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BANKING – ABELLA NOTES 2.
0 4F 2017 -2018|1
LETTERS OF CREDIT and TRUST RECEIPTS
What Law Governs Letters of Credits?

The Code of Commerce governs the letters of credit.
What is a Letter of Credit?
This is the definition of the Code of Commerce and this was the practice before. And
it could still be of use nowadays. Kaya lang nowadays, Letters of Credits are most common
in the banking system. Alright, kaya ano ba ‘yong Letters of Credit under the Code of
Commerce?
As defined, it is a letter addressed by a merchant to another merchant to enable the
person named in the letter to attend to a commercial transaction.
Okay, some lawyers don’t appreciate that definition. Ang labo naman. Di mo
maintindihan ano ‘yon. Kaya lang this is how it really worked during those days. First thing,
bago ko i-illustrate sa inyo, How many persons are involved in a letter of credit following
that definition? Para mas malinaw, pag sinabing letter of credit, sulat yan talaga, letter,
correspondence.
How many persons are involved in a letter of credit following that definition? – 3
persons
1. it is a letter addressed by a merchant (maker)
2. to another merchant
3. to enable the person named in the letter (beneficiary)
Ngayon, following that definitions, how many merchants are involved?
At least 2. Iyong gumawa ng sulat at iyong sinulatan. The person named in the
letter, who is known as the beneficiary, may or may not be a merchant.
Who is a merchant?
A merchant could be an individual or a juridical person who having the capacity to
engage in commerce regularly engages in it.
‘Pag sinabing commerce, that involves contracts, buying and selling. Kaya pag
narinig niyo ‘yong commercial transaction, you could say merong sale diyan.
Ano naman ang qualifications ng individuals to be a merchant?
As far as the Code of Commerce is concerned, dapat at least 21 years old. Kaya lang
luma na yan. Remember that the age of majority was reduced to 18. So if you already
reached the age of majority, at least 18 years old, then you could be a merchant. Because
then, you could give consent to any contract. Kaya lang di lang age of majority. Also, you
have capacity to give a valid consent. Kasi not everybody who has reached the age of
majority can give valid consent. Di ba merong insane o demented person, deaf mutes who
do not know how to read and write. Kahit na 50 years old na ‘yan, they cannot give valid
consent to a contract.
Kaya para masabing merchant, you have reached the age of majority and you can
give a valid consent to a contract.
BANKING – ABELLA NOTES 2.0 4F 2017 -2018|2
And then Common requirement- pag sinabing common requirement, kasi ito for both
individuals and juridical persons.
Ano naman ang qualifications ng juridical persons to be a merchant?
Ngayon pag juridical persons, ang pinaka capacity diyan is simply having been
organized according to law. So if you are a partnership or a corporation, you are organized
according to law kahapon lang na-organize. Ah Walang problema. Kahit kahapon lang na-
organize, it already has capacity. Ang kinakailangan na lang to qualify as a merchant, it
should engage regularly in commerce.
Ngayon, as far as individuals are concerned, kinakailangan legal age with
capacity to give consent into a contract and regularly engaged in commerce. Pag
partnership or corporation, having been organized according to law and also regularly
engaged in commerce. Malinaw?
Ngayon, question, is there a minimum volume of transactions to qualify one as a
merchant?
Wala. No minimum value, no minimum number of transactions to qualify anybody as
a merchant. Basta ang importante, you are engage in commerce.
Kunyari lang, di ba sa labas paminsan minsan may nagtitinda diyan ng balut?
Merchant na ‘yon, yes, ginagawa niya ‘yon araw-araw. Iyong nagtitinda diyan ng mani,
merchant na ba ‘yon? Yes. Magkano ba benta noon sa maghapon? Baka mga Php 1,000
naman. Oh will that be enough to qualify as a merchant? Yes. Di tinitignan yung halaga o
dami ng transactions to qualify a person as a merchant. Kasi ang importante iyon ang
ginagawa mo on a regular basis. Pag sinabi mong on a regular basis, ‘yan ang tinatawag na
habituality.
Now, let us go back to the definition. Iyon ang merchants di ba? So in a letter of
credit, sabi ko kanina, at least 2 are merchants. Iyong gumawa ng sulat at iyong sinulatan.
Iyong beneficiary may or may not be a merchant.
So let me illustrate what a letter of credit is under the Code of Commerce. Alright,
ganito ha. Picture yourselves as if you are doing business way back in the 1800s. Oh, nung
mga panahong iyon, dito nalang sa City of Manila. Sa tingin ninyo, ano ang setting dito
noon? Siyempre wala pang mga high rise noon saka yung mga bahay dikit-dikit. Alright, so,
perhaps in one block, the houses are apart but there are already residents. So if you are a
merchant in those days, how can you have that commercial transaction? Sa ngayon, walang
problema. Sa ngayon, commercial transactions nandiyan sa supermart or public market,
talipapa. So during those days, people were doing trading that way. Some could not have it
this way.
So kunwari, ako ay merchant noong panahong iyon, and I was doing business along
Legarda St. from CM Recto. Yung aking goods was in a cart drawn by a horse or or an old
cow or matandang babaeng baka. Kung ang baka ay bata pa, ginagamit yan for breeding
purposes. Ngayon, ikaw ganoon din ang negosyo mo. And then we frequently crossed
paths. Kung ako eh northward ang direction, ikaw naman ay southwards. Kaya frequently,
our paths crossed and pag nagkakasalubong tayo, kadalasan ay magtatanghalian na. So
sabi ko, lunch tayo. In short, we've gotten familiar with each other. You look at what are
inside my cart and napansin mo may dala akong dried fish. Ang ganda ng dried fish mo,
silver pa at yung laman light brown pa lang. Yung sayo, ung dala mo, embalsamado na.
Kaya yung sabi mo sakin, 'Pre, saan mo nakuha yang isda mo?’ Ang sabi ko,’nakukuha ko
yan sa Malabon.’ Tapos ang followed question mo, ‘Pre, cash or utang?’ Ah utang lang kasi
ang tagal ko nang kumukuha, 10 years na. Kaya sabi mo sa’kin, ‘Pre, pwede mo ba akong
tulungan makautang din dun sa supplier?’ Sabi ko, ‘sige, sulatan ko nalang.’ Kaya gagawa
ako ng sulat:
“Dear Mr. Malabon, please extend credit to my friend, Jose Cruz in the
amount of 50 pesos. Thank you. Very Truly Yours.”
Yun ang Letter of Credit. It's a letter adressed by a merchant to another merchant
to enable the person named in the letter to attend to a commercial transaction. Yun ang ibig
sabihin noon. Kasi sabi nga nung iba, ang labo-labo naman ng definition ng letter of credit.
Hindi malabo kung alam mo yung setting noong panahong iyon. Kung pag-iisipan mo
ngayon, talagang malabo. Kaya lang kung susundin mo iyong setting noon when the law
was made, yan that’s how it worked. Kaya it's a letter addressed by a merchant, ako yung
merchant na una, ako ang tinatawag na maker--yung gumawa ng sulat, to another
merchant, yung taga-Malabon para ikaw makautang.
Kaya ang tanong, what are the requirements of the Code of Commerce for a Letter
of Credit? Dalawa yan.
1.) The person to whom the credit is extended should be named.
Yung taong papautangin ng aking sinulatan, dapat nakalagay ang
pangalan--hindi pwedeng to bearer. Kaya ang letter of credit cannot be
issued in a negotiable form because the Code of Commerce requires that
the letter of credit be issued to a named person.
2.) The amount or maximum amount of credit to be extended to the beneficiary
should also be stated.
What if both requirements are not met? How do you call that letter?
If both requirement are not met, it’s not a letter of credit. Kaya lang sulat din naman
yun, kaya anong tawag? It’s a letter of recommendation. A letter of recommendation is a
letter purporting to be a letter of credit but which does not meet the 2 requirements.
Ngayon, syempre ako maker gumawa ako sulat. Binigay ko sayo para makautang ka.
For how long is the letter valid?
A letter of credit if it is a domestic one meaning all the parties are in one country,
it is valid only for 6 months, that’s 180 days.
If foreign letter of credit meaning the parties are in different countries, it’s valid
for 12 months.
So yan ang letter of credit in the Code of Commerce. Pwede pa yan kaya lang
nowadays letters of credit are a facility or accommodation of commercial banks. Kaya kung
natatandaan ninyo when I was talking about classification of banks, I mentioned commercial
bank. And one of the functions of a commercial bank is opening letters of credit.
Ano yung bank letter of credit?
Pag sinabi mong letter of credit nowadays through the banking system, ganito ha.
Merong definition found in books for Money credited banking. Ginagamit ng students na
undergrad, those taking up commerce or commercial science. Ngayon ang definition ng
bank letter of credit is that it is a bank facility or accommodation to enable persons to
have a commercial transaction where the seller would be assured of payment and the buyer
assured of delivery.
There was a case where the ponente had the chance to write his own definition of a
letter of credit kaya meron na ring definition ang Supreme Court of a letter of credit. It
is a financial device to reconcile the seeming differences between the buyer and the seller
so that the seller would be assured of payment and the buyer assured of delivery. Pareho
lang kanina. Kaya lang ang tawag ngayon “financial device”. Kaya lang idadaan mo pa rin sa
bangko yan kaya nga financial device.
Para mas malinaw, let us say I am a merchant in Manila meron ako ditong
supermarket. And among the products I am selling in my supermarket are dried mangoes.
Ikaw mahilig ka sa dried mangoes kaya madalas ka sa supermarket ko. Kaya lang one day
pumunta ka to me nagreklamo ka na “Bakit ang mahal ng dried mangoes niyo rito?” And
my explanation is simply, “Alam mo yung supplier ko distributor sa Manila.” Alam niyo
naman pag middle trade, prices of goods go up. Kasi pag may middleman, may tubo yan.
Pag may middlemen, mas maraming percentages ang nadadagdag. Sabi mo sakin, “Sir
bakit di kayo dumiretso sa manufacturer? So sabi ko sayo, “Wala ako pangpunta sa Cebu.
Wala ako kilalang manufacturer doon.” In short ikaw naman eh techie, ako naman eh old
tech kaya di ko alam mga gagawin ko so sabi mo, “Sir tulungan ko kayo.” Kaya ang ginawa
mo using your gadget nagpipindot ka sabi mo “Sir eto merong mga manufacturers sa
Cebu.” Oh sabi ko “sige thank you susulatan ko yan bukas.” Sabi mo sir bat bukas pa
ngayon na. He composed a letter, siya yung nagpipindot dun sa gadget niya.
Alright in short lahat ng pinakita niya sa akin lahat ng manufacturers in Cebu
instantly pinadalhan ng email, me inquiring ano capacity mo ano presyo mo etc. In short,
pag hinintay mo iyon, aba, agad nagsagutan. In short, right away I got the clients from
different suppliers. Yung mga nagreply nakita ko, ito maliit ang capacity, ito mataas ang
presyo, tinanggal ko na iyan. Namili ako, ang laki ng capacity, bababa ang presyo.
Alright so nakapili na ako, ako magsusulat na: “Thank you for your immediate reply.
I am placing my order of 1 ton of dried mangoes which you quoted at 400 pesos per
kilogram. Please ship right away.” Yun namang Cebuano na iyon sinagot naman agad ako:
“Thank you for your order but since we haven’t yet met please remit payment first then I
ship.” Siyempre hindi naman niya ako kilala hindi naman niya ipapadala agad kaya sabi niya
bayad ka muna. Ako naman having received that letter, that reply at the back of my mind:
“Ikaw rin di din naman kita kilala ba’t naman kita babayaran agad? Eh kung hindi ka
magpadala?” Alright, pag sinagot ko iyon ng ganoon eh wala na stalemate na iyan. Alright,
so problema wala siya tiwala sa akin di niya ako kilala. Ako rin walang tiwala sa kanya kasi
di ko siya kilala.
So in short, how could we have a sale where he would be assured that he get paid
and I will be assured that I will receive the goods?
