CONCEPT OF TRANSMISSIBLE

RIGHTS
 Estate of K.H. Hemady vs Luzon Surety Co., Inc.
G.R. No. L-13031 May 30, 1961
Dizon, J.

FACTS:
Luzon Surety filed a claim against the estate of K.H. Hemady based on
indemnity agreements (counterbonds) subscribed by distinct principals and
by the deceased K.H. Hemady as surety (solidary guarantor). As a
contingent claim, Luzon Surety prayed for the allowance of the value of
the indemnity agreements it had executed. The lower court dismissed the
claim of Luzon Surety on the ground that “whatever losses may occur after
Hemady’s death, are not chargeable to his estate, because upon his death
he ceased to be a guarantor.”
ISSUES:
What obligations are transmissible upon the death of the decedent? Are
contingent claims chargeable against the estate?
HELD:
Under the present Civil Code (Article 1311), the rule is that “Contracts take
effect only as between the parties, their assigns and heirs, except in 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
in our successional system the responsibility of the heirs for the debts of their
decedent cannot exceed the value of the inheritance they receive from him,
the principle remains intact that these heirs succeed not only to the rights of
the deceased but also to his obligations. Articles 774 and 776 of the New
Civil Code expressly so provide, thereby confirming Article 1311.
In Mojica v. Fernandez, the Supreme Court ruled — “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 x x x which comes in to their hands by
right of inheritance; they take such property subject to all the obligations
resting thereon in the hands of him from whom they derive their rights.” The
third exception to the transmissibility of obligations 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, as is the case in legal support,
parental authority, usufruct, contracts for a piece of work, partnership and
agency. By contrast, 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 contracts of suretyship in favor of Luzon Surety Co. not being rendered
intransmissible due to the nature of the undertaking, nor by stipulations of
the contracts themselves, nor by provision of law, his eventual liability
therefrom necessarily passed upon his death to his heirs. The contracts,
therefore, give rise to contingent claims provable against his estate. A
contingent liability of a deceased person is part and parcel of the mass of
obligations that must be paid if and when the contingent liability is converted
into a real liability. Therefore, the settlement or final liquidation of the estate
must be deferred until such time as the bonded indebtedness is paid.

HERBERT BROWNELL, JR. vs SUN LIFE ASSURANCE COMPANY OF

CANADA
G.R. No. L-5731 – June 22, 1954
Labrador, J.

FACTS:

Subject of this petition is the endowment policy which insured Aihara

andGayapan and upon its maturity the proceeds were payable to said
insured.Brownell instituted this case to compel Sun Life to comply with the
demand topay representing the half of the proceeds of endowment policy
and payable toone Naogiro Aihara, a Japanese national. Such claim is based
on Section 5(b)(2) of the Trading with the Enemy Act of the United States.
Which claim wasapproved and granted by the lower court ordering SLACOC
to pay hereinpetitioner.

ISSUE:

Whether or not such Act is still binding despite the completeindependence

of the Philippines from American government?

HELD:
 Yes. The extension of the Philippine Property Act of 1946 is clearly
impliedfrom the acts of the President of the Philippines and the Secretary of
ForeignAffairs, as well as by the enactment of R.A. Nos. 7, 8 and 477.

DKC Holdings v. CA
G.R. No. 118248. April 5, 2000
Ynares-Santiago,J.

FACTS:

On March 16, 1998, petitioner DKC Holdings Corporation (DKC) entered into
a Contract of Lease with Option to Buy with Encarnacion Bartolome,
decedent herein, whereby petitioner was given the option to lease or lease
with purchase the subject land.

Encarnacion died. Thereafter, petitioner coursed its payment to private

respondent Victor Bartolome, being the sole heir of Encarnacion. Victor,
however, refused to accept these payments. On March 14, 1990, petitioner
served upon Victor, via registered mail, notice that it was exercising its option
to lease the property, tendering the amount of P15,000.00 as rent. Again,
Victor refused to accept the tendered rental fee and to
surrender possession of the property to petitioner. On April 23, 1990,
petitioner filed a complaint for specific performance and damages against
Victor and the Register of Deeds

ISSUE:

Whether or not the rights under a Contact of Lease with Option to Buy were
transmissible.

