GUARANTY (c) Judicial – one required by a court to guarantee

the eventual right of one of the parties in a case

What is the contract of guaranty?
(3) As to consideration
A contract whereby a person, called the guarantor, (a) Gratuitous – one where the guarantor does not
binds himself to the creditor to fulfil the obligation of receive any price or remuneration for acting as
the principal debtor in case the latter should fail to do such
so. (b) Onerous – one where the guarantor receives
valuable consideration for his guaranty
Define suretyship (4) As to the person guaranteed
A contract where a person binds himself solidarily with (a) Single – one constituted solely to guarantee or
the principal debtor. secure the performance by the debtor of the
principal obligation
A contractual relation resulting from an agreement (b) Double or sub-guaranty – one constituted to
whereby one person, the surety, engages to be secure the fulfilment by the guarantor of a prior
answerable to a third person, the oblige, for the debt, guaranty
default, miscarriage of another known as the principal (5) As to its scope and extent
or obligor. (a) Definite – one where the guaranty is limited to
What are the characteristics of the contract of the principal obligation only, or to a specific
guaranty? portion thereof
(b) Indefinite or simple – one where the guaranty
It is accessory because it is dependent for its existence includes not only the principal obligation but
upon the principal obligation guaranteed by it. also all its accessories including judicial costs
(6) Continuing or not
It is subsidiary and conditional because it takes effect
(a) Continuing – one which is not limited to a single
only when the principal debtor fails in his obligation
transaction but which contemplate a future
It is unilateral because it gives rise only to a duty on the course of dealing, covering series of transaction
part of the guarantor in relation to the creditor and not generally for an indefinite time or until revoked.
vice versa.
Distinguish guaranty with surety
It is a contract which requires that the guarantor must
(1) A surety assumes liability as a regular party to
be a person distinct from the debtor because a person
the undertaking, while the liability of the
cannot be the personal guarantor of himself.
guarantor depends upon an independent
- Consistent with the very purpose of a guarantee
agreement to pay the obligation if the primary
which is for the creditor to proceed against a
debtor fails to do so.
third person if the debtor defaults in his
(2) A surety is charged as an original promisor,
obligation.
while the engagement of the guarantor is a
Classification of Guaranty
collateral undertaking.
(1) Guaranty in the broad sense: (3) The guarantor is secondarily or subsidiarily
(a) Personal – guaranty in the strict sense. Here, liable, while a surety is primarily liable
the guarantee is the credit given by the person (4) A surety is ordinarily, held to know every
who guarantees the fulfilment of the principal default of his principal, while a guarantor is not
obligation bound to take notice of the non-performance of
(b) Real – Here, the guaranty is property, movable his principal
or immovable. (5) Usually, a surety will not be discharged either
(2) As to its origin by the mere indulgence of the creditor of the
(a) Conventional – one constituted by agreement principal or by want of notice of the default of
of the parties the principal, no matter how much he may be
(b) Legal – one imposed by virtue of a provision of injured thereby, while a guarantor is often
law discharged by the mere indulgence of the
 creditor of the principal, and is usually not liable What is the effect if the principal obligation is
unless notified of the default of the principal. voidable, unenforceable, or natural?

