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.

Guaranty Suretyship
1. Guarantor’s liability depends Surety assumes liability as a
upon an independent regular party to the undertaking
agreement to pay the
obligation
2. Engagement is a collateral Charged as an original
undertaking promissory
3. Guarantor is subsidiarily Surety is primarily liable –
liable – liable only when bound to pay if principal does
principal can’t pay not pay
4. Guarantor not bound to take Surety ordinarily held to know
notice of the default of his every default of his principal
principal
5. Insurer – solvency of debtor Insurer of debt
6. Only binds himself to pay if Undertakes to pay if principal
principal can’t or is unable to does not pay without regard to
pay his ability to do so
7. Guarantor often discharged by Surety not discharged either by
the mere indulgence of the the mere indulgence of the
creditor and is usually not creditor or by want of notice of
liable unless notified of the default of the principal
principal’s default

GUARANTY
 promise to answer for the payment of debt or the performance
of some duty, in case DR fails to fulfill it’s obligation
 contract of personal security that involves the conditional
obligation of a person, called the guarantor - to fulfill the
 obligation in favor of the creditor, in case the principal debtor
should fail to do so

SURETYSHIP
 is a legal relation that arises when one party assumes liability
for a debt, default or other falling of a second party
 contract where one person – the surety – engages to be
answerable for the debt, default or miscarriage of another – the
principal debtor – with whom it is solidarily bound

Characteristics
1. Accessory
 Existence dependent upon the principal obligation guaranteed
by it
 Obligation of the guarantor always arises as a consequence of a
CONTRACT – whether the guaranty is conventional, legal or
judicial

2. Subsidiary and Conditional

 Takes effect only when the principal debtor fails in his
obligation subject to limitations
3. Gratuitous
4. Consensual
 can be perfected by mere consent – no delivery of
object/property

5. Unilateral
 Gives rise only to a duty on the part of the guarantor in
relation to the creditor and not vice versa
 May be entered into even without the intervention of the
principal debtor

6.Distinct person – a person cannot be the personal guarantor of

himself

Kinds of Guaranty
1. General Classification
1.1 Personal guaranty – an individual personally assumes the
fulfilment of the principal obligation of the debtor.
 1.2 Real guaranty – a property (immovable/movable) is formally
committed to answer for the principal obligation of the debtor.
2. Manner of creation
2.1 Conventional or voluntary (Art. 2051) – constituted by the
agreement of the guarantor and the creditor (voluntary);
guarantor, debtor and creditor (conventional)
2.2 Legal – guaranty created or required by provision of a law –
Art. 2051 – such as that required of a usufructuary (Art. 583 -
2)
2.3 Judicial – guaranty or bond ordered by a court in a pending
case such as that required in the lifting of a writ of attachment
or a writ of preliminary injunction

3. Consideration (Art. 2048)

3.1 Gratuitous – guarantor receives no valuable consideration
because it is entered into for free
3.2 Onerous – guarantor is paid a valuable consideration for his
guaranty of the obligation of the debtor.

4. Scope (Art. 2055)

4.1 Definite – confined or limited to the principal obligation only
or over a specific part thereof, excluding the accessories.
4.2 Indefinite (simple) – covers or comprises not only the
principal obligation but also its accessories including costs
incurred after the guarantor had been required to pay by the
court.

REQUISITES
1. CONSENT
1.1 debtors consent not necessary
As the guarantor binds himself to the CR and not to the
principal DR – latter’s consent is not essential to the contract
of guaranty
The contract of guaranty is the guarantor’s own separate
undertaking, in which the principal debtor does not join him.

Art. 2050. If a guaranty is entered into without the

knowledge or consent, or against the will of the principal
debtor, the provisions of – shall apply.
 Article 1236 – the creditor is not bound to accept payment
or performance by a 3rd person who has no interest in the
fulfilment 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. (Guarantor
can only recover insofar as the payment has been beneficial
to the debtor – principle of solution indebiti) and

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 pledge. (Guarantor
can’t compel the creditor to subrogate him in his rights)

 contract of guaranty may be constituted even without

knowledge or consent or against the will of the debtor –
undertaking is for benefit of the creditor – debtor not a
party to the contract
 what is necessary is acceptance by the creditor
 how much could be recover – depends - could recover whole
amount or to the extent debtor was benefited

1.2 creditors consent necessary

 While a guaranty may be created without the consent of the
principal DR – CONVENTIONAL GUARANTY – conformity of
the CR is necessary
 Where there is merely an offer or proposition for, a guaranty,
or merely a conditional guaranty in the sense that it requires
an action by the CR before the obligation becomes fixed, it
does not become a binding obligation until it is accepted
and, unless there is a waiver of notice of such acceptance is
given to, or acquired by the guarantor, or until he has notice
or knowledge that the CR has performed the conditions and
intends to act upon the guaranty.
  Acceptance need not be in writing or express – may be
indicated by overt acts – amount to acceptance.

1.3 who may consent to be a guarantor

 In general, the person who may constitute guaranty, and,
accordingly, may be guarantors – are those whom the law
recognizes as having sufficient capacity to obligate
themselves validly.
 Art. 2049. A married woman may guarantee an obligation
without the husband's consent = only her separate property
liable
 shall not thereby bind the conjugal partnership
 except in cases provided by law – guaranty has rebounded
to the benefit of the family OR with consent of husband
 conjugal property use as a collateral without consent of
the other spouse, what’s the status of the principal
contract – how about the contract of guaranty
Art. 96. The administration and enjoyment of the
community property shall belong to both spouses
jointly. In case of disagreement, the husband's
decision shall prevail, subject to recourse to the court
by the wife for proper remedy, which must be availed
of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or
otherwise unable to participate in the administration
of the common properties, the other spouse may
assume sole powers of administration. These powers
do not include disposition or encumbrance without
authority of the court or the written consent of the
other spouse. In the absence of such authority or
consent, the disposition or encumbrance shall be void.
However, the transaction shall be construed as a
continuing offer on the part of the consenting spouse
and the third person, and may be perfected as a
binding contract upon the acceptance by the other
spouse or authorization by the court before the offer is
withdrawn by either or both offerors.
 Art. 110. The spouses retain the ownership,
possession, administration and enjoyment of their
exclusive properties.
Either spouse may, during the marriage, transfer the
administration of his or her exclusive property to the
other by means of a public instrument, which shall be
recorded in the registry of property of the place the
property is located.

