Concept of Security Transactions  Governing Law
Classification of guaranty for commercial and civil
 Classification of security transactions
1. Security in the broad sense
a. Personal – guaranty in the strict sense; credit is given
by person who guarantees the fulfillment of the principal
obligation
b. Real – guaranty is property, movable (chattel
mortgage, Art. 2140 or pledge, Art. 2093) or immovable
(real mortgage, Art. 2124 or antichresis Art. 2132)
property
2. As to origin
a. Conventional – by agreement of the parties (Art.
2051, par. 1)
b. Legal – by provision of law
c. Judicial – one required by a court to guarantee the
eventual right of one of the parties in a case
3. As to consideration
a. Gratuitous – no price or remuneration for acting as
such (Art. 2048)
b. Onerous – guarantor receives valuable consideration
for his guaranty
c. Single – solely to guarantee or secure performance by
the debtor of the principal obligation
d. Double or sub-guaranty – to secure the fulfillment by
the guarantor of a prior guaranty
e. Definite – limited to principal obligation only or to a
specific portion thereof
f. Indefinite or simple – includes not only the principal
obligation but also all its accessories including judicial
costs.
I. Nature and Extent of Guaranty (Art. 2047-
2057)
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.
 Definition of guaranty
1. Contract between guarantor and creditor
2. In the broad sense includes pledge and mortgage
because the purpose of guaranty maybe accomplished by
securing the fulfillment of an obligation through
personal guaranty of a third person but also by
furnishing to the creditor for his security, property with
authority to collect the debt (Manresa)
abolished; now governed primarily by Title XV, Book
IV
 Characteristics of the contract
1. Accessory – dependent on a principal obligation
2. Subsidiary and conditional – takes effect only when
the debtor fails in his obligation (Art. 2053, 2058, 2063,
2065)
3. Unilateral
a. Duty only on the part of the guarantor in
relation to creditor
b. May be entered into without intervention
of the debtor (Art. 2050)
4. Requires that guarantor must be a person distinct
from the debtor – consistent with the purpose which is
for the guarantor to proceed against the third party if
debtor defaults (Velasquez v. Solidbank Corp.)
 Law applicable to contract of suretyship
1. A relation which exists where one person has
undertaken an obligation and another person is also
under a direct and primary obligation of or other duty to
a third person who is entitled to but one performance
2. Contractual relation resulting from an agreement
whereby one person engages to be answerable for the
debt, default or miscarriage of another
a. Art. 2047 points to Art. 1207 to 1222 on
joint and solidary obligations
b. Provisions of the Civil Code on guaranty,
other than the benefit of excussion, are
applicable and available to the surety
(Autocorp. Group v. Intra Strata Assurance
Corp.).
 Common law guaranty and suretyship
Civil law surety - common law guaranty Civil law Co-
debtors in solidum - common law suretyship
 Where party binds himself solidarily with
principal debtor
It is possible to bind himself solidarily without
affecting the nature of the contract, in which case action
can be brought outright against the guarantor.
But it has been held that where a party signs a
promissory note as a co-maker and binds herself
solidarily, the undertaking is deemed to be that of a
surety as an insurer of the debt, not a guarantor who
warrants the insolvency of the debtor (Palmares v. CA).
 Nature of surety’s undertaking
1. Liability is contractual and accessory but direct –
direct, immediate, primary, absolute regardless whether
or not the principal debtor is financially capable to fulfill Guaranty Suretyship
his obligations. Surety is considered as being the same Independent agreement to Regular party to the
party as the debtor and their liabilities are interwoven as pay the obligation if undertaking
to be inseparable (usually bound by same agreement, primary debtor fails to do
same instrument). so
Collateral undertaking Original promissor
2. Liability is limited by the terms of the contract –
contractual in nature and ordinarily restricted to the
Secondarily or subsidiarily Primarily liable
obligation expressly assumed therein. Surety not
liable
presumed and cannot be extended by implication beyond
the terms of the contract.
Not bound to take notice Held to know every default
3. Liability arises only if principal debtor is held liable of the non-performance of of his principal
a. In the absence of collusion, surety is bound his principal
by a judgment against the principal even though he