Kinakailangan merong third person whom both of us who trust. Eh ano ngayon iyan?
Banko. Kaya magsusulat ako sa kaniya: “Oh I received the reply and since I myself don’t
know you as we haven’t yet met, are you willing to be paid with a letter of credit with a
bank letter of credit? And if so please let me know your bank.” Sagot ngayon niya: “Thank
you for your letter, please be informed that I am willing to be paid with a letter of credit
with a bank of BPI Colon.” Colon is an area in Cebu. So knowing that he is willing to be paid
with a bank letter of credit and he banks with BPI, ako I go to a branch of BPI near a
supermarket. Sasabihin ko sa BPI: “Puwede ba akong mag-open ng letter of credit sa inyo?
Kasi meron akong binibili dun sa Cebuano 1 ton of dried mangoes kaya lang gusto niya
bayaran ko muna siya. Kung babayaran ko naman siya wala naman kasiguruhan na
ipapadala niya sa akin kaya nag-usap na lang kami we will pay by letter of credit through
you.” Ang sabi ng BPI: “Oh sige walang problema.” Oh magkano transaction? 400 thousand
pesos. Sabihin ng BPI: “Oh sige akin na ang 400 thousand pesos.” In short I delivered that
to BPI, the 400 thousand pesos so that BPI could open a letter of credit. Yung idedeposito
kong 400 thousand pesos ang tawag doon Marginal Deposit.
So what is a marginal deposit?
It is the amount required by a bank to be deposited with it for the purpose of
opening a letter of credit.
Oh malinaw? Okay ngayon, so ‘yan ideposito ko. Sa bangko ang transaction diyan
puro mabilisan so right after making that marginal deposit BPI manila right away will
contact BPI Cebu or perhaps through an email now a days. Alright so nakalagay doon: “BPI
Colon please be advised that a letter of credit was opened in favor of Mr. Cebuano for 400
thousand pesos as payment for the order of Mr. Manilenyo of 1 ton of dried mangoes.
Please advise Mr. Cebuano.” And BPI Colon naman dial kaagad iyan: “Mr. Cebuano mayroon
po kayong letter of credit dito for the order of Mr. Manilenyo for 1 ton of dried mangoes for
400 thousand pesos. Tatanggapin niyo po ba ito?” Eh natural negosyo iyan kaya sabi niya:
“Yes!”
“Oh sige iship niyo na ang 1 ton of dried mangoes that was ordered by Mr.
Manilenyo and we will pay you as soon as you submit to us the following
documents: yung original bill of lading issued by the common carrier, a copy of your sales
invoice, a copy of your packing list kung ano man whatever.”
Kaya lang ang pinaka-importanteng dokumento doon ay iyong bill of lading. Kasi I
remember in the Civil Code: Delivery of goods to a common carrier for delivery to the buyer
is already considered delivery to the buyer.
Oh kaya ikaw si Mr. Cebuano mag-empake ka kaagad ng 1 ton of dried mangoes
dalhin mo kaagad doon sa abboitiz. Oh pag tanggap ng abboitiz: “Oh ayan, orginal bill of
lading so your proof that you already shipped the order of Mr. Manilenyo.” Kaya ang BPI
right away pays you. In short if you were the seller without leaving Cebu you got paid. Oh
ngayon kahit iyong goods nandoon pa sa warehouse ng abboitiz sa Cebu at bukas pa aalis
yung barko papuntang Maynila yung order ng 1 ton of dried mangoes is already considered
delivered. Alright? So ngayon hinatayan ko na the following day pagdating diyan so punta
ako doon sa pagdating ng vessel from Cebu sa warehouse ng abboitiz sasabihin ko: “Oh,
kunin ko na.” Pagkatapos ang mangyayari diyan iyong BPI Cebu ipoforward yung orginal bill
of lading sa BPI Manila. Pagkatanggap na pagkatanggap ng BPI Manila tatawagan agad
yung kliyente. Sasabihin: “Sir andito na po iyong original bill of lading niyo pakikuha na po
para pagdating ng goods noong barko, claim niyo na agad sa bodega.” In short, no time is
lost because everybody wants to complete the transaction. That’s how things are done.
Okay?
So ngayon, in short I got my goods without leaving Manila. And the transaction was
facilitated simply through a bank letter of credit. Kaya kung titingnan niyo ulit yung
definition: It’s a financial device, kasi nga naman pera pinag-uusapan diyan, to reconcile the
seeming differences of the buyer and seller where the seller would be assured of payment
and the buyer assured of delivery.
Kaya kung yan ang ayos ninyo ngayon based on what I have narrated.
How many independent contracts are there in a letter of credit?
Alright, well this are based on a promise There are 3 independent contracts in a
letter of credit. One, between buyer and seller. Ako at si Mr. Cebuano meron kaming
contract of sale. Second, between buyer and bank. Sabi ko dun sa bangko: Oh, mag
open ako ng letter of credit, ito pambayad ko doon sa order kong 1 ton of dried mangoes.
Ire-release kay seller to 1 day after he presents proof that he already delivered the goods to
me. Sabi ng bangko: Yes, Sir, no problem. In short, the second contract is between bank
and buyer. Tinawagan naman ng BPI Manila ung BPI Colon: Oh, you have a letter of credit
you inform Mr. Seller. Inform him and find out if he’s agreeable, if he will accept. Kaya
tinawagan naman ng BPI si Seller. Oh Mr. Seller you have here a letter of credit, tatangapin
nyo ba ito? Sasabihin of course. Negosyo yan eh. Sasabihin, Sir, ah, show us proof that you
have delivered, then we pay you. Yun ang lumalabas na third contract, between seller
and bank.
Kaya lang yan ang according to the Supreme Court. Kaya lang in a foreign letter of
credit, I say, di pa naman ako Justice ng Supreme Court kaya sinasabi ko sa inyo
ito ay aking view. There is a fourth contract, and that is the contract between the
correspondent banks. The fourth contract in a foreign letters of credit is the contract
between the correspondent banks. Correspondent ah, yung salitang correspondent. Yung
dulo “d-e-n-t.” Correspondent. Kasi yung iba hindi naman nababasa yan. O di nagbabasa
talaga kaya mali ang dinig pagdating ng examination nakalagay corresponding banks. Kaya
sinasabi ko na sa inyo. “d-e-n-t.” Hindi “d-i-n-g” kundi “d-e-n-t.” Kaya ang tawag dun sa...
Ano ba yang correspondent bank na yan?
Edi ung Philippine bank tsaka ung bank abroad.
So papaano ba yon pag foreign letters of credit?
Ganito ha, gusto ko dagdagan yung aking produkto, hindi lang dried mangoes. Ang
sabi ko magdagdag kaya ako ng product? Ano kayang dried fruits ang pwede kong idagdag?
Ikaw naman nagbiro ka. Sir, bakit di kayo umorder ng dried oranges? Meron bang ganon?
Dried oranges? Meron. Alright. Nakita ko na, akala ko wala. Meron pala. A product of
Thailand. Alright. I’m not promoting this store. Kaya lang dun ko ito nabibili, sa Rustan.
Meron silang mga dried fruits doon. Merong dried pineapple, dried kiwi, tapos merong
tamarind. Nung una iniisip ko paano nagkakaroon ng dried orange? Kasi ang orange juicy
diba? E pag nawala ung juice, edi puro balat yun? Diba? Totoo naman pala, balat talaga.
Ang nangyari pagkaprocess yung buong orange, yung buo is sliced. Yung na-slice I da-dry.
Kaya yung lalagyan ng juice dun natuyo ung juice. Kaya ung pinaka sacks ung tawagin
kulay orange. Kaya para makain mo at maenjoy mo pa, kasama balat. Ok naman yon kasi
fiber yon maganda yon panglinis ng tiyan.
Alright. Kaya sabi ko idagdag ko kaya sa product ko sa supermart ko dried oranges.
In short, nag-contact ka ng supplier sa Thailand. Ganoon din. Please ship… Unang tanong
you tell you want dried orange and if so let me know your price. Sasagot yan and I found
the price reasonable nag-calculate na ako ng lahat ng cost. Mura na, mapagtutubuan ko pa.
In short, bumili na ko. I want to order 1 ton of dried oranges for the price as quotes. Please
let me know if you are willing to be paid with a bank letter of credit. And if so, let me know
your bank.
Eh Thailand yun. Walang Bank of PI dun. Kaya sasabihin nun: yes I’m willing to be
paid with a bank letter of credit and I bank with the Royal Bank of Thailand. Wala naming
branch ditong ganun ng banko. Alright. Bali pagsagot sakin please be informed that the
correspondent bank of the Bank of Thailand in Manila is the Bank of PI. Alright kaya kung
tatandaan niyo sabi ko dati yung mga commercial banks in the Philippines, lahat yan part of
their services is opening of letters of credit. Kaya yung mga commercial banks natin
including universal banks lahat yan may tie up with different banks in major cities of the
world. Lahat yan. Lahat yan may tie up. Kaya nga sabi ko sa inyo ung local bank may
foreign bank. Yung dalawang bank ang tawag dyan correspondent bank..
Ang tanong, kapag may transaction ba, nagpapadalahan sila ng pera?
Hindi. Simple lang. Ang gagawin halimbawa ng BPI, mag-oopen ng account iyan in
the name of Royal Bank of Thailand. Yun namang Royal Bank of Thailand, mag-oopen
naman ng account in the name of BPI. Kaya ang mangyayari, yung mga transactions diyan,
debit-credit lang. Walang actual remittance. Halimbawa, may babayaran dito. Babawasan
lang yung naka-credit doon sa Bank of Thailand. That’s how they do it.
Kaya sabi ko sa inyo, kapag foreign Letters of Credit, may pang-apat, that is the
contract between the correspondent bank.
Ngayon, the bank facility is known as L/C-T/R bank. Letters of Credit, Trust Receipts.
Kaya nga L/C-T/R Bank.
Before I explain, kapag nag-open ako ng Letter of Credit sa bangko, ano ang
pakinabang ng bangko for facilitating my transaction?
For facilitating a commercial transaction, the bank will charge a service fee. Kaya
lang maliit lang iyan. Kaya ang tanong, kung ikaw ang bank, paano ka kaya kikita ng mas
malaki sa akin? Siyempre sa umpisa makuntento ka lang muna sa service fees. Pero para
kumita ng mas malaki-laki, ang ginagawa ng bank, let’s say after another transaction,
sasabihin ng bank sa akin, ‘Sir, isang taon na naming kayong client. We have a good
relationship with you. Kaya yung susunod niyong letter of credit, we won’t anymore require
100% marginal deposit. Sir, 60% na lang ang kailangan niyong i-deposit sa amin.’
In short, if I were a genuine merchant, I will love that. Why? Nakapag-transact ako
na konti lang ang pera na ilalabas ko. Tandaan niyo, a blue blooded merchant loves credit.
Wala pa akong nabalitaang merchant na ayaw ng utang. Kung ayaw ng utang, di yun
merchant. Why? Because you make money out of other people’s money. Wala kang ilalabas
kung pwede nga lang. Di ko pera, ginagamit ko.
Ngayon, instead of putting up P400,000.00, ang ilalabas ko, P240,000.00 na lang.
May difference na P160,000.00 which the bank will advance for me. Kaya lang utang ko yun
so yung bank, kikita ng interest sa P160,000.00. May P160,000.00 na meron pang service
fee at meron pang interest.
Ang gagawin ng bank, kakausapin si Mr. Cebuano, ‘Sir, ito yung order. Ship, then we
pay.’ Kaya ang mangyayari, ibibigay ni Cebuano yung original bill of lading sa BPI Cebu. BPI
Cebu will forward it to BPI Manila. Kapag nandito na sa BPI Manila, sasabihin sa akin, ‘Sir,
nandito na po yung inyong Bill of Lading. We will release this to you upon payment of
P160,000.00 plus interest of so much plus service fees.’
