Philippines – Debt And Death.

6 November 2020

 

Nearing the observance of All Saints Day, our fond memories of departed loved ones  remind us of our own finitude as human beings. A person may pass on, but his memories and his legacies remain.

 

But there are other things, such as legal obligations, that remain in spite of one’s demise. For instance, what happens to debt in death?

 

Generally, debts do not die with a person. For one, a party’s contractual rights and obligations are transmissible to the successors barring those rare cases where the obligation is strictly personal, i.e., is contracted intuitu personae, in consideration of its performance by a specific person and by no other.

 

Under Article 774 of the Civil Code, through succession, the property, rights, and obligations (including debts) to the extent of the value of the inheritance  are transmitted from a decedent to another. That means that debts survive death; however, it does not follow that creditors may go after the decedent’s heirs’ in their personal capacity. Creditors may only go after the estate of the decedent, effectively reducing the heirs’ shares, if any, in such estate.

 

A good illustration is found in the case of William Ong Genato vs. Benjamin Bayhon, et. al. (G.R. No. 171035, August 24, 2009). In that case, respondents Benjamin Bayhon et. al. sought the declaration of nullity of a dacion en pago allegedly executed by respondent Bayhon in favor of petitioner Genato to cover a loan. The trial court upheld the respondent’s liability and ordered him to pay petitioner sums due under his debt. While the decision was pending appeal with the Court of Appeals, respondent Bayhon died. The Court of Appeals upheld the validity of respondent Bayhon’s liability but ruled that the death of respondent Bayhon extinguished it.

 

The Supreme Court eventually ruled that although the loan was by respondent Bayhon and he had died while the case was pending before the Court of Appeals, the debt subsists against his estate. While he may no longer be compelled to pay the loan, no property or portion of the inheritance may be transmitted to his heirs unless the debt has first been satisfied.

 

Under Art. 1311, par. 1 of the Civil Code, obligations derived from a contract are transmissible. Contracts take effect only 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. The heir is not liable beyond the value of the property he received from the decedent. Citing the earlier case of Estate of Hemady v. Luzon Surety Co., Inc. (G.R. No. L-8437, 100 Phil. 388 (1958)) the Supreme Court said that 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.

 

The procedure in vindicating monetary claims involving a debtor who dies before final judgment is governed by Rule 3, Section 20 of the Rules of Civil Procedure. When the action is for recovery of money arising from contract, express or implied, and the debtor dies before entry of final judgment in the court in which the action was pending at the time of such death, it shall not be dismissed but shall instead be allowed to continue until entry of final judgment. A favorable judgment obtained by the creditor-plaintiff therein shall be enforced in the manner especially provided in these Rules for prosecuting claims against the estate of a deceased person.

 

Hence, a creditor’s remedy is filing a claim against the estate of the deceased debtor.

 

While there is a saying that death is a debt all men must pay, so too, it appears, is monetary loan to the extent of the debtor’s estate. However, comfort may be found that heirs need not be burdened by such debt as the law limits their “share” to their portion of the properties and assets left by the decedent-debtor.