GUARANTY and SURETYHIP

Guaranty defined

1. Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfil the
obligation of the principal debtor in case the latter should fail to do so.
2. If a person binds himself solidarily with the principal debtor, the provision of section 4, Chapter
3, Title I of this Book shall be observed. (Contract of Suretyship)
 Section 4, Chapter 3, Title I of this book – Confusion or Merger of Rights

Who is surety?

1. A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable.

Surety vs Guaranty

Guaranty
It is the guarantor’s own separate
undertaking, in which the principal does not
join.
It is usually entered into before or after that
of the principal, and is often supported on a
separate consideration from that supporting
the contract of the principal.
He is often discharged by the mere
indulgence of the creditor to the principal,
and is usually not liable unless notified of
the default of the principal
Guarantor is the insurer of the solvency of
the debtor and thus binds himself to pay if
the principal is unable to pay
1. The obligation in guaranty is secondarily;
2. The undertaking is to pay if the principal
debtor cannot pay
3. Guarantor is entitled to the benefit
of excussion.
4. Liability in guaranty depends upon
an independent agreement of the
principal if he fails to do so
5. Guarantor insures the solvency of
the principal debtor
6. Guarantor is subsidiarily liable
Surety
Usually bound with his principal by the
same instrument, executed at the same
time, and on the same consideration.
He is an original promissory and debtor
from the beginning, and is held,
ordinarily, to know every default of his
principal.
He will not be discharged, either by the
mere indulgence of the creditor to the
principal, no matter how much he may
be injured thereby.
Surety is the insurer of the debt, and he
obligates to pay if the principal does not
pay.
Primary
The undertaking is to pay if the principal
debtor does not pay
Surety is not so entitled
Surety insures the debt.
Surety binds himself solidarily with the
principal debtor.
NATURE AND EXTENT OF GUARANTY

1. 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 provision of section 4, Chapter
3, Title I of this Book shall be observed. (Contract of Suretyship)

 Section 4, Chapter 3, Title I of this book – Confusion or Merger of Rights

 Art. 1236. The creditor is not bound to accept payment or performance by a third person
who has no interest in the fulfilment 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.
 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 the mortgage, guaranty, or penalty.

2. Art. 2048. Gratuitous, unless there is a stipulation to the contrary.

3. 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.
4. 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.
 Art. 1236. The creditor is not bound to accept payment of performance by a third person
how has no interest in the fulfilment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays 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.
 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 his rights, such as those arising
from a mortgage, guaranty, or penalty.
5. Art. 2051. A guaranty may be conventional, legal or judicial, gratuitous, or by onerous title.
 It may also be constituted, not only in favour 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.
6. Art. 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.
7. Art. 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.
8. Art. 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.
9. Art. 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 hall 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.
10. 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.
11. Art. 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.

EFFECTS OF GUARANTY

Section 1. – Effects of Guaranty between

1. Art. 2058. The guarantor cannot be compelled to pay the creditor unless: (excussion)
a. the latter has exhausted all the property of the debtor, and
b. has resorted to all the legal remedies against the debtor.

2. When will the excussion shall not take place?

 Art. 2059. This excussion shall not take place if:
a. the guarantor has expressly renounced it;
b. He has bound himself solidarily with the debtor;
c. In case of insolvency of the debtor;
d. When debtor has absconded, or cannot be sued within the Philippines unless he has left a
manager or representative;
e. It may be presumed that an execution on the property of the principal debtor would not
result in the satisfaction.
 Excussion is a diligent prosecution of a remedy against a debtor. The exhausting of a remedy
against a principal debtor before resorting to his sureties.

3. How must excussion be set up by the guarantor?

 Art. 2060. In order that the guarantor may make use of the benefit of excussion, 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.
 Guarantor of a guarantor enjoys benefits of execution. Art. 2064.
 Art. 2064. The guarantor of a guarantor shall enjoy the benefit of excussion, both with
respect to the guarantor and to the principal debtor.

4. Obligations of the creditor in relation to the guarantor.

a. Art. 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.
b. Art. 2062. In every action by the creditor, which must be against the principal debtor along,
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.
c. Art. 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.
d. Art. 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.

Section 2: Effects of guaranty between Debtor and Guarantor.

1. Art. 2066. The guarantor who pays for a debtor must be indemnified by the latter.
The indemnity comprises:
a. Total amount of the debt;
b. 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. Expenses incurred by the guarantor after having notified the debtor that payment had been
demanded of him;
d. Damages, if there are due.
2. Art. 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.
3. Art. 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.
 4. Art. 2069. If the debt was for a period and the guarantor paid it before it became due, he cannot
demand the expiration of the period unless the payment has been ratified by the debtor.
5. Art. 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.

6. Instances when the guarantor may sue the debtor.

 Art. 2071. The guarantor, even before having paid, may proceed against the principal
debtor:
a. When he is sued for the payment;
b. In case of insolvency of the principal debtor;
c. When the debtor has bound himself to relieve him from the guaranty within a specified
period, and this period has expired;
d. When the debt has become demandable, by reason of the expiration of the period for
payment;
e. 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 can not be extinguished except within period
longer than ten years;
f. If there are reasonable gourds to fear that the principal debtor intends to abscond;
g. 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.
 Art. 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.

Section 3: Effects of Guaranty as Between Co-guarantors.

1. Art. 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 provision of this article shall not be applicable, unless the payment has been made in virtue
of a judicial demand or unless the principal debtor is insolvent.
2. Art. 2074. In 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.

Distinction between guaranty and suretyship as to liability.

Guaranty Surety
1. Guarantor insures the solvency of the Insures the debt itself
 debtor
2. Gives rise to subsidiary obligation. Only
after the creditor has proceeded against
the properties of the principal debtor
that the guarantor can be held liable to
answer for any unpaid amount.
3.
Principally liable for the payment of the debt.
Benefit of excussion is not available to the surety.
Surety obligates himself to pay the debt if the
principal debtor will not pay, regardless of
whether or not the latter is financially capable or
not.

EXTINGUISHMENT OF GUARANTY

1. 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.
2. Art. 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 release.
3. Art. 2078. A release made by the creditor in favour 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.
4. Art. 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 of extension of time
referred to herein.
5. Art. 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.