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chattel mortgage is broken. (Sec. 13) Mortgagor can sell property mortgaged, subject to the mortgage Pledgor can sell thing with consent of pledgee
By chattel mortgage, personal property is recorded in the Chattel Mortgage Registry as security for the performance of an obligation. (Art. 2140, Civil Code.)
The old definition under Sec. 3 of Act No. 1508 which considered a chattel mortgage as a conditional sale was considered inaccurate by the Code Commission. (Serra v. Rodriguez, 1974). Act 1508 primarily governs chattel mortgage while the provisions of the Civil Code on the contract of pledge apply in so far as they are not in conflict with CML. NOTE: The Ship Mortgage Decree of 1978 (Pres. Decree No. 1521) governs the mortgage of vessels of domestic ownership.
NOTE: Even if the property mortgaged is in the possession of the debtor, creditors are protected in that the chattel mortgage is made effective against third persons by the process of registration, to protect creditors against possible disposal of the property by the debtor. Land Settlement & Dev. Corp. v. Carlos (68) Should the creditor bring an action on the principal obligation, like suing on the promissory note, this amounts to a discharge of the chattel mortgage so that the debtor may now dispose of the personal property given in a chattel mortgage without the necessity of a release of the mortgage. The debtor does not thereby commit estafa. Movido v. RFC (59) A mortgagee who sues and obtains a personal judgment against a mortgagor upon his credit waives thereby his right to enforce the mortgage securing it. (Also Serra v. Rodriguez, 1974). Southern Motors v. Moscoso (61) The complaint is an ordinary civil action for recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for ordinary civil actions. Since herein appellee has chosen to exact the fulfillment of the appellant's obligation, it may enforce execution of the judgment that may be favorably rendered hereon, on all personal and real properties of the latter not exempt from execution sufficient to satisfy such judgment.
CHATTEL MORTGAGE Accessory contract PACTO DE RECTO SALE Principal contract
B. Characteristics
1. Accessory contract: purpose: to secure the performance of a principal obligation; 2. Formal contract: registration in the CM Register is indispensable; 3. Unilateral contract: produces only obligations on the part of the creditor to free the thing from the encumbrance upon fulfillment of the obligation (De Leon).
both refer to personal property Property remains in possession of debtor Delivery of the property to the mortgagee is not necessary Registration in the Chattel Mortgage Register is necessary for validity Procedure for the sale is found in Sec. 14, Act No. 1508 Can recover deficiency judgment Excess of proceeds from foreclosure goes to persons holding subsequent mortgages, then to mortgagor (S14) Creditor takes possession of prop Delivery of the property to the pledgee is necessary Registration in the Registry of Property is not necessary for validity Procedure for the sale is found in Art. 2112 of the Civil Code No recovery deficiency. of
Title to the thing Title to the subject matter is mortgaged is not transferred to the vendee but transferred subject to the redemption of the vendor Affidavit of good Affidavit of good faith is not faith is required required
ESTATE
Affidavit of good faith Affidavit of good faith is is required not required Mortgagor cannot Mortgagor can alienate the alienate the thing thing mortgaged without
Debtor can redeem before the No redemption sale, when the condition of the
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Machinery treated as personal property subsequently installed on leased land (Davao Sawmill v. Castillo); d. Vessels recorded in the office of the Philippine Coast Guard to be effective as to third persons; not necessary to be recorded in the Office of the Register of Deeds; e. Motor vehicles mortgage registered in the LTO (for vehicles used for public services); f. House of mixed material; g. House built on leased land; G.R.: Immovable property Exc.: Treated as movable by estoppel of parties h. i. demolished; House intended to be
c.
E. Extent
1. 2. obligations Existing Afteracquired (future) obligations The chattel mortgage shall cover only the property described in the deed and not any other like or substituted property. (Sec. 7)
House of strong materials, for purposes of executing a CM as between the parties to the contract if parties so agree and no innocent third party will be prejudiced.
2. Exceptions: By exercising the freedom to contract that the law gives them, parties may stipulate that as between them, real property, such as building, may be considered personal for purposes of the chattel mortgage law. But this cannot affect third persons. (Navarro v. Pineda, 63): Tumulad v. Vicencio, 71). BUT: It shall still be executed as a real property and subject to the rules on foreclosure of real estate mortgage. Section 6: a chattel mortgage can be executed on growing crops (which under the Civil Code are real property). BUT: If the creditor wants to attach growing crops, the procedure is still the same as in attachment of real property.
a.
b.
Exception: Where the debtor gives as security, the stock or merchandise in his store and it is the intention of the parties that the mortgage shall cover the stock that will take its place in the course of the business. (Torres v. Limjap, '31) Torres v. Limjap (31) The provision of Sec. 7 is deemed not to apply to stores open to the public for retail business where the goods are constantly sold and substituted with new stock, such as drug stores, grocery stores, dry goods stores, etc. A stipulation in the mortgage extending its coverage to properties acquired after its constitution is valid and binding where the after-acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of such goods. 3. After-Incurred Obligations
Acme Shoe, Rubber & Plastic Corp. v. CA (96) While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are
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iii.
Register with the Motor Vehicle Commission, now Land Transportation Office. (Borlough v. Fortune Enterprises, 57)
Otherwise, the failure of the mortgagee to report the mortgage executed in his favor has the effect of making said mortgage ineffective against a purchaser in good faith who registers his purchase in the motor vehicle office. d. ii. i. Register Coastguard Vessels with the Philippine
Must also be registered in the Bureau of Customs in Manila (if in Manila) or in the Office of the Collector of Customs in the port of entry (if outside Manila)
F. Requirements
1.
Registration Requirements to make Chattel Mortgage Binding against 3rd Parties Under Sec. 4, a chattel mortgage leaves the property in the possession of the debtor. Hence, this section lays down the requisites which must be complied with in order to make a chattel mortgage affect third parties for the protection of the creditor.
e. Motor vehicle which is public utility and loan is not repayable within 1 year
G. Formal Requirements
1. Affidavit of Good Faith It is an oath wherein the parties severally swear that the mortgage is made for the purpose of securing the obligations specified in the conditions thereof and for no other purposes and that the same is a just and valid obligation and one not entered into for the purpose of fraud. (Sec. 5) Lilius v. Manila Railroad Co. (35) Under Sec. 5, the absence of the affidavit vitiates a mortgage as against third parties without notice, like creditors and subsequent lienholders; but not as between the parties thereto, which remains valid as to them. Where a corporation is a party, the affidavit of good faith must be subscribed by an authorized officer. (Sec. 6) 2. Other Formal Requirements a. Must be signed in the presence of at least 2 witnesses b. Certificate of oath / Notarial acknowledgment
a.
