BANTILLO, DAWN HOPE A

Question: D owes C P12,000, and the debt is guaranteed by G. Additionally, C owes G

P4,000.
If C demands payment, can D use the defense of compensation for what C owes G?

Answer:
No. Under Art 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor. (1196)

In the case at bar, G is merely a guarantor to what D owes C. He is not principally liable, rather
subsidiary liable, with regard to the obligation of D to C. Hence, the first requirement for a
compensation to be proper was not met which makes D prohibited to use the defense of
compensation for what C owes G for the performance of his obligation.

Question: If G is sued by the creditor, can he set up legal compensation as to the defense
against C, and up to what extent?

Answer:
Yes. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up
compensation as regards what the creditor may owe the principal debtor. The general rule is that
for compensation to operate, the parties must be related reciprocally as principal creditors and
debtors of each other. However, the present Article allows the guarantor to set up compensation
against the creditor.

In the case at bar, G can set up a legal compensation up to P4,000 only since that is the only
amount C owes G.