ESTATE OF K. H. HEMADY vs. LUZON SURETY CO., INC.

- Janine Rose Lumanag

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 i Under the third exception, the provisions make reference to those cases where the law expresses that the rights or obligations are extinguished by death, as in the case of legal support, parental authority, usufruct, etc. However, by contract, the articles of the Civil Code that regulate guaranty or suretyship 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 guarantor 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 perfection of the contract of guaranty. 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 foregoing concept is confirmed by the next Article 2057, that runs as follows: ART. 2057. If the guarantor should be convicted in first instance of a crime involving dishonesty or should become insolvent, the creditor 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 disappearance of 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: it is his right, not his duty; he 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 courts stand that the requirement of integrity in the guarantor or surety makes the latters 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 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 most common example of the contigent claim is that which arises when a person is bound as surety or guarantor for a principal who is insolvent or dead. Under the ordinary contract of suretyship the surety has no claim whatever against his principal until he himself 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

FACTS: The Luzon Surety Co. had filed a claim against the Estate based on twenty different indemnity agreements, or counter bonds, each subscribed by a distinct principal and by the deceased K. H. Hemady, a surety solidary guarantor. The Luzon Surety Co., prayed for allowance, as a contingent claim, of the value of the twenty bonds it had executed in consideration of the counterbonds, and further asked for judgment for the unpaid premiums and documentary stamps affixed to the bonds, with 12 per cent interest thereon. The lower court dismissed the claims of Luzon Surety Co., ruling as follows: The administratrix further contends that upon the death of Hemady, his liability as a guarantor terminated, and therefore, in the absence of a showing that a loss or damage was suffered, the claim cannot be considered contingent. It should be noted that a new requirement has been added for a person to qualify as a guarantor, that is: integrity. Upon the death of Hemady, his integrity was not transmitted to his estate or successors. Whatever loss therefore, may occur after Hemadys death, are not chargeable to his estate because upon his death he ceased to be a guarantor. ISSUE: W/N the death of Hemady extinguished the guaranty or suretyship? HELD: No. The principle remains intact that the heirs succeed not only to the rights of the deceased but also to his obligations. Under our law, the general rule is that a partys contractual rights and obligations are transmissible to the successors. However, Article 1311 provides for three exceptions: 1. The nature of the obligation of the surety or guarantor warrants its intransmissibility; By stipulation of the parties; and By operation of law.

2. 3.

Of the 3 exceptions fixed by Art 1311, the nature of obligation of the surety or guarantor does not warrant the conclusion

that his peculiar individual qualities are contemplated as a principal inducement for the contract. Creditor Luzon Surety Co. expects from Hemady when it accepted the latter as surety in the counterbonds was the reimbursement of the moneys that the Luzon Surety Co. might have to disburse on account of the obligations of the principal debtors. This

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. 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; and it is urged that the rule does not apply to the case before us, where the late Hemady was a surety, not a principal debtor. The argument evinces a superficial view of the relations between parties. 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 guarantors 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 estates liability for premiums and stamp taxes, because irrespective of the solution to this question, the Luzon Suretys claim did state a cause of action, and its dismissal was erroneous.