1.

Concept, Classification and Characteristics

 
Civil Code, Arts. 2047, 2051, 2055, 2048, 2052, 2053, 2054
 
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so.
 
If a person binds himself solidarily with the principal debtor, the provisions of Section
4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
suretyship. (1822a)
Guaranty
In general
 Definition
o person, called the guarantor,
o binds himself to the creditor
o to fulfill the obligation of the principal debtor
o in case the latter should fail to do so
 Purpose: to fulfill the obligation of the principal debtor in case latter fails to do so
o Through the personal guaranty of a THIRD PERSON
o By furnishing to the creditor PROPERTY, with authority to collect the debt
from the proceeds of the same in case of default
 Hence, guaranty includes PLEDGE and MORTGAGE
 
Kinds of guaranty
1. Guaranty in the broad sense
A. Personal: guaranty proper [Art. 2047] where the guarantee is the CREDIT
given by the person who guarantees the fulfillment of the principal
obligation
B. Real: the guaranty is the PROPERTY, movable or immovable
i. Immovable: real mortgage [Art. 2124] or antichresis [Art. 2132]
ii. Movable: pledge [Art. 2093] or chattel mortgage [Art. 2140]
2. As to its origin
A. Conventional: constituted by agreement of the parties [Art. 2051(1)]
B. Legal:
 Imposed by virtue of a provision of law
 Cannot be constituted w/o an express provision of law
B. Judicial: required by a court to guarantee the adjudged right of one of the
parties
2. As to consideration
A. Gratuitous: guarantor does not receive any price or remuneration for his
guaranty [Art. 2048]
B. Onerous: guarantor receives valuable consideration for his guaranty
2. As to the person guaranteed
A. Single: purpose is solely to guarantee or secure the performance by the
debtor of the principal obligation
Double or sub-guaranty [Art. 2051(2)]: purpose is to secure the fulfillment
by the guarantor of a PRIOR guaranty
5. As to its scope and extent
A. Definite/Limited: guaranty is limited to the PRINCIPAL obligation only or to
a specific portion of it
 B. Indefinite/Unlimited: principal obligation and all its accessories (e.g.
interests) including judicial costs
 
Characteristics
1. Consensual: perfected by mere consent subject to the Statute of Frauds [Art.
1315]
2. GR: unilateral
o It gives rise to a duty ONLY on the part of the guarantor in relation to the
creditor
o MERELY INCIDENTAL to the contract --> after the fulfillment of the guaranty,
principal debtor becomes liable to indemnify the guarantor
o May be entered into even WITHOUT the intervention of the principal debtor
[Art. 2050]
EXN: bilateral if compensation is paid to the guarantor
3. Nominate: because it has a name under the NCC
4. Accessory: existence is dependent upon the principal obligation it guarantees
5. Subsidiary and conditional: takes effect only when the principal debtor fails in his
obligation, subject to limitations [Arts. 2053, 2058, 2063, 2065]
6. Formal: governed by the Statute of Frauds and MUST BE IN WRITING [Arts.
1403(b) & 2055]
7. GR: gratuitous
EXN: onerous
 
Principal parties [Art. 2047]
1. Creditor
2. Guarantor
 Principal debtor MAY be a party to the contract of guaranty
 
Essential requisites of the contract [Art. 1318]
1. Consent
2. Object certain w/c is the subject matter of the contract = OBLIGATION
guaranteed by the contract
3. Cause of the obligation
o GR: gratuitous
o EXN: onerous
 
Sources of guarantor's obligations
1. Contract by the creditor and guarantor
2. Contract by the debtor and guarantor --> guarantor binds himself to fulfill the
debtor's obligation if the latter fails to do so
3. Contract by the debtor and guarantor with a stipulation in favor of a 3rd party -->
creditor may demand its fulfillment PROVIDED the creditor communicated his
acceptance to the guarantor before its revocation [Art. 1331]
 
Scope
1. Principal obligations of the debtor [Art. 2055]
2. Accessory obligations of the principal obligation [Art. 2055]
3. Obligations arising as a matter of law from the guaranteed obligations (e.g.
payment of interest in case of delay)
4. Obligation to pay judicial costs after the guarantor has been judicially required to
pay [Art. 2055]
 
Manner of guarantor's payment
 GR: payment must be in the manner stipulated
 EXN: in the absence thereof:
o Place: at the domicile of the debtor [Art. 1251]
o Time: as soon as the creditor was unsuccessful in exhausting the properties of
the debtor
 
Suretyship
In general
 Definition:
o contractual relationship where
o one person (surety)
o engages to be answerable to a 3rd person, the obligee/creditor
o for the debt, default, or miscarriage of another (principal obligor/debtor)
 Includes official recognizances, stipulations, bonds or undertakings issued by any
company by virtue of Act No. 536, as amended by Act 2206
 Laws applicable to contract of suretyship
1. According to Art. 2047(2) --> JOINT AND SOLIDARY OBLIGATIONS (Arts.
1207-1222)
 SURETYSHIP = if person binds himself SOLIDARILY w/ the principal
debtor
 Guarantor is called surety
 Surety guarantees the performance by the principal obligor of
an obligation in favor of the creditor
 Surety contract is for the benefit of the CREDITOR as shown by the
solidary nature of the surety undertaking
2. WHENEVER applicable, provisions on guaranty
 Provisions that apply to suretyship:
 Art. 2066: right to indemnification
 Art. 2067: right to subrogation
 Art. 2079: extension of time granted by the creditor to the
debtor w/o the consent of the surety will release the surety
 Provisions that DO NOT apply
 Art. 2058: surety DOES NOT have the benefit of excussion
 Art. 2063
 Art. 2071
 Art. 2080
 Art. 2081
3. Under the statute of frauds, the promise of a surety or original promisor may
be proved by ORAL evidence
 Suretyship for future debts --> parties can agree that the surety will be liable for
debts incurred AFTER the execution of the suretyship agreement
 
Suretyship agreement vs. solidary co-debtors
 Suretyship requires a separate debtor to whom the surety is solidarily bound by
way of an ANCILLARY obligation w/c is of a SEPARATE identity from the
obligation between the principal debtor and the creditor; hence, surety bond is
VOID if there is NO PRINCIPAL DEBTOR
 Creditor may proceed against the surety to collect the credit in lieu of the
proceeding against the principal debtor for the same obligation
 There's a legal tie created between the surety and PRINCIPAL DEBTOR to w/c
the creditor is NOT privy to
  The moment the surety FULLY answers to the creditor for the obligation created
by the principal debtor, such obligation is extinguished
 Surety may seek REIMBURSEMENT from the principal debtor for the amount paid
since the surety becomes SUBROGATED to all the rights of the creditor
 
Solidary Co-debtor Surety

Has no other rights than those under Law on Joint Surety, outside of the liability he
and Solidary Obligations assumes to pay the debt before
the property of the principal
debtor has been exhausted,
retains all the other rights,
actions and benefits w/c pertain
to him by reason of the
suretyship

SCD will not be able to recover the full amount he Even as the surety is solidarily
paid to the creditor because the right to recovery bound w/ the principal debtor to
extends only to the PROPORTIONATE SHARE of the creditor, the surety who
the co-debtors, and not as to the particular does pay the creditor has the
proportional share of the solidary debtor who right to recover the FULL
already paid AMOUNT PAID, and not just
any proportional share, from the
principal debtor/s
 
Suretyship vs. guarantor who binds himself solidarily with the principal debtor
 If intention of the gurantor is not to convert himself into a principal debtor
although solidarily liable, he still retains the character of a guarantor
 Above legal concepts are DIFFERENT
 
