Secured transactions
power which has for its object an act appearing or
Concept
Distinguished from securities
Guaranty
CHAPTER 1
Nature and Extent of Guaranty
Article 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.
Form of guaranty
Article 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.
As a 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.
Guaranty covered by the Statute of Frauds. Guaranty must not only
be expressed but must also be reduced to writing. A contract of
guaranty (not suretyship) falls under the Statute of Frauds since it
is “a special promise to answer for the debt, default or miscarriage
of another.” 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.”
Does not need to appear in a public document
Article 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment
of real rights over immovable property; sales of real
property or of an interest therein are governed by
articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal partnership
of gains;
(3) The power to administer property, or any other
which should appear in a public document, or should
prejudice a third person;
(4) The cession of actions or rights proceeding from an
act appearing in a public document.
All other contracts where the amount involved exceeds
five hundred pesos must appear in writing, even a
private one. But sales of goods, chattels or things in
action are governed by articles, 1403, No. 2 and 1405.
(1280a)
Guaranty strictly construed. Inasmuch as guaranty is a special
obligation, it has to be strictly interpreted against the creditor and
in favor of the guarantor and is not to be extended beyond its
terms or specifi ed limits.
Ex: Also, a guaranty that the debtor will render an accounting
“cannot be extended to include a guaranty that the money due the
creditor will be delivered.”
Extent of guarantor’s liability.
(1) Where guaranty defi nite. — In this kind of guaranty, the
obligation of the guarantor under the terms of the contract is
limited in whole or in part to the principal debt, to the exclusion of
the accessories. (see 11 Manresa 196.) Thus, if the amount to be
paid or the service to be performed by the person guaranteed is
specifi ed in a contract of guaranty, then the obligation of the
guarantor extends no further than the sum or services so specifi
ed, and extrinsic facts cannot be resorted to for the purpose of
enlarging the limit if the guarantor was ignorant of such facts.
(2) Where guaranty indefi nite or simple. — As provided in Article
2055 (par. 2.), “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.” If the terms of the contract of guaranty are
general and indefi nite and do not specify in clear and express
manner that the liability of the guarantor is limited to the principal
obligation, in whole or in part, it extends not only to the said
principal obligation but also to all its accessories, they being
comprehended within the principal because the guaranty has
secured it with all its consequences. XXXXXXReason: they could
have stipulated limits but chose not to
Liability of guarantor for judicial costs.
The guarantor shall answer for such judicial costs only as have
been incurred after he has been judicially required to pay. This
limitation is just because a guarantor as such should not be made
responsible for whatever costs the debtor might have capriciously
occasioned
Express
In declaring that guaranty must be express, the law refers solely
and exclusively to the obligation of the guarantor because it is he
alone who binds himself by his acceptance. With respect to the
creditor, no such requirement need to be prescribed because he
binds himself to nothing.
Consideration for guaranty
Article 2048. A guaranty is gratuitous, unless there is a stipulation
to the contrary.
The general rule is that a guaranty is gratuitous. It is onerous only
when there is a stipulation to the contrary
Cause of contract of guaranty.
(1) Presence of cause which supports principal obligation. — The
cause of the contract is the same cause which supports the
obligation as to the principal debtor. It is not necessary to prove
any consideration as between the guarantor or surety and the
creditor. The consideration which supports the obligation as to the
principal debtor is a suffi cient consideration to support the
obligation of a guarantor or surety. Otherwise stated, a guarantor
or surety is bound by the same consideration that makes the
contract effective between the principal parties.
(2) Absence of direct consideration or benefi t to guarantor. — The
peculiar nature of a guaranty or surety agreement is that it is
regarded as valid despite the absence of any direct consideration
received by the guarantor or surety either from the principal
debtor or from the creditor. While a contract of guaranty or surety,
like any other contract, must generally be supported by a suffi
cient consideration, such consideration need not pass directly to
the guarantor or surety; a consideration moving to the principal
alone will suffi ce. For a “guarantor or surety is bound by the same
consideration that makes the contract effective between the
principal parties thereto.’’
The guarantor or surety, therefore, becomes liable for the debt or
duty of another although he possesses no direct or personal
interest over the obligation nor does he receive any benefi t
therefrom.
Obligations secured
Article 2052. A guaranty cannot exist without a valid obligation.
Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may
also guarantee a natural obligation. (1824a)
Guaranty is an accessory contract. It is an indispensable condition
for its existence that there must be a principal obligation. So, if the
principal obligation is void it is also void
Article 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)
Such guaranty provided in the above provision is denominated as a
continuing guaranty or suretyship. It is one which is not limited to a
single transaction but which contemplates a future course of
dealings, covering a series of transactions generally for an indefi
nite time or until revoked.
Conditional - Obligations to be incurred in the future on the
happening of a condition are covered by the second sentence. A
guaranty may secure all kinds of obligations, be they pure or
subject to a suspensive or resolutory condition. (see Arts. 1179,
1180.) If the principal obligation is subject to a suspensive
condition, the guarantor is liable only after the fulfi llment of the
condition. If it is subject to a resolutory condition, the happening of
