56 Phil 185
A litigation ensued between Fabiola (creditor) and Guillermo in relation to inheritance. To end the litigation, Guillermo (debtor) undertook to pay the property of his father in installments where Enrique Echaus is the guarantor. Guillermo failed to pay.
Fabiola instituted an action with CFI/Trial Court of Iloilo to recover from Guillermo and Echaus (guarantor). Trial court favored Fabiola and ruled that execution must first be issued against properties of Guillermo, and the remainder against Enrique (guarantor) if Guillermo’s property does not suffice.
Enrique Echaus’ (guarantor) appealed, asserting that he received no consideration for affixing his signature as guarantor and therefore the contract lacks consideration as to him.
Issue and Ruling
Is consideration in favor of the guarantor necessary to make a contract of guaranty valid? No.
The guarantor is bound by the same consideration as the principal contract. The dismissal of the main suit was the main consideration.
It is immaterial that the principal or his guarantor benefited in order for a contract of guaranty to be valid. The consideration that binds the principal is the same consideration that binds the guarantor. (Pyle vs. Johnson)
When the lawsuit filed by Fabiola was dismissed, it constituted a valuable consideration to support the promise on the part of Guillermo to pay. The promise of Echaus as guarantor is binding, and it is never necessary that the guarantor or surety receive any part of the benefit.
What is the nature of a contract of guarantee? It is a separate contract. It’s not the principal loan or principal contract itself but an accessory to the principal. This means that if there is any issue with the validity of the principal contract, there is no issue. But if there is an issue with the principal, the issue will pass on to the accessory for the latter, as a river, merely flows from the spring.
In general, there must be a consideration for a contract to be valid. But in a contract of guaranty, as far as Echaus is concerned, he said he did not receive any consideration or benefit.
What was missing in this case that may have been overlooked? (1) The principle of excussion or exhaustion. It was not discussed in this case, and it appears that Echaus did not raise it at all. He only raised the issue of consideration; Subsidiary liability. (2) That a contract of guaranty is gratuitous where its consideration is mere liberality of the guarantor. But in this case, the dismissal of the case was ruled to be the consideration. The Court could have gone back to the liberality of Eschaus as the true consideration of the contract of guaranty. In real life, most of the reasons why people consent to be a guarantor is that they are driven by their generosity (liberality/love/friendship) for their family or friends.