Nature of surety's undertaking
1. Liability is contractual and accessory BUT direct
o Surety's obligation is merely an ACCESSORY to the obligation contracted by
the principal
o Liability to the creditor is DIRECT, PRIMARY and ABSOLUTE
 Surety is directly and primarily bound w/ the principal as ORIGINAL
promisor;
 BUT has no direct interest over the latter's obligation;
o Surety is bound by the same agreement which binds the principal; hence the
creditor has the right to directly proceed against either the principal debtor
or surety --> that's why excussion can't be invoked
o The acceptance by the creditor of the surety's payment, in case of principal
debtor's nonpayment, DOES NOT give the surety the right to intervene in
the PRINCIPAL contract --> the parties to the principal contract are still the
principal creditor and debtor
2. Liability is limited by the terms of the contract
o Contract of surety can't be presumed
o Hence, liability of surety…
 is limited to the EXPRESS terms and agreements in the contract of
surety; and
 can't be extended by implication beyond the terms of the contract
 3. Liability arises only if the principal debtor is held liable --> if not, surety is NOT
liable
o GR: demand or notice of default is not required to fix the surety's liability
 Surety is not entitled to notice of principal's default
 Demand on the surety is not necessary before bringing suit against
them since the commencement of the suit is a sufficient demand
EXN: if stipulated otherwise
o Nature of surety's undertaking makes it privy to all proceedings against its
principal; hence, surety is bound by a judgement against the principal EVEN
IF he was not a party to the proceeding
o Creditor may sue the principal debtor and surety SEPARATELY or
TOGETHER
o If there are several sureties, the obligee may proceed against ANY ONE of
them [Art. 1216]
4. Surety is not entitled to exhaustion
 It does not matter if principal debtor is financially capable to fulfill his
obligations
 Surety does not insure the solvency of the debtor but the debt itself
 Surety is not entitled to the exhaustion of the properties of the principal
debtor [Art. 2059(2)] since a surety assumes a solidary liability for the
fulfillment of the principal obligation as an original debtor and promissor
from the beginning
5. Undertaking is to the creditor and not to the debtor
 Surety's undertaking is that the principal shall fulfill his obligation and that the
surety shall be relieved of liability when the obligation secured is performed
 GR: surety does not make an agreement with the principal that it will fulfill the
obligation guaranteed for the benefit of the principal
EXN: stipulated otherwise
6. Prior demand by the creditor upon the principal is not required
 Creditor's right to proceed against the surety alone exists INDEPENDENTLY
of his right to proceed against the principal where both principal and surety
are equally bound [Art. 13126]
 As soon as the principal is in default, the surety is in default as well
 Proper remedy of surety: pay the debt and purse the principal for
reimbursement
7. Surety is not exonerated by the neglect of the creditor to pursue/sue the principal
at the time the debt falls due, even if the delay continues until the principal
becomes insolvent
 GR: mere lack of diligence or forbearance does not affect the creditor's rights
vis-a-vis the surety
EXN: surety requires him by appropriate notice to sue on the obligation
 Reason: there's nothing preventing the creditor from proceeding against the
principal at any time
 If surety was dissatisfied w/ the degree of care and activity creditor
showed in pursuing the principal, he should've paid the debt himself
and become subrogated to all the rights and remedies of the creditor
 
Guaranty vs. Suretyship
 
Guaranty Suretyship

Guarantor is insurer of the solvency of the debtor Surety is insurer of the debt -->
hence binds himself to pay if the principal is obligates himself to pay if the
UNABLE TO or CANNOT pay principal DOES NOT PAY,
without regard to principal's
ability/solvency to do so (hence
obligation of surety is more
onerous than the guaranty)

Undertaking that the debtor shall pay Undertaking that the debt shall
be paid

Liability of the guarantor depends upon an Surety assumes liability as a

independent agreement to pay the obligation if the regular party to the undertaking
primary debtor fails to do so

Contract of guarantee is the guarantor's own Surety is bound with his principal
undertaking and may be supported by a by the same instrument executed
consideration SEPARATE from that supporting the at the same time and on the
contract of the principal; guarantor is not privy to same consideration; suretyship is
the contract of the principal with the creditor merely an ACCESSORY to a
principal obligation

Engagement of the guarantor is a collateral Surety is charged as an original

undertaking promisor and debtor from the
beginning

Guarantor is secondarily or subsidiarily liable --> he Surety's liability to the creditor is

is obliged to pay if, buy the use of due diligence, direct, primary and absolute
the debt can't be paid by the principal hence solvency of the principal is
irrelevant

Guarantor is not bound to know the non- Surety is held to know every
performance of his principal default of his principal

Guarantor is discharged by the mere WILL of the Surety can't be discharged by

creditor of the principal mere will of creditor of the
principal or by want of notice of
default of the principal

Guarantor can claim release from his obligation Surety cannot claim release from
his obligation
 BOTH: guarantor and surety promises to answer for the debt, default, miscarriage
of another
 Illustration:
o Debtor owes Creditor a sum of money with
 G as guarantor and
 S as surety
o C can't compel G to pay unless the former has
 exhausted all the PROPERTIES of the D; AND
 exhausted all LEGAL REMEDIES against D
o C can proceed against S immediately upon nonpayment by D without the
exhaustion of the property of D
 As surety, S is primarily and directly liable
 It's not a defense by S that he has not been informed by B of the
demand for payment made on D
  Factor determinative of the nature of the contractual relationship
o Is NOT the designation by the parties; but
o The INTENTION of the parties
 
Guaranty vs. Indorsement
Guarantor of a commercial paper Indorser

Purpose of the guaranty: security Purpose of contract of

indorser: transfer

Guaranty is not discharged absolutely from liability Indorser is ABSOLUTEY

but only to the extent of the loss w/c he may have discharged from any liability if
suffered if note is not presented for payment at note is not presented for
maturity and notice of dishonor is not given to the payment at maturity and
guarantor within a reasonable time notice of dishonor is not given
to the guarantor within a
reasonable time

Warrants the solvency of the promisor Does not warrant the

solvency of the promisor -->
answerable on a strict
compliance with the law by
the holder, whether the
promisor is solvent or not

Can't be sued as a promisor Indorser may be sued as a

promisor
 
Guaranty vs. Warranty
 BOTH: each is an undertaking by one party to another to indemnify or make good
the assured against some possible default or defect
 Guaranty: contract by w/c a person is bound to another for the fulfillment of a
promise of a 3rd party
 Warranty: an undertaking that the title, quality, quantity, of the subject matter is
what is represented to be
 
Art. 2051. A guaranty may be conventional, legal or judicial, gratuitous, or by onerous
title.
 
