CHAPTER

FOUR Loans and Repayment Forces of Collection 1. The Salesmen 2. The House Collector 3. Attorneys (Legal counsel) 4. Collection Agencies 5. Government Trends in Credit and Collection Operations The generally used and availed accounts receivable collection efforts are the following: 1. In-House Collection Force - The seller (credit) company maintains the responsibilities connected with the recording, collection, financing and the like of receivables. - The disadvantage of this operational set up is that all the departments operations including labor problems are for the company to handle of worry about. 2. Factoring - A kind of a third party financing. In the country, the generally used factoring method is with recourse due to the quality of the accounts receivable sold to the factor. For a factoring without recourse, the company availing of a factors financing, sells, transfers title of its accounts receivable to the company which provides the credit evaluation and collection services. - Factoring without recourse eliminates, reduces the costs of maintaining a credit and collection department. The uncertainty of non-collection and bad debt losses. The bigger spreads the factor charges for without recourse assignments may allow some rejected customers by the seller company to be accepted by the factor. 3. Organize a Subsidiary to Handle the Credit and Collection Operations - This method is generally used by companies with vast, nationwide consumer credit, installment selling operations like; vehicles, point of sale consumer goods or services like credit cards, insurance, HMOs, pre-need and similar business. The subsidiary companys advantages and disadvantages are similar to the in-house or factoring companys operation will be experienced. 4. Network With Reputable, Experienced, Reliable Credit and Collection Company - Establish a tie-up with a credit and collection company where credit information can be sourced and secured to complete a customers credit applications and forwarded to a financial entity who will give decisions whether or not granted credits. By this method, the selling company avoids most of the cost of operating and frees up the funds that otherwise would be used in financing the accounts receivable.

The third party or network partner maybe a bank, financing or credit card company which issues a card that a merchant or seller accepts as payment. The third party and the seller may agree in the sharing on absorbing bad debt losses.

Private Label Financing - A third party with whom the seller company agreed to operate and conduct the credit and collection functions of the company but, does it in the name of the seller. In this way, the customer will perceive that the credit is arranged through the seller. Tools and Aids In Collecting A. Notice or Reminder A good collection notice or reminder must have the following qualities: 1. It must be of the proper size. It must be borne in mind that large things generally attract more attention than small things. In this regard, the size of the notice or reminder must be large enough to get the attention expected. 2. The message must be simple and written in such a way that the message of collection is clearly understood by the debtor. 3. The notice or reminder must be designed in such a way that it will command the receivers/debtors attention and motivate him to act positively. 4. It must contain an eye-catching object which can stand by itself to motivate, command and prod the debtor to react positively. 5. The notice or reminder, to be effective, must also be designed to make it a novelty. 6. The color of the notice must be appealing. B. Letters Kinds of Letters Sent To Debtors 1. Form Letters 2. Personalized Letters Qualities of Good Form or Personalized Letter 1. Concise 2. Leave the debtor a way out. 3. Use words with care 4. It must, in a very simple way, tell the debtor how much he owes and when he must pay. 5. It must tell the debtor what he must do to pay his debt. 6. It must always sound business like. 7. It must avoid sarcastic remarks. 8. It must motivate the debtor to pay. 9. It must diminish the debtors resistance to payment by: - Enlisting the debtors cooperation. - Paying on his need to maintain his good credit record. - Telling him that prompt payment will help in his request for future credit. - Appealing to his sense of fair play. - Appealing to his sense of justice. C. Statements of Account - A statement of account must be concise, informative and direct to the point. It must: 1. Request payment 2. Tell the debtor how much he owes. 5.

3. 4.

Itemized what is owed. Be easy to understand.

D. Third Party Letters - Third party letters are usually written by a collection agency and/or an attorney on behalf of the creditor. A third party letter may be written by anyone hired by a creditor to collect an overdue account. - It is recommended that the creditor discusses with the third party the content of the third party letter. The third party letter: 1. Must come from someone who has the respect of both the creditor and debtor. 2. The writer must know what to do to collect. 3. Must be persuasive to compel the debtor to pay his debt. 4. Must be credible. It should never threaten a debtor unless the creditor intends to carry out his threat. E. Telegrams/Cables - A good collection telegram must: 1. Be concise and understandable. 2. Avoid confusing words. 3. Be followed-up. F. Telephone - Your telephone voice or the way you sound on, is a powerful collection tool. Tips To Improve Telephone Collection Efforts 1. Use short, simple words and sentences. 2. Talk at the level of the debtors language level. 3. Pay attention and take down notes. 4. Do not interrupt. 5. If the debtor is not available, get the following facts: - His address and whereabouts. - When is he due to arrive at the telephone address. - Leave information as to when and what time the debtor should return your call. - Be sure the confidentiality of the account is maintained. Developing Skills And Art Of Tele-Credit/Collection Objectives/Purposes Of Tele-credit Collection A. Payment in Full (PIF) on the first contact is the primary goal of all telephone collectors. B. To find out the reasons for default and, if possible, to establish a firm date when a payment is to be made. C. To determine, through appropriate questioning whether future payment will be made promptly. D. To find out why the payment will not be made, if such is the case. E. To suggest to customers with serious money problem that the company may be able to provide guidance and help.

To follow up continuously to see that customer promises are kept. Other Goals: Collecting more pesos. Improve recovery percentage. Increasing debtors contacts. Reducing time spent with each debtor. Getting fewer broken promises. Telephone Collection Tools Billings and Statements Notice/Reminders Collection Letters Telephone Calls Telegrams Personal Reasons Why Telephone Collection Is Effective The telephone puts customers at your direct disposal. The telephone call represents a direct, personal action by the caller that must be dealt with by the customer. The telephone call can give you an insight into the workings of the customers mind. Thru phone, you can give/gain some idea about the type of person with whom you are speaking with. Tele-Collectors Job - The telephone collectors job has one primary purpose to collect past due accounts by contacting debtors on the telephone. Dos and Dont For Tele-Collector 1. A tele-collector cannot use threats or violence to harm debtors reputation or property. 2. A tele-collector cannot use obscene of profane language. 3. A tele-collector cannot repeatedly use the telephone to a point of being a nuisance. 4. A tele-collector cannot call a debtor at his workplace if he requests him not to. 5. A tele-collector cannot make you pay for collect calls to debtor. 6. A tele-collector cannot advertise a debt to a third party. 7. A tele-collector cannot collect more than what is due. 8. A tele-collector must not represent himself as an attorney. 9. A tele-collector cannot threaten a debtor with arrest or imprisonment, if he does not pay his bill. 10. A tele-collector cannot use threat garnishment of wages or property unless there is in fact such an order from court. Skills And Arts For Tele-Collectors Basic Telephone Skills 1. Have a positive mental attitude. 2. Maintain self-control. 3. Be a good communicator. 4. Be versatile. 5. Try a subtle approach first. 6. Control the conversation. 7. Make it easy to the debtor. 8. Dont be discouraged. The Eight Steps of a Collection Call 1. Identify the Debtor.

F.

2. Identify Yourself. 3. Ask for PIF. 4. Psychological Pause. 5. Determine the problem. 6. Find a solution. 7. Close 8. Update your files. Delinquent Accounts Management Elements of a Delinquent Accounts 1. Cause Delinquency in account receivables doesnt happen without a reason. Delinquency may be due to internal and external factors which may be brought about by the witting or unwitting acts of a creditor beyond the debtors control. 2. Cure There will always be ways of collecting delinquent account receivables. 3. Collect After pinpointing the cause and deciding on the cure, all efforts must be focused on collecting the receivables. Effects of Delinquency In Receivables 1. Delinquency ties-up working capital. 2. It disrupts and complicates business operations. 3. It reduces profit targets. 4. It slows down growth. 5. It causes personal and business failure. 6. It prevents the build-up of reserves for seasonal or long-term demands. 7. The creditor (if not a bank or a financial institution) becomes the debtors unwitting banker-generally interest-free. General Types of Debtors 1. The Up-to-Date A debtor who pays on time and who responds to available prompt payment incentives offered because of his sound financial position. 2. Occasional Delinquent Most debtors become this type, because there is no perfect matching of their income and expenses. 3. Habitual Delinquent This kind of debtor must be the target of strict collection efforts to prevent his account becoming a bad account. 4. The Changed Circumstance A debtor who, for social, economic or political reasons; by law, contract, accident or fortuitous event, suddenly cannot pay his obligation. 5. The Premeditated Delinquent A debtor who, in the first place, should have been noticed and avoided. Needs fast, drastic and decisive collection efforts. General Categories of Debtors Defenses 1. Offensive or Aggressive This kind of debtors defense is generally used by one who is premeditated delinquent debtor. 2. Denial or Evasion- This debtors defense is motivated by the debtors inability to pay (with good reason) or to avoid payment (without good reason). 3. Defiance A defense generally used by the debtor who is either unscrupulous or a habitual bad debtor. 4. Plea for sympathy and compassion A debtor who uses-this kind of a defense is either a victim of an accident or misfortune or has been placed in such an

unfavorable financial position that he cannot earn enough to pay back his debt. Kinds of Delinquent Debtor 1. The Negligent 2. The Honest But Confused 3. The Cant Be Bothered 4. Seasonal Delinquent 5. Honest Late Payer 6. Chronically Slow 7. Wittingly Late 8. The Stretcher 9. Habitual Discounter 10. The Tightrope Walker 11. The Braggart 12. The Vanishing Debtor Handling Angry Debtors 1. Establish the Point of Controversy. 2. Exchange Information. 3. Reach for a Give and Take Position. Personal Collection Negotiation Attributes 1. Whats in a name (Sino k aba?) 2. Favor (Lagay) Power 3. Coercive Power 4. Ability Power 5. Lovability/Charming 6. Expertise Ability 7. Position Power 8. Encyclopedic Ability Debtors/Collectors Personality Negotiation Styles 1. Practical (Street Smart) is street smart and his only goal is to win irrespective of the means and who losses. 2. Friendly (Mediator) endeavor to influence people and sway them to his side; excitable, insensitive to others and often doesnt realize whats really going on. 3. Peacemaker (Troubleshooter) tries to develop relationship with people in the hope they can see each others positions and agree. Makes concessions in the hope that this adversary reciprocates and accept a loss. 4. Chairman (Rigid) turns into executive type of a negotiator, want an orderly negotiation proceedings in the belief that it will produce a solution or collection. The No-Nonsense Win-Win Collection Negotiator 1. Dont put yourselves in a Strait Jacket. 2. The Creditor/Debtor Are not After The Same Thing. 3. Dont be a Glutton. 4. Leave some Crumb on the Negotiating Table. Ten Rules To Collect And Get Paid 1. Those who want to get paid, must insist on Payment- On Time. 2. Use your aging schedule positively and aggressively. 3. Always be a good creditor in good or bad times. 4. Stand your ground. 5. Dont hesitate, enforce your credit. 6. Never threaten, unless you mean and do your threat. 7. Have a team. 8. Get assistance soonest. 9. Act decisively to collect legally. 10. Collecting something is better than nothing. Distressed Accounts Management Major Causes of Distressed Accounts 1. Borrowing too much in relation with actual capital requirements.

