BANKING.docx

If a person binds himself solidarity with the

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the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarity 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. While a surety undertakes to pay if the principal does not pay, the guarantor only binds himself to pay if the principal cannot pay. The former is the insurer of the debt, the latter an insurer of the solvency of the debtor. 41 We further expounded on the nature of a contract of guaranty (vis-a-vis a contract of surety) in E. Zobel, Inc. v. Court of Appeals , 42 thus: 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. Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: 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. (Citations omitted.) There was no express undertaking in Mercado's letters dated August 22, 1996 and January 27, 1997 to pay Bienvenida's debt to GGDI in case Bienvenida failed to do so. In said letters, Mercado merely acknowledged that Bienvenida and/or her company had an approved real estate loan with Allied Bank and guaranteed that subsequent releases from the loan would be made directly to GGDI provided that the certificate of title over the subject property would be transferred to Bienvenida's name and the real estate mortgage constituted on the subject property in favor of Allied Bank would be annotated on the said certificate. Mercado, by the plain language of his letters, merely committed to the manner by which the proceeds of Bienvenida's approved loan from Allied Bank would be released, but did not obligate Allied Bank to be answerable with its own money to GGDI should Bienvenida default on the payment of the purchase price for the subject property. For this reason, Mercado's letters may not be
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