Arts. 94 & 121. The conjugal partnership shall be

liable for:
(2) All debts and obligations contracted during the
marriage by the designated administrator-spouse for
the benefit of the conjugal partnership of gains, or by
both spouses or by one of them with the consent of the
other;
(3) Debts and obligations contracted by either spouse
without the consent of the other to the extent that the
family may have benefited;
(7) Ante-nuptial debts of either spouse insofar as they
have redounded to the benefit of the family;
If the conjugal partnership is insufficient to cover the
foregoing liabilities, the spouses shall be solidarily
liable for the unpaid balance with their separate
properties.
Art. 122. The payment of personal debts contracted by
the husband or the wife before or during the marriage
shall not be charged to the conjugal properties
partnership except insofar as they redounded to the
benefit of the family.

II. SUBJECT MATTER

KINDS OBLIGATIONS THAT COULD BE SECURED –
I. EXISTING OBLIGATION
Art. 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.
1. Valid obligations
2. Voidable obligations
o One which has all the essential elements of a valid
contract, except that the element of consent – vitiated =
valid and obligatory between the parties before its
annulment.
o such contract is binding unless annulled – court action.
3. Unenforceable obligations
o One which can’t be enforced by action or complaint in
court, unless they have been ratified by the parties who
didn’t give their consent thereto.
Since both (3 & 4) are considered valid obligations between
the parties until their annulment, and subject to ratification,
they can be secured in a contract of guaranty.
4. Natural obligations
o Creditor may proceed against the guarantor although he
has no right of action against the principal debtor for the
reason that the latter’s obligation is not civilly enforceable
o When the DR himself offers a guaranty for his natural
obligation, he impliedly recognizes his liability, thereby
transforming the obligation from a natural to civil.
5. Conditional obligations
 a guaranty may secure all kinds of obligations, be they pure or
subject to a suspensive or resolutory condition
 Void contracts – not possible – accessory follow the principal

II. Art. 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.

Conditional Obligations
 subject to the fulfillment of the condition - suspensive OR
resolutory in nature
 the happening of the condition will determine status of the
contract of guaranty
1.Principal obligation subject to a suspensive condition –
guarantor is liable only after the fulfilment of the condition
2.Principal obligation subject to a resolutory condition –
the happening of the condition extinguishes both the
principal obligation and the guaranty

Continuing Guaranty:
 One which covers all transactions including those arising
in the future, which are within the description or
contemplation of the contract of guaranty until the
expiration or termination thereof.
 Common in present day financial and commercial practice
 Under the Civil Code, a guaranty may be given to secure
even future debts or transactions or dealings, the amount
of which may not be known at the time the guaranty is
executed.
 Not limited to a single transaction but which contemplates
a future course of dealing, covering a series of transactions
generally for an indefinite time or until revoked
 Prospective in operation and is generally intended to
provide security with respect to future transactions for an
indefinite time or until a certain period
 Future debts, even if the amount is not yet known, may be
guaranteed but there can be no claim against the
guarantor until the amount of the debt is ascertained or
fixed and demandable
 Where the contract of guaranty states that the same is to
secure advances to be made "from time to time" the
guaranty will be construed to be a continuing one.”

Rationale: A contract of guaranty is subsidiary.

a.To secure the payment of a loan at maturity – surety binds
himself to guarantee the punctual payment of a loan at
maturity and all other obligations of indebtedness which
may become due or owing to the principal by the borrower.
 b.To secure payment of any debt to be subsequently incurred
– a guaranty shall be construed as continuing when by the
terms thereof it is evident that the object is to give a
standing credit to the principal debtor to be used from time
to time either indefinitely or until a certain period,
especially if the right to recall the guaranty is expressly
reserved.
c. To secure existing unliquidated debts – refers to debts
existing at the time of the constitution of the guaranty but
the amount thereof is unknown and not to debts not yet
incurred and existing at that time.
d.The surety agreement itself is valid and binding even before
the principal obligation intended to be secured thereby is
born, just like obligations which are subject to a condition
precedent are valid and binding before the occurrence of
the condition precedent.

Test of continuing guaranty

 the terms thereof - it is evident that the object is to give a
standing credit to the principal debtor to be used from time to
time either indefinitely or until a certain period, especially if
the right to recall the guaranty is expressly reserved
 wordings used would be indicative of the intent of the parties
and to construe the undertaking – continuing in nature

III. FORM
Art. 2055. (FORM) 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.

Guaranty NOT presumed:

 The assumption of guaranty must be expressed – MUST BE IN
WRITING - It can’t extend to more than what is stipulated
therein.
 o PUBLIC INSTRUMENT?

