PERSONS

➔ Those entering into contracts in general, must have:

◆ Legal capacity
➔ But there are some people who are incapacitated to give consent, such as:
◆ Deaf mutes
◆ Who do not know how to read and write
◆ Insane or demented persons (unless the contract was entered into during lucid
interval)
◆ Minors
● Certain exceptions
● In general, minors are not capacitated to enter into contracts
➔ Vices of consent (vitiates your consent)
◆ Mistake
◆ Intimidation or violence
◆ Undue influence
◆ Fraud
● THESE MAKE CONTRACTS VOIDABLE, OR SOMETIMES EVEN VOID
➔ Different kinds of fraud
◆ Dolo causante
◆ Dolo incidente

OBJECT
➔ All things may be the subject of contract, except those things which are outside the
commerce of men
➔ CANNOT BE THE OBJECT OF THE CONTRACT:
◆ Things outside the commerce of men
◆ Intransmissible rights
◆ Future inheritance (except in cases expressly provided by law) cannot be
bargained or made an object of contracts
◆ Services contrary to law, morals, good customs, public order
● Illegal services cannot be subject of contract
● One must come to court with clean hands
◆ Impossible things or services
● Precisely because they are impossible to do

CAUSE or CONSIDERATION
➔ Must:
◆ Exist
◆ True
 ◆ Licit
➔ KINDS OF CAUSES:
◆ If onerous contract:
● Prestation or promise of a thing or service to another (compensation)
◆ If it is a remuneratory contract:
● Service or benefit remunerated
○ Donation
◆ For gratuitous contract:
● Generosity or liberality
○ May not be necessarily money, it may be in the case of gratuitous
contract, it may be in the form of generosity or liberality of the
donor
◆ Accessory Contract:
● Cause must be identical with the cause of the principal
● By the name accessory, only exists if there is a principal contract to which
it is attached

FORMALITY OF CONTRACTS
➔ GR: Form is not required in consensual contracts
➔ XPN: if it is necessary for its validity bec there are some contracts that to be valid, have
to be in writing or subscribed (before a notary public)
◆ Statute of Frauds
◆ Donation of real property (must be in a public instrument)

DEFECTS IN CONTRACTS
➔ Recissible
◆ Economic damage or lesion in either one of the parties
● Valid until rescinded
➔ Voidable
◆ One of the parties to give consent or vitiated consent
● Valid until declared void
➔ Unenforceable
◆ If entered into without authority or in excess thereof or not compliance with the
statute of fraud; or
◆ Incapacity of both parties to give consent
● VALID BUT CANNOT BE ENFORCED
➔ Void
◆ Inexistent contract
◆ Illegality or lack or absence of any of the essential requisites of the contract
● Does not exist from the very beginning
CONCEPT OF CREDIT
➔ “Credere” : to trust or to believe
◆ Contracts or agreements based on trust or credit
◆ Confidence or trust in one person (that you will be paid back)
◆ When we talk about loans, we ask “how much do you trust this person na
papahiramin mo [ng pera]?”
◆ Pautang is a kind of credit
➔ SECURITY CONTRACTS:
◆ Real estate mortgage
◆ Chattel mortgage
◆ Guaranty
◆ Suretyship
● REAL ESTATE MORTGAGE OR CHATTEL MORTGAGE SCENARIO:
mangugutang sa bank, pero as assurance na babayaran mo ako, parties
will execute a real estate mortgage or chattel mortgage
● Payment of monthly amortization
○ TECHNICALLY payment for the loan
○ Naka mortgage yung property mo = nakasanla sa iba ang property
bec may utang pa
◆ Pag hirap makabayad sa loan, the bank will extrajudicially
foreclose the mortgage so ibabalik mo or kukunin ng bank
yung house or car
◆ GENERAL BANKING LOAN: dispose real properties within a
certain number of years through a public auction (remata)
◆ REPLEVIN: legal term for a bank to take back personal
property subject of a chattel mortgage
CHARACTERISTICS OF CREDIT TRANSACTIONS
➔ Voluntary & Legal
◆ VOLUNTARY
● Created by the will of the parties
● Must contain all the elements of a contract such as: consent, object, and
consideration
○ Based on trust and confidence
◆ LEGAL
● There are credit transactions that exists by operation of law
● Di necessary yung consent, formal contract, or meeting of the minds
● Example: necessary deposit
◆ Necessary
➔ Creates real rights or personal rights
◆ REAL RIGHTS
● Real estate mortgage
○ Creates real rights because it is a right existing over the property
◆ PERSONAL RIGHTS
● Loan
○ Personal right to demand payment
➔ Onerous or gratuitous
◆ ONEROUS
● “Burdensome” or merong burden
● Contract that creates burden (usually in the form of money)
● LOAN: onerous if payment of loan is stipulated
○ Compensation
○ Interest (BURDEN)
● Papahiramin ni Ms. Cordero si Ms. Pena ng PHP 500 pero dapat pagbalik,
may interest amounting to PHP 50
◆ GRATUITOUS
● Out of generosity and liberality
○ Mr. Tolentino papahiramin si Mr. Go ng PS5 without any payment
● Commodatum
○ Entirely gratuitous in nature