G.R.: The chattel mortgage must be registered with the Register of Deeds where the debtor resides in order to bind third persons. (Sec. 4) If mortgagor resides abroad, must be registered in the province where the property is located
But note: Art 2125, CC says that a chattel mortgage is binding between the mortgagor and mortgagee even if not registered (Filipinas Marble Corp vs. IAC, 86) b. i. ii. Share of Stock: Must be registered with the Register of Deeds where the debtor resides; and Must also be registered with the Register of Deeds where the corporation has its principal office.
NOTE: Registration in the stock and transfer book of the corporation is not necessary. (Chua Guan v. Samahang Magsasaka, 35). c. i. Motor Vehicles Register with the Register of Deeds where the debtor resides;
Sec. 198 of the RAC Sec. 198. Registration of chattel mortgages and fees collectible in connection therewith. Every register of deeds shall keep a primary entry book and a registration book for chattel mortgages. The recording of a mortgage shall be effected by making an entry, setting forth the names of the mortgages and the mortgagor, the sum or obligation guaranteed, date of the instrument,
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H. Liabilities
1. Where the debtor performs and the creditor refuses to release the mortgage Debtor may go to court for relief. (Sec. 8) 2. Sections 9 to 12 have been repealed by Art. 319 of the Revised Penal Code on crimes on Chattel Mortgage: a. Knowingly removing any personal property mortgaged under the Chattel Mortgage Law to any province or city 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; b. Selling or pledging personal property already mortgaged, without the consent of the mortgagee written on the back of the mortgage and duly recorded in the Chattel Mortgage Register.
Note: Mortgagor remains owner of the property. He can therefore validly sell the chattel, although he will be criminally liable if he did not get consent of mortgagee.
Com pare with: If the mortgagee sells the credit, he only needs to notify the mortgagor, so mortgagor knows whom to pay (Servicewide Specialists vs. CA) Cerna v. CA (93) 3rd party mortgage or accommodation chattel mortgage does not by itself make the mortgagee personally liable for the loan that he accommodated.
a.
The bidding shall be made through sealed bids which must be submitted to the Sheriff who shall conduct the sale between 9 am and 4 pm. The property shall be awarded to the party submitting the highest bid; in case of a tie, an open bidding shall be conducted between the highest bidders. Payments shall be made in cash or managers check, in Philippine currency, within 5 days from notice. b. The sale shall be made at a place in the municipality where the mortgagor resides or where the property is situated Sec. 6. The Clerk of Courts shall collect the appropriate fees, computed on the basis of the amount actually collected by him. This shall not be subject to a refund even if the foreclosed property is subsequently redeemed. Sec. 7 & 8. The Sheriff shall, within 30 days from the sale, prepare a return and file the same in the Office of the Registry of Deeds where the mortgage is recorded. He shall report the name/s of the bidder/s to the Clerk of Court.
Mambulao Lumber v. PNB (68) It presupposes voluntary surrender to sheriff of personal property by debtor. Creditor then files affidavit outlining right to possession and sale. Posting of notice of sale must be made on two places in the Presidencia plus notice to debtor 10 days before the sale. PNB v. Manila Investment (71)
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There must be at least 10 days notice to the mortgagor and posting of public notice of time, place and purpose of such sale and is a period of grace for the mortgagor, to discharge the mortgage obligation. (Cabral v. Evangelista) 4. Application of Proceeds of Sale a. Costs and expenses of keeping and sale; b. Payment of the obligation secured by the mortgage; c. Claims of persons holding subsequent mortgages in their order; and d. The balance, if any, shall be paid to the mortgagor, or person holding under him. (Sec. 14, Act No. 1508)
Important: Creditor must seek court remedy to obtain possession (Filinvest Credit Corp vs. CA, 95). Otherwise, that would be pactum commissorium (Esguerra vs. CA, 89)
2. Default by the mortgagor a. Extra-Judicial Foreclosure (Rule 68, RoC not applicable) b. Original action for collection of money effect: waiver of the chattel mortgage
L. Criminal Liability
Art. 319, RPC 1. Knowingly removing any personal property mortgaged under the CML to any province or city 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 CML without the consent of the mortgagee written on the back of the mortgage and duly recorded in the chattel mortgage registry.
3.
Judicial Foreclosure follow the same procedure as foreclosure of real estate mortgage under Sec. 8, Rule 68, Rules of Court.
4.
Sue on the Note waive the chattel mortgage; hence, one can levy on other properties. (Industrial Finance Corp. v. Ramirez, 77).
2.
The mortgagor is not relieved of criminal liability even if the mortgage indebtedness is thereafter paid in full (US v. Kilayko), or the mortgagor-seller informed the purchaser that the thing sold had been mortgaged (People v. Alvares).
M. Redemption
1. There is no right of redemption in chattel mortgage, only an equity of redemption. 2. Period: The following may redeem if the condition of the mortgage is broken; a. Mortgagor;
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N. Deficiency Judgment
1. General Rule: Creditor shall always be entitled to collect the deficiency judgement. (Ablaza v. Ignacio, 58). State Investment House, Inc. v. CA (93) When the proceeds of the sale are insufficient to cover the debts in an extra-judicial foreclosure of chattel mortgage, the mortgagee is entitled to claim the deficiency from the debtor.
2.
Ratio: mortgages as accessory contracts serve only as securities and not for the satisfaction of the principal obligation
3.
Prescriptive Period: Ten (10) years under Art, 1142 of the Civil Code. (DBP v. Tomeldan, 80). Exception: If the property was sold in installments, the mortgagee can no longer take any action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary is void. (Art. 1484, Civil Code, aka the Recto Law)
O. Recto Law
The Recto law, which is now reflected in Articles 1484-1485 of the Civil Code, which provides that in a contract of sale of personal property, the price of which is payable in installments, the vendor may exercise any of the following remedies:
(a) (b)
Exact fulfillment of the obligation, should the vendee fail to pay (specific performance);
Cancel the sale, should the vendee's failure to pay cover two or more installments (Note that this is not the same as rescission because here, the vendor gets back the object of the sale and retains the installments paid. However, this is not available in the absence of stipulation in the contract.); (c) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover 2 or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contract is void. The principal object of this amendment was to remedy the abuses committed in connection with the foreclosure of chattel mortgages. This amendment prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price, and then bringing the suit against the mortgagor for a deficiency judgment. The
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B. Nature
It is a real right following the property, such that in subsequent transfers by the mortgagor, the transferee must respect the mortgage. A registered mortgage lien is considered inseparable from the property inasmuch as it is a right in rem.
