CASE DIGEST : LUZON SURETY COMPANY, INC vs PASTOR T. QUEBRAR and FRANCISCO KILAYKO

G.R. No. L-40517 January 31, 1984

LUZON SURETY COMPANY, INC., plaintiff-appellee, 
vs.
PASTOR T. QUEBRAR and FRANCISCO KILAYKO, defendants-appellants.

FACTS: On August 9, 1954, plaintiff-appellee issued two administrator's bond in the amount of P15,000.00 each, in behalf of the defendant-appellant Pastor T. Quebrar, as administrator in Special Proceedings Nos. 3075 and 3076 of the Court of First Instance of Negros Occidental. In consideration of the suretyship wherein the plaintiff-appellee Luzon Surety Company, Inc. was bound jointly and severally with the defendant appellant Pastor T. Quebrar, the latter, together with Francisco Kilayko, executed two indemnity agreements, where among other things, they agreed jointly and severally to pay the plaintiff-appellee "the sum of Three Hundred Pesos (P300.00) in advance as premium thereof for every 12 months or fraction thereof, this ... or any renewal or substitution thereof is in effect" and to indemnify plaintiff-appellee against any and all damages, losses, costs, stamps taxes, penalties, charges and expenses, whatsoever, including the 15% of the amount involved in any litigation, for attomey's fees

For the first year, from August 9, 1954 to August 9, 1955, the defendants-appellants paid P304.50 under each indemnity agreement or a total of P609.00 for premiums and documentary stamps. On June 6, 1957, the Court of First Instance of Negros Occidental approved the amended Project of Partition and Accounts of defendant-appellant (p. 87, ROA; p. 9, rec.).

On May 8, 1962, the plaintiff-appellee demanded from the defendants-appellants the payment of the premiums and documentary stamps from August 9,1955.On October 17, 1962, the defendants-appellants ordered a motion for cancellation and/or reduction of executor's bonds on the ground that "the heirs of these testate estates have already received their respective shares" (pp. 69-70, ROA, p. 9, rec.).

On October 20, 1962, the Court of First Instance of Negros Occidental acting on the motions filed by the defendants-appellants ordered the bonds cancelled. Plaintiff-appellee's demand amounted to P2,436.00 in each case, hence, a total of P4,872.00 for the period of August 9, 1955 to October 20, 1962. The defendants-appellants to pay the said amount of P4,872.00. On January 8, 1963, the plaintiff-appellee filed the case with the Court of First Instance of Manila During the pre-trial the parties presented their documentary evidences and agreed on the ultimate issue

The lower court allowed the plaintiff to recover from the defendants-appellants

Defendants-appellants appealed to the Court of Appeals. On March 20, 1975, the Court of Appeals in a resolution certified the herein case to the supreme court  after finding that this case involves only errors or questions of law.

ISSUE: whether or not the administrator's bonds were in force and effect from and after the year that they were filed and approved by the court up to 1962, when they were cancelled

HELD : The proper determination of the liability of the surety and of the principal on the bond must depend primarily upon the language of the bond itself. The bonds herein were required by Section 1 of Rule 81 of the Rules of Court. While a bond is nonetheless a contract because it is required by statute. The bonds in question herein contain practically the very same conditions in Sec. 1, Rule 81 of the Rules of Court

Section 1 of Rule 81 of the Rules of Court requires the administrator/executor to put up a bond for the purpose of indemnifying the creditors, heirs, legatees and the estate. It is conditioned upon the faithful performance of the administrator's trust

Having in mind the purpose and intent of the law, the surety is then liable under the administrator's bond, for as long as the administrator has duties to do as such administrator/executor. Since the liability of the sureties is co-extensive with that of the administrator and embraces the performance of every duty he is called upon to perform in the course of administration

The defendant-appellant Pastor T. Quebrar did not cease as administrator after June 6, 1957, for administration is for the purpose of liquidation of the estate and distribution of the residue among the heirs and legatees. And liquidation means the determination of all the assets of the estate and payment of all the debts and expenses (Flores vs. Flores, 48 Phil. 982). It appears that there were still debts and expenses to be paid after June 6, 1957 The sureties of an administration bond are liable only as a rule, for matters occurring during the term covered by the bond. And the term of a bond does not usually expire until the administration has been closed and terminated in the manner directed by law

With the payment of the premium for the first year, the surety already assumed the risk involved, that is, in case defendant-appellant Pastor T. Quebrar defaults in his administrative duties. The surety became liable under the bond for the faithful administration of the estate by the administrator/executor. Hence, for as long as defendant-appellant Pastor T. Quebrar was administrator of the estates, the bond was held liable and inevitably, the plaintiff-appellee's liability subsists since the liability of the sureties is co-extensive with that of the administrator.