Sasabihin mo, ‘Naku pasensya na po kayo. Ang sama po ng nangyari sa akin. Nag-
decide na po akong kumuha ng Bar exams ngayong taon kaya yung aking konting savings,
pinambayad ko na sa review fee tapos nagpa-reserve din ako ng kwarto sa hotel kaya wala
na akong cash.’
Sasabihin ng bank, ‘Sir walang problema. Kung wala kayong pera ngayon, no
problem. We will still release to you this original Bill of Lading. Kapag nakuha mo na,
pumunta na kayo sa bodega ng carrier, kukunin niyo na yung goods, yung 1 ton of dried
mangoes. Ibebenta niyo. Doon sa pinagbentahan, doon niyo kami bayaran. Kung hindi niyo
kami mabayaran by this day, walang problema. Puwede niyong isoli sa amin yung goods.’
So magtatanong ka, ‘anong gagawin ko?’. Sabi ng bank, ‘Wala sir. Pipirma lang kayo
ng resibo.’ Yung resibong yun, that is a TRUST RECEIPT.
What is a Trust Receipt Transaction?
In a trust receipt transaction, the ENTRUSTER who has security interest over goods,
documents or instruments entrusts those goods, documents or instruments to the
ENTRUSTEE so that the entrustee can sell those goods, documents or instruments and the
entrustee agrees to remit the proceeds of sale to the extent of the amount owing to the
entruster within an agreed period and if that amount cannot be remitted to the entrustor
within the agreed period, to return all goods that have not been sold.
Tanong, in a trust receipt transaction how many parties?
Edi dalawa: entruster and entrustee.
And of the two who is the theoretical owner of those goods?
The entruster. Sabi ng Supreme Court entruster because it is the entruster or the
bank that advanced full payment of those goods. Kaya yun lumabas na theoretical owner.
Ang tanong ano ang undertaking ng entrustee in a trust receipt transaction?
Sell and remit the proceeds of sale to the extent of the amount owing to the
entruster within an agreed period and if that amount cannot be remitted within the agreed
period, return all goods which have not been sold.
Ganito para mas ma appreciate niyo, ang dapat i-remit proceeds of sale. Ibig sabihin
yung pinagbentahan. Ngayon yung pinagbentahan kasama doon yung syempre yung profit
margin nung seller nung entrustee. Kaya dapat yung pinagbentahan niya lahat lahat yun
ireremit niya, kaya lang only to the extent of the amount owing to the entruster.
Halimbawa ganito, magkano yung balance ko pa sa marginal deposit - P160,000 +
kunwari interest + service fees, kaya kunwari ang total P185,000. So yun ang halagang
dapat iremit ko sa entrustor P185,000. In short, nasa akin na yang dried mangoes. Si Mary
bumili sa akin ng ilang kilos. Kunwari yung pinagbentahan namin... ang usapan namin ni
Mary doon sa binili niya sa akin ang presyo ay P60,000. Of the P60,000 ang aking dapat na
profit ay P10,000.
Ang tanong how much do I have to remit?
Yung buong P60,000 kasi ang undertaking is to remit the proceeds of sale. Kaya sabi
ko sayo kanina kasama pa yung aking tubo doon sa transaction.
So doon sa puhunan kong P185,000 minus yung P60,000 magkano nalang yung
utang ko? P135,000. O nakabenta ako kay Jose P90,000 worth, doon sa P90,000 kunwari
tubo ko ay P20,000 ang ireremit ko ay yung buond P90,000. Kaya kung ireremit ko yung
buong P90,000 doon sa bangko, P185,000 minus P60,000 minus P90,000...magkano? Bale
P35,000 nalang. Meron pa akong utang. O nakabenta ako ulit worth P40,000.
Ang tanong magkano dapat kong iremit?
Edi yung P35,000 nalang yung balanse ko kasi diba remit the proceeds of sale to
the extent of the amount owing to the entrustor. Kaya yung ire-remit ko P35,000 yung
P5,000 akin na yun. At kung ano pa yung hindi nabebentang dried mangoes, akin na yun.
Na kung gusto kong kumain ng dried mangoes pwede kong kainin lahat nung natitira dahil
iyon ay akin na. Kaya lang habang hindi akin yun,hindi ako pwede kumagat kasi hindi pa
akin yun. Kapag kumagat ako, may kaso ako, conversion.
Kaya habang hindi pa bayad ng buo yung entrustor, hindi pa sa akin yung goods.
Kasi kung hindi ko mabayaran yung buo, my obligation is to return all goods which have not
been sold. Maliwanag?
Ngayon, is there a criminal liability for violation of a trust receipt transaction?
Yes. The entrustee who violates the trust receipt transaction could be charged under
Article 315 of the Revised Penal Code which penalizes conversion.
Alright. Ngayon what if the entrustee is a partnership or a corporation? Can there
be a violation of the trust receipt? Question is who gets charged criminally? Who
will go to jail?
Ang entrustee partnership or corporation. Ang problema partnership or corporation
walang physical existence. It only exists in contemplation of law. Kaya kung mayroon
violation ng trust receipt transaction who goes to jail? The person who actually signed the
trust receipt on behalf of the partnership or corporation. O wala ka trabaho. Tapos nakita
mo sa internet job opening. Managerial pa. Maganda sweldo. Maganda naman ang
credentials mo so you were hired. Bago mo tanggapin itanong mo muna job description.
Pag basa mo functions nakita mo number 1, to sign all trust receipts. Isip isip ka kung
tatanggapin mo. Kasi kapag nagkaroon ng violation, ikaw ang kulong.
The person who signed the trust receipt in behalf of the partnership or
corporation shall be the one liable in violation of the trust receipt transaction.
O ngayon, there is a provision in the trust receipts that if a person is regularly
engaged in the selling of goods for profit, there shall be no trust receipt
transaction. Kaya sinabi yan kasi anticipated na yan.
The person selling goods on credit or instalments they require their buyer to sign a
trust receipt instead simply of a promissory note or a perhaps a charge sales invoice. Kung
promissory note di bayaran wala ka panakot. Kasi wala naman nakukulong sa utang. Kaya
lang pwede makulong pag may violation ng trust receipt kaya ang ipapapirma sa buyer
kung may hulugan ay trust receipt.
Kaya lang kahit na ipapirma mo sa buyer ang trust receipt sabi ng law that is not a
trust receipt transaction. Kasi sabi ng Civil Code on Contracts, the parties shall be
bound by their true agreement. Ano ba talaga usapan? Eh di hulugan. Pag hulugan yan,
the liability is only civil kaya kahit pa pirmahin mo yan ng trust receipt di talaga TR
transaction ang pinag-usapan, hulugan lang. Kaya at the end of the day kahit kasuahan mo
ma dismiss yung kaso. Kasi ang true agreement is sale on credit. Pag sale on credit, the
liability of buyer on credit is only civil.
One day while you were having a walk inside the mall, napadaan ka dun sa isang
appliance dealer. Tapos nakalagay dun anniversary sale. Papasok ka naman and nakita mo
dun one of the items on sale is an LED wide screen television set which you have always
wanted to own. So tinanong mo sa salesman ‘on sale ba yan? ’Sabi niya ‘oo, sir. Smart TV
na yan, wala nang remote control yan. Hi tech na yan puro sign language lang. Kakaway ka
lang change channel na’ sabi mo magkano yan? Sabi niya, ‘Sir, sale nga 200k lang
yan.’Nabigla ka, P200,000 kaya ang tanong mo pwede ba instalment? Ay sir pwede. 50%
down balance in 6 months. Na calculate mo na kaya mo yun. Dukot ka na oh downpayment,
P100,000. Tapos sabi sir pirma. Ang pinapirma sayo trust receipt eh di mo naman
naintindihan yun. Kahit ordinary na tao di maintindihan trust receipt. Ang ordinary buyer pa
pirmahin mo kahit ano pipirma yan. Wala na basahan yan. So inuwi mo yung LED TV set
nilagay mo sa living room tapos kinabitan mo pa home theater kaya ganda sound. In short,
you enjoyed watching in your new TV set. Naka 3 ka pelikula tuloy-tuloy kaya ang nangyari
nakatulog ka habang nanonood kaya lang ang masama di mo na i-lock pinto. Ang nangyari
may dumaan na magnanakaw, eh tulog ka kaya tinangay na TV set mo. Following morning
nagising ka 9am na nakita mo wala yun TV mo. Kaya lang naisip mo late na naman ako nito
kaya you rushed to the office. Unfortunately, ang nagbukas ng pinto sayo di security guard.
Yung boss mo mismo. Sabi niya ‘why are you late? ’papaliwanag ka eh di maganda
B A N K I N G – A B E L L A N O T E S 2 . 0 4 F 2 0 1 7 - 2 0 1 8 | 10
paliwanag mo. You’re fired. Edi wala ka trabaho ngayon. Wala ka pang bayad instalment.
Edi may kaso ka ngayon. Violation ng trust receipt.
Will you go to jail?
No. Kasi pano yun napirmahan mo trust receipt kaya lang ano ba usapan talaga?
Installment sale. And the law is very clear that if a person is regularly engaged in selling
goods for profit, no trust receipt transaction.
I had a client, sabi niya, ikuha mo kami ng trust receipt (TR). In short, kinuha ko ng
TR. Sabi, hindi pwede kapag hindi nakabayad ang buyer, hindi pwedeng kasuhan ng
PRO violation ng TR. Wala sa batas. Panakot lang namin. Kasi kung hindi nakakaintindi – eh
kinasuhan, ang complaint is for violation of Art. 315. Eh di matatakot na yun, tapos
TIPS makikipag-settle agad. Hindi mo pwede totohanin kasi, at the end of the day, madidismiss
lang. Kaya lang, maganda lang yun pag-exert ng moral pressure.
Actually, the PD on Trust Receipts was issued to protect the banking
system. Ang Trust Receipts, matagal nang meron yan. Kaya lang, ang naging problema,
kapag mayroong violation ng trust receipts, yung ibang fiscals and judges dinidismiss ang
kaso saying that the liability is only civil. Kaya kapag dun napunta ang kaso, sa fiscal or
judge whose belief is that a violation gives rise to civil liability, ang banko ang hindi
nkakasingil kasi ang mga entrustee, tinatakbo ang pera, hindi nagbabayad. Eh noon
mababa lang ang paid-up capital ng commercial banks. Kaya matakbuhan lang ng dalawa,
tatlong Trust Receipts, bagsak na ang bangko. Paid-up capital was only 10M.
Yung mga trust receipts transactions, at least a million or two yan. Kaya matakbuhan
lang ng isa o dalawang milyon, malaki na ang ng epekto sa resources ng banko.
Ang tanong: how come that some judges and fiscals were of the belief that a
violation of TR gives rise to cilvi liability? Walang criminal liability?
Sabi nila, pag binasa mo ang Trust Receipt, except for that receipt portion,
karamihan ng provisions niyan, you find it in a promissory note. And if there is a violation of
a promissory note, the liability is only civil.
To give you an idea, dun sa Trust Receipts, nakalagay dun, “received from the
entruster the following goods...” with undertakings. Ngayon, kadugtong niyan, “I agree
to pay interest at the rate of so much for any amount not paid; in case of litigation,
I agree to pay attorney’s fees, costs of suits and expenses of litigation...”
Eh sa promisorry note, nandoon din iyan pero walang criminial liability. Eh bakit ito
resibo lang pero may criminal liability? Kaya malinaw sa law ng Trust Receipts, as long
as the undertakings are there, although there may be added stipulations, it
remains a trust receipt transaction. For as long as the undertaking are there even
though there are other stipulations, it remains a trust receipts transaction.
Para protektado ang banking system, entrustees are obliged to insure
against all risks the goods covered by a trust receipt. Para halimbawa: ikaw ang
entrustee, kakakuha mo lang doon sa bodega ng carrier ng goods and you’re transporting
but along the way, na-hijack. Kaya ang excuse mo fortuitous event. Hindi mo na
mababayaran yung entrsuter. At the end of the day, ang entruster ang magsa-suffer. Kaya
para walang dahilan, magpa-insure ka. Pag di mo ginawa yun at nawala, magbabayad ka pa
rin. Pag di ka nagbayad, kulong ka pa rin! Naitransport mo na ang good pero unfortunately,
nasunog ang bodega. So saying naman. Fortuitous event din! Para walang lusot, magpa
insure ka. Kasi pag hindi ka nagpa-insure eh di bubunot ka sa sarili mong bulsa at
magbayad ka. If you won’t, you will go to jail.
