Commercial Law: Guaranty — Extinguishment of Guaranty (Arts. 2076-2081)

TITLE XV

GUARANTY

CHAPTER 3

Extinguishment of Guaranty

Art. 2076. 

The obligation of the guarantor is extinguished 

at the same time as that of the debtor, 

and for the same causes as all other obligations.

Causes of extinguishment of guaranty.

• Guaranty being accessory and subsidiary, it is also terminated when the principal obligation is extinguished.
•  The causes of extinguishment of obligations, in general, it will be recalled, are: 
1. payment or performance;
2. loss of the thing due;
3. condonation or remission of the debt;
4. confusion or merger of the rights of the creditor and debtor;
5. compensation; and
6. novation.
• Other causes of extinguishment of obligations are:
• annulment
• rescission
• fulfillment of a resolutory condition
• prescription.
• Death of the principal is not a defense a surety can use to wipe out its monetary obligation under a performance bond. 
• The obligation is merely passed on to the decedent’s estate. 
• A surety’s liability to the creditor or promisee of the principal is direct and primary like the principal. 
• 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 principal contract.

1. Effect of material alteration.
• It is fundamental in the law of suretyship that any agreement between the creditor and the principal debtor which essentially varies the terms 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 contract to which he has not given his consent. 
2. When alteration material.
• In short, 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.
• There must be change which imposes new obligation or added burden on the party promising or which takes away some obligation already imposed, changing the legal effect of the original contract and not merely the form thereof. 
• Thus, a novation releases the guarantor who did not give consent thereto, where:
• National Bank vs. Veraguth, 50 Phil. 253 [1927]:
• the credit of P40,000.00 is increased by an additional P30,000.00; 
• Barretto y Cia vs. Albo, 62 Phil. 593 [1935]:
• where the principal debtor is substituted ;
• Asiatic Petroleum vs. Hizon, 45 Phil. 532 [1923]:
• where the agency to sell granted to the debtor is extended to places other than that covered by the contract of agency. 
• Phil. National Bank vs. Court of Appeals, 147 SCRA 273 [1987]:
• The increase in the amount of loan from P40,200 to P56,800 without the knowledge and consent of the surety was held material and prejudicial to the surety although its ability was limited to P10,000 because “the increase in the amount of the debt proportionately decreased the probability of the principal debtor being able to liquidate the debt, thus, increasing the risk undertaken by the surety to answer for the failure of the debtor to pay.” 
• National Bank vs. Escueta, 50 Phil. 991 [1927]:
• It has been held, however, that the increase in the interest rates without the guarantor’s consent does not release the guarantor where the creditor is demanding only the original and not the increased rate of interest. 
• Phil. National Bank vs. Macapanga Producers, Inc., 99 Phil. 180 [1956]:
• An assignment by the creditor without the knowledge or consent of the surety is not a material alteration of the contract sufficient to discharge the surety. 
• NASSCO vs. Torrento, 20 SCRA 427 [1967]:
•  A change in the technical specifications of the items to be purchased (diameter of the steel bars), but their amount, length and quality remained unchanged, and, the period for payment and the amount of liability of the principal debtor and the surety were also untouched, is not material. 

Art. 2077. 

If the creditor voluntarily accepts immovable 

or other property in payment of the debt, 

even if he should afterwards lose the same through eviction, 

the guarantor is released.

Release by conveyance of property. 

• Usually, payment is made in money. 
• But any substitute paid in lieu of money which is accepted by the creditor extinguishes the obligation and in consequence, the guaranty. 
•  If the creditor accepts property in payment of a debt from the debtor (Art. 1245.), the guarantor is relieved from responsibility. 
• This is also true even in case the creditor is subsequently evicted from the property. 
• Eviction revives the principal obligation but not the guaranty. 
• The creditor’s action against the debtor is for eviction and this is different from what the guarantor guaranteed.

Art. 2078. 

