BOOK CHAPTER 5: GUARANTY AND SURETYSHIP

Guaranty Surety

Alike in that each promises to answer for debt, default, or miscarriage of another

Insurer of the solvency of debtor and is bound Insurer of debt and he obligates himself to
to pay if principal is ​unable to pay pay if principal ​does not pay

Debtor​ shall pay Debt​ shall be paid

Liability is an ​independent agreement​ to pay Assumes liability as a​ regular party​ to the

obligation if primary debtor fails to do so undertaking

Engagement as a ​collateral​ undertaking Charged as ​original​ promisor and debtor

from beginning

Secondarily or subsidiarily liable​ (contracts Secondary only to valid principal obligation.

to pay only if debt cannot be paid) His ​liability to creditor is durect, primary,
and absolute

Guarantor’s own undertaking often supported Usually bound with his principal by the same
by a consideration separate from that instrument executed at the same time on the
supporting his principal’s contract same consideration

Not​ bound to take notice of non-performance Held to ​know every default​ of his principal

Discharged by mere indulgence of creditor of Not be discharged either by mere indulgence

principal and is usually not liable unless of creditor of principal or by want of notice of
notified of the default of the principal default (no matter how much he may be
injured)

Unlike a guarantor, a surety ​cannot​ claim release of obligation under Art. 2080 of Civil Code

Guarantor does ​not contract that principal Essence is to pay creditor ​w/o qualification
will pay​, only that he is able to do so if principal debtor does not

Responsibility/obligation of a surety is greater or more onerous than a guaranty

Under the Statute of Frauds so must be May be proved by oral evidence

written (​must be express​)

Joint liability SOLIDARILY LIABLE: imp evidence of surety

GUARANTY SURETYSHIP

Definition When a person called the A relationship which exists where the
guarantor binds himself to the principal has undertaken an
creditor to fulfill obligation of the obligation of another person called
principal debtor in case the debtor the surety who is also under the
 fails to do so obligation to a third person called the
obligee

It is a contract resulting from an

agreement whereby one person
(surety) engages to be answerable to
a third person (oblige/creditor) for the
debt, default, or miscarriage of
another (principal or debtor/obligor).

Classification

Guaranty in its 1. Personal

broad sense 2. Real: Movable or immovable property

As to its origin 1. Conventional: By agreement

2. Legal: Provision of law
3. Judicial: Required by court

As to consideration 1. Gratuitous: Generally gratuitous

2. Onerous

As to the person 1. Singl: Guaranty performance of debtor

guaranteed 2. Double or sub-guaranty: Secure fulfillment of a guarantor

As to its scope and 1. Definite (or limited): Principal obligation only

extent 2. Indefinite (or unlimited): Principal obli + accessories & judicial cost

Characteristics

1. Consensual Perfected by mere consent, subject to Statute of Frauds

2. Unilateral *Gives rise only to a duty on the part of the guarantor in relation to the
creditor and not vice versa
• Although after fulfillment, the principal debtor becomes liable to indemnify
the guarantor (but this is merely incidental to the contract)
- Note: Contract between a guarantor and debtor is called a
contract of indemnity
• May be entered into without the intervention of the principal debtor

BUT ​Bilateral if compensation is paid

3. Accessory • Dependent on the principal obligation guaranteed by it (cannot stand on

its own)
MAY SECURE THE PERFORMANCE OF: ​(if void = void guarantee)
1. Voidable contracts
2. Unenforceable contracts
3. Natural obligations

4. Subsidiary and • Takes effect only when the principal debtor fails in his obligation, subject
Conditional to certain limitations

5. Formal • Governed by the Statute of Frauds

 • Need not to be in a public document to be valid and enforceable
• But must be at least in writing to be enforceable

6. Gratuitous/ • ​Generally​ gratuitous but can be stipulated otherwise

Onerous • Onerous if compensation

Requisites

Consent o Meeting of the offer and acceptance upon the thing and the cause which
are to constitute the contract
o Must be by parties who have capacity
▪ Minors and insane or demented persons cannot give consent

Object of contract? The obligation guaranteed by it

Cause A guaranty is generally gratuitous unless there is a stipulation to the

contrary

GUARANTY

Sources of obligation Arises from the contract entered into by:

