GR L 5208; (December, 1909) (Digest)
G.R. No. L-5208
KUENZLE AND STREIFF, plaintiff-appellant, vs. JOSE TAN SUNCO ET AL., defendants-appellees.
December 1, 1909
FACTS:
Jose Tan Sunco was a surety for Chung Chu Sing’s purchase of merchandise from Ed. and A. Keller and Co. Chung Chu Sing defaulted on the payment, and the debt remained unpaid. At the same time, Kuenzle and Streiff (plaintiff-appellant) also had an action pending against Chung Chu Sing for a separate debt. Shortly before Kuenzle and Streiff could secure a judgment, Tan Sunco filed four separate actions against Chung Chu Sing in the justice of the peace court based on the invoices for which he was surety. Chung Chu Sing confessed judgment in all four cases, allowing Tan Sunco to obtain judgments. Immediately thereafter, Tan Sunco levied executions on all of Chung Chu Sing’s property, which was not more than sufficient to cover Tan Sunco’s judgments. Kuenzle and Streiff then filed the present action to set aside these four judgments, alleging collusion and fraud, arguing that Chung Chu Sing did not owe anything to Tan Sunco at the time the judgments were secured because Tan Sunco had not yet paid the principal debt. The lower court dismissed the complaint, finding no sufficient evidence of fraud or collusion.
ISSUE:
1. Whether a surety can legally obtain a judgment against the principal debtor for the guaranteed debt before the surety has actually paid the creditor.
2. Whether such judgments, obtained under these circumstances, constitute fraud or collusion against other creditors.
3. If valid, whether the surety can immediately execute such judgments.
RULING:
1. YES, a surety can obtain a judgment against the principal debtor before paying the creditor. The Court held that Article 1843 of the Civil Code provides a protective remedy for a surety before payment but after liability has become due. This article allows the surety to obtain “relief from the burden of his suretyship or a guaranty to defend him against any proceedings of the creditor and from the danger of insolvency of the debtor.” The Court clarified that enforcing this right necessitates an action.
2. NO, the obtaining of such judgments, in itself, does not necessarily constitute fraud or collusion. The Court found that while the methods used by Tan Sunco were “unusual,” the evidence adduced was insufficient to establish fraud and collusion that would justify setting aside the judgments.
3. NO, the surety cannot execute said judgments until he has paid the debt for which he stands surety. While the surety has the right to obtain the judgments, allowing immediate execution before actual payment of the principal debt would create a significant opportunity for collusion and improper practices between the surety and the principal, potentially prejudicing the actual creditor and other claimants.
Therefore, the Supreme Court affirmed the lower court’s dismissal of the fraud claim but modified the judgment, ordering that Tan Sunco shall not execute his judgments against Chung Chu Sing’s property until he has paid the debt for which he stands surety.