A release made by the creditor in favor of one of the guarantors, 

without the consent of the others, 

benefits all to the extent of the share of the guarantor 

to whom it has been granted.

Release of guarantor without consent of others. 

• General Rule:
• The guarantors enjoy the benefit of division. 
• Exception:
• However, if any of them should be insolvent all the other guarantors must bear his share. 
• Release:
• A release made by  the creditor in favor of one of the guarantors without the consent of the others may thus prejudice the latter should a guarantor become insolvent.
• Under the above article, the release benefits all to the extent of the share of the guarantor released.
• Example:
• G, H, and I are guarantors for a debt of P9,000.00. 
• If G is released without the consent of H and I, then H and I will each be liable for only P3,000.00 or 1/3. 
• H and I are benefited to the extent of P3,000.00, the share of G. 
• If the release is made with their consent, H and I will each be responsible for P4,500.00 or 1/2.
• If G is released with the consent only of H, H is liable for P6,000.00 and I, for P3,000.00

Art. 2079. 

An extension granted to the debtor by the creditor 

without the consent of the guarantor extinguishes the guaranty. 

The mere failure on the part of the creditor to demand payment 

after the debt has become due 

does not of itself constitute any extension of time referred to herein.

Release by extension of term granted by creditor to debtor. 

1. Where release without consent of guarantor.
• If the creditor grants an extension of time to the debtor without the consent of the guarantor (or surety), the latter is discharged from his undertaking.
• The reason for the rule is the necessity of avoiding prejudice to the guarantor. 
• The debtor (and/or indemnitors) may become insolvent during the extension, thus depriving the guarantor of his right to reimbursement
• The guarantor has the right to pay his creditor and to be immediately subrogated to the creditor’s remedies against the principal debtor upon the maturity date.
1. Prudencio vs. Court of Appeals, 143 SCRA 7 [1986]:
• Payments due to debtor from third persons assigned to creditor. 
• Where a surety signed a promissory note issued by the principal debtor in favor of the creditor because of a deed of assignment whereby the debtor assigned to the creditor all payments to be received by the debtor from the third person, it was held that the approval by the creditor of the release by the third person of three (3) payments directly to the debtor without any notice to the surety was a violation of the deed of assignment. The creditor, in effect, received payments of the said three (3) releases. In approving the third payment after the promissory note became due, the creditor, in effect, extended the term of the payment of the note without the consent of the debtor, an act clearly detrimental to the latter. 
2. Villa vs. Garcia Bosque, 49 Phil. 126 [1926]:
• Where obligation payable in installments.
• Where a guarantor is liable for different payments, such as installments for rents, or upon a series of promissory notes, an extension of time as to one or more will not affect the liability of the surety for the others. 
• Radio Corp. of the Phils. vs. Roa, 62 Phil. 212 [1935]:
• But if the whole unpaid balance has become automatically due (under an acceleration clause) for failure to pay an installment, the act of the creditor of extending the payment of said installment, without the guarantor’s consent, discharges the guarantor because, in this case, the extension constitutes, in fact, an extension of the payment of the whole amount of the indebtedness.
3. People’s Bank & Trust Co. vs. Tambunting, 42 SCRA 119 [1971]:
• Consent to extension waived in advance by guarantor. 
• A guarantor may waive in advance his right to be notified of or to give consent to the release by the creditor of securities given or the extension of the time for payment. 
• Such waiver is not contrary to law, nor to public policy. 
• Tañedo vs. Allied Banking Corporation, 344 SCRA 100 [2002]:
• Thus, where under the terms of the bond executed by a surety company it had agreed to guarantee that a non-immigrant Chinese student “would actually depart from the Philippines on or be  fore April 7, 1958, or within such period as, in his discretion, the Commissioner of Immigration or his authorized representative may properly allow,” this amounts to the surety’s consent to all the extensions granted to the non-immigrant student referred to.
• Similarly, the extensions of loans do not release the surety where the “continuing guarantee’’ executed by the surety provides that he consents and agrees that the bank “may, at any time or from time to time, extend or change the time of payments and/or the manner, place or terms of payment of all such instruments loans, advances, credits, or other obligations guaranteed by the surety.’’
4. JN Dev. Corp. vs. Phil. Export and Foreign Loan Guarantee Corp., 468 SCRA 555 [2005]:
• Payment by guarantor after creditor’s demand. 
• The benefit of excussion, as well as the requirement of consent to extensions of payment are protective devices pertaining to and conferred on the guarantor which the latter may invoke as defenses to bar any unwarranted enforcement of the guarantee. However, the guarantor may opt not to avail of these defenses by paying the obligation according to the tenor of the guarantee once demand is made on him by the creditor. The principal debtor cannot raise against the guarantor defenses which only the guarantor may invoke against the creditor.
