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CREDIT TRANSACTIONS

Janela Joy Villanueva Lana


GUARANTY AND SURETYSHIP
1. Conventional, one constituted by agreement of the parties.
Chapter 1: Nature and Extent of Guaranty
2. Legal, one imposed by virtue of a provision of law.
Art. 2047. By guaranty a person, called the guarantor, binds himself
to the creditor to fulfill the obligation of the principal debtor in case 3. Judicial, one required by a court to guarantee the eventual
the latter should fail to do so. right of one of the parties in a case.

If a person binds himself solidarily with the principal debtor, the  As to consideration:
provisions of Sec.4, Chapter 3, Title 1 of this Book shall be
observed. In such case the contract is called a suretyship. 1. Gratuitous, one where the guarantor does not receive any
price or remuneration for acting as such.
Definition of guaranty
2. Onerous, where the guarantor receives valuable
 A contract between the guarantor and creditor to fulfill the obligation consideration for his guaranty.
of the principal debtor in case the latter should fail to do so.
 A to the person guaranteed:
 It included pledge and mortgage because the PURPOSE of
Guaranty may be accomplished not only by securing the fulfillment 1. Single, one constituted solely to guarantee or secure
of an obligation contracted by the principal debtor through the performance by the debtor of the principal obligation.
personal guaranty of a 3rd person but also by furnishing to the
creditor for his security, property with authority to collect the debt 2. Double or sub-guaranty, one constituted to secure the
from the proceeds of the same in case of default. fulfillment by the guarantor of a prior guaranty.

Governing Law  As to its scope and extent

 Guaranty is now primarily regulated by Title XV of Book IV 1. Definite, one where the guaranty is limited to the principal
(Art.2047-2084) of the new Civil Code, subject to its transitional obligation only, or to a specific portion thereof.
provisions. (Art. 2252-2259)
2. Indefinite or simple, one where the guaranty included not
Characteristics of the Contract only the principal obligation but also all its accessories
including judicial costs.
 It is ACESSORY because it is dependent for its existence upon the
principal obligation guaranteed by it; Note: Guaranty may also be continuing or not (Art. 2053)

 It is SUBSIDIARY AND CONDITIONAL because it takes effect only Laws applicable to contract of suretyship
when the principal debtor fails in his obligation subject to limitation
(Art. 2053, 2058, 2065).  Suretyship

 It is UNILATERAL because --- - Relation which exists where one person (principal or obligor)
has undertaken an obligation and another person (surety) is
a. It gives rise only to a duty on the part of the guarantor in also under a direct and primary obligation or other duty to a 3rd
relation to the creditor. person (obligee), who is entitled to but one performance, and
as between the two who are bound, the one rather than the
b. It may be entered into even without intervention of the principal other should perform.
debtor (Art. 2050)
- It is a contractual relation resulting from an agreement
 It is a contract which requires that the guarantor must be a person whereby one person, the surety, engages to be answerable to
distinct from the debtor because a person cannot be the personal a 3rd person for the debt, default or miscarriage of another
guarantor of himself. known as the principal.

However, in a real guaranty, like pledge and mortgage, a person  The 2nd paragraph of Art. 2047 states the law applicable to the
may guarantee his own obligation with his personal or real suretyship.
properties.
It covers:
Classification of guaranty
*Arts. 1207-1222, Title I (Obligations), Chapter 3 (Different Kinds of
 Guaranty in the broad sense: Obligations), Section 4 (Joint and Solidary Obligations), Book IV
(ObliCon) of the CC.
1. Personal, since it refers to guaranty properly so-called or
guaranty in the strict sense. - If a person binds himself solidarily with the principal debtor, the
contract is called suretyship and the guarantor is called
The guarantee is the credit given by the person who surety.
guarantees the fulfillment of the principal obligation.
 In a solidary obligation, a solidary debtor is himself a principal
2. Real, since the guaranty is property, movable or immovable. debtor. Hence, a solidary debtor cannot be considered a guarantor
of his co-debtor.
If immovable, guaranty is in the form of real mortgage or
antichresis.  It has been held that the provisions of the CC on guaranty, other
than the benefit of excussion, are applicable and available to the
If movable, in the form of pledge or chattel mortgage. surety.