Question by Lara: Re: Banking Act, RCBC recently changed its business logo. In that
case, would they need approval of the BSP?
DA: Di kelanagan, magpapa rehistro ka ng bago – yung trademark. No need to get
approval from the BSP. Trademark naman kasi yun, walang kinalaman sa Monetary Board.
MORTGAGES
Governing Laws, we have the: (1) Civil Code; (2) Chattel Mortgage Law; there is another
law on mortgages but this law has never been part of the bar exams.. yung (3) Ship
Mortgage Decree; Ship – yung barko, vessels. *Joke Alert* SHIP. Kasi mayroon pang isang
ship yung may sungay (sheep). ‘Kay? Ship Mortgage Decree. Ito, important. If you’re going
to be a lawyer, if you’re going to business, (4) Act 3135, as amended. So, the laws of
mortgages are Civil Code, Chattel Mortgage Law, Ship Mortgage Decree, and then we have
Act 3135, as amended.
Alright. So. Question is… what are the principles in the Civil Code about mortgages? O, itong
mga principles na ito applicable din sa Pledges at saka Antichresis, ha?
A So. (1) A Mortgage is just an accessory contract. So legally, there could be a mortgage
only if there is a principal obligation. Or if there is a principal contract.
O(2) a mortgagor must be the owner of the thing mortgaged.

C (3) a mortgagor must have capacity to mortgage.
Alright. So. Over what may a mortgage be constituted? A mortgage may be constituted over
personal property or real property. If over personal property, we call it Chattel Mortgage. If
over real property, we call it Real Estate Mortgage, or simply REM.
What are the differences between a Chattel Mortgage(CM) and a Real Estate
Mortgage(REM)?
Subject
Subject(1) CM is over personal property, REM is over real property.
Matter
matter But there was a case where a CM was constituted over a house. So, Is the CM over a
house valid? Meron bang ganun, chattel mortgage over a house, where a house is
obviously real property? Alright, the contract is called a chattel mortgage because
the owner of the house was NOT the owner of the land on which the house was
erected. O, walang problema. Kung mortgage over the house, pwede, kasi siya ang
owner. Kaya lang, ano ba ito, di naman akin ang lupa? Mortgage lang over the
house, not over the land. Kaya, tinawag nila chattel mortgage. Alright, now, in that
case, two issues reached the SC. One issue was the validity of the CM over the
house. Sabi ng SC, between the parties, a CM over the house is valid, and to support
it, the SC cited Art. 1159 of the Civil Code – that the stipulations between the parties
shall be the law between themselves. Kaya pag napag-usapan ng parties na ‘yan ay
chattel lang, then so be it. Kaya lang that is valid only between them.
Now the other issue was whether or not the Register of Deeds could validly refuse to
register the chattel mortgage over the house. And the SC said NO. because the
functions of the Register of Deeds are purely ministerial. So kapag ayos ang
dokumento, all requirements of the law are complied with, walang magagawa diyan
ang Register of Deeds except to record it. Kasi, the Register of Deeds does not
perform adjudicatory functions – ni hindi nga quasi-judicial eh, ministerial nga lang.
Alright. Now another difference is…
(2) A CM could only secure an existing obligation. An REM may secure even future
secure future obligations.
obli
So, habang walang obligation, you cannot have a valid CM. Now another difference
is…
foreclosure (3) A CM chould only be foreclosed extrajudicially. While an REM could be foreclosed
either judicially or extrajudicially. One more…
redemption (4) In an extrajudicial foreclosure of a CM, there is no right of redemption, but in an
extrajudicial foreclosure of an REM, there is a right of redemption.
CHATTEL MORTGAGE LAW
Alright. Now let’s talk about the Chattel Mortgage Law. This is a special law on chattel
mortgages. The chattel mortgage law defines a chattel mortgage, BUT FORGET THAT
DEFINITION. Pero babanggitin ko, para alam niyo na. ha? Ito yung definition ng CM
under the Chattel Mortgage Law, but this definition no longer applies, ha, the concept of
the CM under the Chattel Mortgage Law is now considered VOID, because of the Civil
Code. Why? Ha, if you could recall, under the Civil Code, a pactum commissorium is
void. Alam niyo na ang pactm commissorium diba? It is a stipulation between a debtor
and creditor that in case the debtor defaults, creditor right away becomes the owner of
the collateral. Yan ang pactum commissorium. ‘Kay. Ngayon, how do you do that. In the
Chattel Mortgage Law, a CM is defined as a conditional sale of personal property to
secure the fulfilment of any valid obligation. So if you’re going to look in that definition,
qualified lang yon as a pactum commissorium. Kasi mayroon nang sale, mayroon ka
nang condition that if a debtor defaults, the sale becomes final. Kaya pasok na sa
pactumcommissorium. Maliwanag?
So, if you are to define a CM, define it according to the Civil Code – that a CM is a
contract whereby personal property is recorded to secure the fulfilment of any valid
obligation. Kaya ang tanong, where is the property recorded? To the Register of Deeds
of the city or province where the mortgagor resides. ‘Kay?
Okay for your info, lahat ng cities, meron yang sariling Register of Deeds. Ngayon ang
mga municipalities, wala. ‘Kay? Kung meron mang Register of Deeds that is found in a
municipality, that register of deeds Is for the province. Yan ang setup. ‘kay? Kaya ang
mga municipalities, wala yang kaniya-kaniyang Register of Deeds. Kung mayroon ka
mang makikita na opisina ng Register of Deeds in any municipality, that is for the
province.
Alright. There was a time, ah, the Province of Rizal although na rehabilitate na yan.
Ulitin ko, yung Province of Rizal, was one time the brilliant province of the Philippines.
Pinaka malaki yan sa atin. Kaya lang, Through the years na chop-chop. Sa madaling
salita, Caloocan, Navotas, Malabon, Mandalyuong,Pasig, Las Pinas, Paranaque,
Muntinlupa. In short nagasgas(?) din yan. Paunti unti gasgas. Naging City of Caloocan
tapos yung Malabon , ah, Navotas, nagging aprt of Metro Manila. Okay? Kaya lang,
nung it was still a big province, ang pinaka capitol, kasi ang probinsya may capitol yan,
kasi may capital. Okay so. Ang capital dun sa pasig. Kaya lang wala na ngayon.
Dinemolish na and what we have now is yung bagong unimart doon na mayroong
pagkataas taas na condominium building. Taas no. Okay. Dati, ah, andun yung Register
of Deeds for the province of Rizal. E ngayon, yung pasig, naging city, dahil naging city,
nagkaroon ng sariling Register of Deeds. So by the period, dun sa capitol, may dalawang
register of deeds.Mayroong for the province of Rizal, mayroong for city fo Pasig. O
ngayon, eto ah, kung mamasyal kayo, some place in the Philippines, hindi kinakailangan
lumayo. Sa Batangas city. Sa Batangas city, meron dun yung provincial capitol. Yung
string wings(?), left and right, Register of Deedyun. Yung nasa kanan, Register of Deed
for the province of Batangas, yung nasa kaliwa Register of Deed for Batangas city and
this can also be experienced in other areas. Okay. So, merong, ine emphasize ko eto,
kasi, merong Register of Deeds for a city and then there is also Register of Deed for the
province.
Ngayon, a chattel mortgage over a personal property. And a personal property can be
moved from place to place. Alright. if there is a, a mortgagor is a resident of Manila, and
the object of chattel mortgage is a bull dozer that is being used in connection with a
project in city of Gapa, in Nueva Ecija, kaya yung bull dozer nandoon sa Gapa. Kaya
ngayon, pag ganoon, yan ang double registration. Registration in the Register of Deeds
in Manila and registration in city of Gapa. Okay. So, if the mortgagor is in one city or
province, the property mortgaged is in another city or province, then registration shall
be two: one, registration in the city where the mortgagor resides and the other is where
the property is actually located.
Alright. Now, ah, a mortgagor may not be the principal debtor. Principal debtor may be
another person. And the mortgagor may have simply agreed to encumber his property
to secure the obligation of principal debtor, walang problema yan, basta ang importante
lang, under the civil code, yung mortgagor siya ang may ari ng property. Yung
mortgagor, maaaring hindi siya ang principal debtor. Alright. A problem arises, when
principal debtor defaults. Question now is: when the principal debtor defaulted, ah, then
what are the remedies available to the creditor? One remedy, sue for specific
performance. The other remedy is foreclose the mortgage. What I would like to stress is,
these remedies are in the alternative. Meaning you can’t exercise both. Mamili ka. Kaya
yung, mortgagee, you have to weigh your options very carefully. Kasi pangalawa, yung
principal debtor walang property. Kaya lang ang nag mortgage na nga yung kapatid nya.
Ngayon, ang value of the property mortgaged iss lower than your total claims. Kaya si
principal debtor, di makabayad. Gusto mo ng makasingil, so anong pwede mong gawin?
Alright, you have to weigh your options very carefully. Kung idedemanda etong si
principal debtor, you cannot foreclose the mortgage kasi nga these remedies are in the
alternative. Kung idedemanda mo, you get the favor of judgment of the law. Papano
naman satisfaction of the judgment, kung wala ka naman makukuha property kay
principal debtor. O ngayon, kung e fo foreclose naman yung mortgage, it may not go
with the total claims. O kaya pag isipan mo. Ano gusto mo, meron o wala? Syempre,
dun na sa meron kahit konti kesa naman sa wala. Kasi kun g idedemanda mo si principal
debtor, maaring manalo ka sa kaso. Kaya lang gumastos ka na, wala ka namang
makukuha. Saying lang. Gastos ka without getting in the result. Kaya gawin mo nalang,
foreclose nalang. Atleast meron ka ng lupa kesa zero. Ah, ganyan, ang pagiging
abogado ah. You assist them with making decisions. Kasi pag kliyente, kadalasan,
impassive yan, lalo nat magaling. ipakulong mo nalang. Sakit pa sa ulo. Alright, before
talking about remedies, the chattel mortgage law is a law that requires the observance
of particular form.
Pag wala itong form na ito doon sa deed of Chattel mortgage, the Register of Deeds
won’t record the transaction. So, ano ‘yung form na yan? It is the affidavit of good faith.
Every deed of chattel moetagage should have an affidavit of good faith.
So ang question now is: What is an AFFIDAVIT OF GOOD FAITH? It is a sworn

declaration of both the mortgagor and the mortgagee that they executed the chattel
mortgage in good faith to secure a valid obligation and not for the purpose of fraud.
By the way ha, unting-unti ulit sinasama sa bar exam ang forms. Kaya in the course of
your review, pasadahan niyo ulit and deed of mortgage. And one good form in the bar
exam is the affidavit of good faith. Unti-unti, diba last bar exams pinagawa sila ng mga
simple forms.
To give you an idea, yang paggawa ng forms, all that you have to do is to express
yourself in your wording. Walang prescribed style. Kung meron mang book on legal
forms, yun and style nung author. Kaya ang sabi ko sainyo, walang prescribed style.pag
gagawa ng contracts, diba sabi ng civil code regarding contracts: Contracts may be
entered into in any form. Remember, the document is a mere repository of the
agreement of the parties. Walang prescribed style. Kay pag nagpagawa ng jurat or
acknowledgement, hindi niyo kinakailangang gayahin yung mga nasa book on legal
forms kasi yung mga na anduon, style yun ng author. At yung style ng iba hindi naman
maganda, maulit pa. Halimbawa, estudyante kayo ng legal forms diba? Pinagawa kayo
ng acknowledgement nakalagay dun sa acknowledgment: “known to me and to me
known”. Diba iniikot ikot pa. Meron pang “further affiant sayeth naught” sabi lang “wala
na akonng sasabihin pa”. Hindi na kailangan yun, style lang yun. Express yourselves in a
simple way. At ang tamang paggawa, kung ano man ang requirement ng law, isama mo.