5. General Insurance & Surety Corp. vs. Republic, 7 SCRA 4 [1963]:
• Extension not granted by creditor on the bond.
• Where, by the terms of a bond, the surety guaranteed to the Government (Dept. of Education) compliance by a private school “with all its obligations, including the payment of the salaries of its teachers and employees” and an extension of time was granted by the teachers, Article 2079 was held not applicable as the (supposed) extension was not granted by the Government, the creditor on the bond.
6. Cochingyan, Jr. vs. R & B Surety & Ins. Co., Inc., 151 SCRA 339 [1987]:
• Extension granted to first-tier obligors.
• Where under the indemnity agreement, whereby the indemnitors bound themselves jointly and severally to the surety for the faithful compliance with the terms of the surety bond issued by the surety in favor of the creditor to secure a credit line extended  to the principal debtor, the indemnitors remained simply such bound to the surety but not to the creditor. Such creditor cannot directly demand payment of the principal obligations from the indemnitors. 
• Hence, the first sentence of Article 2079 does not apply. 
• The indemnitors are second-tier parties so far as the creditor is concerned and any extension of time granted by the creditor to any of the first-tier obligors (the principal debtor and the surety) cannot prejudice the second-tier parties. 
2.  Prejudice to guarantor and period of extension immaterial.
• It is unimportant whether the extension given has actually proved prejudicial or not to the guarantor or surety. 
• The rule stated in Article 2079 is quite independent of the event. 
• Nor does it matter for how short a period the time of payment may have been extended. 
• The principle is the same whether the time is long or short. 
• The creditor must be in such a situation that when the guarantor or surety comes to be substituted in his place by paying the debt, he may have an immediate right of action against the principal.
• The suspension of the right to sue for a month, or even a day, is as effectual to release the guarantor or surety, as a year or two years. 
3. Extension must be based on a new agreement. 
• The extension of the term must be based on some new agreement between the creditor and the principal debtor by virtue of which the creditor deprives himself of his claim. 
• Hence, the mere failure or neglect on the part of the creditor to enforce payment or to bring an action upon a credit, as soon as the same or any part of it matures, does not constitute an extension of the term of the obligation and, therefore, the liability of the guarantor is not extinguished. 
• The rule applies even if the debtor should become insolvent subsequent to the maturity of the debt. 
• The reason is that the guarantor would not be prejudiced since he could avail himself of the right granted him under Article 2071, namely, to ask the debtor for a release or to demand a security.
4. Diligence on the part of creditor to enforce his claim generally not required. 
• True, that if the creditor had done any act whereby the guaranty was impaired in its value, or discharged, such an act would have wholly or partially released the guarantor or surety.
• But it is a recognized doctrine in the matter of suretyship that with respect to the surety, the creditor is under no obligation to display any diligence in the enforcement of his rights as a creditor.
• The mere inaction, indulgence, passiveness, or delay of the creditor in proceeding against the principal debtor, or the fact that he did not enforce the guaranty or apply on the payment of such funds as were available constitutes no defense at all for the surety, unless the contract expressly requires diligence and promptness on the part of the creditor. 
• The theory that the creditor’s laches may discharge the surety, meaning by laches a negligent forbearance, is not generally accepted.
• The courts almost universally consider it essentially inconsistent with the relation of the parties to the contract. 
• The raison d’etre for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time. 
• At any rate, if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to all the rights and remedies of the creditor. 
• The leniency shown to a debtor in default, by delay permitted by the creditor without change in the time when the debt might be demanded, does not constitute an extension of the time of payment, which would release the surety. (No. 3)
• In order to constitute an extension discharging the surety, it should appear that the extension was for a definite period, pursuant to an enforceable agreement between the principal and the creditor, and that it was made without the consent of the surety or with a reservation of rights with respect to him. 
• The contract must be one which precludes the creditor from, or at least hinders him in, enforcing the principal contract within the period during which he could otherwise have enforced it, and precludes the surety from paying the debt.
5. No cause of action against creditor for delay. 
• The law does not even grant the surety the right to sue the creditor for delay, as protection against the risks of possible insolvency of the debtor; but in view of the efficacy of the action on the contract against the surety, beginning with the date the obligation becomes due, his vigilance must be exercised rather against the principal debtor.

