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CREDIT TRANSACTIONS REVIEWER FOR FINAL EXAMS

by Ma. Jean B. Castaeda

CIVIL CODE

GUARANTY
ART. 2047 By guaranty, the guarantor binds himself to the creditor that he will fulfil the obligation in
case the principal debtor fails to pay his debt.

SURETYSHIP- a contract whereby the guarantor binds himself solidarily with the principal
debtor. In this case, payment made by one of the solidary debtors extinguishes the
obligation.

ART. 2048 General Rule : A guaranty is gratuitous.
Exception : Unless there is contrary stipulation.

ART. 2049 General Rule : A married woman may become guarantor even without
husbands consent, however, shall not thereby bind the
conjugal partnership.
Exception : In cases provided by law.

ART. 2050 When a guaranty is entered into without the knowledge or consent of the principal debtor:
The creditor is not bound to accept payment or performance by a third person
who has no interest in the fulfilment of the obligation.
The guarantor can recover from the debtor only insofar as the payment has been
beneficial to the debtor.
The guarantor cannot compel the creditor to subrogate him in his rights.

ART. 2051 A guaranty may be constituted in the following manner:
1. Conventional
2. Legal or Judicial
3. Gratuitous
4. By onerous title
5. In favour of the principal debtor
6. In favour of the other guarantor (with or without the guarantors consent, knowledge
or even over his objection).

ART. 2052 A guaranty cannot exist without a valid obligation. However, a guaranty may be
constituted to guarantee the performance of a voidable or an unenforceable contract,
and also a natural obligation.

ART. 2053 When guaranty is given as security for future debts:
Amount of debt is not yet known.
No claim can be made against the guarantor until the debt is
liquidated.
A conditional obligation may also be secured.

ART. 2054 As regards the amount of the debt and the onerous nature of conditions, the guarantor
may not bind himself more than the principal debtor, otherwise, the obligation of the
guarantor shall be reduced to the limits of that of the debtor.

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ART. 2055 A guaranty is not presumed, hence, it must be express and cannot extend to more than
what is stipulated therein.

If the guaranty be simple or indefinite, the principal obligation shall be compromised
including all its accessories, judicial costs.

With respect to judicial cost, the guarantor shall only be liable for those costs incurred after
he has been judicially required to pay.

ART. 2056 To qualify as guarantor, one shall possess the following:
1. Integrity;
2. Capacity to bind himself; and
3. Sufficient property to answer for the obligation which he guarantees

The guarantor is subject to the jurisdiction of the court of the place where the obligation is
to be complied with.

ART. 2057 When guarantor is convicted of a crime involving dishonesty or becomes insolvent: The
creditor may demand another guarantor who has all the qualifications required in the
preceding Article.
Note: The creditor cannot require and stipulate that a specific person be the guarantor.

ART. 2058 The guarantor cannot be compelled to pay the creditor UNLESS all of the property of the
debtor has been exhausted and all legal remedies against the debtor have been resorted
to.

ART. 2059 There shall be NO excussion (seizure) against the property of the principal debtor, IF:
The guarantor has expressly renounced it;
If the guarantor bound himself solidarily with the debtor;
In case of insolvency of the debtor;
When the principal debtor has absconded, or cannot be sued within the
Philippines unless he has left a manager or representative;
If an execution on the property of the principal debtor would not result in the
satisfaction of obligation.

ART. 2060 The guarantor may make use of the benefit of excussion by identifying available property
of the debtor within the Philippines, sufficient to cover the amount of debt.

ART. 2061 The creditor who negligently fails to exhaust the aforesaid property shall suffer the loss to
the extent of said property.

ART. 2062 The creditor shall ask the court to notify the guarantor about all of his action against the
debtor. In this case, the guarantor may appear to set up defenses granted to him by law.
The benefits of excussion shall always be unimpaired even if the court has already
rendered judgment against the principal debtor and the guarantor.

ART. 2063 A compromise (settlement) between the creditor and the principal debtor benefits the
guarantor. In the same way, a compromise (settlement) between the guarantor and the
creditor benefits but does not prejudice the principal debtor.

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ART. 2064 The guarantor of a guarantor shall enjoy the benefit of excussion, both with respect to the
guarantor and to the principal debtor.

ART. 2065 When there are several guarantors for only one debtor and for the same debt:
The obligation to answer for the debt is divided among all guarantors; and
The creditor cannot claim payment from the guarantors except the shares which
they are respectively bound to pay UNLESS solidarity has been expressly stipulated.

In case solidarity has been expressly stipulated:
Payment of anyone of the guarantors extinguishes the obligation; and
In case of insolvency or failure of the principal debtor to perform his obligation
after available remedies have been resorted to, anyone of the guarantors may be
compelled by the creditor to effect payment thereof.

ART. 2066 The debtor MUST indemnify the guarantor who pays for his (debtor) debt.