 While Art. 2055 provides that it must be “express”, Art. 1403

(2-b) Statute of Frauds requires that “a special promise to
answer for the debt, default or miscarriage of another” be in
writing.
 What it requires to be in writing in order for the contract of
guaranty to be enforceable – is the undertaking or the special
promise of the guarantor – signed by him
 Oral guaranty is unenforceable. The Statute of Frauds which
is a defense available to the defendant may however be waived.
The unenforceable contract may also be ratified. (Art. 1405)
Guaranty covered by the statue of frauds:
 Guaranty must not only be expressed but must so be reduced
into writing
 It shall be unenforceable by action, unless the same or some
note or memorandum thereof be in writing, subscribed by the
party or by his agent
 Evidence can’t be received without the writing or secondary
evidence of its contents (Macondray & Co. vs. Pinon 2 SCRA
1109)
Guaranty strictly construed:
 Strictly construed against the creditor in favor of the guarantor
o Guaranty being a special obligation
 Not intended to go beyond its terms or specified limits
 Doubts in terms/conditions resolved in favor of guarantor or
surety

Exceptions – rule on strictissimi juris:

1.Cases of compensated sureties
 The guarantor in entering into the contract could have fixed
the limits of his responsibility solely to the strict terms of the
principal obligation and if he did not do so, it must be
presumed that he wanted to be bound to the extent so
established.

Acceptance by the creditor

 Acceptance by the CR of the offer or proposition for a guaranty –
express or in writing – overt act of the parties indicating
acceptance would suffice
Acceptance of the guarantor – NECESSARY – perfected contract
of guaranty - if transaction is merely an offer of guaranty OR if
the guaranty is by the terms of the principal contract subjects to
the creditors approval
BUT – direct or unconditional promise of guaranty – all that is
necessary to make the promise binding is that the promise
should act upon it – NOTICE OF ACCEPTANCE NOT
NECESSARY – contract of guaranty – UNILATERAL

Art. 2048. A guaranty is gratuitous, unless there is a stipulation to

the contrary.

Effect of absence of direct consideration or benefit to guarantor:

 Contract is valid despite absence of any direct consideration
 Consideration need not pass directly to guarantor;
consideration moving to the principal office will suffice
 The guarantor is liable for the debt or duty of another although
he possesses no direct or personal interest over the obligation
nor does he receive any benefit therefrom.

Principal parties in a contract of guaranty

1. Creditor
2. Principal debtor
3. Guarantor or co-guarantors

Ancillary party
Sub-guarantor

THE GUARANTOR
Art. 2047. Person who binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do
so.
Married women
Art. 2049. A married woman may guarantee an obligation
 Personal property – no need for husband's consent
  Conjugal property – husbands consent NECESSARY
o No consent – not valid - except in cases provided by law.
QUALIFICATIONS
Art. 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.

Qualifications of guarantor:
1.Must possess integrity
2.Must have capacity to bind himself
3.Must have sufficient property to answer for the obligations
which he guaranteed
 Qualification need be present ONLY at the time of the perfection
of the contract
 If one or more of the qualifications – impaired due to
supervening events, creditor may demand another qualified
guarantor
 The subsequent loss of integrity, property or supervening
incapacity of the guarantor WOULD NOT OPERATE to
exonerate the guarantor or the liability he had contracted =
contract of guaranty continues = creditor may demand another
qualified guarantor
Selection of Guarantor:
1. Specified person stipulated as guarantor
Substitution may not be demanded
Reason: selection of the guarantor is:
a. A term of the agreement
b. As a party, the creditor is, therefore bound thereby
2. Selected by the principal debtor
 Debtor answer’s for the integrity, capacity and solvency of
Guarantor
3. Personally designated by creditor
 Responsibility fall upon CR
Art. 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.

Instances when creditor may demand new guarantor:

1. Art. 2057 – convicted of crime involving dishonesty – estafa
2. Original guarantor becomes insolvent
3. Art. 2056 – one or more of qualifications got impaired

 Insolvent – no need for Judicial declaration

 Guarantor dies – heirs are still liable – obligation not purely
personal – transmissible

CO-GUARANTOR
Art. 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.

 Just basically one of the several guarantors of only one debtor

for the same debt
 Co-guarantors liable jointly UNLESS otherwise expressly
stipulated

SUB-GUARANTOR
Art. 2051. (2nd par) – one constituted, in favor of the other
guarantor, with the latter's consent, or without his knowledge, or
even over his objection.

Double or Sub-guaranty
 One constituted to guarantee the obligations of the guarantor
 o In case of insolvency of the guarantor for whom he bound
himself, he is responsible to the co-guarantors in the same
term as the guarantor.
o Entitled to the right of excussion, both with respect to the DR
and guarantors

 Sub-guarantor assumes the obligation of the guarantor

o Liability will accrue in case guarantor fail to fulfill -
obligation
 Since such is constituted in favor of the creditor and not of the
1st guarantor – consent of the latter NOT NECESSARY

LIABILITY

Extent
Art. 2055. A guaranty is not presumed; it must be express and
cannot extend to more than what is stipulated therein.
 Guaranty CAN’T extend to more than what is stipulated therein
 rule of strictissini juris – undertaking of the guarantor is to
be considered strictly – bound to the extent pointed out in his
obligation and no further – liability could not be extended by
implication
 complementary contracts construed together doctrine
 accessory contract should be read side by side with the main
contract – not independently of the main contract
 should be construed together to be able to arrive at their true
meaning (Velasquez v. CA 309 S 539 [1999])
 a surety or guaranty contract – being merely accessory –
must be interpreted with its principal contract – Art. 1374 -
The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which
may result from all of them taken jointly.

Measure
Art. 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.

Art. 2055. (2nd par) 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.

Nature of liability:
1. definite – liability is limited only to principal
2. indefinite
- liability covers both principal and accessories, including judicial
cost
- If the terms are general and indefinite and do not specify in
clear and express manner that the liability of the guarantor is
limited to the principal obligation – it extends not only to the
principal obligation but also to all its accessories.

