C Corp. entered into a contract with D, Inc. for the construction of the latter’s production warehouse. In consideration thereof, D, Inc. was obliged to pay C Corp. the amount of ₱50,000,000.00 within a period of one (1) month from the time of the project’s completion. To secure the payment of the said sum, D, Inc. entered into a surety agreement with S Company.
After more than a month from the completion date of the project, C Corp. remained unpaid. Claiming that it was suffering from serious financial reverses, D, Inc. asked C Corp. for an extension of three (3) months to pay the ₱50,000,000.00 it still owed, to which C Corp. agreed. However, after more than three (3) months, D, Inc. still refused to pay. Hence, C Corp. proceeded to collect the above sum from the surety, S Company.
For its part, S Company refused the claim and raised the defense that the extension of time granted by C Corp. to D, Inc. without its consent released it from liability.
(a) Will the defense of S Company against the claim bold water? Explain. (3%)
(b) Assuming that S Company instead refused the claim on the ground that C Corp. has yet to exhaust D, Inc.’s property to satisfy the claim before proceeding against it, will this defense prosper? Explain. (2%)
Suggested answer only. Not an official answer and not legal advice.
(a) Yes, S Company's defense of extension holds water. (b) No, S Company's defense of excussion will not prosper. Under Article 2079 of the Civil Code, an extension granted to the debtor by the creditor without
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Quick check
Under Article 2079 of the Civil Code, what is the legal effect when a creditor grants an extension of time to the principal debtor without the consent of the surety?
Under Article 2079, an extension granted to the debtor by the creditor without the surety's consent extinguishes the suretyship.
Why does an unconsented extension of time release a surety under Article 2079 of the Civil Code?
An unconsented extension prejudices the surety by altering the original contract terms and delaying subrogation rights.
Does a surety enjoy the benefit of excussion under Philippine civil law?
A surety is solidarily liable under Article 2047 and is excluded from the benefit of excussion under Article 2059(2).
What is the principal distinction between a guarantor and a surety regarding liability?
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Why was S Company released from liability to C Corp., but unable to raise the defense of excussion?
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Learn more about these topics
1. Unconsented Extension Effect
Under Article 2079 of the Civil Code, an extension granted to the principal debtor by the creditor without the consent of the guarantor or surety extinguishes the guaranty or suretyship. The rationale is that the extension alters the original obligation and deprives the surety of the right to pay the creditor upon maturity and immediately seek reimbursement from the principal debtor. Consequently, an unconsented extension granted by the creditor releases the surety from liability.
2. Benefit of Excussion
Under Article 2059, paragraph 2, in relation to Article 2047 of the Civil Code, the benefit of excussion—which requires the creditor to exhaust all properties of the principal debtor before proceeding against the guarantor—does not apply to a surety. A surety binds himself solidarily with the principal debtor, making his liability direct, primary, and absolute. Thus, a surety cannot compel the creditor to first execute against the principal debtor's assets before demanding payment.
3. Guaranty Versus Suretyship
While both guaranty and suretyship are accessory contracts securing a principal obligation, they differ fundamentally in the nature of liability and available defenses. A guarantor is secondarily liable and enjoys the benefit of excussion unless waived or excluded by law. In contrast, a surety is solidarily liable with the principal debtor and cannot claim excussion. However, both guarantors and sureties are released from liability under Article 2079 when the creditor grants an extension of time to the debtor without their consent.