CONTRACT DEFINITION
COMMODATUM It is a contract where one of the parties 1.Real contract – delivery of the thing loaned
(bailor) delivers to another (bailee)
something not consumable so that the latter
may use the same for a certain time and
thereafter returns it.
MUTUUM It is a contract whereby one of the parties
called the “lender” delivers to another called
the “borrower”, money or other consumable
thing subject to the condition that the same
amount of the same kind and quantity shall
be paid.
GUARANTY It is a contract where 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.
SURETY It is a contract where a person binds himself
solidarily with principal debtor.
Directly,Primarily and equally bound with the
Principal as original promisor although he
possesses no direct or personal interest over
the latters obligation nor does he receive
any benefit therefrom.
Considered as being the same party as the
debtor in relation to whatever is adjudged
touching the obligations and their liabilities
are interwoven and dependent as to be
inseparable.
 Failure to voluntary give the information to the surety of the default of the principal
cannot have the effect of discharging the surety. As soon as the principal is in default
the surety is likewise in default
CHARACTERISTICS
is necessary for the perfection of the
contract
2. Unilateral contract – once subject matter
is delivered, creates obligations on the part
of only one of the parties (the borrower)
3. Essentially gratuitous
4. Purpose is to transfer the temporary use
of the thing loaned
5. Principal contract
6. Purely personal contract
(1) It is accessory because it is dependent
for its existence upon the principal obligation
guaranteed by it;
(2) It is subsidiary and conditional because it
takes effect only when the principal debtor
fails in his obligation subject to limitation
(see Arts. 2053, 2058, 2063, 2065.);
(3) It is unilateral because —
(a) it gives rise only to a duty on the part of
the guarantor in relation to the creditor and
not vice versa although after its fulfillment,
the principal debtor becomes liable to
indemnify the guarantor(Art. 2066.) but this
is merely an incident of the contract; and
also because
(b) it may be entered into even without the
intervention of the principal debtor (Art.
2050.); and
(4) It is a contract which requires that the
guarantor must be a person distinct from the
debtor because a person cannot be the
personal guarantor of himself.
GRATUITOUS IN NATURE
1.Liability is contractual and accessory but
direct
2.Liability is limited by the terms of the
contract
3.Liability arises only if principal debtor is
held liable
4.Surety is not entitled to exhaustion
5.Undertaking is to creditor not to the debtor
6.Surety is not entitled to notice of the
principals default
7.Prior demand by the creditor upon
principal not required
8.Surety is not exonerated by neglect of the
creditor to sue principal.
 In case of default the proper remedy is to pay the debt and pursue the principal for
reimbursement
 The terms used are not controlling, it is the contents , matters on what is the nature of
the contract
 No express prohibition against a married woman acting as guarantor to her husband,
on other transactions a woman only binds as guaranty to her equal shares in the
conjugal property.
 Any person who pays without the knowledge of the principal debtor can recover in so
far as the payment has been beneficial to the debtor does not have the right of
subrogation against the debtor for the recovery
 In contracts of guaranty when the principal is void so as the gauranty, but a voidable
contract can still be the subject of guaranty
 CONTINUING GUARANTY CANNOT BE CONSIDERED AS ONE OF THE ADHESION WHERE
THE SURETY WAS FREE TO REJECT IT ENTIRELY
 FUTURE DEBTS- refers to the debts existing at the time of the constitution of the
guaranty but the amount thereof is unknown and not to debts not yet incurred and
existing at that time.
 Guaranty secures all kinds of obligation be they pure or subject to conditions
 Guarantor cannot guarantee debts more than the principal debtor even if he does his
liability shall be reduced to the limits of the debtor
 Creditors may recover to the surety inclusive of the damages and interest at the legal
rate even without the stipulation and event surety would be liable more than stipulated.
INCREASE OF LIABILITY NOT BECAUSE OF THE CONTRACT BUT BECAUSE OF DEFAULT
THAT LEADS TO INTEREST
 Guaranty liable to cost incurred after he has been judicially required to pay
 CONTRACT OF GUARANTY MUST ALWAYS BE IN WRITING AND NEED NOT TO BE IN A
PUBLIC INSTRUMENT TO BE BINDING
 All doubts should be resolved in favor of the guarantor
 A surety who signs as such and limited its term of being a surety is valid as determine
by the clause of the contract
 ACCOMODATION SURETY-refers to parties who acts without the motive of pecuniary
gain and hence should be protected against unjust pecuniary impoverishment
 Subsequent loss of integrity would not operate to exonerate the guarantor to the
eventual liability he has contracted and the contract of guaranty continues.