GENERAL RULE
 guarantor cannot bind himself for more than the principal
debtor
- if he does, his liability shall be reduced to the limits of that of
the debtor
 Guaranty is a subsidiary and accessory contract
 Unfair to make the guarantor liable for more than the
obligation of the principal debtor
 but the guarantor may bind himself for less than that of the
principal
 Liability not LIMITED to the principal obligation
o Guarantor liable also accessories

EXCEPTIONS
a.Interest, judicial costs, and attorney’s fees as part of damages
may be recovered – creditors may recover from the
guarantor/surety as part of their damages, interest at the legal
rate, judicial costs, and attorney’s fees when appropriate, even
without stipulation and even if the guarantor/surety would
 thereby become liable to pay more than the total amount
stipulated in the bond.
Reason: surety is made to pay, not by reason of the contract, but
by reason of his failure to pay when demanded for having
compelled the creditor to resort to court action to obtain
payment

Interest runs from:

 Filing of the complaint (upon judicial demand); or
 The time demand was made upon the surety until the principal
obligation is fully paid (upon extra-judicial demand)

b. Penalty may be provided – a surety may be held liable for the

penalty provided for in a bond for violation of the condition
therein.

Principal’s liability may exceed guarantor’s obligations

 amount specified in surety bond as the surety’s obligation does
not limit the extent of latter’s liability - being governed by the
obligations he assumed under his contract

Instances guarantor required pay more than the original

obligation:
1. If upon demand, guarantor fails to pay, can be held liable for
interest even if in paying the liability becomes more than that
of the principal obligation
 Increased in liability NOT because of the contract BUT
because of the default and the necessity for judicial collection

2. CR’s suing on a surety bond may recover from the surety, as

part of damages, interest at the legal rate, judicial cost and
attorney’s fees when appropriate
3. Penalty clause – increase liability of surety

Amount of guaranty/surety less than the principal

- Apply rule on application of payment
 EFFECTS OF GUARANTY
1. Guarantor – Creditor
2. Debtor – Guarantor
3. Co-guarantors

I. Between the Guarantor and the Creditor

FUTURE DEBTS
Art. 2053. If guaranty 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.

 Liquidated – amount is fixed and due

COMPROMISE
Art. 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.
Effects of a Compromise
 between the creditor and the principal debtor
 if beneficial to the guarantor, it is valid; if not, it is not
binding upon him.
 between the guarantor and the creditor
 if beneficial to the principal debtor it is binding upon the
latter.
 Compromise agreement is only between the principal parties.
 Can’t prejudice guarantor who was not party to the
compromise.
EXCUSSION
Art. 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.

Principle of exhaustion or excussion – refers to the right of the

guarantor to be free from execution of his own properties
until the creditor shall have first exhausted all the
 properties of the principal debtor and has resorted to all
the legal remedies against the latter.

Requisites:
1. Guarantor must set up the right of exhaustion against the CR
upon the latter’s demand for payment from him
2. Point out to the CR the available property(s) of DR not
exempted from execution
3. Property must be sufficient to cover amount of debt

 Before guarantor can be compelled to pay the CR, all the

properties of the principal debtor must have been 1 st
exhausted and all remedies against him had been resorted to
by the CR
 CR must 1st obtain a judgment against the principal DR
before assuming to run after the alleged guarantor, for
obviously the exhaustion of the principal DR’s can’t even
begin to take place before judgment has been obtained (JN
Dev. Corp v. Phil. Export & Foreign Loan Guarantee 468 S
555)
 It’s useless to speak to the guarantor when no DR has been
held liable for the obligation which is allegedly secured by a
guaranty. (Baylon v. CA 312 S 502) .
 Guarantor’s liability – subsidiary & accessory
 NOT applicable to surety

 CR may implead guarantor as co-defendant (rule on

permissive joinder of parties)
 In Baylon v. CA – both the DR and guarantor was sued.
However only the guarantor was served with summons and
therefore the court did not acquire jurisdiction over the
person of the DR. Judgment was rendered against guarantor.
SC held – guarantor can’t be held liable in the absence of a
judgment against the DR – latter failed to pay. Guarantor’s
liability – subsidiary – entitled to the benefit of excussion.
 If CR obtained a favourable judgment, guarantor entitled to
the deferment of execution of judgment until all properties of
DR have been exhausted. (Southern Motors v. Barbosa 99
Phil 263)
  Excussion is a right granted to the guarantor, and therefore,
only he may invoke it at his discretion. The benefit of
excussion, as well as the requirement of consent to extension
of payment, is a protective device pertaining to and conferred
on the guarantor. These may be invoked by the guarantor
against the CR as defenses to bar the unwarranted
enforcement of the guarantee.
 However when the guarantor did not avail of these defense and
paid its obligation – tenure of the guarantee once demand is
made – DR’s may not raise the same against guarantor, which
only the guarantor may invoke – in 1st place against the CR –
to avoid payment of obligation to the guarantor. (JN Dev. Corp
v. Phil. Export & Foreign Loan Guarantee 468 S 555)

 Effect of DR Insolvent
 Having been declared as insolvent does not necessarily mean
that DR can’t be held liable, part of DR’s assets may still be
available to CR.

