SECOND DIVISION

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

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

Tolentino & Garcia & D. R. Cruz for plaintiff-appellee.

Zoilo V. dela Cruz, Jr. for defendants-appellants.
SYLLABUS
1.
CIVIL LAW; OBLIGATIONS AND CONTRACTS; SURETYSHIP; LIABILITY OF SURETY;
DETERMINED BY THE LANGUAGE OF THE BOND ITSELF. 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.
2.
ID.; ID.; ID.; ID.; ID.; STATUTORY BONDS, CONSTRUED IN THE LIGHT OF STATUTE
CREATING IT. 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 (Midland
Co. vs. Broat, 52 NW 972), said statutory bonds are construed in the light of the statute
creating the obligation secured and the purposes for which the bond is required, as
expressed in the statute (Michael vs. Logan, 52 NW 972; Squires vs. Miller, 138 NW 1062).
The statute which requires the giving of a bond becomes a part of the bond and imparts
into the bond any conditions prescribed by the statute (Scott vs. United States Fidelity Co.,
252 Ala 373, 41 So 2d 298; Employer's Liability Assurance Corp. vs. Lunt, 82 Ariz 320, 313
P2d 393).
3.
ID.; ID.; ID.; ID.; CO-EXTENSIVE WITH THAT OF THE ADMINISTRATOR OF ESTATE.
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 (Mendoza vs.
Pacheco, 64 Phil. 134). 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 (Deobold vs. Oppermann, 111 NY 531, 19 NE 94),
it follows that the administrator is still duty bound to respect the indemnity agreements
entered into by him in consideration of the suretyship.
4.
ID.; ID.; ID.; ID.; ID.; APPROVAL OF PROJECT OF PARTITION AND STATEMENT OF
ACCOUNTS DOES NOT TERMINATE LIABILITY. The contention of the defendantsappellants that the administrator's bond ceased to be of legal force and effect with the
approval of the project of partition and statement of accounts on June 6, 1957 is without
merit. 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
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paid after June 6, 1957.

5.
ID.; ID.; ID.; ID.; LIABILITY CO-EXTENSIVE WITH THE TERM OF BOND. 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 (Hartford
Accident and Indemnity Co. vs. White, 115 SW 2d 249). Thus, as long as the probate court
retains jurisdiction of the estate, the bond contemplates a continuing liability (Deobold vs.
Oppermann, supra) notwithstanding the non-renewal of the bond by the defendantsappellants. It must be remembered that the probate court possesses an all-embracing
power over the administrator's bond and over the administration proceedings and it
cannot be devoid of legal authority to execute and make that bond answerable for the very
purpose for which it was filed (Mendoza vs. Pacheco, 64 Phil. 135). It is the duty of the
courts of probate jurisdiction to guard jealously the estate of the deceased persons by
intervening in the administration thereof in order to remedy or repair any injury that may be
done thereto (Dariano vs. Fernandez Fidalgo, 14 Phil. 62, 67; Sison vs. Azarraga, 30 Phil.
129, 134).
6.
ID.; ID.; ID.; ID.; PRINCIPLE OF STRICTISSIMI JURIS NOT APPLIED IN CONSTRUING
THE LIABILITY OF SURETIES WHERE THERE IS NO AMBIGUITY IN THE LANGUAGE OF THE
BOND. It is true that in construing the liability of sureties, the principle of strictissimi juris
applies (Asiatic Petroleum Co. vs. De Pio, 46 Phil. 167; Standard Oil Co. of N.Y. vs. Cho
Siong, 53 Phil. 205); but with the advent of corporate surety, suretyship became regarded
as insurance where, usually, provisions are interpreted most favorably to the insured and
against the insurer because ordinarily the bond is prepared by the insurer who then has the
opportunity to state plainly the term of its obligation (Surety Co. vs. Pauly, 170 US 133, 18
S. Ct. 552, 42 L. Ed. 972). This rule of construction is not applicable in the herein case
because there is no ambiguity in the language of the bond and more so when the bond is
read in connection with the statutory provision referred to. 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.
DECISION
MAKASIAR , J :
p

This is an appeal from the judgment of the Court of First Instance of Manila in Civil Case
No. 52790 dated November 3, 1964 which was certified to this Court by the Court of
Appeals in its resolution dated March 20, 1975.
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 entitled "Re Testate Estate of A.B, Chinsuy," and "Re Testate Estate of
Cresenciana Lipa," respectively, (pp. 8-12, 17-21, ROA; p. 9, rec.). In consideration of the
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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, wherein, 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 account involved in any litigation, for
attorney's fees (pp. 12-16, 21-25, ROA; p. 9, rec.).
LLjur

