CREDIT TRANSACTIONS
Janela Joy Villanueva Lana
GUARANTY AND SURETYSHIP
Chapter 1: 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 Sec.4, Chapter 3, Title 1 of this Book shall be
observed. In such case the contract is called a suretyship.
Definition of guaranty
 A contract between the guarantor and creditor to fulfill the obligation
of the principal debtor in case the latter should fail to do so.
 It included pledge and mortgage because the PURPOSE of
Guaranty may be accomplished not only by securing the fulfillment
of an obligation contracted by the principal debtor through the
personal guaranty of a 3rd person but also by furnishing to the
creditor for his security, property with authority to collect the debt
from the proceeds of the same in case of default.
Governing Law
 Guaranty is now primarily regulated by Title XV of Book IV
(Art.2047-2084) of the new Civil Code, subject to its transitional
provisions. (Art. 2252-2259)
Characteristics of the Contract
 It is ACESSORY because it is dependent for its existence upon the
principal obligation guaranteed by it;
 It is SUBSIDIARY AND CONDITIONAL because it takes effect only
when the principal debtor fails in his obligation subject to limitation
(Art. 2053, 2058, 2065).
 It is UNILATERAL because ---
a. It gives rise only to a duty on the part of the guarantor in
relation to the creditor.
b. It may be entered into even without intervention of the principal
debtor (Art. 2050)
 It is a contract which requires that the guarantor must be a person
distinct from the debtor because a person cannot be the personal
guarantor of himself.
However, in a real guaranty, like pledge and mortgage, a person
may guarantee his own obligation with his personal or real
properties.
Classification of guaranty
 Guaranty in the broad sense:
1. Personal, since it refers to guaranty properly so-called or
guaranty in the strict sense.
The guarantee is the credit given by the person who
guarantees the fulfillment of the principal obligation.
2. Real, since the guaranty is property, movable or immovable.
If immovable, guaranty is in the form of real mortgage or
antichresis.
If movable, in the form of pledge or chattel mortgage.
 As to its origin:
1. Conventional, one constituted by agreement of the parties.
2. Legal, one imposed by virtue of a provision of law.
3. Judicial, one required by a court to guarantee the eventual
right of one of the parties in a case.
 As to consideration:
1. Gratuitous, one where the guarantor does not receive any
price or remuneration for acting as such.
2. Onerous, where the guarantor receives valuable
consideration for his guaranty.
 A to the person guaranteed:
1. Single, one constituted solely to guarantee or secure
performance by the debtor of the principal obligation.
2. Double or sub-guaranty, one constituted to secure the
fulfillment by the guarantor of a prior guaranty.
 As to its scope and extent
1. Definite, one where the guaranty is limited to the principal
obligation only, or to a specific portion thereof.
2. Indefinite or simple, one where the guaranty included not
only the principal obligation but also all its accessories
including judicial costs.
Note: Guaranty may also be continuing or not (Art. 2053)
Laws applicable to contract of suretyship
 Suretyship
- Relation which exists where one person (principal or obligor)
has undertaken an obligation and another person (surety) is
also under a direct and primary obligation or other duty to a 3rd
person (obligee), who is entitled to but one performance, and
as between the two who are bound, the one rather than the
other should perform.
- It is a contractual relation resulting from an agreement
whereby one person, the surety, engages to be answerable to
a 3rd person for the debt, default or miscarriage of another
known as the principal.
 The 2nd paragraph of Art. 2047 states the law applicable to the
suretyship.
It covers:
*Arts. 1207-1222, Title I (Obligations), Chapter 3 (Different Kinds of
Obligations), Section 4 (Joint and Solidary Obligations), Book IV
(ObliCon) of the CC.
- If a person binds himself solidarily with the principal debtor, the
contract is called suretyship and the guarantor is called
surety.
 In a solidary obligation, a solidary debtor is himself a principal
debtor. Hence, a solidary debtor cannot be considered a guarantor
of his co-debtor.
 It has been held that the provisions of the CC on guaranty, other
than the benefit of excussion, are applicable and available to the
surety.
Common law guaranty and suretyship
 CREDIT TRANSACTIONS
Janela Joy Villanueva Lana
 It was held by the SC that the civil law suretyship is nearly
synonymous with the common law guaranty, and the civil law
relationship existing between the co-debtors liable IN SOLIDUM
is similar to the common law suretyship.
Where party binds himself solidarily with principal debtor
 If his intention is not to convert himself into a principal debtor but
merely constitute himself as a guarantor although binding himself
solidarily with him, action may be brought against him outright by
reason of the said solidarity but he retains his character as a
guarantor and all the rights inherent in a guarantor by reason of
payment by him.
 It has been held that where a party signs a promissory note as a