Art. 2059. The excussion shall not take place:

1.If the guarantor has expressly renounced it;
- waiver must be in express terms
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.
Other grounds:
6. Fails to comply with any of the conditions in Art. 2060
1. Guarantor pledged or mortgaged his own property to the
creditor as a special security for the fulfilment of the DR’s
obligation
2. Guarantor fails to interpose the defense before judgment is
rendered against him by the court
3. Guarantor is a judicial bondsman or a sub-surety because
liability here is primary and solidary (Art. 2084)
 Art. 2064. The guarantor of a guarantor shall enjoy the benefit
of excussion, both with respect to the guarantor and to the
principal debtor.
Sub-guarantor stands on same footing as guarantor; enjoys
same benefit granted to the latter.
Sub-guarantor may also invoke the benefit of excussion –
BOTH – with respect to guarantor and principal CR.

Art. 2060. – Duty of CR to make demand for payment

 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.
 CR may demand payment only after a judgment has been
rendered against the DR and same could not be satisfied
 Joining the guarantor in the suit against the principal DR is not
the demand intended by law. There must actual demand NOT
judicial demand.

Art. 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.
 Guarantor may still be held liable if there remains a balance
after deducting the value of the loss caused by CR’s negligence

Art. 2062. – Procedure when CR sues - 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. Case be against principal DR

 Joinder of parties:
General rule: guarantor not being a joint contractor with his
principal can’t be sued with his principal
Exception: where it would serve merely to delay or guarantor
not entitled to the benefit of excussion

 Guarantor can be sued jointly with the principal DR

 In case court rules against both of them, guarantor NOT being
a surety is still entitled to the benefit of excussion

2. Notice to the guarantor of the action

 Guarantor must be notified so that he may appear if he so
desires and set up defences he may want to offer
 Voluntary appearance – does not constitute a waiver - right to
excussion
 Does not appear
 Can’t set up defences which, by appearing are allowed to
him by law
 Can’t question validity of the judgment rendered against
DR

3. Hearing before execution can be issued against the

guarantor
 Guarantor is entitled to be heard before an execution can be
issued against him where he is not a party in the case
involving his principal

II. Between the Debtor and the Guarantor

Art. 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 DR, even though it did not earn interest
for the CR;
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.

Rule:
 guarantor must pay CR before he could be reimbursed by the DR
 while a guarantor enjoys the benefit of excussion – NOTHING –
prevents him from paying the obligation once demand is made on
him
 excussion after all, is a right granted to him by law – and as such
he may opt to make use of it or waive it
 guarantors waiving of right of excussion CAN’T prevent him from
demanding reimbursement from the principal DR
 law clearly requires the DR to indemnify the guarantor what the
latter has paid (JN Dev. Corp v. Phil. Export & Foreign Loan
Guarantee 468 S 555)

Exception: - Guarantor who pays HAS NO RIGHT TO DEMAND

REIMBURSEMENT from DR in the following instances:
1. gurantor has paid w/out notifying the DR, and the latter not
being aware of the payment makes payment – cause of action –
against CR (double payment)
EXCEPTION: gratuitous guaranty – guarantor was prevented
from notifying DR by fortuitous event – CR becomes insolvent –
guarantor could seek reimbursement from DR

2. guaranty was entered into or constituted without the

knowledge or against the will of the principal DR; guarantor
can recover only insofar as the payment has been beneficial to
the DR
 PAYMENT NOT BENEFICIAL TO DR – guarantor does not
acquire any valid claim for reimbursement (Art. 2050 in
relation to Art. 1236)
3. Payment by 3rd person who does not intend to be reimbursed =
deemed to be a donation, which however requires DR’s
consent.
4. Waiver

Art. 2067. Right of Subrogation

  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.
“Art. 1303 - Subrogation – transfers to the person
subrogated the credit with all of the rights thereto
appertaining, either against the DR or against 3rd persons,
be they guarantors or possessors of mortgages, subject to
stipulation in a conventional subrogation.”

The right of subrogation arises by operation of law upon

payment by the guarantor.
If the debt was for a period and the guarantor paid it
before it becomes due – he CAN’T – demand
reimbursement until the expiration of the period –
UNLESS – such payment has been ratified by the DR.

EXCEPTION TO RULE ON SUBROGATION

1. Art. 2070. Repeat payment by the DR
General rule: guarantor before paying must notify first DR
 If the guarantor pays without notifying DR, and the latter
not being aware of the payment, repeats the payment
 Guarantor’s remedy – collect from CR
 No cause of action against DR for the return of the amount
paid.
Exception to exception:
a.in case guaranty is gratuitous;
b.the guarantor due to a fortuitous event was prevented from
advising the debtor of the payment; and
c.the creditor becomes insolvent

 the debtor shall reimburse the guarantor for the amount paid.

II. Art. 2050 – if guaranty is entered into without the knowledge or

consent of or against the will of the DR – guarantor not entitled
to benefit of subrogation
Art. 2068. Payment without notice to DR
 If the guarantor should pay without notifying the debtor, the
LATTER – DR - may enforce against him all the defenses which
he could have set up against the creditor at the time the
payment was made – i.e, remission, prescription, performance,
etc.

 Guarantor must wait for the CR to collect from the DR

 If the latter can’t pay, then that is the only time guarantor
should pay.

Art. 2069. Payment before Maturity

 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.

 Being subsidiary in character, guaranty is not enforceable until

the debt has become due.

Art. 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.

