Short answer. It depends on how your guaranty is worded. Article 2055 says a guaranty cannot extend beyond what is stipulated. But if it is simple or indefinite, it covers not only the principal obligation but also all its accessories — interest and other charges included — and judicial costs incurred after you are judicially required to pay.
What the law says
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
Civil Code, Article 2055 — Guaranty Is Not Presumed. Read the full provision →
A guaranty is read strictly, but a general one is broad
Article 2055 begins from a protective principle: A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated therein. Nobody becomes a guarantor by implication, and no guarantor is bound beyond the terms actually agreed. But the same article then supplies a default for the common case where the guaranty is written in general terms. If it be simple or indefinite, it shall compromise not only the principal obligation, but also all its accessories. So a plain guaranty of "the loan," without carve-outs, is understood to answer for the whole obligation, not just the bare principal figure.
Interest and charges are 'accessories'
Interest, penalties and similar charges are not the principal debt itself; in law they are accessories that attach to it. Because a simple or indefinite guaranty reaches "all its accessories," these ride along with your guaranty unless your contract says otherwise. That is why guarantors are often surprised: they had the original loan amount in mind, but by the time of default the interest and charges have swelled the total. Under a general guaranty, that larger figure — principal plus its accessories — is what you have undertaken to answer for.
Judicial costs have a special condition
The article singles out judicial costs. A simple or indefinite guaranty includes them, but with a limit: the guarantor is liable only for those costs incurred after he has been judicially required to pay. Costs run up before that point are not laid at your door. This draws a line at the moment you are formally brought into the collection through the courts. Before judicial demand is made on you, the litigation costs are the creditor's or the debtor's concern; only the costs arising after you have been judicially required to pay fall within your guaranty.
How to keep your exposure narrow
Because the broad reading is only a default, you can contract around it. Since a guaranty "cannot extend to more than what is stipulated," a guaranty that expressly limits itself to the principal — or caps the amount, or excludes interest and penalties — is honoured according to those words. The lesson is to read the instrument before signing and to write in any ceiling you intend. If it is silent and general, assume the wider coverage: principal, accessories such as interest and charges, and judicial costs incurred after demand.
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.
- Marjori Tocao and William T. Belo vs. Court of Appeals and Nenita A. Anay, G.R. No. 127405, October 4, 2000 — read the decision on LawPhil →
- Philippine Airlines, Inc. vs PAL Employees Savings & Loan Association, Inc, G.R. No. 201073, February 10, 2016 — read the decision on LawPhil →
- Fideliza J. Aglibot vs. Ingersol L. Santia, G.R. No. 185945, December 5, 2012 — read the decision on LawPhil →
- Spouses Antonio Consing, et al. vs. Court of Appeals, et al, G.R. No. 143584, March 10, 2004 — read the decision on LawPhil →