This action might not be possible to undo. Are you sure you want to continue?
The banks will not approve the loan if the borrower does not have a credible co-maker. This is the practice of the almost all financial institution. A co-maker is generally treated as a surety. In a contract of suretyship, one lends his credit by joining in the principal debtor’s obligation, so as to render himself directly and primarily responsible with the principal debtor. A surety is bound equally and absolutely with the principal, and is deemed an original promisor and debtor from the beginning. This is because in suretyship, there is but one contract, and the surety is bound by the same agreement which binds the principal(http://jlp-law.com/blog/liability-of-a-co-maker-distinguished-from-
guarantor/). The contract of suretyship is different from a contract of guaranty. Most often than not it is used interchangeably but it has a very different meaning and a different set of obligations are pegged unto these contracts. Objective To provide an overview discussion on surety and its undertaking citing relevant cases and jurisprudence. Discussion 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 case the contract is called a suretyship.
whereas a guarantor is an insurer of the solvency of the debtor. an undertaking that the debtor shall pay. a surety undertakes directly for the payment and is so responsible . and as between the who are bound. the contract is suretyship and not a contract of guaranty. A suretyship is an undertaking that the debt shall be paid. does not contract that the principal will pay. A surety binds himself to perform if the principal does not. after proceeding against the principal. CA. may proceed against the guarantor if the principal is unable to pay. No. Stated differently. In Palmares v. property with authority to collect the debt from the proceeds of the same in case of default. 348 SCRA450). 12649.(De Leon citing AgroConglomerates. V. Inc. on the other hand. the Court had occasion to discuss what a surety and a guaranty. The terms used in a contract is not binding. without regard to his ability to do so.R. Suretyship is defined as a relation which exist where one person (principal or obligor) has undertaken an obligation and another person (surety) is also under a direct or primary obligation or duty to a third person (oblige). What is controlling is the terms and condition of the contract. while a guarantor agrees that the creditor. guaranty it includes 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 third person but also by furnishing to the creditor for his security. a guaranty.2 In a broad sense. the one rather than the other should perform. If a person binds himself to be solidary liable with the principal debtor.(De Leon citing Manresa). it held that “A surety is an insurer of the debt. A guarantor. G. who is entitled to but one performance. CA. In other words. a surety promises to pay the principal's debt if the principal will not pay. but simply that he is able to do so.
but merely accessory or collateral to the obligation contracted by the principal but since he promised to be bound solidarily with the obligation. A contract of surety. No. And this is the kind of surety contract to which the rule of strict construction applies as opposed to a compensated surety contract undertaken by surety corporations which are organized for the purpose of conducting an indemnity business at established rates and compensation unlike an ordinary surety agreement where thesurety binds his name through motives of friendship and accommodation. It has been held that if the delivery of the original contract is contemporaneous with the delivery of the surety’s obligation. each contract becomes completed at the same time. The surety’s obligation although not an original and direct one for the performance of his act.3 at once if the principal debtor makes default. The peculiar nature of a surety agreement is that it is regarded as valid despite the absence of any direct consideration received by the surety either from the principal obligor or from the creditor. must generally be supported by a sufficient consideration. 1990). the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. Under Article 1216 of the Civil Code.( Garcia. while a guarantor contracts to pay if. A creditor's right to proceed against the surety exists independently of his right to proceed against the principal.R. Jr. The rule. the consideration necessary to support a surety obligation need not pass directly to the surety. his liability is direct and primary. the debt cannot be made out of the principal debtor. CA G. is that if the obligation is joint and . therefore. However. like any other contract. “ Liability is contractual and accessory but direct Surety ship is a contractual relation. by the use of due diligence. a consideration moving to the principal alone will suffice. 80201Nov. v. and the consideration which supports the principal contract likewise supports the subsidiary one. 20.
v. in accordance with the rule that.] In the case at bar. was granted in line with the credit . PCIB contends that the loan evidenced by the promissory note signed by Filadelfo Rojas. 1982. to resort to and exhaust his remedies against the principal. Since. by the terms of the contract. (Palmares V. as ruled by the Supreme Court in Philippine Commercial and Industrial Bank v. it is not necessary for the creditor to proceed against a principal in order to hold the surety liable. CA). beyond the terms of the contract. Inc. It cannot be extended by implication. the surety cannot at law. before proceeding against the surety. then soon as the principal is in default. Court of Appeals “It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein. Surety Bond No. 57957.000. particularly where both principal and surety are equally bound.. No. [Zenith Insurance Corp.. both in his personal capacity and as President of Community Builders. the surety is likewise in default. unless permitted by statute and in the absence of any agreement limiting the application of the security.4 several. CA et al. in the absence of statute or agreement otherwise. Liability is limited by terms of the contract Surety is bound by the express provision of the contract and the contract cannot be extended to what is not stipulated. in the amount of P50. and may be sued immediately and before any proceedings are had against the principal. generally. a surety is primarily liable. and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement. December 29. 119 SCRA 485. the creditor has the right to proceed even against the surety alone. The extent of a surety's liability is determined only by the clause of the contract of suretyship. the obligation of the surety is the same that of the principal. Perforce. where. G-1689 was executed to secure a discounting line of credit accommodation granted by PCIB to Community Builders Co. require the creditor or obligee.
