Secured vs Unsecured Transactions

(a) Secured transactions or contracts of real security.—Those supported by a collateral or

an encumbrance of property.
(b) Unsecured transactions or contracts of personal security. — Those the fulfillment of
which by the principal debtor is secured or supported only by a promise to pay or the
personal commitment of another such as a guarantor or surety.
Elements of Bailment
Consent, Subject Matter, Consideration
Kinds of Loan
Commodatum- The bailor or lender delivers to the bailee or borrower a non- consumable thing
so that the latter may use it for a certain time and return the identical thing
Simple Loan or Mutuum- Where the lender delivers to the borrower money or other consumable
thing upon the condition that the latter shall pay the same account of the same kind and quality

Commodatum vs Mutuum

Mutuum: Commodatum:
1. Equivalent amount to be returned 1. Same thing to be returned

2. May be gratuitous or onerous 2. Essentially gratuitous

3. Ownership goes to borrower or bailee 3. Ownership retained by lender or bailor

4. Refers to personal property only 4. May involve real and personal property

5. Referred to as loan for consumption 5. Referred to as loan for use or temporary

possession

6. Borrower, because of his ownership, bears risks 6. Lender, because of his ownership, bears
of loss risk of loss

7. Can be generally obliged to pay only at end of 7. While generally obliged to return object at
period end of period, still in some cases the return
can be demanded even before the end of the
period

8. Personal in character
8. Not personal in character
Validity of a promise to Lend.
It does not mean that a promise to lend would be without efficacy and judicial value.
An ACCEPTED promise to make future loan is a consensual contract and therefore, binding
upon the parties but is ONLY after delivery will the REAL CONTRACT of loan arise.

Extinguishment of Commodatum
May be extinguished by death of either the bailor or the bailee
Ownership in Commodatum
bailor has the right to demand the thing at will if:
1. he has urgent need, demand the return or its temporary use (art. 1946)
2. (art. 1947) PRECARIUM: (1) if neither the duration or the use of thing has beenstipulated; (2)
if the use of the thing is by mere tolerance of the owner
>essentially gratuitous (art. 1933)

OBLIGATIONS OF THE BAILOR

1. The primary obligation of the bailor is to allow the bailee the use of the thing loaned
for the duration of the period stipulated or until the accomplishment of the purpose for
which the commodatum was constituted
a. However, the lender may demand its return or
temporary use if he has the urgent need of the
thing or if the borrower commits an act of ingratitude
2. PRECARIUM: a kind of commodatum where the bailor may demand the thing at will. In this
kind of commodatum, the lender may demand at will the return of thing under the
following circumstances:
a. If neither the duration of the contract nor the use
to which the thing loaned should be devoted, has been stipulated; or
b. If the use of the thing is merely tolerated by the owner.
c. the law recognizes the urgency as well as it is gratuitous.
d. Take note that in precarium, there is no stipulated period or the use is merely tolerated
3. He may demand the immediate return of the thing if the bailee commits any act of
ingratitude
a. If the bailee should commit some offenses against the person, honor or the property of the
bailor, or
of his wife, and children under his parental authority
b. If the bailee imputes to the bailor any criminal offense or any act involving moral
turpitude, even
though he should prove it, unless the crime or act
has been committed against himself, his wife and
children under his authority
c. If the bailee unduly refuses the bailor support when the bailee is legally or morally
bound to give
support
4. He has the obligation to refund extraordinary expenses for the preservation of the thing
loaned—it is him who profits from the said expenses anyway.
a. As a rule, notice is required because it is possible
that the bailor may not want to incur the
extraordinary expenses at all
b. An exception of course is where there is urgency that the reply to the notification
cannot be awaited without danger
c. you have to determine if its ordinary or extraordinary
d. why would you advance for the
extraordinary expenses when you can return the
thing and make the lender pay for the expenses?
5. Regarding, extraordinary expenses arising from the actual use of the thing, the division of
liability between the bailor and bailee is 50-50. This is the default rule but the parties may
stipulate for a different apportionment.
6. For expenses other than ordinary expenses and expenses for the preservation and use of
the thing, the bailor is not liable for the same.
7. He is liable to the bailee for damages in case he has
knowledge of flaws of the thing loaned, and he didn't advise the bailee of the same
a. There is flaw or defect in the thing loaned
b. The flaw or defect is hidden
c. The bailor is aware thereof
d. He doesn't advise the bailee of the same
e. The bailee suffers damages by reason of the said flaw or defect
8. He cannot excuse himself from liability for any expense or damages by abandoning the
thing to the bailee

