G.R. No. L-21069 October 26, 1967
Manila Surety and Fidelity Company, Inc., plaintiff-appellee, vs. Rodolfo R. Velayo, defendant-appellant.

FACTS

In 1953, Manila Surety & Fidelity Co., at the request of Rodolfo Velayo, executed a bond for P2,800.00 to dissolve a writ of attachment obtained against Velayo. Velayo agreed to pay an annual premium and to indemnify the surety company for any amounts it paid under the bond. As “collateral security and by way of pledge,” Velayo delivered four pieces of jewelry to the surety company. The agreement gave the company the power to sell the jewelry if it paid any amount under the bond, applying the proceeds to its payments and turning over any balance after deducting expenses. After a judgment was rendered against Velayo and execution was unsatisfied, the surety company paid P2,800.00. It then sold the pledged jewelry, realizing a net amount of only P235.00. The surety company sued Velayo for the balance. Velayo defended by claiming that the sale of the pledged jewelry extinguished his entire obligation under Article 2115 of the Civil Code, which states that such a sale extinguishes the principal obligation regardless of whether the proceeds cover the full amount, and the creditor cannot recover any deficiency.

ISSUE

Whether the sale of the pledged jewelry extinguished Velayo’s entire obligation to the surety company, barring any recovery for the deficiency, pursuant to Article 2115 of the Civil Code.

RULING

Yes. The Supreme Court modified the lower court’s decision. It held that Article 2115 of the Civil Code is clear and imperative: the sale of the thing pledged extinguishes the principal obligation, and the creditor is not entitled to recover any deficiency, notwithstanding any stipulation to the contrary. The accessory character of the pledge does not preclude the application of this article. By electing to sell the pledged articles, the creditor waives any other remedy and must abide by the results of the sale. Therefore, Velayo’s obligation was extinguished, and no deficiency judgment could be recovered, except for his separate liability for the unpaid premium. The Court absolved Velayo from the complaint for the principal deficiency but affirmed his liability for the 1954 premium of P120.93 with interest.