7/26/2019 Credit Notes 1

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CHAPTER 2Effects of Guaranty

SECTION 1 Effects of Guaranty Between the

Guarantor and the Creditor (2058-2065)

I. Procedure When Creditor Sues

A. Creditor must sue the principal alone1. Reason: A contract of guaranty is accessory

and subsidiary

2. Exception: Art. 2059

B. Creditor shall ask the court to notify the

guarantor of the action

1. If the guarantor appears

He is still given the benefit of excussion,

under Art. 2058, even if judgment should

be rendered against him and the principal

debtor.

2. If guarantor does not appear

He cannot set up the defenses which, by

appearing, are allowed to him by law, and

it may no longer be possible for him to

question the validity of the judgment

rendered against the debtor.

C. Hearing before execution can be issued against

guarantor

A guarantor is entitled to be heard before an

execution can be issued against him where he

is not a party in the case involving his

principal.

II. Benefit of Excussion

A. Definition

The right of GUARANTOR to demand that the

creditor first:

1. EXHAUST all properties of principal debtor

2. RESORT to all legal remedies against the

principal debtor

The creditor has a right to secure judgment

against guarantor prior to exhaustion. The

creditor may, prior thereto, secure a judgment

against the guarantor, who shall be entitled,

however, to a deferment of the execution of

said judgment against him, until after the

properties of the principal debtor shall have

been exhausted, to satisfy the latters

obligation.

D. Who may avail

1. Guarantor - ordinary and personal guarantors2. Sub-guarantor - as against the principal debtor

and the guarantor (Art. 2064)

3. Co-guarantors - as against the

C. How to avail

1. Guarantor must set it up against the creditor

upon demand for payment.

The duty of the creditor to demand payment

upon the guarantor takes place after a

judgment has been obtained against for the

exhaustion of the debtor's properties.

Joining the guarantor in the suit against the

principal debtor is not the demand intended by

law.

2. Point out to the creditor availableproperty of

the debtor within the Philippines, sufficient to

cover the amount of debt.

The guarantor having fulfilled all the conditions

required above, the creditor who is negligent in

exhausting the property pointed out shall suffer

the loss, but only to the extent of the value

of the said property for the insolvency of the

debtor (Art. 2061).

D. Exceptions

1. Right waived - must be made in express terms

2. Liability assumed is that of surety - guarantor

binds himself solidarily with the principal debtor

3. Insolvency of debtor is proven by an unsatisfied

writ of execution

It is not sufficiently established by the mere

fact that the debtor has been declared

insolvent in insolvency proceedings, in which

the extent of the insolventsinability to pay is

not determined until the final liquidation of his

estate.