1. Creditor with guarantor
2. Debtor with guarantor
which may be in the nature of a stipulation in favor of third party
• The creditor may demand its fulfillment provided the creditor
communicated its acceptance to the guarantor before its revocation

Scope aka what 1. Principal obligations of the debtor

comprises a 2. Accessory obligations pertaining to principal obligation
guaranty? 3. Obligations arising from law (ex. Interest when there's delay)
4. Judicial obligations i.e pay for judicial costs after guarantor is
judicially required to pay

Where to pay (PLACE) 1. By stipulation

2. If no stipulation, the place must be at the domicile of debtor

When to pay (TIME) Guarantor must pay as soon as the creditor was unsuccessful in
exhausting the properties of the debtor

Where a party Guarantor has solidarily liability still without affecting the nature of
solidarily binds nature of the contract ​depending on the terms of the intention of the
himself with a 3rd parties
principal debtor ● Intention could be to convert himself into a principal debtor
● Intention could be to constitute himself as a guarantor but
binding himself solidarily with him.

​STILL DIFFERENT FROM A SURETYSHIP

Terminology Use of “guarantor” or “guarantee” is not conclusive

- If frm language used intention to be liable as a surety cannot be
 inferred, promisor is deemed to have bound himself only as a
guarantor
- Only if its for sure either a surety or guarantee
- If for liability, guaranty must be express
- Written word “guarantor” prevails over typed “witness”

Cause of contract of 1. Presence of cause which supports principal obligation

guaranty 2. Absence of direct consideration received by guarantor
3. Absence of direct or personal interest of guarantor over
obligation

Random rulings - Married woman may guarantee without husband’s consent but
cannot bind conjugal partnership unless rebounded to benefit of
her family
- Guaranty ​cannot​ exist without a valid obligation
- May be given as security for future debts (same w/ a surety) and
conditional obligations
- There can be no claim against debtor until amount of
debt is ascertained aka liquidated
- Continuing guaranty or suretyship​ is not limited to a
single transaction but a future course of dealings (terms
like from time to time signify continuing)
- Guarantor can bind himself for less but not more than principal
debtor
- If more, it will be reduced to limits of debtor
- All properties of principal debtor must first be exhausted before
guarantor may be held liable
- Non retrospective rule ​must​ yield to intention of parties
- Strictissmi juris rule applies only to an accommodation
surety
- Not applicable to compensated sureties
- Missing page 335 to 337

Rights of 3rd person - A person who pays without ​knowledge or against will of
who pays debtor can recover only insofar as payment has been beneficial
to debtor (cannot compel to surrogate)
- A guarantor with ​knowledge or consent of debtor is surrogates
by virtue or all rights which creditor had against debtor

Guarantor’s liability 1. Guaranty is a subsidiary and accessory contract

cannot exceed 2. Interest, judicial costs, and attorney’s fees as part of damages
principal obligation may be recovered (even w/o stipulation and if it results to more
than the total)
a. Interest runs from time of filing the complaint or demand
b. The exception to the fact that they cannot pay more
than principal’s obligation
3. Penalty may be provided

Guaranty not Requires consent on part of guarantor to be bound

presumed

Guaranty under SoF If not in writing, it will be ​unenforceable ​unless the same or some
note/memorandum be in writing and subscribed by party charged
 - Need not appear in a public document

Guaranty strictly 1. Liability for obligation stipulated (not previous ones unless
construed intended)
2. Guaranty to render accounting
3. Guaranty with a term subsequently cancelled (no longer liable
for non-compliance)
4. Liability of surety limited under a fixed period (cannot be bound
for longer unless contract renewed)
5. Liability of surety in case of renewal or extension (can agree to
have it done even w/o notice)
6. Liability of surety to expire on maturity of principal obligation =
UNFAIR AND UNREASONABLE STIPULATION
7. Liability of surety to pay in case of forfeiture of imported goods
(guarantees payment not legality)
8. Bond requires lessor to report to surety any violation by lessee
(doesn’t cover defaults incurred prior to acceptance)
9. Bond issued to secure defendant from possible damages as a
result of injunction (if wrongfully issued, can’t be used to satisfy
mortgage)
10. Bond issued in favor of plaintiff who filed a case for collection
(doesn’t guarantee cause of action)
11. Contract requires that notice of principal’s default be given to
surety (except when required by provisions that a demand or
notice is not required to fix surety’s liability)