 Action is not for reimbursement as no payment has been made

 Action is either
1.A demand for release from the guaranty
2.Demand for sufficient security that will protect him from
CR’s complaint and from the danger of DR’s insolvency

 Purpose is for the guarantor to protect itself from

1.Any proceeding by the creditor
2.Danger of insolvency of the debtor

Art. 2066 – right to Art. 2071 – right to proceed

reimbursement after payment against DR even before payment
Provides for the enforcement of Provides for the protection before
the rights of the guarantor he has paid but after he has
against the DR after he has paid become liable – gives a protective
the debt – gives a right of action remedy before payment
after payment
Substantive right Preliminary remedy
Gives a right of action, which, Remedy given seeks to obtain
without the provisions of the from the guarantor “release from
other might be worthless the guaranty or to demand a
security that shall protect him
from any proceedings by the CR
and from the danger of
insolvency of the DR

III. Between Co-Guarantors

Art. 2065. Benefit of Division

 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.
 Liability of 2 or more co-guarantors – joint unless parties
provides otherwise
 Benefit must be raised at the time demand for payment is
made upon the guarantors

 When creditor may GO against only 1 guarantor:

1. Co-guarantor against whom the CR is claiming payment
renounced the benefit of division
2. Co-guarantor binds himself solidarily with the co-guarantor
3. Co-guarantor is insolvent
4. Co-guarantor has absconded or can’t be sued within the
Philippines unless it had left a manager or representative
5. Presumption that an execution on the property of the co-
guarantor would not result in the satisfaction of the obligation

Art. 2073. – Benefit of Contribution

 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.
 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 is applicable - payment has been
made by virtue of a judicial demand or unless the principal
debtor is insolvent.
 Requisites:
1. Several guarantors – MUST BE – same DR and same DEBT
2. Payment have been made by the guarantor concerned –
JUDICIAL DEMAND or principal DR is INSOLVENT

 If said requisite – NOT PRESENT – guarantor who pays debt in

its entirety – willingly with renunciation of the benefit of
division – CAN’T seek reimbursement from co-guarantors –
cause of action – against principal DR
 Art. 2073 - Benefit of Art. 2065 – Benefit of division
contribution
Controversy is between and Controversy is between the co-
among several co-guarantors guarantors and the CR who is
claiming payment from all or one
or some of the several co-
guarantors
There has been payment of the No payment yet, but merely a
debt – paying co-guarantor is claim pressed against one or
seeking contribution of co- more co-guarantors
guarantors

 APPLIES TO CONTRACTS OF SURETY

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. (remission,
prescription, etc. EXCEPT personal in nature)

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.

Mode of extinguishing guaranty:

I. Indirect way
Art. 2076. The obligation of the guarantor is extinguished at the same
time as that of the debtor
 Guaranty is an accessory obligation – CAN’T – subsists without a
principal obligation the fulfillment of which it secures

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.

II. Direct way

 Art. 2076. The obligation of the guarantor is extinguished ……. for the
same causes as all other obligations.
- Art. 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 the CR and DR
5.By compensation
6.By novation

 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 death of guarantor

 Heirs are still liable to the extent of the value of the inheritance
 Obligation not purely personal, hence transmissible
- Effect of debtor’s death
o Obligation will survive
o Estate will be answerable
o If not sufficient, guarantor liable for difference

Special causes for extinguishment of guaranty

1. Extension granted to DR by CR w/out guarantors consent
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.
 Requirement that the guarantor should consent to any extension
– for the benefit of the guarantor
 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.
2. Deprivation of guarantor or right to be subrogated to creditor
DUE to latter’s act
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.
Right of guarantor to avail of DR’s defenses against CR
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.

Extinguishment of guaranty
1. Once the obligation of the debtor is extinguished in any manner
provided in the Civil Code, the obligation of the guarantor is also
extinguished (2076). However, there may be instances when, after the
extinguishment of the guarantor’s obligation (as in the case of a
release from the guaranty), the obligation of the debtor still subsists.
2. Although the guarantor generally has to make payment in money, any
other thing of value, if accepted by the creditor, is valid payment and
therefore releases the guarantor (2077).
3. If one guarantor is released without the consent of the others, the
release would benefit the co-guarantors to the extent of the
proportionate share of the guarantor released (2078).
4. A guarantor is released if the creditor, without the guarantor’s
consent, extends the time within which the debtor may perform his
obligation (2079). This is to protect the interest of the guarantor
should the debtor be insolvent during the period of extension and
deprive the guarantor of his right to reimbursement.
5. The guarantors are released if by some act of the creditor they cannot
be subrogated to the rights, mortgages and preferences of the latter.
(2080)

SURETYSHIP

Art. 2047. 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.

SURETYSHIP is a relation which exists

 where one person (principal) has undertaken an obligation,
 assume liability for a debt, default or other failing of a second
party
  contract where one person (surety) engages to be answerable
for the debt, default or miscarriage of another the principal
debtor with whom he is solidarily liable
 personal security – where the surety binds himself solidarily
with the principal DR to the CR to fulfill the obligation of the
principal DR in case the latter should fail to do so

While a surety undertakes to pay if the principal does not pay, the
guarantor only binds himself to pay if the principal cannot pay.

Guaranty Suretyship
Guarantor’s liability depends Surety assumes liability as a
upon an independent agreement regular party to the undertaking
to pay the obligation
Engagement is a collateral Charged as an original
undertaking promissory
Guarantor is subsidiarily liable – Surety is primarily liable –
liable only when principal can’t bound to pay if principal does
pay not pay
Guarantor not bound to take Surety ordinarily held to know
notice of the default of his every default of his principal
principal
Insurer – solvency of debtor Insurer of debt
Only binds himself to pay if Undertakes to pay if principal
principal can’t or is unable to does not pay without regard to
pay his ability to do so
Guarantor often discharged by Surety not discharged either by
the mere indulgence of the the mere indulgence of the
creditor and is usually not liable creditor or by want of notice of
unless notified of the principal’s default of the principal
default

Similarity between Guaranty – Suretyship

- Both promise or undertake to answer for the debt, default or
miscarriage of another
- Same characteristics

Absence of direct consideration or benefit to surety

  Surety agreement is regarded valid despite the absence of any
direct consideration received by the surety
 Such consideration need not pass directly to the surety
 A consideration moving to the principal will suffice

 It is not necessary to prove any consideration as between the

surety and the creditor.
 The consideration which supports the obligation as to the
principal debtor is sufficient consideration to support the
obligation of the surety.
 The surety is liable for the debt or duty of another, although he
possesses no direct or personal interest over the obligation nor
does he receive any benefit thereof.

