TITLE XV. GUARANTY ARTICLE 2047-2084.NATURE AND EXTENT- GUARANTY:

I. Characteristics of a guaranty:

1.) accessory: because it is dependent for its existence upon the principal obligation2.) subsidiary & conditional3.) unilateral

Also take note on the nature of the undertaking of a Surety:

1.) Direct2.) Immediate3.) Absolute4.) Primary

In other words we cal also say that it is soldiery in nature. Nevertheless, distinguish or dont forget the distinction between a solidary co-debtor and a surety. Again, in the cases that we have discussed we had pointed out the distinctions between these two different circumstances.

Also, we have mentioned the distinctions between a contract of guaranty and suretyship, always take not these distinctions to be able to point out whether the contract involves a guaranty or a suretyship because it is relevant especially on the discussion on credit exhaustion.

Art. 2048. A guaranty is gratuitous, unless there is a stipulation to the contrary.

Under 2048 we have already discussed that a guaranty is a gratuitous contract unless there is a stipulation to the contrary. Now, if there is no cause or consideration in the institution of the suretyship or guaranty then the consideration will be the same as that of the principal obligation.

Art. 2049. A married woman may guarantee an obligation without the husbands consent, but shall not thereby bind the conjugal partnership, except in cases provided by law.

Article 2049, just take note when a married woman enters into a contract of guaranty.

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.

So the effect is beneficial reimbursement or subrogation, when is there subrogation or when is there beneficial reimbursement only.

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 guarantor, with the latters consent, or without his knowledge, or even his objection.

So here we have the different kinds of guaranty. We have a double guaranty or sub guaranty or one constituted to guarantee the obligation of the guarantor. 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.

A very important provision is Article 2053.

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. conditional obligation may also be secured.

Q: What is a continuing guaranty or suretyship?A: (inaudible) It is one which is not limited to a single transaction but which contemplates a future course of dealings, covering a series of transactions generally for an indefinite time or until revoked. It covers all transactions including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof.

ATOK vs CAQ: Who is the principal debtor here?A: Sanyu Chemical Corporation.

Q: Do we have a contract of guaranty or suretyship?A: A contract of suretyship.

Q: Why?A: Because

Q: Who is the creditor?A: the creditor is Atok Finance.Q: How did Sanyu Chemical try to pay off Atok? What happened in November 1981?A: Sanyu Chemical Corporation assigned three receivables to Atok Finance as payment for their obligation.Q: Why did it assign to Atok Finance?A: Because it cannot pay for the obligation.Maam: Because here with the assignment it gives Atok Finance the right to collect from the debtors of Sanyu Chemical. So the proceeds to be collected will be applied to the obligation to pay to Atok Finance. However, they were not able to collect. That is why they were going against the sureties of Sanyu Chemical.Q: So are the sureties here liable?A: Yes, they are liable.Q: Now when was the obligation or the contract if loan perfected?A: It was perfected at the time of the agreement itself.

Q: What is the ruling of the court that there is no consideration for that continuing suretyship agreement?A: The SC held in the wise, Surety agreements may secure future debts.It is true that a guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." This legal proposition is not, however, like most legal principles, to be read in an absolute and literal manner and carried to the limit of its logic.Future debts, even if the amount is not yet known, may be guaranteed but there can be no claim against the guarantor until the amount of the debt is ascertained or fixed or demandable.Rationale: a contract of guaranty is subsidiary

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.Here the SC explained the nature of a continuing surety in this wise: Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice.

A bank or financing company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; which such surety agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor.

Q: Now how was this suretyship agreement one of a suretyship agreement? What was provided in the agreement?

Q: Now how was this suretyship agreement one of a suretyship agreement? What was provided in the agreement?

A:The terms any indebtedness of the Principal now or hereafter held by the Surety is hereby subordinated to the indebtedness of the Principal to the Creditor; and if the Creditor so requests, such indebtedness of the Principal of the Surety shall be collected, enforced and shall be paid over to the Creditor and shall be paid over to the Creditor and shall be paid over to the Creditor on account of the indebtedness of the Principal to the Creditor but without reducing or affecting in any manner the liability of the Surety under the provisions of this suretyship.

For valuable and/or other consideration . . ., jointly and severally unconditionally guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor), the full, faithful and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] . . . (hereinafter called Principal) to the Creditor. The word "indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Principal or any one or more of them, here[to]fore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether direct or acquired by the Creditor by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined and whether the Principal may be may be liable individually of jointly with others, or whether recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, or whether such indebtedness may be or otherwise become unenforceable.

This document is for INTELLIGENT TRANSCRIBERS WHO ARE NOT DULL AND LAZY.