Extent of guarantor’s Where guaranty is definite

liability - Obligation under terms of contract is limited in whole or in part
to principal debt to the exclusion of accessories

Where guaranty indefinite or simple

- Principal cost, all accessories, judicial costs by the latter only
occurs once judicially required to pay

Qualifications of 1. Possesses integrity (not convicted of dishonesty)

guarantor 2. Capacity to bind himself; and
3. He has sufficient property to answer for the obligation which he
guarantees
Note: Qualifications need only be present at the time of perfection of
contract. But creditor may ​demand​ another guarantor w/ proper
qualifications
- Art 2057 requires conviction in the first instance of a crime
involving dishonesty
- Judicial declaration of insolvency not needed to demand

Selection of guarantor 1. Specified person stipulated as guarantor (no demanding

substitution)
2. Guarantor selected by principal debtor (latter answers for
integrity and etc)
3. Guarantor personally designated by the creditor (latter answers
for responsibility not debtor)

Chapter 2: Effects of guaranty

 Between Guarantor and Creditor

Right of guarantor to 1. Guarantor only secondarily liable

benefit of exhaustion 2. All legal remedies against debtor to be first exhausted
or excussion 3. Payment prior to exhaustion (he can still pay before)

Duty of creditor to 1. Need for judgment

secure judgment 2. Deferment of execution
against debtor prior
to exhaustion

Exceptions to benefit 1. Art 2059

of excussion a. Right waived
b. Liability assumed that of surety
Aka when guarantor c. Insolvency of debtor proven by unsatisfied writ of
cannot use the benefit execution
d. Debtor absconds or cannot be locally sued
e. Resort to all legal remedies is a useless formality
2. If he does not comply w art 2060
a. For a guarantor to make use of excussion, he must set it
up against the creditor upon latter’s demand for payment
from him, and point out to creditor available property of
debtor within the PH territory
3. Guarantor bound himself solidarity with the principal debtor
4. If judicial bondsman and sub-surety
5. Where a pledge or mortgage has been given by him as special
security
6. If he fails to interpose it as a defense before judgment is
rendered

Duty of creditor to 1. When demand to be made: Creditor can demand payment from
make prior demand guarantor only ​after​ judgment on debt for the exhaustion of
for payment from principal’s property
guarantor 2. Actual demand​ to be made

For guarantor to set Under art. 2060, it is not enough that the guarantor claims the benefit
up benefit of but as soon as he’s required to pay, he ​must​ point out available
excussion property (not in litigation or encumbered) of debtor within the PH
- After this, now the duty of the creditor to ​exhaust all property
pointed out and resort to ​all legal remedies​ (if not, he suffers
the loss but only to extent of insolvency)

Joinder General rule: Guarantor not being a joint contractor with principal
cannot be sued with his principal
Exception: Serve merely to ​delay​ until accounting of guarantor

Procedure when 1. Sent against principal debtor alone (except when guarantor not
creditor sues entitled to exhaustion)
2. Notice to guarantor so he may appear if he wants
a. If he appears = this is NOT renunciation
b. If he does not appear = Cannot question judgment
3. Hearing before execution can be issued against guarantor
Compromise Contract where parties make reciprocal concessions to avoid litigation
or put an end to one
- If prejudicial = Binds only parties and not 3rd parties (guarantor)
- If beneficial = Guarantor may accept unless revoked b4 it

Examples
- If agree to reduce debt then guarantor benefits
- If agree to increase it, guarantor liable only for original amount
- If shortens the period then not binding on guarantor

Sub-guarantors Guarantor of the guarantor. Also enjoys benefit of excussion (same

footing as guarantor)

Co-guarantors Several guarantors​ of only ​one debtor​ and for the​ same debt
(obligation to answer is divided among them) → typically joint liability
unless stipulated otherwise
- If one turns out to be insolvent, his share will be borne by the
others

Benefit of division
- Art. 2065
- Cannot be availed of if 2 debtors (even if solidarily bound) each
with different guarantors; or
- Cannot be if 2 or more guarantors of same debtor but diff debt

