Chapter 1 Nature and Extent of Contract

As to promise

Characteristics:

Accessory dependent on a principal obligation

Consensual perfected by mere consent
Nominate definite name under the Civil Code
Gratuitous guarantor does not receive any
consideration for his guaranty.

As to form

Definition:
A guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to
do so.

As to liability

A special promise;
Shall cover the
obligation the
moment the
principal debtor
fails
Guaranteed by the
Statutes of Fraud
hence it must be in
writing
Benefit of
exhaustion

If a person binds himself solidarily with the principal

debtor, the contract is called a suretyship.

Kinds of Guarantee:

Parties:

As to manner of creation:

Atleast three persons are involved in a contract of

guaranty:

Principal Debtor
Principal Creditor
Guarantor person who undertakes to fulfill the
obligation should the principal debtor fail to do so.

Distinction between Guaranty and Surety:

As to Obligation

Guarantee
Collateral to that of
the principal debtor

Surety
Directly and
primarily liable for
the debt or

obligation
Liable the instant
the contract is
agreed upon

Not covered by the

Statutes of Fraud
because it is a
primary obligation
Fully liable as if the
debt was his to
begin with.

1. Conventional created by the agreement of the parties

2. Legal Created by provision of law
3. Judicial Created by a court decree
As to consideration:
1. Gratuitous guarantor receives no consideration
2. Onerous guarantor receives a valuable consideration
Guaranty may be entered into w/o the knowledge or consent
of the principal debtor; Guarantor may be entitled to
reimbursement only up to the amount beneficial to the debtor.
If consented and agreed upon, guarantor is entitled to receive
full reimbursement.

Sub-Guaranty another guarantor guaranties in favor of a

guarantor.
Co-Guaranty two guarantors guaranty the same obligation.
Extent of Guaranty:
1. Guarantor may bind himself for less, but not more than
the principal obligation.
2. Guaranty may also be a security of a future debt which
the amount is not yet known.
3. Guaranty cannot be presumed; it must be express and
cannot extend to more than what is stipulated therein.
Qualifications of Guarantor:
1. Must possess integrity
2. Must have the capacity to bind himself
3. Must have sufficient assets to answer the guaranteed
obligation.
Married woman may bind herself as guarantor w/o the
husbands consent given under the Family Code but she
cannot bind conjugal property.
Chapter 2 Effects of Guaranty
A. Between Guarantor and Creditor
- Guarantor is given the right of exhaustion before
creditor may go after the guarantor.
- Guarantor must point out the available properties of the
debtor in the Philippines sufficient to cover the debt in
order for him to enjoy the right of exhaustion.
- Creditor shall bear the loss due to his negligence in
exhausting the property pointed out by the guarantor.

When Guarantor loses the Benefit of Exhaustion:

1. When he expressly renounces it
2. When he bounds himself to be solidarily liable with the
debtor (change from guaranty to surety)
3. In case of solvency of the debtor (must be judicially
declared)
4. When he has absconded or cannot be sued within the
PH except if he has left a manager or representative
5. Fails to point out the available properties of the debtor
within the PH.
Sub-Guarantors Benefit of Excussion
Sub-guarantor shall enjoy the same benefit of
excussion as the Guarantor with respect to the principal
debtor.
Several Guarantor of One Debtor
1. Benefit of exhaustion
2. Division of obligation among themselves
B. Between Debtor and Guarantor
Guarantor who pays the debt has the following rights
against the Debtor
1. To be indemnified by the debtor of:
a. Total amount of debt
b. Legal interest thereon from the time of
payment was made known to the debtor
c. Expenses incurred by the guarantor after
having notified the debtor that payment had
been demanded of him
d. Damages if any

2. Subrogated by virtue thereof to all the rights which

the creditor had against the debtor.
3. May sue or demand for reimbursement for
accomplishing the debt from the person requesting
him to be a guarantor due to an absent debtor or a
request of another.
Effects of Compromise
Compromise between Debtor and Creditor benefits the
guarantor but does not prejudice him. Compromise between
Guarantor and Creditor also benefits but does not prejudice
the principal Debtor.
Payment by Guarantor without informing Debtor
Debtor may set up the same defenses against
Guarantor as if it were with the creditor during the time of the
payment. The reason for this is that the Guarantor has
deprived the debtor of setting up the defenses against the
creditor and Guarantor should wait for the debtor to have the
opportunity to pay before he pays.
Payment by Guarantor before Maturity
If Guarantor pays before the expiration of the period,
he must wait until the period expires before he can seek

reimbursement from the debtor because he has deprived the

debtor of the benefit of the period unless the debtor has
ratified the early payment.
Liability of Sub-Guarantor in case of Insolvency of
Guarantor
Sub-guarantor is responsible to the co-guarantors in
the same terms as the guarantor in case of insolvency of the
person he guaranteed.
Chapter 3 Extinguishment of Guaranty
Additional acts that extinguish contract of guaranty:
1. Acceptance by the creditor of immovable or other
property in payment of the debt
2. Extension of time granted to the Debtor without the
consent of the Guarantor.
3. When by some act of the creditor, the guarantor cannot
be subrogated to the rights, mortgages, and
preferences of the creditor.
4. Release made by the creditor in favor of one of the
sub-guarantors without the consent of the other
benefits all to the extent of the share of the released
guarantor.