It may also be constituted, not only in favor of the principal debtor, but also in favor of
the other guarantor, with the latter's consent, or without his knowledge, or even over
his objection. (1823)
 
Article 2055. A guaranty is not presumed; it must be express and cannot extend to
more than what is stipulated therein.
If it be simple or indefinite, it shall compromise not only the principal obligation, but
also all its accessories, including the judicial costs, provided with respect to the latter,
that the guarantor shall only be liable for those costs incurred after he has been
judicially required to pay. (1827a)
 Guaranty is NOT presumed
 Requires the expression of consent on the gurantor to be bound.
  Cannot be presumed because of the existence of a contract or principal
obligation.
 G is only liable for the obligation stipulated.
 Not to obligations assumed previous to the execution of the guaranty,
unless an intent to be liable is clearly indicated.
 Because it may be not part of the guaranteed period.
 May yield to the intention of the parties.
 E.g. power of atty to loan money does not authorize the agent to make the
principal liable as a surety for the payment of the debt of a 3rd person.
 Reason:
 Consideration in the interest of the guarantor since he may find himself under
the harsh necessity of paying another’s debt w/o benefit for himself
 To assure that guarantor proceeded with consciousness of what he was doing.
 Guaranty is covered by the statute of frauds under "a special promise to answer
for the debt, miscarriage, or default of another"
 Must be reduced in writing to be enforceable. [Art. 1403 (2b)]
 But, need not be in a public document to be valid or enforceable.
 Guaranty is strictly construed.
 Guaranty is strictly interpreted against the creditor, and in favor of the
guarantor.
 Not to be extended beyond its terms or specified limits.
 In terms of doubt construction in favor of guarantor or surety.
 Guaranty with a term subsequently cancelled
 If cancelled, the guarantor will not anymore be liable, even if a subsequent
contract is entered into.
 Liability of a surety if limited to a fixed period
 If fixed, cannot be bound for a longer time.
 Fixed by the contract = liability must not go beyond than what was stipulated.
 Liability in case of extension or renewal, if stipulated, is valid, even if w/o the need
of executing another agreement and of being notified of such extension or
renewal
 Re notice of default
 GR: demand or notice of default is not required to fix the surety's liability
 EXN: if the contract requires that notice of principal’s default be given to the
surety, failure to comply with the condition will prevent recovery from the
surety.
 EXN to the EXN: failure to comply w/ the ff stipulated conditions will not
prevent recovery
 Notice of slight defaults waived by the obligee
 Mere suspicion or provision in the contract exempting the surety from
liability
 Surety already knows of the default
 Strictissimi juris rule is applicable only to accommodation surety
 Accommodation surety acts w/o motive of pecuniary gain thus should be
protected against unjust pecuniary impoverishment by imposing on the
principal, duties like those of a FIDUCIARY
 Thus, rule of strict construction, is not applicable to compensated sureties.
 Reason:
 Such are business associations for profit and impersonal (not
fiduciary) with primary aim of protecting its own interests;
 In essence are insurers.
 Definite vs Indefinite Guaranty
  Definite guaranty --> obligation of guarantor under the terms
of the contract is limited in whole or in part to the principal debt, to the
EXCLUSION of the ACCESSORIES
 [Art. 2055(2)] If the terms of the contract are general and
indefinite, it is presumed that it extends not only to the principal obligation
but also to all its accessories
 The guarantor, in entering into the contract, could've fixed the limits of
his responsibilities to the strict terms of the principal obligations
 If he does not fix it, it's presumed he wanted to be bound to the extent
so established
 Guaranty must be express ONLY as to the obligations of the guarantor
because he alone binds himself by his acceptance
 W/ respect to the creditor no such requirement
 Note: In situations when there is merely an offer of guaranty or
merely a conditional guaranty which requires action by the creditor before
the obligation becomes fixed.
 Becomes binding only until
 It is accepted; and
 Notice of such acceptance by the creditor is given to the
guarantor or until he has notice or knowledge that the creditor
has performed the condition and intends to act upon the
guaranty.
 Acceptance need not be express or in writing
 Acts amounting to an acceptance is enough.
 Reason of notice to guarantor: being secondarily liable, he'll be
able to know the nature and extent of his liability and do acts for
his security and benefit
 If unconditional or direct promise of guaranty
 GR: Only thing necessary is that the promisee should act upon
it.
 Notice of acceptance is not necessary
 EXN: unless notice of acceptance is made a condition of
guaranty
 
Art. 2048. A guaranty is gratuitous, unless there is a stipulation to the contrary. (n)
 GR: gratuitous
EXN: if there's a stipulation to the contrary [Arts. 1933, 1956 and 1965]
 Cause of the contract of guaranty is THE SAME as the cause of the obligation as
to the principal debtor
o Not necessary to prove consideration/cause between the guarantor/surety
and the creditor
o Proof of consideration supporting the principal's obligation is sufficient proof
of the consideration supporting the contract of guaranty/suretyship
 Guarantor/surety is liable for the debt or duty of another even if he does not
possess direct or personal interest over the obligation nor receive any benefit
from it
 
Article 2052. A guaranty cannot exist without a valid obligation.
Nevertheless, a guaranty may be constituted to guarantee the performance of a
voidable or an unenforceable contract. It may also guarantee a natural obligation.
(1824a)
  Guaranty is an accessory contract.
o If the principal obligation is void, the guaranty is also VOID.
 2052 speaks about a VALID OBLIGATION
o Does not speak about a
 VOID obligation; nor
 EXISTING/CURRENT obligation.
o Hence, may be future debts, the amount of which is not yet known
 A guaranty may SECURE a performance of a [VUN]:
o VOIDABLE contract inasmuch as such contract is binding, UNLESS it is
annulled by a proper action in court [Art. 1390]; or
o UNENFORCEABLE CONTRACT because such contract is NOT VOID [Art.
1403]; or
o NATURAL OBLIGATION
 When the DEBTOR himself offers a GUARANTY for his NATURAL
obligation, he IMPLIEDLY recognizes his liability -> TRANSFROMS
from NATURAL to CIVIL.
 For (1) and (2), VOIDABLE and UNENFORCEABLE:
o GR: the G may set up against the creditor ALL DEFENSES which pertain to the
PRINCIPAL DEBTOR and are inherent in the debt.
o EXN: BUT NOT those that are PURELY PERSONAL to the DEBTOR (Art.
2081)
 
Article 2053. A guaranty may also be given as security for future debts, the amount of
which is not yet known; there can be no claim against the guarantor until the debt is
liquidated. A conditional obligation may also be secured. (1825a)
 Art. 2054 = CONTINUING GUARANTY OR SURETYSHIP
o NOT limited to a SINGLE transaction
o Contemplates FUTURE dealings (series of transactions) for an INDEFINITE
TIME/UNTIL REVOKED.
 Future debts (even if amount is NOT KNOWN), MAY BE guaranteed BUT,
o There can be NO CLAIM against the G until amount of debt is
ASCERTAINED/FIXED AND DEMANDABLE
o REASON: Contract of Guaranty is SUBSIDIARY.
 A CONDITIONAL OBLIGATION may also be secured for it is VALID and
BINDING just like a pure one (2nd sentence, 2053).
o Thus includes, PURE, RESOLUTORY and SUSPENSIVE.
o IF the principal obligation is subject to a
 SUSPENSIVE CONDITION, the G is liable only after the fulfillment of
the condition.
 RESOLUTORY, the happening of the condition EXTINGUISHES BOTH
the principal obligation and the guaranty.
 
(1) TO SECURE THE PAYMENT OF A LOAN AT MATURITY.
 Surety agreement of punctual payment.
 Provided, that the liability of the surety SHALL NOT EXCEED at any one time as a
specified sum is a guaranty of future debts.
 
(2) TO SECURE PAYMENT OF ANY DEBT TO BE SUBSEQUENTLY INCURRED.
 Prospective in application
o Intended to provide security with respect to FUTURE transactions for an
INDEFINITE TIME or UNTIL a certain period.
 o Ex. “from time to time”; “now in force or hereafter made”
 
(3) TO SECURE EXISTING UNLIQUIDATED DEBTS
 “FUTURE DEBTS” may refer to…
o debts existing at the time of the constitution of the guaranty but the amount
thereof is UNKNOWN; abd
o NOT TO DEBTS not yet incurred and existing at that time.
 Ex.
o D and C are business partners
o G may guarantee the payment of D and C’s share from the profit of the
business which HAS NOT YET been ascertained.
o Under Art. 2053, G CANNOT BE LIABLE to C before such share is liquidated.
 