the condition extinguishes both the principal obligation and the
guaranty. A conditional obligation may also be secured for it is
valid and binding just like a pure one
Article 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.
(1) Guaranty is a subsidiary and accessory contract. — Inasmuch as
a contract of guaranty is only a subsidiary and accessory contract,
the 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. (see Art. 2055, par. 2.) But a guarantor
may bind himself for less than that of the principal.
The measure of the guarantor’s or surety’s obligation is not,
however, the measure of the principal’s obligation. Thus, the
amount specifi ed in a surety bond as the surety’s obligation does
not limit the extent of the damages that may be recovered from
the principal, the latter’s liability being governed by the obligation
he assumed under his contract.
Parties to a guaranty
Article 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.
(1) He possesses integrity; (2) He has capacity to bind himself; and
(3) He has suffi cient property to answer for the obligation which
he guarantees.
The qualifi cations need only be present at the time of the
perfection of the contract. So, the subsequent loss of integrity or
property or supervening incapacity of the guarantor (Art. 2057.)
would not operate to exonerate the guarantor of the eventual
liability he has contracted, and the contract of guaranty continues.
However, the creditor may demand another guarantor with the
proper qualifi cations. (Ibid.) But he may waive it if he chooses and
hold the guarantor to his bargain.
Article 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.
(1) Specifi ed person stipulated as guarantor. — Where the creditor
has required and stipulated that a specifi ed person should be a
guarantor, the substitution of guarantor may not be demanded
(Art. 2057.) because in such a case, the selection of the guarantor
is a term or condition of the agreement and as a party, the creditor
is, therefore, bound thereby
(2) Guarantor selected by the principal debtor. — Where the
guarantor is selected by the principal debtor, the latter answers for
the integrity, capacity, and solvency of the former because the
guarantor must possess the qualifi cations prescribed not only at
the moment the guaranty is given but also thereafter, until the
extinguishment of the debt.
Article 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.
she may also bind the community or conjugal partnership property
with her husband’s consent, and even without the consent of her
husband, “in cases provided by law,” such as when the guaranty
has redounded to the benefi t of the family. There is no express
prohibition against a married woman acting as guarantor for her
husband.
Article 2064. The guarantor of a guarantor shall enjoy the benefit
of excussion, both with respect to the guarantor and to the
principal debtor. (1836)
A guarantor has the right to demand the exhaustion of the
properties of the principal debtor. (Art. 2958.) A sub-guarantor
enjoys the benefi t of excussion not only with respect to the
principal debtor but also with respect to the guarantor (see Art.
2051, par. 2.) for the reason that he stands with respect to the
guarantor on the same footing as the latter does with respect to
the principal debtor
Article 2051. A guaranty may be conventional, legal or judicial,
gratuitous, or by onerous title.
It may also be constituted, not only in favor of the principal debtor,
but also in favor of the other guarantor, with the latter's consent,
or without his knowledge, or even over his objection
Article 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.
Benefi t of excussion
Article 2062. In every action by the creditor, which must be against
the principal debtor alone, except in the cases mentioned in article
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 article 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
(1) Sent against principal. — The creditor must sue the principal
alone. The guarantor cannot be sued with his principal, much less
alone except in the cases mentioned in Article 2059 where the
guarantor is not entitled to the benefi t of excussion. 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.
(a) If the guarantor appears, he is still given the benefi t of
exhaustion even if judgment should be rendered against him and
the principal debtor. His voluntary appearance does not constitute
a renunciation of his right to excussion.
(b) If he does not appear, he cannot set up the defenses which, by
appearing, are allowed to him by law, and it may no longer be
possible for him to question the validity of the judgment rendered
against the debtor.
Excussion Article 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.
(1) Guarantor only secondarily liable. — The rule contained in the
above article arises from the character of the contract of guaranty
which is accessory and subsidiary. The guarantor binds himself to
the creditor to fulfi ll the obligation of the principal debtor only in
case the latter should fail to do so (Art. 2047.) and cannot do so. It
is the rule that distinguishes guaranty from suretyship. Conversely,
if the principal debtor fulfi lls the obligation guaranteed, the
guarantor is discharged from any responsibility.
(2) All legal remedies against debtor to be fi rst exhausted. — To
warrant recourse against the guarantor for payment, it may not be
a suffi cient reason that the debtor appears insolvent. Such
insolvency may be simulated. The law requires the creditor to
resort “to all legal remedies against the debtor” including the
bringing of actions for the rescission of fraudulent alienations of
property made by the debtor. (see Arts. 1177, 1380[3], 1387.) This
is what is otherwise known as the “benefi t of excussion.’’
Article 2058 is not applicable to a contract of suretyship kasi
solidarily liable
Article 2059. The excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
(3) In case of insolvency of the debtor;
(4) When he has absconded, or cannot be sued within
the Philippines unless he has left a manager or
representative;
(5) If it may be presumed that an execution on the
property of the principal debtor would not result in the
satisfaction of the obligation.
In the following cases, the guarantor is not entitled to the benefi t
of excussion:
(1) As provided in Article 2059;
(2) If he does not comply with Article 2060; and
(3) If he is a judicial bondsman and sub-surety (Art. 2084.);
(4) Where a pledge or mortgage has been given by him as a special
