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[No. L-8437.
November 28, 1956] reimbursement is a payment of a sum of money,
ESTATE OF K.H. HEMADY, deceased, vs. LUZON resulting from an obligation to give; and to the SURETY CO., INC., claimant and appellant. creditor, it was indifferent that the reimbursement ________________ should be made by the surety himself or by some one else in his behalf, so long as the money was paid to 1Article 90, Revised Penal Code. it. 389 VOL. 100, NOVEMBER 28, 1956 389 1. 3.ID.; ID.; QUALIFICATION OF Estate of Hemady vs. Luzon Surety Co., Inc. GUARANTOR; SUPERVENING INCAPACITY OF GUARANTOR, EFFECT ON CONTRACT.—The 1. 1.CONTRACTS; BlNDING EFFECT OF qualification of integrity in the guarantor or surety CONTRACTS UPON HEIRS OF DECEASED is required to be present only at the time of the PARTY.—The binding effect of contracts upon the perfection of the contract of guaranty. Once the heirs of the deceased party is not altered by the contract of guaranty has become perfected and provision in the Rules of Court that money debts of binding, the supervening dishonesty of the a deceased must be liquidated and paid from his guarantor (that is to say, the disappearance of his estate before the residue is distributed among said integrity after he has become bound) does heirs (Rule 89). The reason is that whatever not terminate the contract but merely entitles the payment is thus made from the estate is ultimately creditor to demand a replacement of the guarantor. a payment by the heirs and distributees, since the But the step remains optional in the creditor: it is amount of the paid claim in fact diminishes or his right, not his duty, he may waive it if he chooses, reduces the shares that the heirs would have been and hold the guarantor to his bargain. entitled to receive. The general rule, therefore, is that a party’s contractual rights and obligations are APPEAL from an order of the Court of First Instance of transmissible to the successors. Rizal. Caluag, J. The facts are stated in the opinion of the Court. 1. 2.ID.; SURETYSHIP; NATURE OF OBLIGATION Claro M. Recto for appellee. OF SURETY.—The nature of the obligation of the Tolentino & Garcia and D.R. Cruz for appellant. surety or guarantor does not warrant the conclusion 390 that his peculiar individual qualities are 390 PHILIPPINE REPORTS ANNOTATED contemplated as a principal inducement for the Estate of Hemady vs. Luzon Surety Co., Inc. contract. The creditor expects of the surety nothing but the reimbursement of the moneys that said REYES, J.B. L., J.: creditor might have to disburse on account of the obligations of the principal debtors. This Appeal by Luzon Surety Co., Inc., from an order of the become liable to pay, on account of the undersigned or any of Court of First Instance of Rizal, presided by Judge them, of whatsoever kind and nature, including 15% of the Hermogenes Caluag, dismissing its claim against the amount involved in the litigation or other matters growing Estate of K.H. Hemady (Special Proceeding No. Q-293) out of or connected therewith for counsel or attorney’s fees, but in no case less than P25. It is hereby further agreed that for failure to state a cause of action. in case of extension or renewal of this we equally bind The Luzon Surety Co. had filed a claim against the ourselves for the payment thereof under the same terms Estate based on twenty different indemnity 391 agreements, or counter bonds, each subscribed by a VOL. 100, NOVEMBER 28, 1956 391 distinct principal and by the deceased K.H. Hemady, a Estate of Hemady vs. Luzon Surety Co., Inc. surety solidary guarantor) in all of them, in and conditions as above mentioned without the necessity of consideration of the Luzon Surety Co.'s of having executing another indemnity agreement for the purpose and guaranteed, the various principals in favor of different that we hereby equally waive our right to be notified of any creditors. The twenty counterbonds, or indemnity renewal or extension of this which may be granted under this agreements, all contained the following stipulations: indemnity agreement. “Premiums.—As consideration for this suretyship, the Interest on amount paid by the Company.—Any and all undersigned jointly and severally, agree to pay the sums of money so paid by the company shall bear interest at COMPANY the sum of ________________________ the rate of 12% per annumwhich interest, if not paid, will be (P__________) pesos, Philippines Currency, in advance as accummulated and added to the capital quarterly order to premium there of for every ___________ months or fractions earn the same interests as the capital and the total sum thereof, this ________ or any renewal or substitution thereof thereof, the capital and interest, shall be paid to the is in effect. COMPANY as soon as the COMPANY shall have become Indemnity.—The undersigned, jointly and severally, liable therefore, whether it shall have paid out such sums of agree at all times to indemnify the COMPANY and keep it money or any part thereof or not. indemnified and hold and save it harmless from and against any and all damages, losses, costs, stamps, taxes, penalties, * * * * * * charges, and expenses of Whatsoever kind and nature which * the COMPANY shall or may, at any time sustain or incur in consequence of having become surety upon this bond or any Waiver.