CREDIT TRANSACTIONS (5) After the lapse of ten years, when the principal

obligation has no fixed period for its maturity, unless

EFFECTS OF GUARANTY
it be of such nature that it cannot be extinguished
ART. 2070 If the guarantor has paid without notifying except within a period longer than ten years;
the debtor and the latter not being aware of the
(6) If there are reasonable grounds to fear that the
payment, repeats the payment, the former has no
principal debtor intends to abscond;
remedy whatever against the debtor, but only against
the creditor. (7) If the principal debtor is in imminent danger of
becoming insolvent.
Nevertheless, in case of gratuitous guaranty, if the
guarantor was prevented by a fortuitous event from In all these cases, the action of the guarantor is to
advising the debtor of the payment, and the creditor obtain release from the guaranty, or to demand a
becomes insolvent, the debtor shall reimburse the security that shall protect him from any proceedings
guarantor for the amount paid. by the creditor and from the danger of insolvency of
the debtor.
 EFFECT OF REPEAT PAYMENT BY
PRINCIPAL DEBTOR  ACTION OF GUARANTOR AGAINST THE
DEBTOR NOT FOR REIMBURSEMENT
RULE: if the debtor, not aware of the payment made by
- In the 7 instances enumerated, the cause of action
the guarantor also made payment to the creditor who
of the guarantor is not for reimbursement because
accepted the same despite the previous payment, the
he had not paid the obligation yet. NOTE THE
guarantor can go after the creditor.
PHRASE: “even before having paid”
EXCEPTION: if the guaranty is
- The action is either for:
(a) A gratuitous one and (1) A demand for release from the guaranty or’
(b) The guarantor, due to fortuitous event was (2) Demand for sufficient security that will protect
prevented from advising the debtor of the him from the creditor’s complaint and from the
payment and danger of insolvency of the debtor
(c) The creditor becomes insolvent
 Distinctions between Article 2066 and Article 2071
 Here, the debtor must reimburse the guarantor for
what the latter has paid. Article 2066 Article 2071
Gives surety a right of Gives him a protective
NOTE: 3 requisites must concur before the exception can action after payment remedy before payment
apply. Gives the surety a Gives him a preliminary
substantive right remedy
- if creditor is solvent, the remedy of the guarantor is still
When surety’s rights
against the creditor and not against the principal debtor. under art. 2066 become
Reason: creditor cannot be allowed to enrich himself. available, he is past a
ART. 2071 - The guarantor, even before having paid, point where a preliminary
protective remedy is of
may proceed against the principal debtor:
any value to him.
(1) When he is sued for the payment;
The surety may get
(2) In case of insolvency of the principal debtor; reimbursement if he has
satisfied the principal
(3) When the debtor has bound himself to relieve him obligation
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;
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.

 The article applies where a person becomes a

guarantor at the request of another for the debt of a
third person who is not present and the guarantor has
actually paid the debt to the creditor.