Benefit of division The following conditions must be satisfied

1. Several guarantors of only one debtor and for same debt
2. Benefit of division claimed in a timely manner (not in law but
logical based on analogy w/ exhaustion)
3. Solidarity has not been stipulated

Between Debtor and Guarantor

Guarantor who pays Indemnity comprises of:

must​ be indemnified 1. Total amount​ of debt (guarantor has ​no ​right to demand until
by the latter actually paid unless otherwise stipulated)
2. Legal interests​ from time payment was made known to debtor
(independent of creditor’s right to claim)
3. Expenses​ incurred by guarantor after having notified debtor
(​not​ if by his fault or on his own will)
4. Damages​ if they are due

Exceptions to right to 1. Guaranty is constituted w/o knowledge or against will of debtor

indemnity (can recover only what was beneficial to debtor)
2. Payment by 3rd party that doesnt intend to be reimbursed by
debtor is a donation which requires consent
3. Subject to waiver

Subrogation This transfers, to the person subrogated, the credit ​with all the rights
appertaining either against the debtor or 3rd persons, be they guarantor
or mortgage possessors, subject to stipulation

Relation here: The guarantor who pays is subrogated to all rights the
 creditor had against debtor
- IF compromise, can’t demand more than paid
- Right of subrogation is ​necessary​ to enable guarantor to
enforce the indemnity referred to above
- Not available if guarantor has no right to be reimbursed
- One who pays on behalf of debtor without his knowledge or
against his will, ​cannot​ compel creditor to subrogate
- Partial payment (art 1304)

Guarantor payment Debtor may interpose against the guarantor defenses he may have set
w/o notice to debtor up against the creditor at time of payment

Effect of payment 1. If obligation is with a period, demandable only when day fixed
before/after maturity comes
2. If with a period and guarantor paid before due, ​cannot​ demand
reimbursement from debtor ​until​ period expiration (​unless
ratified by debtor)
3. If demand was made during term, payment made after term is
not material

Effect of repeat General rule: Before guarantor pays creditor, he must first notify debtor
payment by debtor - If he fails to give notice and the debtor repeats payment his
remedy is to collect from creditor even if creditor becomes
Art. 2070: Gratuitous insolvent (guarantor bears loss)
guaranty
Exception: Can still claim reimbursement from debtor in spite of lack of
notice if the following are present
1. Creditor becomes insolvent
2. Guarantor was prevented by fortuitous to advise debtor of
payment; and
3. Guaranty is gratuitous

So what? Generally guarantor must first pay before claiming reimbursement from
principal debtor

Exception: Guarantor who has not paid the creditor can still proceed
against the debtor if…
- Falls within 7 below
- Remedy: Release from guaranty or security

Guarantor, even 1. He is ​sued​ for payment (​no​ benefit of excussion here)

before being paid, can 2. Insolvency​ of principal debtor
proceed against the 3. If he has bound himself to relieve him from guaranty within
principal debtor specified period and ​period has expired
when... 4. Debt is demandable by ​expiration of period for payment
5. After 10 years if no fixed period for maturity​ (unless nature is
that it can’t be extinguished a period longer than 10 years)
6. Reasonable grounds to fear that ​debtor intends to abscond
7. Debtor is in ​imminent danger of being insolvent

Remedy of guarantor: To ​obtain release​ from guaranty ​or​ ​demand a

security​ that shall protect him from proceedings by the creditor and
against danger of debtor insolvency
 - ONLY creditor has power to release from guaranty
- How does a debtor release a creditor?
- If he pays creditor ​or​ obtains consent of creditor
- Debtor may offer another guarantor or another
security but depends on creditor

Articles 2066 and 2066​: Enforcement of rights of guarantor against debtor after paying
2071 distinguished debt (right of action after payment)
- Substantive right
2071​: Protection before guarantor has paid but after he becomes liable
(protective remedy before payment)
- Preliminary right

Recovery by surety 1. Indemnity agreement for benefit of surety

against indemnitor 2. Indemnity agreement may be against actual loss as well as
even before payment liability
a. Difference bet the 2: if loss indemnitor not liable until
payment or loss but if liability this arises as soon as
liability arises
3. Such agreement valid

Guarantor of a 3rd Guarantor who guarantees debt of an absentee at ​request of another

person at request of has a right to claim ​reimbursement, after​ satisfying debt either from:
another - (1) person who ​requested​ he be guarantor or (2) debtor

