Even if the creditor had obligated himself, it was not his fault
that the sale was carried out in a different manner, as the sale was
made in accordance with existing legal procedure. James H. Threw
himself could not have sued, even if he had not waived his action
against a different manner of carrying out the sale, because the
aforesaid eighth clause did not give him any right to place a mere
declaration or even stipulation above forms of legal procedure, which
are of a public nature and interest, and can not be repealed, altered,
or modified by private citizens by means of contracts. The efficacy of
the contract is merely to secure the compulsory power of the public
authorities for its enforcement.

Supposing that the eighth clause constitutes an obligation on the
part of the creditor, which was violated by the form and manner in
which the sale of the launches given as security was carried out, then
the exception would, at all events, have to be made by the owner of the
launches, who gave them as security. The surety, J. M. Tuason &
Co., had the right to set up all the exceptions pertaining to the
principal debtor and inherent in the debt (article 1853) but not those
pertaining to the other surety.

In reality, according to the fact agreed upon which has been lastly
referred to, the proceeds of said sales represented the real value of
said launches in the condition in which they were at the dates of the
respective sales, and it would therefore have been useless to fix a
minimum price, because if this could and would have been done, the
result would have been the name, but would have required repeated
proceedings to arrive at it. This being so it is evident that under
clause 7, J. M. Tuason responded for the sum which Donaldson Sim &
Co. should be found to owe after the payment of part of said loam, with the proceeds of the sale of said steamers. This is the case, explicitly mentioned in the contract, which has occurred.

We do not deem it necessary to examine the last of the questions
brought up in this instance against one of the findings of the sentence
appealed from, regarding the estoppel alleged by defendant. Even if
this finding was erroneous, which we neither affirm nor deny, the two
preceding questions, which are those brought up in the first instance,
were rightly decided in the sentence by the other findings and
considerations therein contained.

We therefore affirm the sentence appealed from in all its parts,
with the costs of this instance against appellant. After the expiration
of twenty days judgment will be entered in these terms and this case
returned to the court below for execution. So ordered.

Torres, Mapa, Johnson, and Willard, JJ., concur.

Carson, J., did not sit in this case.