C. Purpose
To regulate the sale of property under special powers inserted in or annexed to real estate mortgages and redemption thereof.
D. Coverage
Governs sales made under a special power inserted in or attached to any real-estate mortgage, which is made as security for the payment of money or the fulfillment of any other obligation. Act 3135 will govern the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power. (Sec 1) Foreclosure from settlement of estate not included PNB v. CA (01) The case at bar involves a foreclosure of mortgage arising out of a settlement of estate, wherein the administrator mortgaged a property belonging to the estate of the decedent, pursuant to an authority given by the probate court. The Rules of Court on Special Proceedings comes into play decisively.
H. Foreclosure Sale
Foreclosure is a remedy available to mortgagee by which he subjects mortgaged property to the satisfaction of obligation, which was secured by mortgage. the the the the
E. Applicability
If a special power to sell is inserted in a contract of real mortgage, there can be an extra-judicial foreclosure sale under Act 3135. if the real mortgage contract is silent, Rule 68 on judicial foreclosure shall apply.
Nature of Power of Foreclosure by Extrajudicial Sale 1. It is an authority conferred upon the mortgagee for the latters own protection. 2. It is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential and inseparable part of the bilateral agreement. 3. To declare to foreclose or not is the prerogative of the mortgagee. 4. It is generally held that no particular formality is required in the creation of the power of sale. 1. 2. Extrajudicial Foreclosure (Act 3135) Express authority to sell given mortgagee (authority not extinguished death of mortgagor or mortgagee) Public sale after proper notice a. Type of Sale: Public auction to by
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5.
e.
f.
g. h.
DBP v. Emerald Resorts Hotel Facts: DBP published the notice of auction sale scheduled on 12 Aug 1986. However, the auction sale was moved to 11 Sept 1986. DBP contends that the agreement to postpone dispensed with the need to publish again the notice of auction sale. Held: Republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Another publication is required in case the auction sale is rescheduled, and the absence of such republication invalidates the foreclosure sale. The last paragraph of the prescribed notice of sale (under SC Circular 7-2002) allows the holding of a rescheduled auction sale without reposting or republication of the notice: In the event the public auction should not take place on the said date, it shall be held on _____,____without further notice. However, the rescheduled auction sale will only be valid if the rescheduled date of auction is clearly specified in the prior notice of sale. The absence of this information in the prior notice of sale will render the rescheduled auction sale void for lack of reposting or republication. 3. Content of notice: correct number of the certificate of title and correct technical description of the property. Object of notice: to inform the public of the nature and condition of the property sold and of the time, place and terms of the sale. 4. When sale not held on date specified DBP v. Aguirre (01)
PNB vs. Nepomuceno (02) & Ouano vs CA (03) The focal issue in this case is whether the parties to the mortgage can validly waive the posting and publication requirements mandated by Act No. 3135. We answer in the negative. Failure to publish the notice of sale constitutes a jurisdictional defect, which invalidates the sale. While it is established that rights may be waived, Art 6 of the Civil Code provides that such waiver is subject to the condition that it is not contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law. The statutory requirements of posting and publication are mandated for the public or third persons. As such, it is imbued with public policy considerations and any waiver thereon would be inconsistent with the intent and letter of Act No. 3135. 6. Newspaper of general circulation Perez vs. Perez (05) Petitioners argue that the Olongapo News where the notice of public auction was published was not a newspaper of general circulation in Morong, Bataan. To be a newspaper of general circulation, it is enough that it is published for the dissemination of local news and general information; that it has a bona fide subscription list of paying subscribers; and that it is published at regular intervals. The newspaper must not be devoted to the interests or entertainment of a particular class, profession, trade, calling, race or religious denomination. The newspaper need not have the largest circulation so long as it is of general circulation. 7. Time of Sale: Between 9 AM and 4 PM 8. Who a. b. c. may bid: The creditor; The trustee; Other persons authorized to act for the creditor; d. Other bidders not privy to the mortgage or trust deed
9. Procedure
1)
The mortgagee files an application for foreclosure with the Executive Judge through the Clerk of Court, who will receive and docket the application and collect the appropriate filing fees. (SC AM No. 99-10-05-0)
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3)
The mortgagee, in extrajudicial foreclosure, has the right to recover deficiency judgment within 10 years from the time the right of action accrues. Except: When the mortgagor is not debtor. The action for the recovery of such deficiency must be directed against the debtor. A foreclosure sale retroacts to the date of registration of the mortgage and that a person who takes a mortgage in good faith and for valuable consideration will be protected against equitable claims on the title in favor of third persons of which he had no actual or constructive notice. Valmonte v. CA The inadequacy of price would not nullify the sale unless the price is so inadequate so as to shock the conscience of the court. In fact, the property may be sold for less than its fair market value precisely because the lesser the price the easier for the owner to effect a redemption. Samson v. Rivera (04) The duty of the trial court to grant a writ of possession is ministerial. Such writ issues as a matter of course upon the filing of the proper motion and the approval of the corresponding bond. Any question regarding the regularity and validity of the sale is to be determined in a subsequent proceeding (Sec 8). Such question cannot be raised to oppose the issuance of the writ, since the proceeding is ex parte. A pending action for annulment of mortgage or foreclosure does not stay the issuance of a writ of possession. DBP v. Spouses Gatal (05) Once a mortgaged estate is extra-judicially sold, and is not redeemed within the reglementary period, no separate and independent action is necessary to obtain possession of the property. The purchaser at the public auction has only to file a petition for issuance of a writ of possession pursuant to Sec. 33 of Rule 39 of the RoC. Where the title is consolidated in the name of the mortgagee, the writ of possession becomes a matter of right on the part of the mortgagee, and it is a ministerial duty on the part of the trial court to issue the same. The pendency of a separate civil suit questioning the validity of the sale of the mortgaged property cannot bar the issuance of the writ of possession. The rule equally applies to separate civil suits questioning the validity of the mortgage or its foreclosure and the validity of the public auction sale. 7) Upon failure of the debtor to redeem the property within 1 year after the date of the registration of the certificate of sale, winning bidder becomes the absolute owner.