Between Co-Guarantors

Co-Guarantors Obligation of several guarantors to same debtor for same debt is joint
(art 2073) - Bound to pay proportionate share

If one pays and seeks Here, it is required that payment must have been made…
reimbursement from 1. Because of a judicial demand
co-guarantors 2. Because principal debtor is insolvent

Effect of insolvency His share will be borne by the others including the paying guarantor in
of one of d guarantors the same joint proportion

Right of the paying In either case above, he can ​demand proportionate contribution or
guarantor reimbursement​ from his co-guarantors

Defenses available to Can get all defenses (ex. fraud, prescription, illegality) which the debtor
co-guarantors would have interposed against creditor ​except​ debtor’s personal rights
like minority

Sub-Guarantor in this Sub-guarantor is liable to co-guarantors in the same manner as the

circumstances guarantor whom he guaranteed

Extinguishment of Guaranty
Extinguishing 1. Causes under general contract law
obligations of the a. Article 1231. Obligations are extinguished: ​(1) By
GUARANTOR payment or performance; (2) By the loss of the thing
due; (3) By the condonation or remission of the debt; (4)
 By the confusion or merger of the rights of creditor and
debtor; (5) By compensation; (6) By novation.
b. Article 2076.​ The obligation of the guarantor is
extinguished at the same time as that of the debtor, and
for the same causes as all other obligations
2. Extinguishment of principal obligation
3. Certain causes peculiar to extinguishment of guaranty

GUARANTY​ can be 1. Payment or performance

extinguished by 2. Dacion en pago​: Creditor voluntarily accepts immovable in
payment of debt even if he later loses it to eviction (art 2077)
3. Loss of the thing due​: If a determinate thing, without debtor fault,
and before delay
4. Service becomes impossible​: Prestation becomes legally or
physically impossible without debtor’s fault
5. Consignation​: Debtor makes consignation, creditor authorizes
him to make withdrawal then creditor loses preference over it
6. Condonation​: Renunciation of principal debt
7. Merger or confusion​: Extinguished from time creditor and debtor
are mered to 1
8. Compensation​: Of debtor and creditor debts
9. Novation​: If principal extinguished, guaranty will subsist only if it
benefits 3rd persons who did not give their consent
10. Extension​: Without consent of guarantor
11. Failure of subrogation
12. Release

Other causes of - Annulment, rescission, fulfillment of resolutory condition, and

extinguishment prescription
- Death of principal is ​not​ a defense (obligation passed to
decedent's estate)
- Guaranty may be directly extinguished although principal
obligation still remains

Material alteration of Effect​: Release surety from liability (such material alteration would
principal contract constitute novation or change to principal contract which is consequently
extinguished)

When alteration is material​: A change which imposes a new obligation

or added burden on party promising or which takes away some
obligation already imposed

Material alteration Material: Increase in the amount of debt which decreases probability of
examples debtor liquidating thus increasing risk of surety)

Immaterial: Increase in interest rate but creditor is only looking for

original one, an assignment by creditor, and a change in only the
technical specifications with no effect on amount of liability

Art 2077 When a creditor accepts money as payment from a guarantor the
obligation is extinguished. This also applies to when property is given
- Guarantor is relieved from liability even if lost by eviction
(revives principal obligation not guaranty)
Random notes - As a rule, guarantors enjoy benefit of division. BUT if any are
insolvent guarantors must bare his share
- A release of one guarantor, ​w/o consent of others,​ benefits all
to the extent of his share

Release by extension 1. Extension to debtor ​without​ consent of guarantor =

of term EXTINGUISHES guaranty
a. If payable in installments extension of one or more is OK
but if whole unpaid balance and extend is ion = BYE
b. Consent to extension can be waived in advance by
guarantor
c. Payment by guarantor after creditor’s demand
d. Extension will not happen if done by someone other than
the creditor
e. Extension granted to first tier obligor so indemnities so
second like indemnities cannot be charge for principal
2. Prejudice to guarantor and period of extension immaterial
3. Extension must be based on a new agreement
4. Diligence on creditor to enforce his claim generally not required
unless stipulated
5. No cause of action against creditor for delay