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 filed 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 defendantsappellants refused 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 - "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." The defendants-appellants offered P1,800.00 by way of amicable
settlement which the plaintiff-appellee refused.
The lower court allowed the plaintiff to recover from the defendants-appellants, holding
that:
"We find for the plaintiff. It is clear from the terms of the Order of the Court, in
which these bonds were filed, that the same were in force and effect from and
after filing thereof up to and including 20 October, 1962, when the same were
cancelled. It follows that the defendants are liable under the terms of the
Indemnity Agreements, notwithstanding that they have not expressly sought the
renewal of these bonds, because the same were in force and effect until they were
cancelled by order of the Court. The renewal of said bonds is presumed from the
fact that the defendants did not ask for the cancellation of the same; and their
liability springs from the fact that defendant Administrator, Pastor Quebrar,
benefitted from the bonds during their lifetime.
"We find no merit in defendants' claim that the Administrator's bonds in question
are not judicial bonds but legal or conventional bonds only, since they were
constituted by virtue of Rule 82, Sec. 1 of the Old Rules of Court. Neither is there
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merit in defendants' claim that payments of premiums and documentary stamps

were conditions precedent to the effectivity of the bonds, since it was the
defendant's duty to pay for the premiums as long as the bonds were in force and
effect. Finally, defendants' claim that they are not liable under the Indemnity
Agreements is also without merit, since the undertaking of defendants under said
Indemnity Agreements includes the payment of yearly premiums for the bonds.

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against

the defendants, ordering the defendants to pay the plaintiff, jointly and severally,
the amount of P6,649.36 plus interest at the legal rate from 27 July 1964 until
fully paid, and the sum equivalent to 10% of the total amount due as and or
attorney's fees, and costs" (pp. 92-94, ROA; p. 9, rec.).

Defendants-appellants appealed to the Court of Appeals. On March 20, 1975, the Court of
Appeals in a resolution certified the herein case to this Court after finding that this case
involves only errors or questions of law.
1.
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 (Midland Co. vs. Broat, 52 NW 972), said
statutory bonds are construed in the light of the statute creating the obligation secured
and the purposes for which the bond is required, as expressed in the statute (Michael vs.
Logan, 52 NW 972; Squires vs. Miller, 138 NW 1062). The statute which requires the giving
of a bond becomes a part of the bond and imparts into the bond any conditions
prescribed by the statute (Scott vs. United States Fidelity Co., 252 Ala 373, 41 So 2d 298;
Employer's Liability Assurance Corp. vs. Lunt, 82 Ariz 320, 313 P2d 393).
The bonds in question herein contain practically the very same conditions in Sec. 1, Rule 81
of the Rules of Court. Pertinent provision of the administrator's bonds is as follows:
"Therefore, if the said Pastor T. Quebrar faithfully prepares and presents to the
Court, within three months from the date of his appointment, a correct inventory
of all the property of the deceased which may have come into his possession or
into the possession of any other person representing him according to law, if he
administers all the property of the deceased which at any time comes into his
possession or into the possession of any other person representing him; faithfully
pays all the debts, legacies, and bequests which encumber said estate, pays
whatever dividends which the Court may decide should be paid, and renders a just
and true account of his administrations to the Court within a year or at any other
date that he may be required so to do, and faithfully executes all orders and
decrees of said Court, then in this case this obligation shall be void, otherwise it
shall remain full force and effect" (p. 9, 18, ROA; p. 9, rec.).

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 (Mendoza vs.
Pacheco, 64 Phil. 134).
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
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the course of administration (Deobold vs. Oppermann, 111 NY 531, 19 NE 94), it follows
that the administrator is still duty bound to respect the indemnity agreements entered into
by him in consideration of the suretyship.
prLL

It is shown that the defendant-appellant Pastor T. Quebrar, still had something to do as an

administrator/executor even after the approval of the amended project of partition and
accounts on June 6, 1957.
The contention of the defendants-appellants that the administrator's bond ceased to be of
legal force and effect with the approval of the project of partition and statement of
accounts on June 6, 1957 is without merit. 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.
And in the case of Montemayor vs. Gutierrez (114 Phil. 95), an estate may be partitioned
even before the termination of the administration proceedings. Hence, the approval of the
project of partition did not necessarily terminate the administration proceedings.
Notwithstanding the approval of the partition, the Court of First Instance of Negros
Occidental still had jurisdiction over the administration proceedings of the estate of A.B.
Chinsuy and Cresenciana Lipa.
2.
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 (Hartford
Accident and Indemnity Co. vs. White, 115 SW 2d 249). Thus, as long as the probate court
retains jurisdiction of the estate, the bond contemplates a continuing liability (Deobold vs.
Oppermann, supra) notwithstanding the non-renewal of the bond by the defendantsappellants.
It must be remembered that the probate court possesses an all-embracing power over the
administrator's bond and over the administration proceedings and it cannot be devoid of
legal authority to execute and make that bond answerable for the very purpose for which it
was filed (Mendoza vs. Pacheco, 64 Phil. 135).
It is the duty of the courts of probate jurisdiction to guard jealously the estate of the
deceased persons by intervening in the administration thereof in order to remedy or repair
any injury that may be done thereto (Dariano vs. Fernandez Fidalgo, 14 Phil. 62, 67; Sison
vs. Azarraga, 30 Phil. 129, 134).
3.
In cases like these where the pivotal point is the interpretation of the contracts
entered into, it is essential to scrutinize the very language used in the contracts. The two
Indemnity Agreements provided that:
"The undersigned, Pastor T. Quebrar and Dr. Francisco Kilayko, jointly and
severally, bind ourselves unto the Luzon Surety Co., Inc. . . . in consideration of it
having become SURETY upon Civil Bond in the sum of Fifteen Thousand Pesos
(P15,000.00) . . . .in favor of the Republic of the Philippines in Special Proceeding
. . dated August 9, 1954, a copy of which is hereto attached and made an integral
part hereof " (emphasis supplied; pp. 12-13, 21, ROA; p. 9, rec.).