OBLIGATIONS OF THE BAILEE

1. The bailee is liable for ordinary expenses—the borrower should defray the expenses for
the use and preservation of the thing loaned for after all, he acquires the use of the same
and he is supposed to return the identical thing
2. The borrower must take good care of the thing with the diligence of a good father of a
family (due diligence)
3. Generally, the borrower would not be liable for the loss of a thing due to a fortuitous event
but he would be liable in case of the following circumstances:
a. If he devotes the thing to any purpose different from that for which it has been loaned;
b. If he keeps it longer than the period stipulated, or after the accomplishment of the use for
which the commodatum has been constituted;
c. If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation
exemption the bailee from responsibility in case of a fortuitous event;
d. If he lends or leases the thing to a third person, who is not a member of his
household;
e. If, being able to save either the thing borrowed or his own thing, he chose to save the
latter. (JPSP: should be considered as an exemption. This is
actually based on ingratitude. Nonetheless, this provision tends to control one’s instinct
for
self-preservation)
4. The bailee is not liable for the deterioration of the thing loaned due only to the use
thereof and without his fault
5. He cannot retain the thing loaned on the ground that the bailor owes him something, even
though it may be for the reason of expenses. He can have the right to retain
though for damages as mentioned in Article 1951—“The bailor who, knowing the flaws of
the thing loaned, does not
advise the bailee of the same, shall be liable to the latter for the damages which he may suffer
by reason thereof”.
6. When there are two or more bailees to whom a thing is
loaned in the same contract, they are liable solidarily to the bailor
a. To safeguard effectively the rights of the lender
b. Law presumes that the bailor takes into account
the personal integrity and responsibility of all the
bailees and that, therefore, he would not have
constituted the commodatum is there were only one liable

Precarium vs Ordinary
Precarium is a kind of commodatum where the bailor may demand the thing at will.
It is presumed that the use of the thing has been granted subject to the revocation by the bailor
AT ANY TIME, whether or not the use for which the thing has been loaned has been
accomplished.

In contrast, in ordinary commodatum, the possession of the bailee is more secure for he has the
right to retain the thing loaned UNTIL THE EXPIRATION OF THE PERIOD AGREED UPON,
OR THE ACCOMPLISHMENT OF THE USE FOR WHICH THE COMMODATUM HAS BEEN
CONSTITUTED.

Acts of Ingratitude
(1) If the bailee should commit some offenses against the person, the honor or the property
of the bailor, or of his wife or children under his parental authority;
(2) If the bailee imputes to the bailor any criminal offense, or any act involving moral
turpitude, even though he should prove it, unless the crime or the act has been
committed against the bailee himself, his wife or children under his authority; and
(3) If the bailee unduly refuses the bailor support when the bailee is legally or morally bound
to give support to the bailor

Rules on Expenses
Ordinary Expenses
- Article 1933, 1935, 1941, 1943
Extraordinary Expenses
 - Article 1949
Other Expenses
- Article 1950

Mutuum, Obligations of Borrower

- Bound to pay the creditor an equal amount of the same kind and quality
- Article 1249-1250
Fungible vs Consumable
Fungible- If the intention is to allow a substitution of the thing given
Consumable- A movable which cannot be used in a manner appropriate to its nature without its
being consumed.

Extinguishment of Mutuum
Payment to the creditor of an equal amount of the same kind and quality

Risk of loss and deterioration in mutuum

In a contact of mutuum, the risk of loss and deterioration of the thing is born by the bailor
because the ownership thereof was transfered to the bailee, unless the bailee acted in bad faith.