YES. The general rule, therefore, is that heirs are bound by contracts
entered into by their predecessors-in-interest except when the rights
and obligations arising therefrom are not transmissible by (1) their nature, (2)
stipulation or (3) provision of law. The Court held that there is
neither contractual stipulation nor legal provision making the rights
and obligations under the lease contract intransmissible. More importantly,
the nature of the rights and obligations therein are, by their nature,
transmissible.
In the case at bar, the subject matter of the contract is a lease, which is a
property right. The death of a party does not excuse nonperformance of a
contract which involves a property right, and the rights
and obligations thereunder pass to the personal representatives of the
deceased. Similarly, nonperformance is not excused by the death of the
party when the other party has a property interest in the subject matter of the
contract.

Therefore, Victor is bound by the subject Contract of Lease with Option

to Buy.

Ayala Corporation vs. Rosa Diana Realty

G.R. No. 134284, December 1, 2000
346 SCRA 663

FACTS:

Petitioner Ayala Corporation (Ayala) was the registered owner of a

parcel of land located in Alfaro Street, Salcedo Village, Makati City with an
area of 840 square meters more or less and covered by TCT no. 233435 of
the Register of Deeds of Rizal.

On April 20, 1976, Ayala sold the lot to Manuel Sy married to Vilma Po
and Sy Ka Kieng married to Rosa Chan. The Deed of Sale executed
between Ayala and the buyers contained Special Conditions of Sale and
Deed Restrictions. Manuel Sy and Sy Ka Kieng failed to construct the
building in violation of the Special Conditions of Sale. Notwithstanding the
violation, Manuel Sy and Sy Ka Kieng were able to sell the lot to respondent
Rosa-Diana Realty and Development Corp. with Ayala’s approval. As a
consideration for Ayala to release the certificate of title of the subject
property, Rosa-Diana, executed an undertaking promising to abide by said
Special Condition of Sale executed between Ayala and the original vendees.
Upon the submission of the undertaking, together with the building plans for
a condominium project, known as the Peak, Ayala released title to the lot,
thereby enabling Rosa-Diana to register the Deed of Sale on its favor and
obtain certificate of Title in its name.

Thereafter, Rosa-Diana submitted to the building official of Makati

another set of building plans which were substantially different from those
that it earlier submitted to Ayala for approval. During the construction of
Rosa-Diana’s condominium project, Ayala filed an action with the RTC of
Makati for specific performance with application for a writ of preliminary
injunction seeking to compel the latter to comply with the contractual
obligations under the Deed of Restriction annotated on the title as well as
with the building plans it submitted to the latter. In the alternative, Ayala
prayed for rescission of the sale of the subject lot to Rosa-Diana Realty. The
lower court denied Ayala’s prayer for injunctive relief; thus, enabling Rosa-
Diana to complete the construction of the building. Ayala tried to cause the
annotation a notice of lis pendens on Rosa-Diana’s title but the Register of
Deed of Makati refused registration on the ground that the case pending
before the trial court being an action for specific performance and or
rescission is an action in personam which does not involve the title, use or
possession of the property. The Land Registration Authority reversed the
ruling of the Register of Deeds. The decision of the LRA, however, was
reversed by the CA.

ISSUE:

The issue is whether or not respondent Rosa-Diana has the obligation

to enforce the Deed of Restrictions contained in the contract it entered with
Ayala.

HELD:

Contractual obligations between parties have the force of law between

them and absent any allegation that the same are contrary to law, morals,
good customs, public order or public policy, they must be complied with in
good faith. Hence, Article 1159 of the new Civil Code provides “obligations
arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.

