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CHAPTER 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 provisions of
Section 4, Chapter 3, Title I of this Book shall be observed. In such case the
contract is called a suretyship. (1822a)
Definition of guaranty
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)
Governing Law
2. Subsidiary and conditional – takes effect only when the debtor fails in his
obligation (Art. 2053, 2058, 2063, 2065)
3. Unilateral
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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
a. Art. 2047 points to Art. 1207 to 1222 on joint and solidary obligations
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).
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c. Unless required by surety contract, demand or notice of default is not
required to fix the surety’s liability.
Guaranty Suretyship
Independent agreement to pay Regular party to the undertaking
the obligation if primary debtor
fails to do so
Collateral undertaking Original promissor
Secondarily or subsidiarily liable Primarily liable
Not bound to take notice of the Held to know every default of his
non-performance of his principal principal
Discharged by the mere Not discharged by either mere
indulgence of the principal; not indulgence or neglect and want
liable unless notified of default of notice
Undertakes to pay if the Undertakes to pay if the
principal cannot or is unable to principal does not pay
Pay Insurer of debt itself
Insurer of the solvency of the
Debtor
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Terminology used by the parties – not conclusive that the contract of one of
guaranty.
If the promissor says
―I guarantee payment,‖
―I will see you paid,‖ or
―I will pay if he does not pay,
‖ the promise standing alone is collateral or subsidiary yet may be adjudged original
or an independent one (Reiss v. Memije).
Guaranty Indorsement
Security Transfer
Liability more extensive, If not promptly presented and no
discharged only up to the extent due notice within reasonable
of the loss suffered in time, completely discharged
consequence
Warrants solvency of debtor Does not warrant solvency
Cannot be sued as promissor Can be sued as promissor
Guaranty Warranty
Contract by which a person is Undertaking that the title,
bound to another for the quality, or quantity of the subject
fulfillment of a promise or matter of a contract is what it
engagement of a third party has been presented to be
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)
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1. With husband’s consent
2. Without husband’s consent in cases provided by law
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)
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Guaranty of voidable, unenforceable and natural obligations
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. (1825a)
1. Secure payment of loan at maturity – loan maturity and all other obligations
which may become due or be owing
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.
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. (1826)
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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
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. (1827a)
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 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
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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
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.
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.
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1. When necessary – conditional guaranty does not become fixed until it is
accepted by creditor
b. Guarantor entitled to notice to know the nature and extent of his liability
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. (1828a)
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.
(1829a)
Qualifications of guarantor
1. Integrity
Qualifications need only be present at the time of the perfection of the contract.
Subsequently, the creditor can:
Selection of guarantor
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2. Guarantor selected by the principal debtor – debtor answers for the
integrity, capacity and solvency until extinguishment of debt
CHAPTER 2
EFFECTS OF GUARANTY
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. (1830a)
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.
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(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)
1. Art. 2059
2. Art. 2060
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. (1832)
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. (1833a)
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1. When demand made – can only be made after judgment on the debt
Set it up, point it out – failure to do so forecloses his right to set up the defense of
excussion
2. Property not easily available – guarantor should facilitate its realization and
the payment of the debt
Neglect of not exhausting, guarantor bears the loss to the extent of value of said
property.
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. (1834a)
1. Sent against principal – creditor must sue principal alone; guarantor only
after judgment has been obtained against principal debtor
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– 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.
(1835a)
Effects of compromise
1. Where prejudicial – binds parties only (Art. 1311); cannot prejudice the
guarantor or debtor when not party to 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. (1836)
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. (1837)
1. In whose favor applicable – several guarantors for one debtor for one debt,
not applicable to guarantors of several debtors of one debt
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.
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SECTION 2. - Effects of Guaranty
Art. 2066. The guarantor who pays for a debtor must be indemnified by the latter.
(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;
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])
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. (1839)
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Guarantor’s right to subrogation
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. (1840)
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. (1841a)
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
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. (1842a)
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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:
(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;
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)
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.
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Recovery by surety against indemnitor even before payment
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. (n)
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.
(1844a)
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
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principal debtor against the creditor, and which are not purely personal to the
debtor. (1845)
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)
CHAPTER 3
EXTINGUISHMENT OF GUARANTY
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)
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)
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.