Hasty expansion Lack of professionalism, nepotism and cronyism Lack of adequate controls Over-confidence in connections Lack of integrity or character of the people who owns or manages the company 7. Being in the wrong industry at the wrong time 8. Change in the nature of business 9. Poor financial planning 10. Other causes of distressed accounts Factors to Consider in the Management of Distressed Accounts 1. The prevailing social, economic, political and business conditions in the locality where the company operates. 2. The perspective of the account. 3. To which industry does the debtor belong? Sunrise Industries Plateau Industries Sunset Industries 4. Liquidity prospects of the debtor 5. Accurate reporting of costs 6. Inflation Hedges 7. Productivity 8. Assets 9. The quality and reputation of a companys top management 10. Connections Reduce the Terms and Conditions of the Negotiation Into an Agreement 1. During the negotiation take down notes. 2. As much as possible, volunteer to write the agreement. 3. When the other side reviews what you have written, they will all have the time, effort and energy to renegotiate the points with you. 4. Have someone review the agreement, particularly by the members of your team to the negotiation. 5. Demand proper appointment and authority from the debtor to sign, bind their company or themselves if they are the debtors. 6. Read carefully the final agreement versions terms and conditions. 7. Dont forget to reduce the final document into a legal, actionable document by having it acknowledged before a proper notary public of the place where the agreement was signed. Benefits of Paying Good credit reputation The satisfaction of fulfilling an obligation Reputation for fair play Self-respect CHAPTER FIVE LEGAL-EXTRA-LEGAL COLLECTION EFFORTS

2. 3. 4. 5. 6.

Knowing and understanding what extra-legal remedies or techniques can be accomplished and effectively used will increase one's chances of collecting through court action

RATIONALE IN PURSUING LEGAL COLLECTION EFFORTS 1. 2. 3. 4. 5. 6. 7. It is the necessary and logical thing to do To serve as leverage against the debtor You are a necessary party to the case As a mode of redress As a dilatory tactic Avoidance of liability Nuisance suit

GENERAL PROBLEMS AFFECTING LEGAL COLLECTION EFFORTS 1. Absence or lack of supporting documents - Endeavor to get the debtor to acknowledge his obligation in writing, either by letter, note and the like. - Once the debtor acknowledges the obligation you may use a collection tool called a DEBT REPAYMENT AGREEMENT OR A PAYMENT CONTRACT - an agreement between the creditor and debtor, the latter acknowledging his debt to the creditor without the need for any other proof about the obligation - You may also require the debtor to sign in your favor a promissory note. 2. Insufficient documents - Try to complete or submit secondary evidence 3. Signed by an Attorney-In-Fact - Endeavor to check with the principal and the notary public about the validity and genuineness of the signatures - have the power of attorney authenticated by the notary public/principal. 4. Unregistered document - "Register" the documents as soon as possible. 5. Unnotarized document - Have the document "notarized." If there are two parties on the documents signing in different places, have the document notarized at both places. 6. Unknown debtor's whereabouts - Check with a third party with your field personnel. 7. Summons cannot be served - Try the substituted service method of serving the summons by publishing the summon in a newspaper of general circulation. 8. Debtor's properties are substantially encumbered or disposed - Endeavor to check all the liens, encumbrances are conduct an inspection and appraisal to determine whether or not their mortgage values are small or what below their market values. 9. Debtor have filed for voluntary insolvency and/or suspension of payment - Check with the court or SEC if it is a corporation, partnership or single proprietorship about the case and file a claim soonest with the court and/or receiver appointed where the petition for voluntary insolvency was filed. 10. Debtor's business have been assigned / transferred or taken over by a new owner - File for violation of the provisions of the Bulk Sales Law Act 3952 as amended by R. A. 111, with a prayer preliminary attachment against any remaining assets and/or the ones transferred or assigned.

LEGAL COLLECTION EFFORTS There are many legal and extra-legal remedies or techniques that may be used to shorten, secure, improve and salvage a seemingly hopeless money claim position.

THE LEGAL COLLECTION PROCESS 1. 2. 3. 4. 5. 6. Sending of proper demands to the party -obligor -debtor(s) Gathering, preparation and review of actionable documents; and credible, competent witnesses Complaint preparation Filing of the case Service of Summons Reply of the Parties to the Case: Grounds for delay: a. Motion to dismiss is either on the following grounds: No cause of action Prior Payment Venue is in issue Wrong Party b. Motion for bills of particulars (for documents) c. Motion for discovery / deposition for evidence and witnesses needed in the expeditious resolution of the case d. Motion for extension of time to file an answer either due to the absence of lawyer, sickness, absence of the property, other plausible reasons e. Other legitimate/dilatory tactics

c) Due to the age, infirmity of the witness d) Witness (deponent) resides in a remote place from the place of the hearing of trial. 2. Interrogatories to Parties - are not part of a pleading of the case unlike in deposition. They are merely forms of examinations prior to a trial or hearing of a case. They are directly upon the adverse party unlike in interrogatories where they are served through a duly authorized officer who must record the answer thereto. Admission by the Adverse Party is generally availed of after the plaintiff and he defendant have filed their pleadings. It is the request by one party to the other party for the admission of the genuineness of any relevant document described in and exhibited with the request or of the truth of any relevant matter of fact set forth in the request. Production or Inspection of Documents or Things. Upon prior motion and permission by the court, any party to a case may request the court to order the other party to allow inspection or production of any document or things for examination, photography and the like, as well as to allow the entry of the requesting party into a property to inspect, survey, measure and the like. Physical and mental examination of persons - In an action where the physical or mental condition of a party is in question, the court may, at its discretion, order a physical and mental examination by a competent physician.

3.

4.

LEGAL AND EXTRA-LEGAL TECHNIQUES TO SHORTEN COURT LITIGATION There are various legal ways provided under the Rules of Court which, if attorneys will recall, it had been taught in school that the efforts in litigation for cases will be shorten substantially. Among the techniques by the Rules of Court are the following:

5.

I. DISCOVERY Discovery is the disclosure of facts, deeds, documents, and other information that are in the exclusive possession or knowledge of a party or witnesses. The purpose of discovery is to enable the parties, consistent with recognized privileges, to obtain the fullest possible knowledge of the issues and facts before civil trials and thus, prevent the said trials are carried out in the dark.

II. SUMMARY JUDGMENT Summary judgment is a court decision upon a claim, counter claim or cross claim or upon a declaratory relief, granted anytime after the pleading in response thereto has been served. It is principally intended to expedite or promptly dispose of a case where the facts appear undisputed and certain from pleading, disposition, admission and affidavits submitted.

MODES OF DISCOVERY 1. Deposition - the written testimony of a witness given in the course of judicial proceedings in advance of a trial or hearing upon oral examination, or in response to written interrogations or questions by the other party, and where an opportunity for cross examination is given. Deposition taken during the pendency of an action is generally termed "deposition de bene esse" and those taken in advance or prior to the institution of an action are called ''depositions in perpetuam rei memoriam" - perpetuation of testimony.

III. JUDGMENT OF THE PLEADINGS Where the debtor/defendant admits all he material allegations in the creditor/plaintiff's complaint and there is no issue or point of disagreement between them, except payment.

Depositions are generally taken due to the following: a) Impending departure of the deponent from the country b) Certain facts and information cannot be obtained except by deposition

IV. JUDGMENT ON DEMURRER TO EVIDENCE It is a remedy availed of by the defendant after the plaintiff has completed the presentation of his evidence. The defendant, without waiving rights to offer evidence the event the motion is not granted, may move for a dismissal of the case filed against him on the ground that upon the facts and upon the law, the plaintiff has not shown or proved his right to a relief.

V. ALTERNATIVE DISPUTE RESOLUTION IN COURT/BUSINESS The past Congress of 2003 passed Republic Act 9285 otherwise known as the Alternative Disputer Resolution Act. The principal objectives are: Reducing the dockets of the courts Faster resolution of conflicts Mitigating time, expense of the parties, attorneys and judicial officers Reduce graft and corruption attendant to delayed resolution of civil / criminal disputes More acceptable and lasting settlement. VI. AMICABLE OR COMPROMISE AGREEMENT 1. Rationale or Motivation - A clich among law practitioners states that; it is much better to agree to a bad compromise than to engage in long, contentious, expensive litigation even if you emerge the winner. It is generally more economical and practical to enter into a sufficiently reasonable amicable settlement with the debtor/defendant than to fight it out in court. 2. Tactics to Motivate a Defendant to Enter into a Compromise or Amicable Settlement a. Preliminary attachment or foreclosure threats on mortgaged property, if applicable b. An offer or willingness to restructure or roll over the debtors/defendants obligation c. STICK AND CARROT TACTIC - An offer to grant some concession to the debtor/defendant with the intention of solidifying your weak position, if any d. Offer of assistance and help to the debtor e. Willingness to accept another party/co-obligor with the debtor f. THREAT OF COURT SUIT - It must be remembered that when you use this tactic and it fails, you must, of necessity and in order not to lose your credibility, go through with the court suit immediately What To Provide For In The Compromise Or Amicable Agreement a. The acceptance and acknowledgement of the debt by the debtor and the other obligors including the surety b. Proposed repayment schedule c. Time or schedule of payment d. Interest, penalty provisions e. Surety, collateral or security provisions, if agreed f. Acceleration clause, a must g. Non-novating clause on lien or encumbrance on security or collateral, on the parties to the obligation, on decision already obtained and other pertinent provision to fortify your position h. Specific place of payment and waiver of demand therefore i. Provision for reasonable attorneys fees j. Right to demand a writ of execution in case of failure to comply with terms or conditions therefore by the defendant

SPECIAL POWER OF ATTORNEY In pre-trial, you must always provide your counsel and/or representative with a proper special power of attorney duly authorized by the board of directors of your company and properly executed by your duly authorized officer corporate secretary

THE AREAS TO DISCUSS WITH YOUR ATTORYNEY-INFACT ARE: 1. 2. 3. 4. 5. 6. Acceptable amount of satisfaction/payment of your claim Terms of payment Parties to be bound under the case preferably in joint and several capacity Collateral requirement Authority to bind and sign Other pertinent matters

HEARING OR TRIAL OF THE CASE The unnecessary postponement or delay in the hearing of a case can be avoided or prevented if the following matters are checked, provided for and readied days before the hearing 1. 2. 3. 4. Sheriffs return of the service of the summons upon the parties Readying and reviewing proper evidence Readying and coaching competent and credible witnesses Determining available possible hearing or trial days if possible, ask for cluster days for hearings to expedite presentation of your case

SUBMISSION FOR DECISION 1. Compromise Agreement The law between the parties once approved: Final and immediately executory Generally not appealable except when: a. It does not reflect the real intention of the parties b. It was granted in fraud c. Granted by the court with grave abuse of discretion d. Other grounds 2. Granted Based On The Merits Of A Case Under the law, the court decision shall be rendered or a case decided within 90 days from submission for decision. This, however, is not followed by the courts for reasons of their own. Judges almost always give some plausible reason for the delay in their orders and/or decisions

3.

