Guaranty And Suretyship

Question 0

What are the characteristics of a guaranty?

Answer 0

ASCUP

1. Accessory – dependent for its existence
   upon the principal obligation guaranteed by
   it;
2. Subsidiary and conditional – takes effect
   only when the principal debtor fails in his
   obligation subject to limitation
3. 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.
4. Guarantor must be a person distinct from
   the debtor – a person cannot be the
   personal guarantor of himself

Question 1

What is guaranty?

Answer 1

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.

Question 2

Classification of Guaranty: in its broadest sense

Answer 2

1. Accessory – dependent for its existence
   upon the principal obligation guaranteed by
   it;
2. Subsidiary and conditional – takes effect
   only when the principal debtor fails in his
   obligation subject to limitation
3. 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.
4. Guarantor must be a person distinct from
   the debtor – a person cannot be the
   personal guarantor of himself

Question 3

Classification of guaranty: as to its orgin

Answer 3

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.

Question 4

Classification of guaranty:as to person guaranteed

Answer 4

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

Question 5

Classification of guaranty:as to scope and extent

Answer 5

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.

Question 6

Guaranty is generally gratuitous, unless stipulated

What is the cause of guarantay?

Answer 6

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.

Question 7

Effect when guaranty is undertaken without knowledge of the debtor

Answer 7

1. Guaranty is unilateral – exists for the
   benefit of the creditor and not for the benefit
   of the principal debtor
2. 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

Question 8

What are the rights of a third person who pay

Answer 8

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

Question 9

What are guaranties by reason of origin

Answer 9

GUARANTY BY REASON OF ORIGIN (2051[1])

1. Conventional;
2. Judicial;
3. Legal

Question 10

What is a sub-guaranty?

Answer 10

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.

Question 11

Necessity of a principal obligation

Answer 11

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.

Question 12

What are guaranties of voidable, unenforeable and natural obligation?

Answer 12

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

Question 13

What is a continuing guaranty?

Answer 13

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.

Question 14

What is a guaranty of conditional obligations?

Answer 14

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

Question 15

Guarantors liability cannot exceed

Answer 15

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.

Question 16

Guaranty is not presumed

Answer 16

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.

Question 17

Guaranty is covered by SoF

Answer 17

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.

Question 18

Strict construction of guaranty

Answer 18

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.

Question 19

GUARANTY DISTINGUISHED FROM WARRANTY

Answer 19

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

Question 20

What are the qualifications of a guarantor?

Answer 20

QUALIFICATIONS OF GUARANTOR (2056-2057)
1. He possesses integrity;

2. He has capacity to bind himself;
3. He has sufficient property to answer for
   the obligation which he guarantees.
   Exception: The creditor waives the requirements

Question 21

RIGHT OF GUARANTOR TO BENEFIT OF

EXCUSSION OR EXHAUSTION (2058)

Answer 21

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.

Question 22

Right of Creditor to Secure Judgment against

Guarantor prior to Exhaustion

Answer 22

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.

Question 23

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

Answer 23

EXCEPTIONS TO THE BENEFIT OF EXCUSSION 
(2059) 
The guarantor is not entitled to the benefit of 
excussion: 
1. As provided in Art. 2059

Question 24

EXCEPTIONS TO THE BENEFIT OF Excussion As provided in Art. 2059:

Answer 24

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 
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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.