F.

WAREHOUSE RECEIPTS LAW (2137) & GENERAL BONDED » Building or place where goods are deposited and stored for profit

WAREHOUSE ACT (3893)

2.3. Warehouse receipt
1.II
Warehouse » Written acknowledgment by a warehouseman that he has received and holds certain
goods therein described in store for the person to whom it is issued
Receipts Law » Simple written contract between the owner of the goods and the warehouseman to pay the
(Act 2137) compensation for that service
» Bilateral contract; imports that goods are in the house of the warehouseman and is a
1. Purpose and Coverage symbolical representation of the property itself.
» Not a negotiable instrument although it is negotiable as provided by the act.

3. Nature/Characteristics of Warehouse Receipts

 To regulate the status, rights and liabilities of the parties in a warehousing contract
 To protect those who, in good faith and for value, acquire negotiable warehouse receipts by
negotiation 3.1. Function of Warehouse Receipt
 To render the title to, and the right of possession of, property stored in warehouses more easily
convertible Negotiation carries with it transfer of title over the commodity covered by the receipt (thus, it has
 To facilitate the use of warehouse receipts as documents of title the same function as a negotiable bill of lading)
 In order to accomplish these, to place a much greater responsibility on the warehouseman
 Covers negotiable warehouse receipts, which can only be issued by a warehouseman in the Except: Where a negotiable warehouse receipt is indorsed and delivered to a creditor as a
business of receiving commodities on deposit for storage. In all other cases where receipts are collateral for a loan
not issued by a warehouseman, Art. 1507-1520 of the Civil Code applies
 For public and private warehouses If commodity covered by receipt is lost through a fortuitous event, the debtor will bear loss
 Bills of lading and quedans are governed by Art 1507-1520 and 1636 of the Civil Code (Ratio:
Sugar centrals that issue quedans are not warehousemen) Martinez vs PNB (1953)
 But note: a warehouse receipt is also cited in Art 1636 as a document of title
 All other negotiable receipts are covered by the law on negotiable instruments Where a warehouse receipt or quedan is transferred or endorsed to a creditor only to secure the
payment of a loan or debt, the transferee or endorsee does not automatically become the owner of
2. Definitions the goods covered by the warehouse receipt or quedan but he merely retains the right to keep, and
with the consent of the owner to sell, them so as to satisfy the obligation from the proceeds of the
sale, this for the simple reason that the transaction involved is not a sale but only a mortgage or
2.1. Warehouseman pledge, and if the property covered by the quedans or warehouse receipts is lost later without the
fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse
» Person lawfully engaged in the business of storing goods for profit (Sec. 58a) receipt or quedan, then said goods are to be regarded as lost on account of the real owner,
» Duly authorized officer/agent of a warehouseman may validly issue a warehouse receipt mortgagor or pledgor.
(National Bank vs Producer’s Warehouse Association, 42 Phil 609)

2.2. Warehouse

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3.2. Form of Warehouse Receipt

Sec 2. Warehouse receipts need not be in any particular form but every such receipt must 3.4. Effect of omission of any of the essential terms:
embody within its written or printed terms:
» Validity of receipt is not affected
» Warehouseman is liable for damages
» Negotiability of receipt is not affected
i. The location of the warehouse where the goods are stored » The issuance of a warehouse receipt in the form provided by the law is merely
ii. The date of the issue of the receipt permissive and directory and not mandatory in the sense that if the requirements are not
iii. The consecutive number of the receipt observed, then the goods delivered for storage become ordinary deposits
iv. A statement whether the goods received will be delivered to the bearer, to a
specified person, or to a specified person in his order
v. The rate of storage charges 3.5. Terms that cannot be included
vi. A description of the goods or of the packages containing them
vii. The signature of the warehouseman or his authorized agent » Those contrary to the provisions of the Warehouse Receipts Law
viii. If the receipt is issued for goods of which the warehouseman is owner, either » Those which may impair his obligation to exercise that degree of care in the
solely or in common with others, the fact of such ownership, and safekeeping of the goods entrusted to him which a reasonably careful man would
ix. A statement of the amount of advances made and of liabilities incurred for exercise in regard to similar goods of his own
which the warehouseman claims a lien. If the precise amount of such » Those contrary to law, morals, public customs, public order or public policy
advances made or of such liabilities incurred is, at the time of the issue of, » Those exempting the warehouseman from liability for misdelivery
unknown to the warehouseman or to his agent who issues it, a statement of the » Those exempting the warehouseman from liability for negligence
fact that advances have been made or liabilities incurred and the purpose thereof
is sufficient.
3.6. Kinds of Warehouse Receipts

 The date of issue appearing in the receipt indicates prima facie the date when the contract of i. Non-negotiable
deposit is perfected and when the storage charges shall begin to run against the depositor.

Sec. 4. A receipt in which it is stated that the goods received will be delivered to the
 The mere fact that the goods deposited are incorrectly described does not make ineffective the depositor or to any other specified person
receipt when the identity of the goods is fully established by evidence. Thus, its endorsement
and delivery shall constitute a sufficient transfer of the title of the goods (American Foreign
Banking Corp. vs Herridge, 49 Phil 975). Sec. 7. A non-negotiable receipt shall have plainly placed upon its face by the
warehouseman issuing it “non-negotiable” or “not negotiable.” In case of the
warehouseman’s failure so to do, a holder of the receipt who purchased it for value
3.3. Effect of Non-compliance:
supposing it to be negotiable, may, at his option, treat such receipt as imposing upon the
warehouseman the same liabilities he would have incurred had the receipt been
negotiable.
» Sec. 2. A warehouseman shall be liable to any person injured thereby for all damages
caused by the omission from a negotiable receipt of any of the terms herein required. This section shall not apply to letters, memoranda, or written acknowledgement of an
» If any of these requisites in Sec 2 are absent, it becomes a deposit only informal character.

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  Negotiable vs Non-negotiable receipts

 It is transferred by its delivery to the transferee accompanied by a deed of assignment, Non-Negotiable Negotiable
donation or other form of transfer
 Effect of failure to mark “negotiable”: does not render it non-negotiable if it contains words If goods are sold by assignment, assignee As long as the goods covered by a
of negotiability must advise warehouseman. Until he does, negotiable warehouse receipt, these
his rights may be defeated by a subsequent goods may not be attached etc.
attaching creditor, or a subsequent levy on
ii. Negotiable
execution, or a vendor’s lien or stoppage in
Sec. 5. A receipt in which it is stated that the goods received will be delivered to the bearer transitu that could be enforced against the
or to the order of any person named in such receipt assignor

No provision shall be inserted in a negotiable receipt that it is non-negotiable. Such Rights of the transferee: Rights of the person to whom it is
provision shall be void. negotiated (holder):
1. Title of the goods, as against the
 It is negotiated either by delivery or indorsement transferor (merely steps into the shoes) 1. Title to the goods of the person
 When negotiable receipt not required to be surrendered negotiating the receipt and title of the
2. Right to notify the warehouseman of the person to whose order the goods were to
transfer and acquire the direct obligation of be delivered
Estrada vs CAR (1961) the warehouseman to hold the goods for
him 2. Direct obligation of the warehouseman
(No surrender needed if ordered by court) The SC ordered the manager of Moncada Bonded to hold possession of the goods for him,
Warehouse to release shares in palay without the necessity of producing and surrendering the as if the warehouseman directly
original of the warehouse receipts issued. The SC stated “our order must be carried out in the contracted with him
meantime that this cases have not been finally decided in order to ameliorate the precarious situation
in which said petitioners find themselves.” Negotiation defeats the lien of the seller
of the goods (sec. 9)

Goods represented can be subject to Goods represented cannot be subject to

 Duplicate Receipts attachment or levy by execution (Sec. 42) attachment or levy by execution, unless
in proper circumstances (Sec. 25)
Sec. 6. When more than one negotiable receipt is issued for the same goods, the word
“duplicate” shall be plainly placed upon the face of every such receipt, except the first one
issued. A warehouseman shall be liable for all damages caused by his failure to do so to
any one who purchased the subsequent receipt for value supposing it to be an original,
even though the purchase be after the delivery of the goods by the warehouseman to the
holder of the original receipt.

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 » Deliver to X – this is non-negotiable. To sell the goods, the warehouse receipt must be
assigned
a. Such title to the goods as the person negotiating the receipt to him had or had ability to
convey to a purchaser in good faith for value, and also such title to the goods as the
» Deliver to X or order - this is negotiable. The goods can be sold by special depositor or person to whose order the goods were to be delivered by the terms of the
endorsement and delivery receipt had or had ability to convey to a purchaser in good faith for value, and
b. The direct obligation of the warehouseman to hold possession of the goods for him
according to the terms of the receipt as fully as if the warehouseman and contracted
» Deliver to X or bearer- this is negotiable because it is deliverable to bearer. The goods directly with him.
can be sold by delivery.

Note: Negotiable Warehouse Receipt is different from a Negotiable Instrument

 Lost/destroyed receipts

Note: Negotiation takes effect as of the time when the indorsement is actually made.
Sec. 14. Lost / destroyed receipts

Where a negotiable receipt has been lost / destroyed, a court may order the delivery of the Negotiable Instruments Negotiable Warehouse Receipts
goods upon
Allow negotiation
» satisfactory proof of loss/ destruction
» giving of a bond with sufficient sureties to be approved by the court to protect the If deliberately altered, it becomes null and If altered, it is still valid, but can be
warehouseman from any liability or expense, which he or any person injured by void enforced only accdg to its original tenor
such delivery may incur by reason of the original receipt remaining outstanding
Subject is money Subject is merchandise
A court may also order payment of warehouseman’s reasonable costs and counsel fees.

Object of value is the instrument itself Object of value is the goods deposited
The delivery of goods shall not relieve the warehouseman from liability to a person to
whom the negotiable receipt has been/shall be negotiated for value without notice of the
proceedings/delivery of goods. Liability of intermediate parties is secondary Liability of intermediate parties is none
(NIL) (for failure to deliver goods)

If originally payable to bearer, it will always If originally payable to bearer but is

4. Assignment and Negotiation
remain so even if it is endorsed specially or in endorsed specially, it will become
blank deliverable to order and can only be
negotiated by indorsement and delivery
Sec 41. A person to whom a negotiable receipt has been duly negotiated acquires thereby:

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 Negotiable Instruments Negotiable Warehouse Receipts
General Rule: Warehouseman is required to exercise such degree of care which a
Holder in due course may obtain a title better Endorsee, even if a holder in due course, reasonable careful owner would exercise over similar goods of his own. He shall be liable
than that which the party negotiating to him obtains only such title as the person for any loss or injury to the goods caused by his failure to exercise such care.
had negotiating had over the goods
Exception: He shall not be liable for any loss or injury which could not have been avoided
by the exercise of such care.