IMPLEMENTATION OF THE WRIT OF EXECUTION

The success or failure of a plaintiff/creditor to collect through the court is influenced to a very large extent by the ancillary efforts to do or not do any or all of the following: a. b. Prior checking of the whereabouts, property or assets of the defendant Proper selection, supervision and control of the sheriff to implement the writ of execution is necessary, if you want to obtain collection or satisfaction of the writ of execution

When auctioning personal properties it must be borne in mind that: Its disposability is a major consideration The auction sale is a critical factor in order that the creditor may recover as much as possible when disposing the personal property It is not subject to redemption RANGE OF THE BID: 50%-70% of the reasonable market value which must not be over the debt claimed specially if there are other bidders participating in the auction sale

GUIDELINES IN AUCTION SALE OF REAL AND PERSONAL PROPERTIES There are NO DEFINITE RULE upon which one can depend on to arrive at a fairly reasonable price or value in case of auction sale of mortgaged or levied upon properties

THE LEGAL RESPONSIBILITIES OF A CREDITMAN The general practice however is as follows: a. REAL PROPERTIES Determine the FAIR AND REASONABLE VALUE of the property, as well as any third party lien or encumbrance thereon The bid price on the property is generally to the extent of the debt claimed inclusive of interest, fees, publication expenses and attorneys fees If the property value is LESS or EQUAL to the debt claimed, the bid price may be the market value less the average cost of money for the next two years. Auctioned real property is subject to one (1) year REDEMPTION from the date of registration of the certificate of sale. If no redemption is exercised, The cost of money deducted from the bid price will at least cover up for the time you will have to dispose and liquefy the property won in the auction house. If there is a lien or encumbrance on the property, like a mortgage or an ownership claim, then serious thoughts must be given on whether to continue with the auction. If there is a winning bidder in the auction sale, it is imperative that he be issued immediately a CERTIFICATE OF SALE in exchange for the bid price he paid in order to REGISTER the property for the redemption period to commence which is ONE YEAR from the date of the registration of the certificate of sale IN CASE OF REDEMPTION, the redemptioner must pay the BID PRICE PLUS 12% per annum thereon; plus other legitimate expenses like the fees for the registration of the certificate of sale, taxes, documentation and notarial expenses. In a DECIDED CASE however, redemption may not be allowed if there is an UNPAID BALANCE in the adjudged amount against the defendant PERSONAL PROPERTIES It must be remembered substantially all personal or movable properties except precious stones, metals and works of art DEPRECIATE. This being the case, discretion and prudence dictates that vigilance must at all times be exercised in determining the reasonable value of the mortgaged property. LAWS THAT COLLECTORS MUST KNOW AND UNDERSTAND WHEN COLLECTING

a.

LIBEL OR DEFAMATION (ART. 353, RPC) A public and malicious imputation of a crime, vice or defect, real or imaginary, or any act, omission, condition, status, or circumstance tending to cause dishonor, discredit, or contempt of a natural person or to blacken the memory of one who is dead

SLANDER OR ORAL DEFAMATION (ART. 358, RPC) Uttering publicly, writing grave or insult or defamation which is of a serious or insulting nature UNJUST VEXATION It is equated with anything that annoys or irritates without justification d. INCRIMINATING INNOCENT PERSON (ART. 363, RPC) Any person who, by any act not constituting perjury, shall directly incriminate or impute to an innocent the commission of a crime INTRIGUING AGAINST HONOR (ART. 364, RPC) Any person who shall make any intrigue which has for its principal purpose to blemish honor and reputation of another person. c.

b.

e.

QUALIFIED TRESPASS TO DWELLING (ART. 280, RPC) Any private person who shall enter the dwelling of another against the latters will g. OTHER FORMS OF TRESPASS (ART. 281, RPC) Any person who shall enter the closed premises or the fenced estate of another, while either of them are uninhabited, if the prohibition to enter be manifest and the trespasser has not secured the permission of the owner or the caretaker thereof GRAVE THREATS (ART. 282, RPC)

f.

b.

h.

Any person who shall threaten another with the infliction upon the person, honor or property of the latter or of his family of any wrong, amounting to a crime i. LIGHT THREATS (ART. 283, RPC) A threat to commit a wrong not constituting a crime which demand for money or that other conditions is imposed, even though not unlawful GRAVE COERCION (ART. 286, RPC) Any person who without authority of law shall, by means of violence, prevent another from doing something not prohibited by law or compel him to do something against his will whether be it right or wrong EXTORTION Collecting money with the use of HARASSMENT, COERCION, and simulated legal process to threaten debtors may be a ground for being liable of extortion FALSE TESTIMONY IN CIVIL CASES (ART. 182, RPC) Any person who gives testimony in a civil case which relates to the case, is proven false, given in malicious manner with the intent to affect the issue presented in the case

estafa. To satisfy the elements of deceit, the issuance and writing of check must be prior to, or simultaneous with, the transaction between the parties. The drawing and issuance of the check in payment of an obligation is the efficient very reason or cause of the swindling

RATIONALE FOR B.P. NO. 22 A check issued in payment of pre-existing obligation is no defense. This special law was enacted to maintain the integrity, credibility and value of checks as a medium of exchange in business

j.

k.

SIMILARITIES v The transaction involves issuance of checks v Requires LACK OF or INSUFFICIENT FUNDS, DRAWN AGAINST UNCOLLECTED ACCOUNTS as an element to constitute violation v The check must be dishonored for lack of, or for insufficiency of funds to constitute damage v In case of dishonor, the drawer must be given notice of dishonor, and be given an opportunity to make good with the check that bounced. (Art. 315 3 days B.P. 22 5 days) DIFFERENCES

l.

m. FALSE TESTIMONY IN OTHER CASES AND PERJURY IN SOLEMN AFFIRMATION (ART.183, RPC) Any person who, knowingly making untruthful statements under oath or make an affidavit, upon any material matter before a competent person authorized to administer an oath in cases which the law so requires n. ASSAULT AND BATTERY An unlawful offer or attempt with force or violence to do a physical harm to another is assault. An unlawful beating or other wrongful violence or constraint inflicted on a human being without his consent. Includes unlawful touching the person whether willfully committed or arose from want due is battery FALSIFICATION BY PRIVATE INDIVIDUALS AND USE OF FALSIFIED DOCUMENTS (ART. 172, RPC) Any private individual who commits the act of falsification for public or official document or letter of exchange or any other kind of commercial document Any person who, to the damage of a third party, or with the intent to cause such damage shall in any private document commit acts of falsification Any person who shall knowingly introduce evidence in any judicial proceeding or to the damage of another or who, with the intent to cause such damage, shall use any of the false documents.

o.

ARTICLE 315 The check must be given in payment of an obligation, not pre-existing The deceit and damage are essential elements and must be alleged in the information The issuance of several checks may only give rise to one offense if the offender is motivated by one criminal intent or purpose

B.P. NO. 22 The check can be either in payment of, simultaneous or for pre-existing obligation Not an essential and need not be alleged in the information Each act of drawing and issuing a bouncing check constitutes a separate independent criminal offense

ELEMENTS OF THE CRIME OF ESTAFA UNDER THE REVISED PENAL CODE 1. The making, drawing or issuance of any check to apply on account or for value, the drawer not knowing at the time of issue that he does not have sufficient funds in, or credit with, the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reasons, ordered the bank to stop payment ESSENTIAL ELEMENTS:

LAWS RELATING TO CREDIT AND COLLECTION THE NEW BOUNCING CHECK LAW

ARTICLE 315 The crime of ESTAFA under the law is a form of swindling by means of deceit. Under this law, if there is no deceit there is no

The offender draws or issues a check It is made or drawn and issued to apply on account or for value

 The offender knows at the time he issued the check that he does not have sufficient funds in or credit with the drawee bank for the payment of the check upon presentation The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment 2. The failure of any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check is presented within 90 days from the date appearing thereon, for which reason, the check is dishonored by the drawee bank. ESSENTIAL ELEMENTS: The offender has sufficient funds at the drawee bank when he drew and issued the check He fails to maintain sufficient fund to cover the full amount of the check The check is dishonored by the drawee bank for insufficiency of fund Provided the check is presented to the bank within 90 days from the date of the check CHECKER ISSUERS LIABILITY UNDER BOTH LAWS As a rule, only the DRAWER OF A CHECK can be held criminally liable when the check is dishonored due to insufficiency of funds A person who endorsed a check issued by another in payment of an obligation (not pre-existing) knowing that the drawer did not have sufficient funds, for which reason the check was dishonored by the drawee bank, said endorser is liable for estafa under Art. 315

In case of check issued with sufficient fund, but later, the drawer has no funds in the bank, and the check was presented for payment after 90 days SUSPENSION OF PAYMENTS Suspension of Payments defined. Is the postponement, by court order, of the payment of debts one who, while possessing sufficient property to cover his debts, foresees the impossibility of meeting them whey they respectively fall due. Purpose and basis of suspension of payments To suspend or delay the payment of debts the amount of which is not affected although a postponement is declared. REQUISITES OF PETITION OF PAYMENTS The petition is to be filed by a debtor 1. 2. 3. Possessing sufficient property to cover all his debts; Foreseeing the impossibility of meeting them when they respectively fall due Petitioning that he declared in the state of suspension of payments

EFFECTS OF FILING OF PETITION 1. No disposition in any manner of his property may be made by the petitioner except insofar as concerns the ordinary operations of commerce or of industry in which he is engaged No payments may be made by the petitioner except in the ordinary course of his business or industry; Upon request to the court, all pending execution against the debtor shall be suspended except execution against property specially mortgaged. No ordinary creditor may file an action in court against the debtor

2. 3. 4.

LIABILITY OF BOUNCING CHECK DRAWER UNDER BOTH LAWS Under The Revised Penal Code, It Is Not Estafa: When the check issued in payment of a pre-existing obligation, there is no estafa even when there is no fund at the bank at the time of its issuance When the checks are issued and intended by the parties only as promissory notes, there is no estafa even if there is insufficient funds in the bank to cover the same When the check is issued by a guarantor Good faith is a defense in a charge of estafa by postdating or issuing a check Stop payment for valid reason Under B.P. No. 22 Guaranty check or Memorandum check Stop payment for valid reasons Issued for no value

VOLUNTARY INSOLVENCY Who may file petition for voluntary insolvency. An insolvent debtor, owing debts exceeding in amount the sum of P 1,000.00 may apply to be discharged from his debts and liabilities by filing a petition to the Regional Trial Court of the province or city in which he has resided for six (6) months next preceding the filing of the petition.