security.
(5) If he fails to interpose it as a defense before judgment is
rendered against him
Under 2059
(1) Right waived. — The benefi t of excussion is a personal right
recognized in a guarantor. Its waiver is valid. (see Art. 6.) It must,
however, be made in express terms. Nothing prevents a guarantor
from paying the obligation once demand is made on him without
prejudice to his right to demand reimbursement from the debtor
(2) Liability assumed that of surety. — If the guarantor binds
himself solidarily with the principal debtor, he becomes a surety
with primary liability as a solidary co-debtor. In effect, he
renounces in the contract itself the benefi t of exhaustion
(3) Insolvency of debtor proven by unsatisfi ed writ of execution. —
A guarantor guarantees the solvency of the debtor. Hence, if the
debtor becomes insolvent, the liability of the guarantor arises as
the debtor cannot fulfi ll his obligation. The insolvency or inability
to pay must be actual, and it may be proven by the return of a writ
of execution unsatisfi ed or by other means, but it is not suffi
ciently established by the mere fact that the debtor has been
declared insolvent in insolvency proceedings, in which the extent
of the insolvent’s inability to pay is not determined until the fi nal
liquidation of his estate.
(4) Debtor absconds or cannot be locally sued. — If the debtor
absconds or cannot be sued in the Philippines, then he cannot fulfi
ll his obligation unless, of course, he has left a manager or
representative. The creditor is not required to go after a debtor
who is hiding or cannot be sued in our courts, and to incur the
delays and expenses incident thereto.
(5) Resort to all legal remedies, a useless formality. — If the
creditor wants to hold the guarantor liable, he must resort to all
legal remedies against the debtor (this includes suit against him)
and exhaust his properties. (Art. 2058.) But if such judicial action
including execution would not satisfy the obligation, the guarantor
can no longer require the creditor to resort to all such remedies
against the debtor as the same would be but a useless formality.
Under No. (5) of Article 2059, it is not necessary that the debtor be
judicially declared insolvent or bankrupt
Article 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.
Article 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
(1) When demand to be made. — The demand for payment by the
creditor upon the guarantor under Article 2060 can be made only
after judgment on the debt for obviously the “exhaustion of the
principal’s property” — the benefi t of which the guarantor claims
— cannot even begin to take place before judgment has been
obtained. It would be absurd and futile to point out “saleable
property of the debtor” before the judgment when it cannot be
seized or sold.
Duty of guarantor to set up benefi t of excussion.
Article 2060 imposes a condition for the invocation by the
guarantor of the benefi t of excussion. It is not enough that the
guarantor claims the benefi t of excussion. Under Article 2060, as
soon as he is required to pay, he must also point out to the
creditor available property (not in litigation or encumbered) of the
debtor within the Philippines. (Luzon Steel Corp. vs. Sia, 28 SCRA
58 [1969].) The failure of the guarantor to point out to the creditor
the debtor’s property suffi cient to cover his debt forecloses his
right to set up the defense of excussion
(1) Property located abroad. — The excussion of property located
abroad would be a lengthy and extremely diffi cult proceeding and
would not conform with the purpose of guaranty to provide the
creditor with the means of obtaining the fulfi llment of the
obligation guaranteed without hindrance or delays.
(2) Property not easily available. — The same thing may be said of
property which is not easily available. As the one most interested
in the benefi t of excussion, the guarantor should facilitate its
realization and the payment of the debt, whereby he will be freed
of his subsidiary obligation. The rule takes into account not only
the interests of the guarantor but also those of the creditor, for
without it, guaranty might become almost illusory
After the guarantor has fulfi lled the conditions required for
making use of the benefi t of exhaustion, it becomes the duty of
the creditor to exhaust all the property of the debtor pointed out
by the guarantor and to resort to all legal remedies against the
debtor (Art. 2058.); and if he fails to do so, he shall suffer the loss,
but only to the extent of the value of said property, for the
insolvency of the debtor.
Obviously, the exhaustion of the principal debtor’s property — the
benefi t of which the guarantor claims — cannot even begin to
take place before judgment has been obtained against the debtor.
(Baylon vs. Court of Appeals, 312 SCRA 502 [1999].) The creditor
must notify the guarantor of the debtor’s inability to pay.
Joinder of guarantor and principal
(1) General Rule. — The guarantor, not being a joint contractor
with his principal, cannot as a general rule, be sued with his
principal.
(2) Exception. — Yet adherence to this rule is not required where it
would serve merely to delay the ultimate accounting of the
guarantor
Article 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)
A compromise is a contract whereby the parties, by making
reciprocal concessions, avoid a litigation or put an end to one
already commenced. (Art. 2028.)
(1) Where prejudicial. — A contract binds only the parties thereto
and not third persons. (Art. 1311.) Hence, a compromise cannot
prejudice the guarantor or the debtor, as the case may be, when
he is not a party to such compromise.
(2) Where in the nature of a stipulation in favor of a third person.
— However, even if the guarantor or debtor is not a party to such
compromise, the same can benefi t him as it is in the nature of a
stipulation in favor of a third person which the guarantor or debtor
may accept unless it has been revoked before his acceptance.
Article 2064. The guarantor of a guarantor shall enjoy the benefit
of excussion, both with respect to the guarantor and to the
principal debtor.
A guarantor has the right to demand the exhaustion of the
properties of the principal debtor. (Art. 2958.) A sub-guarantor
enjoys the benefi t of excussion not only with respect to the
principal debtor but also with respect to the guarantor (see Art.
2051, par. 2.) for the reason that he stands with respect to the
guarantor on the same footing as the latter does with respect to
