Guaranty And Suretyship Flashcards
What are the characteristics of a guaranty?
ASCUP
- Accessory – dependent for its existence
upon the principal obligation guaranteed by
it; - Subsidiary and conditional – takes effect
only when the principal debtor fails in his
obligation subject to limitation - Unilateral –
a. It gives rise only to a duty on the part of
the guarantor in relation to the creditor
and not vice versa
b. It may be entered into even without the
intervention of the principal debtor. - Guarantor must be a person distinct from
the debtor – a person cannot be the
personal guarantor of himself
What is guaranty?
GUARANTY (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. It is a contract between the
guarantor and the creditor.
Classification of Guaranty: in its broadest sense
- Accessory – dependent for its existence
upon the principal obligation guaranteed by
it; - Subsidiary and conditional – takes effect
only when the principal debtor fails in his
obligation subject to limitation - Unilateral –
a. It gives rise only to a duty on the part of
the guarantor in relation to the creditor
and not vice versa
b. It may be entered into even without the
intervention of the principal debtor. - Guarantor must be a person distinct from
the debtor – a person cannot be the
personal guarantor of himself
Classification of guaranty: as to its orgin
a. Conventional – constituted by agreement of the parties (2051[1]) b. Legal – imposed by virtue of a provision of law c. Judicial – required by a court to guarantee the eventual right of one of the parties in a case.
Classification of guaranty:as to person guaranteed
a. Single – constituted solely to guarantee or secure performance by the debtor of the principal obligation; b. Double or sub-guaranty – constituted to secure the fulfillment by the guarantor of a prior guaranty
Classification of guaranty:as to scope and extent
a. Definite – where the guaranty is limited to the principal obligation only, or to a specific portion thereof; b. Indefinite or simple – where the guaranty included all the accessory obligations of the principal, e.g. costs, including judicial costs.
Guaranty is generally gratuitous, unless stipulated
What is the cause of guarantay?
Cause of contract of guaranty
1. Presence of cause which supports
principal obligation: Cause of the
contract is the same cause which
supports the obligation as to the principal
debtor. The consideration which supports
the obligation as to the principal debtor is
a sufficient consideration to support the
obligation of a guarantor or surety.
2. Absence of direct consideration or
benefit to guarantor: Guaranty or surety
agreement is regarded valid despite the
absence of any direct consideration
received by the guarantor or surety, such
consideration need not pass directly to
the guarantor or surety; a consideration
moving to the principal will suffice.
Effect when guaranty is undertaken without knowledge of the debtor
- Guaranty is unilateral – exists for the
benefit of the creditor and not for the benefit
of the principal debtor - Creditor has every right to take all
possible measures to secure payment of
his credit – guaranty can be constituted
even against the will of the principal debtor
What are the rights of a third person who pay
Rights of third persons who pay: 1. Payment without the knowledge or against the will of the debtor: a. Guarantor can recover only insofar as the payment has been beneficial to the debtor b. Guarantor cannot compel the creditor to subrogate him in his rights 2. Payment with knowledge or consent of the debtor: Subrogated to all the rights which the creditor had against the debtor
What are guaranties by reason of origin
GUARANTY BY REASON OF ORIGIN (2051[1])
- Conventional;
- Judicial;
- Legal
What is a sub-guaranty?
DOUBLE OR SUB-GUARANTY (2051[2])
One constituted to guarantee the obligation of a
guarantor. It should not be confounded with guaranty
wherein several guarantors concur.
Necessity of a principal obligation
NECESSITY OF VALID PRINCIPAL OBLIGATION
(2052[1])
Guaranty is an accessory contract: It is an
indispensable condition for its existence that there
must be a principal obligation. Hence, if the
principal obligation is void, it is also void.
What are guaranties of voidable, unenforeable and natural obligation?
