Isaac Gary Pay Loan Delivery Deliver Compel Immediately

Gary is a tobacco trader and also a lending investor. He sold tobacco leaves to Homer for delivery within a month, although the period for delivery was not guaranteed. Despite Gary's efforts to deliver on time, transportation problems and government red tape hindered his efforts and he could only deliver after 30 days. Homer refused to accept the late delivery and to pay on the ground that the agreed term had not been complied with.  As lending investor, Gary granted a P1,OOO,OOO loan to Isaac to be paid within two years from execution of the contract. As security for the loan, Isaac promised to deliver to Gary his Toyota Innova within seven (7) days, but Isaac failed to do so. Gary was thus compelled to demand payment for the loan before the end of the agreed two-year term.

VI.(2)  Can Gary compel Isaac to pay his loan even before the end of the two-year period? (1%)

(A)  Yes, Gary can compel Isaac to immediately pay the loan. Noncompliance with the promised guaranty or security renders the obligation immediately demandable. Isaac lost his right to make use of the period.

(B)  Yes, Gary can compel Isaac to immediately pay the loan. The delivery of the Toyota Innova is a condition for the loan.  Isaac's failure to deliver the car violated the condition upon which the loan was granted. It is but fair for Gary to demand immediate payment.

(C)  No, Gary cannot compel Isaac to immediately pay the loan.  The delivery of the car as security for the loan is an accessory contract; the principal contract is still the P 1,000,000 loan.  Thus, Isaac can still make use of the period.

(D)  No, Gary cannot compel Isaac to immediately pay the loan.  Equity dictates that Gary should have granted a reasonable extension of time for Isaac to deliver his Toyota Innova. It would be unfair and burdensome for Isaac to pay the P 1,000,000 simply because the promised security was not delivered.

SUGGESTED ANSWER:

(A)

Under Article 1198(2) of the Civil Code, the debtor shall lose every right to make use of the period when he does not furnish to the creditor the guaranties or securities which he has promised.