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cases' Succession ESTATE OF K. H. HEMADY, deceased, vs. LUZON SURETY CO., INC., claimant-Appellant. ANTONIO B. BALTAZAR, SEBASTIAN M. BALTAZAR, ANTONIO L. MANGALINDAN, ROSIE M. MATEO, NENITA A. PACHECO, VIRGILIO REGALA, JR., and RAFAEL TITCO, Petitioners, vs. LORENZO LAXA, Respondent. ANTONIO B. BALTAZAR, SEBASTIAN M. BALTAZAR, ANTONIO L. MANGALINDAN, ROSIE M. MATEO, NENITA A. PACHECO, VIRGILIO REGALA, JR., and RAFAEL TITCO, Petitioners, vs. LORENZO LAXA, Respondent. AUREA MATIAS, petitioner, vs. HON. PRIMITIVO L. GONZALEZ, ETC., ET AL., respondents.
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  [G.R. No. L-8437. November 28, 1956.]   ESTATE OF K. H. HEMADY, deceased, vs. LUZON SURETY CO., INC., claimant- Appellant  .  Appeal by Luzon Surety Co., Inc., from an order of the Court of First Instance of Rizal, presided by Judge Hermogenes Caluag,dismissing its claim against the Estate of K. H. Hemady (Special Proceeding No. Q-293) for failure to state a cause of action.The Luzon Surety Co. had filed a claim against the Estate based on twenty different indemnity agreements, or counter bonds, eachsubscribed by a distinct principal and by the deceased K. H. Hemady, a surety solidary guarantor) in all of them, in consideration of  the Luzon Surety Co.‘s of having guaranteed, the various principals in favor of different creditors. The twenty counterbon ds, or indemnity agreements, all contained the following stipulations:chanroblesvirtuallawlibrary  ―Premiums. —  As consideration for this suretyship, the undersigned jointly and severally, agree to pay the COMPANY the sum of  ________________ (P______) pesos, Philippines Currency, in advance as premium there of for every __________ months or fractions thereof, this ________ or any renewal or substitution thereof is in effect.Indemnity.  —  The undersigned, jointly and severally, agree at all times to indemnify the COMPANY and keep it indemnified andhold 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 suretyupon this bond or any extension, renewal, substitution or alteration thereof made at the instance of the undersigned or any of them or any order executed on behalf of the undersigned or any of them;chan roblesvirtualawlibraryand to pay, reimburse and make good tothe COMPANY, its successors and assigns, all sums and amount of money which it or its representatives shall pay or cause to be paid,or become liable to pay, on account of the undersigned or any of them, of whatsoever kind and nature, including 15% of the amount involved in the litigation or other matters growing out of or connected therewith for counsel or attorney‘s fees, but in no c ase less thanP25. It is hereby further agreed that in case of extension or renewal of this ________ we equally bind ourselves for the paymentthereof under the same terms and conditions as above mentioned without the necessity of executing another indemnity agreement for the purpose and that we hereby equally waive our right to be notified of any renewal or extension of this ________ which may begranted under this indemnity agreement.Interest on amount paid by the Company.  —  Any and all sums of money so paid by the company shall bear interest at the rate of 12% per annum which interest, if not paid, will be accummulated and added to the capital quarterly order to earn the same interests as thecapital and the total sum thereof, the capital and interest, shall be paid to the COMPANY as soon as the COMPANY shall have become liable therefore, whether it shall have paid out such sums of money or any part thereof or not.x x x x x x x x xWaiver.  —  It is hereby agreed upon by and between the undersigned that any question which may arise between them by reason of this document and which has to be submitted for decision to Courts of Justice shall be brought before the Court of competent jurisdiction in the City of Manila, waiving for this purpose any other venue. Our right to be notified of the acceptance and approval of this indemnity agreement is hereby likewise waived.x x x x x x x x xOur Liability Hereunder.  —  It shall not be necessary for the COMPANY to bring suit against the principal upon his default, or toexhaust the property of the principal, but the liability hereunder of the undersigned indemnitor shall be jointly and severally, a primary one, the same as that of the principal, and shall be exigible immediately upon the occurrence of such default.‖ (Rec. App. pp. 98- 102.)The Luzon Surety Co., prayed for allowance, as a contingent claim, of the value of the twenty bonds it had executed in considerationof the counterbonds, and further asked for judgment for the unpaid premiums and documentary stamps affixed to the bonds, with 12 per cent interest thereon. Before answer was filed, and upon motion of the administratrix of Hemady‘s estate, the lower court, by order of September 23, 1953,dismissed the claims of Luzon Surety Co., on two grounds:chanroblesvirtuallawlibrary(1) that the premiums due and cost of documentary stamps were not contemplated under the indemnity agreements to be a part of the undertaking of the guarantor (Hemady), since they were not liabilities incurred after the execution of the counterbonds;chan roblesvirtualawlibraryand (2) that ―whatever losses may occur after Hemady‘s death, are not chargeable to his estate, 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 asfollows:chanroblesvirtuallawlibrary  ―The administratrix further contends that upon the death of Hemady, his liability as a guarantor terminated, and therefore, i n theabsence of a showing that a loss or damage was suffered, the claim cannot be considered contingent. This Court believes