REPORT

ON
GUARANTY

SUBMITTED BY:
JACOBO, JENNEFE
LUDEA, JOREY
REVERENTE, GODFREY A.
 GUARANTY

A. GENERAL CONCEPTS:

I. What is Guaranty?

Guaranty a guarantor binds himself to the creditor to fulfill the obligation of the principal
debtor in case the later should fail to do so.
includes pledge and mortgage because the purpose of guaranty may be accomplished
not only by securing the fulfillment of an obligation contracted by the principal
debtor through the personal guaranty of a third person but also by furnishing to the
creditor for his security, property with authority to collect the debt from the proceeds
of the same in case of default.

II. Characteristics of Guaranty

1. Accessory dependent for its existence upon the Principal guaranteed by it.
2. Subsidiary and Conditional it takes effect only when the principal debtor fails in his
obligation subject to limitation.
3. Unilateral gives rise only to a duty on the part of the guarantor on relation to the creditor &
not vice versa although after its fulfillment, the principal debtor becomes liable to indemnify the
guarantor but this is merely an incident of the contract.
it may be entered into even without the intervention of the principal debtor.
4. It is a contract which requires that the guarantor must be a person distinct from the debtor
because a person cannot be both the primary debtor and the guarantor of his own debt.

*In a REAL Guaranty, like pledge and mortgage, a person mar guaranteee his own obligation
with his personal or real properties.

Classifications of Guaranty:
A. Broad Sense:
1. Personal - the guaranty is the credit given by the person who guarantees the fulfillment
of the principal obligation.
2. Real the guaranty is property, movable or immovable

B. Origin:
1. Conventional constituted by agreement of the parties.
2. Legal imposed by virtue of a provision of law.
3. Judicial required by a court to guarantee the eventual right of one of the parties in a case.

C. Consideration:
1. Gratuitous the guarantor does not receive an price or remuneration for acting as such.
2. Onerous one where the guarantor receives valuable consideration for his guaranty.

D. Person Guaranteed:
1. Single constituted solely to guarantee or secure the performance by the principal debtor.
2. Double or Sub-guaranty constituted to secure the fulfillment by the guarantor of a prior
guaranty.
E. Scope and Extent:
1. Definite the guaranty is limited to the principal obligation only or to a specific person thereof.
2. Indefinite or Simple the guaranty included all the accessory obligations of the principal.
Guaranty is gratuitous EXCEPT when there is a stipulation to the contrary.
Cause of the contract of Guaranty:
1. Presence of cause which supports principal obligations cause of the contract is the same
cause which supports the principal obligation as to the principal debtor. The consideration
which supports the obligation as to the principal debtor is a sufficient consideration to support
the obligation of a guarantor or surety.
2. Absence of direct consideraton or benefit to guarantor

III. Parties to a Guaranty:

1. Creditor
2. Principal Debtor
3. Guarantor

IV. Qualifications of a Guarantor (Article 2056)

1. He possesses integrity.
2. Has capacity to bind himself.
3. Has sufficient property to answer for the obligation which he guarantees.

*A married woman as guarantor binds only her personal property except when:
a. With her husband's consent, bind the community or cojugal partnership property.
b. Without husband's consent, in cases provided by law, such as when the guaranty has
redounded to the benefit of the family.

V. Additional Information

1. If the Guarantor is convicted of a crime involving dishonesty or became insolvent, the creditor
may demand another guarantor who has all the required qualifications except when the creditor
required and stipulated that a specified person should be the guarantor. (Art. 2057)
2. Guaranty is a Subsidiary and accessory contract, the guarantor cannot bind himself for more
than the principal debtor and even if he does, his liability shall be reduced to the limits of that of
the debtor. But he may bind himself for less than that of the principal.
3. Guaranty requires the espression of consent on the part of the guarantor to be bound. It cannot
be presumed because of the existence of a contract or principal obligation.
4. A guaranty is a contract whih a person is bound to another for the fulfilment of a promise or
engagement of third party while Warranty is an undertaking that the title, quality or quantity of
the subject matter of a contract is what has been represented to be, and relates to some
agreement made ordinarily by the party who makes the warranty.
5. A Sub-Guaranty happens when another guarantor is bound to answer for the first guarantor. It
should not be confused with several guarantors being bound to guarantee the same obligation.
6. A Guaranty is Continuing when by the terms thereof it is evident that the object is to give a
standing credit to the principal debtor to be used from time to time either indefinitely or until a
certain period, especially if the right to recall the guaranty is expressly reserved.
 B. Benefit of Excussion:

The Guarantor cannot be compelled to pay the creditor unless the later has exhausted all the
property of the debtor, and has resorted to all the legal remedies agaist the debtor.

I. Excussion shall not take place when:

1. the guarantor has expressly renounced it;

2. if he has bound himself solidarily with the debtor;
3. in case of insolvency of the debltor;
4. When he has absconded, or cannot be sued within the philippines;
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.

C. Right to Protection

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 of 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.

D. Right to Indemnification

The guarantor who pays for a debtor must be indemnified by the latter.
The Indemnity comprises:
a. The total amount of the debt;
b. 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;
c. The expenses incurred by the guarantor after having notified the debtor that payment
had been demanded of him;
d. Damages, if they are due;

E. Right to Subrogation

Subrogation tranfers to the person subrogated, the credit with all the rights thereto
appertaining either against the debtor or against third persons, be they guarantors or possessors of
mortgages subject to stipulation in conventional subrogation.

a. The guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had
against the debtor;
b. 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.

F. Rights of Co-Guarantors

I. 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.

II. A release made by the creditor in favor of one of the guarantors, without the consent o fthe
others, benefits all to the extent of the share of the guarantor to whom it has been granted.

III. 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.

IV. A sub-guarantor, in case the insolvency of the guarantor for whom he bound himself , is
responsible to the co-guarantors in the same term as the guarantor.

V. Benefit of Several Guarantors:

1. In whose favor applicable:
a. Several guarantors
b. By only ONE debtor
c. For the SAME debt.
Cannot be availed if:
two or more debtors of one debt, even if they be bound solidarily, each with different
guarantors;
two or more guarantors of the same debtor but not only for the same debt;
if any circumstances enumerated in Art. 2059 should take place as would the benefit of
exhaustion of the debtor's property.

2. Extent of liability of Several Guarantors joint Obligation: the Obligation to answer for the
debt is divided among all of them. The guarantors are not liable to the creditor beyond the
shares which they are respectively bound to pay.

G. Exinguishment

I. The Obligation of the guarantor is extinguished as the same time as that of the debtor, and
for the same causes as all other obligations.

II. Instances when Guaranty may be Extinguished:

a. The creditor voluntarily accepts immovable or other property in payment of the debt, eve if
he should be evicted afterwards.
b. An extension granted to the debtor by the creditor without the consent of the guarantor.
 c. If the guarantors whenever by some act of the creditor they cannot be subrogated to the
rights, mortgages and preferences of the latter.