Halimbawa, pinagawa kayo ng deed of chattel mortgage, edi samahan mo ng affidavit of
good faith. Pag pinagawa ka ng deed of donation edi sabihin mo, ano dapat ilagay, act of
donation saka acceptance of the donee. Pag pinagawa kayo ng donation mortis causa,
one sentence, holographic will.
Dati nga sinasabi ko “Oh, kung meron kayong 1 minute na natitira, and you are asked to
make a deed of sale, kaya niyo bang gumawa ng deed of sale in one minute? Ako, kaya
ko. Gagawa ako ng sales invoice. Sold to… yun sales invoice. Wala namang requirement
ang law on sales sa paggawa ng deed. Hindi naman lupa yun, pag lupa hindi na sales
invoice. Pag bumili ka ng jaguar, magkano yun. Sabihin nating 7million, akala mo
merong deed of sale duon? Wala! Sales invoice lang. Requirement Pag sa lupa kailangan
nakalagay diyan ang despcription ng bproperty, boundaries, area. Yan ang mga hindi mo
pwedeng ilagay sa sales invoice. Subukan niyo bumili sa Ayala sa Bonifacio, may naka
showroom na Ferrari subukan mong bilhin yon. Hindi ka bibigyan ng deed of sale.
Bibigyan ka ng sales invoice. At yung sales invoice nay an, yan ang dadalhin mo sa LTO
para ma register sa pangalan mo. Subukan niyo lang. Atleast makit aniyo na totoo pala
ang sinasabi ko. Mas mahal pa sa house and lot yun.
Kailan ba kayo nagkaroon ng legal forms? Third year second semester pa noh? At yan
ang may napakaraming prerequisite. Kasi paano ka naman makakagawa ng dokumento
kung di mo pa napagaaralan ang batas. Pag gagawa ka ng dokumento, what you do is
recall what the law requires and just comply. Yun lang.
So, pag pinagawa kayo ng affidavit of good faith, ilagay niyo lang, simple: “We, under
oath, we are the parties of the chattel mortgage, we execute the deed in good faith to
secure a valid obligation and not in pursuit of fraud. Signature mortgagor. Signature
mortgage” Wag niyo na ilagay ang “after having duly been sworn…” ang shortcut nun is
“under oath”.
Remedies are:
1. Sue for Specific Performance; or
2. Foreclose the mortgage.
Tanong, what’s required to enable the mortgagee to foreclose the mortgage? Dapat
yung mortgagee should take possession of the property being mortgaged. To enable the
mortgagee to foreclose the mortgage in a chattel mortgage, the mortgagee should take
posseeion of the thing mortgaged. Why? Kasi ipasusubasta yon. Papano ka naman
makakabenta, papano ka makakapagsubasta if you are not in the possession of the
thing mortgaged. Wlang bibili kung di pa nakikita ang ipapasubasta. At assuming, na
gusto bumili kahit hindi pa nakikita ang ipapasubasta, ang problema ano ang idedeliver
sakanya after the price has been remitted.
Kaya, pag merong foreclosure ng chattel mortgage, step 1: Mortgagee must take
possession of the thing mortgaged. Ano ang gagawin? Halimbawa, mortage yan, hindi
yan pledge. The mortgaged is still in the possession still of the mortgagor and the
mortgagee would like to foreclose. The mortgagee, he demands that the mortgagor
deliver to him the property mortgaged. O ngayon, nag-demand ka, inignore ka naman,
hindi ka pinansin, worst is itinago niya pa. kaya lang, alam mo kung san itinago. Ang
tanong ano ang remedy? Go to court, file a case for DELIVERY OF PERSONAL PROPERTY
also known as REPLEVIN.
So nakuha mo na, ang tanong, who may attend the foreclosure sale. Sino ang pwedeng
magpasubasta? Either:
1. Sheriff; or
2. Notary public.
The law provides that the sale will be attended to by the sheriff or a notary public. Eh
ang tanong sino yung notary public? Edi yung pumipirma ng jurat at saka
acknowledgment. Yun ang notary public. Yan nga, kunyari, abogado ka na. Ngayon hindi
mo pa naovercome yung stage freight mo. Yung niyerbyos mo tuwing ikaw yung
pinarerecite sa lawschool, di pa nawawala. Kaya ayaw mo magtrial ng kaso. Kaya sabi
mo, mag-specialize nalang ako sa notarial law. Kaya maghapon nagpipirma ka ng jurat
at saka ng acknowledgment. Kaya lang pag ganon ang buhay mo, boring. Maghapon ka
pirma pirma ng jurat at saka acknowledgment. Para magkaron ka ng konting
excitement, ha, magsubasta ka nalang.
The law provides that the sale could be attended to by a sherriff or notary public. Who is
a notary public? Eh di pumipirma ng jurat at acknowledgment.
Gagawa ka ng notice of auction sale, the sheriff prepares a notice of auction sale.
If it is made, post it at least in two public places. And very important – send a copy of
notice of auction sale to the mortgagor before the date of the auction. VERY
IMPORTANT. If not, the mortgage is invalidated. Kasi mandatory na notice is sent to the
mortgagor before the auction sale. Publication not required, only required in REM.
On the day of auction, property sold to highest bidder. Kung ikaw interesado sa property
to be sold in public acution, pag attend mo doon, dala ka na ng pambayad ng bid price,
you may be the highest bidde. If you are the highest bidder, property to sold to you, be
ready to pay. If you are the mortgagee, you don’t have to bring if you are the highest
bidder, your bid shall simply be credited to the debt.
The highest bidder receives a certificate of sale. Right away, you can conclude na may
subasta. If certificate of sale, involuntary dealing. If voluntary, may DEED OF SALE.
Pag merong subasta, always 3 possibilities:
1. Highest bid may be more than the total claims – who gets excess? The excess goes
to the mortgagor, not the principal debtor.
2. Highest bid simply covers the total claim
3. Highest bid won’t cover the total claim – may the deficiency be recovered? In that
case, it is qualified. Under civil code, if the transaction is covered by Recto Law ( SINO
AUTHOR SI RALPH OR SI VILMA???? ), in case of personal property in installments,
where a mortgage was constituted over the very object, and the buyer failed to pay 2 or
more installmens, and the seller would foreclose the mortgage, and the highest bid does
not cover the total amount – under civil code, he shall have no more right to recover
deficiency. Also applicable to lease purchase agreement where lesee failed to pay 2 or
more installments, and the lessor decided to repossess the object leased – no more right
to recover the rentals.
The Recto law is applicable only if the mortgage was constituted over the very object of
the installment sale, not if it was constituted over ANOTHER object.
Ayan. Para matandaan niyo, may kwento ‘yan. Kase, merong DOM, who became very
fond of a GRO. And si DOM, ah, ano talaga, head over heels dun sa GRO, alas singko
palang, handun na sya, nag aabang na. So, one evening, late si GRO, so kinausap ni
DOM si GRO, sabi, “Darling, bakit naman ngayon ka lang dumating? Kanina pa kita
inaantay.” Sabi naman ni GRO, “Eh kasi po Sir, ang hirap kumuha ng sasakyan doon sa
tinitirhan ko, napakalayo po.” Kaya sabi ni DOM doon kay GRO, sige bigyan kita ng
kotse. So DOM punta sa car dealer. Kumuha ng isang wigo, ito yung down payment,
alright tas “sir pirma kayo ng promissory note, para sa balance.” Binigay sakanya
ngayon, Deed of Chattel Mortgage. Wow, nakakahiya bakit naman may patak ng coffee
yung rehistro. Ok, sabi naman nung dealer, Sir, di pwede, di naman naming kayo kilala.
Kailangan po naming ng collateral. Nainsulto naman si DOM, sabi niya, o, nakikita niyo
ba yan, yang aking Jaguar? Pwede na ba yan?” So in short, the chattel mortgage was
made over the Jaguar. Ok? That same day, pumunta si DOM sa establishment, sabi niya
kay GRO, o, ito susi. Para di ka na malelate. Odi GRO was very happy. She knew how to
reciprocate. So that night, she also made DOM very happy. The following afternoon,
excited na si DOM, di na siya malelate, may kotse na. DOM went to the establishment
early. Kaya lang sumalubong sakanya floor manager sabi, sir, di na pwede GRO niyo.
She eloped with her boyfriend.
He fell into a very bad state of depression. For a month, he was like that. Kaya yung
unang installment hindi nabayaran, another month passed, di parin gumaling, di parin
nabayaran yung 2nd installment. So dalawang installment na hindi nababayaran.
The mortgagee foreclosed the mortgage over the Jaguar. Kaya lang, dahil high
end car, iyon, ang baba ng bid price. Kapag high end cars, ang baba ng resale
value. E lumabas, pagka subasta, may deficiency pa. Ang tanong, may the deficiency be
recovered?
YES. Kasi, hindi applicable ang Recto law if the mortgage was constituted over
another thing. Para mag apply yung Recto law, the mortgage must be executed over
the very object. Maliwanag?
O ito bago, nowadays, you want to buy a car, to be financed, alright so in short punta ka
sa dealer, gagawin naman nung dealer ikukuha ka financing company, in short, fill-up ka
Financing form, right there, iinterviewhin ka ng financing company. Tas paipirmahin ka ng
company promissory note, tapos deed of chattel mortgage. Tapos kunin mo na. Ngayon, di ka
nakabayad ng 2 or more intallments, yung kotse, sinubasta, may deficiency. Ang
tanong, may the deficiency be recovered?
YES. Hindi na applicable ang Recto law. Kasi ang Recto law is applicable to an
installment sale of personal property, where a mortgage was constituted to
secure the unpaid price. Kaya ang Recto Law, buyer and seller. Ito iba na,
Financing company. Kaya hindi applicable ang Recto law. Tandaan niyo yan, bago yan. O
malinaw ha.
So that’s all about the Chattel Mortgage Law. Now let’s talk about the ACT 3135 as
amended is the law that created the right to foreclose the REM extra-judicially.
Alright you know, ACT 3135 just created the right. But that law referred to the
code of civ pro on how to go about it. That code of civ pro later became revised
rules of court, and later 1997 revised rules of court, as amended. Alright so ulit ha, ACT
3135 as amended, just created the right to foreclose the REM extra-judicially. Ngayon,
kung papaano gagawin yun, it referred to the code of civ pro, Rule 39. O ngayon ang
tanong, what’s required to enable the mortgagee to foreclose an REM extra-judicially?
As the law provides, in a deed of mortagge or in a separate insturment, the

mortgagor must expressly authorize the mortgagee to sell the property
mortgaged in case of default. Ang importante diyan ha, there must be an express
authority to sell. Kapag wala, you cannot foreclose extra-judicially. Alright ganito
nangyari, well, in the past, there must be a deed of REM, meron at meron niyang nagpa
umpisa. Nung ginawa ang deed of REM, ang nakalagay doon, in case of default, the
bank CAN foreclose this mortgage extra-judicially pursuant to ACT 3135 as amended.
Ngayon, dahil yung mga bangko gumawa ng ganung klaseng REM ang nangyari, all
other banks copied, and all other lending institutions, copied. Kasi akala nila yun ang
tama.
Ngayon ang latest, is the Court issued a Circular, addressed to the Sheriff. Not to
accept a petition for foreclosure under act 3135, unless in a deed of mortgage or a
separate instrument, there is an express authority to sell. Kasi yung dati, ginagamit ng
banko or ng lending institution, nakalagay lang “in case of default, the bank will
foreclose this mortgage extrajudicially pursuant to Act. 3135. Walang express authority
to sell. E may circular ang SC na – walang nagawa ang mga bangko and other lending
institutions except to revise the deeds of REM. Example, “in case of default the bank
shall be authorized to sell.” Kaya pwede na mag foreclose. Kung wala noon, di pwede.