that there ismerit in this contention and finds support in Article 2046 of the new Civil Code. It should be noted that a new requirement has beenadded for a person to qualify as a guarantor, that is:chanroblesvirtuallawlibraryintegrity. As correctly pointed out by theAdministratrix, integrity is something purely personal and is not transmissible. Upon the death of Hemady, his integrity was nottransmitted to his esta te or successors. Whatever loss therefore, may occur after Hemady‘s death, are not chargeable to his estate  because upon his death he ceased to be a guarantor.Another clear and strong indication that the surety company has exclusively relied on the personality, character, honesty and integrityof the now deceased K. H. Hemady, was the fact that in the printed form of the indemnity agreement there is a paragraph entitled  ‗Security by way of first mortgage, which was expressly waived and renounced by the sec urity company. The security company hasnot demanded from K. H. Hemady to comply with this requirement of giving security by way of first mortgage. In the supporting papers of the claim presented by Luzon Surety Company, no real property was mentioned in the list of properties mortgaged which appears at the back of the indemnity agreement.‖ (Rec. App., pp. 407 -408).We find this reasoning untenable. Under the present Civil Code (Article 1311), as well as under the Civil Code of 1889 (Article 1257),the rule is that  —    ―Contracts take effect only as between the parties, their assigns and heirs, except in the case where the rights and obligati ons arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.‖  While in our successional system the responsibility of the heirs for the debts of their decedent cannot exceed the value of theinheritance they receive from him, the principle remains intact that these heirs succeed not only to the rights of the deceased but alsoto 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. ―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.‖  In Mojica vs. Fernandez, 9 Phil. 403, this Supreme Court ruled:chanroblesvirtuallawlibrary  ―Under the Civil Code the heirs, by virtue of the rights of succession are subrogated to all the ri ghts and obligations of the deceased(Article 661) and cannot be regarded as third parties with respect to a contract to which the deceased was a party, touching the estateof the deceased (Barrios vs. Dolor, 2 Phil. 44).x x x x x x x x x ―The principle on which these decisions rest is not affected by the provisions of the new Code of Civil Procedure, and, in ac cordance with that principle, the heirs of a deceased person cannot be held to be ―third persons‖ in relation to any contracts touc hing the realestate of their decedent which comes in to their hands by right of inheritance;chan roblesvirtualawlibrarythey take such property subject to all the obligations resting thereon in the hands of him from whom they derive their rights.‖  (See also Galasinao vs. Austria, 51 Off. Gaz. (No. 6) p. 2874 and de Guzman vs. Salak, 91 Phil., 265).The binding effect of contracts upon the heirs of the deceased party is not altered by the provision in our Rules of Court that moneydebts of a deceased must be liquidated and paid from his estate before the residue is distributed among said heirs (Rule 89). Thereason 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 succ essors. Therule is a consequence of th e progressive ―depersonalization‖ of patrimonial rights and duties that, as observed by Victorio Polacco, has characterized the history of these institutions. From the Roman concept of a relation from person to person, the obligation has evolvedinto a relation from patrimony to patrimony, with the persons occupying only a representative position, barring those rare cases wherethe obligation is strictly personal, i.e., is contracted intuitu personae, in consideration of its performance by a specific person and by noother. The transition is marked by the disappearance of the imprisonment for debt.Of the three exceptions fixed by Article 1311, the nature of the obligation of the surety or guarantor does not warrant the conclusionthat his peculiar individual qualities are contemplated as a principal inducement for the contract. What did the creditor Luzon SuretyCo. expect of K. H. Hemady when it accepted the latter as surety in the counterbonds? Nothing but the reimbursement of the moneysthat 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;chan roblesvirtualawlibraryand to the Luzon Surety Co., it wasindifferent 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.The second exception of Article 1311, p. 1, is intransmissibility by stipulation of the parties. Being exceptional and contrary to thegeneral rule, this intransmissibility should not be easily implied, but must be expressly established, or at the very least, clearlyinferable from the provisions of the contract itself, and the text of the agreements sued upon nowhere indicate that they are non-transferable. ―(b) Intransmisibilidad por pacto.  —  Lo general es la transmisibilidad de darechos y obligaciones;chan roblesvirtualawlibraryleexcepcion, la intransmisibilidad. Mientras nada se diga en contrario impera el principio de la transmision, como elemento natural atoda relacion juridica, salvo las personalisimas. Asi, para la no transmision, es menester el pacto expreso, porque si no, lo convenidoentre partes trasciende a sus herederos.Siendo estos los continuadores de la personalidad del causante, sobre ellos recaen los efectos de los vinculos juridicos creados por susantecesores, y para evitarlo, si asi se quiere, es indespensable convension terminante en tal sentido.Por su esencia, el derecho y la obligacion tienden a ir más allá de las personas que les dieron vida, y a ejercer presion sobre lossucesores de esa persona;chan roblesvirtualawlibrarycuando no se quiera esto, se impone una estipulacion limitativa expresamente de  la transmisibilidad o de cuyos tirminos claramente se ded uzca la concresion del concreto a las mismas personas que lo otorgon.