CASE DIGEST

Estate of Hemady v. Luzon Surety

Law 105 - Succession

Court Supreme Court (En Banc)

Citation GR No. L-8437
Date November 28, 1956
Petitioner Estate of K.H. Hemady
Respondents Luzon Surety Co., Inc.
Ponente Reyes, J.B.L., J.
Relevant topic Transfer of Property, Rights, and Obligations (Articles 774, 776, 728)
Prepared by mark king cornel j. ampis

FACTS:

● The Luzon Surety Co. had filed a claim against the Estate of Hemady 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 in all of them, in consideration of the Luzon having guaranteed, the various
principals in favor of different creditors.

● 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% interest thereon.

● On September 23, 1953 the lower court dismissed the claims of Luzon Surety Co., on two grounds:

(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 counter bonds: and
(2) 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.

ISSUE – HELD – RATIO:

The Court ruled in favor of the petitioner.

ISSUE HELD
WON the obligations of the decedent as a surety are transmissible upon his YES
death?

RATIO:

● Administratrix of Hemady argues that the guaranty was founded on the personal integrity of Hemady. “ Upon
the death of Hemady, his integrity was not transmitted to his estate 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.”

● While in this jurisdiction 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. 1

1
“Art. 1311”, “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. 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.”
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CASE DIGEST
Estate of Hemady v. Luzon Surety
Law 105 - Succession

● The binding effect of contracts upon the heirs of the deceased party is not altered by the provision in the 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). The reason is that whatever payment is 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.

● The general rule is that a party’s contractual rights and obligations are transmissible to the successors. Yet,
there are three exceptions: (1) Intransmissible by the nature of undertaking, (2) intransmissibility by stipulation
of the parties, and (3) not transmissible by operation of law.

● The Court ruled that the present case is not one of the aforementioned exceptions.

1. Luzon 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. Insofar as Luzon is concerned it was indifferent that the
reimbursement should be made by Hemady himself or by someone else in his behalf, so long as the
money was paid to it.

2. This 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, and the text of the agreements sued upon
nowhere indicate that they are non-transferable (transmissibility being the general rule).

3. By contract, the articles of the Civil Code that regulate guaranty or suretyship (Art 2047 to 2084) contain
no provision that the guaranty is extinguished upon the death of the guarantor or the surety.

● Since the contracts of suretyship entered into by Hemady in favor of Luzon were not intransmissible, his
eventual liability thereunder necessarily passed upon his death to his heirs. It follows therefore that Luzon
Surety Co., had the right to file against the estate of Hemady a contingent claim for reimbursement.

RULING:

Wherefore, the order appealed from is reversed, and the records are ordered remanded to the court of origin.

SEPARATE OPINIONS:

N/A

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