4)
5)
6)
G.R.: Purchaser must petition the court where the property is situated for possession during the redemption period. He must also give a bond equivalent to the use of the property for a period of twelve months to indemnify the debtor in case the sale is shown to violate the law (Sec 7, Act 3135). Within 30 days after the purchaser is given possession of the property, the debtor may petition that the sale be set aside on the ground that the mortgage was not violated or the sale was not made in accordance with the provisions of Act 3135. (Sec. 8)
Sales made under RA 8791 (General Banking Law): After the date of the confirmation of the auction sale, the winning bidder has the right to enter upon and take possession of such property and administer the same in accordance with law. At the sale, the creditor, trustee or any person authorized to act for the creditor, may participate in the bidding and purchase, as any other bidder, unless the contrary is expressly provided in the mortgage or trust deed under which the sale is made. (Sec. 5) The creditor is allowed to recover the deficiency from the sale of the property. Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor.
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6.
Where extrajudicial foreclosure is effected with fraud: it is null and void ab initio Requisites of a valid redemption 1. Made within 1 year from the date of the registration of the certificate of sale; 2. Payment of the purchase price of the property plus 1% interest per month together with the taxes thereon, if any, paid by the purchaser and the amount if his prior lien, if any with the same rate of interest computed from the date of registration of the sale up to the time of redemption. 3. Written notice of the redemption must be served on the officer who made the sale and a duplicate filed with the proper Registry of Deeds. Who may exercise the right of redemption 1. M ortgagor or one in privity of title with mortgagor; 2. S uccessor-in-interest: a. One to whom the debtor has transferred his right of redemption; b. One to whom the debtor has conveyed his interest ion the property for the proposed redemption; c. One who succeeds to the interest of the debtor by operation of law; d. One or more of debtors who were joint owners of the property sold; e. The wife as regards her husbands homestead by reason of the fact that some portion of her husbands title passes to her; f. Compulsory heir. 3. Under the Rules of Court: a. The judgment debtor or his successor-ininterest in the whole or any part of the property; b. A creditor having a lien by attachment, judgment or mortgage on the property sold or some part thereof. Subsequent to the judgment under which the property was sold.
I. Redemption
A transaction by which the mortgagor reacquires or buys back the property which may have passed under the mortgage or divests the property of the lien which the mortgagee may have created. Kinds of Redemption Equity of redemption or the right of the mortgagor in case of a judicial foreclosure to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the confirmation of the sale of the mortgaged property. 2. Right of redemption or the right, in case of an extrajudicial foreclosure, to redeem the mortgaged property within a certain period after it was sold for the satisfaction of the mortgage debt. 1. Right of redemption 1. Period within which to exercise right: 1 year from the date of registration of certificate of sale with the appropriate Registry of Deeds. 2. Effect of failure to exercise right: the purchaser has the absolute to a writ of possession. 3. Effect of exercise of right: elimination from his title thereto of the lien created by the levy or attachment or judgment or registration of the mortgage thereon. 4. Where mortgaged property sold to third party: transfers only the right to redeem the property and the right to possess, use and enjoy the same during the said period (in case of sale to a third person by the mortgagee after the foreclosure, the mortgagor may redeem it at the amount of the principal obligation plus interest until time of actual redemption.) 5. Where sale is not registered and made without the consent of mortgagee: the
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VOLUNTARY INSOLVENCY Debtor is the petitioner Debtor may have only one creditor No requirements WRT creditors
INVOLUNTARY INSOLVENCY 3 or more creditors are the petitioner Debtor must have at least 3 creditors Creditors must be Phil. residents whose credits accrued in the Phils, and none of them became a creditor by assignment within 30 days prior to the filing of the petition A bond is required for insolvency proceedings
B. Purpose
1. Equitable distribution of the properties of the debtor among the creditors 2. To afford the individual debtor a fresh start in life BUT NOTE: the Insolvency Law does not grant discharge to a corporate debtor
Order of adjudication Order is granted only after a may be granted ex hearing parte Debtor must not have committed an act of insolvency Debtor must have committed an act of insolvency before the creditors can file the petition
Petition must be filed Length of residence of the with the RTC where debtor is immaterial petitioner-debtor resided for 6 months prior to the filing
SUSPENSION OF PAYMENTS Individual Corporation, Partnership or Association (CPA) Governing Law Act No. 1956 Act No. 1956 Jurisdiction RTC (Act No. 1956) RTC (Act No. 1956) Grounds Debtor has sufficient property but foresees the impossibility of meeting them when they respectively fall due C.P.A. debtor has sufficient property but foresees the impossibility of meeting them when they fall due a. C.P.A. has sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due, OR; b. C.P.A. has no sufficient assets to cover its liabilities but is under management of a Rehabilitation Receiver or Mngt. Committee (Sec. 5[d], P.D. 902-A RTC (R.A. No. 8799) P.D. No. 902-A
D. Comparisons
SUSPENSION OF PAYMENTS Purpose: To suspend or delay payments of debts INSOLVENCY PROCEEDINGS Purpose: to compel presentment of all debts, whether due or not, and to secure a complete discharge from such debts Creditors receive less than what they are entitled to, or some creditors may not even receive anything Debtors assets are not sufficient to cover liabilities
Amount of indebtedness is not affected, but only the time for paying them is postponed Debtor has sufficient property to cover his liabilities
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Mitsui v. HSBC (17) Act No. 1956 deals with 3 principal subjects: suspension of payments, voluntary insolvency, and involuntary insolvency. That part of the Act referring to the first appears to have been taken from the Spanish Code of Commerce, as amended by the law of June 10, 1897. The Act, in so far as it relates to voluntary and involuntary insolvency, is essentially a bankruptcy law because it discharges the honest debtor. 2. Insolvency Act of California of 1895 (as to voluntary and involuntary insolvency) SunLife vs. Ingersoll (21) Act No. 1956 is in great part a copy of the Insolvency Act of California, enacted in 1895, though it contains a few provisions from the American Bankruptcy Law of 1898. The California Insolvency Law of 1895 is precisely the provision which appears as section 32 of our Act, defining the property which passes as assets to the assignee in insolvency.
F. Suspension of Payments
1. Nature The debtor who, possessing sufficient property to cover all his debts, foresees the impossibility of meeting them when they fall due, may petition that he be declared in the state of suspension of payments by the court of the province / city in which he has resided for the preceding 6 months. (Sec 2) 2. Purpose: To seek postponement of the payment of debts in order to provide the debtor a given period to convert some of his properties to cash. 3. Basis: The probability of the debtors inability to meet his obligations when they respectively fall due, despite the fact that he has sufficient assets to cover all his liabilities. 4. Effect commences: upon the filing of the petition. 5. Who May File: a. An individual debtor; b. Corporation, partnership association (C.P.A.) (Sec. 2).
or
Chung Ka Bio v. IAC (88) If petition for suspension of payments is filed with SEC by a corporate entity and an individual stockholder (who is a surety for the corporation), SEC has no jurisdiction over the individual petitioner. Traders Royal Bank v. CA (89)
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2.