—It is hereby agreed upon by and between the extension, renewal, substitution or alteration thereof made undersigned that any question which may arise between at the instance of the undersigned or any of them or any them by reason of this document and which has to be order executed on behalf of the undersigned or any of them; submitted for decision to Courts of Justice shall be brought and to pay, reimburse and make good to the COMPANY, its before the Court of competent jurisdiction in the City of successors and assigns, all sums and amount of money which Manila, waiving for this purpose any other venue. Our right it or its representatives shall pay or cause to be paid, or to be notified of the acceptance and approval of this after Hemady’s death, are not chargeable to his estate, indemnity agreement is hereby likewise waived. because upon his death he ceased to be guarantor.” Taking up the latter point first, since it is the one * * * * * * more far reaching in effects, the reasoning of the court * below ran as follows: Our Liability Hereunder.—It shall not be necessary for “The administratrix further contends that upon the death of the COMPANY to bring suit against the principal upon his Hemady, his liability as a guarantor terminated, and default, or to exhaust the property of the principal, but the therefore, in the absence of a showing that a loss or damage liability hereunder of the undersigned indemnitor shall be was suffered, the claim cannot be considered contingent. jointly and severally, a primary one, the same as that of the This Court believes that there is merit in this contention and principal, and shall be exigible immediately upon the finds support in Article 2046 of the new Civil Code. It should occurrence of such default.” (Rec. App. pp. 98–102.) be noted that a new requirement has been added for a person to qualify as a guarantor, that is: integrity. As correctly The Luzon Surety Co., prayed for allowance, as a pointed out by the Administratrix, integrity is something contingent claim, of the value of the twenty bonds it had purely personal and is not transmissible. Upon the death of executed in consideration of the counterbonds, and Hemady, his integrity was not transmitted to his estate or further asked for judgment for the unpaid premiums successors. Whatever loss therefore, may occur after and documentary stamps affixed to the bonds, with 12 Hemady’s death, are not chargeable to his estate because per cent interest thereon. upon his death he ceased to be a guarantor. Before answer was filed, and upon motion of the Another clear and strong indication that the surety administratrix of Hemady’s estate, the lower court, by company has exclusively relied on the personality, character, order of September 23, 1953, dismissed the claims of honesty and integrity of the now deceased K.H. Hemady, was Luzon Surety Co., on two grounds: (1) that the the fact that in the printed form of the indemnity agreement premiums due and cost of documentary stamps were not there is a paragraph entitled ‘Security by way of first mortgage, which was expressly waived and renounced by the contemplated 392 security company. The security company has not demanded 392 PHILIPPINE REPORTS ANNOTATED from K.H. Hemady to comply with this requirement of giving security by way of first mortgage. In the supporting papers Estate of Hemady vs. Luzon Surety Co., Inc. of the claim presented by Luzon Surety Company, no real under the indemnity agreements to be a part of the property was mentioned in the list of properties mortgaged undertaking of the guarantor (Hemady), since they which appears at the back of the indemnity agreement.” (Rec. were not liabilities incurred afterthe execution of the App., pp. 407–408). counterbonds; and (2) that “whatever losses may occur We find this reasoning untenable. Under the present parties with respect to a contract to which the deceased was Civil Code (Article 1311), as well as under the Civil a party, touching the estate of the deceased Code of 1889 (Article 1257), the rule is that— (Barrios vs. Dolor, 2 Phil. 44). “Contracts take effect only as between the parties, their assigns and heirs, except in the case where the rights and * * * * * * obligations * 393 VOL. 100, NOVEMBER 28, 1956 393 “The principle on which these decisions rest is not affected by the provisions of the new Code of Civil Procedure, and, in Estate of Hemady vs. Luzon Surety Co., Inc. accordance with that principle, the heirs of a deceased person arising from the contract are not transmissible by their cannot be held to be “third persons” in relation to any nature, or by stipulation or by provision of law.” contracts touching the real estate of their decedent which While in our successional system the responsibility of comes in to their hands by right of inheritance; they take the heirs for the debts of their decedent cannot exceed such property subject to all the obligations resting thereon in the value of the inheritance they receive from him, the the hands of him from whom they derive their rights.” principle remains intact that these heirs succeed not (See also Galasinao vs. Austria, 51 Off. Gaz. (No. 6) p. only to the rights of the deceased but also to his 2874 and de Guzman vs. Salak, 91 Phil., 265). obligations. Articles 774 and 776 of the New Civil Code 394 (and Articles 659 and 661 of the preceding one) 394 PHILIPPINE REPORTS ANNOTATED expressely so provide, thereby confirming Article 1311 Estate of Hemady vs. Luzon Surety Co., Inc. already qouted. The binding effect of contracts upon the heirs of the “ART. 774.