Article 2054. A guarantor may bind himself for less, but not for more than the principal
debtor, both as regards the amount and the onerous nature of the conditions.
Should he have bound himself for more, his obligations shall be reduced to the limits
of that of the debtor. (1826)
 The G’s liability CANNOT EXCEED the principal OBLIGATION.
o CANNOT bind for more than the PRINCIPAL DEBTOR
o If he does, his liability shall be REDUCED to the limits to that of the DEBTOR.
 BUT a G may bind himself LESS THAN THAT of the PRINCIPAL (basically, less
than that of the principal debt.)
 The Guaranty is a subsidiary and accessory contract
 Interest, judicial costs and AFs are part of damages that may be recovered.
o Creditor SUING on a SURETYSHIP bond may RECOVER from the surety AS
PART OF THEIR damages INTEREST at a LEGAL RATE + Judicial costs
(2055)
 + AFs when appropriate (2088)
o Reasons:
 failure to pay when DEMANDED; and
 for having compelled the creditor to resort to the courts to obtain
payment
o PRINCIPAL’S liability for damages may EXCEED guarantor's obligation.
 Interest runs:
o from the FILING of the complaint; or
o from the time demand was made upon the surety UNTIL the principal
obligation is fully paid.
 PENALTY MAY BE PROVIDED
 2. Essential Requisites - Consent, Object and Cause
 
3. Parties

Civil Code, Arts. 2056, 2057, 2049, 2064, 2065

 
Article 2056. One who is obliged to furnish a guarantor shall present a person who
possesses integrity, capacity to bind himself, and sufficient property to answer for the
obligation which he guarantees. The guarantor shall be subject to the jurisdiction of the
court of the place where this obligation is to be complied with. (1828a)
 
Article 2057. If the guarantor should be convicted in first instance of a crime involving
dishonesty or should become insolvent, the creditor may demand another who has all
the qualifications required in the preceding article. The case is excepted where the
creditor has required and stipulated that a specified person should be the guarantor.
(1829a)
 Qualifications of a guarantor:
1. Possess integrity;
2. Has capacity to bind himself; and
3. Has sufficient property to answer for the obligation which he guarantees.
1. Qualifications can be waived by the creditor.
2. Must be present only at the tine of the perfection of the contract -->
subsequent loss is irrelevant hence supervening incapacity does not exonerate the
guarantor of the liability he contracted + the contract of guaranty continues
 2nd sentence of 2056 --> accessory follows the principal.
 Selection of guarantor
1. Specified person is stipulated by the creditor to be a guarantor
 Substitution of guarantor may not be demanded
2. Guarantor is to be selected by principal debtor
 Debtor answers for integrity, capacity and solvency of the guarantor
 Reason: guarantor must possess qualifications not only at the moment
of guaranty but also until the extinguishment of the debt.
3. G designated by the creditor
 Responsibility falls upon the creditor
 Reason: he considered him to have the qualifications for the prupose
hence responsibility for the selection should fall upon him.
 NOTE re Art. 2057
1. Requires CONVICTION in the first instance of a crime involving dishonesty
2. Does not require judicial declaration of insolvency for creditor to have the
right to demand another guarantor
 
Art. 2049. A married woman may guarantee an obligation without the husband's consent,
but shall not thereby bind the conjugal partnership, except in cases provided by law. (n)
 Married woman acting as guarantor binds only her SEPARATE property [Art. 145 of
the FC]
 "in cases provided by law" = e.g. when the guaranty has redounded to the benefit of
the family
 Married woman can act as guarantor for her husband
 
 Article 2064. The guarantor of a guarantor shall enjoy the benefit of excussion, both with
respect to the guarantor and to the principal debtor. (1836)
 Sub-guarantor enjoys the benefit of excussion w/ respect to
o the principal debtor; AND
o also to the guarantor [Art. 2051(2)]
 Reason: he stands w/ respect to the guarantor on the same footing as the latter does
w/ respect to the principal debtor
 
Article 2065. Should there be several guarantors of only one debtor and for the same
debt, the obligation to answer for the same is divided among all. The creditor cannot
claim from the guarantors except the shares which they are respectively bound to pay,
unless solidarity has been expressly stipulated.
 
The benefit of division against the co-guarantors ceases in the same cases and for the
same reasons as the benefit of excussion against the principal debtor. (1837)
Benefit of Division of several guarantors
 Requisites:
1. There are several guarantors
2. Of only ONE debtor
3. For the SAME debt
4. Benefit of division is claimed in a timely manner
5. Solidarity has not been expressly stipulated
1. Not required that the guarantors point out the property of his co-guarantors
since the obligation of the guarantor to his co-guarantors is DIRECT and doesn't
depend on the solvency of the latter
o Liability = joint [Art. 2073]
o Benefit ceases:
1. under the circumstances under Art. 205
2. when solidarity is expressly stipulated
 4. Form

Civil Code, Art. 1403 (2)(b), 1358, 2055

 
Art. 2055. supra.
 
Article 1403. The following contracts are unenforceable, unless they are ratified:
 
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:
 
(b) A special promise to answer for the debt, default, or miscarriage of another;
 
Article 1358. The following must appear in a public document:
 
(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
 
All other contracts where the amount involved exceeds five hundred pesos must appear
in writing, even a private one. But sales of goods, chattels or things in action are governed
by articles, 1403, No. 2 and 1405. (1280a)
5. Obligations of guarantor - Fulfill the Principal Obligation

Civil Code, Arts. 2054, 2055, 2050, 1236, 1237, 1251, 2058
 
Art. 2054. supra.
 
Art. 2055. supra.
 
Art. 2050. If a guaranty is entered into without the knowledge or consent, or against the
will of the principal debtor, the provisions of Articles 1236 and 1237 shall apply. (n)
 Contract of guaranty can be constituted w/o the knowledge and even against the will
of the principal debtor since:
o Guaranty exists for the benefit of the CREDITOR, and NOT for the benefit of
the principal debtor
o Creditor has right to take all possible measure to secure the payment of his
credit
 Rights of 3rd person who pays/performs the obligation of the debtor are similar to
rights of one who guarantees the obligation of the debtor
o Pays w/o the knowledge or against will of debtor
 Guarantor can recover insofar as the payment benefitted the debtor
[Art. 1236]
 Guarantor can’t compel creditor to subrogate him in his (creditor's)
rights
o If person becomes guarantor w/ knowledge of debtor, he is subrogated by
virtue of the payment to all the rights w/c the creditor has against the debtor [Art.
2067]
 
Article 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a stipulation
to the contrary.
 
Whoever pays for another may demand from the debtor what he has paid, except that if
he paid without the knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor. (1158a)
 
Article 1237. Whoever pays on behalf of the debtor without the knowledge or against
the will of the latter, cannot compel the creditor to subrogate him in his rights, such as
those arising from a mortgage, guaranty, or penalty. (1159a)
 
Art. 2051. A guaranty may be conventional, legal or judicial, gratuitous, or by onerous
title.
 
