Subsidiary liability of a guarantor of a loan

Dear PAO, My brother borrowed money from his friend, and I signed the loan agreement as his guarantor. When my brother refused to pay, his friend started collecting the entire loan amount and interest from me. Can the creditor collect the loan from me simply because my brother refused to pay him?

Martha

Dear Martha,

Please be informed that Articles 2058, 2059, and 2062 of Republic Act (RA) 386, otherwise known as the Civil Code of the Philippines, provide:

“Article. 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.

“Article 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.

“Article 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 desires, 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.”

Relatedly, in the case of Aglibot v. Santia, GR 185945, Dec. 5, 2012, through Associate Justice Bienvenido Reyes, the Supreme Court ruled:

“It is settled that the liability of the guarantor is only subsidiary, and all the properties of the principal debtor, the PLCC in this case, MUST fiRST BE EXHAUSTED BEFORE THE GUARANTOR may be held answerable for the debt. Thus, the creditor may hold the guarantor liable only after judgment has been obtained against the principal debtor and the latter is unable to pay, ‘for obviously the ‘exhaustion of the principal’s property’ — the benefit of which the guarantor claims — cannot even begin to take place before judgment has been obtained. This rule is contained in Article 2062 of the Civil Code, which provides that the action brought by the creditor must be filed against the principal debtor alone, except in some instances mentioned in Article 2059 when the action may be brought against both the guarantor and the principal debtor.’” (Emphasis supplied)

Pursuant to the aforementioned provisions of the law and decision of the Supreme Court, save only when any of the circumstances under Article 2059 of the New Civil Code are present, a creditor cannot proceed directly against the guarantor for the payment of the loan incurred by the principal debtor. Before a guarantor can be held liable, it is necessary that all the properties of the debtor have been exhausted and the creditor has taken all possible legal measures to collect against the principal debtor. Only then can the guarantor be held liable for the payment of the loan and by virtue of a court decision.

In your case, if none of the circumstances listed under Article 2059 of the New Civil Code are present, then your brother’s creditor cannot legally demand the payment of the loan directly from you. Said creditor must first exhaust all legal remedies against your brother before he or she can start demanding payment from you.

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 on.