TRANSFERABILITY OF CREDIT
➔ The right of the creditor to the credit is generally transferable, usually through assigning
credit
◆ Assignment of rights
➔ Can be done through a sale, or a dation in payment (dation en pago)
◆ Ms. Villaces, Mr. Vertulfo and Mr. Vengo
● Mr. Vertulfo borrowed PHP 100 from Ms. Villaces, pero si Mr. Vengco may
utang pa kay Mr. Vertulfo na PHP 200.
 ● To extinguish the utang, yung utang sakin ni Mr. Vengco ay assigned to
Mr. Villaces.

LOANS IN GENERAL (Art. 1933-1934 of the Civil Code)

DISTINCTION FROM ART. 1933

➔ COMMODATUM
◆ Where one party delivers to another, something that is
● 1) not consumable so the latter may use it for a certain time and return in
◆ Essentially gratuitous
◆ Bailor retains ownership of the thing loaned
● May pakealam kung ano mangyari sa car (mabangga, masira, etc)
◆ Example: Ms. Casambre borrowed a car from Mr. Andres. Mr. Andres lend it,
gratuitous niya pinahiram.
● What is lent to Ms. Casambre is something that is not consumable
● There is an obligation to return it
● Essentially gratuitous
● Dahil lang hiniram, hindi magttransfer yung ownership sakanya (does not
obtain ownership)
➔ LOAN OR MUTUUM
◆ Object:
● Money or a consumable thing
◆ May be gratuitous or may also be onerous if there is payment of interest
◆ Ownership passes to the borrower
◆ Example: Loan of money
 ● Ms. Casambre wants to borrow PHP 200,000 from Mr. Andres. Mr. Andres
gave her PHP 200,000 but with an interest rate of 3% per annum
● In a loan, it is something that is money AND consumable
○ Onerous
○ Ownership of the 200k passes into Ms. Casambre with an
obligation to pay upon maturity
◆ Walang pake si Mr. Andres kung san mapunta yung 200k
but what’s important is that ownership passes to the
borrower
○ There are consequences if you try to improve or destroy the
property
➔ Article 1934. An accepted promise to deliver something by way of commodatum or
simple loan is binding upon parties, but the commodatum or simple loan itself shall not
be perfected until the delivery of the object of the contract. (n)

Mutuum or simple loan (Arts. 1933, 1934; Arts. 1953-1961)

1. Definition (Art 1933)

LOAN - a contract by which one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case
the contract is called commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid, in which case the contract is
simply called a loan or mutuum.

