Suretyship: Meaning
Quick answer
A suretyship is a contract in which a person, the surety, binds himself solidarily with the principal debtor to pay the debt. Because the liability is solidary, the creditor may collect the whole debt from the surety without first going after the debtor. In Palmares v. Court of Appeals (1998), a co-maker who signed a loan as "jointly and severally" liable was held to be a surety. The rule is in Article 2047 of the Civil Code.
Also called: Surety, Co-maker, Solidary guarantor
What does Article 2047 say?
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.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.
The section the article refers to contains the rules on solidary obligations. See Article 2047.
How is a surety different from a guarantor?
In Palmares v. Court of Appeals (1998), the Supreme Court explained: "A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay."
The practical difference is the benefit of excussion. A 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" (Article 2058). But under Article 2059(2), there is no excussion if the guarantor "has bound himself solidarily with the debtor". A surety therefore has no such benefit.
Can the creditor go straight to the surety?
Yes. Article 1216 says "The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously." In Palmares, the Court said: "The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone."
Does the label in the contract matter?
Not by itself. Article 1207 says solidary liability exists "only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." So the wording counts. In Trade and Investment Development Corporation of the Philippines v. Philippine Veterans Bank (2019), a party called a "guarantor" had waived the benefit of excussion and agreed to directly shoulder the debt. The Court held it solidarily liable and said: "The determination of whether an obligation is a suretyship is not a matter of nomenclature and semantics."
Article 2055 also says a guaranty "is not presumed; it must be express and cannot extend to more than what is stipulated therein."
Example
Made-up illustration: Nestor signs his friend's promissory note as "co-maker" and the note says both of them are "jointly and severally liable". The friend stops paying. Under Article 1216 and the Palmares ruling, the lender may demand the whole unpaid amount from Nestor without first suing the friend. If instead Nestor had signed only as a guarantor, with no solidary wording and no waiver of excussion, he could ask the lender to go first against the friend's property (Articles 2058 and 2060), unless one of the exceptions in Article 2059 applies, such as the friend's insolvency. See Are you liable as co-maker?.
See also the comparison guarantor vs surety.
Which provisions use this term?
Frequently asked questions
What is a surety?
A surety is a person who binds himself solidarily with the principal debtor. Under Article 2047 of the Civil Code, such a contract is called a suretyship. In Palmares v. Court of Appeals (1998), the Supreme Court said a surety is an insurer of the debt.
What is the difference between a surety and a guarantor?
In Palmares (1998), the Court said a surety is an insurer of the debt, while a guarantor is an insurer of the solvency of the debtor. A guarantor generally cannot be made to pay until the creditor has exhausted the debtor's property (Article 2058); a surety can be asked to pay at once.
Is a co-maker a surety?
Often, depending on the wording. In Palmares, a co-maker who signed as jointly and severally or solidarily liable was held to be a surety.
Can the lender collect from the surety without suing the borrower?
Yes, if the obligation is solidary. Article 1216 says the creditor may proceed against any one of the solidary debtors or all of them at once, and Palmares applied this to a surety.
Does the name used in the contract decide it?
No. In TIDCORP v. Philippine Veterans Bank (2019), the Court said whether an obligation is a suretyship is not a matter of nomenclature and semantics. A guarantor who waived excussion and agreed to directly shoulder the debt was held solidarily liable.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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