Exception to the exception: He may limit his liability to an agreed value of the property
 Who may negotiate a warehouse receipt: received in case of loss. He cannot stipulate that he will not be responsible for any loss
» its owner caused by his negligence.
» any person to whom the possession or custody of the receipt has been entrusted by
the owner, if, by the terms of the receipt, the goods are deliverable to the person to » To be paid
whom the possession or custody of receipt has been entrusted or in such a form that it » In case of non-payment, to exercise his lien on the goods deposited
may be negotiated by delivery (Sec. 40) » To refuse delivery in proper legal circumstances
 Warranties:
» that receipt is genuine
» legal right to negotiate 5.2. Duties
» no knowledge of defects that may impair receipt
» right of transfer to title over goods and that the goods are merchantable » Issue a warehouse receipt in the required form for goods received
 The indorser does not guarantee that the warehouseman will comply with his duties
(Sec. 45)
 Creditor receiving the warehouse receipt which is given as a collateral makes no warranty » Obligation to Deliver Goods
(Sec. 46)

Sec 8. A warehouseman, in the absence of some lawful excuse provided by this Act, is bound to
5. Rights and Duties of a Warehouseman deliver the goods upon a demand made either by the holder of a receipt for the goods or by the
depositor; if such demand is accompanied with:

5.1. Rights 1. an offer to satisfy the warehouse man’s lien

2. an offer to surrender the receipt, if negotiable, with such indorsements as would be
» Degree of Care necessary for the negotiation of the receipt; and
3. a readiness and willingness to sign, when the goods are delivered, an
acknowledgement that they have been delivered, if such signature is requested by the
Sec 3. A warehouseman may insert in a receipt issued by him any other terms and conditions warehouseman.
provided that such terms and conditions shall not: The burden shall be upon the warehouseman to establish the existence of a lawful excuse for
such refusal.
xxx
General Rule: a demand should be made on the warehouseman in order that the duty to
a) in any wise impair his obligation to exercise that degree of care which a reasonably careful deliver the goods will arise
man would exercise in regard to similar goods of his own

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 Exception: when the warehouseman has rendered it beyond his power to deliver the Sec. 18. If:
goods, demand may be dispensed with [Art. 1169(3), Civil Code]
1. someone other than the depositor or person claiming under him has a claim to the title
or possession of goods AND
2. the warehouseman has information of such claim
Sec 9. A warehouseman is justified in delivering the goods to one who is: the warehouseman shall be excused from liability for refusing to deliver the goods until he has
had:
1. the person lawfully entitled to the possession of the goods, or his agent;
2. a person who is either himself entitled to delivery by the terms of a non-negotiable 2. reasonable time to ascertain the validity of the adverse claim OR
receipt issued for the goods, or who has written authority from the person so entitled 3. bring legal proceedings to compel claimants to interplead
either indorsed upon the receipt or written upon another paper; or
3. a person in possession of a negotiable receipt by the terms of which the goods are
deliverable to him or order, or to bearer, or which has been indorsed to him or in blank  Sec. 18 not applicable to cases where the warehouseman himself makes a claim to the
by the person to whom delivery was promised by the terms of the receipt or by his goods (67 C.J. 536)
mediate or immediate indorser.  In case there are adverse claimants, the warehouseman can refuse to deliver the goods to
anyone of them until he has had reasonable time to ascertain the validity of the various
claims; he is not excused from liability in case he makes a mistake (Comments and Cases
Sec. 10. When a warehouseman delivers the goods to one who is not in fact lawfully entitled to on Credit Transactions – De Leon, 2002 ed.)
the possession of them, the warehouseman shall be liable as for conversion to all having a right  Original action or counterclaim for interpleader, whichever is appropriate. In such case, the
of property or possession in the goods if he delivered the goods otherwise than as authorized by warehouseman will be relieved from liability in delivering the goods to the person found by
(b) and (c) of Sec 9 the court to have a better right (Comments and Cases on Credit Transactions – De Leon,
2002 ed.)

Though he delivered the goods as authorized by said subdivisions he shall be so liable, if prior to
Other instances when the warehouseman may refuse to deliver:
such delivery he had either:
» when the holder of the receipt does not satisfy the conditions prescribed in Sec. 8
» when the warehouseman has legal title in himself on the goods, such title or right
1. been requested, by or on behalf of the person lawfully entitled, not to make such being derived directly or indirectly from the transfer made by the depositor at the
delivery or time or subsequent to the deposit for storage, or from the warehouseman’s lien
2. had information that the delivery about to be made was to one not lawfully entitled (Sec. 16)

Conversion General rule: The warehouseman cannot refuse to deliver on the ground that he owns the
goods (bailee cannot assert title to the goods entrusted to him).
- an unauthorized assumption and exercise of the right of ownership over goods belonging
to another through the alteration of their condition or the exclusion of the owner’s right (Bouvier’s Exceptions: In the 2 cases mentioned above
Law Dictionary)

Sec. 17. If more than one person claims the title/possession of the goods, the warehouseman
may, either as a defense to an action or as an original suit, require all known claimants to » Where the goods have already been lawfully sold to third persons to satisfy the
interplead. warehouseman’s lien or disposed of because of their perishable nature (Sec. 36)

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 » In the valid exercise of the warehouseman’s lien (Sec. 31)
» The warehouseman will not be required to deliver the goods if such had been lost.
But this is without prejudice to liabilities which may be incurred by him due to such » To mark as such the duplicates of a negotiable warehouse receipt
loss.

» To give the proper notice in case of sale of the goods as provided in the law
» On commingling of Goods

» To take up and cancel the warehouse receipt when the goods are delivered
General Rule :

Sec. 22 A warehouseman shall keep the goods so far separate from » Other Duties
 If warehouseman fails to cancel receipt when he delivers goods, he is liable if receipt
1. the goods of other depositors and should turn up again (Sec 11)
2. from other goods of the same depositor for which a separate receipt has been  Warehouseman should record partial delivery on receipt, or else he is liable on entire
issued as to permit at all times the identification and redelivery of the goods receipt (Sec 12)
deposited.  If alteration is authorized, warehouseman is liable as altered. If not authorized,
warehouseman is liable as originally issued (Sec 13)

Exception:
 Effects of alteration:
Sec. 23.

1. If authorized by agreement or custom and Alteration immaterial (tenor of receipt (WON fraudulent; WON authorized)
2. Goods are fungible the warehouseman may mingle with other goods of the same kind and not changed) warehouseman is liable on the altered
grade. receipt accdg to its original tenor
The various depositors shall own the entire mass and each shall be entitled to such portion as the
amount deposited by him bears to the whole. Alteration material but authorized Warehouseman is liable accdg to its terms
as altered
 The warehouseman shall be severally liable to each depositor for the care and
redelivery of his share of such mass to the same extent and under the same
Material alteration innocently made Liable accdg to its original tenor
circumstances as if the goods had been kept separate.
Material alteration fraudulently made Liable accdg to the original tenor to a
» To insure the goods in proper circumstances purchaser of receipt for value without notice
 Where the law provides and even to the alterer and subsequent
 Where it was an inducement for the depositor to enter into the contract purchasers with notice (except that liability
 Established practice is limited only to delivery as he is excused
 Where the warehouse receipt contains a representation to that effect from any liability)

» To mark a non-negotiable warehouse receipt as such

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  A fraudulent alteration cannot divest the title of the owner of the stored goods and the
warehouseman is liable to return them to the owner
 A bona fide holder acquires no right to the goods under a lost or stolen negotiable Sec. 28. A warehouseman’s lien may be enforced:
receipt or to which the indorsemant of the depositor has been forged
1. against all goods belonging to the person who is liable as debtor for the claims
2. against all goods belonging to others which have been deposited at any time by the
 Warehouseman is liable for issuing receipt for non-existing goods or misdescribed goods person who is liable as debtor for the claims
(Sec. 20) If such person had been so entrusted with the possession of goods such that a
pledge by him at the time of the deposit to one who took the goods in good faith
for value would have been valid.
Effect of misdescription of goods:

 Warehouseman is under the obligation to deliver the identical property stored with
him and if he fails to do so, he is liable directly to the owner. Sec. 29. A warehouseman loses his lien:
 As against a bona fide purchaser of a warehouse receipt, the warehouseman is
estopped from denying that he has received the goods described in the receipt 1. by surrendering possession of the goods
 If the description consists merely of marks or label upon the goods or upon the 2. by refusing to deliver the goods when a demand is made with which he is bound to
packages containing them, the warehouseman is not liable even if the goods are comply
not of the kind as indicated in the marks or labels.