Release when Even if guarantors are solidary they are released if ​cannot be
guarantor cannot be subrogated ​to the rights, mortgages, & preferences of creditor
subrogated
Rule: Guarantor who pays​ is entitled to be subrogated​ to all rights of
creditor
- If none cos of creditor’s FAULT = RELEASE (Ex. Releases or
fails to register a mortgage)

Defenses available to ALL defenses which pertain to principal debtor and inherent to debt
guarantor against - Ex for nullify or annulment or lack of consent etc
creditor - Can be set up even against will of debtor
- Can intervene in action bet debtor and creditor but if not then
waived
- Defenses from ​conduct of creditor
- Negligence
- Extension
- Subrogation
EXCEPT debtor’s personal defenses
- These are based on incapacity or limited capacity to act NOT
vices of consent

Guaranty vs Indorsement
Guaranty Indorsement

Contract of security Contract of transfer

More extensive Unless note is promptly presented for payment

at maturity and due notice of dishonor is given,
he will be discharged from all liability
Warrants solvency of promisor Does not as he is answerable on a strict
compliance w/ the law by the holder

Cannot be sued as promisor May be sued

Guaranty vs Warranty
Guaranty Warranty

Each is an undertaking by one to another to indemnify or make good the assured against some
possible default or defect

Person is bound to another for fulfillment of Title, quality, or quantity of the subject is what it
promise has been represented to be and relates to
some agreement made by one who makes the
warranty

SURETYSHIP

Relationships It involves 2 relationships:

involved o ​Principal relationship​ between the oblige and the obligor
o ​Accessory relationship​ between the principal (obligor) and the
surety

Applicable laws 1. Joint and Solidary Obligations​ - If a person binds himself

solidarily with the principal debtor, the contract is called
suretyship and the guarantor is called a surety.
2. Article 2066​ - Right to indemnification given to guarantor
3. Article 2067​ - Rights to subrogation given to guarantors
4. Article 2079​ - Extension of time granted by the creditor to
debtor w/o consent of surety will release surety

NON applicable laws 1. ​Article 2058​ - The benefit of excussion since surety is principally
liable
2. ​Article 2063​ - Surety cannot invoke this art which states that a
compromise between creditor and principal debtor benefits guarantor
but does not prejudice him.
3. ​Article 2071
4. ​Article 2080​ – Unlike a guarantor, a surety cannot claim from his
obligation under Article 2080
5. ​Article 2081

Nature of Surety’s Undertaking

(1) Liability is - Said to be DIRECT, PRIMARILY, EQUALLY BOUND WITH

contractual and THE PRINCIPAL AS ORIGINAL PROMISOR although he
accessory but direct POSSESSES NO DIRECT OR PERSONAL INTEREST over
the latter's obligation
- Same party as debtor
- One contract and surety is bound by same agreement which
binds principal
 - Complementary contracts construed together​ doctrine (P.
290 footnote 5)

(2) Liability limited by - Surety is not presumed and it must not extend to more than
terms of contract what is stipulated
- Not released by a change in contract that ​doesn’t ​have the
effect of making its obligation more onerous

(3) Liability arises only Liability is essentially held to be solidary

if principal debtor is
held liable
- In the absence of collusion, surety is bound by judgment
against principal even though he was not party to proceeding
- Creditor may sue, separately or together, principal debtor and
surety
- Creditor does not act as a fiduciary in his relation to surety
- Except where required by provisions on suretyship, ​demand or
notice of default is not required to fix surety’s liability
- Accomodation party is like a surety
- Surety bond is ​void​ if no principal debtor

(4) Surety not entitled Because he assumes a solidary liability for fulfillment of principal
to exhaustion obligation (they insure the debt itself not solvency)

(5) Undertaking is to Surety’s undertaking is that the principal shall fulfill his obligation & that
creditor not to debtor the surety shall be relieved of liability when obligation secured is done

(6) Surety not entitled Not necessary before bringing suit against surety since commencement
to notice of principal’s of suit is enough demand
default - Surety ​bound​ to take notice of principal’s default & to perform
obligation (BUT required notice may be stipulated)

(7) Prior demand by Creditor can demand upon any of them because the principal and
creditor upon surety are equally bound
principal not required - Surety remedy​: Pay debt & pursue principal for reimbursement