Art. 2080. 

The guarantors, even though they be solidary, 

are released from their obligation 

whenever by some act of the creditor 

they cannot be subrogated to the rights, mortgages, and preference of the latter.

Release when guarantor cannot be subrogated. 

1. Fault of creditor for non-subrogation. 
• The guarantor who pays is entitled to be subrogated to all the rights of the creditor. 
• If there can be no subrogation because of the fault of the creditor, as when the creditor releases or fails to register a mortgage, the guarantors are thereby released. 
• The same rule applies even though the guarantors be solidary. 
• The rule is founded on the principle of law that the act of one cannot prejudice another. 
• It also avoids opportunity for collusion between the creditor and the debtor or a third person.
2. Duty of creditor to account for his lien on principals’ property. 
• Toh vs. Solid Bank Corporation, 408 SCRA 544 [2003]:
• If the creditor has acquired a lien upon the property of a principal, the creditor at once becomes charged with the duty of retaining such security, or maintaining such lien in the interest of the surety, and any release or impairment of this security as a primary resource for the payment of a debt, will discharge the surety to the extent of the value of the property or lien released for there immediately arises a trust relation between the parties, and the creditor as trustee is bound to account to the surety for the value of the security in his hands. 

Art. 2081. 

The guarantor may set up against the creditor 

all the defenses which pertain to the principal debtor 

and are inherent in the debt; 

but not those that are personal to the debtor. 

Defenses available to guarantor against creditor. 

• The defenses available to a debt as against a guarantor are provided in Article 2068, and those available to co-guarantors in Article 2074.  
• Article 2081 provides for the defenses, except those which are purely personal to the debtor, that may be interposed by the guarantor as against the creditor. 
• Inasmuch as the guarantor proceeded against takes the place of the debtor, it would be absurd and unjust to deny him the defenses of the latter because the guarantor who is only subsidiarily liable would be put in a worse position than the debtor, the one principally liable.

Aquino:

1. Extinguishment of Guaranty.

• The guaranty may be extinguished together with the principal obligation or even if the principal obligation subsists in certain cases. 
• Guaranty is extinguished in any of the following cases: SVREA
1. The principal obligation is extinguished for the same causes as all other obligations.
2. If the creditor voluntarily accepts immovable or other property in payment of the debt, even if he should afterwards lose the same through eviction, the guarantor is released.
3. A release made by the creditor in favor of one of the guarantors, without the consent of the others, benefits all to the extent of the share of the guarantor to whom it has been granted.
4. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension of time referred to herein.
5. Whenever by some act of the creditor the guarantor cannot be subrogated to the rights, mortgages, and preference of the latter.
• Death does not extinguish the guaranty or suretyship. 
• Obligations of the decedent is part of the inheritance. 
• However, while the contract of suretyship or guaranty is transmissible, the effect of this is that the same is provable against the estate of the decedent and not personal liabilities of the heirs.