It may also be constituted, not only in favor of the principal debtor, but also in favor of the
other guarantor, with the latter's consent, or without his knowledge, or even over his
objection. (1823)
 
Article 2058. The guarantor cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor, and has resorted to all the legal remedies
against the debtor. (1830a)
 Art. 2058 cf. Art 2047 --> since guaranty is accessory and subsidiary, guarantor binds
himself to the creditor to fulfill the obligation of the principal debtor ONLY if the latter
fails to do so and can't do so
 Art. 2058 = benefit of excussion/exhaustion (see #2 below)
o Waivable by the guarantor, hence may pay the obligation once demand is
made on him
 For the guarantor to be liable:
1. Principal must be insolvent;
2. Guarantor must point out to the creditor AVAILABLE property (not in
litigation or encumbered) of the debtor WITHIN the PH; and
3. That the creditor must first exhaust:
 all the PROPERTY of the principal debtor; and
 resort to all LEGAL REMEDIES [Arts. 1177, 1380(3). 1387]
 IMPLICATION: creditor can hold guarantor liable only AFTER
JUDGEMENT by the court is rendered [Art. 2062]
4. The creditor must notify the guarantor of the debtor's inability to pay [Art.
2062]
6. Effects of Guaranty between Guarantor and Creditor

a. Benefit of Excussion -
 
Civil Code, Arts. 2058-2064, 2081, 2084
 
Art. 2058. supra.
 
Art. 2064. supra.
 
Article 2059. The excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
(3) In case of insolvency of the debtor;
(4) When he has absconded, or cannot be sued within the Philippines unless he
has left a manager or representative;
(5) If it may be presumed that an execution on the property of the principal
debtor would not result in the satisfaction of the obligation. (1831a)
GR: 2058
EXNS: guarantor is not entitled to the benefit of excussion
1. 20599
a. Right waived
 the benefit is a personal right hence waiver is valid w/o prejudice
to his right to demand reimbursement from the debtor [Art.
2066]
 Must be EXPRESS; but no specific form
b. In this case, he becomes a surety
c. Insolvency is finally determined during the final liquidation of his
estate, not by the mere fact that the debtor has been declared
insolvent in insolvency proceedings
d. Creditor is not required to go after a debtor in hiding or one who can't
be sued in courts
e. If judicial action and execution becomes a mere formality, the
guarantor can no longer require the creditor to exhaust all legal
remedies' hence, it isn't necessary for the debtor to be JUDICIALLY
declared insolvent or bankrupt
2. If he does not comply w/ Art. 2060
3. If the guarantor bound himself SOLIDARILY w/ the principal debtor [Art.
2047]
4. If he is a judicial bondsman and sub-surety [Art. 2084]
5. Where a pledge or mortgage has been given by him as a special security
6. If he fails to interpose it as a defense before judgement is rendered against
him
 
Article 2060. In order that the guarantor may make use of the benefit of
exclusion, he must set it up against the creditor upon the latter's demand for
payment from him, and point out to the creditor available property of the debtor
within Philippine territory, sufficient to cover the amount of the debt. (1832)
 
Article 2061. The guarantor having fulfilled all the conditions required in the
preceding article, the creditor who is negligent in exhausting the property
pointed out shall suffer the loss, to the extent of said property, for the insolvency
of the debtor resulting from such negligence. (1833a)
 WHEN: demand for payment by creditor upon the guarantor can be made
only after judgement on the debt since before, it can't be seized or sold
 HOW
o Joining the guarantor in the suit against the principal debtor is NOT
the demand required
o Guarantor may invoke the benefit of excussion if the creditor sues
payment judicially or makes an extrajudicial demand for payment
 Condition in setting up excussion: guarantor must point out to the creditor
AVAILABLE property (not in litigation or encumbered) of the debtor
WITHIN the PH
 
Article 2062. In every action by the creditor, which must be against the principal
debtor alone, except in the cases mentioned in article 2059, the former shall ask
the court to notify the guarantor of the action. The guarantor may appear so that
he may, if he so desire, set up such defenses as are granted him by law. The
benefit of excussion mentioned in article 2058 shall always be unimpaired, even
if judgment should be rendered against the principal debtor and the guarantor in
case of appearance by the latter. (1834a)
 GR: guarantor, not being a joint contractor w/ his principal, can't be sued w/
his principal [Art. 2062]
EXN: there may be a joinder of a guarantor and principal as parties
defendant if it would serve merely to delay the ultimate accounting of the
guarantor
 Procedural rules when creditor sues
1. Creditor may hold the guarantor only after judgement has been
obtained against the principal debtor and the latter is unable to pay
2. Guarantor must be notified so that he MAY appear if he desires and
set up defenses
 Voluntary appearance is not a renunciation of right to excussion,
hence even if judgement should be rendered against him and the
principal debtor, he still has the benefit of excussion
 If he doesn't appear, he can't set up the defenses allowed to him
by law and can't question the validity of the judgement rendered
against the debtor
3. Guarantor has the right to be heard before an execution is issued
against him where he's not a party in the case involving the principal
 
Article 2063. A compromise between the creditor and the principal debtor
benefits the guarantor but does not prejudice him. That which is entered into
between the guarantor and the creditor benefits but does not prejudice the
principal debtor. (1835a)
 Compromise = contract where he parties, by making reciprocal concessions,
avoid a litigation or put an end to one already commenced [Art. 2028]
 o Can't prejudice the guarantor or the debtor, as the case may be, when
he's not a party to it [Art. 1311] --> compromise not binding on him
but guaranty subsists
o But it may benefit him since it's a stipulation in favor of a 3rd person
[Art. 1311(2)]
 
Art. 2081. The guarantor may set up against the creditor all the defenses which
pertain to the principal debtor and are inherent in the debt; but not those that
are personal to the debtor. (1853)
Defenses available to the guarantor
1. Defenses derived from the principal obligation
o E.g. defect in consent --> inherent in the debt; not purely personal to
the debtor
 Nullity of the principal obligation
 Contract is voidable
o Rules:
 If guarantor knew the defenses against the creditor BUT does
not set it up against him, the debtor may set up all the defenses
w/c the debtor could've set up against the creditor at the time
the payment was made [Art. 2068]
 Guarantor may set up these defenses even against the will of the
debtor
 Guarantor CAN intervene in the action between the creditor and
debtor re existence and validity of the principal obligation --> if
he doesn't, guarantor isn't deprived of his right to set up the
defenses
 Voluntary waiver of the debtor of the prescription of the debt
doesn't prevent guarantor from asserting his defenses even
prescription
2. Defenses derived from the contract of guarantee
o Benefit of excussion
o Benefit of division
o Those relating to the creation of the guaranty
 Lack of consent
 Mistake
 Nullity of the contract of guaranty
3. Defenses derived from the conduct of the creditor
o Negligence of creditor in exhausting the property pointed by the
guarantor [Art. 2061] or negligence in general
o Extension made by the creditor to the debtor w/o consent of
guarantor [Art. 2079]
o Creditor committed acts that prevents the subrogation of the
guarantor to the rights, mortgages and preferences of the creditor [Art.
2080]
 
Defenses not available: those purely personal to the debtor
 
Art. 2084. A judicial bondsman cannot demand the exhaustion of the property of
the principal debtor.
 
 A sub-surety in the same case, cannot demand the exhaustion of the property of
the debtor of the surety.
 Judicial bondsman and sub-surety are not entitled to the benefit of
excussion
o They're not mere guarantors
o They're sureties whose liability is primary and solidary
 Mere negligence on the part of the creditor in collecting from the debtor will
not relieve the surety from liability
 
Tupaz IV & Tupaz v. Court of Appeals & Bank of the Philippine Islands, G.R. No.
145578, November 18, 2005, 475 SCRA 398.
Aglibot vs. Santia, G.R. No. 185945, December 5, 2012, 687 SCRA 283.
 
b. Benefit of Division - Civil Code, Arts. 2065
 
Art. 2065. supra.
 
c. Effect of Compromise - Civil Code, Art. 2063
 
Art. 2063. supra.
7. Effects of Guaranty between Guarantor and Debtor
 
a. Right to Indemnification - Civil Code, Arts. 2066, 2050,
1236, 2069, 2070, 2072
 
Article 2066. The guarantor who pays for a debtor must be indemnified by the
latter.
 