Court orders meeting of creditors and publication (Ratio: Suspension of payments is a proceeding in rem, so publication is needed to acquire jurisdiction) Creditors not affected by the Order of Suspension of Payments: a. Those having claims for personal labor, maintenance, expenses of the last illness and funeral of wife or child of debtor, incurred during the 60 days immediately preceding the filing of the petition; b. Those having legal or contractual mortgages. 3. Meeting of creditors included in the schedule of creditors filed by the debtor. Creditors representing at least 3/5 of the liabilities must be present. (Sec 8) The ff creditors may also join the meeting: Persons having claims for personal labor, maintenance, expenses of the last illness and funeral of wife or child of debtor, incurred during the 60 days preceding the filing of the petition On the other hand they may also refrain from attending or voting at such
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I mportant: RTC has jurisdiction over proceedings for voluntary and involuntary insolvency of corporations (Ching v. Land Bank, 91)
b. O n execution against property specially mortgaged The execution against property especially mortgaged is exempted from the provisions of this section (see above) (Sec 6) c. O n action to collect sum of money still to be filed against debtor No creditor other than those mentioned in Sec 91 shall institute proceedings to collect his claim from the moment that suspension of payments is applied for and while the proceedings are pending. (Sec 6) d. D ebtor may not dispose of his property, except in the ordinary course of the business in which he is engaged e. D ebtor cannot make any payments outside of the necessary or legitimate expenses of this business (Sec 3) Suspension of Payments under:
INSOLVENCY LAW 1. Applies to either individual or C.P.A. debtors 2. Suspensive effect covers unsecured creditors only 3. Absent any agreement among creditors, automatic stay expires after 3 months 4. Agreement is subject to qualifying majority votes P.D. NO. 902-A 1. Applies to C.P.A. debtors only 2. Suspensive effect covers secured and unsecured creditors 3. No time limit as long as C.P.A. debtor is under management committee/ rehabilitation receiver 4. No need to obtain creditors approval
Petitio n must state forth: Place of residence; Period of residence therein immediately prior to filing said petition; Inability to pay all his debts in full; Willingness to surrender all his property, testate and effects, not exempt from execution to the benefit of his creditors; and Application to be adjudged an insolvent (Sec. 14) Attach the ff: schedule of debts and creditors, inventory of all his properties not exempt from attachment or execution If a corporation, must have written assent of majority of the board The filing of such petition shall be an act of insolvency (Sec 14)
Phil. Trust Co. v. National Bank Effect of filing of Petition: It ipso facto takes away and deprives the petitioner of the right to do or commit any act of preference as to creditor, pending the final adjudication. 2. If the petition is in order, Court shall issue an Order of Adjudication (i.e. that the debtor is declared insolvent)
The order must be published. (Ratio: This is a proceeding in rem). All creditors must also be notified. Effects of order All assets of debtor placed in sheriffs custody until a receiver or assignee is assigned. Payment to debtor of any debt or delivery of any property due to him is forbidden. He also cannot transfer or convey any of his property. All civil proceedings vs. the insolvent are stayed, except those pertaining to foreclosure of secured liens.
a. b.
c.
Persons having claims for personal labor, maintenance, expenses of last illness and funeral of wife/children of the debtor incurred 60 days prior to the petition and persons having legal or contractual mortgages
3. Meeting of creditors for election of an Assignee in Insolvency 4. Conveyance of debtors property to assignee in insolvency 5. Liquidation of assets and payment of debts 6. Composition, if agreed upon 7. Discharge of the debtor, except in case of composition Not applicable to corporations 8. 9. Objection to discharge of debtor, if any Appeal in certain cases
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1.
c.
Summons to the debtor Answer or motion to dismiss filed by debtor 6. Hearing of petition 7. Order of adjudication declaring debtor insolvent 8. Publication and service of order of court 9. Meeting of creditors to elect an assignee in insolvency 10. Conveyance of debtors property to assignee in insolvency 11. Liquidation of assets and payment of debts 12. Composition, if agreed upon by debtors and creditors Composition: debtor offers to pay his creditors a certain percentage of their claims in consideration of his release from liability Requisites a. Offer must be made after filing of Schedule of Debtors property and the list of his creditors b. Offer must be accepted in writing by a majority of the creditors representing a majority of the claims which have been allowed
d.
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a. b. 13.
Discharge of the debtor, except in case of composition Discharge not applicable to corporations debtor, if any Objection to discharge of
14. 15.
I. Specific Provisions
Assignee Elected by majority of creditors who hold majority of the claims. The creditor must have filed his verified claim 2 days before the election. Creditors not entitled to vote in the election of assignee: Those who did not file their claims at least 2 days prior to the time appointed for such election (Sec. 29); Those whose 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 as provided in Sec. 59;
Assignee can ask for examination of persons suspected of having concealed, embezzled, or disposed of any property of the debtor. Liability shall be double the value of the property. Assignee is allowed necessary expenses and commissions (for the first P1k 7%; for above P1k but not exceeding P10k 4%). If there are 2/more assignees, the court shall order an equitable division.
Powers of assignee Duties of assignee the
To sue and possess all assets To inventory and uncollected credits of the property debtor To sell at auction said assets To redeem all mortgages To compromise insolvents debtors with
Holders of claims for unliquidated damages arising out of pure tort (Schall v. Comors)
To recover properties To distribute the fraudulently conveyed by the assets to creditors debtor
Assignee converts the debtors property to cash and declares dividends to equitably distribute the property to the creditors Assignee may be substituted as the plaintiff in cases previously brought by debtor. Ratio: Causes of action also pass to the assignee. EXCEPT: Purely personal action The ff properties shall not pass to the assignee: a. Afteracquired property (acquired subsequent to the filing of the petition), except its fruits and income Examples of after-acquired property: donations, inheritance, provided he is a debtor in good faith who will later petition for a discharge
1. 2. 3.
Order of Distribution: Equitable claims under Sec. 48 (see Properties Excluded from Estate below); Preferred claims WRT specific movable property and specific immovable property under Art. 2241 and 2242, CC; Preferred claims as to unencumbered property of the debtor which shall be paid in the order named in Art. 2244; Common or ordinary credits which shall be paid pro rata regardless of dates under Art. 2245. Remedies of Secured Creditors The ff are secured claims: real estate mortgage, chattel mortgage and pledge Secured creditors have 3 remedies:
4.
