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G.R. No. L-11007           November 28, 1959
FRANCISCO LAVIDES vs. PROCOPIO ELEAZAR, ET AL. -->

EN BANC

G.R. No. L-11007           November 28, 1959

FRANCISCO LAVIDES, Petitioner, vs. PROCOPIO ELEAZAR, ET AL., Respondents.

Alejo Mabanag, Marciano C. Sicat and Florentino C. Lavides for petitioner.
G.P. Nuguid, Jr., for respondents.

BENGZON, J.:

Review of a decision of the Court of Appeals.chanroblesvirtualawlibrary chanrobles virtual law library

During the Japanese occupation, Coconut Central Co, Inc. and Francisco Lavides executed the following promissory note:chanrobles virtual law library

September 19, 1944

For value received, we, the undersigned, jointly and severally promised to pay Messrs. Ponciano A. Bernardo and Procopio Eleazar, their heirs and assigns, the sum of twenty-five thousand pesos (P25,000.00) upon their demand, subject to the following conditions:chanrobles virtual law library

1. That this loan shall be payable and collectible on demand to the option of the said Messrs. Bernardo and Eleazar within the period of time between ninety (90) days after the ratification of the Treaty of Peace ending the present war between the United States of America and Japan, and one (1) year after the said ratification;chanrobles virtual law library

2. That the said amount of twenty-five thousand pesos (P25,000.00) shall not bear interest until the time demand for payment of same is made, and shall be payable in current legal tender at the time of payment;chanrobles virtual law library

3. The demand for payment shall be made on Francis o Lavides when and only when the Coconut Central Co., Inc. fails to meet the full obligation of twenty-five thousand pesos (P:25,000.00) upon the demand of Messrs. Bernardo and Eleazar.

It is admitted that the loan consisted of P100,000.00, Japanese military notes, which were mostly used to redeem mortgages on the property of the Coconut Central Co., in favor of Tomas B. Morato (P41,075.58) and of National Warehousing Corporation (P48,356.32).chanroblesvirtualawlibrary chanrobles virtual law library

On September 25, 1944, the parties executed a so-called "confidential memorandum" (to express the real intent and purpose of the loan) in one portion of which they "agreed that the claim for payment shall first be made against the Coconut Central Co., Inc., but if the said corporation cannot meet this obligation in full upon demand because of the destruction of its assets by this war or in any other cause, Hon. Francisco Lavides has agreed to settle the obligation from his own personal resources pledging his real properties for this purpose."chanrobles virtual law library

On December 1, 1953, Procopio Eleazar and the heirs of Ponciano Bernardo demanded, from the Coconut Central payment of the above note within 15 days, but the corporation failed to comply. So on February 6, 1954, they required payment from Francisco Lavides; and upon his failure to pay, they instituted this action against both in the Rizal court of first Instance.chanroblesvirtualawlibrary chanrobles virtual law library

Lavides set up several defenses: (a) the contract was leonine - for P10,000.00 Japanese currency, plaintiffs would receive P25,000.00 Philippine money; (b) the agreement was that he would pay only when the corporation should have no properties, but the latter has properties; and (c) he had requested plaintiffs to take possession of the factory of the corporation with all its buildings and improvement, but plaintiffs declined to accept it. He also set up some counter-claims.chanroblesvirtualawlibrary chanrobles virtual law library

After trial, the court rendered judgment ordering defendants to pay jointly and severally the sum of P25,000.00 with interest of 6% from the presentation of the complaint, plus costs and dismissing the counterclaims. On appeal, Court Appeals affirmed, with the modification that Lavides shall have, as mere guarantor, the benefit of exhaustion of the debtor's property.chanroblesvirtualawlibrary chanrobles virtual law library

Whereupon Lavides presented this appeal by certiorari.chanroblesvirtualawlibrary chanrobles virtual law library

It was error says the petitioner to make him liable because his obligation was conditional, and arose only upon destruction of the properties of the corporation, which the plaintiffs have failed to prove; in fact, the corporation has assets. Petitioner points out that in the confidential memorandum, he agreed to pay "if the said corporation cannot meet this obligation . . . because of the destruction of its assets by this war or in any other cause" which means destruction of assets by war or by any other cause. In other words, petitioner contends he is not liable except in case of destruction of assets by war or by any other cause. Observe that the confidential memorandum does not read "by any other cause." It reads "in any other cause." chanrobles virtual law library