The indemnity comprises:
(1) The total amount of the debt;
(2) The legal interests thereon from the time the payment was made known to
the debtor, even though it did not earn interest for the creditor;
(3) The expenses incurred by the guarantor after having notified the debtor
that payment had been demanded of him;
(4) Damages, if they are due. (1838a)
 GR: guarantor who makes payment must be indemnified by the principal
debtor
EXNS:
1. Art. 2068-2070 and 2081
2. Art. 2050 = guaranty is created without the knowledge or against the
will of the principal debtor --> guarantor will be reimbursed only up to
the extent the payment benefitted the debtor
3. Waived
4. Payment by a 3rd person who doesn't intend to be reimbursed by the
debtor = donation
 Indemnity/Reimbursement guarantor is entitled to:
1. Total amount of the debt includes interest paid by the guarantor
 Can't collect more than what he paid
 GR: no right to demand reimbursement until he ACTUALLY paid
the debt
EXN: stipulation that he has the right before making payment
2. Legal interest
 FROM WHEN: from the time of debtor knew the notice of
payment of the debt
 Notice = demand --> debtor does not pay = delay
3. Expenses the guarantor has to satisfy in accordance w/ law as a
consequence of the guaranty [Art. 2055(2)]
 Debtor is liable because it is his fault for not making payment
 Can't be those depending on his will or own acts or his fault
4. Damages, if they are due in accordance w/ law on damages
 
Art. 2050. If a guaranty is entered into without the knowledge or consent, or
against the will of the principal debtor, the provisions of Articles 1236 and 1237
shall apply. (n)
 Contract of guaranty can be constituted w/o the knowledge and even
against the will of the principal debtor since:
o Guaranty exists for the benefit of the CREDITOR, and NOT for the
benefit of the principal debtor
 o Creditor has right to take all possible measure to secure the payment
of his credit
 Rights of 3rd person who pays/performs the obligation of the debtor are
similar to rights of one who guarantees the obligation of the debtor
o Pays w/o the knowledge or against will of debtor
 Guarantor can recover insofar as the payment benefitted the
debtor [Art. 1236]
 Guarantor can’t compel creditor to subrogate him in his
(creditor's) rights
o If person becomes guarantor w/ knowledge of debtor, he is
subrogated by virtue of the payment to all the rights w/c the creditor
has against the debtor [Art. 2067]
 
Art. 1236. The creditor is not bound to accept payment or performance by a
third person who has no interest in the fulfillment of the obligation, unless there
is a stipulation to the contrary.
 
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been beneficial to the debtor.
(1158a)
 
Article 2069. If the debt was for a period and the guarantor paid it before it
became due, he cannot demand reimbursement of the debtor until the expiration
of the period unless the payment has been ratified by the debtor. (1841a)
 Reason for Art. 2069: guarantor is not liable for the debt before it becomes
due
 But debtor is liable if the payment
o was made w/ his consent; or
o was ratified by him expressly or impliedly
 
Article 2070. If the guarantor has paid without notifying the debtor, and the
latter not being aware of the payment, repeats the payment, the former has no
remedy whatever against the debtor, but only against the creditor. Nevertheless,
in case of a gratuitous guaranty, if the guarantor was prevented by a fortuitous
event from advising the debtor of the payment, and the creditor becomes
insolvent, the debtor shall reimburse the guarantor for the amount paid. (1842a)
 GR: before the guarantor pays the creditor, he must first NOTIFY the debtor
[Art. 2068]
o Failure to notify + debtor repeats payment = guarantor's only remedy
is to collect from the CREDITOR; he has no COA against the debtor for
the return of what he (guarantor) paid even if creditor becomes
insolvent
 EXN: may still claim reimbursement from the DEBTOR despite absence of
notice if
o Creditor becomes insolvent;
o Guarantor was prevented by fortuitous event to advise the debtor of
the payment; AND
o Guaranty is gratuitous --> because guarantor receives nothing hence
unfair to deny him right to recover
 
Article 2071. The guarantor, even before having paid, may proceed against the
principal debtor:
 
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty within
a specified period, and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of the
period for payment;
(5) After the lapse of ten years, when the principal obligation has no fixed
period for its maturity, unless it be of such nature that it cannot be extinguished
except within a period longer than ten years;
(6) If there are reasonable grounds to fear that the principal debtor intends to
abscond;
(7) If the principal debtor is in imminent danger of becoming insolvent.
 
In all these cases, the action of the guarantor is to obtain release from the
guaranty, or to demand a security that shall protect him from any proceedings by
the creditor and from the danger of insolvency of the debtor. (1834a)
 GR: guarantor has no COA against the debtor BEFORE former paid the
obligation [Art. 2066]
EXN: Art. 2071
o PROBLEM: available also to surety? Conflicting jurisprudence.
o Purpose: enable the guarantor to take measures for the protection of
his interest since he may be called upon to pay the debt
 Remedy of guarantor
o Not reimbursement since he has not paid the obligation
o For the debtor to release him from the guaranty, w/ the consent of the
creditor
 Debtor may offer the creditor another guarantor or another
security; OR
 w/o consent of creditor, debtor may only protect the guarantor
by a counter bond or counter-guaranty
o Demand a security that will protect him from any proceedings by the
creditor and against danger of insolvency of debtor
 Art. 2071(1) contemplates a situation where guarantor can't claim benefit of
excussion and wants to protect himself against possible insolvency of the
debtor
 
Art. 2066 Art. 2071

Gives a right of action after payment --> Protective remedy

provides for the enforcement of the rights of the before payment
guarantor against the debtor after he paid the --> for protection of
debt guarantor before he paid
but after he becomes
liable

Substantive right Preliminary remedy

 
 Recovery by the surety against the indemnitor even before payment
 Indemnity agreement is not executed for the benefit of the creditor but for
the surety
 Indemnity agreement where indemnitor binds himself to indemnify surety
for any damage the latter may have under the surety bond may provide
indemnification against
o Actual loss; AND
 Indemnitor is liable only if person to be indemnified makes
payment or sustains loss
o Liability
 Indemnitor's liability arises as soon as the liability of the person
to be indemnified has arisen regardless of actual loss
 Surety may demand from the indemnitor even before the
creditor has paid --> action by the surety against principal debtor
and indemnitor to enforce payment under the agreement is not
premature
 
Article 2072. If one, at the request of another, becomes a guarantor for the debt
of a third person who is not present, the guarantor who satisfies the debt may
sue either the person so requesting or the debtor for reimbursement. (n)
 Guarantor who guarantees the debt of an ABSENTEE at the request of
another has a right to claim reimbursement, after paying the debt either
from
o Person who requested him to be a guarantor; OR
o The debtor
 
b. Right to Subrogation - Civil Code, Arts. 2067, 1303, 2050,
1237, 2068, 2080
 
Article 2067. The guarantor who pays is subrogated by virtue thereof to all the
rights which the creditor had against the debtor.
 
If the guarantor has compromised with the creditor, he cannot demand of the
debtor more than what he has really paid. (1839)
 Art. 2067 contemplates subrogation of the guarantor to the shoes of the
creditor as against the debtor
 Subrogation
o Necessary for Art. 2066 to take effect
o Includes right of creditor under debtor's securities (pledge, mortgage,
etc.)
o Arises by operation of law upon PAYMENT by the guarantor hence not
a contractual right but right derived directly from law
 There's no subrogation if payment was made w/o the debtor's knowledge or
against his will [Art. 1237]
 
Art. 1303. Subrogation transfers to the persons subrogated the credit with all
the rights thereto appertaining, either against the debtor or against third person,
be they guarantors or possessors of mortgages, subject to stipulation in a
conventional subrogation. (1212a)
  
Art. 2050. supra.
 