Thus. Clearly therefore. for a consideration paid by the debtor. particularly the fact that two types of relationships are involved. primarily. ALPHA bound itself to pay the discounting line of Community Builders only which has a personality distinct and separate from Rojas.” The definition and characteristics of a suretyship bring into focus the fact that a surety agreement is an accessory contract that introduces a third party element in the fulfillment of the principal obligation that an obligor owes an obligee. The creditor in . G-1689 as security for the P150. that is.5 accommodation secured by the surety bond. to be jointly and solidarily liable to the creditor for the debtor's default. ALPHA is liable for the debt. the petitioners appear to misconstrue the nature of a surety relationship. Liability arises only if principal is held liable In taking these positions. hence. was signed both by Rojas and by Community Builders.000 debt. Under the accessory contract. which merely undertook to secure a P50. cannot be held answerable for the debt. G-1689. even granting that Rojas and Community Builders offered Surety Bond No. Note however that by the express terms of Surety Bond No. In short.(Intra Strata Assurance Company v. there are effectively two (2) contracts involved when a surety agreement comes into play .a principal contract and an accessory contract of suretyship. and equally bound with the principal as the original promissor although he possesses no direct or personal interest over the latter's obligations and does not receive any benefit therefrom. the underlying principal relationship between the creditor (government) and the debtor (importer).000 credit line of Community Builders. The promissory note. the debt on which PCIB bases its action is not within the purview of the Surety Bond No. Also. the surety becomes directly. the promissory note was for P150. on the other hand.000. whereas.000. Republic). and the accessory surety relationship whereby the surety binds itself. the amount of the credit line which ALPHA agreed to secure was only P50. ALPHA. G-1689.
as a matter of right. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety.” Surety is not entitled to exhaustion as held in G. nor to the benefit of excussion. and may be sued separately or together with the principal debtor. at which time it can be directly held liable by the creditor for payment as a solidary obligor. the surety does not. The surety is bound to take notice of the principal's default and to perform the obligation. The contract of surety simply gives rise to an obligation on the part of the surety in relation with the creditor and is a one. its role becomes alive only upon the debtor's default. the surety is not entitled as a rule to a separate notice of default. This is not the case here.way relationship for the benefit of the latter. however. earn the right to intervene in the principal creditor-debtor relationship. Such acceptance. the Court ruled that: The surety's contention is untenable.R. On this point. does not change in any material way the creditor's relationship with the principal debtor nor does it make the surety an active party to the principal creditor-debtor relationship. it may be worth mentioning that a surety is not even entitled. CA are worth noting: “Demand on the surety is not necessary before bringing the suit against them. A surety contract is made principally for the benefit of the creditor-obligee and this is ensured by the solidary nature of the sureties' undertaking. The counterbond contemplated in the rule is evidently an ordinary guaranty where the sureties assume a subsidiary liability. L-26449. to be given notice of the principal's default. his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety.(Intra Strata Assurance Company v. Republic). 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. In other words. because the surety in the present case bound itself "jointly and severally" (in . Under these terms. by reason of the surety agreement. The words of this Court in Palmares v.6 this latter relationship accepts the surety's solidary undertaking to pay if the debtor does not pay.
paragraph 2. May 15. for a procedural rule may not amend the substantive law expressed in the Civil Code. A surety is not entitled to the exhaustion of the properties of the principal debtor (Art. 63). The rule heretofore quoted cannot be construed as requiring that an execution against the debtor be first returned unsatisfied even if the bond were a solidary one. Luzon Steel Corporation vs. CA). 28 SCRA 58. not to debtor The contract is between the surety and the oblige and not between surety and the principal obligor. and further would nullify the express stipulation of the parties that the surety's obligation should be solidary with that of the defendant. Prior demand by the creditor to the principal not required .7 solidum) with the defendant. 1969. and it is prescribed in Article 2059. Undertaking is to creditor. of the Civil Code of the Philippines that excusion (previous exhaustion of the property of the debtor) shall not take place "if he (the guarantor) has bound himself solidarily with the debtor". his 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 and to perform the obligation. Surety is not entitled to notice of principal’s default Demand on the surety is not necessary before bringing suit against them. as a matter of right . Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety. A surety is not even entitled. L-26449. 2959. to be given notice of the principal’s default. since the commencement of the suit is a sufficient demand. He cannot complain that the creditor has not notified him in the absence of a special agreement to the effect in the contract of suretyship(Palmares V. Sia. Civil Code.