 REMEDY OF GUARANTOR- guarantor has the

option of suing either:
(a) The requesting party or
(b) The principal debtor
- The article is based on the principle that no person shall
be enriched at the expense of another. It has
characteristics of a quasi-contract.
 SECTION 3 enforced with solidarity
effects
EFFECTS OF GUARANTY AS BETWEEN CO-
GUARANTORS
 BENEFIT OF CONTRIBUTION; RIGHT TO
Art. 2073. When there are two or more guarantors of SEEK CONTRIBUTION
the same debtor and for the same debt, the one among - The guarantor who paid under the spirit of the
them who has paid may demand of each of the others provision can demand contribution from each of
the share which is proportionally owing from him. the others but only the proportionate share of each
If any of the guarantors should be insolvent, his share in the debt which is divided among all. This is the
shall be borne by the others, including the payer, in benefit of contribution accorded to him.
the same proportion.
- If one co-guarantor, due to his insolvency, cannot
The provisions of this article shall not be applicable, pay his share, the same shall be shouldered by all
unless the payment has been made by virtue of a including the paying guarantor, in the same
judicial demand or unless the principal debtor is proportion.
insolvent.
- To be released from the guaranty, there must be
 The article speaks of the “BENEFIT OF
full payment of the dent. So, all must contribute
CONTRIBUTION”. It applies when one guarantor
to the extent of their proportionate shares. If one
has paid the obligation of the principal debtor and is
could not pay, all must bear the share of the
seeking contribution from his co-guarantors.
former. The former (insolvent) shall be liable to
NOTE: The payment must be made by reason of: the others who have proportionately shouldered
his share in the contribution.
(a) a judicial demand or
(b) insolvency of the principal debtor.
 BASIS OF THEPAYING GUARANTOR’S
 JURIDICAL TIE BETWEEN CO- RIGHT TO CONTRIBUTION- the paying
GUARANTORS – they are jointly and not solidarily
guarantor acquires by operation of law the right of
liable. The article complements Article 2065 which
contribution. He need not get any prior consent of the
deals with the principle called “BENEFIT OF creditor. It is ipso jure.
DIVISION”
 EFFECT OF PAYMENT OUTSIDE OF THE
 Distinction between Article 2073 and Article 2065
RESTRICTION
ARTICLE 2073 ARTICLE 2065 – If payment was made by a co-guarantor but not by virtue
Speaks of benefit of Speaks of benefit of of a judicial demand or by reason of insolvency of the
contribution division
principal debtor, the paying co-guarantor CANNOT
The controversy is Controversy is between
between and among the co-guarantors and the directly seek reimbursement from the other co-
several co-guarantors creditor who is claiming guarantors.
payment from all or one or REMEDY: He has to pursue first the claim against the
some of the several co- principal debtor alone.
guarantors.
There is already payment There is no payment yet,  Article 2073 applies to surety – a solidary
of the debt that is why, the but there is merely a claim accommodation maker of a negotiable promissory
paying co-guarantor is pressed against one or note may demand from the principal debtor
seeking the contribution more co-guarantors. reimbursement for the amount that he paid to the
of the co-guarantors.
creditor. He may also demand reimbursement from
The benefit of the division
his co-accommodation maker, without directing his
is being put up as a
defense to the effect that actions against the debtor provided that:
the liability of the co- (a) He made the payment by virtue of a judicial
guarantor shall not be demand
(b) Principal debtor is insolvent
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.

 DEFENSES OF CO-GUARANTORS
- If the co-guarantors have defenses which would
have pertained to the principal debtor against the
creditor at the time of payment, these may be set
up against the paying co-guarantor.

 Instances of such defenses are as follows:

(a) Payment already made by the debtor
(b) Remission,
(c) Prescription.

 Such defenses are available to the co-guarantors as

against the paying guarantor because they are NOT
PURELY PERSONAL to the principal debtor. They
are transmissible defenses, the effect of which is to
nullify the obligation or render the same ineffective.
 If the defense is PURELY PERSONAL, it cannot be
set up by the other co-guarantors as against the paying
co-guarantor being intransmissible (ex. Minority of
principal debtor)

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.

 LIABILITY OF SUB-GUARANTOR
- A sub-guarantor guarantees a guarantor. If the
principal debtor cannot pay, the guarantor is
obliged to pay. If the guarantor cannot pay, the
sub-guarantor pays because he guarantees the
solvency of the guarantor.