A mutuum or simple loan is a contract by which a person (creditor) delivers to another (debtor)
money or other consumable thing with the understanding that the same amount of the same
kind and quality shall be paid. (Art.1953)

2. Characteristics of a loan

a. Real contract
● delivery is essential for perfection of the contract of loan.
● An accepted promise to loan, is nevertheless binding on the parties, it being a
consensual contract.

b. Unilateral –
● creates obligations on only one party, i.e., the borrower
● In a contract of loan, the cause is, as to the borrower, the acquisition of the thing, and as
to the lender, the right to demand its return or its equivalent. (Monte de Piedad v. Javier)
3. Kinds

a. Fungible thing– usually dealt with by number, weight, or measure so that

any given unit or portion is treated an equivalent to any other unit or
portion.

[NOTE: Fixed, savings, and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan. (Art.1980)]

4. Form of payment (Arts. 1249 & 1250)

1. Loan of money – in the currency stipulated, legal tender in the Philippines (Art.
1249) and in case of extraordinary inflation or deflation, value based at the time
of the creation of the obligation (Art. 1250).

a. Notes and coins issued by CB

b. Check is not legal tender; cannot constitute valid tender of

payment

2. Loan of a fungible thing – another thing of the same kind, quality, and quantity. If
impossible, the value of the thing at the time of the perfection of the contract.

5. Parties

Creditor = Lender

Debtor = Borrower

6. Interest - the compensation allowed by law or fixed by the parties for the loan or for
bearance of money, goods or credits.
Distinguish between Monetary Interest and Compensatory Interest.

There are two kinds of interests: monetary interest and compensatory interest. Interests
may be paid either as compensation for the use of money, known as monetary interest;
or as damages, known as compensatory damages.

Legal interest is the interest earned from interest, from the time it is judicially
demanded, although the obligation may be silent upon this point (Art. 2212, Civil Code).

Commodatum (Arts. 1933, 1934; Arts. 1935-1952)

➔ True bailment contract

1. Definition (Art. 1933) - a contract by which one of the parties delivers to another,
either something not consumable so that the latter may use the same for a certain time
and return it, in which case the contract is called commodatum.

2. Parties

1. Bailor – the giver; the one who delivers the possession of the thing bailed
2. Bailee – the recipient; the one who receives the possession or custody of the
thing delivered

3. Characteristics

● (a) real (because perfected by delivery)

● (b) principal (because it can stand alone by itself)
● (c) gratuitous (otherwise, the contract is one of lease)
● (d) personal in nature (because of the trust).

4. Subject of a commodatum
Generally non-consumable things, whether real or personal. If the intention of the
parties is to have the consumable goods loaned returned at the end of the period, the
loan is a commodatum and not a mutuum.

5. Nature of a commodatum (Arts. 1935-1940)

GENERAL RULE: Commodatum is purely personal in character (Art.1939) such that:

1. Death of either party extinguishes the contract

2. Bailee can neither lend nor lease the thing lent to him to a third person

EXCEPTION: Members of the bailee’s household may make use of the thing loaned

EXCEPTION TO EXCEPTION: Bailee’s household may NOT use it when:

1. There is stipulation to the contrary, or

2. The nature of the thing forbids such use

6. Obligations of the Bailee (Arts. 1941-1945)

1. Obligation to pay for the ordinary expenses for the use and preservation of the
thing loaned (Art.1941)
2. Obligation to take good care of the thing with the diligence of a good father of a
family (Art.1163)
3. Liability for loss, even if loss through fortuitous event, in certain circumstances
(Art.1942)
4. Liability for deterioration of thing loaned, except under certain circumstances
(Art.1943)
5. Obligation to return the thing upon expiration of term or up
 6. Solidary obligation where there are 2 or more bailees to whom a thing was loaned
in the same contract (Art.1945)

7. Obligations of the Bailor (Arts. 1946-1952)

1. To allow the bailee the use of the thing loaned for the duration of period
stipulated or until the accomplishment of the purpose for which commodatum
was constituted.
2. To refund extraordinary expenses for the preservation of the thing loaned
provided bailor is notified before the expenses were incurred. (Art.1949)

EXCEPTION: Urgent need hence no notice is necessary.