1.
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This 3rd remedy is not available to chattel mortgages of movables sold under installments under Art 1484 of the Civil Code, and to pledges. Consequences of Attachments, Judgments, etc. Attachme nt levied upon within 30 days prior to the filing of the petition may be set aside Judgment s on cases filed and decided within 30 days prior to the filing may be set aside Judgment s on cases filed outside the 30 day period but decided within the 30 day period prior to the filing because the debtor confessed judgment or was declared in default will be set aside. Properties Excluded from Estate 1. Paraphernal property of the wife of the debtor 2. Property held on lease, administration or deposit 3. Merchandise held on commission, for forwarding or on consignment and price from sales on consignment 4. Bills of exchange sent to the debtor for remittance to others 5. Money in possession of debtor for remittance to others 6. Merchandise bought on credit if no delivery has been made 7. Goods wrongfully taken by debtor Insolvency Proceedings on Partnerships A partnership may be adjudged insolvent during the continuation of the partnership business or after its dissolution but before its final settlement thereof (Sec. 51). Individual creditors must prove their claims against such general partners, or else the general partners may be declared discharged Partnership property will be preferred to pay partnership debts, and property of individual partners will be preferred to pay individual debts Excess property of individual partners will be used to pay partnership debts. Who may petition for declaration of insolvency of a partnership: Voluntary Insolvency: by all the partners or any of them.
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Insolvency Proceedings are quasi in rem Ratio: Claims are completely extinguished by discharge of the debtor. Discharge Definition: Judicial clearance of an insolvent debtor from all claims except those expressly reserved by law. Debts which are not discharged: 1. Taxes and assessments due to the Government, whether national or local; 2. Any debts created by fraud, embezzlement of the debtor; 3. Any debt created by the defalcation as a public officer or while acting in a fiduciary capacity; 4. Debt of any person liable for the same debt, for or with the insolvent debtor, either as partner, joint contractor, indorser, surety or otherwise; 5. Debts of a corporation; 6. Claim for support; 7. Discharged debt but revived by a subsequent new promise to pay; 8. Debts which have not been duly scheduled in time for proof and allowance, unless the creditors had notice or actual knowledge of the insolvency proceedings, are not discharged as to such creditors; 9. Claims for unliquidated damages arising out of pure tort; 10. Claims of secured creditors; 11. Claims not in existence or not mature at the time of discharge; 12. Claims that are contingent at the time of discharge. Rules: Debtor who has been declared insolvent must still obtain a discharge after 3 months, but not more than 1 year. Debtor must not commit any of the ACTS OF INSOLVENCY: Debtor submitted a false affidavit; He concealed part of his estate or effects; Debtor was guilty of fraud or neglect in care of his property; Debtor procured an attachment or execution on his property during the one month period prior to the insolvency proceedings; Debtor destroyed or falsified important papers and documents;
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Effect of Fraudulent Transfer: As against the creditors of the insolvent debtor, any conveyance or assignment fraudulently made is void.
If debtor dies before Order of Adjudication is issued, insolvency proceedings must be dismissed. Remedy: File a claim in the testate or intestate proceedings. If debtor dies after the Order of Adjudication is issued, proceedings will continue. Date of Cleavage: Importance Creditor by assignment of credit made within 30 days from date of cleavage shall be disqualified as petitioning creditor; Attachment levied upon within 30 days before the date of cleavage may be set aside by the assignee; Judgments on cases filed and decided within 30 days prior to the date of cleavage may be set aside by the assignee; Judgments on cases filed before 30 days from the date of cleavage but decided within 30 days because of confession of judgment or declaration of default may be set aside by action of assignee; Properties acquired after date of cleavage, after discharge of debtor in good faith shall not be liable for debts incurred prior to date of cleavage; Fraudulent preferences made within 30 days prior to date of cleavage may be set aside in an action brought by assignee.
Fraudulent Preference If debtor transferred property to any person to give him preference, and such transfer took place within 30 days period from the date of cleavage, such transfer may be set aside by proper court action by the assignee. A fraudulent preference is committed when the debtor procures any part of his property to be attached, sequestered or seized 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 30 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. and the person receiving a benefit thereby has reasonable cause to believe; 5. 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 any way hinder the operation of or evade the provisions of the Insolvency Law. Presumed Fraudulent Transfer not in ordinary course of business
For Banks / Quasi-Banks (Secs 29-33, RA 7653) 1. Conservatorship Should the Monetary Board find that a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors, the Board may appoint a conservator who may take charge of the assets, liabilities, and the management thereof. This shall not exceed 1 year. The Board shall terminate the conservatorship when: the institution can continue to operate on its own; the continuance in business of the institution would involve probable loss to its depositors or creditors. 2. Receivership The Board may summarily designate the Philippine Deposit Insurance Corporation as receiver of a bank/quasi bank when such:
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b. c. d.
If the receiver determines that the institution cannot be rehabilitated, he shall convert the assets to money and dispose of these to creditors in accordance with Civil Code provisions. For insurance companies Insurance Code) (Secs 247-251,
4.
All debts due and payable from the debtor at the time of the adjudication, and all debts existing but not payable until a future time, may be proved against the estate of the debtor (Sec 53 et seq) 5. Discharge of debt (see previous section) Fraudulent Preferences and Transfers See previous section Dividends in Insolvency It 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 dividend proportion. It is paid by the assignee only upon order of the court (Sec. 43, 44). Concurrence and Preference of Credits
If an insurance company is in unsound condition, or its available cash assets, in the case of a domestic mutual company, or its security deposits, in the case of a foreign company, is impaired or deficient, or that the margin of solvency required is deficient, the Commissioner is authorized to suspend or revoke all certificates of authority granted to such. If the Commissioner finds that such company is in a state of continuing inability or unwillingness to maintain a condition of solvency or liquidity, he may appoint a conservator to take charge the assets, liabilities, and the management. If the company is insolvent, the Commissioner shall order the company to cease and desist from transacting business and shall designate a receiver to immediately take charge of its assets and liabilities.
For Property Registration (Secs 83-84, PD 1529) When proceedings in bankruptcy or insolvency are instituted against a debtor who owns registered land, the officer serving the notice of such on the debtor shall file a copy the Register of Deeds in the province or city where the land lies. When such proceeding is vacated by judgment, a certified copy of the judgment or order may be registered.