the principal debtor.
Article 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.
Right to protection (for guarantors)
Article 2071. The guarantor, even before having paid, may proceed
against the principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him
from the guaranty within a specified period, and this
period has expired;
(4) When the debt has become demandable, by reason
of the expiration of the period for payment;
(5) After the lapse of ten years, when the principal
obligation has no fixed period for its maturity, unless it
be of such nature that it cannot be extinguished except
within a period longer than ten years;
(6) If there are reasonable grounds to fear that the
principal debtor intends to abscond;
(7) If the principal debtor is in imminent danger of
becoming insolvent.
In all these cases, the action of the guarantor is to obtain release
from the guaranty, or to demand a security that shall protect him
from any proceedings by the creditor and from the danger of
insolvency of the debtor.
As a rule, the guarantor has no cause of action against the debtor
until after the former has paid the obligation
Article 2066. The guarantor who pays for a debtor must be
indemnified by the latter.
The indemnity comprises:
(1) The total amount of the debt;
(2) The legal interests thereon from the time the
payment was made known to the debtor, even though
it did not earn interest for the creditor;
(3) The expenses incurred by the guarantor after having
notified the debtor that payment had been demanded
of him;
(4) Damages, if they are due
Article 2071 enumerates seven (7) instances when the guarantor
may proceed against the debtor even before payment, and specifi
es the remedy to which the guarantor is entitled. The 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. The provisions of Article 2071 are applicable and
available to the surety.
The guarantor cannot demand reimbursement for indemnity
because he has not paid the obligation. His remedy is to obtain
release from the guaranty or to demand a security that shall
protect him from any proceedings by the creditor, and against the
danger of insolvency of the debtor.
The guarantor’s or surety’s action for release can only be exercised
against the principal debtor and not against the creditor.
Right of indemnification
2066
he cannot collect more than what he has paid.
The right to indemnity of the guarantor is subject to certain
exceptions or qualifi cations.
Article 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)
Article 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
Article 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.
(1) General rule. — Before the guarantor pays the creditor, he
must fi rst notify the debtor. (Art. 2068.) If he fails to give such
notice and the debtor repeats the payment, the guarantor’s only
remedy is to collect from the creditor, but he has no cause of
action against the debtor for the return of the amount paid by him
(guarantor) even if the creditor should become insolvent. Being at
fault for not advising the debtor, the guarantor must bear the loss.
(2) Exception. — However, the guarantor may still claim
reimbursement from the debtor in spite of lack of notice if the
following conditions are present:
(a) the creditor becomes insolvent;
(b) the guarantor was prevented by fortuitous event to advise the
debtor of the payment; and
(c) the guaranty is gratuitous. In a gratuitous guaranty, the
guarantor receives nothing and it would be unfair to deny him the
right to recover from the principal debtor. If the creditor is solvent,
the guarantor must still recover from him.
Article 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.
Art. 2050 (1) Where the guaranty is constituted without the
knowledge or against the will of the principal debtor, the guarantor
can recover only insofar as the payment had been benefi cial to the
debtor.
Reason:
(Article 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor. (1158a)
Article 1237. Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a
mortgage, guaranty, or penalty. )
(2) Payment by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which,
however, requires the debtor’s consent. But the payment is in any
case valid as to the creditor who has accepted it
(3) The right to demand reimbursement is subject to waiver.
Article 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
Right to subrogation
Article 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.
Article 2050. If a guaranty is entered into without the knowledge or
consent, or against the will of the principal debtor, the provisions
of articles 1236 and 1237 shall apply.
Article 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.
Article 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.
Ex: when the creditor releases or fails to register a mortgage, the
guarantors are thereby released.
Rights of co-guarantors
Benefit of division
Article 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.
Exceptions:
1. When solidarity has been stipulated
2. 2059
In order that a guarantor may set up the benefi t of exhaustion of
the property of the debtor, he must point out to the creditor
available property of the debtor with which to satisfy the debt. If the benefi t of division ceases for reasons other than the
(Art. 2060.) But in order that the guarantor may be entitled to the insolvency of the principal debtor (Art. 2059[1, 2, 4, and 5].), the
benefi t of division, it is not required that he point out the property right to reimbursement granted to G against H and I may only be
of his co-guarantors. The reason is obvious. The obligation of the exercised if G makes payment in virtue of a judicial demand by C.
guarantor with respect to his co-guarantors is not subsidiary, but
direct and does not depend as to its origin on the solvency or
Article 2074. In the case of the preceding article, the co-guarantors
insolvency of the latter, although afterwards, if one of them should
may set up against the one who paid, the same defenses which
turn out to be insolvent, his share has to be borne by the others
would have pertained to the principal debtor against the creditor,
and which are not purely personal to the debtor. (1845)
Article 2078. A release made by the creditor in favor of one of the
guarantors, without the consent of the others, benefits all to the
Defenses: entitled to all defenses which the principal debtor
extent of the share of the guarantor to whom it has been granted.
against the creditor except those personal to the former