Is the contract of guaranty gratuitous? It is valid and binding. A guaranty may secure the
performance of a voidable contract (unless it is
GR: Yes, it is Gratuitous
annulled), unenforceable, or a natural obligation.
XPN: It is onerous when there is a stipulation to the
Can a contract of guaranty exceeds the principal
contrary
obligation? What is the effect? Why?
Can a married woman guarantee without her
No, since it is a subsidiary and accessory contract. Thus
husband’s consent?
its effects cannot exceed the limits of the principal
Yes, but she ordinarily binds only her separate property. obligation. If he does, his liability shall be reduced to the
limits of that of the debtor.
GR: She may bind the community or conjugal
partnership property with her husband’s consent. Can a guarantor binds himself lesser than the principal
obligation?
XPN (even without husband’s consent): “in cases
provided by law’ such as when the guaranty has Yes (2054).
redounded to the benefit of the family.
Can a guarantor be liable for the interest? What is the
Can there be guaranty even if the principal has no effect?
knowledge?
Yes. Paragraph 2 of Article 2055 provides that if the
Yes. Because guaranty exists for the benefit of the guaranty be simple or indefinite, it shall comprise not
creditor and not for the benefit of the principal debtor only the principal obligation, but also all its accessories,
who is not a party to a contract of guaranty. including the judicial costs, provided with respect to the
latter, that the guarantor shall only be liable for those
RIGHTS under 1236 and 1237 OF THE THIRD PERSON (IN costs incurred after he has been judicially required to
THIS CASE THE GUARANTOR) WHO PAYS: pay.
1) a person who pays WITHOUT THE KNOWLEDGE So, if the terms of the contract of guaranty are general
OR AGAINST THE WILL OF THE DEBTOR: and indefinite and do not specify in clear and express
a) He can recover only insofar as the payment manner that the liability of the guarantor is limited to
has been beneficial to the debtor (1236) the principal obligation, in whole or in part, it extends
b) He cannot compel the creditor to subrogate not only to the said principal obligation but also to all its
him in his (creditor’s) right, such as those accessories. The reason for the rule is that the
arising from a mortgage, guaranty, or guarantor, in entering into the contract, could have
penalty (1237). fixed the limits of his responsibility solely to the strict
2) If he paid WITH THE KNOWLEDGE OR CONSENT terms of the principal obligation and if he did not do so,
OF THE DEBTOR: it must be presumed that he wanted to be bound to the
a) He can recover the entire amount of what extent so established.
he has paid (1236).
b) he is subrogated by virtue of the payment Why can a contract of guaranty not be presumed?
to all the rights which the creditor had
Consideration of prudence in the interest of the
against the debtor (1237 & 2067).
guarantor who in many cases finds himself under the
Should there be a valid principal obligations for a harsh necessity of paying another’s debt without
guaranty? benefit for himself.

Yes, because guaranty is an accessory contract and it is How do you construe the contract of guaranty?
indispensable for its existence that there must be a
Inasmuch as guaranty is a special obligation, it has to be
principal obligation. If the principal obligations is void, it
interpreted against the creditor and in favour of the
is also void.
guarantor and is not to be extended beyond its terms or the Civil Code that regulate guaranty and suretyship
specified limits. contain no provision that the guaranty is extinguished
upon the death of the guarantor or the surety.
When can it be deemed gratuitous?
What is the benefit of excussion?
The presumption is in favour of guarantors/sureties
whose contract of guaranty is liberally considered as To warrant recourse against the guarantor for payment,
gratuitous obligations, as a matter of accommodation the creditor must first exhaust all the properties of the
without motive of pecuniary gain and hence, should be principal debtor and to resort to all legal remedies
protected against unjust pecuniary impoverishment, against the debtor including the bringing of actions for
This is pursuant to the rule of strictissimi juris. the rescission of fraudulent alienations of property
made by the debtor.
When can it be deemed onerous?
What are the exceptions to the benefit of excussion?
The rule of strictissimi juris does not apply to
compensated sureties and thus, its contract is deemed As provided in Article 2059
onerous.
(1) If the guarantor has expressly renounced it
What is the liability of the guarantor for judicial costs? (2) If he has bound himself solidarily liable with the
debtor. (He becomes a surety and the benefit of
Only such as have been incurred after he has been
excussion is not available to a surety)
judicially required to pay.
(3) In case of insolvency of the debtor
What are the qualifications of guarantor? - The essence of guaranty is that the
guarantor guarantees the solvency of the
(1) He possesses integrity debtor.
(2) He has capacity to bind himself - The insolvency or inability to pay must be
(3) He has sufficient property to answer for the actual, and it may be proven by the return
obligation which he guarantees. of a writ of execution unsatisfied by other
What is the effect if the guarantor losses all his means.
qualifications as guarantor? (4) When the debtor has absconded, or cannot be
sued within the Philippines unless he has left a
It would not operate to exonerate the guarantor of the manager or representative
eventual liability he has contracted, and the contract of (5) If it may be presumed that an execution on the
guaranty continues. property of the principal debtor would not
Reason: The qualifications need only to be present at result in the satisfaction of the obligation.
the time of the perfection of the contract. The If he does not comply with Article 2060 (must point out
subsequent loss of integrity or property or supervening to the creditor available property of the debtor within
incapacity will not extinguish the guaranty. the Philippines).
Other effect: The creditor may demand another If he is a judicial bondsman and sub-surety (2084)
guarantor with the proper qualifications.
When a pledge or mortgage has been given by him as a
XPN (Substitution cannot be demanded): Where the special security.
creditor has required and stipulated that a specified
person should be a guarantor. In such case, the If he fails to interpose it as a defense before judgment is
selection of the guarantor is a term or condition of the rendered against him.
agreement. What are the duties of the creditor when there is
What is the effect of the death of the guarantor? contract of guaranty?

