SECURITY TRANSACTIONS

SUCCESSION CASE MATRIX IArticles 774-777TITLEFACTSISSUE/SHELDDOCTRINE

Estate of Hemady v. Luzon Surety Co, Inc. Luzon Surety filed a claim against the Estate based on 20 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 Luzon Suretys of having guaranteed, the various principals in favor of different creditors.

Luzon Surety also 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 affixed to the bonds with 12% interest.

Before the answer was filed, the lower court dismissed the claims of Luzon Surety, 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 the were not liabilities incurred after the execution of the counterbonds; and (2) that whatever losses may occur after Hemadys death, are not chargeable to his estate, because upon his death he ceased to be guarantor. Whether losses are chargeable to Hemadys Estate. YES. 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. Under the CC, the heirs, by virtue of the rights of succession are subrogated to all the rights and obligations of the deceased and cannot be regarded as third parties with respect to a contract to which the deceased was a party, touching the estate of the deceased. 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.

Although Art. 2056 requires that one who is required 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 that the law requires these qualities to be present only at the time of the perfection of the contract of guaranty

The contract of suretyship entered into by K.H. Hemady in favor of Luzon Surety 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.

The SC reversed the order of the lower court and instead ordered the case be remanded to the CFI. The general rule is that a partys contractual rights and obligations are transmissible to the successors.

Art. 1311 of NCC: 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 of NCC: 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 other either by his will or by operation of law.

Art. 776 of NCC: The inheritance includes all the property, rights and obligations of a person which are not extinguished by his death.

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 the estate before the residue is distributed among said heirs. The reasons is that whatever payment is made from the estate is ultimately a payment by the heirs, since the amount of the paid claim in fact diminishes or reduces the shares that the heirs would have been entitled to receive.

Alvarez v. IAC Aniceto Yanes owned a parcel of land indentified as Lot 773 in Negros Occidental. He was survived by his children, Rufino, Felipe, and Teodora.

Aniceto left his children with Lots 773 and 823.

Teodora cultivated part of Lot 823.

Rufino and his children left the province to settle in other places as a result of the outbreak of WWII.

After the liberation, Rufinos children went back to the land to get the their share in the sugar produce. They were informed that Santiago already owned Lot 773, and had the corresponding TCTs.

Santiago sold the land to Fuentabella.

After Fuentabella died, the administratrix of his estate (Arsenia) filed a motion requesting authority to sell Lot 773 (already subdivided to Lots 773-A and 773-B).

The motion was granted and Arsenia sold the lands to Alvarez.

Teodora and Rufinos children (Yaneses) filed a complaint in CFI Negros Occidental for the return of the possession and ownership of Lots 773 and 823.

During the pendency of the case, Alvarez sold the land to Siason.

CFI ordered Alvarez to reconvey Lots 773 and 823 to the Yaneses.

Execution of the decision was unsuccessful with regard to Lot 773 as it was already in the name of Siason.

Another action was instituted by the Yaneses, this time impleading Siason.

Siason claims that he was a purchaser in good faith and thus, he hasn title to Lot 773.

CFI dismissed the complaint against Siason and ordered the children of Alvarez to solidarily pay the Yaneses Php 20,000, representing the actual value of Lot 773. WON it was correctly ruled that the children of Alvarez be made responsible for the liability of their father (Alvarez).

YES. The rights and obligations of the deceased are generally transmissible to his legitimate children and heirs.

As heirs of the late Alvarez, the children cannot escape the consequences of their fathers transaction, which gave rise to the present claim for damages.

The children are, however, liable only to the extent of the value of their inheritance. Art. 774, NCC: 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, NCC: The inheritance includes all the property, rights and obligations of a person which are not extinguished by his death.