Loan terminologies
Commodatum. — where the bailor (lender) delivers to the bailee (borrower) a non-consumable
thing so that the latter may use it for a certain time and return the identical thing;

Parties in bailment.
The parties to a bailment are the:
(1) Bailor — the giver; the party who delivers the possession or custody of the thing bailed; and
(2) Bailee — the recipient; the party who receives the possession or custody of the thing thus
delivered.

Simple loan or mutuum. — where the lender delivers to the borrower money or other
consumable thing upon the condition that the latter shall pay the same amount of the same kind
and
quality.
-Simple loan or mutuum is a contract whereby one of the parties delivers to another money or
other consumable thing with the understanding that the same amount of the same kind
and quality shall be paid.(Art. 1933.)
It involves the return of the equivalent only and not the identical thing because the borrower
acquires ownership thereof.
(see Art. 1978.) A loan of money, however, may be payable in kind. (see Art. 1958.)

A thing is consumable when it is consumed when used in a manner appropriate to its purpose
or nature

Fungible things, are those which are usually dealt with by number, weight, or measure such as
rice, oil, sugar, etc. so that any given unit or portion is treated as the equivalent of any other
unit or portion.
whether a thing is consumable or not depends upon its nature and whether it is fungible or not
depends upon
the intention of the parties. Thus, while wine is consumable by its nature, it is non-fungible if the
intention is merely for display or exhibition (see Art. 1936.) because the same wine must be
returned.

Rules on Interest
ART. 1956. No interest shall be due unless it has been expressly stipulated in writing.
WHEN CAN THE CREDITOR COLLECT INTEREST?
Requisites for recovery of interest
1. The payment of interest must be expressly stipulated
2. The agreement must be in writing.
3. The interest must be lawful.
However, in the absence of stipulated interest, there can be legal interest pursuant to Article
2209 of the Civil Code. In other words, interest may be paid either as compensation for the use
of money (monetary interest) referred to in Article 1956 or imposed by law or by courts as
penalty or indemnity for damages (compensatory interest) under Articles 2209 and 2212 for
breach of contractual obligations.

Exceptions to Article 1956

Liability for interest even in the absence of stipulation:
1. Indemnity for damages. — The debtor in delay is liable to pay legal interest (6%/12%) as
indemnity for damages even in the absence of stipulation for the payment of interest.
2. Interest accruing from unpaid interest. — Interest due shall earn interest from the time it is
judicially demanded although the obligation may be silent upon this point.

WHEN CAN’T THE CREDITOR COLLECT?

-ART. 1956. No interest shall be due unless it has been expressly stipulated in writing.
-No interest is due where there was tender of payment prior to any demand to pay or perform an
agreed act.

Interest vs Surcharge Penalty

Payment of interest is often referred to as cost of money.
A penalty stipulation is not preclusive of interest.
The two being distinct concepts, such may be demanded separately.

Rules on usurious interest

With the suspension of the Usury Law and the removal of interest ceilings, the parties are
generally free to stipulate the interest rates to be imposed on monetary obligations. As a rule, the
interest rate agreed by the creditor and the debtor is binding upon them. This rule, however, is
not absolute.

In a recent case, the SC again dealt with the validity of interest agreed by the parties, stating that:

Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper
interest rates when necessary. In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case. What may be iniquitous
and unconscionable in one case, may be just in another.

Principal purpose of deposit:

The principal purpose of deposit is the safekeeping of the thing delivered but it does not mean
that the depositary can never use it. He can, in two instances:
A. With express permission of the depositor
B. When the preservation of the thing deposited requires its use

Extinguishment of Deposit
A deposit is extinguished:
a) upon the loss or deterioration of the thing deposited;
b) upon death of either the depositor or the depositary, only in gratuitous deposits;
C) other cause, e.g. Return of thing, novation, expiration of the term, fulfillment of resolutory
condition.

