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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
Section 4, Chapter 3, Title I of this Book shall
be observed. In such a case the contract is
called suretyship. (1822a)
Definition of guaranty.
Guaranty, properly so called, is defined in
paragraph 1 of the above article.
It is a contract between the guarantor and
creditor.
In its broad sense, guaranty includes pledge and
mortgage because the purpose of guaranty may
be accomplished not only by securing the
fulfilment of an obligation contracted by the
principal debtor through the personal guaranty
of a third person but also by furnishing to the
creditor for his security, property with authority
to collect the debt form the proceeds of the same
in case of default.
Governing law
With the enactment of the new Civil Code, the
classification of guaranty into commercial and
civil (or non-commercial) has been abolished.
Guaranty is now primarily regulated by Title XV
of Book IV (Arts. 2047 2048.) of the new Civil
Code, subject to its transitional provisions.
Characteristics of the contract
(1) Accessory it is dependent for its
existence upon the principal obligation
guaranteed by it.
(2) Subsidiary and conditional it 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 although after its
fulfilment, the principal debtor
becomes liable to indemnify the
guarantor but this is merely an
incident of the contract; and also
because
b. It may be entered into even
without the intervention of the
principal debtor (Art. 2050); and
(4) Personal it is a contract which
requires that the guarantor must be a
person distinct form the debtor because
a person cannot be the personal
guarantor of himself.
A person cannot be both the primary
debtor and the guarantor of his own debt
as this is inconsistent with the very
purpose of a guarantee which is for the
creditor to proceed against a third person
if the debtor defaults in his obligation.
However, in real guaranty, like pledge
and mortgage, a person may guarantee
his own obligation with this personal or
real properties.
Classification of guaranty
(1) Guaranty in the broad sense:
a. Personal this refers to
guaranty properly so-called or
guaranty in the strict sense. (Art.
2047.) Here, the guarantee is the
credit given by the person who
guarantees the fulfilment of the
principal obligation; or
b. Real Here, the guaranty is
property, movable or
immovable. If immovable, the
guaranty is in the form of real
mortgage (Art. 2124.) or
antichresis (Art. 2132.) and if
movable, in the form of pledge
(Art. 2093.) or chattel mortgage.
(Art. 2140.)
(2) As to its origin:

a. Conventional one constituted


by agreement of the parties (Art.
2051, par. 1.);
b. Legal one imposed by virtue
of a provision of law; or
c. Judicial One required by a
court to guarantee the eventual
right of one f the parties in a
case.
(3) As to consideration:
a. Gratuitous one where the
guarantor does not receive any
price or remuneration for acting
as such (Art. 2048.); or
b. Onerous. One where the
guarantor receives valuable
consideration for his guaranty.
(4) As to the person guaranteed:
a. Single one constituted solely
to guarantee or secure
performance by the debtor of
the principal obligation (Art.
2051, par. 2); or
b. Double or sub-guaranty one
constituted to secure the
fulfilment by the guarantor of a
prior guaranty.
(5) As to its scope and extent:
a. Definite one where the
guaranty is limited to the
principal obligation only, or to a
specific portion thereof (Art.
2055, par. 2.); or
b. Indefinite or simple. One
where the guaranty includes not
only the principal obligation but
also all its accessories (e.g.,
interests) including judicial
costs.
Note: Guaranty may also be continuing
or not.
Law applicable to contract of suretyship
Suretyship may be defined as a 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 third 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.
Specifically, suretyship is a contractual relation
resulting from an agreement whereby one
person, the surety, engages to be answerable to a
third person for the debt, default, or miscarriage
of another known as the principal.
2nd Paragraph Art. 2047
1. The second paragraph of Art. 2047
states the law applicable to the contract
of suretyship.
If a person binds himself solidarily with
the principal debtor, the contract is
called suretyship and the guarantor is
called surety.
2. 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.
Whenever applicable, the provisions on
guaranty (Arts. 2047 2048.) also apply
to suretyship. It has been held that the
provisions of the Civil Code on
guaranty, other than the benefit of
excussion are applicable and available to
the surety.
Common law guaranty and suretyship
Under the old Civil Code, it was held by the
Supreme Court that the civil law suretyship is
nearly synonymous with the common law
guaranty, and the civil law relationship existing
between co-debtors liable in solidum is similar
to the common law suretyship.
Where party binds himself solidarily with
principal debtor
Since guaranty consists in an undertaking to
secure the fulfilment of an obligation contracted
by another in case the latter should fail to do so,
it is quite possible for a guarantor to bind

himself solidarily with the principal debtor


without affecting the nature of the contract.
It all depends upon the terms of the contract or
the intention of the third person. Thus, if his
intention is not to convert himself into a
principal debtor but merely to constitute himself
as a guarantor although binding himself
solidarily with him, action may be brought
against him outright by reason of said solidarity
but he retains his character as a guarantor and all
the rights inherent in a guarantor by reason of
payment by him.
This case of guaranty under which guarantor
binds himself solidarily must not be confused
with suretyship as contemplated in the second
paragraph of Article 2047.
It has been held however, 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 s deemed
to be that of a surety as an insurer of the debt,
not of a guarantor who warrants the solvency of
the debtor.
Nature of suretys undertaking
(1) Liability is contractual and accessory
but direct suretyship is a contractual

relation. The suretys obligation is not


an original and direct one for the
performance of his act, but merely
accessory or collateral to the obligation
contracted by the principal.
Nevertheless, his liability to the creditor
or promise of the principal is said to be
direct, immediate, primary and absolute.
He is directly, primarily, and equally
bound with the principal as original
promisor although he possesses no
direct or personal interest over the
latters obligations nor does he receive
any benefit therefrom and regardless of
whether or not the principal debtor is
financially capable to fulfil his
obligations.
In law, a surety is considered as being
the same party as the debtor and their
liabilities are interwoven as to be
inseparable.
In suretyship, there is but 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.