NATURE AND EXTENT OF GUARANTY

ART. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
suretyship. (1822a)

Definition of guaranty.

Guaranty, properly so-called, is defined in paragraph 1 of the above article.

It is a contract between the guarantor and creditor.
In its broad sense, guaranty includes pledge and mortgage because the purpose of guaranty
may be accomplished not only by securing the fulfillment of an obligation contracted by the
principal debtor through the personal guaranty of a third person but also by furnishing to the
creditor for his security, property with authority to collect the debt from the proceeds of the
same in case of default. (see 11 Manresa 151-152.)

Characteristics of the contract.

(1) It is accessory because it is dependent for its existence upon the principal obligation
guaranteed by it;
(2) It is subsidiary and conditional because it takes effect only when the principal debtor fails in
his obligation subject to limitation (see Arts. 2053, 2058, 2063, 2065.);
(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. (n)
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. (1830a)
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)
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.)

(3) It is unilateral because —

(a) it gives rise only to a duty on the part of the guarantor in relation to the creditor and not
vice versa although after its fulfillment, the principal debtor becomes liable to indemnify the
guarantor1 (Article 2066. The guarantor who pays for a debtor must be indemnified by the
latter.
The indemnity comprises:.) but this is merely an incident of the contract; and also because
(b) it may be entered into even without the intervention of the principal debtor (Art. 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. (n)); and
(4) It is a contract which requires that the guarantor must be a person distinct from the debtor
because a person cannot be the personal guarantor of himself. A person cannot be both the
primary debtor and the guarantor of his own debt as this is inconsistent with the very purpose
of a guarantee which is for the creditor to proceed against a third person if the debtor defaults
in his obligation. (Velasquez vs. Solidbank Corporation, 550 SCRA 119 [2008].) However, in real
guaranty, like pledge (Art. 2093. In addition to the requisites prescribed in Article 2085, it is
necessary, in order to constitute the con- tract of pledge, that the thing pledged be placed in
the pos- session of the creditor, or of a third person by common agreement. (1863)) and
mortgage (ART. 2124. Only the following property may be the object of a contract of mortgage:
(1) Immovables; (2) Alienable real rights in accordance with the laws, imposed upon
immovables. Nevertheless, movables may be the object of a chattel mortgage. (1874a)), a
person may guarantee his own obligation with his personal or real properties. (see 12 Manresa
155-156.)

Classification of guaranty.
(1) Guaranty in the broad sense:
(a) Personal — This refers to guaranty properly so- called or guaranty in the strict sense. (
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.) Here, the guarantee
is the credit given by the person who guarantees the fulfillment of the principal obligation; or
(b) Real — Here, the guaranty is property, movable or immovable. If immovable, the guaranty is
in the form of real mortgage (ART. 2124. Only the following property may be the object of a
contract of mortgage:
(1) Immovables; (2) Alienable real rights in accordance with the laws, imposed upon
immovables. Nevertheless, movables may be the object of a chattel mortgage. (1874a) or
antichresis (ARTICLE 2132. By the contract of antichresis the creditor acquires the right to
receive the fruits of an immovable of his debtor, with the obligation to apply them to the
payment of the interest, if owing, and thereafter to the principal of his credit. (1881).) and if
movable, in the form of pledge (ARTICLE 2093. In addition to the requisites prescribed in article
2085, it is necessary, in order to constitute the contract of pledge, that the thing pledged be
placed in the possession of the creditor, or of a third person by common agreement. (1863)) or
chattel mortgage. (ARTICLE 2140. By a chattel mortgage, personal property is recorded in the
Chattel Mortgage Register as a security for the performance of an obligation. If the movable,
instead of being recorded, is delivered to the creditor or a third person, the contract is a pledge
and not a chattel mortgage. (n))
(2) As to its origin:
(a) Conventional. — One constituted by agreement of the
parties (Art. 2051, par. 1 Article 2051. A guaranty may be conventional, legal or judicial,
gratuitous, or by onerous title..);
(b) Legal. — One imposed by virtue of a provision of law
(Ibid.); or
(c) Judicial. — One required by a court to guarantee the
eventual right of one of the parties in a case. (Ibid.) (3) As to consideration:
(a) Gratuitous. — One where the guarantor does not receive any price or remuneration for
acting as such (Art. 2048. Article 2048. A guaranty is gratuitous, unless there is a stipulation to
the contrary. (n)); or
(b) Onerous. — One where the guarantor receives valuable consideration for his guaranty.
(Ibid.)
(4) As to the person guaranteed:
(a) Single. — One constituted solely to guarantee or secure performance by the debtor of the
principal obligation (Art. 2051, par. 2. It may also be constituted, not only in favor of the
principal debtor, but also in favor of the other guarantor, with the latter’s consent, or without
his knowledge, or even over his objection. (1823)); or
(b) Double or sub-guaranty. — One constituted to secure the fulfillment by the guarantor of a
prior guaranty. (Ibid.)
(5) As to its scope and extent:
(a) Definite. — One where the guaranty is limited to the principal obligation only, or to a
specific portion thereof (Art. 2055, par. 2 If it be simple or indefinite, it shall compromise not
only the principal obligation, but also all its accessories, including the judicial costs, provided
with respect to the latter, that the guarantor shall only be liable for those costs incurred after he
has been judicially required to pay. (1827a).); or
(b) Indefinite or simple. — One where the guaranty includes not only the principal obligation
but also all its accessories (e.g., interests) including judicial costs. (Ibid.)
Note: Guaranty may also be continuing or not. (see Art. 2053. 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)