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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. (1850)
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. (1851a)
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. (1852)
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Release by guarantor cannot be subrogated
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. (1853)
20. Surety
Art. 1207. The concurrence of two or more creditors or of two or more debtors in
one and the same obligation does not imply that each one of the former has a
right to demand, or that each one of the latter is bound to render, entire
compliance with the prestation. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation
requires solidarity. (1137a)
Art. 1208. If from the law, or the nature or the wording of the obligations to which
the preceding Art. refers the contrary does not appear, the credit or debt shall
be presumed to be divided into as many shares as there are creditors or
debtors, the credits or debts being considered distinct from one another,
subject to the Rules of Court governing the multiplicity of suits. (1138a)
Art. 1209. If the division is impossible, the right of the creditors may be prejudiced
only by their collective acts, and the debt can be enforced only by proceeding
against all the debtors. If one of the latter should be insolvent, the others shall
not be liable for his share. (1139)
Art. 1210. The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility. (n)
Art. 1211. Solidarity may exist although the creditors and the debtors may not
be bound in the same manner and by the same periods and conditions.
(1140)
Art. 1212. Each one of the solidary creditors may do whatever may be useful to the
others, but not anything which may be prejudicial to the latter. (1141a)
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Art. 1213. A solidary creditor cannot assign his rights without the consent of the
others. (n)
Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand,
judicial or extrajudicial, has been made by one of them, payment should be
made to him. (1142a)
The creditor who may have executed any of these acts, as well as he who collects
the debt, shall be liable to the others for the share in the obligation
corresponding to them. (1143)
Art. 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against
the others, so long as the debt has not been fully collected. (1144a)
Art. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the
payment is made before the debt is due, no interest for the intervening period may
be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his
share to the debtor paying the obligation, such share shall be borne by all his co-
debtors, in proportion to the debt of each. (1145a)
Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement
from his co-debtors if such payment is made after the obligation has
prescribed or become illegal. (n)
Art. 1219. The remission made by the creditor of the share which affects one of
the solidary debtors does not release the latter from his responsibility
towards the co-debtors, in case the debt had been totally paid by anyone of
them before the remission was effected. (1146a)
Art. 1220. The remission of the whole obligation, obtained by one of the solidary
debtors, does not entitle him to reimbursement from his co-debtors. (n)
Art. 1221. If the thing has been lost or if the prestation has become impossible
without the fault of the solidary debtors, the obligation shall be
extinguished.
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If there was fault on the part of any one of them, all shall be responsible to the
creditor, for the price and the payment of damages and interest, without
prejudice to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through
the judicial or extrajudicial demand upon him by the creditor, the provisions
of the preceding paragraph shall apply. (1147a)
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of
all defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are responsible. (1148a)
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CHAPTER 4
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. (1828a)
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
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. (1855)
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
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Negligence of creditor will not release surety. It is his obligation to see that the
debtor pays or performs, not the creditor’s.
Cases:
Art. 2080 does not apply where the liability is as a surety, not as a guarantor. Even
assuming that 2080 is applicable, SOLIDBANK's failure to register the chattel
mortgage did not release petitioner from the obligation. In the Continuing Guaranty
executed in favor of SOLIDBANK, petitioner bound itself to the contract irrespective
of the existence of any collateral.
Surety Guaranty
Accessory promise by which a Collateral undertaking to pay the
person binds himself for another debt of another in case the latter
already bound, and agrees with does not pay the debt
the creditor to satisfy the
obligation if the debtor does not
bound with his principal by the guarantor's own separate
same instrument, executed at undertaking, in which the
the same time, and on the same principal does not join
consideration
original promissor and debtor - usually entered into before or
from the beginning, and is held, after that of the principal, and is
ordinarily, to know every default often supported on a separate
of his principal consideration from that
supporting the contract of the
principal
- original contract of his principal
is not his contract, and he is not
bound to take notice of its non-
performance
not discharged, either by the often discharged by the mere
mere indulgence of the creditor indulgence of the creditor to the
to the principal, or by want of principal, and is usually not
notice of the default of the liable unless notified of the
principal, no matter how much default of the principal
he may be injured thereby
insurer of the debt, and he insurer of the solvency of the
obligates himself to pay if the debtor and thus binds himself to
principal does not pay pay if the principal is unable to
pay
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International Finance Corporation v. Imperial Textile Mills, Inc.,
G.R. No. 160324, November 15, 2005.
The Agreement uses ―guarantee and guarantors,‖ prompting ITM to base its argument on those words but
the use of the two words limits the contract to a mere guaranty. The specific stipulations in the contract
show otherwise.