was not a party to the proceedings. Discharged by the mere Not discharged by either
b. Principal debtor and surety may be sued indulgence of the mere indulgence or neglect
separately or together. principal; not liable unless and want of notice
c. Unless required by surety contract, demand notified of default
or notice of default is not required to fix the
surety’s liability. Undertakes to pay if the Undertakes to pay if the
d. Accommodation party liable on the principal cannot or is principal does not pay
instrument to a holder for value although he unable to pay Insurer of debt itself
has the right to reimbursement, the relation Insurer of the solvency of
between them, is in effect, that of principal the debtor
and surety (People v. Maniego).
e. A surety bond is void where there is no Guaranty Indorsement
principal debtor, undertaking requires that Security Transfer
obligation be enforceable against someone Liability more extensive, If not promptly presented
else besides the surety (Manila Railroad Co. discharged only up to the and no due notice within
v. Alvendia) extent of the loss suffered reasonable time,
4. Surety not entitled to exhaustion – surely assumes in consequence completely discharged
solidary liability Warrants solvency of Does not warrant solvency
debtor
5. Undertaking is to creditor, not to debtor – unless Cannot be sued as Can be sued as promissor
otherwise expressly provided, surety makes no covenant promissor
with the principal debtor. Promise is not implied by law.
Guaranty Warranty
6. Surety is not entitled to notice of principal’s default Contract by which a Undertaking that the title,
– Commencement of suit is sufficient demand; surety is person is bound to another quality, or quantity of the
bound to take notice of the principal’s default and to for the fulfillment of a subject matter of a contract
perform the obligation. promise or engagement of is what it has been
a third party presented to be
7. Prior demand by the creditor upon principal not
required – Right to proceed against surety exists Art. 2048. A guaranty is gratuitous, unless there is a
independently of his right to proceed against the stipulation to the contrary.
principal where both are equally bound (Art. 1216).
Proper remedy is to pay and then ask for reimbursement. Guaranty generally gratuitous – Onerous only when
there is a stipulation to the contrary (Art. 1933, 1956,
8. Surety is not exonerated by neglect of creditor to sue 1965).
principal – There is nothing to prevent the creditor from
proceeding against the principal at any time. He may pay  Cause of contract of guaranty
and be subrogated in all his rights. 1. Presence of cause which supports principal
obligation – same cause, sufficient that there is a
consideration for the principal debtor (Pyle v. Johnson)
2. Absence of direct obligation or benefit to guarantor
– valid; consideration need not pass directly to surety or
guarantor; sufficient to move principal.
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.
Married woman as guarantor – ordinarily binds only
her personal property (Art. 145, FC); binds conjugal
partnership:
1. With husband’s consent
2. Without husband’s consent in cases
provided by law
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.
Guaranty undertaken without knowledge of debtor –
unilateral for the benefit of the creditor, not the principal
debtor.
1. If payment without knowledge of debtor,
a. Recovery to the extent beneficial to debtor
(Art. 1236)
b. Guarantor cannot compel creditor to
subrogate him in his rights (mortgage,
guaranty or penalty) (Art. 1237).
2. If payment is made with knowledge and consent of
the debtor, he is subrogated by virtue of the payment to
all rights of the creditor against the debtor (Art. 2067)
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.
 Guaranty by reason of origin
1. Judicial – constituted by decree of court
2. Legal – by virtue of a provision of law
3. Conventional – by virtue of the will of the parties
Double or sub-guaranty – constituted to guarantee the
obligation of a guarantor
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.
 Necessity of valid principal obligation
Accessory, requires a principal obligation. If
principal obligation is void, guaranty is void.
 Guaranty of voidable, unenforceable and natural
obligations
1. Voidable – inasmuch as contract is binding unless
annulled (Art. 1390)
2. Unenforceable – because it is not void (Art. 1403)
3. Natural – when guaranteed, implied recognition of
liability transforming the obligation to civil (Art. 1423)
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.
 Guaranty of future debts