De Barreto v. Villanueva (62) The full application of Art 2249 and 2242 demands that there must first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import. This explains the rule of Article 2243 of the new Civil Code that The claims or credits enumerated in the two preceding articles1 shall be considered as mortgages or pledges of real or personal property or liens within the purview of legal provision governing insolvency . . . and the rule is further clarified in the Report of the Code Commission, as follows: The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Involvency Law. DBP v. Secretary of Labor (89) The preferential right accorded to employees and workers under Article 110 may be invoked only during bankruptcy or judicial liquidation proceedings against the employer. A preference of credit bestows upon the preferred creditor an
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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; or e. Advancing payment to the prejudice of his creditors. 3. During proceedings for suspension of payments: a. Concealing or destroying any property belonging to his estate; b. Destroying, altering, mutilating or falsifying any book, deed, document or writing relating thereto; c. Making any payment, gift, sale, assignment; transfer or conveyance of property belonging to his estate with like intent; d. Spending any part thereof in gaming; e. Falsely swearing to the schedule and inventory with intent to defraud the creditors; or f. Violating the injunction issued by the court under Sec. 3 (Sec. 71).
K. Liabilities
Acts criminally punishable under the Insolvency Law After the commencement of insolvency proceedings: a. Concealing any part of his estate; b. Destroying, altering, mutilating or falsifying any book, 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; or
1.
L. Dismissal of Petition
1. 2. 3. Voluntary petition: upon application of the debtor, if no creditor files written objections; Upon the application of the petitioning creditors; or By written consent of all creditors filed in court. After appointment of an assignee, dismissal is not allowed without the consent of all parties interested in or affected thereby (Sec. 81).
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4. 5.
6.
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allegations therein are true and correct of his personal knowledge or based on authentic records and shall contain as annexes such documents as may be deemed by the party submitting the same as supportive of the allegations.
D. Procedure
Where to File Petition RTC having jurisdiction over the territory where the debtor's principal office is located. Who May Petition Any debtor who foresees the impossibility of meeting its debts when they respectively fall due, or Any creditor or creditors holding at least 25% of the debtor's total liabilities 1. Contents of Petition a. Debtor-initiated Petitions The petition must be verified and must set forth: i. the name and business of the debtor; ii. the nature of the business iii. the history of the debtor; iv. the cause of its inability to pay its debts; v. all the pending actions or proceedings known to the debtor and the courts or tribunals where they are pending; vi. threats or demands to enforce claims or liens against the debtor; and vii. the manner by which the debtor may be rehabilitated and how such rehabilitation may benefit the general body of creditors, employees, and stockholders. The petition (5 copies) shall be accompanied by the following documents: i. An audited financial statement as of its last fiscal year; ii. Interim financial statements as of the end of the month prior to the filing iii. Schedule of Debts and Liabilities iv. An Inventory of Assets The Inventory shall include a Schedule of Accounts Receivable v. A rehabilitation plan vi. A Schedule of Payments and disposition of assets which the debtor may have effected within 3 months immediately preceding the filing of the petition; vii. A Schedule of the Cash Flow of the debtor for 3 months immediately preceding the filing of the petition, and a detailed schedule of the projected cash flow for the succeeding 3 months;
Claim: includes all claims or demands of whatever nature or character against a debtor or its property, whether for money or otherwise.
Debtor: any corporation, partnership, or association, whether supervised or regulated by the SEC or other government agencies, on whose behalf a petition for rehabilitation has been filed under these Rules.
C. Nature of Proceedings
Any proceeding initiated under these Rules shall be:
1.
2.
In rem. Jurisdiction over all those affected shall be considered as acquired upon publication in any newspaper of general circulation Summary and non-adversarial in nature. The following pleadings are prohibited: a. Motion to dismiss; b. Motion for a bill of particulars; c. Motion for new trial or for reconsideration; d. Petition for relief; e. Motion for extension; f. Memorandum; g. Motion for postponement; h. Reply or Rejoinder; i. Third party complaint; and j. Intervention. Any pleading, motion, opposition, defense, or claim filed by any interested party shall be supported by verified statements that the affiant has read the same and that the factual
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Rehabilitation Plan a. Who may petition: Any debtor who foresees the impossibility of meeting its debts when they respectively fall due, or any creditor or creditors holding at least 25% of the debtors total liabilities, may petition the proper RTC to have the debtor placed under rehabilitation. b. Contents The rehabilitation plan shall include: i. the desired business targets or goals and the duration and coverage of the rehabilitation;
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f. Alteration or Modification of the Rehabilitation Plan An approved rehabilitation plan may, on motion, be altered or modified if, in the judgment of the court, such alteration or modification is necessary to achieve the desired targets or goals set forth therein. Stay Order If the court finds the petition to be sufficient in form and substance, it shall, not later than 5 days from the filing of the petition, issue an Order: a. appointing a Rehabilitation Receiver and fixing his bond; b. staying enforcement of all claims, against the debtor, its guarantors and sureties not solidarily liable with the debtor; c. prohibiting the debtor from selling, encumbering, transferring, or disposing of its properties except in the ordinary course of business; d. prohibiting the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition; e. prohibiting the debtor's suppliers from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for such after the issuance of the stay order; f. directing the payment in full of all administrative expenses g. fixing the initial hearing on the petition h. directing the petitioner to publish the Order in a newspaper of general circulation in the Philippines once a week for 2 consecutive weeks; i. directing all creditors and all interested parties to file and serve on the debtor a verified comment on or opposition to the petition, and putting them on notice that their failure to do so will bar them from participating in the proceedings; and j. directing the creditors and interested parties to secure from the court copies of the petition and its annexes
Upon motion or motu proprio, the court may declare void any transfer of property or any other conveyance, sale, payment, or agreement made in violation of its stay order or in violation of these Rules. The stay order shall be effective from the date of its issuance until the dismissal of the petition or the termination of the rehabilitation proceedings. Suspension of Money Claims:
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The creditor shall lack adequate protection if it can be shown that: a. the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the property insured; b. the debtor fails or refuses to take commercially reasonable steps to maintain the property; or c. the property has depreciated to an extent that the creditor is undersecured. Upon showing of a lack of adequate protection, the court shall order the rehabilitation receiver to: a. make arrangements to provide for the insurance or maintenance of the property; or b. make payments or provide additional or replacement security such that the obligation is fully secured; or c. if such arrangements are not feasible, the court shall modify the stay order to allow the secured creditor to enforce its claim against the debtor The court may deny the creditor these remedies if such would prevent the continuation of the debtor as a going concern or otherwise prevent the approval and implementation of a rehabilitation plan. Court Action on the Petition If, after the initial hearing, the court is satisfied that there is merit in the petition, it shall immediately refer the petition to the Rehabilitation Receiver who shall evaluate the rehabilitation plan and submit his recommendations to the court. The court shall likewise require the SEC to comment on the petition. SEC shall coordinate with the government agency concerned in appropriate cases for purposes of filing its comment. The petition shall be dismissed if no rehabilitation plan is approved by the court upon the lapse of 180 days from the date of the initial hearing. The court may grant an extension beyond this period only if it appears by convincing and compelling evidence that the debtor may successfully be rehabilitated. In no
The court shall upon motion, motu proprio, or upon the recommendation of the Rehabilitation Receiver, terminate the proceedings. The proceeding shall also terminate upon the successful implementation of the rehabilitation plan. a. Any order issued by the court under these Rules is immediately executory. b. A petition for review or an appeal therefrom shall not stay the execution of the order unless restrained or enjoined by the appellate court.
