Filipinos have a habit of borrowing money that it seems to be part of our culture. Perhaps because Filipinos are naturally reckless when it comes to spending. Payday comes and after paying our monthly bills, we treat what remains of our salary as “free” money that we get to spend on things that we want, and not necessarily on things that we need.
Which is why lending companies are quite popular in the Philippines. Most lending companies require the principal borrower to have a guarantor, to guarantee the payment of the loan or mortgage. And in my practice, I have encountered countless people asking for help regarding their liabilities as loan guarantors.
The word “guarantor” in a loan is actually often misused. We mistakenly define a guarantor as someone who promises to pay for the loan in the event that the principal borrower fails to pay for whatever reason.
Article 2058 of the Civil Code of the Philippines provides for the legal obligation of a guarantor in that “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 legal remedies against the debtor”.
A guarantor’s liability, in the true sense, is only secondary to the principal borrower. The creditor must first exhaust all the property of the debtor and must resort to all legal remedies against the debtor before attempting to collect from the guarantor. If the creditor fails to perform these conditions precedent, he cannot collect from the guarantor.
In most loan contracts, we see the wordings “That I/We ____________ and _______________ promise to pay jointly and severally (or solidarily) ….”. And then at the bottom, the principal borrower and the guarantor signs the document.
In this case, where one is referred to as a “guarantor” but signs a document where he is made to promise to pay “jointly” or “severally” or “solidarily”, then the creditor may go after the guarantor without the need to exhaust all the property of the debtor or exhaust legal remedies against the debtor.
In legal terms, this is properly called a contract of suretyship and not that of a guarantee.
Let us remember that in the interpretation of contracts, what controls the terms and conditions are its contents and the intention of the contracting parties, regardless of the title given to the contract or to the signatories.
This rule applies to “co-makers”, “co-signors” or “co-debtors” which are sometimes used interchangeably.
But there is a way to avoid all these confusion. Filipinos should start taking charge of their spending habits. Spend only on things that we need and not on things that we want. Make saving money a habit and a part of our lifestyle. Putting money in the bank is a better way of rewarding ourselves for our hard work, than say, buying an iPhone. Just sayin’.