While referring to ITM as a guarantor, the agreement specifically stated that the corporation was 'jointly and
severally liable. To put emphasis on the nature of that liability, the contract further stated that ITM was a
primary obligor, not a mere surety. Those stipulations meant only one thing: that at bottom, and to all legal
intents and purposes, it was a surety.
IFC was justified in taking action directly against respondent. The use of the word guarantee does not
ipso facto make the contract one of guaranty. The word is frequently employed in business transactions
to describe the intention to be bound by a primary or an independent obligation. The very terms of a contract
govern the obligations of the parties or the extent of the obligor's liability. Thus, the Court has ruled in favor of
suretyship, even though contracts were denominated as a 'Guarantor's Undertaking or a 'Continuing Guaranty.
Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the 21
July 1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM
―may now be indebted or may hereafter become indebted‖ to TRB.
The law expressly allows a suretyship for "future debts". 2053 provides: ―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.xxx‖
Continuing guaranty covers all transactions, including those arising in the future, which are within the
description or contemplation of the contract of guaranty, until the expiration or termination thereof. A
guaranty shall be construed as 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. Hence, where the
contract states that the guaranty is to secure advances to be made "from time to time," it will be construed to
be a continuing one.
In other jurisdictions, it has been held that the use of particular words and expressions such as payment of
"any debt," "any indebtedness," or "any sum," or the guaranty of "any transaction," or money to be furnished
the principal debtor "at any time," or "on such time" that the principal debtor may require, have been
construed to indicate a continuing guaranty.
There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the
liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all
the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor
has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil Code.
The Undertaking does not contain any express stipulation that the petitioners agreed ―to bind themselves
jointly and severally‖ in their obligations to the Ortigas group, or any such terms to that effect. Hence, such
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obligation established in the Undertaking is presumed only to be joint. Ortigas, as the party alleging that the
obligation is in fact solidary, bears the burden to overcome the presumption of jointness of obligations. We
rule and so hold that he failed to discharge such burden.
Articles 2066 and 2067 explicitly pertain to guarantors, and it is Dr. Tolentino’s observation that ―[t]he
reference in the second paragraph of [Art. 2047] to the provisions of Section 4, Chapter 3, Title I,
Book IV, on solidary or several obligations, however,
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does not mean that suretyship is withdrawn from the applicable provisions governing guaranty.‖
For if that were not the implication, there would be no material difference between the surety as defined under
Art. 2047 and the joint and several debtors, for both classes of obligors would be governed by exactly the
same rules and limitations.
Accordingly, the rights to indemnification and subrogation as established and granted to the
guarantor by Articles 2066 and 2067 extend as well to sureties as defined under Art. 2047.
These rights granted to the surety who pays materially differ from those granted under Art. 1217 to the
solidary debtor who pays, since the ―indemnification‖ that pertains to the latter extends ―only [to] the share
which corresponds to each [co-debtor].‖
Tupaz IV & Tupaz, v. Court of Appeals and Bank of the Philippine Islands,
Any doubt as to the import or true intent of the solidary guaranty clause should be resolved against
the drafter. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and
prepared solely by the petitioner; Chi’s participation therein is limited to the affixing of his signature thereon.
It is, therefore, a contract of adhesion; as such, it must be strictly construed against the party responsible for
its preparation.
In Prudential Bank v. CA, it was held that had there been more than one signatories to the trust receipt, the
solidary liability would exist between the guarantors. The clause ―we jointly and severally agree and
undertake‖ refers to the undertaking of the two (2) parties who are to sign it or to the liability existing
between themselves. It does not refer to the undertaking between either one or both of them on the one
hand and the petitioner on the other with respect to the liability described under the trust receipt.
Excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still
demand deferment of the execution of the judgment against him until after the assets of the principal debtor
shall have been exhausted.
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GUARANTY AND SURETYSHIP
2. Subsidiary and conditional – takes effect only when the principal debtor
fails in his obligation subject to limitation
3. Unilateral –
a. It gives rise only to a duty on the part of the guarantor in relation to the
creditor and not vice versa
b. It may be entered into even without the intervention of the principal
debtor.