 As to its origin: Common law guaranty and suretyship


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- The surety is bound by a judgment against the principal even
 It was held by the SC that the civil law suretyship is nearly though he was not a party to the proceeding.
synonymous with the common law guaranty, and the civil law
relationship existing between the co-debtors liable IN SOLIDUM - The creditor may sue, separately or together, the principal
is similar to the common law suretyship. debtor and the surety.

Where party binds himself solidarily with principal debtor - A surety of a distressed corporation can be sued separately to
enforce his liability as such, notwithstanding an order by the
 If his intention is not to convert himself into a principal debtor but SEC declaring the corporation under a state of suspension of
merely constitute himself as a guarantor although binding himself payment.
solidarily with him, action may be brought against him outright by
reason of the said solidarity but he retains his character as a - Except when required, a demand or notice of default IS NOT
guarantor and all the rights inherent in a guarantor by reason of required to fix the surety’s liability.
payment by him.
- A surety bond is VOID where there is no principal debtor. While
 It has been held that where a party signs a promissory note as a a surety binds himself to pay jointly and severally, such
co-maker and binds herself to be jointly and severally or undertaking presupposes that the obligation is to be
solidarily liable “with the principal maker of the note in case, the enforceable against someone else besides the surety, and the
latter defaults in the payment of the loan, such undertaking of the latter can always claim that it was never its/his intention to be
said party is deemed to be that of a surety as an insurer of the the sole person obligated thereby.
debt, NOT a guarantor who warrants the insolvency of the
debtor.  Surety is not entitled to exhaustion
Nature of surety’s undertaking - The reason is that a surety assumes a solidary liability for the
fulfillment of the principal obligation as an original promissor
 Liability is contractual and accessory but direct and debtor from the beginning.
- The surety’s obligation is NOT an original and direct one for - When required, the principal obligor rather than the surety may
the performance of his act. be required to pay the insured obligation such as where the
former has the necessary amount it got under the bond with
- He merely is an accessory or collateral to the obligation which to comply with the terms thereof.
contracted by the principal.
 Undertaking is to creditor, not to debtor
- He is directly, primarily and equally bound with the principal as
original promisor although he possesses no direct or personal - The principal cannot claim that there has been a breach of the
interest over the latter’s obligations nor does he receive any surety’s obligation to him under the suretyship contract when
benefit therefrom regardless of whether or not the principal the surety fails or refuses to pay debt for the principal’s
debtor is financially capable to fulfill his obligations. account.