If you have a mortgage and you decide to foreclose the REM extrajudicially, what do you
do? The mortgagee prepares a verified petition to foreclose the REM
extrajudicially. So hindi yan letter request lamang, sabi ng SC, dapat verified petition.
Ngayon, the proceeding is extrajudicial. The SC issued another circular providing that
when you file your petition to foreclose, you pay mortgage. Wala kang magagawa,
kasi hindi tatanggapin ng clerk of court (COC) kung hindi ka magbabayad ng mortgage.
Ngayon, in our experience, dati, pag meron kaming kinakailangan ipagawa sa sheriff,
diretso kami sa sheriff. Meron kaming sheriff na suki. Parang Mercury, may Suki Card.
Dati, kanya-kanya kaming pili ng sheriff. Yung sheriff na nakausap namin, matakaw. Pag
mabait, kahit iabot mo tinatanggap..
Kaya dati, ako, iba-iba ang aking Suki Sheriff. Pero ngayon wala na. Why? Yung ibang
sheriff na hindi kumikita, naiinggit sa mga suki sheriff na magaganda ang kotse, mas
maganda pa sa kotse ng executive judge. In short, parang negosyo siya. Eh kapag
matakaw gusto milyonaryo na isang kaso pa lang, hindi na mauulit yun. Ngayon yung
mga nainggit nagsasabi bakit daw kumikita yung iba sila hindi? Ang sabi ng mga court
personnel bakit kami walang extra? Ang nagyari, sabi ng SC, para lahat meron – may
tinatawag pa na recovery fee. Kapag sa subasta, magbabayad ka ng recovery fee. Kung
ano maiipon diyan, will form part of the JDF, JUDICIARY DEVELOPMENT FUND. Para
naman madevelop ang mga empleyado ng judiciary. Totoo yan! Kaya ang mga
personnel, pag maraming foreclosure or execution – ah OK to, marami tayong
paghahatian dito.
Now, pagka-file mo sa COC, meron silang added function. Kaya pag COC ka, ikaw rin
ang ex officio sheriff. COC ka, second function mo pa – sheriff. Ikaw ang boss ng
sheriff. Kung ako ang COC, tapos kunwari puro sheriff ko ito, para walang reklamo,
round-robin yan. Sige sayo muna, next case ikaw naman. After all, kung ano kikitain
niyan, para sa JDF.
Okay so the matter will be assigned to a sheriff tapos yung sheriff na yun, gagawa siya
ng Notice of Auction Sale. Ano gagawin niya dun, dalawa: post in at least 3 public
places in the city or province where the property is located and cause the publication of
that notice in a newspaper in general circulation once a week for two consecutive weeks.
Hindi kinakailangan araw araw ipupublish mo. At least once a week for two consecutive
weeks.
Alright eh ngayon ah, kung ikaw yung abogado, siguraduhin mo that the property is
properly described in your petition. Why? Kasi pag si sheriff kokopyahin na lang yung
description of property dun sa petition. Kaya kung nagkamali ka yung error mo magawa
din ng sheriff.
Tapos pag publication baka magawa din ng publisher. For example kung yung property
mo less than 150K pero nakamortgage eh ikaw nagkamali ka nilagay mo lot 8 disgrasya.
Si sheriff tama, yung publisher nagkamali. That causes the invalidation of the sale. Kaya
kung ikaw ang abogado ng mortgagee siguraduhin mo.
Ang purpose ng publication is to attract more bidders in order to obtain a better price for
the property.
Maliwanag? Ngayon kung nagkamali si publisher wag ka na magalit madali naman

maremediohan. Nakita ko mali description ng property. In short sabi ng sheriff wag ka
na magalit he pointed the error to the publisher. Eto 1980’s pa.
We waited for about an hour. Binawi yung hawak ko. Dinagdag yung corrected.
Correctly described na yung property.
So madali na yun kasi computer na printing ngayon kaya dati pag sa faura 43 copies,
ngayon mas madali na.
Kaya ganito lang ang pwede mangyari ah. Oh na publish na. On the date of the auction
usually the mortgagor would redeem the property.
Magbabayad na ito. kaya lang naman nafoforeclose kasi walang bumabawi.
Alright eto na sabi ni mortgagor, pre pwede ba natin ipapostpone ang auction sale.
Siguradong mababayran kita kya lang parati lnb pa lng ang remittance. Kaya pwede pa
ganitong date natin ipareschedule yung auction.
Ikaw naman you agree. Sigurado ba yan? Sige.
Postpone to 100 days. Is the agreement to postpone the auction sale to another date
valid? Yes. Because it is not prohibited by any law.
May nagbabawal ba? Wala. Eh di valid yan.
Ngayon dumating yung araw na yun, so you are expected to be paid. Kaya lang di
nagpakita si mortgagor. So sabi sa sheriff, “sheriff tuloy mo ang subasta.
May the sheriff validly proceed with auction sale? No. Unless the posting and publication
were repeated.
Kaya kung ikaw si mortgagee makikiusap si mortgagor na ipostpone ang auction sale
sabi mo “okay pero akin na yung panggastos” yung pang-gastos publication at posting.
Di mo ibibigay? Sheriff tuloy tayo ngayon
Kahit ipopostpone mo in writing, balewala yun, kasi sabi ni Supreme Court uulitin mo
lahat yan. Kaya si sheriff gagawa uli ng notice of auction sale. Ipopost nya ulit yun. Ulit
ang gastos.
Ayan natuloy na ang subasta. Ang highest bidder bibigyan ng certificate of sale. Kaya
kapag ikaw ang naisyuhan ng certificate of sale anong dapat mong gawin sa certificate?
As early as possible iregister mo sa Register of Deeds. Annotate. Why? Because there is
a right of redemption within 1 year from registration of certificate of sale. Kaya hanggat
di mo narerehistro di timatakbo ang period of redemption. Yung 1 year of redemption di
tatakbo hanggang hindi mo nireregister kaya pagkaissue na pagkaissue kung
nagmamadali ka, iregister mo agad.
Maliwanag?
Kailan ang period of redemption? 1 year.
Di ba 12 months? Magkaiba yun!

1 year there are 12 months. But 1 year is not the same is not the same as 12 months.
In the Civil Code a year consists of 365 days. But one month consists of 30 days times
12 it consists only of 360 days.
Alright! Dati dun sa Code of Civil Procedure, it was twelve (12) months redemption
period, kaya lang nabago na yung Code of Civil Procedure ng Revised Rules of Court. Sa
Revised Rules of Court, ang nakalagay ngayon ay one (1) year redemption period.
Actually, nagkaroon ng kaso diyan. Nung panahon ng Code of Civil Procedure, somebody
asserted that the right of redemption is only 365 days. Sabi ng nakabili, expired na
‘yang right mo. The SC said, tama! Expired na. SC already explained that a period of
one (1) month consists only of 30 days. Oh, Civil Code minus 12, is 360 days. So the
redemption should have been exercised on the 360th day. Kaya lang, ang nangyayari,
the offer was made on the 365th day. Kaya lagpas na nga naman. Kaya the present
rule, one (1) year from the registration of the Certificate of Sale. Oh malinaw?
Now how about the right of redemption? It is a right! Question. May it be waive? Under
the civil code, rights may be waived. Oh, pwede ba i-waive ang right of redemption?
Hindi! The waiver of the right of redemption shall be void from being contrary to
public policy. Maliwanag?
Oh, question. Is the right of redemption strictly personal? NO. Right of redemption is
a property right. In fact, it is a real property. Oh remember, under the Civil Code,
rights arising from real property are also real property. Dahil property right, then
the right is transferable but not waivable. Pwede ilipat by sale, pwede rin by donation at
pwede ring manahin. So the transfer of rights can be by onerous or gratuitous title.
Ang hindi lang pwede gawin, i-waive. Okay? Any waiver shall be deemed void for being
contrary to law and public policy. Maliwanag?
Who may exercise the right of redemption?
The law says, the rules of court says: (MSC)
a. The mortgagor;
b. His successor-in-interest; and
c. A judgement creditor of the mortgagor.
How does on exercise the right?
By making a valid tender of redemption price within the redemption period.
Eh and tanong ngayon, ano yung redemption price?
There are different rules on this.
I. If a mortgaee is a GOCC created by a special law, known as its charter, the

redemption price would be what is provided in the charter. Diba mayroong DBP,
may Landbank, GSIS and many other GOCCs, doon sa kanilang mga charter,
kapag may nakalagay kung ano ang redemption price? Kung mayroon, yun ang
susundin. Maliwanag?
II. Ngayon, another rule. If the mortgaee is a Bank, oh following the General
Banking Law of 2000, the redemption price shall be what is provided in the credit
instruments. Kung ano nakalagay sa promissory notes o kung ano nakalagay sa
deed of REM.
III. Eh ngayon, hindi GOCC, hindi rin banko, so it is any other person, eh ang
tanong, ano redemption price?
In that case, the redemption price shall include: (1) Bid price; (2) Plus interest on
the bid price at the rate of 1% per month; (3) Plus taxes and assessments paid by the
highest bidder; (4) Plus interest on taxes and assessments also agreed upon. Kaya yung BiTAi
total niyan, yan yung redemption price.
Ano mas malaki, 1% per month or 12% per annum? Peraho lang naman yata ano? May
desisyon, yung ponente nakalagay dun, interest of 1% per month, which is the same as
12% per annum. Mali yun! Pag sinabing 1% per month, that 1% over 30 days. Pag
sinabing 12% per annum, that is 12% over 365 days. Kaya gamitin mo calculator
mamaya, makikita mo, mas malaki ang 1% per month. Okay? Hindi lahat ng
pinagsasabi ng SC tama! Marami ring mali. Okay?
So yun nga sabi ng ponente, oh 1% per month. Okay? Yung ang bid price. Ang
importante dito, for you to exercise your right of redemption, you must make a valid
tender in full of the redemption price. Because if you tendering for a less amount, that is
not a valid exercise of the right of redemption. Kinakailangan, tender of FULL.
maliwanag?
Oh, the valid tender of the redemption price. Sabi sabi ba naman sayo nung nakabili,
hindi! Hindi ko papayagan ubusin 'tong money ko. Gusto ko ito, akin na ito. But you
want to exercise your right of redemption, ayaw mo mawala yung property mo. Oh in
that case, ano gagawin mo ngayon, you make a valid tender? Oh tinatanggihan naman,
ayaw tanggapin, but you want to exercise the right of redemption. Oh ano gagawin mo
ngayon? Then you go to court, diba? Hindi mo naman pwede iwanan yung pera. Oh
ayan! Hindi naman pwede yan. Oh so, ano pa? Consignation? Mali. Oh if you would
recall, ano ba unang requirement ng consignation? There must be a debt that is due.
Mayroon ka bang debt? Wala! Yung utang kasi binayaran mo from the proceeds of the
sale, kaya wala nang debt that is due. Kaya hindi tama ang consignation. The proper
remedy is ikaw bumili ka, alam mong may right of redemption, dapat yung right of
redemption ine-exercise, kaya kung ayaw ma-exercise, pwede kasuhan ng specific
performance. Okay?
Very practical law. Kung ikaw ang highest bidder, lagyan mo ng reminder andiyan sa
cellphone when the period of redemption will expire. Why? Kasi pag lumagpas ang
period of redemption and the right was not exercised by anybody, mayroon kang
babayaran na taxes and these taxes are counted from the expiry date of the period of
redemption. So if you will not pay on time: automatic surcharge, interest at 10% per
anum, ang dami mong babayaran. Kaya kailangan, keep track kung kailan mag-expire
ang period of redemption. Kaya ang tanong ngayon: if the period of redemption expires
without anybody exercising that right, what document needs to be executed to enable
the highest bidder to pay the taxes? Dalawa yan. Either (1) you go back to the sheriff
and ask him to issue a Final Certificate of Sale or (2) under the Property Registration
Decree, the highest bidder can simply execute an Affidavit of Non-Redemption. Now,
after paying the taxes make sure you get a Certificate Authorizing Registration or CAR.