4. Guarantor must be a person distinct from the debtor – a person cannot
be the personal guarantor of himself
CLASSIFICATION OF GUARANTY
3. As to consideration:
a. Gratuitous – guarantor does not receive any price or remuneration
for acting as such (2048)
b. Onerous – one where the guarantor receives valuable consideration
for his guaranty
4. As to person guaranteed:
a. Single – constituted solely to guarantee or secure performance by
the debtor of the principal obligation; b. Double or sub- guaranty –
constituted to secure the fulfillment
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by the guarantor of a prior guaranty
Exceptions:
1. Guaranty is unilateral – exists for the benefit of the creditor and not for the
benefit of the principal debtor
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Rights of third persons who pay:
a. Guarantor can recover only insofar as the payment has been beneficial
to the debtor
b. Guarantor cannot compel the creditor to subrogate him in his rights
2. Payment with knowledge or consent of the debtor: Subrogated to all the
rights which the creditor had against the debtor
1. Conventional;
2. Judicial;
3. Legal
debtor for the reason that the latter’s obligation is not civilly enforceable.
When the debtor himself offers a guaranty for his natural obligation, he
impliedly recognizes his liability, thereby transforming the obligation from a
natural into a civil one.
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Continuing Guaranty or Suretyship:
3. Future debts, even if the amount is not yet known, may be guaranteed but
there can be no claim against the guarantor until the amount of the debt is
ascertained or fixed and demandable.
Reason: A contract of guaranty is subsidiary.
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GR: Guaranty is a subsidiary and accessory contract – 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 the guarantor may bind himself for less
than that of the principal.
Exceptions:
• Reason: Surety is made to pay, not by reason of the contract, but by reason
of his failure to pay when demanded and for having compelled the
creditor to resort to the courts to obtain payment.
The amount specified in a surety bond as the surety’s obligation does not limit
the extent of the damages that may be recovered from theprincipal, the
latter’s liability being governed by the obligations he assumed under his
contract.
Guaranty requires the expression 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.
Reasons:
1. There be assurance that the guarantor had the true intention to bind himself;
2. To make certain that on making it, the guarantor proceeded with
consciousness of what he was doing.
• Guaranty must not only be expressed but must so be reduced into writing.
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• Hence, it 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.
Strictly construed against the creditor in favor of the guarantor and is not be extended
beyond its terms or specified limits.
If there is any doubt on the terms and conditions of the guaranty or surety
agreements, the doubt should be resolved in favor of the guarantor or surety.
Reason: The liability of the surety attaches as soon as the principal debtor
defaults, and notice thereof is given the surety within a reasonable time to
enable it to take steps to protect its interest.
Remedy of surety: Foreclose the counterbond put up by the principal debtor (if
there is any)
GUARANTY WARRANTY
33
engagement of a third relates to some agreement
party made ordinarily by the party
who makes the warranty
GUARANTY SURETYSHIP
34
of the debtor
P
a
Does not contract that the
y creditor without
qualificat
the principal will pay, ion if the
but simply that he is principal debtor does not
p
a
y
able to do so . Hence, the
responsi
bility or
obligation
assumed by
the surety is greater or
m
o
r
eonerous than that
of a
guaranto
r
1. He possesses integrity;
2. He has capacity to bind himself;
3. He has sufficient property to answer for the obligation which he
guarantees.
Exception: Creditor may waive it if he chooses and hold the guarantor to his
bargain.
35
Article 2057:
SELECTION OF GUARANTOR:
Reasons:
Exception: The creditor may, prior thereto, secure a judgment against the guarantor,
who shall be entitled, however, to a deferment of the execution of said judgment
against him, until after the properties of the principal debtor shall have been
exhausted, to satisfy the latter’s obligation.
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EXCEPTIONS TO THE BENEFIT OF EXCUSSION (2059)
b. If he has bound himself solidarily with the debtor – liability assumed that
of a surety
i. Guarantor becomes primary liable as a solidary co-debtor. In effect,
he renounces in the contract itself the benefit of exhaustion.
i. In case of insolvency of the debtor – guarantor guarantees the
solvency of the debtor
2. If he does not comply with Art. 2060: In order that the guarantor may
make use of the benefit of excussion, he must:
a. Set it up against the creditor upon the latter’s demand for payment from
him;
b. Point out to the creditor:
i. Available property of the debtor – the guarantor should facilitate the
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3. If he is a judicial bondsman and sub-surety (2084)
4. Where a pledge or mortgage has been
given by him as a specialQuickTime™ andsecuritya.
TIFF (Uncompressed) decompressor
5. If he fails to areinterposeededtoseethis itpictureas. a defense before
judgment is rendered against him.
1. When demand to be made – only after judgment on the debt for obviously
the exhaustion of the principal’s property cannot even begin to take place
before judgment has been obtained.
