Guaranty vs. surety

It is common that the terms guaranty and surety are used interchangeably by layment. The terms are distinct from each other, however, and the distinction is expressly delineated in the Civil Code, to wit:
Article 2047. 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.

Thus, in guaranty, 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 liability of the guarantor is secondary to that of the principal debtor because he "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."[1] In contrast, the surety is solidarily bound to the obligation of the principal debtor.[2]

What properly characterized and defined the undertakings were the contents of the documents and the intention of the parties.[3] In holding that the continuing guaranty executed in E. Zobel, Inc. v. Court of Appeals was a surety instead of a guaranty, the Supreme Court accented the distinctions between them, viz.:

A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay the debt.

Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured therebyOn the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal.

Simply put, 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 while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay.[4] (Italics in the original; emphasis and bold italics supplied.)

[1] Civil Code, Article 2058.

[2] Ang v. Associated Bank, G.R. No. 146511, September 5, 2007, 532 SCRA 244, 274-275.

[3] E. Zobel, Inc. v. Court of Appeals, G.R. No. 113931, May 6, 1998, 290 SCRA 1, 10, with the Court pointing out: "The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty. Authorities recognize that the word "guarantee" is frequently employed in business transactions to describe not the security of the debt but an intention to be bound by a primary or independent obligation. As aptly observed by the trial court, the interpretation of a contract is not limited to the title alone but to the contents and intention of the parties."

[4] Id. at 6-7.

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