To separately consider these two agreements would then be contrary to the intent of the
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parties in making them integrated as a whole.

The contention then of the defendants-appellants that both the Administrator's Bonds and
the Indemnity Agreements ceased to have any force and effect, the former since June 6,
1957 with the approval of the project of partition and the latter since August 9, 1955 with
the non-payment of the stated premiums, is without merit. Such construction of the said
contracts entered into would render futile the purpose for which they were made.
To allow the defendants-appellants to evade their liability under the Indemnity Agreements
by non-payment of the premiums would ultimately lead to giving the administrator the
power to diminish or reduce and altogether nullify his liability under the Administrator's
Bonds. As already stated, this is contrary to the intent and purpose of the law in providing
for the administrator's bonds for the protection of the creditors, heirs, legatees, and the
estate.
4.
Moreover, the lower court was correct in holding that there is no merit in the
defendants' claim that payments of premiums and documentary stamps are conditions
precedent to the effectivity of the bonds.
It is worthy to note that there is no provision or condition in the bond to the effect that it
will terminate at the end of the first year if the premium for continuation thereafter is not
paid. And there is no clause by which its obligation is avoided or even suspended by the
failure of the obligee to pay an annual premium (U.S. vs. Maryland Casualty Co. [DCMd] 129
F. Supp; Dale vs. Continental Insurance Co., 31 SW 266; Equitable Insurance C. vs. Harvey,
40 SW 1092).
cdphil

It was held in the case of Fourth and First Bank and Trust Co. vs. Fidelity and Deposit Co.
(281 SW 785), that "at the end of the first year, the bond went on, whether or not the
premium was paid or not . . . Even on a failure to pay an annual premium, the contract ran
on until affirmative action was taken to avoid it. The obligation of the bond was therefore
continuous." And in United States vs. American Surety Co. of New York (172 F2d 135), it
was held that "under a surety bond securing faithful performance of duties by postal
employee, liability for default of employee occurring in any one year would continue,
whether or not a renewal premium was paid for a later year."
The payment of the annual premium is to be enforced as part of the consideration, and not
as a condition (Woodfin vs. Asheville Mutual Insurance Co., 51 N.C. 558); for the payment
was not made a condition to the attaching or continuing of the contract (National Bank vs.
National Surety Co., 144 A 576). The premium is the consideration for furnishing the bonds
and the obligation to pay the same subsists for as long as the liability of the surety shall
exist (Reparations Commission vs. Universal Deep-Sea Fishing Corp., L-21996, 83 SCRA
764, June 27, 1978). And in Arranz vs. Manila Fidelity and Surety Co., Inc. (101 Phil. 272),
the "premium is the consideration for furnishing the bond or the guaranty. While the liability
of the surety subsists the premium is collectible from the principal. Lastly, in Manila Surety
and Fidelity Co., Inc. vs. Villarama (107 Phil. 891), it was held that "the one-year period
mentioned therein refers not to the duration or lifetime of the bond, but merely to the
payment of premiums, and, consequently, does not affect at all the effectivity or efficacy of
such bond. But such non-payment alone of the premiums for the succeeding years . . .
does not necessarily extinguish or terminate the effectivity of the counter-bond in the
absence of an express stipulation in the contract making such non-payment of premiums a
cause for the extinguishment or termination of the undertaking. . . . There is no necessity
for an extension or renewal of the agreement because by specific provision thereof, the
duration of the counter-bond was made dependent upon the existence of the original
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bond."

5.
It is true that in construing the liability of sureties, the principle of strictissimi juris
applies (Asiatic Petroleum Co. vs. De Pio, 46 Phil. 167; Standard Oil Co. of N.Y. vs. Cho
Siong, 53 Phil. 205); but with the advent of corporate surety, suretyship became regarded
as insurance where, usually, provisions are interpreted most favorably to the insured and
against the insurer because ordinarily the bond is prepared by the insurer who then has the
opportunity to state plainly the term of its obligation (Surety Co. vs. Pauly, 170 US 133, 18
S. Ct. 552, 42 L. Ed. 972).
LLjur

This rule of construction is not applicable in the herein case because there is no ambiguity
in the language of the bond and more so when the bond is read in connection with the
statutory provision referred to.
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.
cdrep

WHEREFORE, THE DECISION OF THE COURT OF FIRST INSTANCE OF MANILA DATED

NOVEMBER 3, 1964 IS HEREBY AFFIRMED. WITH COSTS AGAINST DEFENDANTSAPPELLANTS.
Concepcion, Jr., Guerrero, Abad Santos, De Castro and Escolin JJ., concur.
Aquino, J., took no part.

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