G.R. No. 25954 , December 18, 1926
THE UNITED STATES OF AMERICA, plaintiff-appellant, vs. JUAN GISBERT and RICARDO CABALLERO, defendants-appellants. RUIZ, REMENTERIA Y CIA., S. EN C., intervenor-appellant

FACTS

The United States of America (plaintiff) chartered its steamship “Lake Farmingdale” to Juan Gisbert under a charter-party agreement. Gisbert initially secured a surety bond from the Philippine Guaranty Company. Later, Ricardo Caballero deposited P20,000 in cash with the plaintiff to replace the surety bond, as evidenced by a receipt stating the money was “to cover the faithful performance of all terms and conditions” of the charter-party. Gisbert defaulted on payments for charter hire and insurance premiums. The plaintiff rescinded the contract, repossessed the vessel, and incurred expenses for repairs and other charges. The plaintiff filed a complaint seeking to recover amounts due from Gisbert and to apply Caballero’s P20,000 deposit against the judgment. Gisbert claimed he had transferred his rights and obligations to Caballero. Caballero argued he was relieved as surety due to a subsequent demand by the plaintiff for additional security. The intervenor, Ruiz, Rementeria & Co., sought payment for provisions supplied to the vessel. The trial court rendered a judgment partially in favor of the plaintiff but ordered the return of Caballero’s deposit after a deduction. All parties appealed.

ISSUES:
1. Whether the plaintiff is entitled to recover the full amount of accrued charter hire and other expenses from Gisbert.
2. Whether the plaintiff is entitled to apply the P20,000 cash deposit made by Caballero to satisfy Gisbert’s liabilities.
3. Whether Caballero is liable as a surety for Gisbert’s obligations.
4. Whether the intervenor’s claim for supplies furnished to the vessel is valid against the plaintiff.

RULING

1. Yes, the plaintiff is entitled to recover the full amount. The Supreme Court modified the trial court’s award, increasing the judgment against Gisbert to P8,518.66, representing the correct amount of accrued charter hire and other legitimate expenses due from Gisbert up to the date of the vessel’s repossession and sale.
2. Yes, the plaintiff is entitled to apply the P20,000 deposit. The Court held that the cash deposit was delivered for the specific purpose of guaranteeing Gisbert’s performance under the charter-party, effectively replacing the original surety bond. Caballero, having paid the money for that purpose and accepted a receipt specifying it, was estopped from denying its application. The plaintiff could rightfully use the funds in its possession to satisfy Gisbert’s debt.
3. Yes, Caballero is liable as a surety. The Court ruled that Caballero, by depositing the P20,000 as security, became a surety for Gisbert’s obligations under the charter-party. His liability was not extinguished by the plaintiff’s subsequent demand for additional security. The judgment was rendered against Gisbert as principal and Caballero as surety.
4. No, the intervenor’s claim is not valid against the plaintiff. The vessel was a U.S. Government-owned ship operated under a charter-party that expressly prohibited liens except for crew’s wages and salvage, and required notice of this fact to be posted. Since the intervenor supplied provisions (groceries) to the captain, and such supplies did not fall under the permitted exceptions, neither the plaintiff nor the vessel itself was liable for the claim. The trial court’s dismissal of the intervenor’s claim was affirmed.

DISPOSITIVE PORTION:
The Supreme Court MODIFIED the trial court’s judgment. It entered a new judgment in favor of the plaintiff against defendants Juan Gisbert (as principal) and Ricardo Caballero (as surety) for the sum of P8,518.66 with legal interest. The plaintiff was ordered to satisfy this judgment from the P20,000 cash deposit and to return any remainder to Caballero. In all other respects, the lower court’s judgment was affirmed. No costs were awarded on appeal.