Continuing guaranty or suretyship - contemplates a
future course of dealings, covering a series of
transactions generally for an indefinite time or until
revoked. Subsidiary so no claim until debt liquidated.
1. Secure payment of loan at maturity – loan
maturity and all other obligations which may
become due or be owing
2. Secure payment of any debt subsequently
incurred – prospective in operation. Contract
continuing when object is to give a standing
credit (Dino v. CA)
3. Secure existing unliquidated claims – Future
debts may also refer to debts existing at the time of
the constitution of the guaranty of the amount is not
known.
No theoretical or doctrinal difficulty in
saying that surety itself is valid and binding
even before the principal obligation to be
secured is thereby born (Atok Finance Corp.
v. CA)
 Guaranty of conditional obligations
Suspensive condition – guarantor liable after the
fulfillment of condition
Resolutory condition – fulfillment extinguishes
principal obligation and the guaranty
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.
 Guarantor’s liability cannot exceed principal
obligation
1. Subsidiary and accessory
2. Surety may pay as part of damages, interest at the
legal rate, judicial costs (Art. 2055) and attorney’s fees
(Art. 2088) even without stipulation and even if he
becomes liable for an amount higher than the total in the
bond.
3. Surety may be made to pay penalty
 Principal’s liability may exceed guarantor’s
obligation
Amount specified in the bond does not limit the
extent of damages that may be recovered from principal
(Visayan Distributors v. Flores)
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 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.
Guaranty not presumed: requires the expression of
consent on the part of the guarantor to be bound and
cannot be presumed because of the existence of a
contract or principal obligation.
Reason for rule – assurance that the guarantor intended
to bind himself and he proceeded with consciousness
Guaranty covered by the Statute of Frauds – must be
reduced to writing, being ―a special promise to answer
for the debt, default or miscarriage of another.‖ (Art.
1403[2]) But need not be in a public document to be
valid (Art. 1358).
Guaranty strictly construed – against the creditor and in
favor of the debtor. Any doubt must be resolved in favor
of the guarantor (PNB v. CA)
1. Liability for obligation stipulated – not for
prior debts unless intent to be liable shown
2. Guaranty to render accounting – does not
guarantee that money due will be paid
3. Guaranty with a term subsequently
cancelled – not liable for obligations
subsequently entered into
4. Liability of surety limited to a fixed period –
cannot be bound for a longer time unless
renewed. Renewal valid (Art. 1306)
5. Liability of surety to expire on maturity of
principal obligation – unfair, nullifies the
purpose of contract. Liability attaches to surety
as soon as the principal defaults
6. Liability of surety to pay in case of forfeiture
of imported goods –guarantees payment of
appraised value and not legality of import
7. Bond requires lessor to report to surety any
violation of lessee – does not cover defaults
prior. Only prospective unless intention to the
contrary clearly shown.
8. Bond issued to secure defendant from
possible damages as a result of injunction –
cannot be issued to satisfy any other claim of the
parties
9. Bond issued in favor of a plaintiff who filed
a case for collection – does not guarantee that
the plaintiff’s cause of action is meritorious
10. Contract requires that notice of principal’s
default be given to surety – where contract
stipulates, failure to comply will prevent
recovery from surety
 Strictissimi juris applicable only to
accommodation surety
Without motive of pecuniary gain and should be
protected against unjust pecuniary impoverishment.
Applicable only where the contract has been ascertained
a surety or guaranty.
 Rule of strict construction not applicable to
compensated sureties
1. Business associations organized for the purpose of
assuming classified risks in large numbers for profit and
on an impersonal basis
2. Secured from all possible loss by adequate
counterbonds or indemnity agreements
3. They are in fact insurers
 Extent of guarantor’s liability
1. Where guaranty definite – limited in whole or in part
to the principal debt, to the exclusion of accessories
2. Where guaranty indefinite – comprises the principal
obligation, all its accessories, (including the judicial
costs after being judicially required to pay)
a. Guarantor could have limited his liability and
if he did not, it is presumed that he wanted to be
bound to the extent established.