—Succession is a mode of acquisition by virtue of deceased party is not altered by the provision in our which the property, rights and obligations to the extent of Rules of Court that money debts of a deceased must be the value of the inheritance, of a person are transmitted liquidated and paid from his estate before the residue is through his death to another or others either by his will or distributed among said heirs (Rule 89). The reason is by operation of law.” that whatever payment is thus made from the estate is “ART. 776,—The inheritance includes all the property, ultimately a payment by the heirs and distributees, rights and obligations of a person which are not extinguished by his death.” since the amount of the paid claim in fact diminishes or In Mojica vs. Fernandez, 9 Phil. 403, this Supreme reduces the shares that the heirs would have been Court ruled: entitled to receive. “Under the Civil Code the heirs, by virtue of the rights of Under our law, therefore, the general rule is that a succession are subrogated to all the rights and obligations of party’s contractual rights and obligations are the deceased (Article 661) and can not be regarded as third transmissible to the successors. The rule is a consequence of the progressive “depersonalization” of exceptional and contrary to the general rule, this patrimonial rights and duties that, as observed by intransmissibility should not be easily implied, but Victorio Polacco, has characterized the history of these must be expressly established, or at the very least, institutions. From the Roman concept of a relation from clearly inferable from the provisions of the contract person to person, the obligation has evolved into a itself, and the text of the agreements sued upon relation from patrimony to patrimony, with the persons nowhere indicate that they are non-transferable. occupying only a representative position, barring those "(b) Intransmisibilidad por pacto.—Lo general es la rare cases where the obligation is strictly personal, i.e., transmisibilidad de darechos vs obligaciones; le excepcion, la is contracted intuitu personae, in consideration of its intransmisibilidad. Mientras nada se diga en contrario performance by a specific person and by no other. The impera el principio de la transmision, como elemento natural a toda relación juridica, salvo las personalísimas. Asi, para transition is marked by the disappearance of the la no transmisión, es menester el pacto expreso, porque si no, imprisonment for debt. lo convenido entre partes trasciende a sus herederos. Of the three exceptions fixed by Article 1311, Siendo estos los continuadores de la personalidad del the nature of the obligation of the surety or guarantor causante, sobre ellos recaen los efectos de los vinculos does not warrant the conclusion that his peculiar juridicos creados por sus antecesores, vs para evitarló, si asi individual qualities are contemplated as a principal se quiere, es indespensable convension terminante en tal inducement for the contract. What did the creditor sentido. Luzon Surety Co. expect of K.H. Hemady when it Por su esencia, el derecho vs la obligación tienden a ir más accepted the latter as surety in the counterbonds? allá de las personas que les dieron vida, vs a ejercer presión Nothing but the reimbursement of the moneys that the sobre los sucesores de esa persona; cuando no se quiera Luzon Surety Co. might have to disburse on account of esto, se impone una estipulacion limitativa expresamente de la transmisibilidad of de cuyos tírminos claramente se the obligations of the principal debtors. This deduzca la concresión del concreto a las mismas personas reimbursement is a payment of a sum of money, que lo otorgon.” (Scaevola, Codigo Civil, Tomo XX, p. 541– resulting from an obligation to give; and to the Luzon 542) (Italics supplied.) Surety Co., it was indifferent that the reimbursement Because under the law (Article 1311), a person who should be made by Hemady himself or by some one else enters into a contract is deemed to have contracted for in his behalf, so long as the money was paid to it. himself and his heirs and assigns, it is unnecessary for 395 him to expressly stipulate to that effect; hence, his VOL. 100, NOVEMBER 28, 1956 395 failure to do so is no sign that he intended his bargain Estate of Hemady vs. Luzon Surety Co., Inc. to terminate upon his death. Similarly, that the Luzon The second exception of Article 1311, p. 1, Surety Co., did not require bondsman Hemady to is intransmissibility by stipulation of the parties. Being execute a mortgage indicates nothing more than the company’s faith and confidence in the financial stability his capacity to bind himself, it should also be true of of the surety, but not that his obligation was strictly his integrity, which is a quality mentioned in the article personal. alongside the capacity. The third exception to the transmissibility of The foregoing concept is confirmed by the next obligations under Article 1311 exists when they are “not Article 2057, that runs as follows: transmissible by operation of law”. The provision makes “ART. 2057.