- In case of insolvency of the guarantor for whom

the sub-guarantor has bound himself, the latter is
responsible to the other co-guarantors in the same
terms as the guarantor whom he guaranteed.
 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.
 GROUNDS FOR EXTINGUISHMENT OF
GUARANTY- same causes which extinguish all
other obligations
Article 1231 Obligations are extinguished
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor
and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere in
this Code.
 OTHER GROUNDS FOR EXTINGUISHMENT
OF GUARANTY
(1) Release by acceptance of property by the creditor
(Art.2077)
(2) Release of made by the creditor in favor of one of the
guarantors (art. 2078)
(3) Extension of term granted by the creditor to the debtor
without the consent of the guarantor (art. 2079)
(4) When the guarantors through some act of the creditor
cannot be subrogated to the rights, mortgages and
preferences of the latter (art. 2080)
 Release of Guaranty is simultaneous with the
discharge of the debtor
 When the debtor is discharged from the responsibility
by the creditor, guaranty is at the same time
automatically released.
 KINDS OF EXTINGUISHMENT
1) DIRECT – the extinguishment of guaranty
independently of the principal obligation of the debtor.
2) INDIRECT – the extinguishment which arises from the
extinction of the principal obligation. Accessory follows
the principal.
 ALTERATIONS OR CHANGES IN THE
CONTRACT WHICH DO NOT AFFECT THE
CONTACT OF GUARANTY
1) When interest rates are increased without consent of
guarantor
2) Assignment of the suretyship by the creditor to another
person without the consent of the surety did not release
the latter. It is not a material alteration because it did not
make suretyship more onerous.
3) A change or part performance of the contract which did
not render the obligation more onerous cannot release the
surety.
- To release the guarantor, there must be some change
imposing new obligation or added burden on the party
promising or which takes away some obligation already
imposed, changing the legal effect of the original contract
and not merely the form.
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.
 VOLUNTARY ACCEPTANCE OF PROPERTY
AS PAYMENT BY THE CREDITOR; EFFECT
- GENERALLY, payment is effected through money.
However, the parties may agree that instead of money,
property is offered in lieu thereof like dation in payment.
- if the creditor accepts payment in form of property
whether immovable or movable, there is novation on the
subject matter. This extinguishes the old obligations. In
effect, the guaranty which is an accessory contract is also
extinguished.
 EFFECT OF THE CREDITOR IS EVICTED
FROM THE PROPERTY
- If the creditor is evicted from the property which he
accepted as payment, the principal obligation, in the
absence of any contrary agreement, is revived. This
renewal will not revive the guaranty. The only remedy of
creditor is to proceed against the debtor alone.
Reason: it considers reestablishment of the obligations so
onerous on the part of the guarantor after having been
duly freed from his responsibility as guarantor. The
creditor must suffer for he has taken the risk of accepting
the property without full precaution.
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.
 EFFECT OF RELEASE OF ONE GUARANTOR
- If the creditor releases one guarantor without the consent
of other co-guarantors, the latter will be benefitted to the
extent of the share of the released co-guarantor.
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 extention of time referred to
herein.
 EXTENSION; CONCEPT
- the extension referred to in the article refers to the
lengthening of the period or term agreed upon for the
performance of the debtor’s obligation.
 EFFECT OF GRANT OF EXTENSION OF
PERIOD TO THE PRINCIPAL DEBTOR
1) With the consent of the guarantor – the guaranty is
not extinguished. The right to object to the extension is
personal right. It can be waived. The waiver is not
contrary to law or public policy.
2) Without the consent of the guarantor- An extension
of time granted to the principal debtor without consent of
the guarantor extinguishes the guaranty.
 EXCEPTION TO THE RULE – In the case of
Accommodation Party. Where extension was granted
to the debtor by the creditor without knowledge and
consent of the accommodation party, the extension
does not release the latter from his obligation. He is
still primarily liable to a holder in due course.
 Reason for the first sentence in Article 2079 – the
extension would deprive the surety of his right to pay
the creditor and to be immediately subrogated to the
creditor’s remedies against the debtor upon the
original maturity date. The surety is entitled to protect
himself against the contingency of the principal
debtor or the indemnitors becoming insolvent during
the extended period.
 Reason for the second sentence of article 2079 – the