the surety cannot at law. in the absence of statute or agreement otherwise. in accordance with the rule that. before proceeding against the surety. Since. and absolutely liable as soon as default is made. therefore. unless the surety requires him by appropriate notice to sue on the obligation. mere want of diligence or forbearance does not affect the creditors rights vis-à-vis the surety. then soon as the principal is in default. A creditor's right to proceed against the surety exists independently of his right to proceed against the principal. and whether it is yielded by the creditor through sympathy . it provides” “The alleged failure of respondent corporation to prove the fact of demand on the principal debtors. Such gratuitous indulgence of the principal does not discharge the surety whether given at the principal’s request or without it.8 Again in Palmares the Court ruled that demand by the creditor to the principal is not required before going after the surety. The underlying principle therefor is that a suretyship is a direct contract to pay the debt of another. it is not necessary for the creditor to proceed against a principal in order to hold the surety liable. especially where demand would have been useless. and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement. a surety is primarily liable. by the terms of the contract. where. is likewise immaterial. In other words. is that if the obligation is joint and several. generally. the surety is likewise in default. Perforce. particularly where both principal and surety are equally bound. A surety is liable as much as his principal is liable. As an original promisor and debtor from the beginning. that the principal be called on to account. the creditor has the right to proceed even against the surety alone. The rule. require the creditor or obligee. to resort to and exhaust his remedies against the principal.” Surety is not exonerated by neglect of creditor to sue principal Where the creditor refrains from proceeding against the principal. by not attaching copies thereof to its pleadings. nor is it a requisite. he is held ordinarily to know every default of his principal. the surety is not exonerated. Under Article 1216 of the Civil Code. without any demand upon the principal whatsoever or any notice of default. and may be sued immediately and before any proceedings are had against the principal. it is not necessary that payment or performance of his obligation be first demanded of the principal. In the absence of a statutory or contractual requirement. the obligation of the surety is the same that of the principal. unless permitted by statute and in the absence of any agreement limiting the application of the security. the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. before proceeding against the sureties.
if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of the principal. At any rate. And.9 or from inclination to favor the principal. or the fact that the remedies against the principal may be lost by lapse opf time. a surety is not discharged by the creditor's mere statement that the creditor will not look to the surety.” . In other words. in the absence of proof of resultant injury. or is only the result of passiveness. the surety is not exonerated. Such gratuitous indulgence of the principal does not discharge the surety whether given at the principal's request or without it. The consequences of the delay. a surety is not discharged by the creditor’s mere statement that the creditor will not look to the surety. such as the subsequent insolvency of the principal. even if such delay continue until the principal becomes insolvent. In the same case of Palmares the Supreme Court also stated that Surety is not exonerated by neglect of creditor to sue principal it ruled: “We agree with respondent corporation that its mere failure to immediately sue petitioner on her obligation does not release her from liability. and whether it is yielded by the creditor through sympathy or from an inclination to favor the principal. he may pay the debt and become subrogated to all the rights and remedies of the creditor. unless the surety requires him by appropriate notice to sue on the obligation. such as the subsequent insolvency of the principal. or the fact that the remedies against the principal may be lost by lapse of time. or that he need not trouble himself. or that he need not trouble himself. in the absence of proof of resultant injury. The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety. The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety. mere want of diligence or forbearance does not affect the creditor's rights vis-a-vis the surety. And. are immaterial. The raison de’etre for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time. even if such delay continues until the principal becomes insolvent. The consequences of the delay. Where a creditor refrains from proceeding against the principal. are immaterial.
Positive and wilful interference by a creditor. to the prosecution of an action on the original security.. will not discharge the surety. without impairing his right to resort to the surety. In some jurisdictions. the duty of active diligence in the prosecution of suits. even if the delay of the creditor is such that his remedy against the principal becomes barred by imitation. particularly when his forebearance amounts to no more than a mere inaction or passivity.” Conclusion Contract of suretyship is very much different from a contract of guaranty. mere passiveness or mere delay in the prosecution of an execution against the principal debtor after judgment. He may forbear the prosecution of his claim. A surety is like a principal because he assumes the responsibility of the principal as if he received a consideration for the contract. L. release the surety. Seliner (42 Phil. if he desires. will not operate to discharge the surety. whether extended at his request or without it. Mere delay or negligence in proceeding against the principal will not discharge a surety unless there is between the creditor and principal debtor a valid and binding agreement therefore. The principal under consideration. by requesting it. when required by the surety. what the law or his duty enjoins him to do. . action was deferred for over four years. 384). As said in 21 C. or to deprive him of the power of obtaining indemnity by presenting a legal obstacle. Therefore the mere neglect of a creditor to sue or to attempt to collect a debt a the time it falls due does not discharge the sureties. unless he omits to do. moreover. however. In extension of the principle that the mere delay of the creditor to proceed against the principal will not discharge the surety. 1032: “It is a general principle that a creditor is under no obligation to be actively diligent in pursuit of his principal debtor. but the sureties were never the less held liable. Similarly. embarrassing the recovery of the claim against the principal. will. it has been held that the surety is not discharged. if a delay in calling on the principal for the money is the result of fraud. or unless he neglects. Thus. Also. to the injury of the surety. one which tends to prejudice him. to discharge his duty in any matter in which he occupies the position of a trustees for the surety. although the principal had ample means at the time. that surety will be exonerated. and whether it is yielded by the creditor from sympathy and from an inclination to favor him. or is the result or mere passiveness.10 In the case of Clark vs. and remain inactive. or of execution against the principal can be devolved on the creditor by the surety. and subsequently became insolvent. a gratuitous indulgence of the principal. for the time. however. comprehends something more than mere passivity or inaction resulting from negligence. of course.