2. Actual demand to be made – joining the guarantor in the suit against the
principal debtor is not the demand intended by law
As soon as he is required to pay, guarantor must also point out to the creditor
available property (not in litigation or encumbered) of the debtor within the
Philippines.
1. After the guarantor has fulfilled the conditions required for making use of the
benefit of exhaustion, it becomes the duty of the creditor to:
2. Exhaust all the property of the debtor pointed out by the guarantor;
3. If he fails to do so, he shall suffer the loss but only to the extent of the value
of the said property, for the insolvency of the debtor.
GR : The guarantor, not being a joint contractor with his principal, cannot be sued
with his principal.
Exception: Where it would serve merely to delay the ultimate accounting of the
guarantor or if no different result would be attained if the plaintiff were forced to
institute separate actions against the principal and the guarantors.
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PROCEDURE WHEN CREDITOR SUES (2062)
1. Sent against the principal – as a rule, the creditor may hold the guarantor
only after judgment has been obtained against the principal debtor and the
latter is unable to pay.
ii. It may no longer be possible for him to question the validity of the
judgment rendered against the debtor
1. Compromise between creditor and principal debtor benefits the guarantor but
does not prejudice him.
2. Compromise between guarantor and the creditor benefits but does not
prejudice the principal debtor.
2. Guarantor
Reason: He stands with respect to the guarantor on the same footing as the latter
does with respect to the principal debtor
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Several guarantors;
Only one debtor;
For the same debt
In order that the guarantor may be entitled to the benefit of division, it is not required
that he point out the property of his co-guarantors.
SUBROGATION – transfers 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.
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2. When right not available – since subrogation is the means of effectuating
the right of the guarantor to be reimbursed. It cannot therefore be invoked
in those cases where the guarantor has no right to be reimbursed.
If the debtor has already paid the creditor, when the guarantor pays, the debtor can
set up against the guarantor the defense of previous extinguishments of the obligation
by payment. Hence, guarantor must notify the debtor before making payment.
Reason: The guarantor cannot be allowed, through his own fault or negligence to
prejudice or impair the rights or interests of the debtor.
Debtor’s obligation with a period – demandable only when the day fixed comes.
A. The guarantor who pays before maturity is not entitled to reimbursement since
there is no necessity for accelerating payment.
GR: Guarantor has no cause of action against the debtor until after the former has
paid the obligation.
Exceptions: 2071 enumerates instances when the guarantor may proceed against the
debtor even before the payment.
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F. After the lapse of 10 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 10 years;
Purpose: 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.
GR: The guarantor cannot demand reimbursement for indemnity because he has not
paid the obligation.
Exceptional remedies:
The guaranty’s or surety’s action for release can only be exercised against the
principal debtor and not against the creditor.
2066 2071
(Right of Guarantor to (Right of Guarantor to
Reimbursement after Proceed against Debtor
Payment) even before payment)
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Provides for the Provides for the
enforcement of the rights protection before he has
of the guarantor against paid but after he has
the debtor after he has become liable – gives a
paid the debt – gives a protective remedy before
right of action after payment
payment
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RECOVERY OF SURETY AGAINST INDEMNITOR EVEN BEFORE PAYMENT
Indemnity against loss – indemnitor will not be liable until the person
to be indemnified makes payment or sustains loss;
Indemnity against liability – indemnitor’s liability arises as soon as the
liability of the person to be indemnified has arisen without regard to
Where the principal debtors are simultaneously the same persons who
executed the indemnity agreement, the position occupied by them is that of a
principal debtor and indemnitor at the same, and their liability being joint and
several.
The guarantor who guarantees the debt of an absentee at the request of another has a
right to claim reimbursement, after satisfying the debt from:
BETWEEN CO-GUARANTORS
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1. Guarantor who paid is seeking reimbursement from each of his co-guarantors
the share which is proportionately owing him.
Follows the rule on solidary obligations :The share of the insolvent guarantor shall
be borne by the others including the paying guarantor in the same joint proportion.
The right of reimbursement is acquired ipso jure without need of any prior cession
from the creditor by the guarantor.
GR: All defenses which the debtor would have interposed against the creditor.
Exception: Those which cannot be transmitted for being purely personal to the
debtor.
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Material Alteration of Principal Contract – any agreement between the creditor
and the principal debtor which essentially varies the terms of the principal contract
without the consent of the surety, will release the surety from liability.