Baka akala niyo motor vehicle ha (hekhek). Ngayon, pagka-issue ng CAR ang ginagawa
ng BIR sa Certificate of Sale or Affidavit of Non-Redemption ay nilalagyan ng details of
payment. Ang original na iyon, you bring that to the local treasurer and then you pay
the transfer tax and then the local treasurer will also issue a Tax Clearance Certificate.
Kaya pagkakuha mo niyan, I-file mo na sa Register of Deeds and the Register will issue
a Certificate of Title in the name of the highest bidder. Kasi ang una, doon sa Deed of
Sale, annotated mo lang doon sa titulo ng mortgagor. Kaya a new Certificate of Title will
be issued in the name of the highest bidder. And ang titulo ng mortgagor, cancelled na
yan. Wala nang annotation, malinis na. Eh kung ang mortgagor ayaw umalis sa
property, anong gagawin mo? You file a court action. Forcible entry? No. Eh siya nga
unang nakatira doon. So anong kaso mo? Unlawful detainer or accion publiciana? None
of them. You go to the court and file an ex parte petition for writ of possession. Petition
ba ito? Hindi. Sa Rules of Court, it is in the nature of a motion. Sa petition na yun, mag-
aattach ka ng documents. Ang titulo ng mortgagor, real estate mortgage at kung anu-
ano pa. i-attach mo yun. So when the petition is called for hearing, sasabihin mo nalang
kay judge you are submitting the petition to the the court for resolution based on all the
documents attached. You dispense with testimonial evidence. And with respect to the
mortgagor, the issuance of a writ of possession is a ministerial duty of the court. But
with respect to another person who may have a better right of possession than the
highest bidder, the issuance is not a ministerial duty. Pero ito ang tatandaan niyo ha.
When you studied Land Titles and Deeds, perhaps your prof might have said: when
you’re dealing with title to real property, all you have to do is look at the original. Pero
sabi ni Supreme Court you have to inquire who is in actual possession. Kung sino man
ang may actual possession, aside from the owner, you have to find out kung ano talaga
ang right niya. At dahil nauna siya, you have to respect the right of one who was earlier
in possession. Sabi ni Supreme Court, if you don’t do that then you don’t qualify as a
buyer in good faith. And because you are not a buyer in good faith, you have no rights.
Maliwanag?
What is a Blanket Clause also known as Dragnet Clause? It is a stipulation in a

deed of mortgage that the property shall secure not only an existing obligation but also
all other obligations of the mortgagor.
FRIA
Concept of Insolvency
Before we had a law known as the Insolvency Act and in that law there was a concept of
insolvency. We also have the Civil Code. In the Civil Code there is another concept of
insolvency.
Ano ba yung concept of insolvency na ‘yan? Doon sa Civil Code, “a debtor is considered
insolvent the moment he is unable to pay his debts as they become due.” So even though a
debtor still has more assets than liabilities but he could not pay his debt as they become
due, in the Civil Code he is already considered insolvent. Ano naman ‘yung concept of
insolvency under the former Insolvency Act? Under the insolvency act, “a person is
considered insolvent when his liabilities exceed his assets.” Stated differently, when the
assets become less than the liabilities.
Ngayon legislature passed the FRIA (Financial Rehabilitation and Insolvency Act). So what
happened in the FRIA was the two concept were adopted. If you’d be ask when do you say a
person is insolvent? You say “when the liabilities exceed the assets or the debtor cannot pay
his debt as they become due.” So pinagsama lang.
Purposes of FRIA
What are the purposes of the FRIA? Dalawa ang purposes niyan. Kasi dalawa din yung
concept of insolvency. So one concept is, If the assets of a debtor are more than is
liabilities, but then he foresees that he won’t be able to pay his debts as they become due,
one proceeding is called rehabilitation.
So one purpose of FRIA is “to enable a debtor with more assets than liabilities but who could
not pay his debts as they become due, to file for rehabilitation.” Mas marami pa naman ang
assets kay sa liabilities kaya lang maaaring kulang lang sa cash pang bayad. Baka ung mga
assets receivables na hindi pa nasisingil kaya gagawin niya rehabilitation.
The other purpose of the FRIA is, if liabilities are more than the assets, under the FRIA, “so
that there would be an equitable or fair distribution of the remaining assets of the debtor,
among his creditors.” Kasi kung mas marami nang liabilities kaysa assets, maraming
creditors na dapat bayaran. Ang pwede magyari, the debtor may favor one creditor and not
the others. Ok lang dun sa favored kaya lang kawawa naman yung iba. So the other
purpose ot the FRIA is: “so that there would be an equitable and fair distribution of the
remaining assets of the debtor.”
Debtor who may File for Rehabilitation
Under the FRIA, who is considered a debtor who may file for rehabilitation? There are 4. The
law says: One is “the owner of sole proprietorship that is registered with the Department of
Trade and Industry (DTI)”
Oh yung pangalawa. Partnership. A domestic partnership. Kaya lang, the law says,
registered with the SEC. So a domestic partnership that’s registered with the Securities and
Exchange Commission. Kasi hindi naman lahat ng partnership, registered with the SEC.
Okay? So, yun lamang. Registered with the SEC.
Third, when simply a domestic corporation. Kaya ko sinabing simply domestic corporation
kasi, ang nakalagay sa law, ha, a corporation organized and existing under PH laws. Kaya
simply domestic corporation. Maliwanag? Alright.
Now another is, an individual debtor. Individual debtor. Individual. Yung una binanggit ko,
owner of a sole proprietorship. So yung ibig sabihin, nagne-negosyo yun. Ngayon, meron
namang nagne-negosyo na hindi rehistrado. Hindi gumagamit ng business name. Alright.
Ngayon, that person is not registered with the DTI, kasi ang rehistrado sa DTI, if you will
recall, sabi ko dati, yung gumagamit ng pangalan not his true name. This, under the
General Bonded Warehouse Act. Okay? I’m sorry, under the Business Names Law. Under
the Business Names Law. Alright.
Ngayon hindi lahat ng nagne-negosyo, gumagamit ng business name. They may be using
their own name. Right? Ngayon, if any person, individual, is in business, and he is going to
use a name not his true name, under the Business Names Law, which is administered by the
DTI, he should first register his name, ha? His business name. So that there will be a public
record of the ownership of that business. Ngayon, merong mga nagne-negosyo, well hindi
gumagamit ng business name. So, ayun. Ha? Debtor din yun. Kasi yung una kong
binanggit, owner of a sole proprietorship. Yung pang-apat in the law is an insolvent debtor.
Alright.
So kung titignan mo yung apat na yan, they are doing business. Kasi meron pang isang
debtor who may not file for rehabilitation. Meron pa kasing isang proceeding, there is
another individual debtor not doing business but who may file for suspension of payments.
Kaya another proceeding yun. Alright? But we’ll talk about it later on. Kaya ang pag-
uusapan natin ngayon, debtor who may file for rehabilitation.
Ngayon, not included among the debtors, although these are also corporations, are banks,
insurance companies, and pre-need companies. Also, ito, hindi ito corporation kaya ko
inunang binanggit yung tatlo – banks, insurance company, pre-need company – lahat yan
tatlo, domestic corporations. Kaya lang, they are not included in the definition of a debtor.
Okay?
Ngayon, kaya hindi sinama among the debtors for the purpose of FRIA, kasi ang mga
bangko, insurance companies, they are handled under a general law. And they are
regulated by another government regulator. Kapag bangko – BSP. Kapag insurance
company AT pre-need company, pareho yan Insurance Commissioner. Maliwanag?
Ngayon, also not included, in the word “debtor” – so una, bangko, insurance company, pre-
need company, the fourth one is national or local government agencies or units. Maliwanag?
Halimbawa: National Irrigation. Government agency yan, di ba? NFA, government agency
rin yon. Hindi kasama yan. Ngayon you may ask, what about government banks? Eh di
pasok sa banks yan. Kaya hindi rin – kasi banks are under a Central Bank. Maliwanag?
Oh ngayon. Merong tinatawag na government financial institutions. Hindi naman ito bangko,
ang financial institutions. Kaya halimbawa: you have the National Mortgage Finance Corp.
You have the Home Guaranty Corp. And many others. Alright.
So yan, ang tawag diyan – GFI. Government financial institutions. Hindi yun bangko. Kaya
ang tanong: sakop ba yan ng FRIA? Are they covered by the FRIA? YES, unless in their
respective charters, there is a provision that it is the charter that shall govern. So
government financial institutions, which are not banks, also covered by the FRIA EXCEPT if
in that charter, it is provided that they shall be governed by their own charter. Kaya lang
kung wala, applicable ang FRIA. Maliwanag? Ngayon, ang tanong, what are the proceedings
under the FRIA? Alright. Mayroong court supervised, mayroon out of court. So ang tanong,
ano yung court supervised proceedings. One is voluntary rehabilitation. And the other is
involuntary rehabilitation. Okay? Kaya ang tanong, ano ang ibig sabihin ng rehabilitation? It
refers to the restoration of the debtor to a condition of successful operation and solvency.
Pag nahuli kana, involuntary. Pag hindi ka pa nahuhuli, voluntary. Voluntary rehabilitation,
it is initiated by the debtor himself. Kaya pag involuntary, it is initiated by a creditor or
group of creditors with a total claim of at least P1,000,000.00. Alam niyo itong proceeding
na ito, mayroon na ito sa doong old law, sa Insolvency Act, kaya lang ang pinagkaiba, ang
amount. Kasasabi ko lang, claim of a creditor or a group of creditors, at least
P1,000,000.00. Dati P1,000.00. May mapapala ka pa ba doon P1,000,000.00. Kaya dito sa

FRIA, at least P1,000,000.00 para matulungan ka ng abugado. Kapag P1,000.00 walang
papansin sayo. Alright? So yun. Voluntary inititated by the debtor himself. Ngayon, walang
amount na pinaguusapan kapag voluntary. Kaya lang kapag involuntary, at least one
creditor or a number of creditors. Kaya lang ang claim must be at least P1,000,000.00.
Maliwanag?
The question now is how do you initiate a proceeding for rehabilitation. A petition is filed
with the court. A petition for rehabilitation is filed with the court. Oh ngayon, ang tanong ay
anong itsura ng petition? Kaya ang dati sinabi ko sa inyo, kaya mahaba ang law, kasi
maraming enumerations, and one of the enumerations are the contents of the petition.
Don’t bother memorize because hindi itatanong sa bar sa haba ng contents. Kaya lang
practical, if pasado kana ng bar, una mong cliente ay corporation, na may problema, ang
daming liabilities kaya lang ang kagandahan naman ang daming assets. Kaya anong
remedyo? Edi file for rehabilitation. Kaya pag sinabi, ‘torney! Paki file naman ng
rehabilitation. Kaya lang problema wala kang sample. Kaya puntahan mo classmates mo,
tanong mo classmates mo kung may petition ka ba ng petition? Walang problema. Kopyahin
mo yung law. Lahat ng nakalagay sa contents, susundan mo lang yun. Ganun rin kung
gagawa kayo ng petition in special proceedings. If you would recall, your rules of court, diba
mayroon special proceedings, ngayon pag ma’y chempo kayo, basahin niyo bawat rule.
Nakalagay kada section “contents of petition”, kaya kung gagawa kayo ng petition in any
special proceedings, wag kana mag hanap ng sample, tingnan mo lang yung rules of court.
You cannot be mistaken.
For petition for rehabilitation there must be attached a rehabilitation plan, without which it
will be dismissed outright.
The rehabilitation plan shall be approved by the creditors, or if the creditors does not
approve and the court finds it a reasonable plan, the court approves. If there is no
rehabilitation plan attched, there is nothing to be acted upon.
Upon filling of the petition, and the court finds it sufficient in form and in substance, the
court will issue an order and that order is known as the commencement order.
In the commencement order the court will direct the publication of the petition. And as the
law provides, rehabilitation proceedings are proceedings in rem. Proceedings under the FRIA
is in rem. Jurisdiction shall be acquired over those concerned, through publication.