The distinctions between deposit and commodatum are as follows:

1) As to purpose:
Deposit: Safekeeping
Commodatum: Transfer of the use
2) As to nature:
Deposit: may be gratuitous
Commodatum: essentially and always gratuitous
3) As to object:
Extrajudicial deposit: movable or corporeal thing
Commodatum: movable and immovable property
Kinds of Deposit
1. Judicial- When an attachment or seizure of property in litigation is ordered
2. Extrajudicial
a. Voluntary- made by the will of the depositor
b. Necessary
i. Made in compliance with a legal obligation
ii. On the occasion of a calamity
iii. Made by travellers in hotels and inns
iv. Made by travellers with common carriers
Rules when parties are incapacitated
When depositor is incapacitated
- The depositary is subject to all of the obligations of the obligations of a depositary. The
depositary may be compelled to return the thing by the guardian, or administrator of the
depositor, or by the depositor himself if he could acquire capacity
When depositary is incapacitated
- Depositor has the action to recover while still in the possession if the depositary
- Or compel the payment of the amount by which the depositary may have enriched or
beneited himself.
- If a third person who acquired the thing acted in bad faith, the depositor may bring an
action against him for its recovery

Obligations and rights of the depositor/depositary

Obligations of the Depositary

1. Obligation to keep the thing deposited and return it

2. Obligation not to transfer deposit.
3. Obligation not to change way of deposit
4. Obligation to collect interest on choses in action deposited.
5. Obligation not to commingle things deposited if so stipulated.
6. Obligation not to make use of thing deposited unless authorized.
7. Obligation to return products, accessories, and accessions.
8. Obligation to pay interest on sums converted to personal use.

RIGHTS

1. Right of depositary to return thing deposited

2. Right of retention

Obligations of the Depositor

1. Obligation to pay expenses of preservation
2. Obligation to pay losses incurred due to character of thing deposited.
RIGHTS
1. Right to demand the the return of the thing deposited

RIGHT OF TWO OR MORE DEPOSITORS

1. Thing deposited divisible and depositors not solidary—if the thing deposited is divisible and
there are two or more depositors who are not solidary, each one can demand only his
proportionate share thereto
2. Obligation solidary or thing deposited not divisible—if the obligation is solidary or the thing is
not divisible, the rules on active solidarity shall apply, to the effect that each one of the solidary
depositors may do whatever may be useful to the others but not anything which may be
prejudicial to the latter, and the depositary may return the thing to any one of the solidary
depositors unless a demand for its return has been made by one of them in which case delivery
should be made to him
3. Return to one of depositors stipulated—if by stipulation the thing should be returned to one of
the depositors, the depositary is bound to return it only to the person designated although he
has not made any demand for its return.

Art. 1986. If the depositor should lose his capacity to contract after having made the deposit, the
thing cannot be returned except to the persons who may have the administration of his property
and rights. (1773)

Safety Deposit vs Deposit

D- The depositary holding certificates, bonds, securities, or instruments which earn
interest shall be bound to collect such interest when it becomes due and shall take necessary
steps in order that the securities may preserve their value
SD- The depositary or owner of the boxes has no such duty
Deposit vs Mutuum
-Principal Purpose
D- Safekeeping of the thing
M- Use or consumption
-Use
D- Generally, depositary cannot use
M- Borrower uses or consumes
-Ownership
D- Ownership is retained by the depositor
M- Ownership is transferred to the bailee
Obligation
 D- To return the thing
M- To pay the creditor an equal amount of the same kind and quantity

Commingling
General Rule – The depositary may commingle grain or other articles of the same kind and
quality, in which case the various depositors shall own or have a proportionate interest in the
mass
Exc. I there is a stipulation to the contrary

Irregular deposit distinguished from mutuum

a. In an irregular deposit, the consumable thing deposited may be demanded at will by the
irregular depositor, while in mutuum, the lender is bound to respect the time agreed
upon by the parties.
b. In an irregular deposit, the only benefit is that which accrues to the depositor, while in
mutuum, the essential cause for the transaction is the necessity of the borrower.
c. The depositor in an irregular deposit has preference over other creditors with respect to
the thing deposited, while common creditors enjoy no preference in the distribution of the
debtor's property

When the thing deposited is closed and sealed

Obligations of the depositary
a. Return the thing deposited when delivered closed and sealed, in the same condition
b. Pay for damages should the seal or lock be broken through his fault (presumed)
c. Keep the secret of the deposit when the seal or lock is broken, with or without his fault
When depositary is justified to open
a. When it becomes necessary, the depositary is presumed authorized if the key has been
delivered to him
b. When the instructions of the depositor as regards the deposit cannot be executed
without opening the box or receptacle

When is deposit necessary?