Generally, the party’s contractual rights and obligations He must secure a judgment against the debtor before
are transmissible to his successors (1311) but are liable he can demand payment upon the guarantor.
only to the extent of their inheritance. The articles of
He must first exhaust all the property of the principal Can they exercise the right of excussion?
debtor and to resort to all legal remedies against the
Yes, as to the debtor but NOT as to themselves.
debtor
Reason: The obligation of the guarantor with respect to
What should the guarantor do before he can exercise
his co-guarantors is not subsidiary, but direct and does
the benefit of excussion?
not depend as to its origin on the solvency or insolvency
He must point out to the creditor available property of of the latter.
the debtor within the Philippines. The failure of the
What is the rule on their right to contribution from
guarantor to point out to the creditor the debtor’s
their co-guarantors?
property sufficient to cover his debt forecloses his right
to set up the defense of excussion. Since the obligation of several guarantors of the same
debtor and for the same debt is joint, the paying-
What happens if the debtor agrees with the creditor to
guarantor can seek reimbursement from each of his co-
a compromise? How about a compromise between the
guarantors the share which is proportionately owing
guarantor and the creditor?
him.
Benefits the guarantor but does not prejudice him
Requirement for the right to reimbursement: the
Benefits the debtor but does not prejudice him. payment to the creditor must have been made:

Who is a sub-guarantor? (a) in virtue of a judicial demand, or

One who guarantees the obligation of a guarantor (b) because the principal debtor is insolvent.

- A sub-guarantor enjoys the benefit of - judicial demand applies when the benefit of division
excussion not only with respect to the ceases for reasons other than the insolvency of the
principal debtor but also with respect to the principal debtor.
guarantor.
What is the effect if one of the guarantors is insolvent?
- So if the creditor goes against the sub-
guarantor, the latter can demand the His share has to be borne by the others including the
creditor to go after the guarantor first. paying guarantor in the same joint proportion.
What is the effect if there are several guarantors? What is the effect if the creditor releases one of the
guarantors?
They enjoy the benefit of division, which means that the
obligation to answer for the debt is divided among all of - If the release was done without the consent of the
them. Therefore, the guarantors are not liable to the other guarantors, the release benefits all to the
creditor beyond the shares which they are respectively extent of the share of the guarantor released. They
bound to pay. will only be liable for their proportionate share and
will not be prejudiced should a guarantor become
XPN (Applicability):
insolvent.
a) When solidarity has been expressly stipulated - If it was done with consent of the guarantors, the
(2047(2)) consenting guarantor/s will bear the share
b) When the benefit of excussion does not apply proportionately, as the case may be.
(2065(2); 2059)
What is the rule on the guarantor’s right to collect
- E.g. When the guarantors have bound
reimbursement from the debtor? What are the
themselves solidarily with the debtor (they
exceptions to his right?
become sureties). When they renounced
the benefit of excussion. He is entitled to collect:
What are the liabilities of several guarantors? (1) The total amount of the debt
(2) The legal interest thereon
Joint, unless expressly stipulated as solidary.
(3) The expenses incurred by the guarantor
 (4) The damages, if they are due The guarantor can demand reimbursement from the
debtor only during the maturity date of the principal
Rules:
obligation. (Otherwise stated, he cannot demand
(1) He has no right to demand reimbursement until reimbursement until the principal obligation is due)
he has actually paid the debt, UNLESS by the
Reason: The obligation with a period becomes
terms of the contract, he is given the right
demandable only when the day fixed comes.
before making the payment.
(2) He cannot collect more than what he has paid. XPN: If the debtor consents to the payment or has
(3) He is entitled to legal interests and expenses subsequently ratified it.
from the time notice of payment of the debt
What is the effect if there is repeat of payment?
was made known to the debtor.
If the guarantor fails to give notice to the debtor, he has
XPNs:
no cause of action against the debtor for the return of
(1) Where the guaranty is constituted without the the amount paid by him.
knowledge or against the will of the principal
XPNs (may still claim reimbursement from the debtor):
debtor, the guarantor can recover only insofar
as the payment had been beneficial to the (a) The creditor becomes insolvent
debtor (2050) (b) The guarantor was prevented by fortuitous
(2) Payment by a third person who does not intend event to advise the debtor of the payment
to be reimbursed by the debtor is deemed to be (c) The guaranty is gratuitous
a donation, which, however, requires the - Reason: the guarantor received nothing and
debtor’s consent. But the payment is in any it would be unfair to deny him the right to
case valid as to the creditor who has accepted recover from the principal debtor.
it.
(3) The right to demand reimbursement is waived. Can the guarantor demand reimbursement from the
debtor prior to payment to the creditor?
What is the benefit of the guarantor if be subrogated
to the right of the creditor? GR: No, the guarantor has no cause of action against the
debtor until after the former has paid the obligation
He receives the credit with all the rights appertaining (2066).
thereto either against the debtor or against the third
persons. What are the instances when the guarantor may
proceed against the debtor even before payment?
What is the effect if the guarantor pays without notice
to the debtor? (1) When the guarantor is sued for the payment
(2) In case of insolvency of the principal debtor
The debtor may interpose against the guarantor, those (3) When the debtor has bound himself to relieve
defenses which he could have set up against the him from the guaranty within a specified period,
creditor at the time the payment was made. and this period has expired
(4) When the debt has become demandable, by
So, the rule is that the guarantor should first notify the
reason of the expiration of the period for
debtor before paying the creditor, otherwise
payment
(a) he is subject to the defenses which the debtor (5) After the lapse of ten years, when the principal
could have set up against the creditor at the obligation has no fixed period for its maturity,
time of payment was made unless it be of such nature that it cannot be
(b) In case of repeat payment, he has no cause of extinguished except within a period longer than
action against the debtor for the return of the ten years
amount paid by him. (6) If there are reasonable grounds to fear that the
principal debtor intends to abscond
What is the rule if the guarantor pays before maturity?
(7) If the principal debtor is in imminent danger of
becoming insolvent
What are the remedies to which the guarantor is If the creditor grants an extension of time to the debtor
entitled when the abovementioned circumstances without the consent of the guarantor, the latter is
arise? discharged from his undertaking (2079).