Sec. 31. A warehouseman having a valid lien against the person demanding the goods may refuse to
 Warehouseman is estopped to set up title in himself (Sec 16) deliver the goods until the lien is satisfied.
 Non-delivery or goods do not correspond to description => warehouseman is liable
 The warehouseman’s lien is possessory in nature (PNB vs Judge Se)
 Involuntary parting with possession of goods ordinarily does not result in loss of his lien by a
6. Warehouseman’s Lien warehouseman (93 C.J.S. 59)
 A warehouseman who has released his lien by the surrender of the goods may not thereafter
claim a lien on other goods of the same depositor for unpaid charges on the goods if the goods
were delivered to him under different bailments
Sec. 27. A warehouseman shall have a lien on the goods deposited or on the proceeds thereof for  The loss of the warehouseman’s lien does not necessarily mean the extinguishments of the
depositor’s obligation to pay the warehousing fees and charges which subsists to be a personal
1. all lawful charges for storage and preservation of goods liability
2. all lawful claims for money advanced, interest, insurance, transportation, labor,  Remedies discussed in PNB vs. Sajo, 292 SCRA 202 (1998)
weighing, coopering, and other charges in relation to such goods » To refuse to deliver the goods until his lien is satisfied (Sec 31)
3. all reasonable charges for notice and advertisements of sale » To sell the goods by public auction and apply the proceeds to the value of the lien
4. sale of goods where default has been made in satisfying the warehouseman’s lien (Sec 33 and 34)
Effects:

 In case of a negotiable receipt, the charges that are present at the time of the issuance of the  the warehouseman is not liable for non-delivery even if the receipt given
receipt must be so stated in the receipt with the amounts thereof specified. If the existing for the goods were negotiated (Sec. 36)
charges are not stated, the warehouseman shall have no lien thereon, except only for charges  where the sale was made without the publication required and before the
for storage of those goods subsequent to the date of the receipt. time provided by law, such sale is void and the purchaser of the goods
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 acquires no title in them (Eastern Paper Mills Co., Inc. vs Republic  Actions for recovery or manual delivery of goods by the real owner
Warehousing Corp, 170 SCRA 595)  Where attachment is made prior to the issuance of receipt
» By other means allowed by law to a creditor against his debtor, to collect from the
depositor all charges and advances which the depositor expressly or impliedly
contracted with the warehouseman to pay (Sec 32) Rights acquired by attaching creditors cannot be defeated by the issuance of a negotiable
» Other remedies allowed by law to enforce a lien against personal property (Sec 35) receipt of title thereafter (International Breeding Co. vs Terminal Warehouse Co., 126 Atl.
902)
 The warehouseman may refuse to deliver goods to any holder of the receipt when the storage
fee stipulated in the receipt has not yet been paid
» In case of a non-negotiable receipt, the goods can be attached, provided it is done prior to
the notification of the warehouseman of the transfer (Sec. 42); reason: absent such notice,
PNB vs. Se (1996) both the warehouseman and the sheriff have a right to assume that the goods are still
owned by the person whose name appears in the receipt
While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be
effected only upon payment of the storage fees. Imperative is the right of the warehouseman to
demand payment of his lien at this juncture, because in accordance with Section 29 of the 7. Liabilities
Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering possession
thereof. In other words, the lien may be lost where the warehouseman surrenders the possession of
Civil Criminal liabilities
the goods without requiring payment of his lien, because a warehouseman's lien is possessory in
nature. liabilities

Warehouseman For damages 1. issuance of receipts for goods not received (Sec. 50)
 But the warehouseman cannot refuse to deliver the goods because of an adverse claim of or his agent suffered for
ownership [PNB vs. Sayo, 292 SCRA 202 (1998)] failure to 2. issuance of receipt containing false statement (Sec. 51)
comply with
3. issuance of duplicate negotiable warehouse receipt not
legal duties
 Rules on attachment/execution of goods deposited: marked
» In case of negotiable receipt, the goods cannot be attached or levied in execution unless:
 receipt is first surrendered as such (Sec. 52)
 its negotiation is enjoined
 receipt is impounded by the court (Sec. 25) 4. issuance of a negotiable warehouse receipt for goods of
Creditor’s remedies: seek for the attachment of the receipt or seek aid from courts to
compel the debtor to satisfy claims by means allowed by law in regard to property which which he is an owner without stating such fact of ownership
cannot readily be attached or levied upon by ordinary process (Sec. 26) (Sec. 51)

5. delivery of goods without obtaining negotiable warehouse

receipt (Sec. 54)
Not applicable:
3rd persons Negotiation of warehouse receipt issued for mortgaged goods
 If the depositor is not the owner of the goods (thief) or one who has no right to convey with intent to deceive
title to the goods binding upon the owner
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 General Bonded Warehouse Act to the provisions of the Warehouseman Receipts Law, said provisions are not mandatory.
Under Section 1 of the Warehouse Receipts Act, the issuance of a warehouse receipt in the
(Act 3893 as amended by RA 247) form provided by it is merely permissive and directory and not obligatory.

1. Purpose  Commodities
» Any farm, agricultural or horticultural product;
 An act to regulate the business of receiving commodities for storage, giving the director of » animal and animal husbandry or livestock, dairy or poultry product;
Commerce and Industry the duty to enforce if, providing penalties for violation of the » water, marine or fish product;
provisions, exempting cooperative marketing associations of commodity producers from » mineral, chemical, drug or medicinal product;
application thereof. » forestry product; and any raw, processed, manufactured or finished product or by-
 To protect depositors by giving them a direct recourse against the bond filed by the product
warehouseman in case of the latter’s insolvency » good, article, or merchandise, either of domestic or of foreign production or origin,
 To encourage the establishment of more warehouses which may be traded or dealt in openly and legally.

3. Business of Receiving Commodities for

Storage
2. Definition of Terms
The business of receiving commodities for storage shall include any contract or transaction wherein

1. the warehouseman is obligated to return the very same commodities delivered to

2.1. Warehouse him or pay its value;
Every building, structure, or other protected enclosure in which commodities are kept for 2. the commodities delivered is to be milled for and on account of the owner thereof;
storage. 3. the commodities delivered is commingled with the commodities delivered by or
belonging to other persons and the warehouseman is obligated to return the
commodities of the same kind or pay its value.

2.2. Warehouseman
 The kinds of commodity to be deposited must be those, which may be traded or dealt in openly
A person engaged in the business receiving commodities for storage
and legally. Thus, illegal and prohibited goods may not be validly received (Sec. 2)
 The warehouseman is not covered by law if the owner merely rents space to a certain group of
2.3. Receipt
persons because the law covers warehouse that accepts goods: (a) storage, (b) milling and
Any receipt issued by a warehouseman for commodities delivered to him. commingling with the obligation to return the same quantity or to pay their value.

Gonzales vs Go Tiong (1958)

The kind or nature of the receipts issued by him for the deposits is not very material, much less
decisive. Though it is desirable that receipts issued by a bonded warehouseman should conform

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 Limjoco vs Director of Commerce (1965)
5. Requirement of Bond

Any contract or transaction wherein the palay delivered is to be milled for and on account of the The application shall be accompanied by a cash bond or a bond secured by real estate or signed by
owner shall be deemed included in the business of receiving rice for storage. In other words, it is a duly authorized bonding company at not less than 33 1/3% of the market value of the maximum
enough that the palay is delivered, even if only to have it milled. quantity or commodities to be received.

In this case it is a fact that palay is delivered to appellant and sometimes piled inside her "camalig" in Said bond shall be so conditioned as to respond for the market value of the commodities actually
appreciable quantities, to wait for its turn in the milling process. This is precisely the situation covered delivered and received at any time the warehouseman is unable to return the commodities or to pay
by the statute. its value.

The main intention of the law-maker is to give protection to the owner of the commodity against The bond shall be approved by the Director of the Bureau of Commerce and Industry before issuing
possible abuses (and we might add negligence) of the person to whom the physical control of his a license under this Act.
properties is delivered.
Whenever the Director shall determine that a bond approved by him has become insufficient, he may
require an additional bond or bonds to be given by the warehouseman concerned.

4. Requirement of License Any person injured by the breach of any obligation to secure which a bond is given, shall be entitled
to sue on the bond in his own name in any court of competent jurisdiction to recover the damages he
may have sustained by such breach.
No person shall engage in the business of receiving commodities for storage without first securing a
license therefore from the Director of the Bureau of Commerce and Industry. Said license shall be Nothing contained herein shall except any property of assets of any warehouseman from being sued
annual and shall expire on the thirty-first day of December. on in case the bond given is not sufficient to respond for the full market value of the commodities
received by such warehouseman.

Any person applying for a license shall set forth in the application

 the place or places where the business and warehouse are to be established or
located and
 the maximum quantity of commodities to be received. 6. Requirement of Insurance

There shall be imposed an annual license fee of: Every person licensed to engage in the business of receiving commodities for storage shall insure
the commodities so received and stored against fire.
 P50 for the first 1000 square meters of protected enclosure or 1000 cubic meters of
storage space, or any fraction of such enclosure or space, and
 For palay and corn license, a bond with the National Grains Authority is required; also an
 2 ½ centavos for each additional square meter or cubic meter. insurance cover is required

11
7. Duties of Bonded Warehouseman 8. Warehouse Receipts Law vs. General Bonded
Warehouse Act

7.1. Storage of Commodities

Warehouse Receipts Law General Bonded Warehouse Act

Every warehouseman shall receive for storage, so far as his license and the capacity of his Prescribes the mutual duties and rights of a Regulates and supervises warehouses
warehouse permit, any commodities, of the kind customarily stored therein by him, which may warehouseman who issues warehouse which put up a bond
be tendered to him in a suitable condition for warehousing, in the usual manner and in the receipts, and his depositor, and covers all
ordinary and usual course of business, without making any discrimination between persons warehouses whether bonded or not
desiring to avail themselves of warehouse facilities.
*Bar Review Materials in Commercial Law - Jorge Miravite, 2002 ed.
7.2. Give the necessary bond

7.3. Insure against fire the commodity received (Sec. 6)

9. Liabilities
7.4. Record-Keeping and Reporting Requirements

Every warehouseman shall keep a complete record of: a. civil: breach of obligations secured by the bond

 the commodities received by him, b. criminal:

 the receipts issued therefor of the withdrawals,
 the liquidations and all receipts returned to and cancelled by him. i. engaging in business covered by the Act in violation of the license requirement (Sec. 11)
ii. receiving a quantity of commodity greater than its capacity or that specified in the license, if
the goods deposited are lost or destroyed (Sec. 12)
He shall make reports to the Director of Bureau of Commerce and Industry concerning his iii. connivance with a warehouseman for the purpose of evading the license requirement (Sec.
warehouse and the conditions, contents, operations, and business. 13)

7.5. Observe rules and regulations of the Bureau of Domestic Trade (Sec. 9)

 A person injured by the breach of the warehouseman may sue on the bond put up by the
warehouseman to recover damages he may have sustained on count of such breach. In
case the bond is insufficient to cover full market value of the commodity stored, he may sue
on any property or assets of the warehouseman not exempt by law from attachment and
execution (Sec. 7)

12
 TITLE XV Should he have bound himself for more, his obligations shall be reduced to the limits of that of the
GUARANTY debtor. (1826)

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

CHAPTER 1 If it be simple or indefinite, it shall compromise not only the principal obligation, but also all its
Nature and Extent of Guaranty accessories, including the judicial costs, provided with respect to the latter, that the guarantor shall
only be liable for those costs incurred after he has been judicially required to pay. (1827a)
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. Article 2056. One who is obliged to furnish a guarantor shall present a person who possesses
integrity, capacity to bind himself, and sufficient property to answer for the obligation which he
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, guarantees. The guarantor shall be subject to the jurisdiction of the court of the place where this
Title I of this Book shall be observed. In such case the contract is called a suretyship. (1822a) obligation is to be complied with. (1828a)

Article 2048. A guaranty is gratuitous, unless there is a stipulation to the contrary. (n) Article 2057. If the guarantor should be convicted in first instance of a crime involving dishonesty or
should become insolvent, the creditor may demand another who has all the qualifications required in
the preceding article. The case is excepted where the creditor has required and stipulated that a
Article 2049. A married woman may guarantee an obligation without the husband's consent, but
specified person should be the guarantor. (1829a)
shall not thereby bind the conjugal partnership, except in cases provided by law. (n)

Article 2050. If a guaranty is entered into without the knowledge or consent, or against the will of the
principal debtor, the provisions of articles 1236 and 1237 shall apply. (n)

Article 2051. A guaranty may be conventional, legal or judicial, gratuitous, or by onerous title.