3. To refund 50% of the extraordinary expenses arising from actual use of bailee of
the thing loaned (Art.1949)

EXCEPTION: Contrary stipulation

4. To pay damages to bailee for known hidden flaws in the thing loaned.

[NOTE: Bailor has no right of abandonment; he cannot exempt himself from payment of
expenses to bailee by abandoning the thing to the latter. (art. 1952)]

C. Deposits (Art. 1962-1952)

➔ Article 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the same. If
 the safekeeping of the thing delivered is not the principal purpose of the contract, there
is no deposit but some other contract. (1758a)
◆ When someone delivers to you something for safekeeping, and you have the
obligation to return the same thing
➔ Primary Purpose:
◆ Safekeeping
● If safekeeping is NOT the primary purpose of the contract, it is probably
not a deposit.
➔ Parties:
◆ Depositor - the one who delivers the thing subject of the deposit
◆ Depositary - receives the thing subject of the deposit, and one who has the
obligation to return the thing subject of the deposit
➔ Downpayment (earnest money) =/= Deposit under Art. 1962
◆ Downpayment is a reservation or security payment
◆ Deposit under Art. 1962 is primarily for safekeeping
➔ Lease
◆ Is rental = safekeeping (under Art. 1962)?
● No, usually because the deposit is for damages, hence it is not the
deposit contemplated in contract of sales
● Advanced payment rather than safekeeping
● Will answer for the damage that you may leave when it is time for you to
leave the dorm

➔ CAN YOU HAVE 2 OR MORE DEPOSITORS AND ONE DEPOSITARY?

◆ Yes. Why? Because under Art. 1968, a deposit may be made by 2 or more
persons
➔ Deposits in General (Art. 1962-1967)
◆ Characteristics (5)
● Real Contract
○ Because it is perfected by delivery
◆ Not mere consent
● Principal
○ Can exist by itself; it does not need another contract for it to exist
● Unilateral or Bilateral
○ Unilateral if gratuitous
○ Bilateral if onerous
● Purpose is safekeeping
● Temporary custody
○ as there is obligation to return on the part of the depositary
● Involves temporary custody of corporeal personal property
○ Physical, tangible personal property
○ Something that can be touched, seen, sensed through physical
senses
➔ How is this different from a commodatum, since both of them concern delivery of a
thing and are real contracts?
 COMMODATUM DEPOSIT

