Short answer. Yes. Article 2063 of the Civil Code states: A compromise between the creditor and the principal debtor benefits the guarantor but does not prejudice him. If the settlement reduced the debt, you as guarantor are only liable for the lower, settled amount — not the original figure.
What the law says
A compromise between the creditor and the principal debtor benefits the guarantor but does not prejudice him.
Civil Code, Article 2063 — Compromise and the Guarantor. Read the full provision →
The one-way filter: benefits pass through, burdens do not
Article 2063 creates an asymmetric rule. A compromise between the creditor and the principal debtor can only help the guarantor — it cannot harm him. If the settlement reduces the debt from ₱500,000 to ₱300,000, the guarantor's maximum exposure drops to ₱300,000 as well. But if the settlement somehow increased the obligation or added new conditions, the guarantor would not be bound by those additions. The guarantor was not a party to the compromise; he gets the benefit of any reduction but is shielded from anything that would worsen his position.
Why the rule exists
A guarantor's liability is secondary — it exists only to back the principal debtor's obligation. Under general principles, a guarantor cannot be held to more than the principal debtor himself owes. If the creditor and debtor have agreed that a lesser amount discharges the obligation, it would be illogical — and unjust — to hold the guarantor to the original, larger sum when the debtor is no longer liable for it. The compromise defines the ceiling; the guarantor's exposure cannot exceed what the principal now owes under the settlement.
The reverse situation: guarantor settling with creditor
Article 2063 also governs the mirror situation. If the guarantor settles with the creditor — agreeing to pay a compromised amount to discharge the guaranty — that compromise benefits but does not prejudice the principal debtor. The debtor may take advantage of the settlement (for instance, if the guarantor's payment releases the debt entirely), but the debtor cannot be made worse off by a deal he did not agree to. The guarantor who settles does so at his own risk; he cannot, through his private arrangement, create a new or heavier burden on the principal debtor.
Practical steps if you are a guarantor
If you are a guarantor and learned that the creditor and the debtor have settled, ask for a copy of the compromise or settlement agreement. Examine what the agreed amount is, and what conditions were placed on the debtor. You are entitled to rely on the reduced amount as your maximum exposure. If the creditor later attempts to enforce the original obligation against you — ignoring the compromise — you can raise the settlement as a defense. Keeping track of all communications between the creditor and the principal debtor protects you from being held liable beyond the settled terms.
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.
- Spouses Alfredo and Susana Ong vs. Philippine Commercial International Bank, G.R. No. 160466, January 17, 2005 — read the decision on LawPhil →