1 Estate of Hemady v. Luzon Surety

Estate of Hemady v. Luzon Surety SUCCESSION – Art.
774
1
G.R. No. L-8437 November 28, 1956 J. J.B.L. Reyes Therese
Petitioners: Respondents:
Estate of K.H. Hemady, deceased Luzon Surety Co., Inc., claimant and appellant
Recit Ready Summary
The Luzon Surety Co. had filed a claim against the Estate of Hemady based on 20 different indemnity
agreements/counter bonds where each subscribed by a distinct principal and by the deceased K.H.
Hemady, a surety solidary guarantor. The lower court held that the obligation of Hemady as a
guarantor was extinguished upon his death as it was a personal obligation which was intransmissible to
his heirs. The administratrix likewise argues that it is a personal obligation since integrity is a
requirement for a guarantor. Thus, it is personal.
Issue: W/N the obligation of Hemady as a guarantor is transmissible to his heirs – YES
Under the Civil Code,

GR: A party’s contractual rights and obligations are transmissible to the successors.
EXP: (Under Art. 1311) (see ratio for application under each exception)
 Nature of the obligation
 Intransmissibility by stipulation
 Not transmissible by operation of law
The Court ruled that the obligations of a guarantor does not fall under any of the exceptions expressly
provided by law.
Furthermore, The civil code provides: “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.” While our successional system
provides that the responsibility of heirs shall not exceed the value of the inheritance they receive, these
heirs must still succeed not only to the rights of the deceased but also to his obligations.
The ruling of the Lower Court is reversed.

Facts
1. The Luzon Surety Co. had filed a claim against the Estate of Hemady based on 20 different
indemnity agreements/counter bonds where each subscribed by a distinct principal and by the
deceased K.H. Hemady, a surety solidary guarantor.
2. Luzon Surety prayed for allowance, as a contingent claim, of the value of the 20 bonds it had
executed in consideration of the counterbonds, and further asked for judgment for the unpaid
premiums and documentary stamps.
3. The Lower Court dismissed Luzon Surety’s claims ruling that whatever losses may occur after
Hemady’s death are not chargeable to his estate because his duty as a guarantor ceases upon
his death.
4. The administratrix of his estate argues that to be a guarantor, integrity is a new requirement. As
such, integrity is something personal and thus not transmissible. Furthermore, the administratrix
contends that another indication that the obligation was personal to Hemady was the fact that
despite there being a requirement in the indemnity agreement of a security by way of first
mortgage the same was not enforced upon on Hemady.
Issues Ruling
1. W/N the obligation of Hemady as a guarantor is transmissible to his heirs 1. Yes
Rationale
1. The obligation of Hemady as a guarantor is TRANSMISSIBLE to his heirs
 The civil code provides: “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.”
ALS B2021 1
 While our successional system provides that the responsibility of heirs shall not exceed the value of the
inheritance they receive, these heirs must still succeed not only to the rights of the deceased but also to
his obligations.
 In Mojica v. Fernandez: “Under the Civil Code the heirs, by virtue of the rights of succession are
subrogated to all the rights and obligations of the deceased (Article 661) and can not be regarded as third
parties with respect to a contract to which the deceased was a party, touching the estate of the deceased
(Barrios vs. Dolor, 2 Phil. 44).
 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).
 Under the law,
General rule: A party’s contractual rights and obligations are transmissible to the successors.
Exception: (Under Art. 1311)
o Nature of the obligation
 As a guarantor, the responsibility of Hemady would merely to reimburse the payment of
the sum of money, thus an obligation to give.
 There is nothing personal about this because the only thing that matters is that money
was paid.
o Intransmissibility by stipulation
 Intransmissibility should not be easily implied, but must be expressly established, or at
the very least, clearly inferable from the provisions of the contract itself.
 The text of the agreements sued upon nowhere indicate that they are nontransferable.
 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.
o Not transmissible by operation of law
 The law provides other obligations which extinguish upon death such as:
 Legal support
 Parental authority
 Usufruct
 Contracts for a piece of work
 Partnership and Agency
 The law does not mention guaranty or suretyship as one of the obligations which
terminate upon death of the obligor.
 As regards the argument of the administratrix regarding the requirement of integrity, the
Court explained that that the law requires these qualities to be present only at the time
of the perfection of the contract of guaranty. Thus, the obligation is not extinguished.
 The Court also explained that the waiver of the security by way of first mortgage did not mean that the
obligation was personal but rather that the waiver indicates the company’s faith and confidence in the
financial stability of Hemady.
 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
 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.
 There was a second issue, the liability for premiums and stamp taxes but the Court held that it is
unnecessary to discuss the said issue since irrespective of the solution to this question, the Luzon
Surety’s claim did state a cause of action, and its dismissal was erroneous.
Disposition
The order of the lower court ruling in favor of the Estate of Hemady is reversed.
ALS B2021 2

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Estate of Hemady v. Luzon Surety SUCCESSION – Art.

Under the Civil Code,

The ruling of the Lower Court is reversed.

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