guarantor after all would not be prejudiced since his
recourse would be to avail himself of the right granted
under article 2071.
 Mere delay or neglect of creditor in collecting
debts; effects – The mere failure on the part of the
creditor to demand payment after the debt has become
due does not itself constitute any extension of time
referred to herein.
- Extension of term must be based on some new
agreement between the creditor and the principal
debtor.
 RULE WHEN OBLIGATION IS PAYABLE IN
INSTALLMENTS
- Where a borrower agreed to an acceleration
clause, that is, in case of failure to pay one
installment, his entire obligation will become due
and demandable, the extension of time granted to
one overdue installment, will release the
guarantor. The reason for this is that the extension
referred to the whole or entire obligation.
- However, if there is no acceleration clause in the
principal contract, an extension granted for the
payment of one overdue installment will release
the guarantor only insofar as to that particular
installment is concerned. The rest of the
installments are not affected there being no
extension granted to these.
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.
 Art. 2080 does not apply where the liability is as a
surety, not as a guarantor.
 RELEASE DUE TO FAILURE OF
SUBROGATION
- Under Article 2067, the guarantor who pays the
debt of the principal debtor is entitled to the
benefit of subrogation which arises by the
operation of law. It is necessary to enable the
guarantor to enforce the items of indemnification
granted him by law.
- This benefit of subrogation is not a contractual
right but is premised on natural justice.
 - If by reason of some act of the creditor the
guarantors cannot be subrogated to the rights,
mortgages and preferences of the said creditor
= the guarantors are released from their
obligation. This rule is intended to prevent
connivance or collusion between the creditor and
debtor.
- If the failure of subrogation is due to reasons
attributable to the guarantors, they cannot be
released from responsibility.
 NEGLIGENCE OF CREDITOR RESULTING
IN FAILURE OF SUBROGATION; EFFECT
- Guarantors are released from responsibility
- Example: when creditor failed to register a deed
of real estate mortgage thus allowing third person
to lawfully levy on the property mortgaged.
 TIME TO INVOKE BENEFIT OF ARTICLE –
the guarantor may invoke benefit of this article only
during the proceeding against him for payment of the
debt. It cannot be invoked before or after the
judgment has been rendered.
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.
 DEFENSES WHICH CAN BE SET UP AGAINST
THE CREDITOR
- All the defenses inherent in the debt such as
previous payment, prescription, illegality of the
cause, fraud and other vices of consent pertaining
to the principal debtor may be set up by the
guarantor against the creditor. Such defenses if
sufficiently established will release the guarantor
from responsibility.
- Defenses which are purely personal to the debtor
will not be available to the guarantor, such as
defense of minority of principal debtor.
 SOME DEFENSES NOT PERSONALLY
PERTAINING TO THE DEBTOR
1) CONDONATION – if the creditor condones the
obligation of the guarantor, the guaranty is extinguished.
The principal debt remains because it is not extinguished.
2) CONSIGNATION – if the principal debtor has
properly consigned in the court, the obligation is deemed
complied with. Guaranty is extinguished.
3) LOSS OF THE THING – if the things subject of the
principal contract is lost before the debtor has incurred in
delay, without fault of the part of debtor, guaranty is
extinguished.
4) CONFUSION OR MERGER OF RIGHTS –
RULES:
a) if the confusion or merger of rights shall arise
between the persons of the guarantor and creditor,
the guaranty is extinguished. Principal debtor
remains to be liable for the principal debt because
only the guaranty is involved in the confusion or
merger of rights.
b) If the confusion or merger of rights is between the
creditor and debtor, the debt is extinguished as
well as the contract of guaranty. The reason is that
the guaranty is just an accessory to the principal
obligation. Guaranty cannot exist without an
existing valid obligation. The accessory follows
the principal.
5) COMPENSATION – if the creditor and guarantor are
in their own rights, creditors and debtors of each other,
compensation sets in. Their obligations are mutually set
off or extinguished at the concurrent level. The guaranty
is extinguished if the compensation is full or total.
- if the guarantor can recover from the principal debtor the
amount compensated because compensation has the same
effect as actual payment of the obligation by the
guarantor.
 DEATH OF PRINCIPAL DEBTOR cannot be
used as a defense against the creditor. The obligation
of the debtor is a transmissible one. The estate or his
heirs will answer for it.