Estate of Hemady vs. Luzon Surety Co. Inc.

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  1.2. [No. L-8437. November 28, 1956]ESTATE OF K.H. HEMADY, deceased,  vs.  LUZONSURETY CO., INC., claimant and appellant.  ________________  1  Article 90, Revised Penal Code. 389  VOL. 100, NOVEMBER 28, 1956 389 Estate of Hemady vs. Luzon Surety Co., Inc. CONTRACTS; BlNDING EFFECT OF CONTRACTSUPON HEIRS OF DECEASED PARTY.—The bindingeffect of contracts upon the heirs of the deceased party isnot altered by the provision in the Rules of Court thatmoney debts of a deceased must be liquidated and paidfrom his estate before the residue is distributed amongsaid heirs (Rule 89). The reason is that whatever paymentis thus made from the estate is ultimately a payment bythe heirs and distributees, since the amount of the paidclaim in fact diminishes or reduces the shares that theheirs would have been entitled to receive. The generalrule, therefore, is that a party’s contractual rights andobligations are transmissible to the successors.ID.; SURETYSHIP; NATURE OF OBLIGATION OFSURETY.—The nature of the obligation  of the surety orguarantor does not warrant the conclusion that hispeculiar individual qualities are contemplated as aprincipal inducement for the contract. The creditor expectsof the surety nothing but the reimbursement of themoneys that said creditor might have to disburse onaccount of the obligations of the principal debtors. Thisreimbursement is a payment of a sum of money, resultingfrom an obligation to give; and to the creditor, it wasindifferent that the reimbursement should be made by thesurety himself or by some one else in his behalf, so long asthe money was paid to it.  3. ID.; ID.; QUALIFICATION OF GUARANTOR;SUPERVENING INCAPACITY OF GUARANTOR,EFFECT ON CONTRACT.—The qualification of integrity in the guarantor or surety is required to be present only atthe time of the perfection  of the contract of guaranty. Oncethe contract of guaranty has become perfected andbinding, the supervening dishonesty of the guarantor (thatis to say, the disappearance of his integrity after he hasbecome bound) does not  terminate the contract but merelyentitles the creditor to demand a replacement of theguarantor. But the step remains optional  in the creditor: itis his right, not his duty, he may waive it if he chooses,and hold the guarantor to his bargain.  APPEAL from an order of the Court of First Instance of Rizal. Caluag, J.The facts are stated in the opinion of the Court. Claro M. Recto  for appellee. Tolentino & Garcia  and  D.R. Cruz  for appellant. 390 390 PHILIPPINE REPORTS ANNOTATED Estate of Hemady vs. Luzon Surety Co., Inc. REYES, J.B. L., J.:  Appeal by Luzon Surety Co., Inc., from an order of theCourt of First Instance of Rizal, presided by JudgeHermogenes Caluag, dismissing its claim against theEstate of K.H. Hemady (Special Proceeding No. Q-293) forfailure to state a cause of action.The Luzon Surety Co. had filed a claim against theEstate based on twenty different indemnity agreements, orcounter bonds, each subscribed by a distinct principal andby the deceased K.H. Hemady, a surety solidary guarantor)in all of them, in consideration of the Luzon Surety Co.'s of having guaranteed, the various principals in favor of different creditors. The twenty counterbonds, or indemnityagreements, all contained the following stipulations: “Premiums.  —As consideration for this suretyship, theundersigned jointly and severally, agree to pay the COMPANY the sum of ________________________ (P__________) pesos,Philippines Currency, in advance as premium there of for every ___________ months or fractions thereof, this ________ or anyrenewal or substitution thereof is in effect.  Indemnity.  —The undersigned, jointly and severally, agree atall times to indemnify the COMPANY and keep it indemnifiedand hold and save it harmless from and against any and alldamages, losses, costs, stamps, taxes, penalties, charges, andexpenses of Whatsoever kind and nature which the COMPANY shall or may, at any time sustain or incur in consequence of having become surety upon this bond or any extension, renewal,substitution or alteration thereof made at the instance of theundersigned or any of them or any order executed on behalf of theundersigned or any of them; and to pay, reimburse and make goodto the COMPANY, its successors and assigns, all sums andamount of money which it or its representatives shall pay or causeto be paid, or become liable to pay, on account of the undersignedor any of them, of whatsoever kind and nature, including 15% of the amount involved in the litigation or other matters growing outof or connected therewith for counsel or attorney’s fees, but in nocase less than P25. It is hereby further agreed that in case of extension or renewal of this we equally bind ourselves for thepayment thereof under the same terms 391  VOL. 100, NOVEMBER 28, 1956 391 Estate of Hemady vs. Luzon Surety Co., Inc. and conditions as above mentioned without the necessity of executing another indemnity agreement for the purpose and thatwe hereby equally waive our right to be notified of any renewal orextension of this which may be granted under this indemnityagreement. Interest on amount paid by the Company.  —Any and all sums of money so paid by the company shall bear interest at the rate of 12%  per annum  which interest, if not paid, will be accummulatedand added to the capital quarterly order to earn the sameinterests as the capital and the total sum thereof, the capital andinterest, shall be paid to the COMPANY as soon as theCOMPANY shall have become liable therefore, whether it shallhave paid out such sums of money or any part thereof or not.* * * * * * * Waiver.  —It is hereby agreed upon by and between theundersigned that any question which may arise between them byreason of this document and which has to be submitted fordecision to Courts of Justice shall be brought before the Court of competent jurisdiction in the City of Manila, waiving for thispurpose any other venue. Our right to be notified of the  acceptance and approval of this indemnity agreement is herebylikewise waived.* * * * * * * Our Liability Hereunder.  —It shall not be necessary for theCOMPANY to bring suit against the principal upon his default, orto exhaust the property of the principal, but the liabilityhereunder of the undersigned indemnitor shall be jointly andseverally, a primary one, the same as that of the principal, andshall be exigible immediately upon the occurrence of suchdefault.” (Rec. App. pp. 98–102.) The Luzon Surety Co., prayed for allowance, as acontingent claim, of the value of the twenty bonds it hadexecuted in consideration of the counterbonds, and furtherasked for judgment for the unpaid premiums anddocumentary stamps affixed to the bonds, with 12 per centinterest thereon.Before answer was filed, and upon motion of theadministratrix of Hemady’s estate, the lower court, byorder of September 23, 1953, dismissed the claims of LuzonSurety Co., on two grounds: (1) that the premiums due andcost of documentary stamps were not contemplated 392 392 PHILIPPINE REPORTS ANNOTATED Estate of Hemady vs. Luzon Surety Co., Inc. under the indemnity agreements to be a part of theundertaking of the guarantor (Hemady), since they werenot liabilities incurred after  the execution of thecounterbonds; and (2) that “whatever losses may occurafter Hemady’s death, are not chargeable to his estate,because upon his death he ceased to be guarantor.”Taking up the latter point first, since it is the one morefar reaching in effects, the reasoning of the court below ranas follows: “The administratrix further contends that upon the death of Hemady, his liability as a guarantor terminated, and therefore, inthe absence of a showing that a loss or damage was suffered, theclaim cannot be considered contingent. This Court believes thatthere is merit in this contention and finds support in Article 2046of the new Civil Code. It should be noted that a new requirementhas been added for a person to qualify as a guarantor, that is:integrity. As correctly pointed out by the Administratrix, integrity
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