A person who at the on-set merely guarantees the obligation of

MAY BE HELD liable as a surety – by considering the wordings
used by the parties in the contract to denote one’s extent of
participation in the contract
Thus where a person signs the promissory note as co-maker
and binds himself to be jointly and severally liable with the
principal DR – in default of the latter he becomes liable as
surety (International Fin. Corp. v. Textile Mills 475 S 149)
The use of the word guarantee in the contract does not imply
ipso facto that said contract is one of guaranty, circumstances
may convert the contract into one of suretyship.

Kinds Obligations that could be secured – contract of guaranty:

1. Valid obligations
2. Voidable obligations
o One which has all the essential elements of a valid
contract, except that the element of consent – vitiated =
valid and obligatory between the parties before its
annulment.
3. Unenforceable obligations
o One which can’t be enforced by action or complaint in
court, unless they have been ratified by the parties who
didn’t give their consent thereto.
 o Since both are considered valid obligations between the
parties until their annulment, and subject to ratification,
they can be secured in a contract of guaranty.
4. Natural obligations
o When the DR himself offers a guaranty for his natural
obligation, he impliedly recognizes his liability, thereby
transforming the obligation from a natural to civil.
5. Conditional obligations

Nature and extent of suretyship

1. Liability is ancillary and accessory but direct, primary and
absolute
2. Liability is limited by the terms of the contract
3. Liability arises only if principal debtor is held liable

 In the absence of collusion, the surety is bound by a judgment

against the principal DR even though he was not a party to the
proceedings;
 The creditor may sue, separately or together, the principal
debtor and the surety;
 A demand or notice of default is not required to fix the surety’s
liability
o Exception: Where required by the provisions of the
contract of suretyship
 A surety bond is void where there is no principal debtor because
such an undertaking presupposes that the obligation is to be
enforceable against someone else besides the surety, and the
latter can always claim that it was never his intention to be the
sole person obligated thereby.

NOTE: Surety is not entitled to exhaustion

4. The undertaking is to the creditor, not the debtor

The surety makes no covenant or agreement with the principal
that it will fulfill the obligation guaranteed for the benefit of
the principal.
Suretyship requires a principal DR - whom the surety is
solidarily bound – by way of an ancillary obligation of
 segregate identity from the obligation between the principal
DR and CR.
Suretyship DOES NOT bind the surety to the CR – since the
latter can proceed outright against the former to collect the
credit in lieu of proceeding against the principal DR for the
same obligation.
Legal undertaking created between the surety and principal
DR of which the CR is not privy or a party to.
Moment surety pays CR – obligation created by principal DR is
extinguished – subrogated to all the rights and remedies the
law grants unto the CR
The surety’s undertaking is that the principal shall fulfill his
obligation and that the surety shall be relieved of liability
when the obligation secured is performed.

EXCEPTION: Unless otherwise expressly provided.

5. Prior demand by the creditor upon principal not required.

Surety is not exonerated by neglect of creditor to sue
principal.

Strictissimi juris rule applicable only to accommodation surety

Reason: An accommodation surety acts without motive of pecuniary
gain and hence, should be protected against unjust pecuniary
impoverishment by imposing on the principal, duties akin to those
of a fiduciary. This rule will apply only after it has been definitely
ascertained that the contract is one of suretyship or guaranty.

Strictissimi juris rule NOT applicable to compensated sureties

Reasons:
1. Compensated corporate sureties are business associations
organized for the purpose of assuming classified risks in large
numbers, for profit and on an impersonal basis.
2. They are secured from all possible loss by adequate counter-
bonds or indemnity agreements.

Such corporations are in fact insurers and in determining their

rights and liabilities, the rules peculiar to suretyship do not apply.
Suretyship:
 One which c overs all transactions including those arising in
the future, which are within the description or contemplation
of the contract of guaranty until the expiration or termination
thereof.
 Under the Civil Code, a guaranty may be given to secure even
future debts, the amount of which may not be known at the
time the guaranty is executed. This is the basis for contracts
denominated as continuing guaranty or suretyship. (Diño v.
CA)
 Prospective in operation and is generally intended to provide
security with respect to future transactions
 Future debts, even if the amount is not yet known, may be
guaranteed but there can be no claim against the guarantor
until the amount of the debt is ascertained or fixed and
demandable

Rationale: A contract of guaranty is subsidiary.

a.To secure the payment of a loan at maturity – surety binds
himself to guarantee the punctual payment of a loan at
maturity and all other obligations of indebtedness which may
become due or owing to the principal by the borrower.
b.To secure payment of any debt to be subsequently incurred – a
guaranty shall be construed as continuing when by the terms
thereof it is evident that the object is to give a standing credit
to the principal debtor to be used from time to time either
indefinitely or until a certain period, especially if the right to
recall the guaranty is expressly reserved.
c. To secure existing unliquidated debts – refers to debts existing
at the time of the constitution of the guaranty but the amount
thereof is unknown and not to debts not yet incurred and
existing at that time.
d.The surety agreement itself is valid and binding even before the
principal obligation intended to be secured thereby is born,
just like obligations which are subject to a condition precedent
are valid and binding before the occurrence of the condition
precedent.
Test of continuing suretyship – the terms thereof it is evident that
the object is to give a standing credit to the principal
debtor to be used from time to time either indefinitely
or until a certain period, especially if the right to recall
the guaranty is expressly reserved.