As to purpose To use the thing To safekeep the thing

Essentially gratuitous Can be onerous or

gratuitous

As to subject Can be movable or Generally the subject is

immovable corporeal personal
property that is generally
Non-consumable movable

Can be consumable or non

consumable as long as we
retain the purpose that it is
for safekeeping

Obligation to return the same thing

LEASE VOLUNTARY COMMODATUM

DEPOSIT

As to purpose To use To safekeep To use the thing

Perfected by mere No deposit if there Perfected by

consent is no delivery of the delivery
thing

Can be constituted
even if you dont
take possession
immediately

As to object Non consumable Can be consumable

or non consumable

Obligation to return the same thing on the part of the lessee and
depositary

◆ Kinds
● Judicial (Art. 2005-2009) aka Sequestration
◆ One which takes place when an attachment or seizure of property in
litigation is ordered
◆ A deposit may be created by virtue of a court order or by law and not
by the will of the parties.
● To secure right
◆ May involve real properties
 ● Extrajudicial
○ Voluntary and Necessary
○ Outside of the judicial realm; a deposit is a deposit perfected
without court or judicial intervention or approval
◆ Capacity of both parties
◆ Nature of Bank deposits
● Not the deposit contemplated under Art. 1962 but Art. 1980
● Relation of creditor debtor
● It is a contract of loan and NOT commodatum
◆ Nature of safety deposit box service
● SAFETY DEPOSIT BOX - LEASE OR DEPOSIT?
○ Not a lease nor a deposit but a special kind of deposit (American
Jurisprudence)
○ Contract for rent of safety deposit
➔ Voluntary Deposit (Arts. 1968-1995)
◆ General Provisions
● ARTICLE 1968. A voluntary deposit is that wherein the delivery is made by
the will of the depositor. A deposit may also be made by two or more
persons each of whom believes himself entitled to the thing deposited
with a third person, who shall deliver it in a proper case to the one to
whom it belongs. (1763)
○ One wherein the delivery is made by the will of the depositor
○ PARTIES: ordinarily, there are only 2, but sometimes the depositary
may be a third person
◆ Obligations of the Depositary
● keep the thing safely and return it, when required, to the depositor
● not to transfer deposit
● not to change way of deposit
● collect interest on thing deposited earning interest
● not to commingle things deposited if so stipulated
● not to make use of thing deposited unless authorized
◆ Obligations of the depositor
● Pay expenses of preservation
● Pay losses incurred due to character of thing
➔ Necessary Deposit (Art. 1996-2009)
◆ In compliance with a legal obligation
◆ Kinds (when necessary)
● When it is made in compliance with a legal obligation;
● When it takes place on the occasion of any calamity (fire, storm, flood,
pillage, shipwreck, or other similar events)
○ The possession of movable property passes from one person to
another by accident or fortuitously through force of circumstances
and in which the law imposes on the recipient the obligations of a
bailee
● When made by travellers in hotels or inns
○ Keepers of hotels or inns shall be responsible for them as
depositaries,, provided that notice was given to them or to their
employees x x x (Art. 1988)
 ○ The hotel keeper is liable for the vehicles, animals and articles
which have been introduced or placed in the annexes of the hotel
◆ Includes lost or damaged in hotel annexes such as
vehicles in the hotel’s garage
● Made by passengers with common carriers
◆ Liabilities and responsibilities of depositaries
●
◆ Liabilities and responsibilities of depositors

VOLUNTARY DEPOSIT NECESSARY DEPOSIT

Depositor has complete freedom to Liberty of action found in voluntary deposits

determine who the depositary would be is not present in necessary deposits

Guaranty
➔ Definition
◆ Article 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.
➔ Guaranty Distinguished from Suretyship

GUARANTY SURETY

Guarantor promises to answer for the debt, Surety promises to answer for the debt,
default or miscarriage of the principal default or miscarriage of the principal (same)

A guarantor binds himself to pay if the A surety undertakes to pay if the principal
principal cannot pay (insurer of the solvency does not pay (insurer of the debt).
of the debtor).

The guarantor is subsidiary liable to the A surety is primarily liable. A person binds
creditor to fulfill the obligation of the principal himself solidarily with the principal debtor.
debtor.

➔ Parties in a Guaranty
◆ Principal Obligor/Debtor
● Principally liable
◆ Obligee/Creditor
◆ Guarantor
● A guarantor binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
● Subsidiary liable
➔ Characteristics of a Guaranty
◆ Gratuitous
● Generally, the contract of guaranty is GRATUITOUS, but there can be a
contrary stipulation.
◆ Accessory
● It is dependent for its existence upon the principal obligation guaranteed
by it.
◆ Subsidiary and Conditional
● It takes effect only when the principal debtor fails in his obligation.
◆ Unilateral
● It gives rise to obligations on the part of the guarantor in relation to the
creditor and not vice-versa.
● It may be entered into even without the intervention of the principal
debtor.
◆ Distinct Person
● It requires that the person of the guarantor must be distinct from the
person of the principal debtor (you cannot guaranty your own debt).
● Primary purpose of the guaranty is for the creditor to go against a third
person if the principal debtor fails to pay him. It would defeat the purpose
of the guaranty if the principal debtor becomes the guarantor of himself.