Heirs of Spouses Sandejas v. Lina Eliosoro Sandejas was appointed administrator for the settlement of the estate of his wife, Remedios. He eventually sold f parcels of land to Alex Lina, who agreed to buy it for P1M. Eliosoro eventually died and Alex Lina was appointed new administrator of the estate of Remedios. The heirs of Sandejas now filed a MR for the appointment of a new administrator. Lina filed a Motion to approve the deed of conditional sale. Whether or not Eliosoro is legally obligated to convey title to the property which is found by the lower court to be a contract to sell. Whether or not the probate court has jurisdiction over the approval of the sale. Whether or not Lina can apply to the court for the approval of the sale. Whether or not Eliosoro is in bad faith How much is Eliosoros share in the property?

SC held that it is not because the condition is the procurement of court approval and not the payment of the purchase price. The stipulation requiring court approval does not affect the validity and the effectivity of the sale as regards the selling heirs. It merely implies that that the property may be taken out of custodia legis, nit only with courts permission. Because the other heirs did not consent to the sale of their ideal shares in the disputed lots, it is only limited to the pro-indiviso share of Eliosoro. SC held that probate court has jurisdiction over it since it covers all matters relating to the settlement of estates and the probate of wills of deceased persons, including the appointment and removal of administrators and executors. It also extends to incidental and collateral matters such as selling, mortgaging or otherwise encumbering real property belonging to the estate. The proper party must be the one who is to be benefited or injured by the judgment, or one who is to be entitled to the avails of the suit. SC held that he is not in bad faith because: (1) he informed Lina of the need to secure court approval prior to the sale of the lots, and (2) he did not promise he could obtain the approval. SC held that his share is 11/20 of the entire property because he owned of these lots plus a further 1/10 of the remaining half, in his capacity as one of the legal heirs.

Uson v. CA Maria Unson was the legal wife of Faustino Nebrada. Faustino died in 1945 leaving 5 parcels of land with no other heir except his legal wife.

However, it was the common-life, Maria del Rosario who took possession of the lands, depriving Unson the enjoyment and possession of the same.

Thus, the legal wife filed a case for recovery of ownership and possession of the said parcels of land against del Rosario.

Maria de Rosario contended that Unson and Faustino agreed to separate some time in 1931. Unson was given a parcel of land as alimony on the condition that the latter will renounce her right to inherit any property that may be left by the husband upon his death. Whether or not Unson is entitled to recover the parcels of land in question.

The SC held for Maria Unson.

The Civil Code provides that the inheritance of a person is transmitted to another at the moment of his death.

Accordingly, the Supreme Court said that the parcels of land of Faustino passed from the moment of his death to his only heir, Maria Unson.

The contention that Unson and Faustino agreed that the former would NOT inherit anything from the latter cannot be made effectual. Future inheritance cannot be validly made the subject of any contract nor can it be renounced.

Del Rosario also argued that her illegitimate children with Faustino have the right to inherit by virtue of the provision of the new Civil Code granting successional rights to illegitimate children.

Said argument is untenable. It is true that the new Civil Code grants successional rights to illegitimate children and that this right shall be given retroactive effect even though the event which gave rise to said right may have occurred under the former legislation. (Faustino died in 1945, The NCC took effect in 1950).

However, according to the NCC, this new right must not prejudice or impair any vested or acquired right.

In this case, and as already explained, the right over the parcels of land vested upon Unson from the moment of death of Faustino. Thus, the new right cannot be enforced w/out prejudice to Unsons vested right over the properties. Rights over the inheritance of a person are transmitted upon his death to another.

The property belongs to the heirs at the moment of death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death.

De Borja v. Vda. de De Borja Francisco De Borja and Jose De Borja were co-administrators of the testate estate of Josefa De Borja, Franciscos wife and Joses mother

When Francisco died, Jose became the sole administrator in the testate proceedings of his mother before the CFI of Rizal.

It appears that after the death of Josefa, widower Francisco married Tasiana Ongsingco.

Following the death of Francisco, Tasiana was appointed as special administratrix in the testate proceedings of Francisco before the CFI of Nueva Ecija.

Multiple suits ensued between the children of the first marriage and Tasiana until at some point, when both parties agreed to enter into a compromise agreement on October 12, 1963.