 BENEFIT OF EXCUSSION- requires that it may not be a sufficient reason that
the debtor appears to be insolvent. The law requires that the creditor must
first exhaust all the property of the principal debtor and to resort to all legal
remedies against the debtor. IN ORDER TO USE THE BENEFIT GUARANTOR
MUST SET IT UP THE LATTERS DEMAND OF PAYMENT FROM HIM AND POINT
OUT TO THE CREDITOR AVAILABLE PROPERTY SUFFICIENT TO COVER THE
LOSS, IN CASE OF FAILURE TO POINT OUT THE CREDITOR SHALL SUFFER THE
LOSS BY VIRTUE OT ITS NEGLIGENCE
 It is not necessary that the debtor be declared judicially insolvent or bankrupt
 The failure of the guarantor to point out to the creditor, debtors property sufficient to
cover the debts forecloses his right to set-up the defense of excussion.
 Sub guarantor also enjoys the benefit of excussion
 BENEFIT OF DIVISION—is a stipulation in a contract of guaranty wherein there
are several guarantors of only one debtor and for the same debt, the
obligation to answer the same is divided among all. Additional requirement
before the benefit takes place is that when the payment is by virtue of
judicial demand and in cases the principal debtor is insolvent, all of this
requirements must be available
 DIFFERENCE AMONG BENEFIT OF EXCUSSION AND DIVISION-NOT REQUIRED
TO POINT OUT THE PROPERTY OF HIS CO-GUARANTOR.
 Rights of subrogation by the guarantor arises at the time he pays the debt of the debtor
to the creditor
 IF GUARANTOR HAS COMPROMISED WITH THE CREDITOR, HE CANNOT DEMAND TO THE
DEBTOR MORE THAN HE ACTUALLY PAID
 The guarantor cannot be allowed through his own fault or negligence, to prejudice or
impair the rights or interests
 A GUARANTOR WHO PAYS THE CREDITOR WITHOUT THE CONSENT OF THE
DEBTOR, CANNOT BE REIMBURSED BY THE DEBTOR, THE CLAIM OF THE
GUARANTOR MUST BE DIRECTED TO THE CREDITOR, MUST SUFFER THE LOSS
FOR BEING AT FAULT
EXCEPTIONS
CREDITOR BECOMES INSOLVENT
PREVENTED BY FORTUITOUS EVENT TO ADVISE THE DEBTOR
OF THE PAYMENT
GUARANTY IS GRATUITOUS

 The guarantor cannot demand reimbursement for indemnity because he has not paid
the obligation. His remedy is to obtain release from the guaranty or to demand a
security that shall protect him from any proceedings by the creditor RELIEVE OF THE
BONDS OF THE GUARANTY.
 GUARANTOR WHO PAYS THE ENTIRE DEBT IS NOT ALL THE TIME CAN RECOVER
THE AMOUNT HE PAID, BECAUSE
NO JUDICIAL DEMAND NO BENEFIT OF DIVISION PRINCIPAL
DEBTOR IS SOLVENT
 INSOLVENCY OF THE DEBTOR ACTIVATES THE BENEFIT OF DIVISION, IF OTHER
REASONS MENTIONED THEN NO RIGHT OF REIMBURSEMENT UNLESS THERE IS
A JUDICIAL DEMAND TO PAY.
 Sub guarantor is bound as the same as guarantor whom he guaranteed, since he
represented the same
 DEATH OF THE PRINCIPAL DEBTOR IS NOT A DEFENSE TO WIPE OUT THE MONETARY
OBLIGATION OF SURETY UNDER PERFORMANCE BOND, IT IS MERELY PASSED ON THE
DECEDENTS ESTATE
 Guarantor is not released from the guaranty if the novation does not have the effect of
making the obligations more onerous.
 There is no extinguishment of guaranty if the creditor only demands the original
interest and not the increased rate of interest.
 Any substitute paid lieu of money which is accepted by the creditor extinguishes the
obligation even it was lost afterwards
 OBLIGATION PAYABLE IN INSTALLMENTS- an extension of time will not affect the liability
of the surety for the others, but if the whole unpaid balance has become due and the
creditor granted extension to it, then the guarantor is released
 The principal debtor cannot raise against the guarantor defenses which only the
guarantor may invoke against the creditor.