➔ Guaranty Without the Consent of the Principal Debtor

◆ Limited right of reimbursement
● Only to the extent that the debtor had been benefited
◆ Guarantor has no right of subrogation

➔ Classification of Guaranty
◆ As to nature
● Personal - the guaranty is the credit given by the person who guarantees
the fulfillment of the principal obligation
● Real - the guaranty is property.
○ If the guaranty is immovable property: real mortgage or
antichresis;
○ If the guaranty is movable property: pledge or chatter mortgage
◆ As to manner of creation
● Conventional - by agreement of the parties
● Legal - imposed by law
● Judicial - required by a court to guarantee the eventual right of one of the
parties in a case
◆ As to consideration
 ● Gratuitous - the guarantor does not receive anything for acting as
guarantor - no valuable consideration
● Onerous - the guarantor receives valuable consideration for acting as
guarantor
◆ As to the person guaranteed
● Single - constituted solely to guarantee or secure performance of the
principal obligation
● Double or sub-guaranty - constituted to secure fulfillment of a prior
guaranty; guarantees the obligation of a guarantor
◆ As to scope
● Definite - limited to the principal obligation only or to a specific portion
thereof
● Indefinite - includes not only the principal obligation but also all its
accessories (damages, intertest, etc.), including judicial costs.

◆ Discrete or Continuing
● Discrete - secures a specific transaction
● Continuing - may secure a series of transactions and even future
transactions

➔ Sub-guaranty and Co-guarantor Allowed

◆ Sub-guaranty - To guarantee an obligation of a guarantor
◆ Co-guarantor - Guarantors of the same debtor for the same debt

➔ Binding Obligation
◆ Guaranty is an accessory contract, principal need not be valid
◆ The principal obligation may be voidable, unenforceable, a natural obligation
or a conditional obligation
◆ There can be no accessory contract to a non-existent principal contract (void)

➔ May be constituted for future debts (Art. 2053)

➔ Exercise of the Benefit of Excussion

◆ Article 2058. The guarantor cannot be compelled to pay the creditor unless the
latter has exhausted all the property of the debtor, and has resorted to all the
legal remedies against the debtor. (1830a)
◆ Liability of the guarantor is subsidiary. He will only be liable when:
1. The creditor has exhausted all of the property of the debtor; and
2. The creditor has resorted to all the legal remedies against the debtor

➔ Excussion not Required

◆ If the guarantor has expressly renounced it
◆ If he has bound himself solidarily with the debtor
◆ In case of solvency of the debtor
 ◆ When the guarantor has absconded or cannot be sued within the Philippines
unless he has left a representative
◆ If it may be presumed that an execution on the property of the principal debtor
would not result in the satisfaction of the obligation
◆ If the guarantor did not set it up against the creditor upon the latter’s demand of
payment from him
◆ If the guarantor did not point out to the creditor available property of the debtor
within the Philippine territory sufficient to cover the amount of the debt

➔ Extinguishment of Guaranty (Art. 2076-2081)

◆ 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. (1847)

INSERT TERM
- It is also an accessory in the sense that it cannot exist or it will not exist without any
principal contract like the contract of loan

Contract of guaranty
- the liability of the guarantor is merely subsidiary based when he has exhausted all the
properties of the principal debtor--he is entitled to the benefit of excussion
● Benefit of excussion - before the creditor can go after the guarantor, the
guarantor can set up the defense that “hey creditor, you havent exhausted all the
properties of the principal”
- You must point out the properties that will satisfy the obligation
- It is unilateral and expressed - there must be an agreement of guaranty
● Guaranty - is also a contract of security. It is a personal security because it is a
personal commitment. Because of the trust and confidence reposed in the
principal debtor that you will guarantee payment of his obligation

GUARANTY AND SURETY

ARTICLE 2047
● Suretyship - 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.
- What you constitute is a guarantee. But instead of being subsidiary liable, the
liability of the guarantor, our surety now is solidary with the principal debtor.
 -
● Guaranty - A guarantor binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.

Section 4, Chapter 3, Title I

- If the person binds himself to be solidarily liable, the provisions of the civil code on joint
and Section 4, Chapter 3, Title I shall apply. These are your provisions on joint and
solidary obligations in article 1207-1222 of the civil code

The Civil Code

- The code says the provisions on guaranty also apply to suretyship except those that are
exclusive to guaranty like the benefit of excussion.