E. Rehabilitation Officer
Disqualifications: A Rehabilitation Receiver (RR) may be deemed to have a conflict of interest if: a. He is a creditor or stockholder of the debtor; b. He is engaged in a line of business which competes with the debtor; c. He is, or was within 2 years from the filing of the petition, a director, officer, or employee of the debtor or any of its present creditors, or the auditor or accountant of the debtor; d. He is, or was within 2 years from the filing of the petition, an underwriter of the outstanding securities of the debtor; e. He is related by consanguinity or affinity within the fourth civil degree to any creditor, stockholder, director, officer, employee, or underwriter of the debtor; or f. He has any other direct or indirect material interest in the debtor or any creditor. Powers and Functions The RR shall not take over the management and control of the debtor but shall closely oversee and monitor the operations of the debtor during the pendency of the proceedings. The RR shall be considered as an officer of the court.
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By the court, upon motion or motu proprio, on account of conflict of interest, or on any of the grounds for removing a trustee under the general principles of trusts.
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Truth in Lending Act (RA 3765) (An Act to require the disclosure of financial charges in connection with extensions of credits)
A. Purpose
It is the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. 1. To protect the debtor form the effects of misrepresentation and concealment; 2. to permit him to fully appreciate and evaluate the real cost of his borrowing; and 3. To avoid circumvention of usury laws.
installment basis, either as principal or as agent Includes, but not limited to, banks and banking institutions, insurance and bonding companies, savings ad loan associations, credit unions, financing companies, installment houses, real estate dealers, lending investors and pawnshops
C. Obligations of Creditors
Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth the following information: 1. the cash price or delivered price of the property or service to be acquired; Cash or delivered price: in trade transactions, it is the amount of money which would constitute full payment upon delivery of the property or service purchased at the creditors place of business; in financial transactions, it is the amount of money received by the debtor upon consumption of the credit transaction, net of finance charges collected at the time the credit is extended, if any. 2. the amounts, if any, to be credited as down payment and/or trade-in; Down payment: amount paid by the debtor at the time of the transaction in partial payment for the property or service purchased. Trade-in: value of an asset, agreed upon by the creditor and debtor, given at the time of the transaction in partial payment for the property or service purchased 3. the difference between the amounts under clauses (1) and (2) 4. the charges which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; Non-finance charges: amounts advanced by the creditor for items normally associated with the ownership of the property or of the availment of the service purchased which are not incident to the extension of credit. 5. the total amount to be financed; Amount financed: consists of the cash price plus non-finance charge less the amount of the down payment and value of the trade-in. 6. the finance charge expressed in terms of pesos and centavos; and Finance charge: the amount to be paid by the debtor incident to the extension of credit such as interest or
B. Definitions
Credit (Sec. 3[2], R.A. No. 3765) Any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract; any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract; any contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of, any obligation of claim arising out of any of the foregoing; and any transaction or series of transactions having a similar purpose or effect. Finance Charge Includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit. Creditor (Sec. 3[4]. R.A. No. 3765) Any person engaged in the business of extending credit (including any person who as a regular business practice make loans or sells or rents property or services on a time, credit, or installment basis, either as principal or as agent) who requires as an incident to the extension of credit, the payment of a finance charge. Includes any person who as a regular business practice make loans or sells or rents property or services on a time, credit or
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E. Consequences of Non-Compliance
1. Any creditor who fails to disclose to any person any information in violation of this shall be liable to such person in the amount of : a. P100; or b. in an amount equal to twice the finance charged required by such creditor in connection with such transaction, whichever is the greater. Except that such liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought within one year from the date of the occurrence of the violation, in any court of competent jurisdiction. 2. The creditor shall be liable for reasonable attorney's fees and court costs as determined by the court. 3. Any person who wilfully violates any provision of this Act shall be fined by not less than P1,000 or more than P5,000 or imprisonment for not less than 6 months, nor more than one year or both. 4. No punishment or penalty provided by this Act shall apply to the Philippine Government or any agency or any political subdivision thereof.
on loans over P500,000.00 with a maturity of 730 days or less at the rate of 2% per annum on the principal or the outstanding balance thereof, whichever is lower; 1.75% on loans over P500,000.00 but not over P1,000,000.00; 1.50% on loans over P1,000,000.00 but not over 2,000,000.00, etc. Section 7 of the same Circular, however, provides that all banks and non-bank financial intermediaries authorized to engage in quasibanking functions are required to strictly adhere to the provisions of Republic Act No. 3765 otherwise known as the "Truth in Lending Act" and shall make the true and effective cost of borrowing an integral part of every loan contract.
F. Prescription
Prescriptive Period within which a debtor may recover (Sec. 6[a], RA No. 3765) Must be brought within 1 year from the date of the occurrence of the violation, in any court of competent jurisdiction New Sampaguita Builders Cionstruction, Inc. v. PNB (04) The lending bank may not collect the undisclosed chages if the bank fails to provide the Disclosure Statement under the Truth in Lending Act prior to the draw down or disbursement of the loam.
D. Applicability
Transactions wherein truth in lending Act applies (Sec. 3, CB Circ. 158) 1. Any loans, mortgages, deeds of trust, advances and discounts; 2. Any conditional sales contract, any contract of sell or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; 3. Any rental-purchase contract; 4. Any contract or arrangement for the hire, bailment, leasing of property; 5. Any option, demand, lien, pledge or other claim against or for delivery of, property or money; 6. Any purchase or other acquisition of, or any credit upon the security of, any obligation or claim arising out of any of the foregoing; 7. Any transaction or series of transactions having a similar purpose or effect. Transactions not covered by the Act (Sec. 3, CB Circ. 158)
H. Officers
Officers tasked with enforcing the provisions of the law (Sec. 1, CB Circ. 431)
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