In the said agreement, Jose De Borja, personally and as administrator of the estate of Josefa, and Tasiana Ongsingco, expressed their mutual desire to end the suits between them by selling the Poblacion portion of the Jalajala, Rizal properties of Francisco, from the proceeds of which P800,000, representing P200,000 from each of the 4 children from the first marriage, shall be paid to Tasiana as full and complete payment and settlement of Tasianas hereditary share in the estate of Francisco as well as of Josefa, and to any properties bequeathed or devised to her by Francisco, by will or by donation purportedly conveyed for consideration or otherwise.

The CFI of Rizal approved the agreement whereas the CFI of Nueva Ecija did not.

Tasianas grounds for her opposition to the agreement after it was submitted to the court for approval were: 1) no such agreement is valid without first probating the will of Francisco; 2) it compromises the validity of the marriage between Francisco and Tasiana; and, 3) the resolutory 60-day period had lapsed so that the agreement had ceased to be valid.

Tasiana cited Guevara v. Guevara which did not allow an extrajudicial settlement of a decedents estate if there has been left a will, stating that it was against the law and public policy.

Thus, pending probate of Franciscos will when the agreement was made, it was invalid.

Whether or not the compromise agreement was invalid without first probating the will of Francisco.

Whether or not the agreement compromises the status and validity of the marriage between Francisco and Tasiana.

Whether or not the compromise agreement had ceased to be valid.

NO. The compromise agreement was valid.

Guevara v. Guevara was inapplicable.

Following a review of the provision in the agreement where full and complete payment was made to Tasiana in the amount of P800,000, it was clear that there was no attempt to settle or distribute Franciscos estate before the probate of his will.

Its object was conveyance by Tasiana of her individual share and interest, actual or eventual, in the estates of Francisco and Josefa.

A hereditary share in a decedents estate is transmitted or vested immediately from the moment of the death of such causante or predecessor in interest (Art. 777, NCC.)

Thus, there is no legal bar to a successor (with requisite contracting capacity) disposing of his or her hereditary share immediately after such death, even if the actual extent of such share is not determined until the subsequent liquidation of the estate.

The effect of such alienation is limited to what is ultimately adjudicated to the vendor heir.

Moreover, as surviving spouse of Franciscos, Tasiana was a compulsory heir so that her successional interest existed independent of Franciscos will and testament and would exist even if such were not probated at all.

Also, the agreement bound the parties, in their individual capacities, upon the perfection of the contract, even absent a previous authority from the Court.

The only difference between an extrajudicial compromise and one submitted and approved by the court is that the latter is enforceable by execution proceedings.

NO. In the very opening paragraph of the agreement itself, she was described as the heir and surviving spouse of Francisco De Borja which was a definite admission of her civil status.

NO. Joses act of seeking a court order for the approval and enforcement of the agreement is justified as said agreement had not been abandoned and not invalidated by the inability of the parties to reach a novatory accord in a quest for a more satisfactory compromise following Tasianas unilateral attempts to back out from the same. A hereditary share in a decedents estate is transmitted or vested immediately from the moment of the death of such causante or predecessor in interest (Art. 777, NCC.)

Thus, there is no legal bar to a successor (with requisite contracting capacity) disposing of his or her hereditary share immediately after such death, even if the actual extent of such share is not determined until the subsequent liquidation of the estate.

The effect of such alienation is limited to what is ultimately adjudicated to the vendor heir.

The only difference between an extrajudicial compromise and one submitted and approved by the court is that the latter is enforceable by execution proceedings.