Suretyship
- The law does not have an exact definition of what a suretyship is. Only that if the
guarantor binds himself solidarily liable with the principal, it becomes a surety
- A contract of suretyship is an agreement where party called a surety guarantees the
performance by another party called the principal or obligor of an obligation in favor of a
third party called the obligee
- Engages to be answerable for the debt, default, or miscarriage of the principal.

3 different parties
● Principal
● Obligee
● Surety
- If we have a contract of loan supported by a surety, the creditor there is now our
obligee. The debtor is our principal or principal debtor. And the 3rd party, the one that
promises to pay and bounds himself solidarily liable with the principal to the obligee
is now our surety
➔ Is it similar to guaranty? YES, it is quiet similar to guaranty. It’s not exactly the
same.

Characteristics
● Gratuitous - like guaranty, gratuitous except if there is stipulation to the contrary
- Pwede ka bayaran sa pagiging surety mo. you may encounter that the
surety is not a person but a company na nagbibigay ng surety bond. It
could be a juridical person making sure that the debt will be paid
● Accessory - like a contract of guaranty, it will not exist without a principal
contract. The 3 parties will exist only if we have a contract previous to this surety
agreement.
● Unilateral - there is a unilateral obligation to pay when the principal debtor
becomes liable
 ● Express - it must be clearly agreed upon by the parties. Surety, like guaranty, is
governed by the statute of frauds. It must be in writing and must have certain
formalities under 1405 of the civil code on the statute of frauds
○ Statute of frauds - contracts that are not in a certain form is not
necessarily void but only become unenforceable

Similarity
- They are both security contracts. They secure the performance of an obligation
and they both say that if there is failure to pay, I will pay. If theres inability to pay, i
will pay
- In a guaranty, there is a benefit of excussion. The creditor must first sue or make
liable the debtor first before you can be liable as the guarantor

Who may the creditor may sue if the debt has already become due and demandable:
1. Debtor
2. Surety
3. Both

“JOINTLY AND SEVERALLY” = SOLIDARY

Joint debtor - 50% of the debt

Solidary debtor - 100% of the debt

When there is a situation wherein there are solidary co-debtors, the relationship as far as
the creditor is concerned is solidary

So far as the solidary co-debtors are concerned, their liability to each other is merely joint
under article 1217-1218 of the Civil Code

Solidary co-debtor vs. a Surety

- Solidary co-debtor is entitled only to be reimbursed for the share which
corresponds to each solidary co-debtor.
- A surety is entitled to full reimbursement of the amount paid to the creditor.
- Why do we still constitute a suretyship?
- A surety is entitled to full reimbursement of the amount paid to the
creditor. Whereas in a solidary co-debtorship, he is only entitled to be
reimbursed for the shares which correspond to each co-debtor.
- The creditor can go directly against the surety.

Suretyship vs Insurance
● Insurance is a contract governed under the insurance code of the Philippines
- It is a contract of indemnity--a contract of payment wherein if a loss happens to
the insured, the insurer will give payment for the loss.
- The insured pays a premium so in case of loss, he will be indemnified\
- There is no right to reimbursement from the insured. Kaya ka nga nag babayad
ng premium thats already the compensation for the insurance
- Insurance covers losses that are beyond the control of the insured (accidents,
fire, etc)
- Insurance is governed by the insurance commission. Insurance products cannot
be sold without authority and approval from the insurance commission. Whereas
in a suretyship, it can be entered into by anyone
- Insurance products and to offer insurance, you have to have authority and license
to operate from the insurance commission. So, it’’s a regulated industry. Whereas
in suretyship kahit sino pwede mag enter into them as long as they are
capacitated to enter into contracts.

● Suretyship - generally, you dont expect a loss

- There is a right of reimbursement from the principal even if theres a
consideration for the suretyship.
- Surety guarantees qualities within the control of the principal – character,
honesty, integrity. Surety is a credit transaction based on trust and confidence in
the qualifications like honesty and integrity.
- They both assure payment incase of loss or non payment, there will be payment

Can corporations enter into surety agreements? Yes.

