Chapter 10

RECOVERY OF CREDIT GRANTED

this chapter is primarily about the remedies
availabale to a creditor in case of non-
payment. it will propose remedies on unpaid
debt.
 Consumer durables
Article 1484 of the civil codes states: in a contract of sale of
personal property, the price in which payable for installment. The
vendor (seller) may exercise any of the following remedies.
1. exact fulfillment of the obligation, should the vendee fail to pay
or more installment
2. cancel the sale, should the vendee (buyer) fail to pay 2 more
installments.
3. foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendor fail to pay 2 more
installment, in this case shall have no further auction against
the purchaser to recovery any unpaid balance to the price.
 Movables
Movable are covered by the same article, particularly paragraph
states the seller shall have no further action against the
installment of the buyer to recover any unpaid balance. the
cannot go after the buyer for the unpaid balance. Again , in
movable, the unpaid seller must choose only pf the 3 options.
In choosing which remedy is the best, some factors to consider are
remaining balance, financial status of the buyer, physical condition of
the installment unit.
Example:
if the buyer Has no real or personal property of value, the remedy of
specific performance will not work out. He owns no property that can
be levied or deposit that can be garnished.
 Term extension

A creditor simply adds a few more days, or weeks, even a

month, to the due date of an account this gives the debtor
extra time to recognize his resources and make good on his
obligation.
Term extension could also be used in bank loans; the extension
however, should be a very short period of time because
interest, penalties should accumulate very quickly
 Merchandise return swap
If most merchandise remain unsold, the wholesaler-
creditor could take back merchandise from the debtor.
This is advisable if the goods cannot be sold in the area
where the debtors locality or the merchandise has
become absolete, or out of fashion.A swap arrangement
is also a good option: the unsold merchandise is re-
taken by the seller and new merchandise provided to its
customer.
 Deposit durable and movables at the
branch office
In situation where installment payments have remained
unpaid for many months, it would be practical to
request the buyer to deposit the items to be deposited
at the branch store, with the promise that surcharge
and penalties will be suspended. The pressure of
collection is suspended , which is good for the buyer
and the sellers recovery of the credit granted is more or
less assured. If the buyer is very dependent on the unit,
he will do everything necessary to reclaim it.
 Debtor substitution
In this technique the debtor is replace by another
debtor who has an established credit reputation.
Example:
The financially stable father could replace the son, or a
mother corporation replacing a subsidiary. This will
require new documentation which distinguished the old
obligation and create a new one.
(a subsidiary is another corporation partly or wholly by
another corporation, called the mother corporation).
 Cash Loan
In a cash loan the borrower obligation is the payback
in the same native currency, and the same interest,
unless otherwise provided
Cash loans are either secure or unsecured, this kind of
transaction is a loan and should be governed by civil
code provision on sales.
Example:
A dollar-denominated loan could paid back in pesos or
vice-versa.
 Dacion en pago
Roughly translated this means that a debtor who has a
property securing the debt, sells the property to the
creditor to settle his debt. One advantage of the seller is
that he is able to obtain a price for his property that is
very close to its market value. He pays his debt, takes
away the pressure of collection, and he gets extra cash
too, furthermore, his credit standing is not adversely
affected.
 Restructuring
There are 2 ways
simple restructuring
where the terms are extended and the monthly payment
reduced to affordable levels.

Document substitution
Example:
Is by changing the debtors account form accounts
receivable to notes receivable.
 Real state sale on installment

This refer to the sale of subdivision lots, and similar real states properties. To protect
real estate installment buyers, republic Act no. 6552 provides that if the buyer has
paid at least 2 years of installment the buyer is entitled:
to pay, without interest, the unpaid installments within the total grace period
earned by him, which is hereby fixed at the rate of one month pf every one year of
installment payment; provided that his right shall be exercised by the buyer only
once every 5 years of the life of the contract and extensions, if any.
2. the contract is canceled the seller shall refund to the buyer 50% of the total
payments made, and after 5 years of installment, 5% a year thereafter, but not
exceed 90% of total payment made.
Example:
Mr L. paid 24 monthly installment for a subdivision lot. He is now entitled to pay for
the full balance, if he chooses, within 2 months. if the contract is cancelled by the
seller (obviously due of slow payment). Mr. L must be refunded half or 50% of all
payments he has made. The unpaid sellers remedy is cancellation of the sale, clearly
allowed by law.
 Repossession
For consumers durable such as appliances, the most
common recovery technique is by repossession of the
installment unit. This means that the sale has been
canceled. The document used for appliances installment
sales is the deed of conditional sale with reservation of
title.the sale is simply canceled and the unit
repossessed. The buyers liability is also distinguished.
 Replevin
This is resorted when the buyer or debtor refuses to
surrender the installment unit for example, in a chattel
mortgage. The possessor of a car refuses to surrender
the car so it can be sold to pay the debt. To compel the
cars possessor to bring the car to the bank or financing
company, a writ of replevin cold be petitioned from
the court. A replevin applies only to personal properties.
 Usual remedy for an unpaid seller is
foreclosure
Here 2 kinds of foreclosure
juridicial foreclosure. This is foreclosure through the
regional trial court of any provinces or city where the
property is located.
Extrajudicial foreclosure. This is possible if there is a
provision in the mortgage contract giving the mortgage
(creditor) the power upon default (non-payment) to
foreclose Extrajudicially. The sale of the property that
was mortgage could be made without a court order.