 Acceptance of guaranty by creditor and notice
thereof to guarantor
Creditor not required because he binds himself
to nothing.
1. When necessary – conditional guaranty does not
become fixed until it is accepted by creditor
a. Need not be express or in writing, may be acts
amounting to acceptance
b. Guarantor entitled to notice to know the
nature and extent of his liability
2. When not necessary – direct or unconditional promise
of guaranty, all that is necessary is for the promisee
(guarantor) to act upon it
Art. 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.
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.
 Qualifications of guarantor
1. Integrity
2. Capacity to bind himself
3. Sufficient property to answer for the obligation
which he guarantees
Jurisdiction follows principle that the accessory
follows the principal.
 Effect of subsequent loss of required
qualifications
Qualifications need only be present at the time
of the perfection of the contract. Subsequently, the
creditor can:
1. Demand another guarantor with proper qualification
a. Dishonesty – conviction required
b. Insolvency – judicial declaration not required
2. Waive and hold the guarantor to his bargain
 Selection of guarantor
1. Specified person stipulated as guarantor
substitution may not be demanded
2. Guarantor selected by the principal debtor – debtor
answers for the integrity, capacity and solvency until
extinguishment of debt
3. Guarantor personally designated by the creditor –
responsibility of the selection borne by the creditor
II. Effects of Guaranty
1. Between Guarantor and Creditor (Art. 2058-2065)
Art. 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.
 Right of guarantor to benefit of excussion or
exhaustion
1. Guarantor only secondarily liable – accessory and
subsidiary; distinguished guaranty from suretyship
2. All legal remedies against debtor to be first
exhausted – benefit of excussion; not sufficient that
debtor appears insolvent
 Right of creditor to secure judgment against
guarantor prior to exhaustion
Creditor may secure a judgment against the
guarantor, who shall be entitled to a deferment of
execution until properties of the creditor shall have been
exhausted (Tupaz v. CA). There is nothing procedurally
objectionable in impleading guarantor as a co-defendant.
Art. 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.
 Exceptions to benefit of excussion
1. Art. 2059
2. Art. 2060
3. Judicial bondsman or sub-surety
4. Pledge or mortgage has been given as a special
security
5. Fails to interpose it as a defense before judgment
is rendered against him
 Exceptions provided in Art. 2059
– 1. Right waived – personal right recognized, waiver
must be made in express terms
2. Liability assumed that of surety – becomes surety
with primary liability as a solidary co-debtor
3. Insolvency of debtor proven by unsatisfied writ of
execution – guarantor guarantees solvency; insolvency
must be actual and may be proven by the return of writ
unsatisfied
4. Debtor absconds or cannot be locally sued – creditor
not required to go after the debtor who is hiding and to
incur the delays and expenses incident thereto
5. Resort to all legal remedies, a useless formality
Art. 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.
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.
 Duty of creditor to make prior demand for
payment from guarantor
1. When demand made – can only be made after
judgment on the debt
2. Actual demand to be made – not mere joining of
guarantor as co-defendant
 Duty of guarantor to set up benefit of excussion
Set it up, point it out – failure to do so forecloses
his right to set up the defense of excussion
1. Property located abroad – would not conform with
the purpose of guaranty
2. Property not easily available – guarantor should
facilitate its realization and the payment of the debt
 Duty of creditor to resort to all legal remedies
Neglect of not exhausting, guarantor bears the
loss to the extent of value of said property.
 Joinder of guarantor and principal as parties
defendant
1. General Rule – not a joint contractor, cannot be sued
2. Exception – rule not required where it would merely
delay ultimate accounting of the guarantor
Art. 2062. In every action by the creditor, which must
be against the principal debtor alone, except in the
cases mentioned in Art. 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 Art. 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.
 Procedure when creditor sues
1. Sent against principal – creditor must sue principal
alone; guarantor only after judgment has been obtained
against principal debtor
2. Notice to guarantor of action – must be notified so
that he may appear
a. Guarantor appears – given benefit of
excussion
b. Guarantor does not appear – cannot set up
excussion
3. Hearing before execution can be issued against
guarantor – entitled to be heard before an execution can
be issued against him where he is not a party
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.
 Effects of compromise
Compromise – contract whereby the parties, by
making reciprocal concessions, avoid litigation or put an
end to one already commenced (Art. 2028).
1. Where prejudicial – binds parties only (Art.
1311); cannot prejudice the guarantor or debtor
when not party to compromise
2. Where in the nature of a stipulation in favor
of a third person – if in the nature of stipulation
pour autrui, guarantor and debtor though not
parties can benefit from a compromise