2. Extinguishment of Obligations. 

• If the principal obligation is extinguished the accessory obligation likewise ceases. 
• Extinguishment of an obligation under the New Civil Code may include termination because of full compliance with the obligation, extinction before full compliance or even the end of the obligation which may have been partially complied with.
• The grounds for extinguishment of obligations under Article 1231 and other provisions of the New Civil Code that apply to extinguishment of guaranty are as follows: PLCCCN-ARFPEC
1. Payment or performance; 
2. Loss of the thing due;  
3. Condonation or remission of the debt;
4. Confusion or merger of the rights of creditor and debtor;
5. Compensation; 
6. Novation;
7. Annulment;
8. Rescission; 
9. Fulfillment of a resolutory condition;
10. Prescription;
11. Expiration of a resolutory period; and 
12. Compromise

• Novation.
• Extinctive novation of the principal will also extinguish the accessory obligation. 
• Security Bank and Trust Company, Inc. v. Cuenca, G.R. No. 138544, October 3, 2000:
• The contract of guaranty or suretyship is extinguished if there is material alteration of the principal obligation.
• Country Bankers Insurance Corp. v. Lagman, G.R. No. 165487, July 13, 2011:
• The guaranty or suretyship will not be extinguished:
1. if the guarantor or surety agreed to be bound by any novation or extension or 
2. if the novation is only modificatory.
• Philippine Charter Insurance Corp. v Petroleum Distributors & Service Corp., G.R. No. 138544, October 3, 2000:
• Undoubtedly, a surety is released from its obligation when there is a material alteration of the principal contract in connection with which the bond is given, such as a change: 
• which imposes a new obligation on the promising party, or 
• which takes away some obligations already imposed, or 
• which changes the legal effect of the original contract and not merely its form.
• Sps. Toh v. Solid Bank Corporation, G.R. No. 154183, August 7, 2003:
• It has been said, "if the suretyship contract was made upon the condition that the principal shall furnish the creditor additional security, and the security being furnished under these conditions is afterwards released by the creditor, the surety is wholly discharged, without regard to the value of the securities released, for such a transaction amounts to an alteration of the main contract."
• The Court ruled that there was omission or negligence on the part of respondent Bank in failing to safe-keep the security provided by the marginal deposit and the 25% requirement results in the material alteration of the principal contract, i.e., the "letter-advise," and consequently releases the surety. 
• The Bank's witness even admitted that there was novation of the original obligation.
• Philippine Charter Insurance Corp., v. Petroleum Distributors & Service Corp., G.R. No. 180898, April 18, 2012:
• The Supreme Court ruled that no new contract was concluded and perfected between the parties because the new agreement reveals that the only revision pertains to the work schedule originally agreed upon. 
• The parties saw the need to adjust the work schedule because of the various subcontracting made by one of the parties. 
• In fact, it was specifically stated in the agreement that "all other terms and conditions of the Building Contract of 27 January 1999 not inconsistent herewith shall remain in full force and effect." 
• There was no new contract/agreement which could be considered to have substituted the Building Contract.
• Hence, the surety was not released from its obligation. 

• Increase of Indebtedness.
• The increase in the amount of indebtedness is material and prejudicial to the guarantor. 
• The increase in the amount of the debt proportionally decreased the probability of the principal debtor being able to liquidate the debt, thus increasing the risk undertaken by the surety or guarantor to answer for the failure of the debtor to pay. 
• A material alteration of the principal contract, effected by the creditor and principal debtor without the knowledge and consent of the surety, completely discharges the surety from all liability in the contract of suretyship.