STEPS IN VOLUNTARY INSOLVENCY 1. Filing of the petition by the debtor praying for the declaration of insolvency 2. Issuance of an order of adjudication declaring the petitioner insolvent 3. Publication and service of the order 4. Meeting of the creditors to elect the assignee in insolvency

5. Conveyance of the debtors property by the clerk of court to the assignee 6. Liquidation of the debtors assets and payment of his debts 7. Composition, if agreed upon 8. Discharge of the debtor on his application, except a corporation 9. Objection, of any, to the discharge 10. Appeal to the Supreme Court in certain cases REQUISITES OF PETITION FOR VOLUNTARY INSOLVENCY The petition, which must be verified, is to be filled by: 1. 2. 3. 4. An insolvent debtor Owing debts exceeding in amount the sum P1,000.00 In the original Trial Court of the province or city in which he has resided for six months next preceding the filing of such petition and Setting forth in his petition the following : a. His place of residence. b. The period of his residence therein immediately prior to filing said petition c. His inability to pay all his debts in full d. His willingness to surrender all his property, estate and effects not exempt from executions for the benefit of his creditors e. An application to be adjudged an insolvent

5. 6. 7. 8. 9. 10. 11. 12. 13.

Hearing of the case Issuance of order or decision adjudging debtor insolvent Meeting of creditors for election of an assignee in insolvency Conveyance of debtors property by clerk of court to the assignee Liquidation of assets and payment of debts Composition, if agreed upon Discharge of the debtor on his application, except a corporation Objection, of any, to the discharge Appeal to the Supreme Court in certain cases

REQUISITES OF PETITION FOR INVOLUNTARY INSOLVENCY The petition should be filed by: 1. 2. 3. 4. 5. 6. 7. Three or more creditors, None of whom has become such a creditor by assignment, within thirty (30) days prior to the filing of said petition; Resident of the Philippines; Whose credits accrued in the Philippines; The total amount of which credits is not less than P 1,000.00, and In the Regional Trial Court of the province or city where the debtor resides or has his principal place of business; Must be verified by at least three of the petitioning creditors; Must set forth one or more acts of insolvency mentioned in the law; and Must be accompanied by a bond, approved by the Court with at least two sureties, in such penal sum as the court shall direct.

EFFECTS OF COURT ORDER DECLARING DEBTOR INSOLVENT 1. 2. All the asset of the debtor not exempt from execution are taken possession of by the sheriff until the appointment of a receiver or assignee The payment to the debtor of any debts due to him and the delivery to the debtor or to any person for him of any property belonging to him, and the transfer of any property by him are forbidden All civil proceeding pending against the insolvent debtor shall be stayed upon due application of the debtor Mortgages or pledges, attachments or execution on property of the debtor duly recorded and not dissolved are not, however, affected by the order

8. 9.

ADJUDICATION OF INSOLVENCY The date adjudication of insolvency retroacts to the date of the filing of the petition for insolvency.

3. 4.

ASSIGNEES Assignee in insolvency defined. - The assignee is the person elected by the creditors or appointed by the court to whom an insolvent debtor makes an assignment for the benefit of his creditors. Creditors not entitled to vote in the election of assignee 1. Those who did not file their claims at least two days prior to the time appointed for such election Those who claims are barred by the statute of limitations Secured creditors unless they surrender their security or lien to the sheriff or receiver or unless they shall first have the value of such security fixed Holders of claims for unliquidated damages arising out of pure tort.

INVOLUNTARY INSOLVENCY Nature of involuntary insolvency proceedings An involuntary is not a mere personal action against the insolvent for the collection of debts; but its purpose to impound all of his non-exempt property, to distribute it equitably among his creditors, and to release him from further liability.

STEPS IN INVOLUNTARY INSOLVENCY The following steps constitute the proceedings for involuntary insolvency 1. 2. 3. 4. Filing of the petition by tree or more creditors Issuance of an order requiring the debtor to show cause why he should not be adjudged insolvent Service of order to show cause Filing of answer or motion to dismiss

2. 3. 4.

Properties of the insolvent that pass to the assignee

1. 2. 3. 4.

All real and personal property, estate and effects of the debtor including all deeds, books, and papers in relation thereto Properties fraudulently conveyed Right of action for damages to real property; The undivided share or interest of the insolvent debtor in property held under co-ownership

Dividend in insolvency defined A dividend in insolvency is a parcel of the fund arising from the assets of the estate, rightfully allotted to a creditor entitled to share in the fund, whether in the same proportion with other creditors or in a different proportion.

Properties of the insolvent that do not pass to the assignee 1. 2. 3. Property exempt from execution Property held in trust Property of the conjugal partnership or absolute community so long as said partnership or community exists, except insofar as the insolvent debtors obligations have redounded to the benefit of the former Property over which a mortgage or pledge exists, unless the creditor surrenders his security or lien

E. CLASSIFICATION AND PREFERENCE OF CREDITORS Preference an exception to the general rule. One person is given a superior right or claim over another. For such reason, the law as to preferences is strictly construed. Order of distribution The priorities fixed by law govern and the claims which are given priority must be paid in full order of their priority, before the general creditors receive anything. Creditors claiming preference must sufficiently establish the claim of preference to entitle their credits to such preference. The following is the order in which payment of debts should made by the assignee: 1. 2. 3. 4. Equitable claims under Section 48; Preferred claims with respect to specific movable property and specific immovable property under Art. 2241 and Art. 2242 of the new Civil Code; Preferred claims as to unencumbered property of the debtor which shall be paid in the order named under Art. 2242 of the new Civil Code; and Common or ordinary credits which shall be paid pro rata regardless of dates under Art. 2245 of the Civil Code,

4.

POWERS OF THE ASSIGNEE 1. 2. 3. 4. 5. 6. 7. 8. To sue and recover all the estate, debts and claims belonging to or due to the debtor To take into his possession all the estate of the debtor except property exempt from execution In case of a non-resident or absconding or concealed debtor, to demand and receive of every sheriff all the property and moneys in his possession belonging to the debtor To sell, upon order of the court, with any person indebted to such debtor To redeem all mortgage and pledges and to satisfy any judgment which may be an encumbrance on any property sold by him To settle all accounts between the debtor and his debtors, subject to the approval of the court To compound, under the court, with any person indebted to such debtor To recover any property fraudulent conveyed by the debtor

Equitable claims under the Insolvency Law Any property found among the property of the insolvent, the ownership of which has not been conveyed to him by legal and irrevocable title, shall not be considered to be the property of the insolvent and shall be placed at the disposal of its lawful owners, on order o the Court on petition of any assignee or any creditor whose right to the estate of the insolvent has been established. The following shall be included. 1. 2. 3. 4. 5. 6. 7. 8. Paraphernal property belonging to the wife of the insolvent; Property held by the insolvent on deposit, administration, lease or usufruct; Merchandise held by the debtor on commission; Negotiable instruments for collection or remittance; Money held by the debtor for remittance; Amounts due the insolvent for sales of merchandise on commission; Merchandise bought by the insolvent on credit where no delivery is made or where the right of ownership or possession has been retained by the seller; and Goods or chattels wrongfully taken by the insolvent or the amount of the value thereof.

DUTIES OF THE ASSIGNEE 1. 2. 3. 4. 5. 6. 7. 8. 9. To register the assignment to him of the real estate of the debtor To file the schedule and inventory of the property of the debtor To convert, as speedily as possible, the estate, real and personal, into money To keep a regular account of all moneys received by him as assignee To petition the court to allow the private sale of the debtors property if it appears that it is for the best interest of the estate to file a just and true accounts of all receipts and payments To file accounts upon order of the court on motion of two or more creditors To distribute such dividends as he may be required To file his account within one year from the date of order of adjudication

F. PARTNERSHIPS AND CORPORATION When partnership may be declared insolvent A partnership may be adjudged insolvent, voluntarily or involuntarily, during the continuation of the partnership business or after its dissolution but before the final settlement. When the corporation declared insolvency, the property and assets shall be distributed to the creditors, but no discharge shall be granted to any corporation. Who may petition for declaration of insolvency of a partnership 1. In case of voluntary insolvency the petition may be filed by all partners, or nay of them.

2.

In case of involuntary insolvency the petition is filed by one or more of the partners or three or more creditors of the partnership

Properties included in the insolvency proceedings Upon order of the Court, the following property shall be taken: 1. All the property of the partnership; and 2. All the separate property of each of the partners, except; a. Separate properties of limited partners b. Properties which are exempt by law. Effects of filing of petition 1. When insolvency proceedings are instituted against or by a partnership, the proceedings are deemed to commence against the partners at the same time even if a partner is not ordered included in the proceedings until after sometime later; 2. Upon order of the court, all the properties of the partnership and also all the separate property of each partner, if they are liable, shall be taken; 3. All creditors of the partnership and the separate creditors of each partner shall be allowed to prove their respective claims. 4. The assignee shall be chosen by the creditors of the partnership; and, 5. Pending insolvency proceedings by or against any partnership, no statute of limitations shall run upon a claim of or against the estate of the debtor. Distribution of the proceeds 1. The net proceeds of the partnership property shall be appropriated to he payment of partnership debts; 2. The net proceeds of the individual estate of each partner shall be applied to the payment of his individual debt; 3. Should any surplus remain of the property of any (general) partner after paying his individual debts, so much thereof as correspondents to him as his share in the subsidiary liability for partnership debts shall be added to the partnership assets and be applied to the payment of such debts; and, 4. Should any surplus of the partnership property remain after paying the partnerships debts, such surplus shall be added to the assets of the individual partners in the proportion of their respective interests in the partnership. Who may petition for declaration of insolvency 1. In case of voluntary insolvency the petition may be filed by any officer duly authorized by the vote of the board of directors or trustees at a meeting especially called for that purpose, or by the assent in writing of a majority of the director or trustees, as the case may be. 2. In case of involuntary insolvency a. First View upon a creditors petition and presents in the manner provided n respect to debtors. b. Second View the petition must be filed by at least 3 creditors of the corp. under the circumstances mentioned by the law.