Law applicable to contract of suretyship.

Suretyship may be defined as a relation which exists where one person (principal or obligor) has
undertaken an obligation and another person (surety) is also under a direct and primary
obligation or other duty to a third person (obligee), who is entitled to but one performance,
and as between the two who are bound, the one rather than the other should perform. (see
Agro Conglomerates, Inc. vs. Court of Appeals, 348 SCRA 450 [2000].)
Specifically, 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.
If a person binds himself solidarily with the principal debtor, the contract is called suretyship
and the guarantor is called a surety.
In a solidary obligation, a solidary debtor is himself a principal debtor. Hence, a solidary debtor
cannot be considered a guarantor of his co-debtor. Whenever applicable, the provisions on
guaranty (Arts. 2047-2048. 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. (1822a)
Article 2048. A guaranty is gratuitous, unless there is a stipulation to the contrary. (n)) also
apply to suretyship. (see Manila Surety & Fidelity Co., Inc. vs. Batu Construction & Co., 101 Phil.
494 [1957].) It has been held that the provisions of the Civil Code on guaranty, other than the
benefit of excussion, are applicable and available to the surety. (Autocorp. Group vs. Intra
Strata Assurance Corp., 556 SCRA 250 [2008].)

Common law guaranty and suretyship.

Under the old Civil Code, it was held by the Supreme Court that the civil law suretyship is nearly
synonymous with the common law guaranty, and the civil law relationship existing between co-
debtors liable in solidum is similar to the common law suretyship.

Where party binds himself solidarily with principal debtor.

Since guaranty consists in an undertaking to secure the fulfillment of an obligation contracted
by another in case the latter should fail to do so, it is quite possible for a guarantor to bind
himself solidarily with the principal debtor without affecting the nature of the contract.
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.This case of guaranty under which
guarantor binds himself solidarily must not be confused with suretyship as contemplated in the
second paragraph of 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. (1822a)
It has been held, however, that where a party signs a promissory note as a co-maker and binds
herself to be jointly and severally or solidarily liable “with the principal maker of the note in
case, the latter defaults in the payment of the loan, such undertaking of the said party is
deemed to be that of a surety as an insurer of the debt, not of a guarantor who warrants the
solvency of the debtor.

Note: Nevertheless, a distinction must be made between a surety as a co-debtor under a

suretyship agreement and a joint and solidary co-debtor. suretyship requires a separate debtor
to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity
from the obligation between the principal debtor and the creditor. The suretyship does bind
the surety to the creditor, inasmuch as the latter is vested with the right to proceed against the
former to collect the credit in lieu of proceeding against the principal debtor for the same
obligation. At the same time, there is also a legal tie created between the surety and the
principal debtor to which the creditor is not privy or party to. The moment the surety fully
answers to the creditor for the obligation created by the principal debtor, such obligation is
extinguished. At the same time, the surety may seek reimbursement from the principal debtor
for the amount paid, for the surety does in fact “become subrogated to all the rights and
remedies of the creditor.”