Art. 2064. The guarantor of a guarantor shall enjoy the
benefit of excussion, both with respect to the guarantor
and to the principal debtor.
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.
 Benefit of division among several guarantors
1. In whose favor applicable – several guarantors for
one debtor for one debt, not applicable to guarantors of
several debtors of one debt
2. Extent of liability of several guarantors – joint (Art.
1208), not liable to creditors beyond their respective
shares
3. Exceptions – conditions under Art. 2059 and when
solidary expressly stipulated (Art. 2047[2])
 Benefit of excussion among several guarantors
For exhaustion, co-guarantors need not point out
available property of co-guarantors. But when creditor
claims an insolvent co-guarantor’s share, other co-
guarantors can point out the former’s available property.
2. Between the Debtor and the Guarantor (Art.
2066-2072)
Art. 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.
Guaranty, a contract of indemnity – guarantor has the
right to reimbursement of
1. Total amount of the debt – no right until guarantor
actually paid unless right is given to contract
2. Legal interest thereon – guarantor entitled from the
time of notice of payment to the debtor which is in effect
a demand, whether or not it earns interest
3. Expenses incurred by the guarantor – only those that
the guarantor has to satisfy in accordance with law as a
consequence of the guaranty (Art. 2055[2])
4. Damages, if they are due – in accordance with law;
general rules on damages (Arts. 2195-2235) apply
 Exceptions to right to indemnity or
reimbursement
1. Constituted without the knowledge or against the will
of the debtor – only insofar as had been beneficial (Art.
2050)
2. No intention to be reimbursed (Art. 1238)
3. Waiver
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.
 Guarantor’s right to subrogation
1. Effect of subrogation – right to indemnification and
subrogation granted to guarantor applies also to surety
(Art. 2047)
2. Accrual, basis and nature of right – subrogation
necessary to enable guarantor to enforce the indemnity
a. Arises from operation of law upon payment
b. Stands not upon contract, but upon natural
justice
c. Not a contractual right
d. Cannot demand more than what he has paid
for
3. When right not available – when there is no right to
be reimbursed
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.
Art. 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.
 Effect of payment by guarantor before/after
maturity
1. Obligation with a period demandable only when the
day comes, guarantor who paid before maturity not
entitled to reimbursement because there is no need to
accelerate payment
2. When demand made on guarantor during term of
guarantee, immaterial if payment is made after the term
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.
 Effect of repeat payment by debtor
1. General rule – Notice to debtor before payment. If
without notice, remedy is to collect from creditor but no
cause of action for the return even when it becomes
insolvent
2. Exception – may still claim even in spite of lack of
notice
a. Creditor becomes insolvent
b. Guarantor prevented from fortuitous event
from notifying debtor
c. Guaranty is gratuitous
Art. 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.
 Right of guarantor to proceed against debtor
before payment
Applicable to surety, purpose is to enable the
guarantor to take measures for the protection of his
interest in view of the probability that he would be called
upon to pay the debt.
Remedy to which guarantor entitled – Guarantor cannot
ask for payment unless he as actually paid.
The alternative remedies are:
1. Obtain a release form guaranty
2. Demand or security
 Art. 2066 and 2071 distinguished
Art. 2066 Art. 2071
Enforcement of rights of Before he has paid but
guarantor against debtor after he becomes liable
after he paid
Right of action before Protective remedy before
payment payment
Substantive right Preliminary remedy
No such person Release or security
 Recovery by surety against indemnitor even
before payment
1. Indemnity agreement for benefit of surety – if debtor
agrees to terms, obligations of the contract have the
force of law
2. Indemnity agreement may be against actual loss as
well as liability – if against loss, indemnitor liable to
person only when paid; if against liability, indemnitor
liable to person upon attachment of liability
3. Such agreement valid
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.
 Guarantor of a third person at request of another
has a right to claim reimbursement after
satisfying the debt either from:
1. Person who requested him to be a guarantor
2. Debtor.
3. Between Co-Guarantors (Art. 2073-2075)
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 provisions of this Art. shall not be applicable, unless
the payment has been made by virtue of a judicial
demand or unless the principal debtor is insolvent.
 Right to contribution of guarantor who pays
1. Restrictions – applicable when
a. In virtue of a judicial demand
b. Because the principal debtor is insolvent
2. Effect of insolvency of any guarantor – follows Art.
1217[2])
3. Accrual and basis of right – Guarantor who paid
becomes ipso jure entitled to proportionate contribution
or reimbursement without need of cession from creditor
Art. 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.
Defense available to co-guarantors: all defenses the
debtor would have against creditor but not those which
are purely personal

