Short answer. Yes. You may use the borrower's own credit against the creditor as an offset. Article 1280 provides that the guarantor may set up compensation as regards what the creditor may owe the principal debtor, even though the debt owing to the borrower is not your own.
What the law says
Notwithstanding the provisions of the preceding article, 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 →
A special rule that favors the guarantor
Compensation is the offsetting of two debts when two people are mutually creditor and debtor of each other. Normally a person can only set up a debt that is owed to himself. Article 1280 carves out a deliberate exception for guarantors. It says that notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor. So when the creditor comes after you, you are allowed to raise the fact that the creditor separately owes money to the borrower you guaranteed, and to use that as an offset — even though that credit belongs to the borrower, not to you.
Why the law lets you borrow the debtor's credit
This makes practical sense given how guaranty works. If the creditor already owes the borrower money, it would be pointless to force you to pay the creditor in full only to have the borrower separately collect from that same creditor and then you chase the borrower for reimbursement. Article 1280 short-circuits that round trip. Because your liability is accessory to the borrower's debt, the law lets you invoke the borrower's counter-credit against the creditor directly, sparing everyone a needless series of payments and lawsuits and preventing the creditor from collecting twice over what is really a single net position.
It is one-directional
Notice the direction the article runs. It lets you, the guarantor, set up what the creditor owes the principal debtor. It is not a general licence to mix in unrelated debts. The offset it authorizes is specifically the borrower's credit against this creditor, invoked to reduce or defeat the creditor's claim against you. The rule protects the guarantor's position; it does not, for instance, let the creditor reach into your unrelated dealings. Keeping the direction straight matters, because the special permission is precisely to raise the borrower's credit as your shield when the creditor pursues you.
What still has to be true
This does not dispense with what compensation ordinarily requires. There must genuinely be a debt the creditor owes the principal debtor that is capable of being compensated, and the offset works only to the extent the two amounts actually meet. If the creditor owes the borrower less than what is being claimed from you, the offset reduces your exposure by that amount rather than wiping it out. So the first step is to establish that the creditor really does owe the borrower, and how much; Article 1280 then lets you bring that credit to bear against the creditor's demand on 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 →