GUARANTY 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 creditor.
CHARACTERISTICS
1. It is accessory- dependent upon the principal oblin guaranteed
2. It is subsidiary and conditional- takes effect when principal debtor fails
his obli.
3. It is unilateral- it gives rise only to the duty on the part of the guarantor
to the creditor & not vice versa.
4. It is a contract which requires that the guarantor must be a person
distinct from the debtor.
CLASSIFICATION OF GUARANTY
1. Broad sense:
a. Personal- guaranty in the strict sense.
b. Real- guaranty is property, movable or immov.
- Immov: real mortgage or antichresis
- Movable: pledge or chattel mortgage
2. Origin:
a. Conventional- constituted by agreement of parties
b. Legal- impose by virtue of provision of law
c. Judicial- required by court to guaranty eventual right of one
party.
3. Consideration:
a. Gratuitous- guarantor does not receive any price or
remuneration
b. Onerous- guarantor receives valuable consideration
4. The personguaranteed:
a. Single- constituted solely to guaranty or secure
performance of debtor
b. Double or sub-guaranty- constituted to secure the fulfillment
by the guarantor of a prior guaranty.
5. Scope and extent:
a. Definite- guaranty is limited to the principal obligation only,
or specific portion
b. Indefinite or simple- includes not only the principal obli but
also all its accessories including judicial costs.
SURETYSHIP
a relation which exists where one person (principal or obligor)
has undertaken an obligation and another person (surety) is also under the
direct and primary obligation or other duty to a third person (oblige), who is
entitled to but one performance, and as between the two who are bound,
the one rather than the other should perform.
Contractual relation resulting from an agreement whereby one
person (surety), engages to be answerable to a third person (obligee) for
the debt, default, or miscarriage of another known as principal or obligor.
involves two relationships: the principal rel (between obligee
ando obligor) and accessory rel (bet principal/obligor and surety)

Law applicable on suretyship is the second par og Art. 2047.

If a person binds himself solidarily c the principal debtor, contract is
suretyship and the guarantor is surety.
Suretyship includes official recognizances, stipulations, bonds or
undertakings issued by a company.

Where party binds himself solidarily with the principal debtor

1. Guarantor with solidary liability possible to bind himself solidarily c
the principal debtor s affecting the nature of the contract.
2. Character and rights as guarantor remain depends upon the terms
of the contract or the intention of the third person.
3. Case different from suretyship if a party signs a promissory note as
co-maker and binds himself to be jointly and severally or solidarily
liable in case there are defaults in payment of loan, the party is
deemed that of a surety and not of a guarantor for it does not warrant
the solvency of the debtor.
Nature of suretys undertaking

Liability is contractual and accessory but direct

A surety is usually bound with the principal by the same
instrument
It is not for the obligee to see to it that he principal debtor
pays the debt or fulfill the contract, but for the surety to see
that principal debtor pays or performs.

Liability is limited by terms of contract

Contract of surety is not presumed
Kung unsay gikasabutan or stipulations, mao rapud.
However, it is not released by a change in the contract ch
does not have the effect of making its obligation more
oberous.

Liability arises only if principal debtor id held liable

Maliable lang ang surety if ang principal debtor is held
liable.
The surety is bound by judgment against the principal even
though he was not a party of the proceedings.
The creditor may sue separately or together the principal
and surety.
The creditor does not act as fiduciary in his relation to the
surety. He is only bound to faithful observance of the rights
of the surety and performance of every duty.
A surety bond is void s a principal debtor.

Surety is not entitled to exhaustion

Not to exhaust the properties of the principal debtor.
It only assumes a solidary liability for the fulfillment of the
principal obligation.

Undertaking is to the creditor, not to debtor

The suretys undertaking is that the principal shall fulfill his
obligation and that the surety shall be relieved of liability
when the obligation secured is performed.
Surety is not entitled to notice of principals default
The commencement of the suit is a sufficient demand.
The surety is bound to take notice of the principals default
and to perform the obligation. He cant complain.
Prior demand by the creditor upon principal not required
As soon as the principal is in default, the surety is in default.
Remedy: pay the debt and pursue the principal for the
reimbursement.
Surety is not exonerated by neglect of the creditor to sue principal
If the creditor refrains from proceeding against the principal,
the surety is not exonerated.
If the surety is dissatisfied with the degree of activity
displayed by the creditor in the pursuit of his principal, he
may pay the debt and become subrogated to all rights and
remedies of the creditors.

GUARANTY VS SURETYSHIP

Surety: assumes liability as regular party to the undertaking

Guarantor: liability depends upon independent agreement to pay the
obligation if the primary debtor fails.

Surety: charged as an original promisor

Guarantor: is a collateral undertaking

Surety: primarily liable (undertakes directly for the payment regardless

if makabayad ba or dili ang principal, and is responsible at once if
principal makes defaults)
Guarantor: secondarily or subsidiarily liable (he contracts to pay if the
principals debt cannot be paid)

Surety: held to know every default of principal

Guarantor: not bound to take notice of the principals nonperformance

Surety: usually not discharged by mere indulgence of creditor of the

principal or by want of notice of default
Guarantor: discharged by mere indulgence of the creditor and usually
not liable unless notified of the default.

Surety is the insurer of the debt itself while the guarantor is an insurer
of the solvency of the debtor.
The responsibility of surety is more onerous than that of a guarantor.
Guarantor- used for the intention to be bound by a primary or
independent obligation.
I guarantee payment, I will see you paid or I will pay if he does not
pay, or uses equivalent words, the promise is that of collateral or
subsidiary.

GUARANTY VS INDORSEMENT

I: to transfer
G: for security

I: does not warrant the solvency of promisor as he being answerable

on a strict compliance c the law by the holder
G: warrants solvency to the promisor

I: can be sued as promisor

G: cannot be sued as promisor
GUARANTY VS WARRANTY

Guaranty: bounds a person to another for the fulfillment of apromise

or engagement of a third party

Warranty: an undertaking that the title, quality, or quatntity of the

subject matter of a contract is what it has been presented to be, and
relates to some agreement.

ART. 2048

A guaranty is generally is gratuitous. It becomes onerous when there

is a presence of stipulation to the contrary.

CAUSE OF CONTRACT OF GUARANTY

1. Presence of cause which supports principal obligation.
2. Absence of direct consideration received by guarantor.
It is regarded as valid despite the absence of any direct
consideration received by the guarantor or surety either
from the p-debtor or creditor.
3. Absence of direct or personal interest of guarantor over the obligation
It is never necessary that he receive any part or benefit
accruing to the principal.
ART. 2049

Married woman who acts as a guarantor ordinarily binds only her

separate property.

Even if s the consent of the husband, in cases provided by law, such

as when the guaranty has redounded to the benefit of the family.
ART. 2050

Guaranty is unilateral.

It can be constituted s the knowledge and even against the will of the
principal debtor.
Rights of a third person who pays
1. Without the knowledge of the debtor

a.

Can only recover insofar as the payment has been

beneficial to the debtor and he cannot compel the creditor
to subrogate him his creditors rights.
2. With the knowledge and consent of the debtor
a. He is subrogated by the virtue thereof to all rights which the
creditor had against the debtor.
ART. 2051

Guaranty may be conventional, legal or judicial. Or may be gratuitous

or by onerous title.

Par.2 refers to a double or sub-guaranty or one constituted to

guarantee the obligation of the guarantor.

ART. 2052

Guaranty is an accessory contract.

Principal obligation is indispensable for its existence

If the principal obligation is void, then it is also void.