As a rule, the guarantors enjoy the benefi t of division. (Art. 2065.)

ARTICLE 2075. A sub-guarantor, in case of the insolvency of the
However, if any of them should be insolvent all the other
guarantor for whom he bound himself, is responsible to the co-
guarantors must bear his share.
guarantors in the same terms as the guarantor. (1846)

Ex: G, H, and I are guarantors for a debt of P9,000.00. If G is

In case of the insolvency of the guarantor for whom he bound
released without the consent of H and I, then H and I will each be
himself, a sub-guarantor (Art. 2064.) is liable to the co-guarantors
liable for only P3,000.00 or 1/3. H and I are benefi ted to the
in the same manner as the guarantor (see Art. 2074.) whom he
extent of P3,000.00, the share of G. If the release is made with
guaranteed.
their consent, H and I will each be responsible for P4,500.00 or 1/2.
If G is released with the consent only of H, H is liable for P6,000.00
and I, for P3,000.00. Extinguishment and right of release

Article 2076. The obligation of the guarantor is extinguished at the

Right of reimbursement same time as that of the debtor, and for the same causes as all
other obligations. (1847)

Effects of Guaranty as Between Co-Guarantors

Article 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.
(1) Guaranty being accessory and subsidiary, it is also terminated
when the principal obligation is extinguished
The causes of extinguishment of obligations, in general, it will be
recalled, are:

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 article shall not be applicable, unless the
payment has been made by virtue of a judicial demand or unless
the principal debtor is insolvent. (1844a)
Article 2073 contemplates a situation which arises when one
guarantor has paid the debt to the creditor and is seeking
reimbursement from each of his co-guarantors the share which is
proportionately owing him. It is required, however, that the
payment must have been made (a) in virtue of a judicial demand,
or (b) because the principal debtor is insolvent.
Ex G, H, and I are D’s guarantors of a debt of P9,000.00 in favor of
C. If D becomes insolvent, the right of G, H, and I to proportionate
division of their obligation ceases as far as C is concerned. (Arts.
2065, par. 2; 2059[3].) C may demand payment of the entire
obligation from any of the guarantors.
(a) payment or performance;
(b) loss of the thing due;
(c) condonation or remission of the debt;
(d) confusion or merger of the rights of the creditor and debtor;
(e) compensation; and
(f) novation.
Other causes of extinguishment of obligations are
annulment, rescission, fulfi llment of a resolutory
condition, and prescription. (Art. 1231.) Death of the
principal is not a defense a surety can use to wipe out
its monetary obligation under a performance bond. The
obligation is merely passed on to the decedent’s estate.

If G pays the whole debt of P9,000.00 he can later demand from H (2) The guaranty itself may be directly extinguished although the
and I P3,000.00 each. But if H is insolvent, his share shall be borne principal obligation still remains such as in the case of the release
by G and I proportionately. of the guarantor made by the creditor (2078)

Under paragraph 2, G can, therefore, demand P4,500.00 from I.