1. When it is made in compliance with a legal obligation
2. When it takes place on the occasion of any calamity such as fire, storm, flood, pillage,
shipwreck, or other similar events.
3. The deposit of effects made by travellers in hotels or inns
4. Deposit made with common carriers

Judicial vs Extrajudicial Deposit

Extrajudicial Judicial
Origin Will of the parties Will of the court
Status There is a contract No contract
Purpose Safekeeping for the depositor Guarantee the right of the
plaintiff in case of a
favourable judgment
Cause Gratuitous Onerous
Subject Matter Only movable property Either movable or immovable
In whose behalf it is held In behalf of the depositor In behalf of the winner

Classification of Guaranty:
1. In the Broad sense:
a. Personal - the guaranty is the credit given by the person who guarantees the fulfilment of the
principal obligation.
b. Real - the guaranty is the property, movable or immovable.
2. As to its Origin
a. Conventional - agreed upon by the parties.
b. Legal - one imposed by virtue of a provision of a law.
c. Judicial - one which is required by a court to guarantee the eventual right of one of the parties
in a case.
3. As to Consideration
a. Gratuitous - the guarantor does not receive any price or remuneration for acting as such.
b. Onerous - the guarantor receives valuable consideration.
4. As to the Person guaranteed
a. Single - one constituted solely to guarantee or secure performance by the debtor of the
principal obligation.
b. Double or sub-guaranty - one constituted to secure the fulfilment by the guarantor of a prior
guaranty.
5. As to Scope and Extent
a. Definite - the guaranty is limited to the principal obligation only, or to a specific portion
thereof.
b. Indefinite or simple - one which not only includes the principal obligation but also all its
accessories including judicial costs

Unenforceable, Voidable, Mutual, Future, Pure, Conditional application of guaranty

A guaranty cannot exist without a valid obligation. Nevertheless, a guaranty may be constituted
to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee
a natural obligation. (Article 2052)
A guaranty may also be given as security for future debts, the amount of which is not yet known;
there can be no claim against the guarantor until the debt is liquidated. A conditional obligation
may also be secured.

Conditions in guaranty?
It takes effect only when the principal debtor fails in his obligation, subject to limitation.
Note: The guarantor cannot bind himself for more than the principal debtor and even if he does,
his liability shall be reduced to the limits of that of the debtor, but a guarantor may bind himself
for less than that of the principal

Statue of Frauds
Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority
or legal representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers and person on whose account the sale is made, it is a sufficient
memorandum;

(e) An agreement of the leasing for a longer period than one year, or for the sale of real property
or of an interest therein;

(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.
Strictissism Juris
The strictest letter of the law. A process in which the rule of process shall be applied strictly or a
document interpreted strictly.
A guaranty is strictly construed. It has to be strictly interpreted against the creditor and in favor
of the guarantor and isn’t to be extended beyond its terms or specified limits.
The rule of strictissimi juris commonly refers to an accommodation party.
An accommodation surety acts without motive of pecuniary gain and hence, should
be protected against unjust pecuniary impoverishment by
imposing on the principal duties akin to those of a fiduciary.
Take note further that this rule only applies once it is established that the contract is one of
suretyship
or guaranty.

Extent of guarantor's liability

1. DEFINITE GUARANTY—limited in whole or in part to the principal debt, to the exclusion of
the accessories.
If the amount to be paid or the service to be performed by the person guaranteed is specified in
a contract of guaranty, then the obligation of the guarantor extends no further than the sum or
services so specified, and extrinsic facts cannot be resorted to for the purpose of enlarging the
limit if the guarantor was ignorant of such facts.
2. INDEFINITE GUARANTY OR SIMPLE GUARANTY—it shall compromise not only the
principal obligation, but also all its accessories, including the judicial costs, provided with
respect to the latter, that the guarantor shall only be liable for those costs incurred after he has
been judicially required to pay.
Reason: the guarantor in entering into the contract could have fixed the limits of his
responsibility solely to the strict terms of the principal obligation and if he didn’t do so, it must be
presumed that he wanted to be bound to the extent so established
ART. 2065. Should there be several guarantors of only one debtor and for the same debt, the
obligation to answer for the same is divided among all. The creditor cannot claim from the
guarantors except the shares which they are respectively bound to pay, unless solidarity has
been expressly stipulated. The benefit of division against the co-guarantors ceases in the same
cases and for the same reasons as the benefit of excussion against the principal debtor. (1837)
- Extent of liability of several guarantors. — Their liability is only joint, that is, the obligation to
answer for the debt is divided among all of them. (see Art. 1208.) Therefore, the guarantors are
not liable to the creditor beyond the shares which they are respectively bound to pay unless,
solidary liability is stipulated