Union Bank of the Philippines v. Santibanez

On May 31, 1980, First Country Credit Corporation (FCCC) and Efraim M. Santibanez entered into a loan agreement in the amount of P128,000 which was intended for the payment of the purchase price of 1 unit of a tractor. In view of this, Efraim and his son, Edmund executed a promissory note in favor of FCCC. On Dec. 13, 1980, FCCC and Efraim entered into another similar loan agreement which was intended to pay the balance of the purchase price of another unit of a tractor. And again, father and son executed a promissory note for the said amount in favor of FCCC. However, sometime in Feb 1981, Efraim died, leaving a holographic will and subsequently testate proceedings were commenced before the RTC of Iloilo with Edmund being appointed as the special administrator of the estate of the decedent. During the pendency of the testate proceedings, Edmund and his sister, Flroence Santibanez Ariola, executed a joint agreement on July 22, 1981 wherein they agreed to divide between themselves and take possession of the 3 tractors; 2 for Edmund and 1 for Florence, each of them to assume indebtedness of their late father to FCCC. On August 20, 1981 a deed of assignment with assumption of liabilities was executed by and between FCCC and Union Savings and Mortgage Bank, wherein FCCC as the assignor, assigned all its assets and liabilities to Union Savings and Mortgage Bank. Not long after, demand letter for the settlement of the account were sent by Union Bank to Edmund but the latter refused to pay. Thus Union Bank filed a complaint for sum of money against the Edmund and Florence before the RTC of Makati. However the case was dismissed. The lower court said that the claim should have been filed with the probate court were the testate estate of Efraim was pending. Furthermore, the agreement was void considering that the probate court did not approve the agreement and no valid partition until after the will has been probated. Also, the list of assets and liabilities of Union Bank did not clearly refer to the decedents account. Also, it was contended that the obligation of the deceased had passed to his legitimate children and heirs already, in this case Edmund and Efraim. CA affirmed RTC decision. Hence this appeal. WON the partition in the Agreement executed by the heirs is valid.

WON the heirs assumption of the indebtedness of the deceased is valid.

WON the Union Bank can hold the heirs liable on the obligation of the deceased. No, there can be no valid partition among the heirs until after the will has been probated by the probate court. This is specially because when the joint agreement executed by Edmund and Florence partitioning the tractors among themselves were executed, there was already a pending proceeding for the probate of their late fathers holographic will covering the said tractors. Thus the probate court had already acquired jurisdiction over the said tractors which they cant be divested of. Any extrajudicial agreement needs court approval. No, the assumption of the indebtedness of the decedent by Edmund and Florence is not binding. Such assumption was conditioned upon the agreement above. Hence, when the agreement of partition between Edmund and Florence was invalidated, then the assumption of the indebtedness cannot be given and force and effect. Also, the court should have filed it money claim against the decedents estate in the probate court. Furthermore, it cannot go after Florence for she took no part in the documents related to the tractors, specifically the promissory notes and the continuing guaranty agreement; they should have gone after Edmund being a co-signatory to the promissory notes and guaranty. No, Union Bank cannot hold the heirs liable on the obligation of the deceased because it had not sufficiently shown that it is the successor-in-interest of the Union Savings and Mortgage Bank to which the FCCC assigned its assets and liabilities. Furthermore, the documentary evidence clearly reflects that the parties in the deed of assignment with assumption of liabilities were the FCCC, and the Union Savings and Mortgage Bank, with the conformity of Bancom Philippine Holdings, Inc. Nowhere can the participation therein of Union Bank as a party can be found. As a result, Union Bank has no personality to file the complaint and therefore cannot hold the heirs liable for the obligation of the deceased.

Bonilla v. Barcena On March 31, 1975 Fortunata Barcena, mother of minors Rosalio Bonilla and Salvacion Bonilla and wife of Ponciano Bonilla, instituted a civil action in the Court of First Instance of Abra, to quiet title over certain parcels of land located in Abra.

On August 4, 1975, the defendants filed a motion to dismiss the complaint on the ground that Fortunata Barcena is dead and, therefore, has no legal capacity to sue.

During the hearing, counsel for the plaintiff confirmed the death of Fortunata Barcena and asked for substitution by her minor children and her husband, the petitioners herein; but the court after the hearing immediately dismissed the case on the ground that a dead person cannot be a real party in interest and has no legal personality to sue.

Whether the court acted correctly in dismissing the complaint on the ground that the plaintiff, who had died pending the proceedings, has no more personality to sue. While it is true that a person who is dead cannot sue in court, yet he can be substituted by his heirs in pursuing the case up to its completion.

