Dear PAO,

My sister executed and delivered a promissory note to one of her creditors where she undertook to pay her loan amounting to P500,000 within three months. Her creditor prepared a surety agreement and made me sign the same as a security for the payment of the loan before releasing the money. My sister failed to pay her loan due to business losses. Thereafter, I was informed by my sister’s creditor that, as a surety, I am equally liable to pay for the outstanding loan of my sister. Is my sister’s creditor correct in saying that I am equally liable like a principal debtor when I merely signed the surety agreement? I will wait for your answer. Thank you.

Richmond

Dear Richmond,

To answer your question, we shall refer to the provisions of the New Civil Code of the Philippines, 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 a case, the contract is called a suretyship.

Article 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.” (Emphases supplied)

The Supreme Court, in the case of Rosalina Carodan vs China Banking Corp. (GR 210542, Feb. 24, 2016; Ponente: Chief Justice Maria Lourdes P.A. Sereno) discussed that:

“A surety binds himself to perform if the principal does not, without regard to his ability to do so. xxx xxx xxx 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. xxx

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. xxx

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. 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.” (Emphases Supplied; citations omitted).

Thus, the creditor of your sister was correct when he/she asserted that you are liable to pay the outstanding debt of your sister because you signed a surety agreement. Taking the aforementioned laws and jurisprudence into consideration, as a surety, you bound yourself to be liable like a principal debtor for your sister’s loan if she fails to pay the same when it becomes due and demandable. As it turns out, she did fail to pay her outstanding debt when it became due, and so your obligation to pay for her loan arose. We hope that we were able to answer your queries. This advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.