- A surety is considered as being the same party as a debtor - Failure or refusal or surety does not have the effect of relieving
and their liabilities are interwoven as to be inseparable. the principal of his obligation to pay the premium on the bond
furnished by the surety in consideration of the premium, as
- There is only one contract and the surety is bound by the same long as the liability of the surety to the oblige subsists.
agreement which binds the principal.
- Unless otherwise provided, the surety makes no covenant or
- A surety is usually bound with the principal by the same agreement with the principal that it will fulfill the obligation
instrument, executed at the same time and upon the same guaranteed for the benefit of the principal.
consideration.
Such promise is NOT IMPLIED by law either.
- It is not for the oblige to see that the principal debtor pays the
debt but for the surety to see to it that the principal debtor pays  Surety is not entitled to notice of principal’s default
or performs.
- Demand on the surety is NOT NECESSARY before bringing
 Liability is limited by terms of contract suit against them, since the commencement of the suit is a
sufficient demand.
- A contract of surety is NOT PRESUMED.
- Mere failure to voluntarily give information to the surety of the
- It cannot extend to more than what is stipulated. default of the principal cannot have the effect of discharging
the surety.
- The extent of the surety’s liability is determined only by the
clause of the contract of suretyship as well as the conditions - The surety is bound to take notice of the principal’s default and
stated in the bond. to perform the obligation. He cannot complain that the creditor
has not notified him in the absence of a special agreement to
- A surety is NOT RELEASED by a change in the contract which that effect in the contract of suretyship.
does not have the effect of making its obligation more onerous.
 Prior demand by the creditor upon principal NOT REQUIRED
 Liability arises only if principal debtor is held liable
- A soon as the principal is in default, the surety likewise is in
- If the principal debtor and the surety are held liable, their default.
liability to pay the creditor would be solidary but the nature of
the surety’s undertaking is such that it does not incur liability - The proper remedy of the surety is to pay the debt and pursue
unless and until the principal debtor is held liable. the principal for reimbursement.
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 Surety is NOT exonerated by neglect of creditor to sue principal A guarantor, on the other hand, does not contract that the principal
will pay, but simply that he is liable to do so.
- Mere want of diligence or forbearance does not affect the
creditor’s rights vis-à-vis the surety, unless the surety requires  The responsibility or obligation assume by the surety is greater or
him by appropriate notice to sue on the obligation. more onerous than that of a guarantor.

- The neglect of the creditor to sue the principal at the time the Example:
debt falls due does not discharge the surety, even if such delay
continues until the principal becomes insolvent. D is indebted to C in the amount of P10,000.00 with G as
guarantor. On the maturity of the obligation, D fails to pay.
- In the absence of proof of resultant injury, a surety is NOT
discharged by the creditor’s mere statement that the creditor C cannot compel G to pay unless the former “HAS EXHAUSTED
will not look to the surety, or that he need not trouble himself. ALL THE PROPERTY OF THE DEBTOR, AND HAS RESTORED
TO ALL THE LEGAL REMEDIES” against D (Art. 2058) because
The consequences of the delay, such as the subsequent the obligation of G is only secondary.
insolvency of the principal, or the fact that the remedies against
the principal may be lost by lapse of time, are immaterial. If, however, G is a surety, C can proceed against G immediately
upon nonpayment by D without the exhaustion of the property of D
Reason: There is nothing to prevent the creditor from because as surety, he is primarily liable to C. It is not a defense by
proceeding against the principal at any time. G that he has not been informed by C the demand for payment
made on D.
If the surety is dissatisfied with the degree of activity displayed
by the creditor in the pursuit of his principal, he may pay the Terminology used by parties not controlling
debt himself and become subrogated all the rights and
remedies of the creditor.  The use of the term “guarantee” or “guarantor” however, is NOT
CONCLUSIVE that the contract is one of guaranty. The word
Guaranty distinguished from suretyship “guarantee” is frequently employed in business transactions to
describe not the securing of the debt but an intention to be bound
SURETY GUARANTY by a primary or independent obligation.
1. Assumes liability as a 1. Liability depends upon an
regular party to the independent agreement to  If from the language used and circumstances, the intention to be
undertaking. pay the obligation if the liable as a surety cannot be inferred, the promisor must be
primary debtor fails to do deemed to have bound himself only as a guarantor under the
so. rule of reasonable construction applied to all contracts.
2. Charged as an original 2. Engagement is a collateral
promisor. undertaking.  In case of conflict, WRITTEN prevails over the printed word.
3. Primarily liable. 3. Secondarily or subsidiarily
liable. Guaranty and indorsement distinguished