When Alteration Material – where such change will have the effect of making the
obligation more onerous.
1. Takes away some obligation already imposed, changing the legal effect of the
original contract and not merely the form thereof.
Exception: Any substitute paid in lieu of money which is accepted by the creditor
extinguishes the obligation and in consequence, the guaranty.
In case of eviction: Eviction revives the principal obligation but not the guaranty.
Reason: The creditor’s action against the debtor is for eviction and this is different
from what the guarantor guaranteed.
Effect: The release benefits all to the extent of the share of the guarantor released.
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Effect: Guarantor is discharged from his undertaking.
Reason: Necessity of avoiding of prejudice to the guarantor. The debtor may become
insolvent during the extension, thus depriving the guarantor of his right to
reimbursement.
It is unimportant whether the extension given has actually proved prejudicial or not to
the guarantor or surety. Nor does it matter for how short a period the time of payment
has been extended.
Extension must be based on some new agreement between the creditor and the
principal debtor by virtue of which the creditor deprives him of his claim.
GR: An extension of time to one or more will not affect the liability of the
surety for the others.
Exception: When the unpaid balance has become automatically due by virtue
of an acceleration clause for failure to pay an installment.
Effect of exception: The act of the creditor extending the payment of said
installment, without the guarantor’s consent, discharges the guarantor.
If there can be no subrogation because of the fault of the creditor, the guarantors are
thereby released, even if the guarantors are solidary.
Reason: The act of one cannot prejudice another. It also avoids collusion between the
creditor and the debtor or a third person.
GR: All defenses, which pertain to the principal debtor and are inherent in the debt.
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Exception: Those, which are purely personal to the debtor.
1. He possesses integrity;
If the person required to give a legal or judicial bond should not be able to do so, a
pledge or mortgage sufficient to cover the obligation shall be admitted in lieu thereof.
A judicial bondsman and the sub-surety are not entitled to the benefit of excussion.
Reason: They are not mere guarantors, but sureties whose liability is primary and
solidary.
SURETYSHIP – a relation which exists where one person (principal) has undertaken
an obligation and another person (surety) is also under a direct and primary obligation
or other duty to the obligee, who is entitled to but one performance,
anddecompreassorbetween theeeded to see this picture.
two who are bound, the second, rather than the first should perform.
If a person binds himself solidarily with the principal debtor, the contract is called
suretyship and the guarantor is called a surety.
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NATURE OF SURETY’S UNDERTAKING
A surety bond is void where there is not principal debtor because such
an undertaking presupposes that the obligation is to be enforceable
against someone else besides the surety, and the latter can always
claim that it was never his intention
Reason: An accommodation surety acts without motive of pecuniary gain and hence,
should be protected against unjust pecuniary impoverishment by imposing on the
principal, duties akin to those of a fiduciary.
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Surety
1975 No. XVIII
A debtor pledged to his surety pieces of jewelry to indemnify the Utter in case the surety would be obliged to pay the
creditor. The surety paid P2,800 00 to the creditor. To recover the amount, the surety sold at public auction the jewelry but realized
only P500. May the surety recover the deficiency from the debtor? Explain.
Answer
No, the surety is not entitled to recover the deficiency. Article 2115 of the Civil Code provides that in the foreclosure of a
pledge, if the price of the sale is less than the indebtedness secured by the pledge, the creditor shall not be entitled to recover the
deficiency, notwithstanding any stipulation to the contrary. By electing to sell the articles pledged, the creditor waived any other
remedy, and must abide by the results of the sale. No deficiency is recoverable, [Manila Surety v. Velayo, 21 SCRA 615]
14; Surety; recovery of deficiency
1997 No. 16:
AB sold to CD a motor vehicle for and in consideration of P120,000.00. to be paid in twelve monthly equal installments of
P10,000,00, each Installment being due and payable on the 15th day of each month starting January 1997.
To secure the promissory note, CD (a) executed a chattel mortgage on the subject motor vehicle, and (b) furnished a
surety bond issued by Philam life, CD failed to pay more than two (2) installments, AB went after the surety but he was only able to
obtain three-fourths (3/4) of the total amount still due and owing from CD. AB seeks your advice on how he might, if at all, recover
the deficiency.
How would you counsel AB? Answer:
Yes, he can recover the deficiency. The action of AB to go after the surety bond cannot be taken to mean a waiver of his
right to demand payment for the whole debt, The amount received from the surety is only payment pro tanto, and an action may be
maintained for a deficiency debt.
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