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.
III. Extinguishment of Guaranty (Art. 2076-
2081)
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.
 Causes of extinguishment of guaranty
1. Accessory and subsidiary – extinguishes when the
principal obligation is extinguished:
a. Payment or performance, loss of the thing
due, condonation or remission of the debt,
confusion or merger of rights of the creditor and
debtor, compensation and novation (Art. 1231)
2. Other causes: annulment, rescission, fulfillment of a
resolutory condition, and prescription (Art. 1231)
3. Release of guarantor made by creditor (Art. 2078)
 Material alteration of principal contract
1. Effect of material alteration – constitutes novation
and surety cannot be held to a new contract without its
consent
2. When alteration material – surety or guaranty will
not be released where such change does not make the
obligation more onerous (Visayan Distributors v. Flores)
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 released.
 Release by conveyance of property
Eviction revives the principal obligation but not
the guaranty. The cause of action is against the debtor
for eviction which is not part of the guaranty.
Art. 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.
 Release of guarantor without consent of others
Others will be prejudiced if one of the
guarantors becomes insolvent. The release benefits all to
the extent of the share of the guarantor released.
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 extension of
time referred to herein.
 Release by extension of term granted by creditor
to debtor
1. Where release without consent of guarantor –
extinguishes guaranty
a. Payments due to debtor from third persons
assigned to creditor - extinguishes
b. Where obligation payable in installments –
extension as to one will not affect
surety/guaranty’s liability as to others
c. Consent to extension waived in advance by
guarantor – valid, not contrary to law or public
policy
d. Payment by guarantor after creditor’s demand
e. Extension not granted by creditor on the bond
– does not extinguish
f. Extension granted to first-tier obligors – will
not extinguish liability of second-tier obligors
2. Prejudice to guarantor and period of extension
immaterial
3. Extension must be based on a new agreement – mere
failure or neglect to demand payment not deemed a
suspension
4. Diligence on the part of creditor to enforce his claim
generally not required – this is for surety. For guaranty,
if the creditor has done any act whereby the guaranty
was impaired in value, or discharged that act would have
wholly or partially released the guarantor
5. No cause of action against creditor for delay
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.
 Release by guarantor cannot be subrogated
1. Fault of creditor for non-subrogation – act of one
cannot prejudice another
2. Duty of the creditor to account for his lien on
principal’s property – to retain and maintain security;
impairment will discharge the surety to the extent of lien
released. This is a trust relation with the creditor as
trustee bound to account to the surety the value of the
security.
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.
IV. Legal and Judicial Bonds (Art. 2082-2084)
Art. 2082. The bondsman who is to be offered in virtue
of a provision of law or of a judicial order shall have the
qualifications prescribed in Art. 2056 and in special
laws.

Art. 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.

Bond – undertaking that is sufficiently secured and not

cash or currency

Bondsman – a surety (Art. 2047[2]) offered in virtue of

a provision of law or a judicial order.

Qualifications of personal bondsman – same as a

guarantor under Art. 2056
1. Integrity
2. Capacity to bind himself
3. Sufficient property to answer for the
obligation which he guarantees

Jurisdiction follows principle that the accessory

follows the principal.

 Nature of bonds
1. Contractual in nature – only in consequence of a
meeting of minds under the conditions essential to a
contract (Art. 1305)
2. Special class of guaranty, in virtue of a judicial or
court order

Art. 2083. If the person bound to give a bond in the

cases of the preceding article, should not be able to do
so, a pledge or mortgage considered sufficient to cover
his obligation shall be admitted in lieu thereof.

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.

Bondsman and sub-surety not entitled to excussion

because they are not mere guarantors, but sureties whose
liability is primary and solidary
Negligence of creditor will not release surety. It is his
obligation to see that the debtor pays or performs, not
the creditor’s.