It may also be constituted, not only in favor of the principal debtor, but also in favor of the other
guarantor, with the latter's consent, or without his knowledge, or even over his objection. (1823)

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

Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an

unenforceable contract. It may also guarantee a natural obligation. (1824a)

Article 2053. A guaranty may also be given as security for future debts, the amount of which is not
yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional
obligation may also be secured. (1825a)

Article 2054. A guarantor may bind himself for less, but not for more than the principal debtor, both
as regards the amount and the onerous nature of the conditions.

13
 CHAPTER 2 even if judgment should be rendered against the principal debtor and the guarantor in case of
Effects of Guaranty appearance by the latter. (1834a)

Article 2063. A compromise between the creditor and the principal debtor benefits the guarantor but
does not prejudice him. That which is entered into between the guarantor and the creditor benefits
but does not prejudice the principal debtor. (1835a)
SECTION 1
Effects of Guaranty Between the Guarantor and the Creditor Article 2064. The guarantor of a guarantor shall enjoy the benefit of excussion, both with respect to
the guarantor and to the principal debtor. (1836)
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) Article 2065. Should there be several guarantors of only one debtor and for the same debt, the
obligation to answer for the same is divided among all. The creditor cannot claim from the guarantors
Article 2059. The excussion shall not take place: except the shares which they are respectively bound to pay, unless solidarity has been expressly
stipulated.
(1) If the guarantor has expressly renounced it;
The benefit of division against the co-guarantors ceases in the same cases and for the same reasons
as the benefit of excussion against the principal debtor. (1837)
(2) If he has bound himself solidarily with the debtor;

(3) In case of insolvency of the debtor;

(4) When he has absconded, or cannot be sued within the Philippines unless he has left a
manager or representative;

(5) If it may be presumed that an execution on the property of the principal debtor would
not result in the satisfaction of the obligation. (1831a)

Article 2060. In order that the guarantor may make use of the benefit of exclusion, he must set it up
against the creditor upon the latter's demand for payment from him, and point out to the creditor
available property of the debtor within Philippine territory, sufficient to cover the amount of the debt.
(1832)

Article 2061. The guarantor having fulfilled all the conditions required in the preceding article, the
creditor who is negligent in exhausting the property pointed out shall suffer the loss, to the extent of
said property, for the insolvency of the debtor resulting from such negligence. (1833a)

Article 2062. In every action by the creditor, which must be against the principal debtor alone, except
in the cases mentioned in article 2059, the former shall ask the court to notify the guarantor of the
action. The guarantor may appear so that he may, if he so desire, set up such defenses as are
granted him by law. The benefit of excussion mentioned in article 2058 shall always be unimpaired,

14
 SECTION 2 (2) In case of insolvency of the principal debtor;
Effects of Guaranty Between the Debtor and the Guarantor
(3) When the debtor has bound himself to relieve him from the guaranty within a specified
Article 2066. The guarantor who pays for a debtor must be indemnified by the latter. period, and this period has expired;

The indemnity comprises: (4) When the debt has become demandable, by reason of the expiration of the period for
payment;
(1) The total amount of the debt;
(5) After the lapse of ten years, when the principal obligation has no fixed period for its
(2) The legal interests thereon from the time the payment was made known to the debtor, maturity, unless it be of such nature that it cannot be extinguished except within a period
even though it did not earn interest for the creditor; longer than ten years;

(3) The expenses incurred by the guarantor after having notified the debtor that payment (6) If there are reasonable grounds to fear that the principal debtor intends to abscond;
had been demanded of him;
(7) If the principal debtor is in imminent danger of becoming insolvent.
(4) Damages, if they are due. (1838a)
In all these cases, the action of the guarantor is to obtain release from the guaranty, or to demand a
Article 2067. The guarantor who pays is subrogated by virtue thereof to all the rights which the security that shall protect him from any proceedings by the creditor and from the danger of
creditor had against the debtor. insolvency of the debtor. (1834a)

If the guarantor has compromised with the creditor, he cannot demand of the debtor more than what Article 2072. If one, at the request of another, becomes a guarantor for the debt of a third person
he has really paid. (1839) who is not present, the guarantor who satisfies the debt may sue either the person so requesting or
the debtor for reimbursement. (n)
Article 2068. If the guarantor should pay without notifying the debtor, the latter may enforce against
him all the defenses which he could have set up against the creditor at the time the payment was
made. (1840)

Article 2069. If the debt was for a period and the guarantor paid it before it became due, he cannot
demand reimbursement of the debtor until the expiration of the period unless the payment has been
ratified by the debtor. (1841a)

Article 2070. If the guarantor has paid without notifying the debtor, and the latter not being aware of
the payment, repeats the payment, the former has no remedy whatever against the debtor, but only
against the creditor. Nevertheless, in case of a gratuitous guaranty, if the guarantor was prevented
by a fortuitous event from advising the debtor of the payment, and the creditor becomes insolvent,
the debtor shall reimburse the guarantor for the amount paid. (1842a)

Article 2071. The guarantor, even before having paid, may proceed against the principal debtor:

(1) When he is sued for the payment;

15
 SECTION 3. Article 2079. An extension granted to the debtor by the creditor without the consent of the guarantor
Effects of Guaranty as Between Co-Guarantors extinguishes the guaranty. The mere failure on the part of the creditor to demand payment after the
debt has become due does not of itself constitute any extension of time referred to herein. (1851a)
Article 2073. When there are two or more guarantors of the same debtor and for the same debt, the
one among them who has paid may demand of each of the others the share which is proportionally Article 2080. The guarantors, even though they be solidary, are released from their obligation
owing from him. whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and
preference of the latter. (1852)
If any of the guarantors should be insolvent, his share shall be borne by the others, including the
payer, in the same proportion. Article 2081. The guarantor may set up against the creditor all the defenses which pertain to the
principal debtor and are inherent in the debt; but not those that are personal to the debtor. (1853)
The provisions of this article shall not be applicable, unless the payment has been made by virtue of
a judicial demand or unless the principal debtor is insolvent. (1844a)

Article 2074. In the case of the preceding article, the co-guarantors may set up against the one who
paid, the same defenses which would have pertained to the principal debtor against the creditor, and CHAPTER 4
which are not purely personal to the debtor. (1845) ARTICLE 2075. A sub-guarantor, in case of the Legal and Judicial Bonds
insolvency of the guarantor for whom he bound himself, is responsible to the co-guarantors in the
same terms as the guarantor. (1846) Article 2082. The bondsman who is to be offered in virtue of a provision of law or of a judicial order
shall have the qualifications prescribed in article 2056 and in special laws. (1854a)
Art. 2075. A sub-guarantor, in case of the insolvency of the guarantor for whom he bound
himself, is responsible to the co- guarantors in the same terms as the guarantor. Article 2083. If the person bound to give a bond in the cases of the preceding article, should not be
able to do so, a pledge or mortgage considered sufficient to cover his obligation shall be admitted in
lieu thereof. (1855)

Article 2084. A judicial bondsman cannot demand the exhaustion of the property of the principal
CHAPTER 3 debtor.
Extinguishment of Guaranty
A sub-surety in the same case, cannot demand the exhaustion of the property of the debtor or of the
Article 2076. The obligation of the guarantor is extinguished at the same time as that of the debtor, surety.
and for the same causes as all other obligations. (1847)

Article 2077. If the creditor voluntarily accepts immovable or other property in payment of the debt,
even if he should afterwards lose the same through eviction, the guarantor is released. (1849)

Article 2078. A release made by the creditor in favor of one of the guarantors, without the consent of
the others, benefits all to the extent of the share of the guarantor to whom it has been granted.
(1850)