Hence, respondent Rosa-Diana has the obligation to enforce the Deed

of Restrictions contained in the contract it entered with Ayala.

Pilipinas Hino vs. Court of Appeals

G.R. No. 126570, August 18, 2000
338 SCRA 355

FACTS:
The plaintiff, Pilipinas Hino, Inc., is a corporation duly organized and
existing under the laws of the Philippines, with office address at PMI Building
EDSA, Mandaluyong, Metro Manila, The plaintiff filed an action for sum of
money and damages against the defendants.
The contract of lease was entered into between herein parties, under
which the defendants, as lessor, leased real property located at Bigaa,
Balagtas Bulacan, to plaintiff for a term of 2 years. Pursuant to the contract
of lease, plaintiff-lessee deposited with the defendants-lessor the amount of
P400, 000.00 to answer for repairs and damages that may be caused by the
lessee on the leased premises during the period of the lease. After the
expiration of the lease contract, the plaintiff and defendants made a joint
inspection of the premises to determine the extent of the damages thereon.
Both agreed that the cost of repairs would amount to P60, 000.00 and that
the amount of P340, 000.00 shall then be returned by the defendants to
plaintiff. However, defendants returned to plaintiff only the amount of P200,
000.00 still having a balance of P140, 000.00.
On August 10, 1990, plaintiff and defendants entered into a contract to
sell denominated as a memorandum of agreement to sell whereby the latter
agreed to sell to the former the leased property subject of this suit in the
amount of P45, 611,000.00. The aforesaid memorandum of agreement to
sell granted the owner (defendants) the option to rescind the same upon
failure of the buyer (plaintiff) to pay any of the six installments with the
corresponding obligation to return to the buyer any amount paid by the buyer
in excess of the down payment. Pursuant to the said memorandum of
agreement, plaintiff remitted on August 10, 1990 to the defendants the
amount of P1, 811,000.00 as down payment. Subsequently, plaintiff paid the
first and second installments in the amount of P1, 800,000.00 and P5,
250,000.00 with the total amount of P7, 050,000.00. Unfortunately, plaintiff
failed to pay the third and subsequent installments; and thereupon,
defendants decided to, and in fact did rescind and terminate, the contract
promised to return to the plaintiff all the amounts paid in excess of the down
payment after deducting the interest due from the third to sixth installments,
inclusive.
The trial court rendered a decision ruling in favor of respondents
Reyes, et. al. Petitioner Pilipinas Hino elevated the case to the Court of
Appeals. The appellate court, however, sustained the findings of the trial
court.

ISSUE:
Whether or not the private respondent has the right to retain the
interest due for the unpaid installments, despite the fact that the respondent
has exercised his option to rescind the memorandum of agreement.

HELD:
In justifying the withholding of the amount of P924, 000.00 representing
the interest due of the unpaid installments, both the trial and the appellate
court relied on paragraph 6 of the memorandum of agreement entered into
by the parties. However, both courts failed to consider paragraph 9 contained
in the same memorandum of agreement which provides in very clear terms
that “when the owners exercise their option to forfeit the down payment, they
shall return to the buyer any amount paid by the buyer in excess of the down
payment with no obligation to pay interest thereon.” This should include all
amounts paid, including interest. Had it been the intention of the parties to
exclude the interest from the amount to be returned to the buyer in the event
that the owner exercises its option to terminate or rescind the agreement,
then such should have been stated in categorical terms. Thus, there is no
basis in the conclusion reached by the lower courts that “interest paid” should
not be returned to the buyer. Moreever, the private respondents’ withholding
of the amount corresponding to the interest violated the specific and clear
stipulation in paragraph 9 of the memorandum of agreement that except for
the down payment, all amounts paid shall be returned to the buyer “with no
obligation to pay interest thereon.” The parties are bound by their
agreement. Thus Article 1159 of the Civil Code expressly provides:
Obligation arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.