Short answer. Yes. Article 1198 makes the debtor lose every right to make use of the period when, after the obligation was contracted, he becomes insolvent — unless he gives a guaranty or security for the debt. The debt becomes demandable at once; the two-year term stops protecting him.
What the law says
The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt
Civil Code, Article 1198 — When the Debtor Loses the Benefit of the Period. Read the full provision →
Losing the benefit of the period
Article 1198 opens: The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt. Two words carry the weight. After — a debtor who was already insolvent when you lent to him has not changed, and you took him as he was. And the escape clause: he keeps the period if he puts up security. So the article is not a forfeiture; it is a demand for cover once the basis on which credit was extended has gone.
The other four grounds
Insolvency is only the first. The article also strips the period where the debtor does not furnish the securities he promised; where by his own acts he has impaired them after they were established, or they disappear through a fortuitous event and he does not immediately give new ones equally satisfactory; where he violates an undertaking in consideration of which the creditor agreed to the period; and where he attempts to abscond. In practice the second and third are the most usable, because they rest on documents — a promised mortgage never constituted, a pledged vehicle sold, an insurance policy allowed to lapse.
Insolvency has to be shown
The hard part is proof. Missed payments and rumours are not insolvency; what is needed is an inability to pay debts as they fall due, shown by something more solid than your impression — a bounced cheque, other creditors suing, assets sold off, a business closed, or a proceeding the debtor himself has commenced. Note that Article 1198 also lets the debtor keep the period if he gives security. So the commercially sensible first move is often to demand security rather than immediate payment: it is easier to obtain, and refusal then strengthens the case for acceleration.
Act early, in writing
A creditor who suspects insolvency should move before the assets do. Send a written demand stating the ground you rely on, requiring either security or payment, and giving a short deadline; that letter also puts the debtor in delay under Article 1169 and starts interest running as damages under Article 2209. Then look at what else is available: Article 1177 lets creditors, after pursuing the property in the debtor's possession, impugn acts he has done to defraud them. Transfers made to relatives just as the trouble started are worth documenting now, not later.
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.
- Philippine Bank of Communications vs. Spouses Jose C. Go and Elvy T. Go, G.R. No. 175514, February 14, 2011 — read the decision on LawPhil →
- Eugene L. Lim vs. BPI Agriculture Development Bank, G.R. No. 179230, March 9, 2010 — read the decision on LawPhil →
- Siain Enterprises, Inc. vs. Cupertino Realty Corp. and Edwin R. Catacutan, G.R. No. 170782, June 22, 2009 — read the decision on LawPhil →
- Development Bank of the Philippines vs. Spouses Jesus and Anacorita Doyon, G.R. No. 167238, March 25, 2009 — read the decision on LawPhil →
Related provisions
- Civil Code, Article 1198 — When the Debtor Loses the Benefit of the Period
- Civil Code, Article 1196 — Period Presumed for Both Parties
- Civil Code, Article 1169 — Delay (Mora)
- Civil Code, Article 1177 — Remedies of Creditors (Subrogatory and Rescissory Actions)