Title: Understanding the Removal of Co-maker Liability in Philippine Lending Transactions

In the Philippines, the practice of requiring co-makers for loans or credit facilities is longstanding and widespread. Employers, private lenders, banks, and even government financing institutions often require a “co-maker” to guarantee repayment if the principal borrower defaults. In recent years, however, questions have arisen about how a co-maker’s liability can be removed—or whether it can be removed at all—and how Philippine law treats co-makers differently from sureties or guarantors.

This article endeavors to explain the key legal concepts surrounding co-maker liability in the Philippines, the nature of such liability, how it compares to guaranty and suretyship, and the possibilities (if any) for its removal.

1. Definition of a Co-maker

A co-maker is someone who signs a loan (or any credit) agreement alongside the principal borrower, effectively promising to pay the loan should the principal borrower default. In many practical settings—especially with salary loans or small consumer loans—a co-maker’s role is to assure lenders that they will not be left unpaid if the primary borrower fails to meet repayment obligations.

Unlike other forms of security (such as mortgages or pledges), the co-maker mechanism does not require collateral. Rather, it relies on another individual’s personal undertaking. Courts and lenders often treat a co-maker as being jointly or solidarily liable with the principal borrower, depending on the exact wording of the contract.

2. Legal Basis of Co-maker Liability

2.1. Civil Code Provisions on Obligations and Contracts

Under Philippine law, obligations arise from contracts when the elements of consent, object, and cause concur. Once a person signs as a party to a valid contract—whether as a principal obligor, a co-borrower, surety, or guarantor—that person incurs liability in accordance with the terms of the agreement and the pertinent provisions of law.

Article 1159 of the Civil Code states that obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith.
Article 1207 and Article 1208 discuss joint and solidary obligations. The extent of a co-maker’s liability often hinges on whether the obligation is expressly made solidary (i.e., “joint and several”).

2.2. Surety vs. Guaranty vs. Co-maker

In Philippine jurisprudence, the terms “guarantor,” “surety,” and “co-maker” are sometimes used loosely. However, they have distinct legal nuances:

Guaranty: A guarantor is subsidiarily liable. The creditor must first exhaust the properties of the principal debtor before going after the guarantor.
Surety: A surety is solidarily liable with the principal debtor. The creditor can immediately pursue the surety for payment if the principal debtor defaults.
Co-maker: Whether a co-maker is treated as a guarantor or as a surety depends on the specific loan documentation and contractual stipulations. Many loan forms explicitly state that the co-maker is “jointly and severally” (or solidarily) liable with the principal borrower—functionally resembling a suretyship.

2.3. Supreme Court Rulings

Philippine Supreme Court decisions have affirmed that a co-maker who signs an agreement stating “joint and several” or “solidary” liability is bound to pay the debt in full upon default of the principal borrower. The Court has also noted that if contract language is ambiguous, the intention of the parties (as gleaned from the entire contract and circumstances) will guide interpretation. In practice, most standard lending forms treat co-makers as sureties, meaning direct and solidary liability.

3. The Concept of “Removal” of Co-maker Liability

The phrase “removal of co-maker liability” can refer to several possible scenarios:

Contractual Release or Novation
If the lender agrees to release the co-maker from liability—often called a “novation” of the obligation—then the co-maker can be freed from liability. This requires express consent from the creditor and typically is documented in a formal agreement. A simple statement from the borrower or co-maker without the creditor’s consent is not enough to relieve co-maker liability.
Expiration or Full Payment of the Loan
Once the principal obligation is fully settled (whether by the borrower or the co-maker), the liability terminates by operation of law. There is no more debt to be guaranteed, so the co-maker is effectively discharged.
Invalidity or Defect in the Contract
If the co-maker’s signature was obtained through fraud, intimidation, or other legal defect making the contract void or voidable, a co-maker might raise such defenses to avoid liability. However, the burden of proving such defects is substantial.
Policy Changes or Institutional Guidelines
Certain institutions—like government agencies or private companies—may remove the requirement for co-makers in new lending transactions. However, this does not automatically discharge existing co-makers of ongoing loans. It simply means new transactions no longer require or recognize co-maker obligations.
- For instance, some government institutions (e.g., GSIS or SSS for certain loans) have, at times, removed the need for co-makers for new loans. This policy change does not retroactively nullify existing co-maker liabilities.