The court had acquired jurisdiction over the person of the deceased. If thereafter she died, Section 16, Rule 3 of the Rules of Court provides that "whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of such death . . . and to give the name and residence of his executor, administrator, guardian or other legal representatives." This duty was complied with by the counsel for the deceased plaintiff when he manifested before the respondent Court that Fortunata Barcena died on July 9, 1975 and asked for the proper substitution of parties in the case.

Article 777 of the Civil Code provides "that the rights to the succession are transmitted from the moment of the death of the decedent." From the moment of the death of the decedent, the heirs become the absolute owners of his property, subject to the rights and obligations of the decedent, and they cannot be deprived of their rights thereto except by the methods provided for by law. The moment of death is the determining factor when the heirs acquire a definite right to the inheritance whether such right be pure or contingent. The right of the heirs to the property of the deceased vests in them even before judicial declaration of their being heirs in the testate or intestate proceedings. When Fortunata Barcena, therefore, died her claim or right to the parcels of land in litigation was not extinguished by her death but was transmitted to her heirs upon her death. Her heirs have thus acquired interest in the properties in litigation and became parties in interest in the case. There is, therefore, no reason for the Court to disallow their substitution as parties in interest for the deceased plaintiff.

Likewise, when counsel asked that the minor children be substituted for the deceased and suggested that the uncle be appointed as guardian ad litem for them because their father is busy earning a living for the family, it is grave error for the court to refuse the request for substitution on the ground that the children were still minors and cannot sue, because it ought to know that Section 17, Rule 3 of the Rules of Court, directs the Court to appoint a guardian ad litem for the minor. From the moment of the death of the decedent, the heirs become the absolute owners of his property, subject to the rights and obligations of the decedent, and they cannot be deprived of right thereto except by the methods provided for by law. The moment of death is the determining factor where the heirs acquire a definite right to the inheritance whether such right to be pure or contingent. The right of the heirs to the property of the deceased vests in them even before judicial declaration of their being heirs in the testate or intestate proceedings.

Limjoco v. Intestate of Flagrante Assailed is the decision of the Public Service Commission granting a certificate of public convenience to install, maintain and operate an ice plant in San Juan to the Intestate Estate of Pedro O. Fragrate.

Fragrante died pending the conclusion of his application to Commission.

The Commission granted the application in view of the financial ability of the estate to maintain and operate the ice plant 1.Whether the substitution of the legal representative of the Estate of Fragante for the latter as party applicant in the case pending before the Commission be allowed. 2. Whether the Estate of Fragante is a person within the meaning of the Public Service Act. 3. Whether the Estate of Fragante can be considered as a citizen of the Philippines. 1.Yes. Had Fragante not died, he would have the right to prosecute his application to its final conclusion. This right did not lapse through his death. Hence, it constitutes a part of the assets of his estate, for such a right was property despite the possibility that the application may be denied. A certificate of public convenience once granted should descend to the estate as an asset. Such certificate would certainly be property and the right to acquire such belonged to the decedent in his lifetime and survived to his estate and judicial administrator after his death.

2. Yes. The Supreme Court of Indiana declared that a collection of property to which the law attributes the capacity of having rights and duties, such as the estate of a deceased, is an artificial person, and to rule otherwise would result in a failure of justice. In this case, there would also be a failure of justice if the estate would not be regarded as a person as it would prejudice Fragantes investment of Php. 35T.

3. Yes. The fiction of extension of the citizenship of Fragante is grounded upon the same principle as that of the extension of his personality. The decedents rights which by their nature are not extinguished by death go to make up a part and parcel of the assets of his estate, which, being placed under the control and management of the administrator, can not be exercised but by him in representation of the estate for the benefit of the creditors, devisees or legatees and heirs.

Real property, as estate or interest, have also been declared to include every species of title, inchoate or complete and embrace rights which lie in contract, whether executory or executed.

It is the estate or mass of property, rights and assets left by the decedent, instead of the heirs directly, that becomes vested and charged with his rights and obligations which survive after his demise. This doctrine is an abrogation of art. 661 of the Civil Code brought about by the enactment of the Code of Civil Procedure.

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