Indemnity includes:
1. The total amount of debt;
2. The legal interest (from the time payment was made known to the debtor, even
though it did not earn interest for the creditor);
3. The expenses incurred by the guarantor for notifying the debtor that payment had
been demanded of him;
4. Due damages

ART. 2067 After the guarantor pays for the debt of the principal debtor, the guarantor acquires all
the right of the creditor against the debtor.

If there is a compromise (settlement) between the guarantor and the creditor, the
guarantor CANNOT demand from the debtor more than what he really paid.

ART. 2068 If the guarantor pays the creditor without notifying the debtor, the debtor may enforce
against the guarantor all defenses which the debtor could have set up against the
creditor at the time the payment was made.

ART. 2069 If the guarantor pays the debt before it becomes due, he CANNOT demand
reimbursement from the debtor until the expiration of the period UNLESS the mode of
payment has been ratified by the debtor.

ART. 2070 If the guarantor pays without notifying the debtor, and the debtor not being aware of the
payment, repeats the payment, the guarantor has no remedy against the debtor, but the
guarantor may go against the creditor.

Exception:
In case of gratuitous guaranty and in the event the creditor becomes insolvent, the debtor
shall reimburse the guarantor of the amount paid even if the guarantor was prevented to
notify him by reason of a fortuitous event.

ART. 2071 The guarantor, even before having paid the creditor, may proceed against the principal
debtor in the following circumstances:
1. When the guarantor is sued for the payment;
2. When the principal debtor becomes insolvent;
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3. When the debtor has bound himself to relieve the guarantor from the guaranty
(within specified period, and said period has expired);
4. When the debt has become demandable (by reason of the expiration of the
period for payment);
5. After the lapse of 10 years (if the principal obligation has no fixed period for its
maturity), UNLESS it be such a nature that it cannot be extinguished except within
a period longer than 10 years;
6. Existence of reasonable grounds that the principal debtor intends to abscond;
7. The principal debtor is in imminent danger of becoming insolvent

Purpose of the guarantor in case he performs any of the preceding actions:
To obtain release from the guaranty; or
To demand security to protect him from any proceedings by the creditor and from
the danger of insolvency of the debtor.

ART. 2072 If one becomes guarantor of a third person (who is not present), at the request of another,
the guarantor who satisfies the debt may demand reimbursement from either the person
who made the request or the debtor.

ART. 2073 In case same debtor has two or more guarantors for his particular debt, anyone of the said
guarantors who has paid may demand reimbursement (in proportionate share) from the
rest of the guarantors.

If one of the guarantors becomes insolvent, his share of obligation shall be borne
proportionately by the other guarantors, including the payer (the guarantor who already
pays the creditor).

This Article shall only apply when payment has been made by virtue of a judicial demand.
Exception (last sentence): If the principal debtor becomes insolvent.

ART. 2074 In case of the preceding article (where the guarantor who has paid the creditor may
demand reimbursement from the rest of the guarantors), the rest of the co-guarantors may
set up defenses against the guarantor who made payment.

ART. 2075 When there are several guarantors for the same debt, the sub-guarantor of the guarantor
who becomes insolvent, shall bear the obligation of the insolvent guarantor to the co-
guarantors.

ART. 2076 After the principal debtors obligation has been extinguished, the guarantor is also relieved
from his obligation arising from the same debt.

ART. 2077 If the creditor voluntarily accepts immovable property or other property as payment of the
debt, the guarantor is relieved from his obligation even if the creditor loses said property
through eviction.

ART. 2078 In the event the creditor relieved one of the guarantors from the latters obligation without
the consent of the rest of the guarantors, said act benefits all of the other creditors to the
extent of the share of the guarantor to whom said relief was granted.

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ART. 2079 The guarantor is relieved from his obligation the moment the creditor gives the debtor
extension without the formers consent. Mere failure of the creditor to demand payment
after the debt has become due does not constitute extension.

ART. 2080 Whenever by some act of the creditor, the guarantors cannot be subrogated to the rights,
mortgages, and preferences of the creditor, the guarantors (even they be solidary) are
released from their obligation.

LEGAL AND JUDICIAL BONDS

ART. 2081 The guarantor may set up against the creditor all defenses inherent in the debt of the
principal debtor. Defenses that are purely personal to the debtor cannot be used by the
guarantor against the creditor.

ART. 2082 The bondsman who is to be offered by virtue of the law or judicial order shall have the
qualifications of a guarantor mentioned under Article 2056 and in special laws.

ART. 2083 If the bondsman fails to perform his obligation, a pledge or mortgage sufficient to cover his
obligation shall be admitted as payment of the debt.

ART. 2084 A judicial bondsman CANNOT demand the exhaustion of the property of the principal
debtor.

A sub-surety in the same case, CANNOT demand the exhaustion of the property of the
debtor or of the surety.