GUARANTY OF VOIDABLE, UNENFORCEABLE,
AND NATURAL OBLIGATIONS (2052[2])
A guaranty may secure the performance of a:
1. Voidable contract – such contract is
binging, unless it is annulled by a proper
court action
2. Unenforceable contract – because such
contract is not void
3. Natural obligation – the creditor may
proceed against the guarantor although he
has not right of action against the princip
What is a continuing guaranty?
Continuing Guaranty or Suretyship: 1. Not limited to a single transaction but which
contemplates a future course of dealings,
covering a series of transactions generally for
an indefinite time or until revoked.
2. It is prospective in its operation and is
generally intended to provide security with
respect to future transactions.
3. 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.
What is a guaranty of conditional obligations?
GUARANTY OF CONDITIONAL OBLIGATIONS: A
guaranty may secure all kinds of obligations, be they pure or subject to a suspensive or resolutory
condition.
1. Principal obligation subject to a
suspensive condition – the guarantor is
liable only after the fulfillment of the
condition.
2. Principal obligation subject to a
resolutory condition – the happening of the
condition extinguishes both the principal
obligation and the guaranty
Guarantors liability cannot exceed
GR: Guaranty is a subsidiary and accessory
contract – 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. But the guarantor may bind himself for less
than that of the principal.
Guaranty is not presumed
GUARANTY NOT PRESUMED (2055)
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.
Reasons:
1. There be assurance that the guarantor had
the true intention to bind himself;
2. To make certain that on making it, the
guarantor proceeded with consciousness of
what he was doing.
Guaranty is covered by SoF
GUARANTY COVERED BY THE STATUTE OF
FRAUDS
• Guaranty must not only be expressed but
must so be reduced into writing. • Hence, 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. • It need not appear in a public document.
Strict construction of guaranty
GUARANTY STRICTLY CONSTRUED
Strictly construed against the creditor in favor of the
guarantor and is not be extended beyond its terms or
specified limits.
If there is any doubt on the terms and conditions of
the guaranty or surety agreements, the doubt should
be resolved in favor of the guarantor or surety.
GUARANTY DISTINGUISHED FROM WARRANTY
GUARANTY WARRANTY Contract by which a person is bound to another for the fulfillment of a promise or engagement of a third party An undertaking that the title, quality, or quantity of the subject matter of a contract is what it has been represented to be, and relates to some agreement made ordinarily by the party who makes the warranty
What are the qualifications of a guarantor?
QUALIFICATIONS OF GUARANTOR (2056-2057)
1. He possesses integrity;
- He has capacity to bind himself;
- He has sufficient property to answer for
the obligation which he guarantees.
Exception: The creditor waives the requirements
RIGHT OF GUARANTOR TO BENEFIT OF
EXCUSSION OR EXHAUSTION (2058)
Reasons:
1. Guarantor only secondarily liable – the
guarantor binds himself to the creditor to
fulfill the obligation of the principal debtor
only in case the latter should fail to do so. If
the principal debtor fulfills the obligation
guaranteed, the guarantor is discharged from
any responsibility.
2. All legal remedies against the debtor to be
first exhausted – to warrant recourse
against the guarantor for payment, it may not
be sufficient that the debtor appears
insolvent. Such insolvency may be simulated.
Right of Creditor to Secure Judgment against
Guarantor prior to Exhaustion
GR: An ordinary personal guarantor (NOT a pledgor
or mortgagor), may demand exhaustion of all the
property of the debtor before he can be compelled to
pay.
Exception: The creditor may, prior thereto, secure a
judgment against the guarantor, who shall be entitled,
however, to a deferment of the execution of said
judgment against him, until after the properties of the
principal debtor shall have been exhausted, to satisfy
the latter’s obligation.