Example: He undertakes directly Example: He contracts to pay if, INDORSEMENT GUARANTY


for the payment without by use of due diligence, the debt 1. Primarily that of transfer. 1. That of security.
reference to the solvency of the cannot be paid by the principal. 2. Liability is less extensive 2. Liability is more extensive.
principal (regardless of whether than guaranty.
or not the principal is financially Failure in either or both of
capable to fulfill his obligation), Unless the note is promptly these particulars (in
and is so responsible at once if presented for payment at indorsement) does not, as a
the latter makes default, without maturity and due notice of general rule, work an absolute
any demand by the creditor upon dishonor given to the indorser discharge of a guarantor’s
the principal whatsoever any within a reasonable time, he will liability, but he is discharged
notice to default. be discharged absolutely from only to the extent of the loss
4. Ordinarily, held to know 4. Not bound to take notice of all liability thereon, whether he which he may have suffered in
every default of his the non-performance of his has suffered any actual damage consequence thereof.
principal. principal. or not.
5. Will not be discharged 5. Often discharged by the mere 3. Does not warrant the 3. Warrants the solvency of the
wither by the mere indulgence of the creditor of the solvency of the promisor. promisor, he being answerable
indulgence of the creditor of principal, and is usually not liable on a strict compliance with the
the principal or by want of unless notified of the default of law by the holder, whether the
notice of the default of the the principal. promisor is solvent or not.
principal, no matter how 4. Can be sued as promisor. 4. Cannot be sued as promisor.
much he may be injured
thereby.  The language employed and the other circumstances of the
particular transaction are the determining factors in ascertaining
Guarantor not insurer of debt guaranteed whether a particular contract is one of indorsement and not of
guaranty, vice versa.
 The guarantor only binds himself to pay IF the principal CANNOT
or unable to pay. Guaranty and warranty distinguished

 One is the insurer of the debt itself (surety), the other an insurer of  The principal distinction is that:
the solvency of the debtor (guarantor).
Guaranty – a contract by which a person is bound to another for
 The essence of the obligation of the surety is to pay the creditor the fulfillment of a promise or engagement of a 3rd party.
without qualification if the principal debtor does not pay.
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Janela Joy Villanueva Lana
Warranty – an undertaking that the title, quantity or quality of the Art. 2050. If a guaranty is entered into without the knowledge or
subject matter of a contract is what it has been represented to be, consent, or against the will of the principal debtor, the provisions
and relates to some agreement made ordinarily by the party who of Arts. 1236 and 1237 shall apply.
makes the warranty.
Guaranty undertaken without knowledge of debtor

Art. 2048. A guaranty is gratuitous, unless there is a stipulation to  The creditor has every right to take all possible measures to secure
the contrary. the payment if his credit. Hence, it CAN BE CONSTITUTED without
the knowledge and EVEN AGAINST the will of the principal debtor.
Guaranty generally gratuitous.
 A guaranty exists for the benefit of the creditor and not for the
 General rule, a guaranty is GRATUITOUS. benefit of the principal debtor who is not a party to the contract of
guaranty.
It is onerous ONLY when there is a stipulation to the contrary.
Rights of 3rd person who pays

 A person who pays without the knowledge or against the will of


Cause of contract of Guaranty the debtor can recover ONLY insofar as the payment has been
beneficial to the debtor.
 Presence of cause which supports principal obligation
He cannot compel the creditor to subrogate him in his (creditor’s)
- It is not necessary to prove any consideration as between the rights, such as those arising from a mortgage, guaranty or penalty.
guarantor or surety and the creditor.
 If he became a guarantor with knowledge or consent of the
- The consideration which supports the obligation as to the debtor, he is subrogated by virtue thereof (the payment) to ALL
principal debtor is a sufficient consideration to support the THE RIGHTS which the creditor had against the debtor.
obligation of a guarantor or surety.
Example:
- Otherwise, a guarantor or surety is bound by the same
consideration that makes the contract effective between the D owes C P10,000.00. Without the knowledge of D, G agrees to
principal parties. guarantee the obligation of D.