• Extinction of Accessory.
• Extinction of the principal obligation should also be distinguished from the extinguishment of the obligation of the accessory. 
• The obligation of the guarantor or the surety may be extinguished although the principal obligation remains.
• For example, the guaranty or suretyship may be subject to a resolutory period which is shorter than the period of the principal obligation. 
• This may happen, for instance, if the bond is valid only for one year, the surety's liability is limited to the period prior to the expiration date of the bond.

• Dacion En Pago. 
• Dacion en Pago extinguishes the obligation. 
• Article 2077 provides that if the: APER
1. creditor voluntarily accepts immovable or other property 
2. in payment of the debt
3. even if he should afterwards lose the same through eviction
4. the guarantor is released.

• Condonation. 
• The creditor may condone or release the obligation of all or some or one of the guarantors. 
• However, under Article 2071, a release made by the creditor in favor of one of the guarantors, without the consent of the others, benefits all to the extent of the share of the guarantor to whom it has been granted.

CASE: Macondray & Company, Inc. v. Perfecto Pinon, G.R. No. L-13817, August 31, 1961

• One of the arguments of the appellant in the case is that while the said appellant is liable as a guarantor, the films actually sold to the principal debtors were 127 rolls of F.G. release positive type 825 B 35 mm. x 1,000 ft. at P55 a roll, payable on May 9, 1954, but what he undertook to guarantee payment of was 10 rolls negative at P157 each and 100 rolls positive at P55 each, payable within three months ending April 1954. 
• The appellant argued that under the Civil Code, a guaranty cannot extend to more than what is stipulated in the contract; the appellant contends that he cannot be held liable for the contract in view of the variation in his undertaking. 
• The total cost of what was actually sold to and bought by the principal debtors is P6,985, which is less than the total cost of what was originally intended to be bought by them amounting to P7,070. 
• Is the appellant correct? No the appellant is not correct. 
• The variation was merely in kind and not in subject matter — cinematographic films — which did not render the appellant's obligation more burdensome. 
• Instead his obligation was rendered less onerous by the reduction in the original price from P7,070 to P6,985. 
• The fact that in the letter Exhibit F, the appellant mentioned that the principal debtors' obligation would be "payable within three months' time ending April 1954," while in the contract entered into by and between the appellee and the principal debtors they have stipulated that their obligation would be payable on or before May 9, 1964, is of no moment. 
• The letter Exhibit F was dated January 80, 1954. Counted from that date, the three months period would expire on April 1964.  However, actually the principal contract was consummated on February 9, 1964 (Exhibit A). 
• It is but fair that the three month period be counted from that date ending May 9, 1964. Again, the appellants obligation has not become more onerous than what he actually bound himself. 

3. Extension.

• Cochingyan, Jr. v R&B Surety and Insurance Company, Inc. G.R. No. L-47369, June 30, 1987:
• The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the consent of the surety deprives the surety of his right to pay the creditor and to be immediately subrogated to the creditor's remedies against the principal debtor upon the original maturity date. 
• The surety is entitled to protect himself against the principal debtor upon the original maturity date. 
• The surety is entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period.