Qualification of Guarantor
1. Integrity
2. Capacity to bind himself
3. Sufficient property to answer for the obligation which he guarantees
Benefit of Excussion (Article 2058)
The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the
property of the debtor, and has resorted to all the legal remedies against the debtor. A guarantor
has the right to demand exhaustion of the debtor's assets

Exceptions to the benefit of Excussion (RSIAE)

1. If the guarantor has expressly renounced it
2. If he has bound himself solidarily
3. In case of insolvency of the debtor
4. When he has absconded, or cannot be sued within the Philippines. Unless he has left a
manager or representative
5. If it may be presumed that an execution on the property of the principal debtor would not
result in the satisfaction of the obligation.

Joint vs Solidary Guarantor

If Joint, The creditor cannot claim from the guarantors except the shares which they are
respectively bound to pay. But if solidary has been expressly stipulated the creditor can demand
from any of the guarantors for the whole amount of the obligation being guaranteed.

Rule on Repeat Payment

General Rule: Before the guarantor pays the creditor, he must first notify the debtor. If he fails to
give such notice and the debtor repeats the payment, the guarantor's only remedy is to collect
from the creditor, but he has no cause of action against the debtor for the return of the amount
paid by him (guarantor) even if the creditor should become insolvent. Being at fault for not
advising the debtor, the guarantor must bear loss.
EXCEPTION--- HOWEVER, the guarantor may still claim reimbursement from the debtor in
spite of lack of notice if the following conditions are present:
a. creditor becomes insolvent;
b. guarantor was prevented by fortuitous event to advise the debtor of the payment; and
c. the guaranty is gratuitous.

Article 2066 vs Article 2071

In article 2066, the guarantor must be indemnified after he pays for the debtor, while in article
2071, in enumerates the instances when the guarantor, even before paying, may proceed
against the principal debtor.
Article 2066 enumerates what comprises the indemnity to be paid by the debtor to the
guarantor. While Article 2071 enumerates the instances when the guarantor can proceed
against the debtor even before paying for the debt.

EXTINGUISHMENT OF GUARANTY
(Art. 2076)
Guaranty being accessory and subsidiary, it is also terminated when the principal obligation is
extinguished.
(NOTE: The causes of extinguishment of obligations, in general, it will be recalled are: payment
or performance, loss of the thing due, condonation or remission of debt, confusion or merger of
rights of the creditor and debtor, compensation, and novation.)
The guaranty itself may be directly extinguished although the principal obligation still remains
such as in the case of the release of the guarantor made by the creditor.

Material Alteration of the Principal Contract

Effect of material alterations
- It is fundamental in the law on suretyship that any agreement between the creditor and
the principal debtor which essentially varies the terms of the use of the principal contract
without the consent of the surety, will release the surety from liability
- It is based on the rule that such material alteration would constitute a novation or change
of the principal contract which is consequently extinguished. Upon such extinguishment,
the accessory contract to guaranty is also terminated and the guarantor cannot be held
liable on the new contact to which he has not given his consent.
- However, the increase without the guarantor’s consent does not release the guarantor
where the creditor is only demanding the original rate
When is an alteration material?

- There must be a change that imposes new obligations or added a burden on the part or
the promising party or which takes away some obligation already imposed, changing the
legal effect of the original contract and not merely the form thereof.
- The guarantor or surety will not be released by a change in the principal contract where
such change does not have the effect of making its obligation more onerous