 Absence of direct consideration or benefit to a guarantor If G pays C P10,000.00, he can ask reimbursement for P10,000.00 from
D. If P4,000.00 had already been paid by D, then G is entitled to be
- While a contract of guaranty or surety, like any other contract, reimbursed for the amount of P6,000.00 because it is only that amount
must generally be supported by a sufficient consideration, that D has been benefited. G can recover P4,000.00 from C who should
such consideration need not pass directly to the guarantor or not have accepted it.
surety; a consideration moving to the principal alone will
suffice. It is but just that C reimburse G for any amount paid by him, otherwise C
would be unduly enriching himself at the evident expense of G.
- A guarantor or surety is bound by the same consideration that
makes the contract effective between the principal parties Suppose the obligation of D is secure by the mortgage on a land owned
thereto. by D. payment by G without the knowledge or against the will of D does
not give G the right to foreclose the mortgage because G has no right to
 The guarantor or surety becomes liable for the debt or duty of subrogation.
another although he possesses no direct or personal interest over
the obligation nor does he receive any benefit therefrom.
Art. 2051. A guaranty may be conventional, legal or judicial,
 It is never necessary that he should receive any part or benefit, if gratuitous, or by onerous title.
such there be, accruing to the principal.
It may also be constituted, not only in favor of the principal debtor,
 Where a surety bond has been accepted by the oblige, it becomes but also in favor of the other guarantor, with the latter’s consent, or
valid and enforceable irrespective of whether or not the premium without his knowledge, or even over his objection.
has been paid by the obligor to the surety.
Guaranty by reason of origin

Art. 2049. A married woman may guarantee an obligation without  According to its origin or manner of creation, guaranty may be
the husband’s consent but shall not thereby bind the conjugal conventional, legal or judicial.
partnership, except in cases provided by law.
 Judicial guaranty
Married woman as guarantor
- One constituted by decree of court not by virtue of a provision
 A married woman who acts as a guarantor ordinarily binds ONLY of law or by virtue of an agreement of the parties.
her separate property.
Double or sub-guaranty
 She may also bind the community or conjugal partnership property
with or even without her husband’s consent, such as when the  (Par.2) one constituted to guarantee the obligation of a guarantor.
guaranty has redounded to the benefit of the family.
 It should not be confounded with guaranty wherein several
 There is NO EXPRESS PROHIBITION against a married woman guarantors concur.
acting as guarantor for her husband.

Art. 2052. A guaranty cannot exist without a valid obligation.


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 To secure payment of any debt to be subsequently incurred
Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may also - It is generally intended to provide security with respect to future
guarantee a natural obligation. transactions for an indefinite time or until a certain period.

Necessity of valid principal obligation - Where the contract states that the guaranty is to secure
advances to be made “from time to time” or obligations
 If the principal obligation is void, it is also void. “now in force or hereafter made”, it will be construed to be
a continuing one.
 Article 2052 speaks about a VALID obligation, as distinguished from
a void obligation, and not an existing or current obligation. - In all instances a contract of guaranty or suretyship should be
PROSPECTIVE in application.
 Under Art. 2053, a guaranty may also be given as security for future
debts, the amount of which is not yet known. - A guaranty shall be construed as continuing when by terms
thereof it is evident that the object is to give a standing credit
 A signatory to a guaranty (surety) agreement is liable on a to the principal debt to be used from time to time either
promissory note for an unpaid loan obtained under that agreement indefinitely or until a certain period.
although he did not sign the promissory note.
 To secure existing unliquidated debts
Guaranty of voidable, unenforceable and natural obligations
- “FUTURE DEBTS” may also refer to debts existing at the time
 A guaranty may secure the performance of a: of the constitution of the guaranty but the amount thereof is
UNKNOWN and not to debts not yet incurred and existing at
a. Voidable contract inasmuch as such contract is binding that time.
unless it is annulled by a proper action in court.
- A surety is not bound under any particular principal obligation
b. An unenforceable contract because such contract is not until that obligation is born.
void.
Example:
c. A natural obligation so that the creditor may proceed against
the guarantor although he has no right of action against the 1. D and C are partners in business. G may guarantee the
principal debtor for the reason that the latter’s obligation is not payment of D of C’s share from the profit of the business which
civilly enforceable. has not yet been ascertained.

