Case Digest: Estate of Hemady vs. Luzon Surety Co., Inc., G.R. No. L-843 , November 28, 1956

                                      Art. 774, 776 | Succession, Transmissibility 

Provision:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law.

Art. 776. The inheritance includes all the property, rights and obligations of a person which are not extinguished by his death.

Art. 1311. Contracts take effect only as between the parties, their assigns and heirs, except in the case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heirs is not liable beyond the value of the property he received from the decedent.

Ponente:

Reyes, J.B. L.

Facts:

The Luzon Surety Co., Inc. filed a claim against the Estate of Hemady based on twenty distinct indemnity agreements or counter bonds. These counter bonds were subscribed by different principals and K. H. Hemady, the deceased as a solidary guarantor.

Hemady's liability as a guarantor was based on the counter bonds where he jointly and severally agreed to indemnify the company for damages, losses, costs, and other expenses.

The Luzon Surety Co. requested the value of the twenty bonds it executed based on counter bonds as a contingent claim. The company also sought judgment for unpaid premiums and documentary stamps affixed to the bonds, with 12% interest.

Lower Court:

The lower court dismissed the company's claims on two grounds:

(1) premiums and stamps were not part of the guarantor's undertaking, since they were not liabilities incurred after the execution of the counterbonds, and

(2) Hemady's death ceased his liability as a guarantor.

The court contended that after Hemady's death, his liability as a guarantor terminated, and in the absence of a showing that a loss or damage was suffered, losses occurring afterward weren't chargeable to his estate.

A new requirement has been added for a person to qualify as a guarantor, that is: integrity. 

Integrity is something purely personal and is not transmissible. 

Nature:

Appeal from an order of the CFI-Rizal.

 

Issue:

WoN the lower court erred in ruling that upon the death of Hemady, his liability as a guarantor was terminated. (YES)

Held:

Order reversed.

While in our successional system the responsibility of the heirs for the debts of their decedent cannot exceed the value of the inheritance they receive from him, the principle remains intact that these heirs succeed not only to the rights of the deceased but also to his obligations. Articles 774 and 776 of the New Civil Code (and Articles 659 and 661 of the preceding one) expressly so provide, thereby confirming Article 1311 already quoted.

The binding effect of contracts upon the heirs of the deceased party is not altered by the provision in our Rules of Court that money debts of a deceased must be liquidated and paid from his estate before the residue is distributed among said heirs (Rule 89). The reason is that whatever payment is thus made from the estate is ultimately a payment by the heirs and distributees, since the amount of the paid claim in fact diminishes or reduces the shares that the heirs would have been entitled to receive.

Under our law, therefore, the general rule is that a party’s contractual rights and obligations are transmissible to the successors. 

What did the creditor Luzon Surety Co. expect of K. H. Hemady when it accepted the latter as surety in the counterbonds? Nothing but the reimbursement of the moneys that the Luzon Surety Co. might have to disburse on account of the obligations of the principal debtors. This reimbursement is a payment of a sum of money, resulting from an obligation to give; and to the Luzon Surety Co., it was indifferent that the reimbursement should be made by Hemady himself or by some one else in his behalf, so long as the money was paid to it.

Because under the law (Article 1311), a person who enters into a contract is deemed to have contracted for himself and his heirs and assigns, it is unnecessary for him to expressly stipulate to that effect; hence, his failure to do so is no sign that he intended his bargain to terminate upon his death. Similarly, that the Luzon Surety Co., did not require bondsman Hemady to execute a mortgage indicates nothing more than the company’s faith and confidence in the financial stability of the surety, but not that his obligation was strictly personal.

It is self-evident that once the contract has become perfected and binding, the supervening incapacity of the guarantor would not operate to exonerate him of the eventual liability he has contracted; and if that be true of his capacity to bind himself, it should also be true of his integrity, which is a quality mentioned in the article alongside the capacity.

The contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not being rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the contracts themselves, nor by provision of law, his eventual liability thereunder necessarily passed upon his death to his heirs. The contracts, therefore, give rise to contingent claims provable against his estate under section 5, Rule 87.

If under the Gaskell ruling, the Luzon Surety Co., as guarantor, could file a contingent claim against the estate of the principal debtors if the latter should die, there is absolutely no reason why it could not file such a claim against the estate of Hemady, since Hemady is a solidary co-debtor of his principals. What the Luzon Surety Co. may claim from the estate of a principal debtor it may equally claim from the estate of Hemady, since, in view of the existing solidarity, the latter does not even enjoy the benefit of exhaustion of the assets of the principal debtor.

The foregoing ruling is of course without prejudice to the remedies of the administratrix against the principal debtors under Articles 2071 and 2067 of the New Civil Code.

Our conclusion is that the solidary guarantor’s liability is not extinguished by his death, and that in such event, the Luzon Surety Co., had the right to file against the estate a contingent claim for reimbursement. It becomes unnecessary now to discuss the estate’s liability for premiums and stamp taxes, because irrespective of the solution to this question, the Luzon Surety’s claim did state a cause of action, and its dismissal was erroneous.

Note:

Cases where the law expresses that the rights or obligations are extinguished by death:

Legal support (Article 300);

Parental authority (Article 327);

Usufruct (Article 603);

Contracts for a piece of work (Article 1726);

Partnership (Article 1830); and 

Agency (Article 1919). 

By contract, the articles of the Civil Code that regulate guaranty or suretyship (Articles 2047 to 2084) contain no provision that the guaranty is extinguished upon the death of the guarantor or the surety.