Debts that may be proved or allowed in insolvency proceedings: 1. All the debts due and payable form the debtor at the time of the adjudication of insolvency; 2. All debts existing at the time of the adjudication of insolvency but not payable until a future time, a discount being made if no interest is payable by the terms if the contract; 3. Any debt of the insolvent arising from his liability as indorse, surety, bail or guarantor, where such liability became absolute after the adjudication of insolvency but before the final dividend shall have declared; 4. Other contingent debts and the contingent liabilities contracted by the insolvent if the contingency shall happen before the order of the final dividend; and, 5. Any debt of the insolvent arising from his liability to any person liable as bail, surety, or guarantor or otherwise, for the insolvent, who shall have paid the debt in full or in part. Contingent Claim - a claim in which liability depends on some future event that may not happen and which makes it uncertain whether there will be any liability. It is used in contradiction to an absolute claim, which is subject to no contingency and may be proved and allowed. Debts that may not be proved Debts that may not be proved or allowed in insolvency proceedings: 1. Claims barred by the statute of limitations; 2. Claims of secured creditors with a mortgage or pledge in their favor unless they surrender their security; 3. Claims of creditors who hold an attachment or execution on the property of the debtor duly recorded and not dissolved; 4. Claims on account of which a fraudulent preference was made or given. Composition a proceeding voluntary on both sides, by which the debtor, of his own motion, offers to pay his creditors a certain percentage of their claims in exchange for a release from his liability. Requirements for a valid offer of composition 1. The offer of the terms of composition must be made after the filling in Court of the schedule of property and submission of the list of creditors; 2. The offer must be accepted in writing by a majority of the creditors representing a majority of the claims which have been allowed; 3. It must be made after depositing in such place designated by the Court the consideration to be paid and the costs of the proceedings; and 4. The terms of the composition must be approved or confirmed by the Court. Confirmation of Composition The court shall confirm a composition on the application of the debtor if satisfied that: 1. It is for the best interest of the creditors; 2. The debtor has not been guilty of any of the acts, or of the failure to perform any of the duties which would create a bar to his discharge; and 3. The offer and its acceptance are in good faith have not been made or procured in a manner forbidden by the Act. Effects of the confirmation of composition 1. The consideration shall be distributed as the judge shall direct; 2. The insolvency proceedings shall be dismissed; and 3. The title to the insolvents property shall revest in him Confirmation may be set aside

Provision of Act 1956 The provisions of the Act shall not apply to corporation engaged principally in the banking business or any other corporation as to which there is any special provisions of the law for its liquidation in case of insolvency. G. PROOF OF DEBTS Debts that may be proved

The court may, upon application of a party in the interest, filed in any time within six months after the composition has been confirmed, set the same aside and reinstate the case if it shall be made to appear upon a trial: 1. That fraud was practiced in the procuring of such composition; and 2. That the knowledge thereof has come to the petitioner since the confirmation of such composition. Discharge - judicial clearance of an insolvent debtor, both in voluntary and involuntary insolvency proceedings, from all claims, debts and liabilities set forth in his schedule or which were or might have been proved against his estate in insolvency. A discharge, when granted, takes effect not from its date but form the commencement of the proceedings in insolvency. Application for discharge of insolvent debtor A debtor may apply to the Court for a discharge at any time after expiration of three months from the adjudication of insolvency, but not later that one year from such adjudication unless the property of the insolvent has not been converted into money without his fault thereby delaying the distribution of dividends among the creditors in which case the court may be extend the period. Acts of debtor or grounds which will prevent a discharge 1. False swearing; 2. Concealment of any part of his estate or effects; 3. Fraud or willful neglect in the care of his property in the delivery thereof of the assignee; 4. Procuring his properties to be attach or seized on execution within one month before the commencement of insolvency proceedings; 5. Destruction, mutilation, alteration or falsification of his books, documents and papers; 6. Giving fraudulent preferences to a creditor; 7. Non-disclosure to the assignee of a proven false or fictitious debt with one month after acquiring knowledge; 8. Being a merchant, failure to keep proper books of accounts; 9. Influencing the action of any creditor, at any stage of the proceedings, by any pecuniary consideration; 10. Effecting any transfer, conveyance or mortgage in contemplation of insolvency; 11. Conviction of any misdemeanor under the Insolvency Law; 12. In case of voluntary insolvency, he has received the benefit of insolvency within six years preceding his application for discharge ; and 13. In insolvency proceedings in which he could have applied for a discharge are pending by or against him in the Regional Trial Court of any other province or city. Debts released by discharge The following are debts are released by discharge under the Insolvency Law; 1. All claims, debts, liabilities, and demands set forth in the schedule; and 2. All claims, debts, liabilities and demands which were might have been proved against the estate in insolvency. Debts are not released by discharge The following debts are not released by discharge under the Insolvency Law: 1. Taxes are assessments due the Government. Whether national or local; 2. Any debt created by the fraud or embezzlement of the debtor; 3. Any debt created by the declaration of the debtor as a public officer or while acting a fiduciary capacity; Debt of any person

4. 5. 6. 7.

liable for the same debt, for or with the insolvent debtor, either as partner, joint contractor, indorser, surety or otherwise; Debts or a corporation because a corporation is not granted a discharge; Claim for support otherwise it will make the law a means of avoiding the enforcement of the obligation, moral and legal, devolving upon the husband to support his family; Claims for unliquidated damages arising out of a pure tort; Claims of secured creditors.

Legal effects of discharge 1. It releases the debtor from all claims, debts, liabilities and demands set forth in the schedule or which were might have been proved against his estate in insolvency. Hence, nonprovable debts are mot affected whether or not they were properly scheduled; 2. It is a special defense which may be pleaded and be a complete bar to al suits brought on any such debts, claims, liabilities or demands; 3. The certificate of discharge is prima facie evidence of the fact of release, and the regularity of such discharge. Discharge may be revoked 1. Whose debt was proved or provable against the estate in insolvency, on the ground that the discharge was fraudulently obtained; 2. Who has discovered facts constituting the fraud subsequent to the discharge provided 3. The petition is filed within one year after the date of the discharge. H. FRAUDULENT PREFERENCES AND TRANSFERS Transfer - it includes the sale and every other and different mode of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment pledge, mortgage, gift, or security. A deposit of money is not a transfer. Preferential Transfer - to constitute with the meaning of the Insolvency Law, there must be a parting with the insolvents property for the benefit of the creditor and a consequent diminution of the insolvents estate with the result that such creditor receives a greater proportion of his claim than the other creditors of the same class. Fraudulent Preference - It is committed when debtor procures any part of his property to be attached on execution or makes any payment, pledge, mortgage, assignment, transfer, sale or conveyance of any part of his property , whether directly or indirectly, absolutely or conditionally to any one under the following circumstances: 1. The debtor is insolvent or in contemplation of insolvency 2. The transaction in question is made within thirty days before the filing of a petition by or against the debtor 3. It is made with a view to giving preference to any creditor or person having a claim against him 4. The person receiving a benefit there from has reasonable cause to believe a. That the debtor is insolvent b. That the transfer is made with a view to prevent his property from coming to his assignee in insolvency or to prevent the same from being distributed ratably among his creditors or to defeat the object of or in any way hinder the operation of or evade provisions of the Insolvency Law. Equal Exchange - an exchange of securities within the thirty day period is not a fraudulent preference under the law even when both parties know that the debtor is insolvent, if the security given up is a valid one at the

time the exchange is made and of equal value with the one received in exchange. Fraudulent Transfer - any payment, pledge, pledge, mortgage, conveyance, sale, assignment, or transfer of property of whatever character made by the insolvent within one month before the filing of a petition in insolvency by or against him except for a valuable pecuniary consideration in good faith. Such transfer is void. As against the creditor of the insolvent, any conveyance or assignment fraudulently made is void. Hence, no title is acquired by the transferee. I. PENAL PROVISIONS Acts criminally punishable A debtor who commits any one of the following acts shall upon conviction thereof, be punished by the imprisonment for not less than 3 months not more than 5 yrs. For each offense: 1. After commencement of insolvency proceedings: a. Concealing any part of his estate; b. Destroying, altering, mutilating or falsifying any boo, deed, document, or writing relating thereto; c. Removing the same with intent to prevent or delay its recovery by the assignee; d. Making any payment, gift, sale, assignment, transfer or conveyance of property belonging to his estate with like intent; e. Spending any part thereof in gaming; f. Concealing from his assignee or omitting from the schedule any part of his property with intent to defraud; g. Failing to disclose to his assignee the fact that a person has proved a false or fictitious claim against his estate within one month after coming to the knowledge or belief thereof; h. Attempting to account for any of his property by fictitious looses or expenses. 2. Within 3 months before commencement of insolvency proceedings: a. Obtaining on credit from any person, any goods or chattels, with intent to defraud, under the false pretense of carrying an ordinary course of business; b. Making any pledge or disposition of otherwise then by bona fide transactions in the ordinary course of his trade, with intent to defraud, any of his goods or chattels which have been obtained on credit and remain unpaid for; c. Suffering loss in any kind of gaming when such loss is one of the causes determining the commencement of insolvency proceedings; d. Selling at a loss or for less than the current price any goods bought on credit and still unpaid for; e. Advancing payment to the prejudice of his creditors. 3. During proceedings for suspension of payment: a. Concealing or destroying any property belonging to his estate; b. Destroying, altering, mutilating or falsifying any boo, deed, document, or writing relating thereto; c. Making any payment, sale, assignment, transfer or conveyance of property belonging to his estate; d. Spending any part thereof in gaming; e. Falsely swearing to the schedule and inventory exacted by par. 2 of Section 2 as required by Section 15, 16 and 14 with intent to defraud his creditors; f. Violating in any manner whatsoever the injunction issued by the court under Section 3. J. MISCELLANEOUS PROVISIONS Effect of death of insolvency debtor on insolvency proceedings

It depends--1) If the debtor shall die after the order of adjudication, the proceedings shall be continued and concluded in the same manner and with like validity and effect as if he had lived. 2) If the death occurs before the order of adjudication, the proceedings shall be discontinued. The claims must be filed in the proper testate or intestate proceedings as provided for in the Rules of Court on the settlement of a decedents estate Duty of court where property exempt from execution. It shall be the duty of the court having jurisdiction of the proceedings petition and after hearing held upon due notice, to exempt and set apart, for the use and benefit of the insolvent, such real and personal property as is by law exempt from execution. (Sec.75) When insolvency proceedings deemed to commence. The filing of a petition by or against a debtor upon which or upon an amendment of which, an order of adjudication in insolvency may be made, shall be deemed to be the commencement of proceedings in insolvency under the Act. (Sec.76) When receiver may be appointed. Upon the filing of either a voluntary or an involuntary petition in insolvency, a receiver may be appointed by court on which the proceeding is pending, at any time before the election of an assignee, when it appears by the verified petition of a creditor: 1) That the assets of the insolvent or a considerable portion thereof have been pledged, mortgaged, transferred, assigned, conveyed, or seized, on legal process in violation of Sec.70; and 2) That it is necessary to commence an action to recover the same. The receiver shall deliver all the property; assets or effects remaining in his hands to the assignee who shall be substituted for him in all pending actions or proceedings. (Sec.78) When petition may be dismissed The court, upon giving due notice, may dismiss the petition and discontinue the proceedings at any time before the appointment of an assignee: 1) If it be a voluntary petition- upon the application of the debtor, if no creditor files written objections; 2) If a creditors petition- upon the application of the petitioning creditors; or 3) By written consent of all creditors filed in court, in w/c case, the proceedings may be dismissed at any time. After the appointment of an assignee dismissal is not allowed w/o the consent of all the parties interested in or affected thereby. (Sec.81) When appeal may be taken to the Supreme Court. An appeal may be taken to the Supreme Court in the ff. cases: 1) From an order granting or refusing an adjudication in insolvency and in the latter case, from the order fixing the amount of costs, expenses, damages, and attorneys fees allowed the debtor; 2) From an order allowing or rejecting a creditors claim when the amount in dispute exceeds 300,000.00; 3) From an order allowing or denying a claim for property not belonging to the insolvent, presented under Sec48(supra); 4) From an order setting an account of an assignee; 5) From an order against or in favor of setting apart homestead or other property claimed as exempt from execution; and 6) From an order granting or refusing a discharge to the debtor. (Sec.82) Effectivity The insolvency Law took effect on its passage. (Sec. 84). It was enacted on May 20, 1909.