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or
against the will of the latter, cannot compel the creditor to subrogate him in his
rights, such as those arising from a mortgage, guaranty, or penalty. (1159a)
 
Article 2068. If the guarantor should pay without notifying the debtor, the latter
may enforce against him all the defenses which he could have set up against the
creditor at the time the payment was made. (1840)
 If guarantor pays w/o notifying the debtor, the latter may interpose against
the guarantor defenses w/c he could have set up against the creditor at the
time payment was made
 Guarantor can't be allowed, through his own fault or negligence, to prejudice
the rights or interests of the debtor [Art. 2069, 2070, 2074]
 
Article 2080. The guarantors, even though they be solidary, are released from
their obligation whenever by some act of the creditor they cannot be subrogated
to the rights, mortgages, and preference of the latter. (1852)
 GR: G who paid is ENTITLED to be SUBROGATED to all the rights of C [Art.
2067]
XPN: if there can be no SUBROGATION BECAUSE OF THE FAULT OF C
(e.g. C releases or fails to register a mortgage) Gs are released.
o RATIO:
 The C shouldn't worsen the condition of the G
 Prevents collusion between the creditor and the debtor or a 3rd
person
o Act of C MUST BE personal, direct and of a positive character.
 The C has the duty to ACCOUNT FOR HIS LIEN over the P’s property
o Impairment of the security as a primary resource of the debt will
DISCHARGE the surety to the EXTENT of the value of the property or
lien.
 
c. Right to Protection - Civil Code, Art. 2071
 
Article 2071. The guarantor, even before having paid, may proceed against the
principal debtor:
 
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty within
a specified period, and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of the
period for payment;
(5) After the lapse of ten years, when the principal obligation has no fixed
period for its maturity, unless it be of such nature that it cannot be extinguished
except within a period longer than ten years;
(6) If there are reasonable grounds to fear that the principal debtor intends to
abscond;
(7) If the principal debtor is in imminent danger of becoming insolvent.
 
In all these cases, the action of the guarantor is to obtain release from the
guaranty, or to demand a security that shall protect him from any proceedings by
the creditor and from the danger of insolvency of the debtor. (1834a)
 GR: guarantor has no COA against the debtor BEFORE former paid the
obligation [Art. 2066]
EXN: Art. 2071
o PROBLEM: available also to surety? Conflicting jurisprudence.
o Purpose: enable the guarantor to take measures for the protection of
his interest since he may be called upon to pay the debt
 Remedy of guarantor
 Not reimbursement since he has not paid the obligation
1. For the debtor to release him from the guaranty, w/ the consent of the
creditor
 Debtor may offer the creditor another guarantor or another
security; OR
 w/o consent of creditor, debtor may only protect the guarantor
by a counter bond or counter-guaranty
2. Demand a security that will protect him from any proceedings by the
creditor and against danger of insolvency of debtor
 Art. 2071(1) contemplates a situation where guarantor can't claim benefit
of excussion and wants to protect himself against possible insolvency of
the debtor
 
Art. 2066 Art. 2071

Gives a right of action after payment --> Protective remedy

provides for the enforcement of the rights of the before payment
guarantor against the debtor after he paid the --> for protection of
debt guarantor before he paid
but after he becomes
liable

Substantive right Preliminary remedy

 
Recovery by the surety against the indemnitor even before payment
 Indemnity agreement is not executed for the benefit of the creditor but for
the surety
 Indemnity agreement where indemnitor binds himself to indemnify surety
for any damage the latter may have under the surety bond may provide
indemnification against
o Actual loss; AND
 Indemnitor is liable only if person to be indemnified makes
payment or sustains loss
o Liability
 Indemnitor's liability arises as soon as the liability of the person
to be indemnified has arisen regardless of actual loss
 Surety may demand from the indemnitor even before the
creditor has paid --> action by the surety against principal debtor
and indemnitor to enforce payment under the agreement is not
premature
8. Effect of Guaranty Among Co-Guarantors - Civil Code, Arts.
2065, 2078, 2073, 2074, 2075
 
Art. 2065. supra.
 
Article 2078. A release made by the creditor in favor of one of the guarantors, without
the consent of the others, benefits all to the extent of the share of the guarantor to
whom it has been granted. (1850)
 GR: Guarantors ENJOY the BENEFIT of DIVISION
XPN: if any of them should be insolvent, all the other Gs must bear his share [Art.
2073]
 Release made by the C benefits all to the extent of the share of the guarantor who
was released. –
 
Article 2073. When there are two or more guarantors of the same debtor and for the
same debt, the one among them who has paid may demand of each of the others the
share which is proportionally owing from him.
 
If any of the guarantors should be insolvent, his share shall be borne by the others,
including the payer, in the same proportion.
 
The provisions of this article shall not be applicable, unless the payment has been
made by virtue of a judicial demand or unless the principal debtor is insolvent. (1844a)
 Several guarantors are bound to pay only his proportionate share for the same
debt to the same debtor [Art. 1207, 1208, 2065]
 Art. 2073 applies if:
o One guarantor HAS PAID the debt to the creditor; AND
 By virtue of a judicial demand; OR
 Because the principal debtor is insolvent
o Such guarantor seeks reimbursement from ea of his co-guarantors the
proportionate share he's entitled to
 Why should the guarantor pay the debt? Because any delay on his party may
increase the liability for INTEREST, EXPENSES, and other items
 If any of the guarantor is insolvent, his share shall be borne by the others including
the paying guarantor in the same joint proportion [Art. 1217(2)]
 
SITUATION
 G, H, I are Debtor's co-guarantors of a debt of 9k in favor of Creditor
 Scenario 1
o If D becomes insolvent:
 Right of G, H, and I to pay C only the PROPORTIONATE division of
their obligation ceases
 Hence, C may demand payment of the ENTIRE obligation from G, H or
I
o If G pays the whole 9k:
 G can demand from H and I, 3k ea
 If H is insolvent, his share shall be borne by G and I proportionately;
hence G can demand (3k+1.5k) from I
  Scenario 2: if the benefit of division ceases because of reasons other than the
insolvency of the principal [Art. 2059(1,2,4 or 5)], right to reimbursement granted
to G against H and I may only be exercised if G pays in virtue of a JUDICIAL
DEMAND by C
 
Article 2074. In the case of the preceding article, the co-guarantors may set up against
the one who paid, the same defenses which would have pertained to the principal
debtor against the creditor, and which are not purely personal to the debtor. (1845)
ARTICLE 2075. A sub-guarantor, in case of the insolvency of the guarantor for whom
he bound himself, is responsible to the co-guarantors in the same terms as the
guarantor. (1846)
 Defenses of co-guarantors against the paying guarantor:
o all defenses w/c the debtor would have interposed against the creditor;
 Fraud, prescription, remission, illegality
o but not those purely personal to the debtor [Arts. 2068, 2081]
 Minority
Art. 2075. A sub-guarantor, in case of the insolvency of the guarantor for whom he
bound himself, is responsible to the co-guarantors in the same terms as the guarantor.
(1846)
9. Extinguishment - Civil Code, Arts. 2076-2081, 1397
 
Art. 2076. The obligation of the guarantor is extinguished at the same time as that of
the debtor, and for the same causes as all other obligations. (1847)
Obligations of the guarantor are extinguished by:
1. Arts. 1231, 2076
2. Extinguishment of the principal obligation
3. Causes peculiar to the extinguishment of the guaranty
 