16
IV. SECURITY DEVICES
5. As to scope and extent:
a. Definite - limited to the principal obligation only or to a specific portion thereof, to the
1. NATURE AND EXTENT OF GUARANTY exclusion of accessories
1. DEFINTION (2047) b. Indefinite or simple - includes not only the principal obligation but also all its
accessories, including judicial costs.
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.
(1) Guaranty is a contract whereby the guarantor binds himself to the creditor to fulfill the obligation SURETYSHIP
of the principal debtor in case the latter should fail to do so.
(2) In its broad sense, guaranty includes pledge and mortgage because the purpose of guaranty (3) If a person binds himself solidarily with the principal debtor, it is a contract of
may be accomplished also by furnishing to the creditor for his security property. SURETYSHIP. The guarantor is called a surety. Suretyship is governed by Arts. 1207
to 1222 of the Civil Code on solidary obligations. Suretyship dispenses with certain legal
Parties in Guaranty requirements/conditions precedent for proceeding against a guarantor.
1. Guarantor ❖ Question: What is the difference between passive solidarity (solidarity among debtors)
2. Creditor
and suretyship?
Similarity: A solidary debtor, like a surety, stand for some other person. In both passive
KINDS & CLASSIFICATION of Guaranty: solidarity and surety, both debtor and surety, after payment, may require that they be
1. In the broad sense: reimbursed.
a. Personal - the guaranty is the credit given by the person who guarantees the
Difference: The creditor cannot go after the surety right away. There has to be default on
fulfillment of the principal obligation (guarantor).
the part of the principal debtor before the surety becomes liable. If it were mere
b. Real - the guaranty is property. If the guaranty is immovable property, it is a real
solidarity among debtors, the creditor can go after any of the solidary debtors on due
mortgage or antichresis. If the guaranty is movable property, it is pledge or chattel
date.
mortgage.
2. As to origin: NATURE of Surety’s Undertaking:
a. Conventional - by agreement of the parties
b. Legal - imposed by law (4) Contractual and Accessory but Direct - the contractual obligation of the surety is
c. Judicial - required by a court to guarantee the eventual right of one of the parties in a merely an accessory or collateral to the obligation contracted by the principal. But, his
case. liability to the creditor is direct, primary and absolute.
3. As to consideration: (5) Liability is limited by the terms of the contract - The extent of a surety’s liability is
determined only by the terms of the contract and cannot be extended by implication.
a. Gratuitous - the guarantor does not receive anything for acting as guarantor (6) Liability arises only if the principal debtor is held liable - If the principal debtor and the
surety are held liable, their liability to pay the creditor would be solidary. But, the surety
b. Onerous - the guarantor receives valuable consideration for acting as guarantor. does not incur liability unless and until the principal debtor is held liable:
4. As to person guaranteed:
a. A surety is bound by a judgment against the principal even though the party was
a. Single - constituted solely to guarantee or secure performance of the principal
not a party to the proceedings
obligation.
b. The creditor may sue, separately or together, the principal debtor and the surety
b. Double or Sub-guaranty - constituted to secure fulfillment of a prior guaranty;
guarantees the obligation of a guarantor. (since they are solidarily bound).

17
 c. Generally, a demand or notice of default is not required to fix the surety’s liability. solvency of the debtor).
An accommodation party (one who signs an instrument as maker, drawer, acceptor, or (10) Since the obligation of the surety is to pay so long as the principal does not pay (even if
indorser without consideration and only for the purpose of lending his name) is in he can, even if he is solvent), the undertaking of the surety is more onerous than that of a
effect, a surety. He is thus liable to pay the holder of the instrument, subject to guarantor who pays only in the event that the principal is “broke.”
reimbursement from the accommodated party. ❖ Illustration: Denise borrows from Karla P10,000 with Victor agreeing to be the surety.
Question, Example: Victor accommodated Karla so that she can obtain a loan from the Denise refuses to pay Karla because of some cat-fight. In this case, since Victor is a
❖
surety, Karla can immediately demand payment from Victor.
bank. At the bottom of the loan agreement, the following signature appears:
If in this case Victor is a guarantor, Karla would have to exhaust all the property of
(sgd) Victor (sgd) Karla
Denise before she can collect from Victor. It is not enough that Denise refuses to pay even
Victor Villanueva Karla Tumaru if she can. She has to be unable to pay before Victor can be liable.

Is Victor a surety or a solidary debtor? Victor is a solidary debtor. Remember the rule, “I ❖ Hypothetical Question: If you were a lender and the borrower offers as security either X as
promise to pay” signed by two parties is a solidary obligation. To make sure that Victor is guarantor or a real estate mortgage, which one would you choose?
merely a guarantor or surety, Victor should sign a separate guaranty agreement. Besides, a
guaranty must be express. It is not presumed. Choose the real estate mortgage. If you were the lender, a real estate mortgage is more
advisable because you can collect against the property. In a guaranty/surety, you would have to
(7) Surety is not entitled to exhaustion - a surety is not entitled to the exhaustion of the go against the guarantor or surety. You would have to sue him, obtain judgment, and then
properties of the principal debtor since the surety assumes a solidary liability for the execute judgment. This is subject to a lot of delays. The guarantor or surety can stall your claim.
fulfillment of the principal obligation. (A guarantor on the other hand, is entitled to exhaustion).
(8) The undertaking is to the creditor, not the principal debtor - the debtor cannot claim
that the surety breached its obligation to pay for the principal obligation because there is no
obligation as between the surety and the debtor. If the surety does not pay, the principal
debtor is still not relieved of his obligation.

DIFFERENCE between Guaranty and Suretyship

Guaranty Suretyship
Guarantor/Surety promises to answer for the debt,
default or miscarriage of the principal
Liability of the guarantor Surety assumes liability as a
depends upon an independent regular party to the
agreement to pay the undertaking
obligation if the primary debtor
fails to do so
The engagement of the Surety is charged as an
guarantor is a collateral original promisor
undertaking
The guarantor is A surety is primarily liable
secondarily liable
(9) The main difference is that a surety undertakes to pay if the principal does not pay (insurer
of the debt) while a guarantor binds himself to pay if the principal cannot pay (insurer of the

18
 2. CHARACTERISTICS (2052, 2054, 2076, 2028, 2053, 2058,
2063, 2065)
Characteristics of Guaranty
Article 2052. A guaranty cannot exist without a valid obligation. (ACCESORY CONTRACT)
1. Accessory - it is dependent for its existence upon the principal obligation guaranteed
Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an by it.
unenforceable contract. It may also guarantee a natural obligation. (1824a)
2. Subsidiary and Conditional - it takes effect only when the principal debtor fails in his
Article 2054. A guarantor may bind himself for less, but not for more than the principal debtor, both as obligation subject to limitation.
regards the amount and the onerous nature of the conditions. 3. Unilateral - it gives rise to obligations on the part of the guarantor in relation to the
creditor and not vice-versa. (Although after its fulfillment, the principal debtor should
Article 2076. The obligation of the guarantor is extinguished at the same time as that of the debtor, and indemnify the guarantor, but this obligation is only incidental).
for the same causes as all other obligations. (1847)
It may be entered into even without the intervention of the principal debtor.
Article 2028. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid 4. Distinct Person - it requires that the person of the guarantor must be distinct from
a litigation or put an end to one already commenced. (1809a) the person of the principal debtor (you cannot guaranty your own debt). However, in a
real guaranty, a person may guarantee his own obligation with his own properties.
Article 2053. A guaranty may also be given as security for future debts, the amount of which is not yet
known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation • Onerous - the guarantor receives valuable consideration for acting as
may also be secured. (1825a) guarantor.
5. As to person guaranteed:
Article 2058. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all • Single - constituted solely to guarantee or secure performance of the principal
the property of the debtor, and has resorted to all the legal remedies against the debtor. (1830a) obligation.
• Double or Sub-guaranty - constituted to secure fulfillment of a prior guaranty;
Article 2063. A compromise between the creditor and the principal debtor benefits the guarantor but guarantees the obligation of a guarantor.
does not prejudice him. That which is entered into between the guarantor and the creditor benefits but
does not prejudice the principal debtor. (1835a) 6. As to scope and extent:
• Definite - limited to the principal obligation only or to a specific portion thereof, to
Article 2065. Should there be several guarantors of only one debtor and for the same debt, the the exclusion of accessories
obligation to answer for the same is divided among all. The creditor cannot claim from the guarantors • Indefinite or simple - includes not only the principal obligation but also all its
except the shares which they are respectively bound to pay, unless solidarity has been expressly accessories, including judicial costs.
stipulated.

(2052)
A guaranty is an accessory contract and cannot exist without a valid principal obligation. So if
the principal obligation is void, the guaranty is also void.
Exception: A guaranty may be constituted to guarantee the following defective contracts
and natural obligations:
19
 1. Voidable - because the contract is binding until annulled. ❖ Examples:
2. Unenforceable - because an unenforceable contract is not void.
3. Natural obligations - even if the principal obligation is not civilly enforceable, the ✓ Credit line - The bank allows you to borrow up to a
creditor may still go after the guarantor. certain ceiling, but there is no release of funds yet. If
(2054) you have an obligation with a third person and you default, the third person just needs to inform
 Since the contract of guaranty is a subsidiary and accessory contract, the guarantor’s the bank and the bank will release the money. The money released will be considered as a
liability cannot exceed that of the principal obligation. If the guarantor binds loan from the bank to you. The bank will allow the release of the money so long as it doesn’t
himself for more than the liability of the principal debtor, his liability shall be reduced. exceed the ceiling.

