Dear PAO,

Sometime in the year 2019, my father borrowed the sum of One Million Five Hundred Thousand Pesos (Php1,500,000.00) from a lending company for his coffee shop business. However, after one year of operation, he passed away, leaving unpaid debts.

Recently, I learned that my father left me a 1,000-square-meter agricultural land as an inheritance. Now, the creditors are all after me demanding payment of his contracted loans. Can the creditors take away my inheritance? Am I obligated to pay my father’s loans?

Chona

Dear Chona,

Technically, you are not liable to pay for your father’s obligations as you are not a party to the contract of loan that he entered into with the lending company. However, the creditors may claim your inheritance to settle his unpaid loans.

Article 774 of the New Civil Code of the Philippines defines succession as the transmission of property, rights and obligations of a person to his/her heirs upon death. In the same vein, Article 776 of the same Code provides that “[t]he inheritance includes all the property, rights and obligations of a person which are not extinguished by his death.” Hence, an heir inherits not only the assets or properties of the decedent but also obligations that are not extinguished by death.

To exact performance of the obligation, a creditor may file a claim against the estate of the deceased. In this regard, the court may order the sale of real properties that form part of the estate. This is in consonance with Section 2, Rule 89 of the Rules of Court, which states that when the decedent’s personal estate is not sufficient to pay the debts, expenses and legacies, the court may authorize the sale of real estate for the satisfaction of the outstanding obligations, to wit:

“When the personal estate of the deceased is not sufficient to pay the debts, expenses of administration and legacies, xxx and where a testator has not otherwise made sufficient provision for the payment of such debts, expenses and legacies, the court, xxx, may authorize the executor or administrator to sell, mortgage, or otherwise encumber so much as may be necessary of the real estate, in lieu of personal estate, for the purpose of paying such debts, expenses and legacies xxx.”

Notwithstanding, the law has crafted a cautious balance between the inheritance and the assumed liability of an heir. Relative thereto, an heir may not be held personally liable beyond the value of the inheritance that he/she received from the decedent. Article 1311 of the New Civil Code reads:

“Contracts take effect only between the parties, their assigns and heirs, except in cases 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.”

Therefore, in applying the foregoing, while you are not personally obliged to pay your father’s outstanding debt, the creditor may still go after the agricultural land, which you supposedly inherited from your father, in order to collect the loan. If the claim is allowed by the court, your father’s estate may be held liable but only up to the extent of the value of the agricultural land and other properties that your father may have left.

We hope that we were able to answer your queries. This advice was based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Thank you for your continued trust and support.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]