Article 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.
If the creditor accepts property in payment of a debt from the
debtor (Art. 1245.), the guarantor is relieved from responsibility.
This is also true even in case the creditor is subsequently evicted
from the property. Eviction revives the principal obligation but not
the guaranty. The creditor’s action against the debtor is for
eviction and this is different from what the guarantor guaranteed.
Article 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)
Article 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
The reason for the rule is the necessity of avoiding prejudice to the
guarantor. The debtor (and/or indemnitors) may become insolvent
during the extension, thus depriving the guarantor of his right to
reimbursement. (12 Manresa 367.) The guarantor has the right to
pay his creditor and to be immediately subrogated to the creditor’s
remedies against the principal debtor upon the maturity date.
Article 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)
Article 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. \
Tupaz v ca
summary Jose and Petronila, officers of El Oro, signed trust
receipts in behalf of the company, and in favor of BPI. They were
not able to fulfill their obligations under the trust receipts. BPI filed
estafa charges against them. They were acquitted but were held
solidarily liable with El Oro in the payment of the debt to BPI.
Held: Jose and Petronilla are not liable under one trust receipt
because they signed it in their capacities as officers of the
corporation. But, Jose is liable for the other trust receipt because
he signed it in his personal capacity. However, his liability is not
solidary with El Oro; he is liable only as guarantor. The solidary
guaranty clause makes guarantors signing the trust receipt
solidarily liable with each other; it does not operate to make them
solidarily liable with the company. But, the suit against Jose still
stands because excussion is not a pre-requisite to secure judgment
against a guarantor. In fact, excussion can be waived
Surety
Article 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. (
Article 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
Article 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
Article 2082. The bondsman who is to be offered in virtue of a
provision of law or of a judicial order shall have the qualifications
prescribed in article 2056 and in special laws.
A bond, when required by law, is commonly understood to mean
an undertaking that is suffi ciently secured, and not cash or
currency. Of course, whatever surety bonds are submitted are
subject to any objections as to their suffi ciency or as to the
solvency of the bondsman
A bondsman is a surety (Art. 2047, par. 2.) offered in virtue of a
provision of law or a judicial order. He must have the qualifi cations
required of a guarantor (Art. 2056.) and in special laws like the
Rules of Court (Secs. 12, 13, Rule 114, Rules of Court.1 )
Rule 114
Sec. 12. Qualifi cations of sureties in property bond. — The
necessary qualifi cations of sureties to a property bond shall be as
follows:
(a) Each of them must be a resident owner of real estate with in
the Philippines;
(b) Where there is only one surety, his real estate must be worth at
least the amount of the undertaking; and
(c) In case there are two or more sureties, they may justify
severally in amounts less than that expressed in the undertaking, if
the entire sum justifi ed to is equivalent to the whole amount of
bail demanded.
In all cases, every surety must be worth the amount specifi ed in
the undertaking over and above all just debts, obligations and
property exempt from execution.
Nature of bonds. All bonds including “judicial bonds” are
contractual in nature. Bonds exist only in consequence of a
meeting of minds under the conditions essential to a contract. (see
Art. 1305.) Judicial bonds constitute merely a special class of
contracts of guaranty, characterized by the fact that they are given
“in virtue . . . of a judicial order.
Article 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.
Article 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
Guaranty or suretyship is a personal security. On the other hand,
pledge or mortgage is a property or real security. If the person
required to give a legal or judicial bond should not be able to do so,
a pledge or mortgage suffi cient to cover the obligation shall be
admitted in lieu thereof.
Article 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 or of the surety.
A judicial bondsman and the sub-surety are not entitled to the
benefi t of excussion because they are not mere guarantors, but
sureties whose liability is primary and solidary
Effect of negligence of creditor The contract of suretyship is not
that the creditor will see that the principal debtor pays his debt or
fulfi lls his contract, but that the surety will see that the debtor
pays or performs. Hence, mere negligence on the part of the
creditor in collecting from the debtor will not relieve the surety
from liability.
Nature
Where party binds himself solidarily with principal debtor
It all depends upon the terms of the contract or the intention of
the third person. Thus, if his intention is not to convert himself into
a principal debtor but merely to constitute himself as a guarantor
although binding himself solidarily with him, action may be
brought against him outright by reason of the said solidarity but he
retains his character as a guarantor and all the rights inherent in a
guarantor by reason of payment by him.
xxxxxxxx
Specifi cally, suretyship is a contractual relation resulting from an
agreement whereby one person, the surety, engages to be
answerable to a third person for the debt, default, or miscarriage
of another known as the principal.
(1) Liability is contractual and accessory but direct. — Suretyship is
a contractual relation. The surety’s obligation is not an original and
direct one for the performance of his act, but merely accessory or
collateral to the obligation contracted by the principal.
Nevertheless, his liability to the creditor or promisee of the
principal is said to be direct, immediate, primary and absolute. In
other words, he is directly, primarily, and equally bound with the
principal as original promisor although he possesses no direct or
personal interest over the latter’s obligations nor does he receive
any benefi t therefrom
In law, a surety is considered as being the same party as the debtor
and their liabilities are interwoven as to be inseparable
In a suretyship, there is but one contract, and the surety is bound
by the same agreement which binds the principal. A surety is
usually bound with the principal by the same instrument, executed
at the same time and upon the same consideration. (Palmares vs.
Court of Appeals, 288 SCRA 422 [1998].) It is not for the obligee to
see to it that the principal debtor pays the debt or fulfi ll the
contract, but for the surety to see to it that the principal debtor
pays or performs.
(2) Liability is limited by terms of contract. — It is basic that liability
on a bond is contractual in nature and is ordinarily restricted to the
obligation expressly assumed therein. A contract of surety is not
presumed; it cannot extend to more than what is stipulated. The
extent of the surety’s liability is determined only by the clause of
the contract of suretyship as well as the conditions stated in the
bond. It cannot be extended by implication beyond the terms of
the contract.
(3) Liability arises only if principal debtor is held liable. — A surety
contract is made principally for the benefi t of the creditorobligee
and this is ensured by the solidary nature of the surety
undertaking. (Intra Strata Assurance Corp. vs. Republic, supra.) The
surety is “considered in law as being the same party as the debtor
in relation to whatever is adjudged touching the obligation of the
latter,” or the liabilities of the two “are so interwoven and
dependent as to be inseparable.” In other words, if the principal
debtor and the surety are held liable, their liability to pay the
creditor would be solidary but the nature of the surety’s
undertaking is such that it does not incur liability unless and until
the principal debtor is held liable.
(4) Surety is not entitled to exhaustion. — A surety is not entitled
to the exhaustion of the properties of the principal debtor. (see
Art. 2059[2].) The reason is that a surety assumes a solidary liability
for the fulfi llment of the principal obligation (Towers Assurance
Corp. vs. Ororama Supermart, 80 SCRA 262 [1977].) as an original
promissor and debtor from the beginning. But when demanded by
the requirements of justice, the principal obligor rather than the
surety may be required to pay the insured obligation such as
where the former has the necessary amount it got under the bond
with which to comply with the terms thereof
(5) Undertaking is to creditor, not to debtor. — Under a contract of
suretyship, the surety’s undertaking is that the principal shall fulfi ll
his obligation and that the surety shall be relieved of liability when
the obligation secured is performed. The principal cannot claim
that there has been a breach of the surety’s obligation to him
under the suretyship contract when the surety fails or refuses to
pay the debt for the principal’s account. And such failure or refusal
does not have the effect of relieving the principal of his obligation
to pay the premium on the bond furnished by the surety in
consideration of the premium, as long as the liability of the surety
to the obligee subsists.
In a contract of suretyship, unless otherwise expressly provided,
the surety makes no covenant or agreement with the principal that
it will fulfi ll the obligation guaranteed for the benefi t of the
principal. Such promise is not implied by law either; and this is true
even where under the contract the creditor is given the right to
sue the principal, or the latter and the surety at the same time.
(6) Surety is not entitled to notice of principal’s default. — Demand
on the surety is not necessary before bringing suit against them,
since the commencement of the suit is a suffi cient demand. A
surety is not even entitled, as a matter of right, to be given notice
of the principal’s default. Inasmuch as the creditor owes no duty of
active diligence to take care of the interest of the surety, his mere
failure to voluntarily give information to the surety of the default (1) The total amount of the debt;
of the principal cannot have the effect of discharging the surety.
The surety is bound to take notice of the principal’s default and to
(2) The legal interests thereon from the time the
perform the obligation. He cannot complain that the creditor has
payment was made known to the debtor, even though
not notifi ed him in the absence of a special agreement to that
it did not earn interest for the creditor;
effect in the contract of suretyship.