4. Failure or Delay to Demand.

• "Mere delay or negligence in proceeding against the principal will not discharge a surety unless there is between the creditor and the principal debtor a valid and binding agreement therefor, one which tends to prejudice [the surety] or to deprive it of the power of obtaining indemnity by presenting a legal objection for the time, to the prosecution of an action on the original security."
• For example, the creditor's undertaking "to hold in abeyance any action to enforce its claims" against the surety did not extend the maturity of the surety's obligation under the Surety Bond. 
• This is a situation covered by the second sentence of Article 2079.
• Palmares v. Court of Appeals G.R. No. 126490, March 31, 1998:
• We agree with respondent corporation that its mere failure to immediately sue petitioner on her obligation does not release her from liability. 
• Where a creditor refrains from proceeding against the principal, the surety is not exonerated. 
• In other words, mere want of diligence or forbearance does not affect the creditor's rights vis-a-vis the surety, unless the surety requires him by appropriate notice to sue on the obligation. 
• Such gratuitous indulgence of the principal does not discharge the surety whether given at the principal's request or without it, and whether it is yielded by the creditor through sympathy or from an inclination to favor the principal, or is only the result of passiveness. 
• The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even if such delay continues until the principal becomes insolvent.
• And, in the absence of proof of resultant injury, a surety is not discharged by the creditor's mere statement that the creditor will not look to the surety, or that he need not trouble himself.
• The consequences of the delay, such as the subsequent insolvency of the principal, or the fact that the remedies against the principal may be lost by lapse of time, are immaterial.
• The raison d'être for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time.
• At any rate, if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to all the rights and remedies of the creditor.
• It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the creditor without change in the time when the debt might be demanded, does not constitute an extension of the time of payment, which would release the surety.
• In order to constitute an extension discharging the surety, it should appear that the extension was for a definite period, pursuant to an enforceable agreement between the principal and the creditor, and that it was made without the consent of the surety or with a reservation of rights with respect to him. 
• The contract must be one which precludes the creditor from, or at least hinders him in, enforcing the principal contract within the period during which he could otherwise have enforced it, and which precludes the surety from paying the debt.
• None of these elements are present in the instant case. 
• Verily, the mere fact that respondent corporation gave the principal debtors an extended period of time within which to comply with their obligation did not effectively absolve here in petitioner from the consequences of her undertaking. 
• Besides, the burden is on the surety, herein petitioner, to show that she has been discharged by some act of the creditor, herein respondent corporation, failing in which we cannot grant the relief prayed for.

5. Release for Deprivation of Subrogation. 

• Article 2080 provides that the guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preference of the latter. 
• Sps. Toh v. Solid Bank Corporation, G.R. No. 154183, August 7, 2003:
• This provision was applied in one case where the sureties secured the credit facility worth P10 million in favor of a corporation.
• The Court ruled that the sureties were discharged from their liability because: 
1. the attached properties of the principal were perfunctorily abandoned by respondent Bank although the bonds therefor were considerably reduced by the trial court; 
2. there was unceremonious abandonment and forfeiture of a marginal deposit and partial payment that are unmistakably additional securities intended to protect both the Bank and the sureties in the event that the principal debtor becomes insolvent during the extension period.
• People Bank and Trust Company v. Tambunting, G.R. No. 29666, October 29, 1971:
• However, the contract of absolute guaranty may expressly authorize the obligee to extend the time of payment and to release or surrender any security or part thereof held by it without notice to, or the consent of, the guarantor. 
• The guarantor is thereby consenting in advance to the release of the security. 
• In such case, the guarantor cannot complain that the release of the pledge was without his consent, and that it deprived him of the right to be subrogated to the rights of the creditor. 
• The waiver is not contrary to law, nor is it contrary to public policy. 
• The law does not prohibit the debtor guarantor from agreeing in advance and without notice to the release of any security which had been given to assure payment of the obligation. 
• The waiver is not contrary to public policy, because the right is purely personal, and does not affect public interest nor does it violate any public policy.

6. Compromise.

• It should be noted that Article 2063 provides that a compromise between the creditor and the principal debtor benefits the guarantor but does not prejudice him. 
• Thus, a compromise between the creditor and the principal debtor may result in the termination of the guaranty agreement. 
• Eastern Assurance and Surety Corp. v. Con-Field Construction and Development Corp., G.R. No. 159731, April 22, 2008:
• There was termination of the contract between the principal parties.
• The surety argued that the termination of the contract has the effect of compromise under Article 2063. 
• However, the Court rejected the argument and ruled that the surety was liable. 
• It was noted that the termination was just the unilateral act of the obligor that was guilty of default. 
• Instead of complying with the work schedule, the obligor unilaterally terminated the contract without the consent of the obligee.