—If the guarantor should be convicted in first ref- instance of a crime involving dishonesty or should become 396 insolvent, the creditor may demand another who has all the 396 PHILIPPINE REPORTS ANNOTATED qualifications required in the preceding article. The case is Estate of Hemady vs. Luzon Surety Co., Inc. excepted where the creditor has required and stipulated that a specified person should be guarantor.” erence to those cases where the law expresses that the From this article it should be immediately apparent rights or obligations are extinguished by death, as is the that the supervening dishonesty of the guarantor (that case in legal support (Article 300), parental authority is to say, the disappearance of his integrity after he has (Article 327), usufruct (Article 603), contracts for a piece become bound) does notterminate the contract but of work (Article 1726), partnership (Article 1830 and merely entitles the creditor to demand a replacement of agency (Article 1919). By contract, the articles of the the guarantor. But the step remains optional in the Civil Code that regulate guaranty or suretyship credi- (Articles 2047 to 2084) contain no provision that the 397 guaranty is extinguished upon the death of the VOL. 100, NOVEMBER 28, 1956 397 guarantor or the surety. Estate of Hemady vs. Luzon Surety Co., Inc. The lower court sought to infer such a limitation from tor: it is his right, not his duty; he may waive it if he Art. 2056, to the effect that “one who is obliged to chooses, and hold the guarantor to his bargain. Hence furnish a guarantor must present a person who Article 2057 of the present Civil Code is incompatible possesses integrity, capacity to bind himself, and with the trial court’s stand that the requirement of sufficient property to answer for the obligation which he integrity in the guarantor or surety makes the latter’s guarantees”. It will be noted, however, that the law undertaking strictly personal, so linked to his requires these qualities to be present only at the time of individuality that the guaranty automatically the perfection of the contract of guaranty. It is self- terminates upon his death. evident that once the contract has become perfected and The contracts of suretyship entered into by K.H. binding, the supervening incapacity of the guarantor Hemady in favor of Luzon Surety Co. not being would not operate to exonerate him of the eventual rendered intransmissible due to the nature of the liability he has contracted; and if that be true of undertaking, nor by the stipulations of the contracts contingent claim against the estate of the principal themselves, nor by provision of law, his eventual debtors if the latter should die, there is absolutely no liability thereunder necessarily passed upon his death reason why it could not file such a claim against the to his heirs. The contracts, therefore, give rise to estate of Hemady, since Hemady is a solidary co-debtor contingent claims provable against his estate under of his principals. What the Luzon Surety Co. may claim section 5, Rule 87 (2 Moran, 1952 ed., p. 437; Gaskell & from the estate of a principal debtor it may equally Co. vs. Tan Sit, 43 Phil. 810, 814). claim from the estate of Hemady, since, in view of the “The most common example of the contigent claim is that existing solidarity, the latter does not even enjoy the which arises when a person is bound as surety or guarantor benefit of exhaustion of the assets of the principal for a principal who is insolvent or dead. Under the ordinary debtor. contract of suretyship the surety has no claim whatever The foregoing ruling is of course without prejudice to against his principal until he himself pays something by way the remedies of the administratrix against the principal of satisfaction upon the obligation which is secured. When he debtors under Articles 2071 and 2067 of the New Civil does this, there instantly arises in favor of the surety the right to compel the principal to exonerate the surety. But Code. until the surety has contributed something to the payment of Our conclusion is that the solidary guarantor’s the debt, or has performed the secured obligation in whole or liability is not extinguished by his death, and that in in part, he has no right of action against anybody—no claim such event, the Luzon Surety Co., had the right to file that could be reduced to judgment. (May vs. Vann, 15 Pla., against the estate a contingent claim for 553; Gibson vs. Mithell, 16 Pla., 519; Maxey vs. Carter, 10 reimbursement. It becomes unnecessary now to discuss Yarg. [Tenn.], 521 Reeves vs. Pulliam, 7 Baxt. [Tenn.], the estate’s liability for premiums and stamp taxes, 119; Ernst vs. Nou, 63 Wis., 134.)" because irrespective of the solution to this question, the For defendant administratrix it is averred that the Luzon Surety’s claim did state a cause of action, and its above doctrine refers to a case where the surety files dismissal was erroneous. claims against the estate of the principal debtor; and it Wherefore, the order appealed from is reversed, and is urged that the rule does not apply to the case before the records are ordered remanded to the court of origin, us, where the late Hemady was a surety, not a principal with instructions to proceed in accordance with law. debtor. The argument evinces a superficial view Costs against the Administratrix-Appellee. So ordered. 398 Parás, 398 PHILIPPINE REPORTS ANNOTATED C.J., Bengzon, Padilla, Montemayor, Bautista Capital Ins. & Surety Co., Inc. vs. Eberly Angelo, Labrador, Concepcion, Endencia and Felix, of the relations between parties. If under the Gaskell JJ., concur. ruling, the Luzon Surety Co., as guarantor, could file a Order reversed. _____________