co-maker and binds herself to be jointly and severally or
solidarily liable “with the principal maker of the note in case, the
latter defaults in the payment of the loan, such undertaking of the
said party is deemed to be that of a surety as an insurer of the
debt, NOT a guarantor who warrants the insolvency of the
debtor.
Nature of surety’s undertaking
 Liability is contractual and accessory but direct
- The surety’s obligation is NOT an original and direct one for
the performance of his act.
- He merely is an accessory or collateral to the obligation
contracted by the principal.
- He is directly, primarily and equally bound with the principal as
original promisor although he possesses no direct or personal
interest over the latter’s obligations nor does he receive any
benefit therefrom regardless of whether or not the principal
debtor is financially capable to fulfill his obligations.
- A surety is considered as being the same party as a debtor
and their liabilities are interwoven as to be inseparable.
- There is only one contract and the surety is bound by the same
agreement which binds the principal.
- A surety is usually bound with the principal by the same
instrument, executed at the same time and upon the same
consideration.
- It is not for the oblige to see that the principal debtor pays the
debt but for the surety to see to it that the principal debtor pays
or performs.
 Liability is limited by terms of contract
- A contract of surety is NOT PRESUMED.
- It cannot extend to more than what is stipulated.
- The extent of the surety’s liability is determined only by the
clause of the contract of suretyship as well as the conditions
stated in the bond.
- A surety is NOT RELEASED by a change in the contract which
does not have the effect of making its obligation more onerous.
 Liability arises only if principal debtor is held liable
- If the principal debtor and the surety are held liable, their
liability to pay the creditor would be solidary but the nature of
the surety’s undertaking is such that it does not incur liability
unless and until the principal debtor is held liable.
- The surety is bound by a judgment against the principal even
though he was not a party to the proceeding.
- The creditor may sue, separately or together, the principal
debtor and the surety.
- A surety of a distressed corporation can be sued separately to
enforce his liability as such, notwithstanding an order by the
SEC declaring the corporation under a state of suspension of
payment.
- Except when required, a demand or notice of default IS NOT
required to fix the surety’s liability.
- A surety bond is VOID where there is no principal debtor. While
a surety binds himself to pay jointly and severally, such
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 its/his intention to be
the sole person obligated thereby.
 Surety is not entitled to exhaustion
- The reason is that a surety assumes a solidary liability for the
fulfillment of the principal obligation as an original promissor
and debtor from the beginning.
- When required, the principal obligor rather than the surety may
be required to pay the insured obligation such as where the
former has the necessary amount it got under the bond with
which to comply with the terms thereof.
 Undertaking is to creditor, not to debtor
- The principal cannot claim that there has been a breach of the
surety’s obligation to him under the suretyship contract when
the surety fails or refuses to pay debt for the principal’s
account.
- Failure or refusal or surety does not have the effect of relieving
the principal of his obligation to pay the premium on the bond
furnished by the surety in consideration of the premium, as
long as the liability of the surety to the oblige subsists.
- Unless otherwise provided, the surety makes no covenant or
agreement with the principal that it will fulfill the obligation
guaranteed for the benefit of the principal.
Such promise is NOT IMPLIED by law either.
 Surety is not entitled to notice of principal’s default
- Demand on the surety is NOT NECESSARY before bringing
suit against them, since the commencement of the suit is a
sufficient demand.
- Mere failure to voluntarily give information to the surety of the
default of the principal cannot have the effect of discharging
the surety.
- The surety is bound to take notice of the principal’s default and
to perform the obligation. He cannot complain that the creditor
has not notified him in the absence of a special agreement to
that effect in the contract of suretyship.
 Prior demand by the creditor upon principal NOT REQUIRED
- A soon as the principal is in default, the surety likewise is in
default.
- The proper remedy of the surety is to pay the debt and pursue
the principal for reimbursement.
 CREDIT TRANSACTIONS
Janela Joy Villanueva Lana
 Surety is NOT exonerated by neglect of creditor to sue principal A guarantor, on the other hand, does not contract that the principal
will pay, but simply that he is liable to do so.
- Mere want of diligence or forbearance does not affect the
creditor’s rights vis-à-vis the surety, unless the surety requires  The responsibility or obligation assume by the surety is greater or
him by appropriate notice to sue on the obligation. more onerous than that of a guarantor.

