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Guaranty and suretyship: what is the difference?

In the Trade and Investment Development Corporation of the Philippines also known as Philippine Export-Import Credit Agency v. Philippine Veterans Bank, GR 233850, July 1, 2019, penned by Associate Justice Alfredo Benjamin Caguioa, where the Supreme Court elaborately discussed the nature of guaranty and suretyship, viz.:


"Under a normal contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the debtor. This is what is otherwise known as the benefit of excussion. Conversely, if this benefit of excussion is waived, the guarantor can be directly compelled by the creditor to pay the entire debt even without the exhaustion of the debtor's properties.


"As explained in Spouses Ong v. Philippine Commercial International Bank (Spouses Ong), a surety is one who directly, equally, and absolutely binds himself/herself with the principal debtor for the payment of the debt: ... Thus, a creditor can go directly against the surety although the principal debtor is solvent and is able to pay or no prior demand is made on the principal debtor. A surety is directly, equally and absolutely bound with the principal debtor for the payment of the debt and is deemed as an original promissor and debtor from the beginning. ... As explained in Spouses Ong, one of the defining characteristics of a suretyship contract is that the benefit of excussion is not available to the surety as he is principally liable for the payment of the debt: ...


"There is a sea of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against the properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the principle of excussion. In a suretyship contract, however, the benefit of excussion is not available to the surety as he is principally liable for the payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his obligation."


Accordingly, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and, thus, binds himself to pay if the principal is unable to pay. On the other hand, and in your case, a surety is the insurer of the debt and he/she obligates himself/herself to pay if the principal does not pay, regardless of whether or not the latter is financially capable to fulfill his obligation.


Thus, if you sign as a surety, you will be directly, equally, and absolutely liable to pay the debt of the debtor.


Source: Manila Times

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