‖ (Scaevola, Codigo Civil, Tomo XX, p. 541-542) (Emphasis supplied.)Because under the law (Article 1311), a person who enters into a contract is deemed to have contracted for himself and his heirs andassigns, it is unnecessary for him to expressly stipulate to that effect;chan roblesvirtualawlibraryhence, his failure to do so is no signthat 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, b ut not thathis obligation was strictly personal.The third exception to the transmissibility of obli gations under Article 1311 exists when they are ―not transmissible by operation of law‖. The provision makes reference to those cases where the law expresses that the rights or obligations are extinguished by death, asis the case in legal support (Article 300), parental authority (Article 327), usufruct (Article 603), contracts for a piece of work (Article1726), 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. The lower court sought to infer such a limitation from Art. 2056, to the effect that ―one who is obliged to furnish a guarant or must present a person who possesses integrity, capacity to bind himself, and sufficient property to answer for the obligation which he guarantees‖. It will be noted, however, that the law requires these qualities to be present only at the time of the perfectio n of thecontract of guaranty. It is self-evident that once the contract has become perfected and binding, the supervening incapacity of theguarantor would not operate to exonerate him of the eventual liability he has contracted;chan roblesvirtualawlibraryand if that be trueof 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 foregoing concept is confirmed by the next Article 2057, that runs as follows:chanroblesvirtuallawlibrary  ―ART. 2057. —  If the guarantor should be convicted in first instance of a crime involving dishonesty or should become insolvent, thecreditor may demand another who has all the qualifications required in the preceding article. The case is excepted where the creditor  has required and stipulated that a specified person should be guarantor.‖  From this article it should be immediately apparent that the supervening dishonesty of the guarantor (that is to say, the disappearanceof his integrity after he has become bound) does not terminate the contract but merely entitles the creditor to demand a replacement of the guarantor. But the step remains optional in the creditor:chanroblesvirtuallawlibraryit is his right, not his duty;chan roblesvirtualawlibraryhe may waive it if he chooses, and hold the guarantor to his bargain. Hence Article 2057 of the present Civil Code is incompatible with the trial court‘s stand that the requirement of integrity in the guarantor or surety makes the latter‘s undertaking strictly personal, so linked to his individuality that the guaranty automatically terminates upon his death.The contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not being rendered intransmissible due to thenature 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 (2 Moran, 1952 ed., p. 437;chan roblesvirtualawlibraryGaskell & Co. vs. Tan Sit, 43 Phil. 810, 814). ―The most common example of the contigent claim is that which arises when a person is bound as surety or guarantor for a prin cipalwho is insolvent or dead. Under the ordinary contract of suretyship the surety has no claim whatever against his principal until hehimself pays something by way of satisfaction upon the obligation which is secured. When he does this, there instantly arises in favor of the surety the right to compel the principal to exonerate the surety. But until the surety has contributed something to the payment of the debt, or has performed the secured obligation in whole or in part, he has no right of action against anybody  —  no claim that could be reduced to judgment. (May vs. Vann, 15 Pla., 553;chan roblesvirtualawlibraryGibson vs. Mithell, 16 Pla., 519;chan roblesvirtualawlibraryMaxey vs. Carter, 10 Yarg. [Tenn.], 521 Reeves vs. Pulliam, 7 Baxt. [Tenn.], 119;chanroblesvirtualawlibrary Ernst vs. Nou, 63 Wis., 134.)‖  For   Defendant  administratrix it is averred that the above doctrine refers to a case where the surety files claims against the estate of the principal debtor;chan roblesvirtualawlibraryand it is urged that the rule does not apply to the case before us, where the late Hemadywas a surety, not a principal debtor. The argument evinces a superficial view of the relations between parties. If under the Gaskellruling, the Luzon Surety Co., as guarantor, could file a contingent claim against the estate of the principal debtors if the latter shoulddie, 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 principaldebtor.The foregoing ruling is of course without prejudice to the remedies of the administratrix against the principal debtors under Articles2071 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‘sliability for premiums and stamp taxes, because irrespective of the solution to this question, the Luzon Surety‘s claim did s tate a causeof action, and its dismissal was erroneous.Wherefore, the order appealed from is reversed, and the records are ordered remanded to the court of srcin, with instructions to proceed in accordance with law. Costs against the Administratrix-  Appellee . SO ORDERED.     
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