INTESTATE ESTATE OF HONOFRE LEYSON (DECEASED) MARGARITA LEYSON LAURENTE, ADMINISTRATRIX AND APPELLEE, VS. RIZAL SURETY AND INSURANCE COMPANY, BONDSMAN-APPELLANT.

Intestate Estate of Honofre Leyson versus Rizal Surety and Insurance Company

The Case

This is a suretyship case. The intestate estate of Honofre Leyson, through its administratrix Margarita Leyson Laurente, sought to hold the Rizal Surety and Insurance Company liable on an administrator's bond it had issued for the former administrator, Victorio L. Rodriguez. The trial court ordered the bond confiscated to satisfy a shortage in the administrator's accounts, and the surety company appealed. The case matters because it fixes two rules every examinee must carry: that a compensated corporate surety is not a favorite of the law, and that an administrator's bond may be made to answer for the administrator's whole trust from the date of his appointment, not merely from the date the bond was filed.

Procedural History

The estate of Honofre Leyson was being settled in the Court of First Instance of Manila. That court found Rodriguez, the administrator, guilty of maladministration and ordered him relieved of his trust. Because Rodriguez appealed the order of relief, the court required him to file an increased bond to protect the estate. Rodriguez filed a bond through the Rizal Surety and Insurance Company, which the court approved. When Rodriguez was later found short in his accounts, the court, on motion of the new administratrix, ordered the bond confiscated for the amount of the shortage. The surety company appealed that order to the Supreme Court.

Facts

Rodriguez was appointed administrator of the estate of Honofre Leyson on December 8, 1947. On December 27, 1951, the Court of First Instance of Manila found him guilty of maladministration and ordered him relieved of his trust. Rodriguez appealed the order of relief, so he could not immediately be removed from his position of trust. To protect the estate, the court required him to file an increased bond of 10,000 pesos, in place of the original 500 peso bond, to answer for the faithful execution of his trust as of the date of his appointment.

Rodriguez filed a bond issued by the Rizal Surety and Insurance Company, but the bond did not follow the court's order. It recited instead a general condition tied to the issuance of letters of administration. In its order of June 27, 1952 approving the bond, the court nevertheless stated that the bond shall answer for the faithful execution of his trust as of the date of his appointment, and directed that the surety company be notified.

Required to account for the period from June 27, 1951 to August 30, 1954, Rodriguez was found short of 6,248.22 pesos, later fixed by final judgment of the Court of Appeals at 6,051.57 pesos. Despite several deadlines, he failed to pay, and he was ordered arrested and declared in contempt. On November 8, 1962, the court ordered the confiscation of the bond to satisfy the shortage. The surety company appealed.

Issues

• Whether or not the surety company may be held liable on its bond for defalcations committed by the administrator before the bond was filed, given that the bond contains no express retroactive provision.
• Whether or not the bond may be enforced against the surety even though its terms did not literally follow the court's order requiring it to answer for the trust from the date of appointment.
• Whether or not the bond was confiscated without giving the surety a chance to be heard on the reality and reasonableness of the amount.

Applicable Provisions

The decision does not quote a statute; it construes the terms of the administrator's bond and the court's orders. The bond's operative condition provides:

THEREFORE, if the said Victorio L. Rodriguez faithfully prepares and present 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 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 administration to the Court within a year or at any other date that he may be required so to do, and faithfully execute all orders and decrees of said Court, then in this case obligation shall be void, otherwise it shall remain in full force and effect.

This condition defines the surety's undertaking and is the text against which its liability is measured. The court's approving order supplies the retroactive reach:

Said bond shall answer for the faithful execution of his trust as of the date of his appointment.

This order fixes the effectivity of the bond at the date of Rodriguez's appointment, which is the point on which the first issue turns.

Ruling

On the first issue, the Court held that the bond covers the administrator's acts from the date of his appointment. Although the bond does not specify when it took effect, both the order requiring the increased bond and the order approving it made plain that the bond would answer for the faithful execution of the trust as of the date of appointment. Rodriguez was appointed on December 8, 1947, and the bond must be understood to have taken effect on that date. The Court found this condition understandable, since the administrator had already been found guilty of maladministration and had appealed his removal, so the bond was required for the protection of the estate.

On the second issue, the Court acknowledged that the bond was not responsive to the court's order, since it recited a general condition rather than the required retroactive undertaking. But because the contract was made on a form prepared by the surety, it must be construed against the surety and in favor of the promisee. The Court distinguished an accommodation surety from a compensated corporate surety:

Although We might acknowledge that a surety is a favorite of the law and his contract strictissimi juris, this rule has no bearing on the case at bar. Anyway, it commonly refers to an accommodation surety and should not be extended to favor a compensated surety, as is appellant in the instant case.

The Court explained that an accommodation surety acts without motive of pecuniary gain and deserves protection, while a compensated corporate surety is a business association that assumes classified risks through standardized forms drawn to protect its own interest. For such a surety, the rule of strict interpretation does not apply, and courts apply the rules of interpretation governing contracts of insurance.

On the third issue, the Court held that the surety was bound by the judgment against its principal, to which it was privy, absent fraud or collusion, even if it was not a party to the proceedings. In any event, the record showed the surety was given an opportunity to be heard, having filed an opposition to the motion to hold it liable.

Doctrine

A compensated corporate surety is not entitled to the benefit of strict interpretation. The rule that a surety's contract is construed strictly applies to an accommodation surety, not to a corporate surety that signs for a premium and prepares the instrument itself. A bond drawn on the surety's own form is construed against the surety and in favor of the promisee. An administrator's bond may be made to answer for the faithful execution of the trust from the date of the administrator's appointment, where the court's orders so provide, even if the bond itself is silent on retroactivity. And a surety on an administrator's bond is privy to the proceedings against its principal, so it is bound by the judgment against the principal absent fraud or collusion.

Disposition

The Supreme Court affirmed the order of the trial court confiscating the bond, without pronouncement as to costs. The estate prevailed against the surety company.

Remember This

The one line to memorize: strict interpretation favors the accommodation surety, never the compensated corporate surety, whose bond is read against it and in favor of the promisee. Examiners use this case to test the distinction between accommodation and compensated sureties, and the retroactive reach of an administrator's bond fixed by the appointing court's orders.