No. L-8437 – ESTATE OF K.H. HEMADY, deceased, vs. LUZON SURETY CO., INC., claimant and appellant.

REYES, J.B. L., J.

Rule Synopsis

The obligation of a surety is not strictly personal. Hence, transmissible to the heirs by succession upon his death.

Facts

Luzon Surety Co., Inc. (Luzon) was a surety to some 20 indemnity agreements. KH Hemedy executed counterbonds in favor of Luzon whereby he was made a surety solidary guarantor in all of the indemnity agreements entered into by the latter. This means that Hemedy will indemnify Luzon in case the latter was made to pay. Hemedy died.

Luzon filed a claims against the estate of Hemedy, pertaining to contingent claims for the value of the 20 bonds.

The lower court dismissed the claim on the ground that upon Hemady’s death, his obligation as a surety. It justified such ruling by essentially saying that the obligation of a guarantor is strictly personal. Hence, terminated upon the death of said guarantor and not transmitted to his heirs.

The SC reversed this decision saying that the liability of a surety or guarantor is not strictly personal. Hence, transmitted to his heirs upon his death. The contingent claims against the estate were therefore allowed.

Issues

May the obligations of a decedent as a surety or guarantor be transmitted to his heirs?

Ruling and Discussion

Yes. The obligations of a decedent as a surety or guarantor may be transmitted to his heirs.

(a) The heirs succeed not only to the rights of the deceased but also to his obligations (Arts. 774 and 776 NCC).

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 (Art. 1257 NCC). When a party enters into a contract, he is deemed to have contracted for himself and his heirs and assigns.

The binding effect of the contract upon the heirs is not altered by the requirements under the Rules of Court (Rule 89) saying that money claims against the estate shall be settled first before distribution of the same to the heirs may be made. The reason is that, the payment for those claims against the estate were ultimately payments made by the heirs since the amounts so paid constitute diminution or reduction in the eventual share of the heirs in the estate.

(b) The obligation of a surety or guarantor does not fall in any of the exceptions provided for under Art. 1257.

As to the nature of the obligation. The obligation of a Hemady is to reimburse sum of money paid by Luzon. It is an obligation to give. It is not relevant whether the payment was made by Hemady himself or by another person so long as the payment was made.

As to the stipulation of the parties. Failure to expressly provide in the contract that the obligations arising therefrom shall transmit to the heirs upon the death of Hemady does not show of the intent of the parties to have such obligation termination upon Hemady’s death. In fine, such need not be provided for as the law already expressly provided for the same.

As to the provision of law. The provisions of the civil code regulating guaranty and suretyship do not provide that the obligation shall of a surety or guarantor shall be extinguished upon his death.

dispositive

Order reversed.