NATURE OF A SURETY’S UNDERTAKING

Category: Obligations and Contracts

1.   CONTRACTUAL    AND    ACCESSORY    BUT    DIRECT—The contractual obligation of the surety is merely an accessory or  collateral  to  the  obligation  contracted  by  the  principal.  BUT,  his  liability  to  the  creditor  is  direct,  primary,  and absolute. 

2.   LIABILITY IS LIMITED BY THE TERMS OF THE CONTRACT—The extent of a surety’s liability is determined only by the terms   of   the   contract   and   cannot   be   extended   by implication. 

3.   LIABILITY  ARISES  ONLY  IF  PRINCIPAL  DEBTOR  IS  HELD LIABLE—If  the  principal  debtor  and  the  surety  are  held liable, their liability to pay the creditor would be  solidary.  But, the surety does not incur liability unless and until the principal debtor is held liable. 
a.    A  surety  is  bound  by  a  judgment  against  the principal even though the party was not a party to
the proceedings. 
b.   The  creditor  may  sue,  separately  or  together,  the principal  debtor  and  the  surety  (since  they  are solidarily bound).
c.    Generally,  a  demand  or  notice  of  default  is  not required to fix the surety’s liability. 
d.   An   accommodation   party   (one   who   signs   an instrument as maker, drawer, acceptor, or indorser
without  consideration  and  only  for  the  purpose  of lending his name) is, in effect, a surety.  He is thus
liable to pay the holder of the instrument, subject to reimbursement from the accommodated party.

e.    A  surety  bond  is  void  where  there  is  no  principal debtor. 

4.   SURETY  IS  NOT  ENTITLED  TO  EXHAUSTION—A  surety  is not  entitled  to  the  exhaustion  of  the  properties  of  the principal  debtor  since  the  surety  assumes  a  solidary liability for the fulfillment of the principal obligation. 

5.   THE  UNDERTAKING  IS  TO  THE  CREDITOR,  NOT  TO  THE PRINCIPAL  DEBTOR—The  debtor  cannot  claim  that  the surety  breached  its  obligation  to  pay  for  the  principal obligation  because  there  is  no  obligation  as  between  the surety  and  the  debtor.    If  the  surety  does  not  pay,  the
principal debtor is still not relieved of his obligation. 

6.   SURETY   NOT   ENTITLED   TO   NOTICE   OF   PRINCIPAL’S DEFAULT—the  surety  is  bound  to  take  notice  of  the principal’s default to perform the obligation

7.   PRIOR DEMAND BY THE CREDITOR UPON  PRINCIPAL NOT REQUIRED—the right of the creditor to proceed against the surety  alone  exists  independently  of  his  right  to  proceed against  the  principal  where  both  surety  and  principal  are equally bound

8.   SURETY  IS  NOT  EXONERATED  BY  NEGLECT  OF  ANOTHER TO SUE PRINCIPAL—mere want of diligence or forbearance doesn’t  affect  the  creditor’s  rights  vis-à-vis  the  surety, unless the surety requires him by appropriate notice to sue on  the  obligation.    The  raison  d’etre  for  the  rule  is  that
there  is  nothing  to  prevent  the  creditor  from  proceeding against the principal at any time