I.

II.

III.

IV.

V. VI.

VII.

TRUTH IN LENDING ACT Republic Act No. 3765 (approved June 22, 1963). The purpose of law To protect users of credit from a lack of awareness of the true cost of such credit by requiring a full disclosure of such cost. Obligation imposed by the Act on creditors. (Sec.4) Act imposes upon creditors the obligation of furnishing to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing (usually called a disclosure statement) setting forth, to the extent possible, the following: a) Cash or delivered price of the property or service to be acquired. b) The amounts, if any to be credited as down payment and/or trade in; c) Difference b/w the amounts in items (a) and (b); d) Charges, individually itemized w/c are paid or to be paid by such person in connection w/ the transaction but w/c are not incident to the extension of credit. e) Amount to be financed; f) Finance charge expressed in terms of pesos and centavos; and g) Percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. What credit transactions is w/in the scope of the Act, dated October 29, 1963, implementing RA 3765) a) Loans, mortgages, deeds of trust, advances, and discounts. b) Conditional sales contracts, any contract to sell, or sale or contract of sale of property or services. c) Rental purchase contract d) Contract for the hire, bailment or leasing of property e) Option, demand, lien, pledge, or other claim against; f) Any obligation or claim arising out of any of the foregoing; g) Transaction or series of transactions having a similar purpose or effect. Credit transactions are outside the scope of the Act? a) Those that do not involve the payment of any finance charge by the debtor; b) Debtor is the one specifying a definite and fixed set of credit terms such as bank deposits, sale of bonds etc. Finance charges- are the amounts to be paid by the debtor incident to the extension of credit such as interests, discounts, collection fees. Non-finance charges.-are the amounts advanced by a creditor for items normally associated w/ the ownership of property or the availment of the services purchased w/c are not incident to the extension of credit . SC Ruling: Consolidated Bank Trust Co. vs. CA, 246 SCRA 193 (1995) Circular requires banks to adhere strictly to the provisions of the Truth in Lending Act.

LETTER OF CREDIT- (1) is an engagement by a bank or other person made at the request of a customer/that the issuer will honor drafts of other demands for payment upon compliance w/ the conditions specified in the credit. (2) Buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that by virtue of the letter of credit, issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously w/ the tender of documents required by the letter of credit. What Law Governs Letter of Credit? a) Articles 567-572 of the code, w/c provides a skeletal introduction to the subject of letters of credit; b) The Uniform Customs and Practices for Documentary Credits. Essential conditions of a Letter of Credit a) Issued in favor of a definite person and not to order and b) Limited to a fixed and specified amount. Conditions for a Letter of Credit Becoming Void a) If the bearer of a letter of credit does not make use of thereof w/in the period agreed upon w/ the drawer or in default of a period fixed w/in 6 months, counted from its date, in any point in the Philippines/and w/in 12 months anywhere outside thereof, it shall be void in fact and in law. b) Letter of Credits are perfected from the time the correspondent bank makes payment to persons in whose favor the letter of credit has been opened. Parties to a Letter of Credit a) Buyer- procures the letter of credit and obliges himself to reimburse the issuing bank upon receipt of the documents of title; b) Bank issuing the letter of credit- undertakes to pay the seller upon the receipt of the draft and proper titles/and to surrender the documents to the buyer. c) Seller- in compliance w/ the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment. Principles of Letter of Credit a) Independence principlea bank in determining compliance w/ the terms of a letter of credit is required to examine only the shipping documents presented by the seller/precluded from determining whether the main contract is actually accomplished or not. b) Rules of strict compliance in documents tendered by the seller of beneficiary must strictly conform to the terms of the letter of credit. Kinds of Letter of Credit a) Irrevocable- issued by a bank who bindsitself to honor any drafts drawn against the letter of credit, w/c cannot be modified or cancelled w/o the consent of all the parties including the beneficiary or seller. b) Revocable- maybe modified or committed at any time prior to any payment. Intended as means of making payment but not as a guarantee of payment. c) Confirmed- a confirmation by a bank of a letter of credit issued by another bank making both obligated to honor and pay on draft issued against the letter of credit. d) Unconfirmed- is the sole obligation of the issuing bank. e) Revolving- one that is valid or good for several transactions over a given period of time. f) Non-revolving- valid and good only for one transaction. g) Cumulative- the carry over undrawn amount of the letter of credit over a period of time.

LETTERS OF CREDIT (Articles 567-572, Code of Commerce) Code of Commerce describes letters of credit as those issued by one merchant to another or for the purpose of attending to a commercial transaction.

h) i)

Non-cumulative- amount not used by the seller w/in a given period of time and may not be drawn against in a subsequent period. Standby letter of credit- a bank issued option on a loan involving the bank-issuer/account party requesting for such issuance; and the beneficiary, who may draw against the standby letter of credit if the account party fails to meet, performs on its commitment under the obligation.

DRAFT - is a bill of exchange w/c is a written order by a seller instructing the buyer or its agent (w/c could be a bank) to pay the amount at a specified time. Parties to a Draft 1) Maker/Drawer/Originator- party initiating the draft. 2) Drawee (Agent) - party whom the draft is addressed and is asked to honor or pay the draft. Kinds of Draft 1) Trade draft- the drawee is the buyer 2) Bank draft- the drawee is the buyers bank. Types of Drafts 1) Sight draft- payable upon sight or presentation of the draft. It must be paid at once or dishonored. 2) Time draft (Usance draft)- allows time for payment w/c must be from the date of said draft, is marked accepted by the drawee. 3) Clean draft- an order to pay w/o any accompanying document. BILL OF LADING - is the document issued by a common carrier transporting merchandise for three purposes: a) As a receipt for the merchandise received for transport. b) As a contract to transport the merchandise received to another destination for a fee. c) As a document of title over the merchandise transported. Types of Bill of Lading 1) Straight Bill of Lading- the carrier is obligated to deliver the goods to the designated named consignee. It is not title to goods and is not needed for the consignee to take possession of the goods. 2) Order Bill of Lading- directs the carrier to deliver the goods to the order of the named/designated party. It grants title to the goods in whom it is named, who must surrender the same to obtain possession over the goods. 3) Clean Bill of Lading- indicates that the goods were received by the carrier in apparent good condition. 4) Foul Bill of Lading- one issued for goods w/c has some defect or damage before shipment. Not negotiable. 5) On Board Bill of Lading- indicates that the goods have been placed on board. The vessel or carrier whose name is specified on the document. 6) Received for Shipment Bill of Lading-allows possibility for the goods to be sitting on the dock for a time. 7) On Deck Bill of Lading- indicates that the goods have been stowed on deck. These last two bills of lading are unacceptable unless authorized under the letter of credit. Other Documents Needed to Have or Pay on the Draft 1) Commercial invoice 2) Consular invoice 3) Certificate of analysis 4) Packing list 5) Export declaration TRUST RECEIPTS LAW (P.D. 115, January 29, 1973) Origin of the Trust Receipt Law

It was closely patterned after the Uniform Trust Receipts Act promulgated in 1993 by the United Sates National Conference of Commissioners on Uniform State Laws and adopted by roughly 2/3 of the states. The UTRA was replaced in 1952 by the Uniform Commercial Code. The UTRA, just like the Trust Receipts Law, contemplated a tripartite arrangement under w/c a buyer, called an entrustee, purchased goods from a seller, w/ the financing being provided by a lender called the entruster. Purposes of Trust Receipt Law a) To encourage and promote the use of trust receipts as an additional and convenient aid to commerce and trade. b) To regulate trust receipt transactions in order to assure the protection of the rights and the enforcement of the obligation of the parties involved. Trust Receipt Transaction- a transaction b/w an entruster and an entrustee, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, transfer title/releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a trust receipt. Parties to a Trust Receipt a) Entruster- person holding title over the goods, subject to a trust receipt transaction. b) Entrustee- person having or taking possession, goods, documents, instruments under a trust receipt transaction. Differences of Trust Receipt From: a) Pledge- person doing the financing has possession of the property; in trust receipt, property is in possession of the person financed. b) Conditional sale- sale of the property from the seller to the buyer; in a trust receipt, no sale of the property from the entruster to entrustee. c) Chattel mortgage- involves creation of lien; trust receipt does not involve creation of lien. d) Consignment- consignor retains title to the property to secure the indebtedness due from consignee; in the trust receipt seller does not retain title to the property but transfers such title to the intruster. Rights to the Entruster a) Received the proceeds of the sale of the goods, released under a trust receipt to the entrustee to the extent amount owing to the entruster. b) The return of the said goods, etc. in case they could not be sold. c) Cancelled the trust receipt in case the entrustee defaults. Rights to the Entrustee a) To hold the goods in trust for the entruster and to dispose of them strictly. b) To receive the proceeds of the sale of the goods, etc. in trust for the entruster and to turn over the same. c) To insure the goods for their total value against loss from fire, theft, pilferage or other casualties. d) To keep the goods, or the proceeds thereof, whether in money or whatever form, separate and capable of identification. e) To return the goods, to the entruster in case they could not be sold or upon demand of the entruster. Penal Provision of Trust Receipt Law

WAREHOUSE RECEIPTS LAW(Act 2137, February 5, 1912) Purposes of Warehouse Receipt To prescribe the rights and duties of a warehouseman and to regulate the relationship between a warehouseman. Obligations of a Warehouseman