It is apparent from the confidential memorandum that the parties attempted to explain the real intent and purpose of the loan and nature of Lavides' responsibility. In so doing, they made it clear that he was a simple guarantor - not a solidary co-debtor or solidary guarantor. The interpretation adopted by the Court of Appeals accorded with such purpose. The interpretation adopted by the Court of Appeals accorded with such purpose. The interpretation urged upon us by petitioner would practically exempt him from liability from the very beginning because as the properties of the corporation were real properties, they would never be destroyed (the land at least). It might even convert him into an insurer of the properties - not a guarantor of the debt. ¹ chanrobles virtual law library

Construing the memorandum in relation to the note, and giving effect to the obvious intention of the parties to make Lavides a guarantor, it should be read as imposing liability upon him when the corporation fails to pay because of destruction of its assets or because of any other cause. Stated otherwise, Lavides becomes liable when the corporation fails to pay because of destruction of its assets or for any other reason. Such construction accords with the secondary liability of a guarantor, which he admittedly is.chanroblesvirtualawlibrary chanrobles virtual law library

Another point raised is the failure of the plaintiffs to demand payment "within the period between ninety (90) days after the ratification of the Treaty of Peace ending the present war between the United States of America and Japan, and one year after the said ratification." This failure is admitted. The demand was made more than one year after the expiration of such period. However, as the Court of Appeals held, mere delay of the creditor in proceeding against the principal debtor does release the guarantor. ² Furthermore, the period was fixed principally to determine the kind of currency in which repayment shall be made. And this guarantor does not show any prejudice suffered by him on account on such delay, nor of any alteration values after the lapse of the period described.chanroblesvirtualawlibrary chanrobles virtual law library

It appears that "after liberation, Messrs. Eleazar Bernardo went to see Mr. Lavides at his office in Pasay City on several occasions and on one of them Lavides asked the former to take delivery of the factory and other properties of the Coconut Central Co., Inc. which were still intact because they were neither bombed nor burned and offered to secure the corresponding resolution from the Coconut Central Co., Inc. to that effect; that Mr. Eleazar told him that they were going to think it over and on their subsequent visits they informed Mr. Lavides that it would entail on them much expense if they took delivery of the assets of said corporation and hence they declined the offer." chanrobles virtual law library

Petitioner insists that for such remissness and negligence of plaintiffs, the defendant Lavides should not be made to suffer. The refusal to take the assets seemed to be justified. At any rate, they are still available, and will surely be exhausted before recovery from Lavides may be enforced.chanroblesvirtualawlibrary chanrobles virtual law library

A new provision in the New Civil Code (Art. 2058) is cited to the effect that the creditor must resort to all legal remedies against the debtor before he can compel the guarantor to pay. Whatever maybe the effect of this provision in the circumstances of instant lawsuit, it should be enough to remember that as thus contract was entered into in 1944 the former Civil Code not the new one, governs. At any rate the decision gives the petitioner the benefit of excussion, which may amount to the same thing, the properties of the debtor be in still available.chanroblesvirtualawlibrary chanrobles virtual law library

The foregoing, incidentally answers petitioner's claim that the action should have been filed against the debtors first, in accordance with Art. 2062 of the new Civil Code. The Civil Code which was the law in 1944, provided that "the creditor may sue the guarantor jointly be the principal debtor". Besides, this issue was not tendered in the court of first instance.chanroblesvirtualawlibrary chanrobles virtual law library

Wherefore, finding no reversible error, we hereby affirmed the judgment under review. No costs in this instance, the appellee having filed no brief.chanroblesvirtualawlibrary chanrobles virtual law library

Padilla, Montemayor, Bautista Angelo, Labrador, Barrera and Gutierrez David, JJ., concur.

Endnotes:

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¹ A guarantor agrees to pay in case the debtor fails to pay (Art. 1822, Civil Code) - not when the debtor loses his property.chanroblesvirtualawlibrary chanrobles virtual law library

² Banco Español vs. Donaldson Sim, 5 Phil., 418; Bank of P.I. vs. Albaladejo, 53 Phil, 141; Radio Corporation vs. Roa, 62 Phil., 211.