I signed as a guarantor in the loan obtained by my friend. Can I be compelled by the creditor to pay for the debt of my friend even if I did not receive any centavo from the proceeds of the loan?
By signing as a guarantor, you have bound yourself to the creditor to fulfil the obligation of the principal debtor in case the latter should fail to do so (Article 2047, Civil Code of the Philippines). Nevertheless, you cannot be compelled by the creditor to pay the debt of your friend unless he has exhausted all the properties of the principal debtor and has resorted to all the legal remedies against the debtor. This is called the benefit of excussion (Article 2058, Ibid.). However, this benefit shall not apply in the following instances: 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 than an execution on the property of the principal debtor would not result in the satisfaction of the obligation (Article 2059, Ibid).
To set up the benefit of excussion, you must set it up against the creditor upon the latter’s demand for payment from him, and point out to the creditor an available property of the debtor within the Philippine territory, sufficient to cover the amount of the debt (Article 2060, Ibid.). However, if you are compelled to pay the debt of your friend either because the benefit of excussion is not available or if the properties of the principal debtor are not enough to cover the obligation, you shall be subrogated to all the rights of the creditor and shall have the right to indemnify you of whatever you have paid to his creditor. The indemnity that may be paid to you shall comprise the following: 1) the total amount of the debt; 2) the legal interest 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 has been demanded of him; 4) damages, if they are due (Article 2066, id.).
We hope that we were able to answer your query. Please be reminded that this advice is based solely on the facts that you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.
Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to email@example.com