G.R. No. L-15643. October 31, 1960
LIGGETT & MYERS TOBACCO CORPORATION, PETITIONER, VS. ASSOCIATED INSURANCE & SURETY CO., INC., AND CONSOLIDATED UNDERWRITERS, INC., RESPONDENT.
BARRERA, J.:
herein petitioner Liggett & Myers Tobacco Corporation (hereinafter referred
to as Liggett & Myers), the latter advanced to the former 66 cases of
Chesterfield cigarettes, taxes thereon pre-paid, on condition that Ailmal would
return an equal quantity of fresh Chesterfield cigarettes, free from all taxes
and charges, upon arrival of his own order from the Liggett & Myers ofiice
in New York. To guarantee the payment of the internal revenue taxes on the 66
cases of cigarettes to be delivered, Ailmal, as principal, and the herein
respondent Associated Insurance & Surety Co., Inc. (represented by the
Consolidated Underwriters, Inc.), as surety, executed a bond in favor of Liggett
& Myers in the sum of P14,520.00. Pursuant to said agreement, Ailmal
delivered to Liggett & Myers all papers covering his said order.
The shipment arrived on November 22,1953. As Ailmal failed to pay the
corresponding exchange tax and bank charges on his letter of credit, Liggett
& Myers was compelled to remit the sum of P1,107.18 to avoid delay in the
processing of the documents. Said company immediately demanded reimbursement of
this amount from Ailmal. In the meantime, the goods were stored in a bonded
warehouse.
On November 25, 1953, Liggett & Myers required Ailmal to transmit to the
former the sum of P14,520.00; for payment of the taxes due on the merchandise,
in order that the same may be withdrawn, from the warehouse, plus the total sum
of P1,239.28, representing the bank, brokerage and delivery charges thereon,
already advanced and paid for by Liggett & Myers. The surety was accordingly
advised of this demand. Owing to his financial difficulties, Ailmal, with the
conformity of the surety requested for an-extension of 60 days from December 17,
1953 within which to pay the taxes, but he was given (by Liggett & Myers) up
to December 14, 1953 for the purpose. In view of his failure to settle the
obligation within the extended period, Liggett & Myers instituted an action
in the Court of First Instance of Manila (Civil Case No. 21791) on January 25,
1954, demanding from P.C. Ailmal and the Associated Insurance & Surety Co.,
Inc. and/or Consolidated Underwriters, Inc., jointly and severally, the sum of
P14,520.00 covered by the bond CUI G-039, representing the tax on the 66 cases
of cigarettes; from Ailmal alone, tjhe delivery of said 66 cases of fresh
Chesterfield cigarettes or their value amounting to P26,400.00, at the rate of
P40.00 per thousand cigarettes, plus the sum of P1,626.11, representing bank
charges, brokerage fees, storage and insurance charges, also paid by plaintiff
on Ailmal’s shipment of cigarrettes; and, from all the defendants, the sum of
P2,000.00 for attorney’s fees and costs.
Defendants, in their separate answers, denied the averments of the complaint,
and the sureties further posted counterclaims against the plaintiff for
attorney’s fees and costs, and cross-claims against the defendant Ailmal, for
any amount that they may be adjudged liable to pay, plus attorney’s fees,
interests and expenses of litigation.
Thereafter, to minimize the damages that might result from the prolonged
storage of the cigarettes, plaintiff, with leave of court, paid the required
taxes and withdrew the merchandise from the bonded warehouse. Discovering,
however, that a great portion thereof was in a deteriorated condition, Liggett
& Myers filed an urgent motion praying for authority to sell 61 cases and
3,800 cigarettes at the best price available in the local market, after it had
disposed of 4 cases and 6,200 cigarettes at the regular price of P40.00 per
thousand cigarettes; and “that the proceeds of said sale be applied by plaintiff
to the partial payment of defendant Ailmal’s obligation to deliver to plaintiff
66 cases of ‘fresh’ Chesterfield cigarettes or their agreed value 6f P40.00 per
thousand cigarettes.” Due notice to this petition was given to Ailmal and the
surety company by serving each a copy thereof. In its order of August 21, 1954,
the court granted the motion “it appearing that no objection had been filed to
said motion.” Out of the sale of the deteriorated cigarettes, Liggett &
Myers realized a total of P15,664.80.
Later, the lower court rendered judgment which, in part, reads:
“* * *. To forestall further losses, plaintiff asked the Court permission,
which was granted, to sell the balance of sixty-one cases and 3,800
‘Chesterfield’ cigarettes. There was no objection to this motion on , the part
of the defendants. The total proceeds of the 3ale of AHmal’s sixty-six cases of
cigarettes is P15,664.80. Deducting this amount of P15,664.80 from the value of
the cigarettes which defendant P. C. Ailmal received from the plaintiff in the
amount of P26.200.00, there would be a difference of P10,735.20. Adding this
amount to the specific tax paid by the plaintiff to the Philippine Government
and to the bank charges, storage, insurance and miscellaneous charges paid by
the plaintiffs, there would be an amount due the plaintiff from Ailmal in the
sum of P26,987.80 (Exh. X, Deposition).”* * * * * * *
“The indemnity agreement executed by defendant P.C. Ailmal in favor of his
co-defendents must also be respected. Under the circumstances, the Court
believes and so holds that the defendant-companies are not liable to pay the
amount of the indemnity bond. The surety companies only guaranteed the payment
of the specific tax. The proceeds of the sale of the shipment of P. C. Ailmal’s
cigarettes were more than enough to cover the payment of specific tax which
plaintiff paid to the government. The surety companies should not be held liable
for such other charges as plaintiff may entitled against defendant P.C. Ailmal.“In view of the foregoing, judgment is thereby rendered, ordering the
defendant P.C. Ailmal to pay to the plaintiff the amount of P26,987.80, with
legal interest from the time of the filing of the instant complaint. He shall
also pay attorney’s fees in the amount of P2,000.00 and costs.“The amended eomplamt is hereby dismissed with respect to the two defendants,
Associated Surety and Insurance Cor and Consolidated Underwriters, Inc.“The counterclaims of the three defendants are hereby dismissed for lack of
merit. Likewise the cross-claim against defendant P.C. Ailmal is dismissed.“Defendant P. C. Ailmal shall pay the costs.
“So ordered.”
Not satisfied with the decision, Liggett & Myers appealed to the Court of
Appeals.
On May 26,1959, the Court of Appeals, affirming the decision appealed from,
ruled that the proceeds of the sale of the cigarettes should first be applied to
the internal revenue taxes, payment of which was guaranteed by the bond. And as
such proceeds of the sale exceed the amount covered, by the bond, the sureties
were relieved of liability thereunder. Liggett & Myers filed the instant
petition for review questioning the legality of the aforementioned ruling.
Admittedly, Ailmal was under obligation to herein petitioner Liggett &
Myers, (1) to deliver 66 cases of Chesterfield cigarettes in good condition; (2)
to pay ihe taxes thereon; and (3) all other charges and fees incidental
therewith. Out of necessity, the merchandise was sold at a. much lower price, of
which, Liggett & Myers was able to realize only P15,664.80. There is no
doubt that said amount should be applied to the debtor’s obligations. The
question now is, to which debt should the amount be applied?
Respondent Surety Company, citing Article 1254 of the Civil Code, maintains
that the payment should first be applied to the secured debt, the same being
allegedly the more onerous of the obligations; whereas, herein petitioner claims
that the unguaranteed portion of the obligations is more burdensome to the
debtor. We find no necessity to pass upon the question of which obligation, the
secured or unsecured, is more onerous, because, as expressly provided by Article
1254, such issue would only be decisive where payment can not be applied in
accordance with the rules immediately preceding said article. This is not so in
the instant case, for the reason that Article 1252, quoted below, is herein
applicable.
“Art. 1252. He who has various debts of the same kind in favor of one and the
same creditor, may declare at the time of making the payment, to which of them
the same must be applied. Unless the parties so stipulate, or when the
application of payment is made by the party for whose benefit the term has been
constituted, application shall not be made as to debts which are not yet
due.“If the debtor accepts from the creditor a receipt in which an application of
the payment is made, the former cannot complain of the same, unless there is a
cause for invalidating: the contract.”
Commenting on the scope and the interpretation to be given to Article 1172 of
the Spanish Civil Code, incorporated in the new Civil Code as Article 1252,
Manresa said:
“* * *. First of all, the right to make the application (with all the
safeguards made as regards the term) corresponds to the debtor and subsists
until he makes the payment, and at the time, if he has not made use of it, it is
extinguished and the application becomes subject to legal rules, unless the
creditor should determine it and his, decision its accepted by the
obligor.“While the exercise of the exclusive right of the debtor to make the
application terminates at the moment of payment, on the Other hand: the
initiative of the creditor may be shown even after the delivery of the receipt,
either to make application of the payment if the same has not been
done, or to modify what has been stated therein providing of course that he
obtains in every case the acceptance of the debtor. The clear
basis of this difference is that while the debtor decides for himself, the
creditor only proposes and the debtor may or may not agree. The need for the
consent of the debtor is clear from the terms of the law which speak of to
accept, which supposes the liberty to reject also, and considering
that the option corresponds to the debtor, if he says nothing, it is because he
accepts the legal solution, which can not be modified without his consent,
even if it be tacit, as it is the manner established by law.” (8 Manresa 316;
italics supplied.)
The debtor in this case (Ailmal) did npt exercise the option given to him
under the law at the time the payment was made. The records show, on the other
hand, that in its urgent motion, Liggett & Myers prayed not only for
authority to sell the cigarettes, but also to apply the proceeds of the sale
to Ailmal’s obligation to deliver the 66 cases of cigarettes or pay their
value. To this motion, the debtor offered no objection; as a matter of
fact, he merely filed a manifestation reserving the right to prove at the proper
time that any and all losses resulting from the deterioration of the merchandise
are chargeable to the plaintiff. Neither did the respondent Surety Company
object thereto. This acquiescence, by the debtor and his surety, to the
application of payment prayed for by the creditor and granted by the court,
amounted to an assent to such application[1] which the debtors (including the surety)
may no longer revoke or change[2]. It is
evident, therefore, that the proceeds of the sale should be applied to Ailmal’s
obligation to pay the value of the 66 cases of cigarettes.
Respondent Surety Company further contends that the internal revenue tax,
being a lien on the cigarettes (a specific movable property), the lien should
first be paid. Respondent overlooks the fact that the taxes have already been
paid by Liggett & Myers and whatever preferential right there is attached to
the tax lien has been acquired by subrogation by Liggett & Myers, which
undoubtedly, has the privilege to enforce or waive. And since Liggett &
Myers has chosen to waive such right by applying the proceeds of the sale to the
payment of the other obligation, without objection on the part of the principal
debtor and surety, such application can not now be questioned.
Since Liggett & Myers already paid the taxes on the merchandise, payment
of which (by the debtor) was secured by the bond CUI G-039, which obligation was
not extinguished by the partial payment made by the debtor, the sureties,
jointly and severally with said debtor, should be held liable for reimbursement
to Liggett & Myers of the sum of P14,520.00 with interest thereon from the
date of the filing of the complaint until fully satisfied.
Wherefore, with the above modification, the decision of the Court of Appeals
is, in all other respects, affirmed, without prejudice to whatever action the
surety company may take to have itself reimbursed of whatever amount it has to
pay by virtue of the bond subscribed by it. Costs are taxed against the
respondents. So ordered.
Paras, C. J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J,B.L.,
Gutierrez David, and Paredes, JJ., concur.
Decision modified.
[1] Sanz vs. Lavin Brothers,
6 Phil., 299.
[2] Bachrach Garage and Taxicab Co.
vs. Golingco, 39 Phil., 912.