(7) Prior demand by the creditor upon principal not required. — A (3) The expenses incurred by the guarantor after having
creditor’s right to proceed against the surety alone exists notified the debtor that payment had been demanded
independently of his right to proceed against the principal where of him;
both principal and surety are equally bound. (see Art. 1216.) As
soon as the principal is in default, the surety likewise is in default.
(4) Damages, if they are due.
The proper remedy of the surety is to pay the debt and pursue the
principal for reimbursement
Article 2067. The guarantor who pays is subrogated by virtue
(8) Surety is not exonerated by neglect of creditor to sue principal. thereof to all the rights which the creditor had against the debtor.
— Where a creditor refrains from proceeding against the principal,
the surety is not exonerated.
If the guarantor has compromised with the creditor, he cannot
demand of the debtor more than what he has really paid.
Obligations secured

Article 2053. A guaranty may also be given as security for future Article 1217. Payment made by one of the solidary debtors
debts, the amount of which is not yet known; there can be no extinguishes the obligation. If two or more solidary debtors offer to
claim against the guarantor until the debt is liquidated. A pay, the creditor may choose which offer to accept.
conditional obligation may also be secured
He who made the payment may claim from his co-debtors only the
Distinguished from standby letter of credit
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.
Distinguished from guaranty
When one of the solidary debtors cannot, because of his
(1) Guaranty and surety distinguished. — “Strictly speaking, insolvency, reimburse his share to the debtor paying the
guaranty and surety are nearly related, and many of the principles obligation, such share shall be borne by all his co-debtors, in
are common to both. However, under our civil law, they may be proportion to the debt of each.
distinguished thus: A surety is usually bound with his principal by
the same instrument, executed at the same time, and on the same
consideration. He is an original promissor and debtor from the
beginning, and is held, ordinarily, to know every default of his
principal. Usually, he will not be discharged, either by the mere
indulgence of the creditor to the principal, or by want of notice of
the default of the principal, no matter how much he may be http://lestatuesque.blogspot.com/2015/03/credit-transactions-
injured thereby. case-doctrines.html
On the other hand, the contract of guaranty is the guarantor’s own
separate undertaking, in which the principal does not join. It is
usually entered into before or after that of the principal, and is
often supported on a separate consideration from that supporting
the contract of the principal. The original contract of his principal is
not his contract, and he is not bound to take notice of its non-
performance. He is often discharged by the mere indulgence of the
creditor to the principal, and is usually not liable unless notifi ed of
the default of the principal.

Simply put, a surety is distinguished from a guaranty in that a

guarantor is the insurer of the solvency of the debtor and thus
binds himself to pay if the principal is unable to pay while a surety
is the insurer of the debt, and he obligates himself to pay if the
principal does not pay.’’

Distinguished from joint and solidary obligations

Article 2066. The guarantor who pays for a debtor must be

indemnified by the latter.

The indemnity comprises: