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Section 3. Definition of Terms. - 3.1. "Securities" are shares, participation or interests in a corporation or
in a commercial enterprise or profit-making venture and evidenced by a certificate, contract,
instruments, whether written or electronic in character. It includes:

(a) Shares of stocks, bonds, debentures, notes, evidences of indebtedness, asset-backed securities;

(b) Investment contracts, certificates of interest or participation in a profit sharing agreement, certifies
of deposit for a future subscription;

(c) Fractional undivided interests in oil, gas or other mineral rights;

(d) Derivatives like option and warrants;

(e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or
similar instruments

(f) Proprietary or nonproprietary membership certificates in corporations; and

(g) Other instruments as may in the future be determined by the Commission.

Sec. 4

(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or
his assets.

(jj) Secured claim shall refer to a claim that is secured by a lien.

(kk) Secured creditor shall refer to a creditor with a secured claim.

(ll) Secured party shall refer to a secured creditor or the agent or representative of such secured
creditor.

(pp) Unsecured claim shall refer to a claim that is not secured by a lien.

(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.

(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or personal property that
legality entities a creditor to resort to said property for payment of the claim or debt secured by such
lien.

Contract Of Suretyship Vs. Contract Of Guaranty

A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor
shall pay. Stated differently, a surety promises to pay the principal's debt if the principal will not pay,
while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against
the guarantor if the principal is unable to pay.

A surety binds himself to perform if the principal does not, without regard to his ability to do so. A
guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to
do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the
principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the
debt cannot be made out of the principal debtor.

Simply put, 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.

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 thereby.

On 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.

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. [see Carodan vs. China Banking Corporation, G.R. No. 210542, February 24, 2016]

A guarantor can be made answerable for the entire obligation but his liability is not immediate. 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 known as the
benefit of excussion. (Art. 2058, 2059, Civil Code)

Like a guarantor, a surety can likewise be made to answer for the entire obligation of the principal
debtor. 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. 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.
Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same
manner and by the same periods and conditions. (1140)

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected. (1144a)

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose which offer to accept.

Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the payment has
been beneficial to the debtor. (1158a)

Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage,
guaranty, or penalty. (1159a)

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of
an interest therein;

(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

Title XV. - GUARANTY

CHAPTER 1 NATURE AND EXTENT OF GUARANTY

Art. 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. (1822a)

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

Art. 2049. A married woman may guarantee an obligation without the husband's consent, but shall not
thereby bind the conjugal partnership, except in cases provided by law. (n)

Art. 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. (n)

Art. 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 other
guarantor, with the latter's consent, or without his knowledge, or even over his objection. (1823)

Art. 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. (1824a)

Art. 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. (1825a)

Art. 2054. A guarantor may bind himself for less, but not for more than the principal debtor, both as
regards the amount and the onerous nature of the conditions.

Should he have bound himself for more, his obligations shall be reduced to the limits of that of the
debtor. (1826)

Art. 2055. A guaranty is not presumed; it must be express and cannot extend to more than what is
stipulated therein.
If it be simple or indefinite, it shall compromise not only the principal obligation, but also all its
accessories, including the judicial costs, provided with respect to the latter, that the guarantor shall only
be liable for those costs incurred after he has been judicially required to pay. (1827a)

Art. 2056. One who is obliged to furnish a guarantor shall present a person who possesses integrity,
capacity to bind himself, and sufficient property to answer for the obligation which he guarantees. The
guarantor shall be subject to the jurisdiction of the court of the place where this obligation is to be
complied with. (1828a)

Art. 2057. If the guarantor should be convicted in first instance of a crime involving dishonesty or should
become insolvent, the creditor may demand another who has all the qualifications required in the
preceding article. The case is excepted where the creditor has required and stipulated that a specified
person should be the guarantor. (1829a)

CHAPTER 2

EFFECTS OF GUARANTY

SECTION 1. - Effects of Guaranty

Between the Guarantor and the Creditor

Art. 2058. The 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. (1830a)

Art. 2059. The excussion shall not take place:

(1) If the guarantor has expressly renounced it;

(2) If he has bound himself solidarily with the debtor;

(3) In case of insolvency of the debtor;

(4) When he has absconded, or cannot be sued within the Philippines unless he has left a manager or
representative;

(5) If it may be presumed that an execution on the property of the principal debtor would not result in
the satisfaction of the obligation. (1831a)

Art. 2060. In order that the guarantor may make use of the benefit of exclusion, he must set it up
against the creditor upon the latter's demand for payment from him, and point out to the creditor
available property of the debtor within Philippine territory, sufficient to cover the amount of the debt.
(1832)

Art. 2061. The guarantor having fulfilled all the conditions required in the preceding article, the creditor
who is negligent in exhausting the property pointed out shall suffer the loss, to the extent of said
property, for the insolvency of the debtor resulting from such negligence. (1833a)
Art. 2062. In every action by the creditor, which must be against the principal debtor alone, except in
the cases mentioned in Article 2059, the former shall ask the court to notify the guarantor of the action.
The guarantor may appear so that he may, if he so desire, set up such defenses as are granted him by
law. The benefit of excussion mentioned in Article 2058 shall always be unimpaired, even if judgment
should be rendered against the principal debtor and the guarantor in case of appearance by the latter.
(1834a)

Art. 2063. A compromise between the creditor and the principal debtor benefits the guarantor but does
not prejudice him. That which is entered into between the guarantor and the creditor benefits but does
not prejudice the principal debtor. (1835a)

Art. 2064. The guarantor of a guarantor shall enjoy the benefit of excussion, both with respect to the
guarantor and to the principal debtor. (1836)

Art. 2065. Should there be several guarantors of only one debtor and for the same debt, the obligation
to answer for the same is divided among all. The creditor cannot claim from the guarantors except the
shares which they are respectively bound to pay, unless solidarity has been expressly stipulated.

The benefit of division against the co-guarantors ceases in the same cases and for the same reasons as
the benefit of excussion against the principal debtor. (1837)

SECTION 2. - Effects of Guaranty

Between the Debtor and the Guarantor

Art. 2066. The guarantor who pays for a debtor must be indemnified by the latter.

The indemnity comprises:

(1) The total amount of the debt;

(2) The legal interests thereon from the time the payment was made known to the debtor, even though
it did not earn interest for the creditor;

(3) The expenses incurred by the guarantor after having notified the debtor that payment had been
demanded of him;

(4) Damages, if they are due. (1838a)

Art. 2067. The guarantor who pays is subrogated by virtue thereof to all the rights which the creditor
had against the debtor.

If the guarantor has compromised with the creditor, he cannot demand of the debtor more than what
he has really paid. (1839)
Art. 2068. If the guarantor should pay without notifying the debtor, the latter may enforce against him
all the defenses which he could have set up against the creditor at the time the payment was made.
(1840)

Art. 2069. If the debt was for a period and the guarantor paid it before it became due, he cannot
demand reimbursement of the debtor until the expiration of the period unless the payment has been
ratified by the debtor. (1841a)

Art. 2070. If the guarantor has paid without notifying the debtor, and the latter not being aware of the
payment, repeats the payment, the former has no remedy whatever against the debtor, but only against
the creditor. Nevertheless, in case of a gratuitous guaranty, if the guarantor was prevented by a
fortuitous event from advising the debtor of the payment, and the creditor becomes insolvent, the
debtor shall reimburse the guarantor for the amount paid. (1842a)

Art. 2071. The guarantor, even before having paid, may proceed against the principal debtor:

(1) When he is sued for the payment;

(2) In case of insolvency of the principal debtor;

(3) When the debtor has bound himself to relieve him from the guaranty within a specified period, and
this period has expired;

(4) When the debt has become demandable, by reason of the expiration of the period for payment;

(5) After the lapse of ten years, when the principal obligation has no fixed period for its maturity, unless
it be of such nature that it cannot be extinguished except within a period longer than ten years;

(6) If there are reasonable grounds to fear that the principal debtor intends to abscond;

(7) If the principal debtor is in imminent danger of becoming insolvent.

In all these cases, the action of the guarantor is to obtain release from the guaranty, or to demand a
security that shall protect him from any proceedings by the creditor and from the danger of insolvency
of the debtor. (1834a)

Art. 2072. If one, at the request of another, becomes a guarantor for the debt of a third person who is
not present, the guarantor who satisfies the debt may sue either the person so requesting or the debtor
for reimbursement. (n)

SECTION 3. - Effects of Guaranty as Between Co-Guarantors

Art. 2073. When there are two or more guarantors of the same debtor and for the same debt, the one
among them who has paid may demand of each of the others the share which is proportionally owing
from him.
If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer,
in the same proportion.

The provisions of this article shall not be applicable, unless the payment has been made by virtue of a
judicial demand or unless the principal debtor is insolvent. (1844a)

Art. 2074. In the case of the preceding article, the co-guarantors may set up against the one who paid,
the same defenses which would have pertained to the principal debtor against the creditor, and which
are not purely personal to the debtor. (1845)

Art. 2075. A sub-guarantor, in case of the insolvency of the guarantor for whom he bound himself, is
responsible to the co-guarantors in the same terms as the guarantor. (1846)

CHAPTER 3

EXTINGUISHMENT OF GUARANTY

Art. 2076. The obligation of the guarantor is extinguished at the same time as that of the debtor, and for
the same causes as all other obligations. (1847)

Art. 2077. If the creditor voluntarily accepts immovable or other property in payment of the debt, even
if he should afterwards lose the same through eviction, the guarantor is released. (1849)

Art. 2078. A release made by the creditor in favor of one of the guarantors, without the consent of the
others, benefits all to the extent of the share of the guarantor to whom it has been granted. (1850)

Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty. The mere failure on the part of the creditor to demand payment after the
debt has become due does not of itself constitute any extention of time referred to herein. (1851a)

Art. 2080. The guarantors, even though they be solidary, are released from their obligation whenever by
some act of the creditor they cannot be subrogated to the rights, mortgages, and preference of the
latter. (1852)

Art. 2081. The guarantor may set up against the creditor all the defenses which pertain to the principal
debtor and are inherent in the debt; but not those that are personal to the debtor. (1853)

CHAPTER 4

LEGAL AND JUDICIAL BONDS

Art. 2082. The bondsman who is to be offered in virtue of a provision of law or of a judicial order shall
have the qualifications prescribed in Article 2056 and in special laws. (1854a)
Art. 2083. If the person bound to give a bond in the cases of the preceding article, should not be able to
do so, a pledge or mortgage considered sufficient to cover his obligation shall be admitted in lieu
thereof. (1855)

Art. 2084. A judicial bondsman cannot demand the exhaustion of the property of the principal debtor.

A sub-surety in the same case, cannot demand the exhaustion of the property of the debtor of the
surety.