When the debtor himself offers a guaranty for his natural Under Art. 2053, Gg cannot be liable to C before such share is
obligation, he impliedly recognizes his liability, thereby liquidated.
transforming the obligation from natural into a civil one.
2. C sold his land to D with G as guarantor for the payment of the
purchase price. It was agreed that C would give to G the title
Art. 2053. A guaranty may also be given as security for future debts, papers showing that C is in fact the owner of the land sold. D
the amount of which is not yet known; there can be no claim against became insolvent.
the guarantor until the debt is liquidated. A conditional obligation
may also be secured. In this case, G is liable only AFTER the fulfillment of the
suspensive condition --- the production of the proper papers.
Guaranty of future debts
3. Suppose, in the 2nd example, C was given 2 months within
 Such provision is denominated as a CONTINUING GUARANTY or which to arrange and complete the papers relating to the
SURETYSHIP. property with the understanding that in case of failure of C to
complete the title papers within said period, the contract of sale
 It is one which is not limited to a single transaction but which shall be deemed automatically cancelled.
contemplates a future course of dealings, covering a series of
transactions generally for an indefinite term or until revoked. The fulfillment of the condition subsequent --- failure to
complete the title papers within period stipulated ---
 It covers all transactions, including those arising in the future, which extinguishes the principal obligation of D to pay the purchase
are within the description or contemplation of the contract of price as well as the guaranty of G.
guaranty, until the expiration or termination thereof.
Guaranty of Conditional Obligations
 Future debts, even amount is not yet known, may be guaranteed
BUT there can be no claim against the guarantor until the amount  A guaranty may secure all kinds of obligations, be they pure or
of the debt is ascertained or fixed and demandable. subject to a suspensive or resolutory condition.

Reason: A contract of guaranty is subsidiary.  If the principal obligation is subject to a SUSPENSIVE CONDITION,
the guarantor is liable only after the fulfillment of the condition.
 To secure the payment of loan at maturity
 If it is subject to a RESOLUTORY CONDITION, the happening of
- Surety binds himself to guarantee the punctual payment of a the condition extinguishes both the principal obligation and the
loan at maturity and all other obligations or indebtedness which guaranty.
may become due or owing to the principal by the borrower,
together with any and all expenses which may be incurred by  A CONDITIONAL OBLIGATION may also be secure for it is valid
the principal in collecting such obligations or indebtedness and binding just like a pure one.
PROVIDED that the liability of the surety shall not exceed at
any one time as a specified sum is a guaranty of future debts.
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Art. 2054. A guarantor may bind himself for less, but not more than Reason for the rule
the principal debtor, both as regards the amount and the onerous
nature of the conditions.  Consideration of prudence in the interest of the guarantor who in
many cases finds himself under the harsh necessity of paying
Should he have bound himself for more, his obligations shall be another’s debt without benefit whatsoever for himself.
reduced to the limits of that of the debtor.
 In prescribing the requisite that guaranty to be effective must be
Guarantor’s liability cannot exceed principal obligation expressly constituted, the law wants, not alone that there be
assurance that the guarantor had the true intention to bind himself,
 Guaranty is a subsidiary and accessory contract but also to make certain that, on making it, he proceeded with
consciousness of what he was doing.
- The guarantor cannot bind himself for more than the principal
debtor and even if he does, his liability shall be reduced to the Guaranty covered by the Statute of Frauds
limits of that of the debtor.
 A contract of guaranty falls under the Statute of Frauds since it is “a
- But a guarantor may bind himself for less than that of the special promise to answer for the debt, default or miscarriage
principal, of another.”

