Dear Attorney,

I became a guarantor for a loan, and now the borrower cannot pay it back. What legal issues might I face as the guarantor, and is there a chance that the lender will go after me? Could you explain my rights and liabilities as a guarantor?

Sincerely,
Concerned Guarantor

Insights

In the Philippines, a guarantor is someone who guarantees the payment of a loan or obligation if the principal debtor (borrower) fails to fulfill their obligation. This legal concept is known as "guarantee" or "suretyship" under the Civil Code of the Philippines.

A guarantor and a surety are both responsible for a borrower’s debts, but their responsibilities differ. A guarantor's liability arises only after the creditor has exhausted all legal means to collect from the borrower. In contrast, a surety is solidarily liable with the principal debtor, meaning the creditor may demand payment directly from the surety without going after the borrower first.

Guarantor’s Liability

Under Philippine law, a guarantor’s liability is secondary and conditional upon the default of the principal debtor. This means that before a guarantor can be held liable, the lender must first:

Exhaust legal actions against the borrower: The creditor must attempt to recover the debt by suing the borrower and proving that the borrower has no remaining assets or capacity to pay.
Notify the guarantor of default: The guarantor should be informed of the borrower’s failure to fulfill their obligation.

Rights of the Guarantor

As a guarantor, you are entitled to certain protections:

Exhaustion: You can assert the "benefit of excussion," which means that the creditor must exhaust the debtor's assets before pursuing you.
Subrogation: If you pay the loan, you are entitled to seek reimbursement from the principal debtor. This allows you to step into the shoes of the creditor and recover the debt from the borrower.
Release from guarantee: If there is a significant change in the terms of the loan without your consent, you may be released from your obligation.

Conclusion

A guarantor’s role comes with significant legal responsibilities but also protections. While you may be held liable if the borrower defaults, the law ensures that you are not immediately pursued without due process. It is advisable to seek legal counsel to understand your obligations fully and explore your options.