- The neglect of the creditor to sue the principal at the time the Example:
debt falls due does not discharge the surety, even if such delay
continues until the principal becomes insolvent. D is indebted to C in the amount of P10,000.00 with G as
guarantor. On the maturity of the obligation, D fails to pay.
- In the absence of proof of resultant injury, a surety is NOT
discharged by the creditor’s mere statement that the creditor C cannot compel G to pay unless the former “HAS EXHAUSTED
will not look to the surety, or that he need not trouble himself. ALL THE PROPERTY OF THE DEBTOR, AND HAS RESTORED
TO ALL THE LEGAL REMEDIES” against D (Art. 2058) because
The consequences of the delay, such as the subsequent the obligation of G is only secondary.
insolvency of the principal, or the fact that the remedies against
the principal may be lost by lapse of time, are immaterial. If, however, G is a surety, C can proceed against G immediately
upon nonpayment by D without the exhaustion of the property of D
Reason: There is nothing to prevent the creditor from because as surety, he is primarily liable to C. It is not a defense by
proceeding against the principal at any time. G that he has not been informed by C the demand for payment
made on D.
If the surety is dissatisfied with the degree of activity displayed
by the creditor in the pursuit of his principal, he may pay the Terminology used by parties not controlling
debt himself and become subrogated all the rights and
remedies of the creditor.  The use of the term “guarantee” or “guarantor” however, is NOT
CONCLUSIVE that the contract is one of guaranty. The word
Guaranty distinguished from suretyship “guarantee” is frequently employed in business transactions to
describe not the securing of the debt but an intention to be bound
SURETY GUARANTY by a primary or independent obligation.
1. Assumes liability as a 1. Liability depends upon an
regular party to the independent agreement to  If from the language used and circumstances, the intention to be
undertaking. pay the obligation if the liable as a surety cannot be inferred, the promisor must be
primary debtor fails to do deemed to have bound himself only as a guarantor under the
so. rule of reasonable construction applied to all contracts.
2. Charged as an original 2. Engagement is a collateral
promisor. undertaking.  In case of conflict, WRITTEN prevails over the printed word.
3. Primarily liable. 3. Secondarily or subsidiarily
liable. Guaranty and indorsement distinguished