Nature of Surety’s liability

 Surety is an accessory or collateral contract to the obligation
contracted by the principal – surety can’t bind himself for more
than the principal debtor
 if he does, his liability shall be reduced to the limits of that of
the debtor.
 But the surety may bind himself for less than that of the
principal.

 HOWEVER – his liability is direct, primary and absolute – he

is directly and equally bound with the principal
 the liabilities of the surety and the principal DR are
INTERWOVEN and DEPENDENT as to be inseperable
 surety does not incur liability UNLESS the principal DR is
liable
 although the obligation of the surety is in essence
secondary only to a valid principal obligation – his
liability to the principal CR is direct, primary and
absolute – as he stands in same position with principal
DR
 CR’s right to collect payment from the surety exists
INDEPENDENTLY – from its right to proceed directly against
the DR.
 CR may proceed against the surety alone without prior
demand for payment on the principal DR unless the parties
otherwise stipulate.
 Rule on excussion – NOT APPLICABLE

 CR’s acceptance – of the surety’s solidary undertaking - does

not change in any material way the CR’s relationship with
the principal DR – nor does it make the surety an active
party to the CR-DR relationship.
  Contract of surety simply give rise to an obligation on the
part of the surety in relation with the CR and is a one-way
relation for the benefit of the latter.
 Surety CAN’T intervene in the CR-DR relationship.

 Extent of liability
Generally – principal obligation of DR only – can’t be extended
by implications beyond the terms of the contractss

EXCEPTIONS
c. Interest, judicial costs, and attorney’s fees as part of
damages may be recovered – creditors may recover from the
surety as part of their damages, interest at the legal rate,
judicial costs, and attorney’s fees when appropriate, even
without stipulation and even if the surety would thereby
become liable to pay more than the total amount stipulated
in the bond.

Reason: surety is made to pay, not by reason of the contract,

but by reason of his failure to pay when demanded for
having compelled the creditor to resort to court action to
obtain payment

d. Penalty may be provided – a surety may be held liable for the

penalty provided for in a bond for violation of the condition
therein.

 The amount specified 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 obligations he assumed under his contract

Instances surety required pay more than the original

obligation:
4. If upon demand, fails to pay, can be held liable for interest
even if in paying the liability becomes more than that of the
principal obligation
  Increased in liability NOT because of the contract BUT
because of the default and the necessity for judicial
collection

5. CR’s suing on a surety bond may recover from the surety, as

part of damages, interest at the legal rate, judicial cost and
attorney’s fees when appropriate
6. Penalty clause – increase liability of surety

Art. 2055. (FORM) 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.

Surety NOT presumed:

 The assumption of guaranty must be expressed. It can’t
extend to more than what is stipulated therein.

 While Art. 2055 provides that it must be “express”, Art. 1403,

Statute of Frauds requires that “a special promise to answer for
the debt, default or miscarriage of another” be in writing.
 Oral guaranty is unenforceable. The Statute of Frauds which
is a defense available to the defendant may however be waived.
The unenforceable contract may also be ratified. (Art. 1405)

Surety covered by the statue of frauds:

 Guaranty must not only be expressed but must so be reduced
into writing
 It shall be unenforceable by action, unless the same or some
note or memorandum thereof be in writing, subscribed by the
party or by his agent
 Evidence can’t be received without the writing or secondary
evidence of its contents (Macondray & Co. vs. Pinon 2 SCRA
1109)
Surety strictly construed:
 Strictly construed against the creditor in favor of the surety
 Not intended to go beyond its terms or specified limits
 Doubts in terms/conditions resolved in favor of surety

Exceptions – rule on strictissimi juris:

1.Cases of compensated sureties

 The surety in entering into the contract could have fixed the
limits of his responsibility solely to the strict terms of the
principal obligation and if he did not do so, it must be
presumed that he wanted to be bound to the extent so
established.

1.Liability for obligations stipulated – surety not liable to

obligations assumed previous to the execution of the contract
unless such is the intent of the parties.
2.Liability of surety limited to a fixed time – surety must only
be bound in the manner and to the extent and under the
circumstances which are set forth or which may be inferred from
the contract and no further.
3.Liability of surety to expire on maturity of principal
obligation – such stipulation is unfair and unreasonable for it
practically nullifies the nature of the undertaking it had
assumed.

Remedy of surety: Foreclose the counter bond put up by the

principal debtor if there is any.

Art. 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.

Qualifications of surety:
4.Must possess integrity
5.Must have capacity to bind himself
 6.Must have sufficient property to answer for the obligations
which he guaranteed

 Qualification need be present ONLY at the time of the

perfection of the contract
 If one or more of the qualifications – impaired due to
supervening events, creditor may demand another qualified
guarantor
 The subsequent loss of integrity, property or supervening
incapacity of the guarantor WOULD NOT OPERATE to exonerate
the guarantor or the liability he had contracted = contract of
guaranty continues = creditor may demand another qualified
guarantor

Selection of Surety:
4. Specified person stipulated as surety
Substitution may not be demanded
Reason: selection of the guarantor is:
c. A term of the agreement
d. As a party, the creditor is, therefore bound thereby

5. Selected by the principal debtor

 Debtors answer for the integrity, capacity and solvency of GR

6. Personally designated by creditor

 Responsibility fall upon CR

Art. 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.

Instances when creditor may demand new surety:

4. Art. 2057 – convicted of crime involving dishonesty – estafa
5. Original guarantor becomes insolvent
6. Art. 2056 – one or more of qualifications got impaired
  Insolvent – no need for Judicial declaration
 Guarantor dies – heirs are still liable – obligation not purely
personal – transmissible