Example:  It shall be unenforceable by action, unless the same or some note


or memorandum thereof be in writing, and subscribed by the party
D borrowed from C P10,000.00. If G guaranteed to answer for charged, or by his agent; evidence, therefore, of the agreement
P15,000.00, the guaranty is not rendered void but he can be made to cannot be received without the writing, or a secondary evidence of
pay only P10,000.00 because his obligation cannot exceed the limits of its contents.”
the principal obligation.
 Under Art. 1358 of the CC, a contract of guaranty need not to
If the debt is not secured by a mortgage, and G mortgaged his land in appear in a public document to be valid or enforceable.
favor of C, the latter may not foreclose the mortgage otherwise, G’s
liability would be more onerous than that of A, the principal debtor. Guaranty strictly construed

 Interest, judicial costs, and attorney’s fees as part of damages may  It has to be strictly interpreted against the creditor and in favor of
be recovered the guarantor and is not to be extended beyond its terms or
specified limits.
- Creditors suing on a suretyship bond may recover from the  If there be any doubt on the terms and conditions of the guaranty or
surety as part of their damages, interest at the legal rate, etc., surety agreements, the doubt should be resolved IN FAVOR OF
even without stipulation and even if the surety would thereby THE GUARANTOR OR SURETY.
become liable to pay more than the total amount stipulated in
the bond.  Liability for obligation stipulated

- The surety is made to pay by reason of his failure to pay when - A guarantor is liable ONLY for the obligation of the debtor
demanded and for having compelled the creditor to resort to stipulated upon, and NOT to obligations assumed previous to
the courts to obtain payment. the execution of the guaranty UNLESS intent to be so liable
clearly is indicated.
- Interest runs from the filing of the complaint or from the time
demand was made upon the surety until principal obligation is - To holed guarantor liable for debts contracted prior to the
fully paid. guaranty is to make him answer for debts incurred outside of
the guaranteed period, and this cannot be done WITHOUT
 Penalty may be provided EXPRESS CONSENT.

- A surety may be held liable for the penalty provided for in a - No liability attached under a contract of suretyship for defaults
bond for violation of the condition therein. occurring before it is entered into UNLESS an intent to be liable
is indicated.
Principal’s liability may exceed guarantor’s obligation
- Although guaranty or suretyship is ordinarily not to be
 The amount specified in a surety bond as the surety’s obligation construed retrospective, the rule must yield to the intention of
does not limit the extent of the damages that may be recovered from the contracting parties.
the principal, the latter’s liability being governed by the obligation he
assumed under his contract.  Guaranty with a term subsequently cancelled

- The guarantor is NOT LIABLE for non-compliance by the


Art. 2055. A guaranty is not presumed; it must be express and principal debtor with subsequent contract which the principal
cannot extend to more than what is stipulated therein. debtor and the creditor might have entered into on or after the
specified date without the guarantor’s intervention.
If it be simple or indefinite, it shall comprise not only the principal
obligation, but also all its accessories, including the judicial costs,  Guaranty to render accounting
provided with respect to the latter, that the guarantor shall only be
liable for those costs incurred after he has been judicially required - A guaranty that the debtor will render an accounting cannot be
to pay. extended to include a guaranty that the money due the creditor
will be delivered.
Guaranty not presumed
 Liability of surety limited to a fixed period
 It cannot be presumed because of the existence of a contract or
principal obligation. - The surety cannot be bound, for a long time, UNLESS the
contract has been renewed.
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Janela Joy Villanueva Lana

- The surety must only be bound in the manner and to the extent,
and under the circumstances which are set forth or which may
be inferred from the contract of guaranty or suretyship.

- An agreement whereby the sureties bound themselves to be


liable in case of an extension or renewal of the bond without
the necessity of executing another indemnity agreement for
the extension or renewal is VALID.

 Liability of surety to expire on maturity of principal obligation

- Such stipulation is UNFAIR and UNREASONABLE for it


practically nullifies the nature of the undertaking it had
assumed.

- It is logical to hold that the liability of the surety attached as


soon as the principal debtor defaults, and notice thereof is
given the surety within a reasonable time to enable it to take
steps to protect its interest.

- The surety has a remedy under the law to foreclose the


counterbond put up by the principal debtor.