TRADERS INSURANCE V. DY ENG BIOK
104 PHIL 806
FACTS:Dy Eng Giok was a provincial sales agent of distillery corporation, with the responsibility of remitting sales proceeds to the principal corporation. He has a running balance and to satisfy payment, a surety bond was issued with petitioner as guarantor, whereby they bound themselves liable to the distillery corporation.
More purchases was made by Dy Eng Giok and he was able to pay for these additional purchases. Nonetheless, the payment was first applied to his prior payables. A remaining balance still is unpaid. Thus, an action was filed against sales agent and surety company. Judgment was rendered in favor of the corporation.
HELD:The remittances of Dy Eng Giok should first be applied to the obligation first contracted by him and covered by the surety agreement. First, in the absence of express stipulation, a guaranty or suretyship operates prospectively and not retroactively. It only secures the debts contracted
after the guaranty takes effect. To apply the payment to the obligations contracted before the guaranty would make the surety answer for debts outside the guaranty. The surety agreement didn't guarantee the payment of any outstanding balance due from the principal debtor but only he would
turn out the sales proceeds to the Distileria and this he has done, since his remittances exceeded the value of the sales during the period of the guaranty.
Second, since the Dy Eng Biok’s obligations prior to the guaranty were not covered, and absent any express stipulation, any prior payment made should be applied to the debts that were guaranteed since they are to be regarded as the more onerous debts.