Example: He undertakes directly Example: He contracts to pay if, INDORSEMENT GUARANTY

for the payment without
reference to the solvency of the
principal (regardless of whether
or not the principal is financially
capable to fulfill his obligation),
and is so responsible at once if
the latter makes default, without
any demand by the creditor upon
the principal whatsoever any
notice to default.
4. Ordinarily, held to know
every default of his
principal.
5. Will not be discharged
wither by the mere
indulgence of the creditor of
the principal or by want of
notice of the default of the
principal, no matter how
much he may be injured
thereby.
Guarantor not insurer of debt guaranteed
 The guarantor only binds himself to pay IF the principal CANNOT
or unable to pay.
by use of due diligence, the debt
cannot be paid by the principal.
4. Not bound to take notice of
the non-performance of his
principal.
5. Often discharged by the mere
indulgence of the creditor of the
principal, and is usually not liable
unless notified of the default of
the principal.
 The language employed and the other circumstances of the
Guaranty and warranty distinguished
1. Primarily that of transfer.
2. Liability is less extensive
than guaranty.
Unless the note is promptly
presented for payment at
maturity and due notice of
dishonor given to the indorser
within a reasonable time, he will
be discharged absolutely from
all liability thereon, whether he
has suffered any actual damage
or not.
3. Does not warrant the
solvency of the promisor.
4. Can be sued as promisor.
particular transaction are the determining factors in ascertaining
whether a particular contract is one of indorsement and not of
guaranty, vice versa.
1. That of security.
2. Liability is more extensive.
Failure in either or both of
these particulars (in
indorsement) does not, as a
general rule, work an absolute
discharge of a guarantor’s
liability, but he is discharged
only to the extent of the loss
which he may have suffered in
consequence thereof.
3. Warrants the solvency of the
promisor, he being answerable
on a strict compliance with the
law by the holder, whether the
promisor is solvent or not.
4. Cannot be sued as promisor.