To issue receipt for goods received for storage w/c must indicates: 1) Location of warehouse 2) Date of issue 3) Receipt no. 4) Negotiability of the receipt 5) Deliver to either bearer 6) Rate of storage fees 7) Description of goods and the packages containing them 8) Signature of the warehouseman/agent 9) Whether or not warehouseman is the sole owner or joint owner w/ others of the goods deposited 10) Statement of an advances made on the goods deposited for w/c he claims a lien 11) Failure to state any of the foregoing information w/c causes injury or damage to a person will make him liable for damage by such omission. A warehouse may add other terms to the warehouse receipt provided they are not contrary to the laws provision, dont impair the degree of care in safekeeping the goods entrusted to him w/c is as they were his own. Kinds of Warehouse Receipts: 1) Negotiable- states that the goods received will be delivered to bearer or to the order of any person named in such receipt the negotiable nature of the receipt does not come under the negotiable instrument/law. 2) Non-negotiable- receipt w/c indicates on its face the word non-negotiable placed on its face. Obligation to Deliver Goods Without any lawful, valid excuse provided in the law the warehouseman is under obligation to deliver the goods upon demand either by the: 1) Holder of such receipt for the goods; or, 2) By the depositor, provided that such demand is accompanied by: a) An offer to pay the warehousemans lien b) Surrender of the receipt if its negotiable; c) Willingness, readiness, to sign an acknowledgement for the goods delivered. When is the Delivery of the Goods Justified? a) Delivery of the goods by the warehouseman is justified to one lawfully entitled to the possession of the goods. Example: 1) To a person who purchased the goods at an auction sale thereof conducted under the authority of Sec.33 to satisfy the warehousemans lien. 2) To a person who purchased the goods at the auction sale thereof because of its hazardous or perishable nature. 3) In an interpleader filed by the warehouseman the person determined by the court who is entitled to the delivery of the goods under Sec.17 of the law. 4) Donee of the goods. b) To the person who is himself entitled to deliver of the goods by the terms of a non-negotiable receipt. c) To the person in possession of a negotiable receipt by the term of w/c the goods are deliverable to him or order. Liabilities of the Warehouseman 1) Misdelivery 2) Co-mingling of deposited goods

Failure to mark a receipt intended to be non-negotiable as non-negotiable 4) Failure to take up and cancel a negotiable receipt or to place upon its statement that the goods were delivered in full where in fact partially delivered. 5) For altered receipt 6) For non-description of the goods deposited 7) Issuing receipt for goods not received 8) For false statements on the receipts 9) For issuing duplicate receipt not so marked 10) For issuing receipt w/c do not state the fact 11) For delivery of goods w/o getting back the negotiable receipt. In all the foregoing cases, liability extends not only to the warehouseman but to any officer, agent or servant of the warehouse. Warehousemans Lien The lien of the warehouseman attaches on the goods deposited or on the process thereof in his hands for all lawful changes for storage, preservation of the goods, money advanced in relations to such goods. The lien maybe enforced against all goods belonging to the person liable for the charges, as well as against all goods belonging to other deposited by the person liable for the possession of the goods and could have validly pledged the same. The lien is lost by surrendering the same or by refusing to deliver the goods when a demand is made w/c he is bound to comply under the law. Perishable or Hazardous Goods Deposited Sold to satisfy the warehousemans lien does not make the warehouseman liable even if the warehouse receipt is negotiable. Rights of a Person to Whom a Negotiable Warehouse Receipt Has Been Negotiated 1) Title to the goods as the person negotiating/transferring the receipt could convey and 2) Direct obligation of the warehouseman to hold the goods for him. The New Interim RTC Rules on Corporate Rehabilitation/Recovery Debt relief cases filed after June 30, 2000 were transferred to RTC. This new rules took effect on December 15, 2000. I. Nature of Rehabilitation Case 1) Filed in the place of debtors principal office. 2) Proceedings are deemed in rem, w/c means that any decision is binding on all persons whether or not they participated in the proceedings. 3) Jurisdiction is acquired upon the publication of the notice of the commencement of the proceedings in the manner prescribed by the rules. 4) The Rules shall be liberally constructed in order to carry out the objectives of the Rules for the expeditious, inexpensive resolution of the case. II. Who can avail of the Proceedings 1) Available to all corporation, partnership, association that foresees the impossibility of not meeting its debts when they fall due. 2) Creditors singly and/or jointly w/ other creditors w/c holds at least 25% of the debtors liabilities may file a joint petition for rehabilitation. The contents of the Petition Filed by the Debtor a) Name and business of the debtor b) Nature of the debtors business c) History of the debtor d) Cause of the debtors inability to pay its debts e) All the pending actions or proceeding known to the debtor and the courts or tribunals where they are pending.

3)

Threats or demands to enforce claims or liens against the debtor g) The manner by w/c the debtor may be rehabilitated. What should be attached to the Petition? a) Audited financial statements as of the end of the debtors last fiscal year b) Interim financial statements as of the end of the month prior to the filing of the petition. c) Schedule of debts and liabilities d) Inventory of assets e) Rehabilitation plan f) Schedule of the debtors cash flow g) Affidavit of general financial condition h) Names of at least 3 nominees for the position of Rehabilitation Receiver i) Certificate under oath attesting to the fact that: i. The filing has been duly authorized ii. The directors and stockholders have irrevocably approved and consented to all actions including but not limited to, amendments to the articles of incorporation and by-laws; increase or decrease in the authorized capital stock; issuance of bonded indebtedness; alienation etc. Attachments to the Petition Filed by creditor(s) a) Rehabilitation plan and b) List of nominees to the position of rehabilitation receiver. III. Stay Order 1) The court is required to act on the petition not later than (5) days from filing of the petition. 2) If the position is sufficient in form and substance on its face the court may issue an order to stay all actions against the debtor. 3) Petitioner is required to publish the order in a newspaper of general circulation once a week for two consecutive weeks. 4) Creditor must secure a copy of the petition and its annexes from the court 5) Creditors must file their comments on the position not later than (10) days from the initial hearing. 6) The stay order must immediately be served on the rehabilitation receiver appointed by the court; who shall manifest his acceptance or not of the appointment w/in (10) days from receipt of the order. IV. Suspension of Actions 1) The stay order once issue all actions for claims are suspended for the duration of the rehabilitation proceedings. 2) The stay order benefits guarantors in the sense that the creditor cannot enforce the guaranty pending the rehabilitation proceedings. Those who are in joint several capacity w/ the debtor are not spared. 3) The stay order a suspension action against the debtor, w/covers all claims, whether for money or otherwise. 4) Stay order affects all creditors (a deviation from the insolvency law w/c exempted secured creditors and preferred creditors from the suspensions.) 5) Stay order instructs the debtor from disposing of assets outside the ordinary course of business. V. Rehabilitation Receiver 1) The issuance of the stay order of action must be accompanied by the appointment of a receiver who must: a) Meet the standard of competence set forth in the interim rules. b) Has no conflict of interest c) Considered an officer of the court

f)

VI.

VII.

VIII.

IX.

X.

Tasked to study the best way to rehabilitate the debtor e) To ensure that the value of the debtors property is reasonably maintained pending the rehabilitation proceedings. f) Has the power to access the debtors employees, premises, financial documents g) Not subject to any action, claim in connection w/ any act done or omitted by him in good faith in the exercise of powers and functions h) Doesnt replace the management of the debtor i) Power to recommend the appointment of a management committee in appropriate area. The interim rule does not expressly provide the power to appoint a management committee over debtor in rehabilitation. However such appointment may be sought as an incident to any of the cases filed under the interim rules. Initial Hearing 1) At the initial hearing the creditors and interested parties may formally participate in the proceedings. 2) Hearing must take place not earlier than 45 days not later than 60 days from the filing of the petition. 3) It is at the initial hearing where the motions to dismiss by creditors maybe filed for non-compliance of the petition w/ rules. 4) Only the creditors who filed their comments on the petition w/in the period prescribed by the rules are allowed to participate in the initial hearing and rehabilitation proceedings. 5) If the petition survives in the initial hearing, the court is required to submit the petition and proposed rehabilitation plan to rehabilitation receiver. 6) The receiver is given 120 days from the date of the initial hearing to submit his recommendation to the court. 7) Before submitting his recommendation, receiver is expected to meet the petitioner and the creditors to enable him to make an intelligent recommendation to the court. Administrative Expenses and Post-Petition Financing 1) Petitioner/debtor required to make payments for administrative expenses. 2) No- super priority for the creditors offering postpetition credits. 3) The prohibition against encumbering assets outside the ordinary course of business is a discouragement for creditors; unless a creditor is willing to lend money on clean basis. Voidability of Fraudulent Transfer(s) and Preference(s) 1) The interim rules allow the court to invalidate any transaction or preferences made by the petitioner in violation of stay order. 2) Voiding transaction made before the imposition of the stay order is not expressly granted in the interim rules w/c is silent on the matter. Protection for secured creditors The Rules provide adequate protection for secured creditors against depreciation and neglect that threaten the securitys value. Exception to adequate protection when it jeopardizes a rehabilitation plan 1) When such protection in will prevent the continuation of the debtor as a going concern or otherwise prevent the approval and implementation of rehabilitation plan.

d)

2) XI.

XII.

XIII.

XIV.

This exception however does not expressly give an alternative for the secured creditor to take action to protect his position. Rehabilitation Plan Contents a) The desired business targets or goal and the duration and coverage of the rehabilitation. b) Terms and conditions of rehabilitation c) Material financial commitments to support rehabilitation plan d) Means for execution of the rehabilitation plan e) Liquidation analysis f) Other relevant information Submission of the Rehabilitation Plan for Court Approval Once the comment period by the receiver and interested parties expires w/c is (10) days from the initial hearing; debtor has the choice for moving for the court approval of the plan. One year from the date of initial hearing is the deadline to submit a substitute plan. Creditors objection and possibility of overcoming the objections 1) If creditors representing a majority of the total liabilities of the debtor oppose the rehabilitation plan the interim rules implicitly suggest that the court has the right and duty to disapprove the plan, lift the stay order and dismiss the proceedings; however; 2) The law may still allow the court to approve the plan despite objections of the majority of creditors if the opposition is manifestly unreasonable under any or all of the following circumstances: a) The plan provides the creditors, w/ compensation greater than when the debtors assets were liquidated. b) The shareholders of the debtor lose at least their controlling interest by reason of the plan. c) The rehabilitation plan was recommended for approval by the receiver. d) The court is required to make such finding upon w/c to base its approval of the plan over the objections of the creditors. Effect of Rehabilitation Plan Approval 1) By reason of the interim rules the courts have been given the power to unilaterally alter contractual rights of debtor w/ his creditors. 2) The approved rehabilitation plan is binding upon the debtor and all persons who may be affected by it. 3) These alterations are irreversible even if the plan fails. 4) Any compromises on amounts shall be binding regardless of whether or not the plan is successful.

