What is the difference between a guaranty and a suretyship in the Philippines?

Answer

A guarantor binds himself to pay the creditor only if the principal debtor fails to do so and cannot pay; his liability is subsidiary and secondary, and he is entitled to have the debtor's property exhausted first (the benefit of excussion, Civil Code Article 2058). A surety, by contrast, binds himself solidarily with the principal debtor: his liability is direct, primary, and immediate, and he is not entitled to the benefit of excussion.

What controls is the substance of the undertaking, not its name. A contract denominated a guaranty but in which the party binds himself solidarily with the debtor is legally a suretyship. It is often said that a surety insures the debt itself, while a guarantor insures only the solvency of the debtor.

Sources & further reading

• Civil Code Art. 2047 — guaranty and suretyship
• Civil Code Art. 2058 — benefit of excussion
• Full report: guaranty & suretyship

Cases on this topic

• General Indemnity v. Alvarez
• Higgins v. Sellner
• JN Development Corp. v. PhilGuarantee
• Machetti v. Hospicio de San Jose
• Manila Surety & Fidelity Co. v. Batu Construction
• Palmares v. Court of Appeals
• Tañedo v. Allied Banking Corporation
• Valencia v. Leoncio

Related questions

• What is the benefit of excussion in Philippine law?