 One is the insurer of the debt itself (surety), the other an insurer of
the solvency of the debtor (guarantor).
 The essence of the obligation of the surety is to pay the creditor
without qualification if the principal debtor does not pay.
 The principal distinction is that:
Guaranty – a contract by which a person is bound to another for
the fulfillment of a promise or engagement of a 3rd party.
 CREDIT TRANSACTIONS
Janela Joy Villanueva Lana
Warranty – an undertaking that the title, quantity or quality 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.
Art. 2048. A guaranty is gratuitous, unless there is a stipulation to
the contrary.
Guaranty generally gratuitous.
 General rule, a guaranty is GRATUITOUS.
It is onerous ONLY when there is a stipulation to the contrary.
Cause of contract of Guaranty
 Presence of cause which supports principal obligation
- It is not necessary to prove any consideration as between the
guarantor or surety and the creditor.
- The consideration which supports the obligation as to the
principal debtor is a sufficient consideration to support the
obligation of a guarantor or surety.
- Otherwise, a guarantor or surety is bound by the same
consideration that makes the contract effective between the
principal parties.
 Absence of direct consideration or benefit to a guarantor
- While a contract of guaranty or surety, like any other contract,
must generally be supported by a sufficient consideration,
such consideration need not pass directly to the guarantor or
surety; a consideration moving to the principal alone will
suffice.
- A guarantor or surety is bound by the same consideration that
makes the contract effective between the principal parties
thereto.
 The guarantor or surety becomes 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.
 It is never necessary that he should receive any part or benefit, if
such there be, accruing to the principal.
 Where a surety bond has been accepted by the oblige, it becomes
valid and enforceable irrespective of whether or not the premium
has been paid by the obligor to the surety.
Art. 2049. A married woman may guarantee an obligation without
the husband’s consent but shall not thereby bind the conjugal
partnership, except in cases provided by law.
Married woman as guarantor
 A married woman who acts as a guarantor ordinarily binds ONLY
her separate property.
 She may also bind the community or conjugal partnership property
with or even without her husband’s consent, such as when the
guaranty has redounded to the benefit of the family.
 There is NO EXPRESS PROHIBITION against a married woman
acting as guarantor for her husband.
Art. 2050. If a guaranty is entered into without the knowledge or
consent, or against the will of the principal debtor, the provisions
of Arts. 1236 and 1237 shall apply.
Guaranty undertaken without knowledge of debtor
 The creditor has every right to take all possible measures to secure
the payment if his credit. Hence, it CAN BE CONSTITUTED without
the knowledge and EVEN AGAINST the will of the principal debtor.
 A guaranty exists for the benefit of the creditor and not for the
benefit of the principal debtor who is not a party to the contract of
guaranty.
Rights of 3rd person who pays
 A person who pays without the knowledge or against the will of
the debtor can recover ONLY insofar as the payment has been
beneficial to the debtor.
He cannot compel the creditor to subrogate him in his (creditor’s)
rights, such as those arising from a mortgage, guaranty or penalty.
 If he became a guarantor with knowledge or consent of the
debtor, he is subrogated by virtue thereof (the payment) to ALL
THE RIGHTS which the creditor had against the debtor.
Example:
D owes C P10,000.00. Without the knowledge of D, G agrees to
guarantee the obligation of D.
If G pays C P10,000.00, he can ask reimbursement for P10,000.00 from
D. If P4,000.00 had already been paid by D, then G is entitled to be
reimbursed for the amount of P6,000.00 because it is only that amount
that D has been benefited. G can recover P4,000.00 from C who should
not have accepted it.
It is but just that C reimburse G for any amount paid by him, otherwise C
would be unduly enriching himself at the evident expense of G.
Suppose the obligation of D is secure by the mortgage on a land owned
by D. payment by G without the knowledge or against the will of D does
not give G the right to foreclose the mortgage because G has no right to
subrogation.
Art. 2051. A guaranty may be conventional, legal or judicial,
gratuitous, or by onerous title.
It may also be constituted, not only in favor of the principal debtor,
but also in favor of the other guarantor, with the latter’s consent, or
without his knowledge, or even over his objection.
Guaranty by reason of origin
 According to its origin or manner of creation, guaranty may be
conventional, legal or judicial.
 Judicial guaranty
- One constituted by decree of court not by virtue of a provision
of law or by virtue of an agreement of the parties.
Double or sub-guaranty
 (Par.2) one constituted to guarantee the obligation of a guarantor.
 It should not be confounded with guaranty wherein several
guarantors concur.
Art. 2052. A guaranty cannot exist without a valid obligation.
 CREDIT TRANSACTIONS
Janela Joy Villanueva Lana
Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may also
guarantee a natural obligation.
Necessity of valid principal obligation
 If the principal obligation is void, it is also void.
 Article 2052 speaks about a VALID obligation, as distinguished from
a void obligation, and not an existing or current obligation.
 Under Art. 2053, a guaranty may also be given as security for future
debts, the amount of which is not yet known.
 A signatory to a guaranty (surety) agreement is liable on a
promissory note for an unpaid loan obtained under that agreement
although he did not sign the promissory note.
Guaranty of voidable, unenforceable and natural obligations
 A guaranty may secure the performance of a:
a. Voidable contract inasmuch as such contract is binding
unless it is annulled by a proper action in court.
b. An unenforceable contract because such contract is not
void.
c. A natural obligation so that the 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.
When the debtor himself offers a guaranty for his natural
obligation, he impliedly recognizes his liability, thereby
transforming the obligation from natural into a civil one.
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.
Guaranty of future debts
 Such provision is denominated as a CONTINUING GUARANTY or
SURETYSHIP.
 It is one which is not limited to a single transaction but which
contemplates a future course of dealings, covering a series of
transactions generally for an indefinite term or until revoked.
 It 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.
 Future debts, even 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.
Reason: A contract of guaranty is subsidiary.
 To secure the payment of loan at maturity
- Surety binds himself to guarantee the punctual payment of a
loan at maturity and all other obligations or indebtedness which
may become due or owing to the principal by the borrower,
together with any and all expenses which may be incurred by
the principal in collecting such obligations or indebtedness
PROVIDED that the liability of the surety shall not exceed at
any one time as a specified sum is a guaranty of future debts.
 To secure payment of any debt to be subsequently incurred
