Short answer. Yes. Article 1280 lets a guarantor set up compensation for what the creditor owes the principal debtor, even though the guarantor is not personally owed that money. If the creditor owes the main debtor an amount, you can raise that as an offset to reduce or extinguish what you are being sued for.
What the law says
the guarantor may set up compensation as regards what the creditor may owe the principal debtor
Civil Code, Article 1280 — Guarantor's Right to Set Up Compensation. Read the full provision →
You can raise the debtor's own offset
Article 1280 gives a guarantor a defense that would not normally be available to a third party. It states that the guarantor may set up compensation as regards what the creditor may owe the principal debtor. Ordinarily, compensation, or set-off, only works between two people who are creditors and debtors of each other directly. As a guarantor, you are not personally owed anything by the creditor suing you, yet the law lets you invoke the principal debtor's own claim against that creditor to reduce or wipe out what you owe as guarantor.
Why this exception exists for guarantors
A guarantor's obligation is meant to be subsidiary and tied to the principal debt, and generally cannot be enforced beyond what the principal debtor actually owes. If the creditor independently owes the principal debtor money, letting the creditor still collect the full guaranteed amount from you, while ignoring what the creditor itself owes the main debtor, would let the creditor recover more than it is truly entitled to net of its own obligations. This provision keeps that imbalance from being used against the guarantor.
What has to be true for it to apply
For this defense to work, the debt the creditor owes has to run to the principal debtor, not to some unrelated third person, and the underlying requirements for compensation between the creditor and the principal debtor generally still need to be met, such as both obligations being due and consisting of things of the same kind. You are not creating a brand-new right to compensation of your own; you are relying on one that already exists between the creditor and the debtor you guaranteed, and using it defensively against the suit filed against you.
What to do if you are being sued as guarantor
If you are a guarantor facing collection and you know or suspect the creditor owes the principal debtor money on some other transaction, that is a defense worth raising rather than assuming your only options are to pay in full or dispute the underlying debt itself. Gathering documentation of what the creditor owes the principal debtor, and how much, is central to being able to invoke this compensation defense effectively in the case against you.
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.
- Bank of the Philippines vs. Central Bank of the Philippines (Now Bangko Sentral ng, G.R. No. 197593, October 12, 2020 — read the decision on LawPhil →
- Heirs of Tranquilino Labiste, et al. vs. Heirs of Jose Labiste, et al, G.R. No. 162033, May 8, 2009 — read the decision on LawPhil →