(8) Surety not Mere want of diligence or forbearance doesn’t affect creditor’s rights
exonerated by neglect vis-a-vis the surety, unless surety requires him by appropriate notice to
of creditor to sue sue on the obligation
principal - NOTHING to prevent creditor from proceeding against principal

Legal and Judicial Bonds

Bond Undertaking that is sufficiently secured

Bondsman Surety offered in virtue of a provision or law or judicial order

Qualifications of Same as guarantor (art 2056) = Integrity, capacity to bind himself, and
bondsman sufficient property to newer for obligation he guarantees
- More in 398 cause rules of court apply

Nature of bonds All bonds are contractual in nature

- Judicial bonds are a special class as they are given in virtue of
a judicial order
What if person bound A pledge or mortgage is considered sufficient to cover his obligation
can’t give a bond? - If guaranty surety is personal security, pledge mort is property
or real security

NO exhaustion of Both the judicial bondsman and sub-surety are not entitled since they
property are primarily and subsidiarily liable

Effect of negligence of Mere negligence in collecting from debtor will NOT relieve surety
creditor - It’s not that creditor sees that debtor pays but that surety will
see that debtor will pay

SHORT: GUARANTY AND SURETYSHIP

GUARANTY SURETYSHIP

PARTIES Creditor and Guarantor Surety

 Principal debtor sometimes

LIABILITY Secondarily liable Solidary

PURPOSE Insurer of the solvency of debtor Insurer of the debt and obligates
and binds himself to pay if the himself to pay if the principal does
principal is unable to pay not pay

BOUND BY Same agreement binding principal

BENEFIT OF YES ^_^ NO :-(

EXCUSSION Also division if several guarantor Including judicial bondsman and
for one debtor in same debt sub surety

NOTICE Prior demand not required

FUTURE DEBT Yes

FORM Falls under Statute of Frauds Does not

PERFECTION Consensual contract perfected by mere consent

EXISTENCE Cannot exist without a valid obligation BUT okay if voidable,

unenforceable, and natural obligation

GUARANTOR 1. Possesses integrity

QUALIFICATION 2. Capacity to bind himself
(@ perfection) 3. Sufficient property to answer for obligation which he guarantees

INDEMNIFY 1. Total amount of debt

GUARANTOR 2. Legal interest from time made known to debtor
WHO PAYS DEB 3. Expenses incurred by grantor after notification to debtor
4. Damages if due

PAYMENT If debt was for a period and guarantor paid before it became due, he
cannot demand reimbursement of debtor until expiration of period
- Unless payment has been ratified by debtor

REPEAT GR​: Notify debtor before guarantor pays but if not can’t claim
PAYMENT reimbursement from debtor but creditor na
Exception​: Creditor become insolvent, guarantor prevented from
advising due to fortuitous, and guaranty is gratuitous

EXTINGUISHED Extinguishing obligations of GUARANTOR:

1. Causes under general contract law
a. Article 1231. Obligations are extinguished: ​(1) By
payment or performance; (2) By the loss of the thing due;
(3) By the condonation or remission of the debt; (4) By the
confusion or merger of the rights of creditor and debtor; (5)
By compensation; (6) By novation.
 b. Article 2076.​ The obligation of the guarantor is
extinguished at the same time as that of the debtor, and
for the same causes as all other obligations
2. Extinguishment of principal obligation
3. Certain causes peculiar to extinguishment of guaranty

Extinguishing GUARANTY:
1. Payment or performance
2. Dacion en pago
3. Loss of the thing due
4. Service becomes impossible
5. Consignation
6. Merger or confusion
7. Compensation
8. Novation
9. Extension
10. Failure of subrogation
11. Release

OTHERS:
- Annulment, rescission, fulfillment of resolutory condition, and
prescription
- Death of principal is ​not​ a defense (obligation passed to
decedent's estate)
- Guaranty may be directly extinguished although principal
obligation still remains
- Art. 2079: Extension granted to debtor by creditor w/o consent of
guarantor

SUBROGATION Transfers, to the person subrogated, the credit ​with all the rights
appertaining either against the debtor or 3rd persons, be they guarantor
or mortgage possessors, subject to stipulation
- Brief mention of art 2080
- Sidenote: is 2081 p 395 important

FUTURE DEBT YES but no claim until debt is liquidated