- It is generally intended to provide security with respect to future
transactions for an indefinite time or until a certain period.
- Where the contract states that the guaranty is to secure
advances to be made “from time to time” or obligations
“now in force or hereafter made”, it will be construed to be
a continuing one.
- In all instances a contract of guaranty or suretyship should be
PROSPECTIVE in application.
- A guaranty shall be construed as continuing when by terms
thereof it is evident that the object is to give a standing credit
to the principal debt to be used from time to time either
indefinitely or until a certain period.
 To secure existing unliquidated debts
- “FUTURE DEBTS” may also refer 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.
- A surety is not bound under any particular principal obligation
until that obligation is born.
Example:
1. D and C are partners in business. G may guarantee the
payment of D of C’s share from the profit of the business which
has not yet been ascertained.
Under Art. 2053, Gg cannot be liable to C before such share is
liquidated.
2. C sold his land to D with G as guarantor for the payment of the
purchase price. It was agreed that C would give to G the title
papers showing that C is in fact the owner of the land sold. D
became insolvent.
In this case, G is liable only AFTER the fulfillment of the
suspensive condition --- the production of the proper papers.
3. Suppose, in the 2nd example, C was given 2 months within
which to arrange and complete the papers relating to the
property with the understanding that in case of failure of C to
complete the title papers within said period, the contract of sale
shall be deemed automatically cancelled.
The fulfillment of the condition subsequent --- failure to
complete the title papers within period stipulated ---
extinguishes the principal obligation of D to pay the purchase
price as well as the guaranty of G.
Guaranty of Conditional Obligations
 A guaranty may secure all kinds of obligations, be they pure or
subject to a suspensive or resolutory condition.
 If the principal obligation is subject to a SUSPENSIVE CONDITION,
the guarantor is liable only after the fulfillment of the condition.
 If it is subject to a RESOLUTORY CONDITION, the happening of
the condition extinguishes both the principal obligation and the
guaranty.
 A CONDITIONAL OBLIGATION may also be secure for it is valid
and binding just like a pure one.
 CREDIT TRANSACTIONS
Janela Joy Villanueva Lana
Art. 2054. A guarantor may bind himself for less, but not 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.
Guarantor’s liability cannot exceed principal obligation
 Guaranty is a subsidiary and accessory contract
- The 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 a guarantor may bind himself for less than that of the
principal,
Example:
D borrowed from C P10,000.00. If G guaranteed to answer for
P15,000.00, the guaranty is not rendered void but he can be made to
pay only P10,000.00 because his obligation cannot exceed the limits of
the principal obligation.
If the debt is not secured by a mortgage, and G mortgaged his land in
favor of C, the latter may not foreclose the mortgage otherwise, G’s
liability would be more onerous than that of A, the principal debtor.
 Interest, judicial costs, and attorney’s fees as part of damages may
be recovered
- Creditors suing on a suretyship bond may recover from the
surety as part of their damages, interest at the legal rate, etc.,
even without stipulation and even if the surety would thereby
become liable to pay more than the total amount stipulated in
the bond.
- The surety is made to pay by reason of his failure to pay when
demanded and for having compelled the creditor to resort to
the courts to obtain payment.
- Interest runs from the filing of the complaint or from the time
demand was made upon the surety until principal obligation is
fully paid.
 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 obligation
 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 obligation he
assumed under his contract.
Art. 2055. 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 comprise 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
 It cannot be presumed because of the existence of a contract or
principal obligation.
Reason for the rule
 Consideration of prudence in the interest of the guarantor who in
many cases finds himself under the harsh necessity of paying
another’s debt without benefit whatsoever for himself.
 In prescribing the requisite that guaranty to be effective must be
expressly constituted, the law wants, not alone that there be
assurance that the guarantor had the true intention to bind himself,
but also to make certain that, on making it, he proceeded with
consciousness of what he was doing.
Guaranty covered by the Statute of Frauds
 A contract of guaranty falls under the Statute of Frauds since it is “a
special promise to answer for the debt, default or miscarriage
of another.”
 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.”
 Under Art. 1358 of the CC, a contract of guaranty need not to
appear in a public document to be valid or enforceable.
Guaranty strictly construed
 It has to be strictly interpreted against the creditor and in favor of
the guarantor and is not to be extended beyond its terms or
specified limits.
 If there be 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.
 Liability for obligation stipulated
- A guarantor is liable ONLY for the obligation of the debtor
stipulated upon, and NOT to obligations assumed previous to
the execution of the guaranty UNLESS intent to be so liable
clearly is indicated.
- To holed guarantor liable for debts contracted prior to the
guaranty is to make him answer for debts incurred outside of
the guaranteed period, and this cannot be done WITHOUT
EXPRESS CONSENT.
- No liability attached under a contract of suretyship for defaults
occurring before it is entered into UNLESS an intent to be liable
is indicated.
- Although guaranty or suretyship is ordinarily not to be
construed retrospective, the rule must yield to the intention of
the contracting parties.
 Guaranty with a term subsequently cancelled
- The guarantor is NOT LIABLE for non-compliance by the
principal debtor with subsequent contract which the principal
debtor and the creditor might have entered into on or after the
specified date without the guarantor’s intervention.
 Guaranty to render accounting
- A guaranty that the debtor will render an accounting cannot be
extended to include a guaranty that the money due the creditor
will be delivered.
 Liability of surety limited to a fixed period
- The surety cannot be bound, for a long time, UNLESS the
contract has been renewed.
 CREDIT TRANSACTIONS
Janela Joy Villanueva Lana

- The 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 of guaranty or suretyship.

- An agreement whereby the sureties bound themselves to be

liable in case of an extension or renewal of the bond without
the necessity of executing another indemnity agreement for
the extension or renewal is VALID.

 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.

- It is logical to hold that the liability of the surety attached as

soon as the principal debtor defaults, and notice thereof is
given the surety within a reasonable time to enable it to take
steps to protect its interest.

- The surety has a remedy under the law to foreclose the

counterbond put up by the principal debtor.