He can obtain release from the guaranty or to demand a - Reason: the guarantor as the right to pay
security that shall protect him from any proceedings by his creditor and to be immediately
the creditor, and against the danger of insolvency of the subrogated to the creditor’s remedies
debtor. against the principal debtor upon the
maturity date
- The remedies are alternative
- He cannot demand reimbursement for What is dacion en pago?
indemnity because he has not paid the
What is the effect of payment in kind?
obligation
- So the guarantor has right to obtain Usually, payment is made in money. But any substitute
judgment against the debtor but cannot paid in lieu of money which is accepted by the creditor
execute said judgment against the latter’s extinguishes the obligation and in consequence, the
property until he has paid the debt for guaranty.
which he stands as guarantor
What happens if there is eviction of the creditor?
Purpose of the rule: to enable the guarantor to take
measures for the protection of his interest in view of Eviction revives the principal obligation but not the
the probability that he would be called upon to pay the guaranty.
debt. Reason: The creditor’s action against the debtor is for
What are the causes of extinguishment of guaranty? eviction and this is different from what the guarantor
guaranteed.
A. All causes of extinguishment of the principal
obligation. What if payment is by instalment and only one has
been extended?
a) Payment or performance
b) Loss of the thing due An extension of time as to one or more will not affect
c) Condonation or remission of the debt the liability of the guarantor for the others.
d) Confusion or merger of the rights of the creditor But if the whole unpaid balance has become
and debtor automatically due (under an acceleration clause) for
e) Compensation failure to pay an instalment, the act of the creditor of
f) Novation extending the payment of said instalment, without the
g) Annulment guarantor’s consent, discharges the guarantor because,
h) Rescission in this case, the extension constitutes, in fact, an
i) Fulfilment of a resolutory condition extension of the payment of the whole amount of the
j) Prescription indebtedness.
Reason: Guaranty being accessory and subsidiary, it is Can the guarantor be released from duty because of
also terminated when the principal obligation is the fault of the creditor? Why?
extinguished.
Yes, if, due of the fault of the creditor, the guarantor
B. Additional not based on the extinguishment of the cannot anymore be subrogated to all the rights of the
principal obligation: creditor.
The guaranty itself may be directly extinguished - E.g. as when the creditor releases or fails to register
although the principal obligation still remains such as in a mortgage, the guarantors are thereby released.
the case of the release of the guarantor made by the - The same rule applies even though the guarantors
creditor (2078). be solidary
What are the defenses available to the debtor against
the creditor?

All the defenses which pertain to the principal debtor

and are inherent in the debt, except those purely
personal to the debtor.