Guaranty may be extinguished by:
1. Payment or performance by the debtor [Art. 1231(1)]
2. Dacion en pago, as when the creditor voluntarily accepts immovable or other
property in payment of the debt even if he should afterwards lose the same
through eviction [Art. 2077]
3. Loss or destruction of the DETERMINATE thing due w/o the fault of the debtor
and before debtor incurs in delay [Art. 1262]
4. Prestation becomes legally or physically impossible w/o the fault of the obligor
[Art. 1266]
5. Debtor made a consignation of the thing, and creditor authorizes debtor to
withdraw the same [Art. 1261]
6. Renunciation of the principal debt [Art. 1273]
7. The characters of the creditor and debtor are merged into the same person [Art.
1275] but the principal obligation subsists
8. Compensation of the debts of the debtor and creditor [Arts. 1279 and 1280]
9. GR: novation of the obligation
EXN: if the principal obligation is extinguished as a consequence of novation, the
guaranty subsists insofar as it benefits 3rd persons who didn't give their consent
[Art. 1296]
10. Extension granted to the debtor by the creditor w/o guarantor's consent
11. If by some act of the creditor, guarantor can't be subrogated to the rights,
mortgages and preferences of the creditor [Art. 2080]
12. Annulment
13. Rescission
14. Fulfillment of a resolutory condition
15. Prescription
 DEATH is not a defense a surety can use to extinguish his monetary obligation
under a PERFORMANCE BOND --> obligation is passed on to estate of the
deceased
 
Material alteration of the principal contract
 If there's MATERIAL alteration, surety or guarantor is released from liability since
it is a novation of the principal contract --> principal contract is extinguished and
new one replaces it
 Material if change…
o Imposes new obligation;
o Adds a burden on the guarantor/surety; OR
o Takes away some obligation already imposed
 If change does NOT make the obligation more onerous, guaranty/surety subsists
 
Article 2077. If the creditor voluntarily accepts immovable or other property in
payment of the debt, even if he should afterwards lose the same through eviction, the
guarantor is released. (1849)
 GR: payment is in money
EXN: any SUBSTITUTE paid in lieu of money accepted by the creditor
extinguishes the OBLIGATION and the GUARANTY.
o Also applies to payment of debt through property.
o Even if evicted from prop, EVICTION REVIVES the PRINCIPAL obligation
BUT NOT the guaranty.
 RATIO:
 Accessory contract;
 NEW relationship between D and C is NOT the one guaranteed by the G;
 G not able to take the necessary precautions as he already believed that he's
free from his obligation because of the dation in payment
 
Article 2078. A release made by the creditor in favor of one of the guarantors, without
the consent of the others, benefits all to the extent of the share of the guarantor to
whom it has been granted. (1850)
 GR: Guarantors ENJOY the BENEFIT of DIVISION
XPN: if any of them should be insolvent, all the other Gs must bear his share [Art.
2073]
 Release made by the C benefits all to the extent of the share of the guarantor who
was released. –
 
Article 2079. An extension granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty. The mere failure on the part of the
creditor to demand payment after the debt has become due does not of itself
constitute any extension of time referred to herein. (1851a)
 IF RELEASE by the grant of extension of time to the debtor IS WITHOUT THE
CONSENT OF THE GUARANTOR
o G is DISCHARGED from the undertaking,
o Reason: to avoid prejudice to the guarantor
 Deprives the G of his right to reimbursement, because Ds or
indemnitors may become insolvent
 Deprives the right to pay the C immediately, and to be subrogated to
creditor's remedies against the principal debtor upon the ORIGINAL
maturity date
 Requirements for an extension to discharge the surety (basically a forbearance):
o It must appear that the extension was for a DEFINITE period;
o Extension was pursuant to an ENFORCEABLE agreement between the
principal and creditor;
o It was made w/o the consent of the surety or with a reservation of rights w/
respect to him
o Contract is one w/c prevents the creditor from enforcing the principal
contract w/in the period during w/c he could've enforced it, and prevents
the surety from paying the debt
 If payable in INSTALLMENTS
o GR: extension of time as to one or more WILL NOT AFFECT the liability of the
surety for the others
 o XPN: whole unpaid balance has BECOME AUTOMATICALLY DUE
(acceleration clause) for failure to pay an installment --> act of extension
w/o consent DISCHARGES G.
 Requirement of consent or notification for the EXTENSION may be WAIVED in
advance by the G
 NOTE:
o In reading Art. 2079, the prejudice to G and period of extension are
IMMATERIAL
 E.g suspension of the right to sue for am month, or a day, is as
effectual to release the guarantor or surety, as a year or 2yrs
o The EXTENSION MUST be based on a NEW AGREEMENT between the C and
principal D
 Mere failure/neglect on the part of C to enforce payment DOES NOT
constitute extension of the term
o GR: DILIGENCE on the part of C to enforce claim is GENERALLY not required
(includes inaction, indulgence, passiveness or delay in proceeding against the
principal D) --> surety or guarantor is still liable for the obligation
 REASON: nothing to prevent the C from proceeding against the PD at
anytime.
 No CoA for delay by the creditor
EXN: unless the contract EXPRESSLY requires diligence and promptness on
the part of the creditor
 
Article 2080. The guarantors, even though they be solidary, are released from their
obligation whenever by some act of the creditor they cannot be subrogated to the
rights, mortgages, and preference of the latter. (1852)
 GR: G who paid is ENTITLED to be SUBROGATED to all the rights of C [Art.
2067]
XPN: if there can be no SUBROGATION BECAUSE OF THE FAULT OF C (e.g. C
releases or fails to register a mortgage) Gs are released.
o RATIO:
 The C shouldn't worsen the condition of the G
 Prevents collusion between the creditor and the debtor or a 3rd
person
o Act of C MUST BE personal, direct and of a positive character.
 The C has the duty to ACCOUNT FOR HIS LIEN over the P’s property
o Impairment of the security as a primary resource of the debt will DISCHARGE
the surety to the EXTENT of the value of the property or lien.
 
Art. 2081. The guarantor may set up against the creditor all the defenses which
pertain to the principal debtor and are inherent in the debt; but not those that are
personal to the debtor. (1853)
Defenses available to the guarantor
1. Defenses derived from the principal obligation
o E.g. defect in consent --> inherent in the debt; not purely personal to the
debtor
 Nullity of the principal obligation
 Contract is voidable
o Rules:
  If guarantor knew the defenses against the creditor BUT does not set it
up against him, the debtor may set up all the defenses w/c the debtor
could've set up against the creditor at the time the payment was made
[Art. 2068]
 Guarantor may set up these defenses even against the will of the
debtor
 Guarantor CAN intervene in the action between the creditor and
debtor re existence and validity of the principal obligation --> if he
doesn't, guarantor isn't deprived of his right to set up the defenses
 Voluntary waiver of the debtor of the prescription of the debt doesn't
prevent guarantor from asserting his defenses even prescription
2. Defenses derived from the contract of guarantee
o Benefit of excussion
o Benefit of division
o Those relating to the creation of the guaranty
 Lack of consent
 Mistake
 Nullity of the contract of guaranty
3. Defenses derived from the conduct of the creditor
o Negligence of creditor in exhausting the property pointed by the guarantor
[Art. 2061] or negligence in general
o Extension made by the creditor to the debtor w/o consent of guarantor [Art.
2079]
o Creditor committed acts that prevents the subrogation of the guarantor to the
rights, mortgages and preferences of the creditor [Art. 2080]
 
Defenses not available: those purely personal to the debtor