Is There a “Universal” Law That Removes Co-Maker Liability?

As of this writing, no law in the Philippines categorically abolishes or universally “removes” co-maker liability across all lending transactions. The essential rule remains: if you sign as a co-maker (and the contract stipulates solidary liability), then you are bound by it unless validly released by the creditor or the obligation is fully extinguished.

4. Practical Implications for Borrowers and Co-makers

4.1. Importance of Reading Loan Documents

Prospective co-makers should carefully read the loan contract. If the language says “co-maker is jointly and severally liable,” then be aware you may be immediately liable for the entire amount if the principal borrower fails to pay.

4.2. Negotiating or Avoiding Co-maker Status

Because of the risk, many individuals now refuse to become co-makers unless they fully trust the principal borrower or have a separate arrangement ensuring repayment. If you do not want to assume surety-like liability, you should negotiate the terms with the lender—though in reality, most standard forms in salary loans or consumer credit are non-negotiable.

4.3. Remedies for the Co-maker

If a co-maker pays the debt on behalf of the borrower, the law grants the co-maker (now subrogee) the right to demand reimbursement from the borrower. In other words, the co-maker can sue the principal borrower for the amounts the co-maker was compelled to pay. However, the risk of not actually recovering from the borrower remains high, which is why many are wary of becoming co-makers.

5. Frequently Asked Questions (FAQs)

Is a co-maker automatically a surety?
Not always automatically, but most loan forms in the Philippines phrase co-maker obligations in a manner equivalent to suretyship (“joint and several” liability). You must check the precise wording of the loan contract.
Can I be released as a co-maker if the principal borrower gets a refinancing loan?
It depends on whether there is a novation that expressly releases you from liability or if the refinancing agreement clearly extinguishes the old obligation and creates a completely new one. In many cases, unless expressly stated, your liability may carry over to the renewed or restructured loan.
What if the lender never informed me of the default?
Generally, lack of notice does not automatically relieve you of liability if the contract clearly states you are solidarily liable. However, some co-makers argue that the creditor’s delay or omission in notifying them of default caused prejudice. Successful relief from liability on that basis is uncommon unless there is a contractual stipulation requiring notice.
Does a change of interest rate or payment term remove my liability?
Not usually. Minor alterations or renewals that do not fundamentally change the obligation typically do not release co-makers unless the creditor and the co-maker specifically agree.
Are there any laws or bills specifically abolishing or removing co-maker liability in the Philippines?
None are currently in force. Certain institutional policies for new loans might eliminate the requirement for co-makers, but there is no universal law that nullifies co-maker liability for existing or future debts.

6. Conclusion

In the Philippine lending landscape, co-maker liability remains a potent legal device for creditors to secure repayment. Despite occasional calls to abolish or limit co-maker liability—particularly given the harsh consequences for co-makers—no sweeping legislation currently “removes” it. Where it is recognized, co-makers are generally treated as solidarily liable with the principal borrower, unless the agreement specifies otherwise.

For lenders, the co-maker requirement helps minimize credit risk.
For borrowers, having a willing co-maker can facilitate loan approval but may put personal relationships at risk should default occur.
For co-makers, the ultimate takeaway is: signing as a co-maker is not a mere formality—it imposes potential full liability.

If you are a co-maker seeking to remove or limit your liability, you would need (1) an express release/novation from the creditor, (2) proof of a fundamental defect in the contract, or (3) full settlement of the obligation. In any event, it is always wise to consult a legal professional before entering or attempting to terminate any agreement involving co-maker undertakings.

Disclaimer

This article is for general information only and does not constitute legal advice. For specific questions about co-maker liability, contract interpretation, or other legal matters, it is advisable to consult a qualified attorney in the Philippines.