 However, if the creditor sues the guarantor, the guarantor may be made to pay ✓ Future debts may also mean debts that already exist but whose amount is still
costs, attorney’s fees, and penalties even if this will make his liability exceed that of unknown.
the principal. Art. 2053 may be misleading because it says that a guaranty may be constituted to secure
future debts. The important thing to remember int he guaranty of future debts is that there
(2076) must be an existing obligation already that is being guaranteed. Without that existing
Extinguishment of guaranty. Guaranty may be extinguished (1) by ordinary extinguishment obligation, the guaranty would be void. Remember, guaranty is an accessory obligation, so it
or (2) by the release of the guarantor by the creditor. Being accessory and subsidiary, guaranty is cannot exist without a principal obligation.
also extinguished when the principal obligation is extinguished.
✓ But the extinguishment of the guaranty does not always carry with it the extinguishment ❖ Illustration: Joanna guarantees the P10,000 loan that Victor owes Karla and any other
of the principal obligation. indebtedness that Victor may incur against Karla. This is a valid guaranty because there is
Material alternation of the principal contract. Any agreement between the creditor and the already an existing obligation.
principal debtor which essentially varies the terms of the principal contract without the However, let’s say that Joanna guarantees the loan that Victor and Karla will enter into
consent of the surety will release the surety from liability. This is because the alteration tomorrow. This is not valid. Although it is a “future debt,” it is not what is contemplated
would result in a novation of the principal contract which is consequently extinguished in Art. 2053 because there is no principal obligation yet. There is nothing to guarantee.
and replaced with a new one.
(2058)
✓ When is an alteration material? There must be a change which imposes a new obligation
or addd burden or which takes away some obligation already imposed, Again, the liability of the guarantor is only accessory and subsidiary. Thus, in order for the
changing the legal effect of the contract; (Example: increase in the principal amount, creditor to collect from the guarantor, the following conditions must be fulfilled:
regardless of the extent of the liability assumed by the guarantor; substitution of the
1. The creditor should have exhausted all the properties of the debtor.
principal debtor; shortening the term of the principal debt.)
2. The creditor has resorted to all legal remedies against the debtor (ex. accion
✓ But if the change is beneficial to the guarantor, example, if the principal obligation is pauliana, rescission of fraudulent alienations).
decreased, the guaranty subsists.
❖ Question: Can the creditor implead the guarantor as a co- defendant with the
debtor?
(2053) Answer: No, except in cases provided in Art. 2059. Article 2062 says that creditor
Continuing guaranty - is a guaranty that is not limited to a single transaction but which
should proceeds against the principal debtor alone.
contemplates a future course of dealings covering a series of transactions generally for
an indefinite time or until revoked.
A continuing guaranty is generally prospective in its operation and is intended to
secure future transactions (generally does not include past transactions).
20
(2063) 3. GUARANTY V. SECURITY; SOLIDARY OBLIGOR V.
Effects of compromise. A compromise is a contract whereby the parties, by making
SURETY
reciprocal concessions, avoid a litigation or put an end to one already commenced. A compromise
GUARANTOR SURETY
cannot prejudice the guarantor or the debtor, as the case may be, when he is not a party to
1. Liability depends upon agreement to 1. Assumes as a regular party
such compromise. Furthermore, if you remember, a guarantor may not bind himself for more than
pay the obligation, if the primary 2. Charged as an orginal
the principal debtor both as regards the amount and the onerous nature of the conditions. debtor fails to do so. promisor
Exception: If the compromise has a benefit in the nature of a stipulation in favor of a third 2. Collateral undertaking
person, the compromise may bind that person. 3. Primarily Liable (undertakes
3. Secondarily or subsidiarily liable directly without reference to
❖ Illustration: Victor owes Joanna P10,000 with Lawrence as guarantor. Victor and Joanna the solvency of the principal
agree to reduce the debt to P8,000. Lawrence’s liability is also reduced to P8,000 in case Victor 4. Not bound to know if principal, not
does not pay, since the compromise is beneficial to Lawrence. liable unless notified of the detailed of 4. Held to know every default of
the principal his principal
(2065) 5. Often discharged by the mere 5. Not be discharged either by
indulgence of the creditor of the the mere indulgence of the
Benefit of division among several guarantors. This speaks of the benefit of division. The principal, not liable unless notified of the creditor or by want of notice
following conditions must concur in order that several guarantors may claim the benefit: default of the principal of the default of the principal
1. There should be several guarantors
2. There is only one debtor 6. Binds himself to pay if the
3. There is only one and the same debt 6. Binds himself to pay if the principal principal does not pay
cannot or unable to pay
In this case, the liability of the co-guarantors is joint. They are not liable to the creditor beyond
the shares which they are bond to pay.
Exceptions: SURETY V. PASSIVE SOLIDARITY (SOLIDARITY AMONG DEBTORS)

If solidarity among the guarantors has been expressly stipulated. Similarity:

Solidary Obligor/Debtor, like Surety stand for other person.

In Both Solidary Obligor/Debtor and Surety, both surety and debtor, after payment, may require
that they be reimburse.

Difference:

The Creditor cannot go after the surety right away. There must be default on the part of the principal
debtor, before surety becomes liable.

In Solidary Debtor/Obligor, creditor can go after any solidary debtors on due date.

21
 a. Definite - limited to the principal obligation only or to a specific portion
thereof, to the exclusion of accessories
4. TYPES OF GUARANTY b. Indefinite or simple - includes not only the principal obligation but also all
its accessories, including judicial costs.
a. AS TO ORIGIN
b. TYPE OF CONSIDERATION
c. BENEFICIARY 5. HOW A GUARANTY CONSTRUED (2055)
d. PRESENCE OF DEBTOR’S CONSENT Article 2055. A guaranty is not presumed; it must be express and cannot extend to more than what
e. EXTENT (2055) is stipulated therein.

f. INCLUDED DEBTS (2053)

Guaranty is never presumed. It must be express. Because the guarantor assumes an obligation
KINDS & CLASSIFICATION of Guaranty: to pay for another’s debt without any benefit to himself. Thus, it has to be certain that he really
intends to incur such an obligation and that he proceeds with consciousness of what he is
In the broad sense:
doing.
c. Personal - the guaranty is the credit given by the person who guarantees the
fulfillment of the principal obligation (guarantor).
d. Real - the guaranty is property. If the guaranty is immovable property, it is a
FORM REQUIRED for Guaranty:
real mortgage or antichresis. If the guaranty is movable property, it is pledge or
chattel mortgage. 1. Guaranty must be in writing.
1. As to origin:
a. Conventional - by agreement of the parties A contract of guaranty, to be enforceable, must be in writing because it falls under the
b. Legal - imposed by law Statute of Frauds as a “special promise to answer for the debt, default or
c. Judicial - required by a court to guarantee the eventual right of one of the miscarriage of another.” (De Leon textbook says that surety is not covered by Statute of
parties in a case. Frauds, but some professors say that surety is still covered by it because it is still a
2. As to consideration: promise to answer for the debt of another person. What is not covered by the Statute of
Frauds is being a solidary co-debtor).
a. Gratuitous - the guarantor does not receive anything for acting as guarantor

b. Onerous - the guarantor receives valuable consideration for acting as CONSTRUCTION of Guaranty
guarantor.
3. As to person guaranteed: Guaranty is strictly construed against the creditor and in favor of the guarantor and is not to
a. Single - constituted solely to guarantee or secure performance of the principal be extended beyond its terms or specific limits. Doubts should be resolved in favor of the guarantor
obligation. or surety.
b. Double or Sub-guaranty - constituted to secure fulfillment of a prior However, this rule of construction is applicable only to an accommodation surety or one
guaranty; guarantees the obligation of a guarantor. that is gratuitous. It does not apply where the surety is compensated with consideration.
In such cases, the agreement is interpreted against the surety company that prepared it.
4. As to scope and extent: General Rule: It is not necessary for the creditor to expressly accept the contract of guaranty
22
since the contract is unilateral; only the guarantor binds himself to do something. ❖ Question: What is the effect of the guarantor’s death on the guaranty?
Exception: If the guarantor merely offers to become guaranty, it does not become a binding
Answer: The guaranty survives the death of the guarantor. The general rule is that a
obligation unless the creditor accepts and notice of acceptance is given to the guarantor. On the
party’s contractual rights and obligations are transmissible to his successors. The rules
other hand, if the guarantor makes a direct or unconditional promise of guaranty (and not merely on guaranty does not expressly provide that the guaranty is extinguished upon the
an offer), there is no need for acceptance and notice of such acceptance from the creditor. death of the guarantor. Applying Art. 2057, the supervening incapacity of the guarantor
does not extinguish the guaranty but merely gives the creditor the right to demand a
replacement. But the creditor can waive this right and choose to hold the guarantor to
his bargain. If he so chooses, the creditor’s claim passes to the heirs of the deceased
6. QUALIFICATIONS OF A GUARANTOR (2056, 2057) guarantor.
❖ Question: When may the creditor not demand another guarantor?
Article 2056. One who is obliged to furnish a guarantor shall present a person who
possesses integrity, capacity to bind himself, and sufficient property to answer for the Answer: Where the creditor has stipulated in the original agreement that a specified person should
obligation which he guarantees. The guarantor shall be subject to the jurisdiction of the court be the guarantor, he is bound by the terms of the agreement and he cannot thereafter deviate
of the place where this obligation is to be complied with. (1828a) from it.

Article 2057. If the guarantor should be convicted in first instance of a crime involving
dishonesty or should become insolvent, the creditor may demand another who has all the
7. LIABILITY OF THE CONJUGAL FUNDS
qualifications required in the preceding article. The case is excepted where the creditor has
required and stipulated that a specified person should be the guarantor. (1829a)

Ideally, the qualifications of a guarantor are the following: integrity, capacity to bind himself, and
sufficient property to answer for the obligation which he guarantees. But the creditor can waive
these requirements.

Jurisdiction over the guarantor belongs to the court where the principal obligation is to be
fulfilled, in accordance with the rule that accessory follows the principal.
❖ Question: What is the effect of subsequent loss of qualifications?
Answer: The qualifications need only to be present at the time of the perfection of the
contract. The subsequent loss of the qualifications would not extinguish the liability of the
guarantor, nor will it extinguish the contract of guaranty. However, the creditor has the
discretion to demand another guarantor with the proper qualifications.
The creditor may demand another guarantor:
a. In case the guarantor is convicted in the first instance of a crime
involving dishonesty.
b. In case the guarantor becomes insolvent (since he loses sufficient
property to answer for the obligations which he guarantees). There is
no need for a judicial declaration of insolvency
23
 1. EFFECT OF GUARANTY BETWEEN GUARANTOR AND 1. Those under Art. 2059
2. If the guarantor does not comply with Art. 2060
CREDITOR 3. If the guarantor is a judicial bondsman and sub- surety (Art. 2084)
1. EXCUSSION (2058, 2059) 4. Where a pledge or mortgage has been given by him as a special security
5. If he fails to interpose it as a defense before judgment is rendered against him
Article 2058. The guarantor cannot be compelled to pay the creditor unless the latter has Exceptions under Art. 2059
exhausted all the property of the debtor, and has resorted to all the legal remedies a. When the right is renounced or waived
against the debtor. (1830a) i. The waiver must be made in express terms
b. When liability assumed by the guarantor is solidary
Article 2059. The excussion shall not take place: i. In this case, he becomes a surety with primary liability
When the principal debtor is insolvent
(1) If the guarantor has expressly renounced it;
❖ Illustration: Stephen borrows from P100,000 from Henry guaranteed by Jericson.
Stephen has P1M in assets which are still with him and P1.5M in liabilities.
(2) If he has bound himself solidarily with the debtor; Stephen defaults. Can Henry collect from Jericson right away?

