Guaranty and Suretyship

A guaranty is a contract where a person (the guarantor) binds himself to the creditor to fulfill the principal debtor's obligation in case the principal debtor can't do it. It must be in writing (Art. 1403, Civil Code) or it can't be enforced. It also cannot be presumed. In case of a married woman, she binds herself with her separate property with 2 exceptions: if she binds the conjugal property or if in cases which benefits the family -in both cases, her husband's consent is required. 

A guaranty isn't presumed. It requires the guarantor's consent for the assurance that the guarantor will bind himself and to make certain that when it is made, the guarantor will proceed accordingly.

A guaranty is generally gratuitous except it there is a stipulation to the contrary. Also, the guarantor's liability can't exceed the amount of the principal obligation but can be lesser than the principal obligation's amount. The exceptions are the following:

1.) Interest, judicial costs and attorney's fees may be recovered as part of damages. Creditors suing on a surety bond can recover legal interest, attorney's fees and judicial costs from the surety if appropriate, even if there is no stipulation and even if the surety would become liable for more than the amount in the bond. This is because the surety is made to pay, not by virtue of the contract, but his failure to pay when demanded by the creditor resulted in the filing of a case. The interest starts to accumulate either (a) when the complaint is filed (upon judicial demand) or (b) the time demand was made on the surety until the principal obligation is fully paid (upon extra-judicial demand.)

2.) The penalty may be provided in the bond and the surety can be held liable for the violation so penalized.

Classifications

A guaranty is personal if it's the credit given by the person who guarantees the fulfillment of the principal obligation and real if the guaranty is movable or immovable property. It is conventional if agreed on by the parties, legal if imposed by law or judicial if ordered by the court to guarantee the eventual right of one of the parties to the case. If the guarantor doesn't receive any payment for acting as a guarantor, it's gratuitous; if he does, it's onerous. A single guaranty is constituted solely for the purpose of securing the principal obligation; a double guaranty, on the other hand, is constituted to secure the fulfillment by the guarantor of a previous obligation. It is definite if secured only for the principal obligation or a part of it and indefinite/simple if the guaranty includes the principal's accessory obligations.

A surety is a contract where a person engages himself to answer for the debt, default or miscarriage of the principal debtor.

Nature and Extent of the Guaranty

1.) Consensual

2.) Accessory to a principal obligation (can't exist without the principal obligation)

3.) Makes the guarantor subsidiarily liable 

4.) Unilateral (may be entered into even without the principal debtor's consent)

Double/Sub-guaranty

This happens when another guarantor is bound to answer for the first guarantor. It should not be confused with several guarantors being bound to guarantee the same obligation.

A guaranty may be made to secure the performance of a voidable contract, an unenforceable one or a natural obligation, but not a void one. If the contract is void, there is no guaranty. The rules are:

1.) Voidable contract -binding until annulled by a proper court action.

2.) Unenforceable contract -binding simply because it isn't void.

3.) Natural obligation -the creditor can proceed against the guarantor even if he has no right of action against the principal debtor because the principal debtor obligation isn't civilly liable. If the debtor himself offers a guaranty for his natural obligation, he impliedly recognizes his liability and his obligation changes from natural to civil.