Can I guarantee a future debt whose amount is not yet known?

You can guarantee a debt that does not fully exist yet

The article opens the door wide: A guaranty may also be given as security for future debts, the amount of which is not yet known. You do not have to wait until a debt exists and its figure is settled before guaranteeing it. This is what makes continuing guaranties possible — the sort a bank takes to secure whatever a borrower may come to owe on a credit line, or a supplier takes for a running account. At the moment you sign, the ultimate amount may be nothing, or it may grow over months of dealings. The guaranty attaches to those future obligations as they arise, even though nobody can yet name the total.

The safeguard: no claim until the debt is liquidated

The obvious worry — that you have signed a blank cheque — is answered in the same breath. There can be no claim against the guarantor until the debt is liquidated. Liquidated means the amount has been definitely ascertained: the account closed, the sum computed, the figure no longer in dispute as to quantity. Until that happens, the creditor cannot demand payment from you, because there is as yet no fixed sum to demand. So while your exposure is open-ended in advance, it is not enforceable against you as an indeterminate claim; it crystallises into a demand only once the debt has an actual, settled amount.

Conditional obligations too

The article adds that A conditional obligation may also be secured. A debt that depends on a future and uncertain event — one that may or may not become due at all — can equally be the subject of a guaranty. The guarantor's liability then tracks the condition: it becomes real if and when the condition is fulfilled and the principal obligation takes effect, and it does not if the condition fails. This rounds out the picture that a guaranty is not confined to a present, fixed, unconditional debt; it can stand behind obligations that are future, unquantified, or contingent, with the guarantor's duty maturing only as the principal debt itself does.

What to watch when signing a continuing guaranty

The practical caution is that a guaranty of future debts can be far larger than it looks on the day you sign. Because it may cover obligations not yet incurred, the questions to settle before signing are its limits: is there a maximum amount, a defined class of debts covered, an end date, and a right to withdraw as to future advances. A guaranty with no ceiling and no term can follow you across years of the debtor's dealings. Article 2053 gives you the protection that nothing is collectible until liquidated, but it does not cap the eventual figure — that is for the wording of the guaranty to do.

Cases citing this provision

These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.

• Mario C. Tan and Erlinda S. Tan vs. United Coconut Planters Bank, G.R. No. 213156, July 29, 2019 — read the decision on LawPhil →
• Mariano Lim vs Security Bank Corporation, G.R. No. 188539, March 12, 2014 — read the decision on LawPhil →
• Philippine Charity Sweepstakes Office (PCSO) vs. New Dagupan Metro Gas Corporation, et al, G.R. No. 173171, July 11, 2012 — read the decision on LawPhil →
• Bank of Commerce and Stephen Z. Taala vs. Spouses Andres and Eliza Flores, G.R. No. 174006, December 8, 2010 — read the decision on LawPhil →

Related provisions

• Civil Code, Article 2053 — Guaranty of Future Debts