(3) In case of insolvency of the debtor;

No. In this case, Jericson still has the benefit of excussion.
(4) When he has absconded, or cannot be sued within the Philippines unless he has left a
manager or representative; Why? Because even if Stephen is apparently insolvent, there is still no claim
against his assets by the other creditors. They are still with him and can still be
accessed by Henry by filing an action for collection of money against Stephen.
(2058)
(5) If it may be presumed that an execution on the property of the principal debtor
would not result in the satisfaction of the obligation. (1831a) ❖ Illustration: Alden borrows P100,000 from Gary, guaranteed by Kristine. On due
Again, the liability of the guarantor is only accessory and subsidiary. Thus, in order for the date, Alden defaults and has zero assets but has a P200,000 credit/receivable
creditor to collect from the guarantor, the following conditions must be fulfilled: from Lawrence. Can Gary collect from Kristine?
1. The creditor should have exhausted all the properties of the debtor. No. Gary must file an action for collection and an accion subrogatoria so that
2. The creditor has resorted to all legal remedies against the debtor (ex. accion he can exercise Alden’s right to collect money from Lawrence. Only if these
pauliana, rescission of fraudulent alienations). actions fail can Gary then collect from Kristine.
❖ Question: Can the creditor implead the guarantor as a co- defendant with the  When the principal debtor absconds or cannot be sued locally
debtor? So even if the borrower has fled to Timbuktu, if he still has properties in the
Philippines, the lender must sue against the property first before collecting
Answer: No, except in cases provided in Art. 2059. Article 2062 says that creditor
from the guarantor.
should proceeds against the principal debtor alone.
 When resort to all legal remedies would be a useless formality
(2059) ✓ If exhausting the properties of the debtor would be useless since it would
still not satisfy the obligation, the guarantor cannot require the creditor to
resort to these legal remedies against the debtor anymore, since doing so
General rule: The guarantor is entitled EXCUSSION or to demand that the creditor first
would be a useless formality.
exhaust the properties of the principal debtor before collecting from the guarantor. ✓ In this case, it is not even necessary that the debtor is judicially declared
Exceptions: insolvent or bankrupt.
❖ Hypothetical Question: How can a lender get around excussion?
24
If the lender wants to be able to go against the guarantor right away without having to go disadvantage is that there is a time lag between the judgment against the principal
through excussion, he must get the guarantor to either sign a waiver of the benefit of excussion debtor and the one against the guarantor, which allows the guarantor to hide his assets in
or make him solidarily liable (as a surety). the meantime.
❖ Hypothetical Question: Sarah borrowed from Samantha P100,000 guaranteed by How to get around this two-step process?
Mike. Sarah defaulted. Samantha made a demand for payment against Mike. Mike
paid. Later, Mike found out that he had the benefit of excussion. He demanded A bank guaranty or letter of credit. In a bank guaranty, if the debtor does not pay, the creditor
reimbursement from Samantha. Can Mike recover? need only inform the bank of the default and the bank releases the money. It’s like a standing loan
by the bank in favor of the debtor to answer for a debt in favor of third persons, in case he is
No. Payment constitutes a waiver of the benefit.
unable to pay.
2. PROCEDURE TO MAKE GUARANTOR LIABLE (2062)

Article 2062. In every action by the creditor, which must be against the principal debtor alone,
3. HOW GUARANTOR USES EXCUSSION (2058, 2060,
except in the cases mentioned in article 2059, the former shall ask the court to notify the
guarantor of the action. The guarantor may appear so that he may, if he so desire, set up such 2061)
defenses as are granted him by law. The benefit of excussion mentioned in article 2058 shall
always be unimpaired, even if judgment should be rendered against the principal debtor and Article 2058. The guarantor cannot be compelled to pay the creditor unless the latter has
the guarantor in case of appearance by the latter. (1834a) exhausted all the property of the debtor, and has resorted to all the legal remedies against
the debtor. (1830a)

Article 2060. In order that the guarantor may make use of the benefit of exclusion, he must
Procedure when the creditor sues: set it up against the creditor upon the latter's demand for payment from him, and point out
1. Sue the principal first. The creditor must sue the principal debtor alone. He to the creditor available property of the debtor within Philippine territory, sufficient to cover
cannot sue the guarantor with the principal or the guarantor alone except in the amount of the debt. (1832)
the cases mentioned in Art. 2059 where the guarantor loses the benefit of
excussion. Article 2061. The guarantor having fulfilled all the conditions required in the preceding
In other words, adherence to the rule to sue the principal alone can be article, the creditor who is negligent in exhausting the property pointed out shall suffer the
overruled by the court when it is proved that it would be a useless formality loss, to the extent of said property, for the insolvency of the debtor resulting from such
because no different result would be attained if the plaintiff were forced to institute negligence. (1833a)
separate actions against the principal and the guarantor.
2. Notice to guarantor of the action. The guarantor must be notified so that he (2058)
may appear and set up his defenses if he wants to. If the guarantor appears, he
is still given the benefit of exhaustion even if judgment should be rendered Again, the liability of the guarantor is only accessory and subsidiary. Thus, in order for the
against the principal debtor. creditor to collect from the guarantor, the following conditions must be fulfilled:
If he does not appear, judgment is not binding on him. Lender must sue the 1. The creditor should have exhausted all the properties of the debtor.
guarantor to claim against him. 2. The creditor has resorted to all legal remedies against the debtor (ex. accion
So, collecting from the guarantor is really a two-step process. The purpose of the two- pauliana, rescission of fraudulent alienations).
step process is to allow the guarantor to make use of the benefit of excussion. The
25
 ❖ Question: Can the creditor implead the guarantor as a co- defendant with the 5. COMPROMISES (2063)
debtor?
Article 2063. A compromise between the creditor and the principal debtor benefits the
Answer: No, except in cases provided in Art. 2059. Article 2062 says that creditor should guarantor but does not prejudice him. That which is entered into between the guarantor and
proceeds against the principal debtor alone. the creditor benefits but does not prejudice the principal debtor. (1835a)

(2060-2061) Effects of compromise. A compromise is a contract whereby the parties, by making

reciprocal concessions, avoid a litigation or put an end to one already commenced. A compromise
Duty of creditor to make prior demand for payment from guarantor. To collect from the cannot prejudice the guarantor or the debtor, as the case may be, when he is not a party to
guarantor, the creditor must make a prior demand for payment from the guarantor. such compromise. Furthermore, if you remember, a guarantor may not bind himself for more than
When should demand be made? The demand can only be made after judgment on the debt. the principal debtor both as regards the amount and the onerous nature of the conditions.
Exception: If the compromise has a benefit in the nature of a stipulation in favor of a third
How should it be made? The demand must be an actual demand. Joining the guarantor in
person, the compromise may bind that person.
the suit against the principal is not the demand intended by law.
❖ Illustration: Victor owes Joanna P10,000 with Lawrence as guarantor. Victor and Joanna
Duty of guarantor to set up benefit of excussion. What should the guarantor do to claim the
benefit of excussion: agree to reduce the debt to P8,000. Lawrence’s liability is also reduced to P8,000 in case Victor
does not pay, since the compromise is beneficial to Lawrence.

1. Set up the benefit of excussion against the creditor upon demand for payment by 6. JOIN GUARANTY (2065)
the creditor from him; and
2. Point out to the creditor available property of the debtor within Philippine territory Article 2065. Should there be several guarantors of only one debtor and for the same debt,
sufficient to cover the amount of debt. (Therefore, property located abroad or the obligation to answer for the same is divided among all. The creditor cannot claim from
which is not easily available is not included among those that the guarantor can the guarantors except the shares which they are respectively bound to pay, unless solidarity
point out to the creditor). has been expressly stipulated.

Benefit of division among several guarantors. This speaks of the benefit of division. The
Duty of creditor to resort to all legal remedies. Once the guarantor has fulfilled the requisites
for making use of the benefit of excussion, the creditor has the duty to exhaust all the property of following conditions must concur in order that several guarantors may claim the benefit:
the debtor and to resort to all leal remedies against the debtor. If he fails to do so, the creditor shall 4. There should be several guarantors
suffer the loss to the extent of the value of the property he failed to collect from the principal 5. There is only one debtor
debtor. 6. There is only one and the same debt
In this case, the liability of the co-guarantors is joint. They are not liable to the creditor beyond
4. EXCUSSION IN SUB-GUARANTY (2064) the shares which they are bond to pay.

Article 2064. The guarantor of a guarantor shall enjoy the benefit of excussion, both with Exceptions:
respect to the guarantor and to the principal debtor. (1836) If solidarity among the guarantors has been expressly stipulated 2. The co-
guarantors cannot avail themselves of the benefit of division under
circumstances enumerated in Art. 2059
Sub-guarantor’s right to excussion. A sub-guarantor can demand the exhaustion of the
properties of both the guarantor and the principal debtor before he pays the creditor. ❖ Illustration: Mike and Karla are guarantors of the debt of Lawrence to Joanna in the
26
 amount of P10,000. Joanna can demand from Mike or Karla only P5,000 unless Effect of repeat payment by the debtor. General rule: Before the guarantor pays the creditor,
Mike and Karla had bound themselves solidarily with Lawrence in which case they he must notify the debtor (Art. 2068). If he fails to give such notice and the debtor repeats
would be sureties and, therefore Joanna can hold each of them responsible for payment, the guarantor’s only remedy is to collect form the creditor even if the latter should
P10,000. Joanna may also demand from Mike or Karla the entire P10,000 in the become insolvent.
cases mentioned in Art. 2059 as where Mike or Karla has expressly renounced the
benefit of division. ✓ However, the guarantor may still claim reimbursement from the debtor in spit of lack
of notice if the following conditions are present:
1. The creditor becomes insolvent
2. EFFECTS OF GUARANTY BETWEEN THE DEBTOR AND 2. The guarantor was prevented by fortuitous event to advise the
debtor of the payment; AND
THE GUARANTOR
3. The guaranty is gratuitous
1. INDEMINIFICATION
a) EFFECT OF PAYMENT BY THE
GUARANTOR WHO FAILED TO NOTIFY THE b) EFFECT OF PAYMENT BEFORE
DEBTOR (2068, 2070) DESIGNATED PERIOD (2069)
Article 2068. If the guarantor should pay without notifying the debtor, the latter may
enforce against him all the defenses which he could have set up against the creditor at Article 2069. If the debt was for a period and the guarantor paid it before it became due, he
the time the payment was made. (1840) cannot demand reimbursement of the debtor until the expiration of the period unless the
payment has been ratified by the debtor. (1841a)
Article 2070. If the guarantor has paid without notifying the debtor, and the latter not
being aware of the payment, repeats the payment, the former has no remedy whatever Effect of payment by guarantor before maturity. Recall that, if the debtor’s obligation is with
against the debtor, but only against the creditor. Nevertheless, in case of a gratuitous a period, it becomes demandable only when the day fixed comes. Consequently, the guarantor
guaranty, if the guarantor was prevented by a fortuitous event from advising the debtor who pays before maturity is not entitled to reimbursement since there is no necessity for
of the payment, and the creditor becomes insolvent, the debtor shall reimburse the accelerating payment. The guaranty being subsidiary in character, the guarantor is not liable for the
guarantor for the amount paid. (1842a)
debt before it becomes due.

