Guaranty
Atty. Aliakhbar A. Jumrani
Law Professor, Bar Review and MCLE Lecturer
Guaranty
It is a contract where a person, called the guarantor,
binds himself to another, called the creditor, to fulfill the
obligation of the principal debtor in case the latter
should fail to do so (Art. 2047, CC)
Characteristics of Guaranty
Consensual – can be perfected by mere consent. There is no
requirement of delivery of the object of the contract.
Accessory—because it is dependent for its existence upon the
principal obligation guaranteed by it
Subsidiary and conditional—it takes effect only when the
principal debtor fails in his obligation subject to limitation
Unilateral – only the guarantor has the obligation to indemnify the
creditor in case of failure of the principal debtor to perform his
prestation
Suretyship
It is an agreement where a party, called the surety, guarantees the
performance by another party called the principal or obligor of an
obligation or undertaking in favor of a third person called the
obligee.
A surety's liability is joint and several, limited to the amount of the
bond, and determined strictly by the terms of contract of suretyship
in relation to the principal contract between the obligor and the
obligee.
Guaranty and Surety
They are similar because both promise or undertake to answer for the
debt, default or miscarriage of another person
Distinctions:
The liability of a guarantor depends upon an independent agreement to
pay the obligation of the principal if he fails to do so; the surety assumes
liability as a regular party to the contract
A guarantor’s obligation is secondary; a surerty’s obligation is primary
A guarantor’s undertaking is to pay if the principal debtor cannot pay; a
surerty’s undertaking is to pay if the principal debtor does not pay
A guarantor is an insurer of the solvency of the principal debtor; a surety is
an insurer of a debt
A guarantor is entitled to the benefit of excussion; a surety is not
Kinds of Guaranty
Personal guaranty – where an individual personally assumes the fulfillment of the
principal obligation
Real guaranty – where a property (immovable or movable) is formally
committed to answer for the principal obligation of the debtor
Conventional guaranty – by agreement
Legal guaranty – required by law
Judicial guaranty – ordered by the court, ex. Supersedeas bond
Gratuitous – the guarantor does not receive compensation
Onerous – the guarantor is paid a valuable consideration for his guaranty
Definite – the guaranty is limited to the principal obligation
Indefinite – comprises not only the principal but also its accessories and costs
Effect of Guaranty without Consent of
the Debtor
The guarantor may recover from the debtor what he paid to the creditor
but only to the extent of the benefit enjoyed by the debtor
To prevent unjust enrichment
But note:
If the guarantor should pay without notifying the debtor, the latter may enforce
against him all the defenses available against the creditor (Art. 2068, CC)
If the debt was for a period and the guarantor paid it before it became due, he
cannot demand reimbursement until the expiration of the period (Art. 2069, CC)
If the guarantor paid without notifying the debtor and the debtor repeats the
payment, the guarantor can only collect from the creditor (Art. 2070, CC)
Effect of Guaranty with Consent of the
Debtor
The guarantor is subrogated to all the rights which the creditor may have
against the debtor
This results by operation of law from the act of payment and there is no
necessity for the guarantor to ask the creditor to expressly assign his rights of
action
The obligation of the debtor subsists. There is just a change in the person of
the creditor of the principal debtor
What can be the subject of Guaranty?
A valid obligation between a debtor and a creditor
It may also be constituted to guarantee:
Voidable obligation
Unenforceable obligation
Conditional obligations
What is a Continuing Guaranty
It covers all transactions, including those arising in the future.
Future debts may be secured by a guarantee even if the exact
amount is not yet known. However, the guarantor cannot be sued
until the debt is liquidated, which means that the amount of the
debt is already determined or fixed.
Limit of Guarantor’s Liability
It cannot go beyond the obligation of the principal debtor because
the contract of guaranty is merely accessory.
The limitation on the liability of the guarantor applies both to the (a)
amount and (b) onerous character of the obligation.
Q: What is the legality of a guaranty which exceeds the principal
obligation?
A: The guaranty is not rendered void. The same shall be reduced to the
extent or limit of the debtor’s obligation.
Form of the Contract of Guaranty
A guaranty is not presumed; it must be express and cannot extend
to more than what is stipulated therein (Art. 2055, CC).
To be enforceable, the contract must be expressed and in writing.
Reason: Art. 1403, par. 2 (b). A guaranty is a special promise to answer for the
debt, default or miscarriage of another.
Qualifications of a Guarantor
He must be a person of integrity;
He has full legal capacity;
He has sufficient property to answer for the obligation of the debtor.
A creditor may demand a substitute guarantor:
When the original guarantor is convicted of a crime involving dishonesty, like
estafa and misappropriation
When the original guarantor becomes insolvent
The Benefit of Excussion
Under the benefit of excussion, the creditor has to resort to the properties
first of the debtor. The guarantor cannot be compelled to pay the creditor
unless the latter has exhausted all the properties of the debtor, and has
resorted to all the legal remedies against the debtor. (Art. 2088, Civil Code)
Requisites:
The guarantor must set up the right against the creditor upon the latter’s
demand for payment from him;
This means that a final judgment must have been rendered
previously against the debtor and it was not satisfied.
The guarantor must point out to the creditor the available property of
the debtor
When the Benefit of Excussion is not
Available
If the guarantor has expressly renounced it;
If he has bound himself solidarily with the debtor;
In case of insolvency of the debtor;
When he has absconded, or cannot be sued within the
Philippines, unless he has left a manager or representative;
If it may be presumed that an execution on the property of
the principal debtor would not result in the satisfaction of the
obligation.
The Benefit of Division
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 liability of the guarantors is joint and proportional.
The creditor can claim from the guarantors only the shares they are
respectively bound to pay, unless solidarity was stipulated.
The Benefit of Contribution
It applies when one guarantor has paid the obligation of the
principal debtor and is seeking contribution from his co-guarantors.
Note:
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
Guarantor’s Right against the Debtor
Right to Indemnity
Total amount of the debt
Legal interests
Expenses
Damages
In the following situations, the guarantor can obtain release or demand security
to protect him:
When he is sued for payment;
In case of insolvency of the principal debtor;
When the debtor has bound himself to relieve him from the guaranty within a specified
period, and this period has expired;
When the debt has become demandable by reason of the expiration of the period of
payment;
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;
If the debtor intends to abscond;
If it is imminent that the debtor will become insolvent
Extinguishment of Guaranty
Same grounds for extinguishing obligations under Art. 1231, CC:
Payment or performance;
Loss of the thing due;
Condonation or remission of the debt;
Confusion or merger of the rights of the creditor and debtor;
Compensation;
Novation;
Also:
Annulment;
Rescission
Fulfillment of a resolutory condition;
prescription
Other grounds:
Release by acceptance of property by the creditor;
Release made by the creditor in favor of one of the guarantors;
Extension of term granted by the creditor to the debtor without the consent of
the guarantor;
When the guarantor, through some act of the creditor, cannot be subrogated to
the rights, mortgages and preferences of the latter