Guaranty agreement? Yes

There are companies that exist and are in the line of suretyship because there are some
transactions whether business or in government that would require you to post a bond.
● Bond - its a form of surety. Its a promise, like a surety, will answer for whatever
deficiencies or non-performance of the obligations. It acts as a surety itself
Suretyship vs. Guaranty

- In a suretyship, it is at the same time as the principal contract like a loan was entered
into. Whereas a guaranty was in a separate undertaking often with a consideration
separate from that consideration of the principal like loan
- In a suretyship, the surety assumes liability as a regular party to the undertaking. He is
like a co-debtor. In a guaranty, the liability of the guarantor is conditional depending on
the failure of the primary debtor to pay
- In a suretyship the obligation is primary but in a guaranty it is only secondary
- In a suretyship, the surety is an original promisor and debtor in the beginning. While the
guarantor is charged because he executed a separate undertaking
- In a suretyship, the surety is held to know the default of the principal. Whereas in a
guaranty the guarantor is not bound to take notice of the non performance of the
principal
- Surety is the insurer of the debt. In guaranty, the guarantor is the insurer of the solvency
of the debtor
- The surety undertakes to pay if the principal does not pay; so theres a primary obligation.
In a guaranty, the guarantor binds himself to pay if the principal is unable to pay; its a
subsidiary obligation.
- The surety is not entitled to the benefit of excussion. He is liable even if the principal is
solvent or has enough properties to pay the obligation. Whereas the guarantor is entitled
to the benefit of excussion

WHAT KIND OF CONTRACT IS THIS?

 ● Guarantee Agreement - TIDCORP as Ordinary Guarantor
- TIDCORP, with the ISSUER's express conformity, waives the provision of Article
2058 of the New Civil Code of the Philippines on excussion, as well as presentment
hereby, demand, protest or notice of any kind with respect to this Guarantee
Agreement. It is therefore understood that the SERIES A NOTEHOLDERS can claim
under this Guarantee Agreement directly with TIDCORP without the SERIES A
NOTEHOLDERS having to exhaust all the properties of the ISSUE and without need
of prior recourse to the ISSUER.
- It is a suretyship agreement. A guarantor who engages to directly shoulder the
debt of the debtor waving the benefit of excussion in the requirement of prior
presentment demand protest of any kind makes him solidarily liable to the
creditor. Art 2047 says that if in a guaranty, the guarantor binds himself solidarily
liable with the principal to the creditor and now becomes a surety.
- It doesn't matter what the name of the contract is. It could be any other name but
what you do is read the contract and look at all the provisions and the intention of
the parties based on the provisions.

Kapag winaive yung benefit of excussion, it does not immediately

become a suretyship. When the creditor goes to you nad says that bayaran mo
na ako kasi your debtor is unable to pay and the guarantor says sige i’ll pay, thats
the waiver of the benefit of excussion. He ‘s still the guarantor but he did not use
the benefit of excussion. This presupposes that the agreement from the start is a
guaranty agreement.

A guarantor who engages to directly shoulder the debt is solidarily liable to the creditor and
under 2047 is a surety

A guarantor who engages to directly shoulder the debt of the debtor, waiving the benefit of
excussion and the requirement of prior presentment, demand, protest or notice of any kind,
undoubtedly makes himself/herself solidarily liable to the creditor.

SURETY’S LIABILITY
- Surety’s liability is to the principal but he assumes liability as a regular party to the
undertaking of the principal with the creditor
- Surety’s liability is determined only by the clause of the contract of suretyship and cannot
be extended by implication

EXAMPLE:
- the surety agreement states that “i undertake to pay 200k” but the debt is actually 500k.
How much will the surety be liable? 500k or 200k?
- 200k because surety’s liability is determined only by the clause of the contract of
suretyship. So you are bound by the clause of the contract.