(2068) However, the debtor will be liable if the payment was made with his consent or it was
subsequently ratified by him (expressly or impliedly)
Effect of payment by guarantor without notice to debtor. The debtor may interpose against
the guarantor, those defenses which he could have set up against the creditor at the time
payment was made (ex. If the debtor has already paid the creditor when the guarantor pays,
the debtor can set up the defense of previous extinguishment of the obligation against the
guarantor).

(2070)

27
 c) GUARANTOR’S CLAIM AGAINST A ✓ But unlike in an ordinary joint obligation, if one of the guarantors is insolvent, the co-
guarantors must answer for his share. In this sense the obligation behaves like
THIRD PARTY (2072) asolidary obligation

Article 2072. If one, at the request of another, becomes a guarantor for the debt of a
(2074)
third person who is not present, the guarantor who satisfies the debt may sue either the
person so requesting or the debtor for reimbursement. (n)
Defenses available to co-guarantors. Co-guarantors may avail themselves of all defenses which
the debtor would have interposed against the creditor but not those which cannot be transmitted
Guarantor of a third person at the request of another. The guarantor who guarantees the for being purely personal to the debtor (see Arts. 2068 and 2081).
debt of an absentee at the request of another has a right to claim reimbursement after ❖ Illustration: Victor, Mike and Alden guaranty the obligation of Lawrence. Victor
satisfying the debt either from the person who requested him to be a guarantor, or the debtor pays even if the obligation has prescribed already. Victor demands reimbursement
from Mike and Alden. Mike and Alden can refuse to pay by invoking the defenses
3. EFFECTS OF GUARANTY AS BETWEEN CO- inherent in the obligation, such as prescription.

GUARANTORS (2073, 2075) Illustration: Victor, Mike and Alden guaranty the obligation of Lawrence, a minor. Victor pays.
Can Mike and Alden refuse to reimburse him on the ground that Lawrence is a minor? No,
Article 2073. When there are two or more guarantors of the same debtor and for the because the defense is personal to Lawrence.
same debt, the one among them who has paid may demand of each of the others the
share which is proportionally owing from him.
(2075)
If any of the guarantors should be insolvent, his share shall be borne by the others,
including the payer, in the same proportion. Liability of sub-guarantor in case of insolvency of guarantor
 In case of the insolvency of the guarantor for whom he bound himself, a sub-guarantor is
The provisions of this article shall not be applicable, unless the payment has been made liable to the co-guarantors in the same manner as the guarantor whom he guaranteed.
by virtue of a judicial demand or unless the principal debtor is insolvent. (1844a)

Article 2074. In the case of the preceding article, the co-guarantors may set up against In the example above, if Hermione (co-guarantor) is the guarantor of Ron, and Ron becomes
the one who paid, the same defenses which would have pertained to the principal debtor insolvent, Hermoine is liable to Ginny for P300 or P450 if Fred is also insolvent.
against the creditor, and which are not purely personal to the debtor. (1845) ARTICLE
Illustration: Jeric, Stephen and Marco are guarantors of Henry. Shara is a guarantor of Jeric.
Art. 2075. A sub-guarantor, in case of the insolvency of the guarantor for whom he Marco pays the entire obligation. Jeric becomes insolvent. Can Marco claim the share of Jeric
bound himself, is responsible to the co- guarantors in the same terms as the guarantor. from Shara? Yes

(2073)
Right of contribution of guarantor who pays. The obligation of several guarantors of the
same debtor and for the same debt is joint. Each is bound to pay only his proportionate share.
❖ Illustration: Eilleen, Joanna and Karla guaranty the P90,000 loan of Denise. Eilleen
paid P90,000. Eilleen can collect P30,000 each from Joanna and Karla.

28
 4. EXTINGUISHMENT OF GUARANTY (2076-2080, 1672, (2076)
1261) Extinguishment of guaranty. Guaranty may be extinguished (1) by ordinary extinguishment
or (2) by the release of the guarantor by the creditor. Being accessory and subsidiary, guaranty is
also extinguished when the principal obligation is extinguished.
Article 2076. The obligation of the guarantor is extinguished at the same time as that of the
✓ But the extinguishment of the guaranty does not always carry with it the extinguishment
debtor, and for the same causes as all other obligations. (1847)
of the principal obligation.
Article 2077. If the creditor voluntarily accepts immovable or other property in payment of the Material alternation of the principal contract. Any agreement between the creditor and the
debt, even if he should afterwards lose the same through eviction, the guarantor is released. principal debtor which essentially varies the terms of the principal contract without the consent
(1849) of the surety will release the surety from liability. This is because the alteration would result
in a novation of the principal contract which is consequently extinguished and replaced with
Article 2078. A release made by the creditor in favor of one of the guarantors, without the a new one.
consent of the others, benefits all to the extent of the share of the guarantor to whom it has been ✓ When is an alteration material? There must be a change which imposes a new obligation
granted. (1850) or addd burden or which takes away some obligation already imposed,
changing the legal effect of the contract; (Example: increase in the principal amount,
Article 2079. An extension granted to the debtor by the creditor without the consent of the regardless of the extent of the liability assumed by the guarantor; substitution of the
guarantor extinguishes the guaranty. The mere failure on the part of the creditor to demand principal debtor; shortening the term of the principal debt.)
payment after the debt has become due does not of itself constitute any extension of time
referred to herein. (1851a) But if the change is beneficial to the guarantor, example, if the principal obligation is decreased,
the guaranty subsists
Article 2080. The guarantors, even though they be solidary, are released from their obligation
whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and (2077)
preference of the latter. (1852)
Release by conveyance of property
Article 1672. In case of an implied new lease, the obligations contracted by a third person for the
 Any substitute paid in lieu of money which is accepted by the creditor extinguishes the
security of the principal contract shall cease with respect to the new lease. (1567)
obligation and in consequence, the guaranty.
Article 1261. If, the consignation having been made, the creditor should authorize the debtor to If the creditor accepts property in payment of a debt from the debtor, the guarantor is relieved from
withdraw the same, he shall lose every preference which he may have over the thing. The co- responsibility. This is also true even inc ase the creditor is subsequently evicted from the property.
debtors, guarantors and sureties shall be released. (1181a) Eviction revives the principal obligation but not the guaranty

This is a case of dacion. Since dacion extinguishes the principal obligation, the accessory
obligation is also extinguished and is not revived even if the creditor is subsequently evicted
from the property.

(2078)
Release of guarantor without consent of others
 As a rule, the guarantors enjoy the benefit of division.
29
  However, if any of them should be insolvent all the other guarantors must bear his share. advance, the extension will not extinguish the guaranty.
So, a release made by the creditor in favor of one of the guarantors without the consent of ✓ It is immaterial whether the guarantor or surety suffers actual prejudice as a result
the others may thus prejudice the latter should a guarantor become insolvent. of the extension. The length of time of the extension is also immaterial. As long as
the period is extended, the guaranty is extinguished.
Ginny, Ron and Fred are guarantors for a debt of P900. If Ginny is released without the consent of
Ron and Fred, then Ron and Fred will each be liable only for P300. They are benefited to the
extent of P300, the share of Ginny. Article 2081. The guarantor may set up against the creditor all the defenses which pertain
to the principal debtor and are inherent in the debt; but not those that are personal to the
If the release is made with their consent, Ron and Fred will each be responsible for P450. If Ginny debtor. (1853)
is released with the consent only of Ron, Ron is liable for P600, while Fred is liable for P300.
Defenses available to the guarantor against the creditor. This article provides for defenses,
which may be interposed by the guarantor against the creditor except those which are purely
Release of a co-guarantor without the consent of others. Self-explanatory. personal to the debtor.
❖ Illustration: Eilleen, Joanna and Karla are guarantors of Denise for P90,000. The
creditor, Victor, releases Eilleen without the consent of Joanna and Karla. The Defenses available to guarantor against creditor
release should benefit Joanna and Karla to the extent of P30,000 (Eilleen’s share).
They shall be liable only for P60,000.  Defenses available to a debt as against a guarantor are provided in Art 2068, and those
available to co-guarantors in Art 2074
Illustration: Eilleen, Joanna and Karla are guarantors of Denise for P90,000. The creditor, Victor,  This article provides for the defenses, except those which are purely personal to the debtor, that
may be interposed by the guarantor as against the creditor
releases Eilleen with the consent of Joanna and Karla. Joanna and Karla’s liability is still P90,000.

(2079) In summary, when is a guarantor discharged from liability?

1. When principal obligation is extinguished (Art 2076)
Release by extension of term granted by the creditor to the debtor. If the creditor grants an 2. When creditor accepts immovable or other property in payment of the debt (Art 2077)
extension of time to the debtor without the consent of the guarantor, the guarantor is discharged 3. When creditor releases one of the guarantors (Art 2078)
4. When an extension is granted to the debtor without the consent of the guarantor (Art 2079)
from his undertaking. The purpose of this rule is to avid prejudice to the guarantor. The debtor
may become insolvent during the extension, thus depriving the guarantor or surety of his right to
reimbursement. When, by the act of the creditor, they cannot be subrogated to the rights, mortgages and
preferences of the creditor (Art 2080)
✓ But if the guarantor or surety consents or waives his right under this article in
advance, the extension will not extinguish the guaranty.
✓ It is immaterial whether the guarantor or surety suffers actual prejudice as a result
of the extension. The length of time of the extension is also immaterial. As long as
the period is extended, the guaranty is extinguished.
2080
Release by extension of term granted by the creditor to the debtor. If the creditor grants an
extension of time to the debtor without the consent of the guarantor, the guarantor is discharged
from his undertaking. The purpose of this rule is to avid prejudice to the guarantor. The debtor
may become insolvent during the extension, thus depriving the guarantor or surety of his right to
reimbursement.
✓ But if the guarantor or surety consents or waives his right under this article in
30