WHAT MAKES IT DIFFERENT FROM A PLEDGE? 1) Delivery of the personal property to the mortgagee is not necessary 2) The registration in the Register is required by law 3) Procedure for the sale given as security is different 4) If the property is foreclosed and there is excess, the amount goes to the debtor 5) If there is deficiency, the creditor may recover the deficiency from the debtor except if the chattel mortgage is a security for the purchases of the personal property in installments. SIMILARITY BETWEEN PLEDGE AND CHATTEL MORTGAGE Subject matter is movable property WHEN DO YOU DO A Chattel Mortgage OR PLEDGE? > When property needs to be retained by the debtor, then opt for a chattel mortgage Art. 2141. The provisions of this Code on pledge, insofar as they are not in conflict with the Chattel Mortgage Law shall be applicable to chattel mortgages. (n) LAWS GOVERNING CHATTEL MORTGAGE 1) Chattel mortgage law, Act 1508 2) Civil Code 3) Revised Administrative Code 4) Revised Penal Code 5) The Ship Mortgage Decree of 1978 governing mortgage of vessels of domestic ownership. OFFENSES INVOLVING CHATTEL MORTGAGE 1. Knowinglyremoving personal property mortgaged to any province or cit y other than the one in which it was located at the time of the execution of the mortgage without the written consent of the mortgagee. 2. Selling or pledging personal property already mortgaged or any part thereof, under the terms of the Chattel Mortgage Law without the consent of the mortgagee written on the back of the mortgage and duly recorded in the Chattel Mortgage Register. REAL ESTATE MORTGAGE (ART. 2124-2131 NCC) MORTGAGE - a.k.a real estate mortgage - contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, specially substituting to such security immovable property or real rights over immovable property which obligation shall be satisfied with the proceeds of sale of said property or rights in case the said obligation is not complied with at the time stipulated. CHARACTERISTICS OF MORTGAGE Real, accessory, unilateral and subsidiary contract POSSESSION OF PROPERTY MORTGAGED As a general rule, the mortgagor retains possession of the mortgaged property, hence the mortgagor may deliver said property to the mortgagee, w/out thereby altering the nature of the contract. PAYMENT OF INTEREST ON MORTGAGE CREDIT With regard to fruits or interest, the mortgagee shall be subject to the oblig ation of antichresis creditor. Kinds or Mortgage 1) Voluntaryagreed to between the parties or constituted by the will of the owner of the property on which it is created 2) Legalrequired by law to be executed in favor of certain persons. 3) Equitablelacks the proper formalities or other requisites of a mortgage, shows the intention of the parties to make the property as a security for a debt. SUBJECT MATTER OF MORTGAGE

CHATTEL MORTGAGE(Arts. 2140-2141, NCC) Art. 2140. By a chattel mortgage, is a contract by virtue of w/c a personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. If the movable, instead of being recorded, is delivered to the creditor or a third person, the contract is a ple dge and not a chattel mortgage. CHARACTERISTICS 1) Accessory contract- purpose of securing the performance of a principal obligation. 2) Formal contract- because for its validity, registration in the Chattel Mortgage Register is indispensable. 3) Unilateral contract- produces only obligations on the part of the creditor to free the thing from the encumbrance on fulfillment of the obligation.

Immovable and alienable real rights imposed upon immovable. 1) MACEDA LAW Grace period of one month for every one year of installment payments 60 days, if less than two years of installment payments. During the Grace Period 1) To pay w/o additional interest on unpaid installments w/in the grace period. Availed once every 5 years of the contract and its extension if any. 2) To sell or assign his rights to another person by notarial act. 3) To pay in advance any installment or the full unpaid balance of the purchase price w/o interest. Cancellation- after the grace period expires Actual cancellation of the contract referred to above shall take place only: 1) After 30 days from receipt by the buyer of the notice of cancellation or demand for rescission. 2) Vendee must be refunded of the cash surrender value of his payments equal to 50% of his total payments made during the first five years, he is entitled to an increase of 5% every year but not exceed 90% of his total payments. Right to Vendor (Owner) To cancel a contract after 30 days from the receipt of notice of cancellation by the vendee. Only after full payment of the cash surrender value to the vendee where applicable; thus where the vendee has paid less than 2 years installment, he is not entitled to be paid the cash surrender value. Within what period should the redemption of the foreclosed property be made? The foreclosed property shall be redeemed after 1 year from the date of sale. The one year period of redemption is not available if the foreclosure is done extra judicially, redemption shall be made until, but not after the registration of certificate of foreclosure sale w/ the applicable Register of Deeds w/c in no case shall be more than 3 months. Register of Deeds shall issue a new certificate of title in favor of the purchaser after the owners duplicate certificate has been previously delivered and cancelled. GUARANTY AND SURETYSHIP (Arts. 2047-2084, NCC) ART 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the contract is called a suretyship. Guaranty - a contract between the guarantor and creditor Characteristics: a) Accessory - defendant for its existence upon the principal obligation guaranteed by it b) Subsidiary and conditional- takes effect only when the principal debtor fails in his obligation subject to limitation c) Unilateral- it gives rise only to a duty on the part of the guarantor in relation to the creditor although after its fulfillment, the principal debtor becomes liable to indemnify the guarantor, but only an incident of the contract. -It may be entered into even without the intervention of the principal debtor d) It is a contract w/c requires that the guarantor must be a person distinct from the debtor because a person cannot be the personal guarantor of himself; however, in real guaranty, like pledge and mortgage, a person may guarantee his own obligation with his personal or real properties Classification of guaranty: Guaranty in the broad sense: a. Personal- refers to guaranty properly so-called or guaranty in the strict sense The guaranty is the credit given by the person who guarantees the fulfillment of the principal obligation b. Real- guaranty is property, movable or immovable. If immovable, it is in the form of real mortgage or antichresis. If movable, it is in the form of pledge or chattel mortgage. As to its origin: a. Conventional- one constituted by agreement of the parties b. Legal- one imposed by virtue of a provision of law c. Judicial - one required by a court to guarantee the eventual right of one of the parties in a case. As to consideration: a. Gratuitous- one where the guarantor does not receive any price or remuneration for acting as such b. Onerous- one where the guarantor receives valuable consideration for his guaranty As to the person guaranteed: a. Single - one constituted solely to guarantee or secure performance by the debtor of the principal obligation. b. Double or sub-guaranty - one constituted to secure the fulfillment by the guarantor of a prior guaranty As to its scope and extent a. Definite- one where the guaranty is limited to the principal obligation only, or to a specific portion thereof b. Indefinite or simple- one where the guaranty includes not only the principal obligation but also all its accessories including judicial cost

2.

3.

4.

5.

Nature of suretys undertaking a) Liability is contractual and accessory but direct -The suretys obligation is not an original and direct one for the performance of his act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, his liability to the creditor or promisee of the principal is direct, immediate, primary and absolute. b) Liability is limited by terms of contract - It is basic that the liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed. The extent of the surety liability is determined only by the clause of the contract of suretyship. It cannot be extended beyond the terms of the contract. c) Liability arises only if principal debtor is held liable The surety is considered in law as being the same party as the debtor in relation to whatever is adjudge touching the obligation of the latter. If the principal debtor and the surety are held liable, their liability to pay the creditor would be solidarily but the nature of the suretys undertaking is that it does not incur liability unless and until the principal is held liable. d) Surety is not entitled to exhaustion - The surety is not entitled to the exhaustion of the properties of the principal debtor because it assumes a solidarily liability for the fulfillment of the principal obligation. e) Undertaking is to creditor, not to debtor - Under a contract of suretyship the suretys undertaking is that the principal shall fulfill his obligation and that the surety shall be relieved of liability when the obligation secured is performed.

In a contract of suretyship, unless otherwise expressly provided, the surety makes no covenant or agreement with the principal that it will fulfill the obligation guaranteed for the benefit of the principal. Guaranty distinguished from suretyship 1. A surety assume liability as a regular party to the undertaking , while the liability of guarantor depends upon an independent agreement to pay the obligation if the principal fails to do so. 2. A surety is charged as an original promisor, while the engagement of the guarantor is collateral undertaking. 3. The guarantor is secondarily liable, while surety is primarily liable. Guarantor not insurer of debt guaranteed It would then follow that while a surety undertakes to pay if the principal does not pay; the guarantor only binds himself to pay if the principal cannot pay. The surety is an insurer of debt and the guarantor is an insurer of the solvency of the debtor. Guaranty and indorsement distinguished 1) The contract of indorsement is primarily that of transfer, while the contract of guaranty is that of security. 2) The liability of a guarantor is more extensive that of an endorser. 3) A guarantor warrants the solvency of the promisor w/c the endorser does not. 4) A guarantor cannot be sued as promisor, but an endorser may be sued. PLEDGE Pledge - is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable (Article 2094) or document evidencing incorporeal rights (Article 2095) for the purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and accessions. Characteristics of Pledge 1. A real contract because it is perfected by the delivery of the thing pledged by the debtor who is called the pledge or to the creditor who is the pledge, or to a third person by common agreement; 2. An accessory contract because it has no independent existence of its own; 3. A unilateral contract because it creates an obligation solely on the part of thecreditor to return the thing subject thereof upon the fulfilment of the principal obligation; 4. A subsidiary contract because the obligation incurred does not arise until the fulfillment of the principal obligation to which it is secured. Essential Requirements 1. The pledge is constituted to secure the fulfilment of a principal obligation. 2. The pledgor or mortgagor is the absolute owner of the thing pled ged or mortgaged. 3. The persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. 4. The thing pledged must be delivered to the creditor or to a third person by common agreement. D. Distinctions betweenPledge and Real Mortgage Pledge Real Mortgage

Movable property Immovable property Delivery of the object Delivery of the thing pledged to the pledge or a mortgaged is not necessary third person Pledge is not valid against Mortgage is not valid third persons unless against third persons if not description of the thing registered pledged and the date of the pledge appear in a public instrument ANTICHRESIS - Antichresis is a contract whereby the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing and thereafter to the principal of his credit. Characteristics of ANTICHRESIS 1. It is an accessory contract because it secures the performance of a principalobligation.2.It is a formal contract because the amount of the principal and of the interest must both be in writing, otherwise the contract of antichresis is void. Note: 1. Delivery of the property to the creditor is required only in order that the creditor may receive the fruits and not for the validity of the contract. 2. It is not essential that the loan should earn interest in order that it can be guaranteed with a contract of antichresis. Antichresis is susceptible of guaranteeing all kinds of obligations, pure or conditional. 3. The fruits of the immovable which is the object of the antichresis must be appraised at their actual market value at the time of the application. 4. The property delivered stands as a security for the payment of the obligation of the debtor in antichresis. Hence, the debtor cannot demand its return until the debt is totally paid.5.A stipulation authorizing the antichretic creditor to appropriate the property upon the non-payment of the debt within the period agreed upon is void. (See Article 2038).

C. Distinctions between Antichresis and Pledge Antichresis Refers to real property Perfected by mere consent Consensual contract Pledge Refers to personal property Perfected by delivery Real Contract

BULK SALES LAW - Protect creditor of merchant stored 3 types of transactions: 1. Sale of goods other than in ordinary course of business 2. Sale of business 3. Sale of fixtures &equipments Should cover only merchants because creditors cannot get adequate sec uritybecause goods are sold ordinarily in course of business Not covered: 1. With waiver of creditor of seller 2. Receiver, assignee in insolvency proceeding Duty of seller to perform the following when transaction is within the coverage of the law 1. Make sworn statement of listing of creditors 2. Delivery of sworn statement to buyer 3. Apply the proceeds pro-data to claims of creditors shown in verified statement 4. Written advance disclosure to creditors