EXCEPTIONS TO THE BENEFIT OF EXCUSSION (2059) The guarantor is not entitled to the benefit of excussion: 1. As provided in Art. 2059: a. If the guarantor has expressly renounced it – Waiver i. Waiver is valid but it must be made in express terms. b. If he has bound himself solidarily with the debtor – liability assumed that of a surety i. Guarantor becomes primary liable as a solidary co-debtor. In effect, he renounces in the contract itself the benefit of exhaustion. c. In case of insolvency of the debtor – guarantor guarantees the solvency of the debtor
EXCEPTIONS TO THE BENEFIT OF EXCUSSION (2059) The guarantor is not entitled to the benefit of excussion: 1. As provided in Art. 2059
EXCEPTIONS TO THE BENEFIT OF Excussion As provided in Art. 2059:
a. If the guarantor has expressly renounced it – Waiver i. Waiver is valid but it must be made in express terms. b. If he has bound himself solidarily with the debtor – liability assumed that of a surety i. Guarantor becomes primary liable as a solidary co-debtor. In effect, he renounces in the contract itself the benefit of exhaustion. c. In case of insolvency of the debtor – guarantor guarantees the solvency of the debtor i. If the debtor becomes insolvent, the liability of the guarantor as the debtor cannot fulfill his obligation d. When he (debtor) has absconded, or cannot be sued within the Philippines – 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. Exception: Debtor has left a manager or representative; e. If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation – 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. It is not necessary that the debtor be judicially declared insolvent. 2. If he does not comply with Art. 2060: In order that the guarantor may make use of the benefit of excussion, he must: a. Set it up against the creditor upon the latter’s demand for payment from him; b. Point out to the creditor: i. Available property of the debtor – the guarantor should facilitate the realization of the excussion since he is the most interested in its benefit. ii. Within the Philippine territory – excussion of property located abroad would be a lengthy and extremely difficult proceeding and would not conform with the purpose of the guaranty to provide the creditor with the means of obtaining the fulfillment of the obligation. iii. Sufficient to cover the amount of the debt. 3. If he is a judicial bondsman and sub- surety (2084) 4. Where a pledge or mortgage has been QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Page 211 of 297 i. If the debtor becomes insolvent, the liability of the guarantor as the debtor cannot fulfill his obligation d. When he (debtor) has absconded, or cannot be sued within the Philippines – 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. Exception: Debtor has left a manager or representative; e. If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation – 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. It is not necessary that the debtor be judicially declared insolvent. 2. If he does not comply with Art. 2060: In order that the guarantor may make use of the benefit of excussion, he must: a. Set it up against the creditor upon the latter’s demand for payment from him; b. Point out to the creditor: i. Available property of the debtor – the guarantor should facilitate the realization of the excussion since he is the most interested in its benefit. ii. Within the Philippine territory – excussion of property located abroad would be a lengthy and extremely difficult proceeding and would not conform with the purpose of the guaranty to provide the creditor with the means of obtaining the fulfillment of the obligation. iii. Sufficient to cover the amount of the debt. 3. If he is a judicial bondsman and sub- surety (2084) 4. Where a pledge or mortgage has been given by him as a special security. are needed to see this picture. Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Page 211 of 297 i. If the debtor becomes insolvent, the liability of the guarantor as the debtor cannot fulfill his obligation d. When he (debtor) has absconded, or cannot be sued within the Philippines – 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. Exception: Debtor has left a manager or representative; e. If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation – 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. It is not necessary that the debtor be judicially declared insolvent. 2. If he does not comply with Art. 2060: In order that the guarantor may make use of the benefit of excussion, he must: a. Set it up against the creditor upon the latter’s demand for payment from him; b. Point out to the creditor: i. Available property of the debtor – the guarantor should facilitate the realization of the excussion since he is the most interested in its benefit. ii. Within the Philippine territory – excussion of property located abroad would be a lengthy and extremely difficult proceeding and would not conform with the purpose of the guaranty to provide the creditor with the means of obtaining the fulfillment of the obligation. iii. Sufficient to cover the amount of the debt. 3. If he is a judicial bondsman and sub- surety (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.