What if the court finds that there is a deficiency in the petition? In that case the court may
issue and order directing the petitioner to amend the petition, to conform to what the law
provides. So the court will not outright dismiss the petition if there is a deficiency. The court
will only outright dismiss the petition if there is no rehabilitation plan, because there is
nothing to be discussed.
Petition for rehabilitation, as the law provides are non-adversarial. In this case the debtor
admits his debts, in the petition the debtor does not contest his debts with his creditors. The
debtor only wants to be given the chance to get back on his feet.
In the rehabilitation plan, it must state there, how the debtor can pay back his creditors.
The debtor may interpose that he has no sufficient cash of the moment, because he has
lots of receivables. Ang hirap nun another round of SOP. Kaya yun, yung ang dahilan why a
lot of debtors fail to pay their obligations because they are unable to collect from their own
debtors.
Oh Ngayon eto ha merong rehabilitation plan ako yung debtor ha kayo yung lahat ng aking
mga creditors. Dun sa rehabilitation plan kailangan nakalagay dun how I would be able to
pay you back. Ang nakalagay don eto yung mga receivables ko, kaya lang nalaman niyo eh,
“receivables yan, tapos bulk? government pa? nako magkakatagalan tayo”
Dun sa rehabilitation plan para maging acceptable sa inyo, dapat ilagay ko doon na “I invite
new investors” so that they could contribute more capital. So with the new capital, kasi ipit
nga yung capital ko nasa receivables. In short hindi ko matuloy yung on a bigger volume
kaya hindi ko kayo mabayaran. How can I transact more business if I don’t have capital.
Kaya dun sa rehabilitation plan dapat nakalagay dun na nag iinvite ako ng new investors.
Para pag pumasok yung new investors I would have more capital, I would have new goods
which I can sell, from which I would have profit and from these profit babayaran ko kayo.
If you would recall your securities law, diba may nakalagay dun exempt securities?
Nakalagay dun, number 3 “Securities issued by a receiver in insolvency” kayo ba nagtataka
pag binasa niyo, “insolvent na makakapag issue pa ng securities? Hindi pa dadaan sa SEC?”
Actually eto yun, ako yung insolvent debtor I applied for rehabilitation, nagsubmit ako ng
rehabilitation plan,.before the rehabilitation receiver alright so diba ang mangyayari naman
to carry out the plan diba mag eentice ang ng investors, whoever, kung sino man ang
maginvest sa akin, yun iissue ko dun sa new investors securities yun, kunyari promissory
notes eh halimbawa 25 yun or kahit na 20 man lang, eh di lumalabas di ba public na iyon,
kailangan na ng prior registration sa SEC. Eh bakit kaya ito exempt? Why? Kasi yung
rehabilitation plan approved na ng court kaya nobody would be defrauded. Ayun yung ibig
sabihin ng securities issued by a receiver in insolvency.
Kaya yung concept ng insolvency jan, mas marami pa ang assets kesa liabilities, but the
debtor is undergoing rehab. Nasusundan niyo? By the way kilala niyo naman si Donald
Trump diba? Related ba siya kay Donald Duck? (HAHAHA!) hindeee, although nakakatuwa
din siya. Actually matagal ko na siyang nababasa sa news, as early as 70’s or 80’s. Well
kayo nung kumandidato na siyang president of the US. Kaya marami na akong nabasang
articles sa kanya, especially nung madami siyang dinevelop na Casinos sa US. As far as I
remember he had filed for bankruptcy, at least twice. Kung susundin mo yung meaning ng
bankruptcy sa Philippine Law, ibig sabihin niyan lubog na yan, kaya lang hindi yan. Sa
America yung kanilang bankruptcy, rehabilitation yan. Kaya kapag sinabi na one corporation
filed for bankruptcy ano yan, rehabilitation. Okay? Halimabawa. Di ba nagkaron ng Global
financial crisis years ago, and among sa mga nagkaron ng liquidity problems is yung AIG,
American Insurance Group. Napakalaking kumpanyan niyan sa America, and it is the owner
of PHILAM Life. So dahil sa financial crisis sa USA, pati yan tinamaan. Pagkalaki laki ni
niyan. So ano ginawa niyan? It filed for bankruptcy. So inuulit ko kapag narinig niyo na this
corporation in USA has filed for bankruptcy ibig sabihin niyan rehabilitation. Another, im
sure you are familiar with CHRYSLER Corporation, ano naiisip niyo kapag narinig niyo
Chrysler Corp? Eh di Cars. Yang Chrysler at one time bagsak na bagsak yan puro lossess
kasi mahina ang benta kaya humina ang benta, maraming competitors sa America, merong
FORD, merong TOYOTA. Dati sa America yung TOYOTA minimal manufacturer yan. Kaso
dumating yung time nagging biggest manufacturer na. Tapos meron pang General Motors.
Okay? Alright, in short, dumating yung time that the sales of Chrysler Corporation were
very low. Alam niyo naman, pag mababa benta, expenses mataas, certainly, lugi ka.
Alright? So, nangyayari, as it was suffering losses, it filed for bankruptcy. So kinakailangang
unahan mo mga creditors mo. Kasi kapag pinabayaan mong unahan ka ng mga creditors
mo, lalo na sa atin, kapag inunahan ka ng creditor mo, at hindi ka kikilos, so yung creditor
na iyon, nag-file ng complaint and applied for writ of preliminary attachment, and the court
granted it. Alright, so ang mangyayari niyan, kung ako yung debtor, attach niya na lahat ng
aking assets. Kayo, my other creditors, naunahan na kayo. Inyo na, in favour na sa inyo
ang judgment.
So ano mangyayari? Dahil na-attach na yung aking assets, eh di assets are to be sold at a
public auction. But you know very well that when assets are sold at a public auction, the
owner of the property, gets just a very small percentage of the true value of the property.
Kadalasan, pag pina-subasta ang property, maswerte ka na maka-recover ng at least 20%.
Kasi pag nagpa-subasta ka practically, give away sale iyan. Kaya ang nangyayari, nagka-
attachment na of assets, kaya itong aking creditor na ito, nauna, kaya kayo, wala nang
aabutin. Okay? Kaya para walang unahan, para yung debtor naman, still has a
chance to get back on his feet, file for rehabilitation.
So balikan ko lang yung sa Chrysler, kung may time kayo, there was a book about the
person who took over the management of Chrysler. Nung bagsak na ang Chrysler, they filed
for bankruptcy, somebody was elected to become, I think President or Chairman, si Lee
Iacocca. Iyon yung pangalan ng in-appoint. Iyon yung pangalan ng manager na iyon. He
was very successful. In a very short period, na-turn around na niya ang Chrysler. Alright, so
in short, because he was able to do it that fast, he was able to revive Chrysler in a very
short period, naging very popular siya. And at one time, he was even pushed to run for
Presidency. Tapos iyon nga, insolvent na yung Chrysler, nagawa niyang profitable in a very
short period. Kaya yung nasa isipan ng mga nagpu-push sa kanya, baka magagawa niya rin
iyon sa America at economy. Kaya lang, hindi naman siya politiko kaya ayaw. Magkakaroon
rin kayo ng chance. Tignan niyo lang sa ano, for you to have an idea kung sino iyan si Lee
Iacocca.
So voluntary, involuntary insolvency… Ayun, ito. Kapag voluntary or involuntary, may nag-
file ng petition sa court. As I said earlier, when the petition is compliant with the rules or
with the law, the court will issue a commencement order. Kasama sa commencement order
ang petition. Pag merong commencement order, anong epekto nun? Pag na-issue-han ng
commencement order, all proceedings that are still pending shall be suspended. Kasi ang
plano ng rehabilitation, allow the debtor to get back on his feet. Kaya kahit na ikaw, meron
ka nang judgment, kahit na meron ka na ring execution, hold muna iyan. Kasi dapat kung
ano man yung assets diyan, huwag namang mapunta sa isa lang. Nakuha naman yung
assets ng debtor, huwag namang mapunta sa isang creditor lang. Dapat ang priority, to
allow the debtor to get back on his feet so that the creditors will be satisfied on their
respective claims.
O kunwari, approved na yung rehabilitation plan. Ngayon, ang ganda ng pagkakagawa ng

rehabilitation plan kaya approved naman agad ng mga creditors. Ang ganda ng
pagkakagawa. Kaya lang, while you may have a very good rehabilitation plan, plano lang
iyan. It may or may not be realized. Kasi hindi lang naman yung kagustuhan ng debtor that
would give effect to a rehabilitation.
External forces. Demand. Demand by customer. Baka yung demand for my product is
diminishing. Kasi meron nang better product. Kaya gustuhin ko mang magbenta, kaya lang,
konti lang bumibili.
Another external factor. Buo na ang aking rehabilitation plan. Kaya lang, things are not
turning out as I expected or as I wanted. In short, nalulugi ako nang tuluy-tuloy. Sabi ko,
naku, at the rate things are going, malabo na ‘kong makabawi. I may not be able to get
back on my feet.
If the debtor already foresees that he won’t be able to get back on his feet or yung mga
creditor who filed for involutary rehabilitation, makikita nila, o mukang okay naman ang
intention ng creditor--in good faith! So what may the debtor do? Apply for liquidation. Para
yung natitirang assets niya ma-distribute sa mga creditors. Ang mangyayari kasi ah, gaya
sa partnership or corporation, if they are already insolvent and has more liability than
assets, ang remedy nila dyan dissolution, upon dissolution then distribution ng mga assets
to the creditors following the order of preference in our laws. Yan ang liquidation.
Maliwanag?
Okay.
To give you an idea: One company, very progressive before, napag-iwanan sa industry
niya before—Kodak. Kasi di rin na develop yung technology, napagiwanan ng mga cellphone
manufacturers natin. Yung ibang camera manufacturers—digital na. Yung kodak—film pa
rin. Si kodak hindi nagdevelop, ayun napagiwanan. If you are looking at kodak, ayan
gumagawa na rin ng electronic, kaya nga lang napagiwanan na ng milya-milya. Kaya they
filed for bankruptcy. Kaya nag downsize ng todo todo. Although may mga cameras na may
film, Fujifilm nalang, wala ng kodak. It was a very progressive company but suddenly, nag-
collapse.
Alright ngayon, debtor ako, kayo mga creditors ko. Ngayon, dahil matagal na tayong may
mga transactions, kahit di ko kayo nababayaran mga debts ko, you have not yet brought
any actions against me. Kaya sabi ko, di ko na iintayin yun. So what I did was-- I called you
up and scheduled anything with you. So in short, sabi ko, FRIENDS! Wag niyo na ako
idemanda. Friends naman tayo e. Hirap na hirap lang talaga ako maningil ngayon. Walang
receivables ang gobyerno. Walang pondo ang gobyerno. Kaya pwede ba, give me a chance
to pay you back? So I laid down my plans to rehabilitate myself. Ngayon, pumayag naman
kayo. Ito yung tinatawag na PRE-NEGOTIATED REHABILITATION. Nobody went to
court. Di ako nagvoluntary, wala rin involutary kasi napagkasunduan natin – in civil law ano
tawag don? Compromise! Alam niyo naman pag compromise it cannot be enforced without
approval with the court. So I will file the same with the court for its approval kaya para kayo
bound din on what we agreed upon.
O ngayon meron pa isang proceeding na dadaanin sa court. Kaya lang it is one initiated by a
debtor who is not among the debtors that I mentioned earlier. May debtor pa rin kaya nga
lang not in business. Not all debtors are in business. So in FRIA, there is this proceeding,
filed by a debtor not among those that I mentioned earlier—who has more assets than
liabilities--but who foresees that he can pay his debts as they become due. Ang tawag sa
proceeding na iyon: SUSPENSION OF PAYMENTS.
…employee lang ako. Kaya lang, may utang ako sa inyo. Ngayon nakikita ko na, uubusin ko
na.
O, best example, ganito. Meron akong family member na nagkasakit, so hospitalized. Okay
lang kung patay na iyan. Why? Hindi na lalaki yung hospital bill. Kasi kung patay na, eh di
libing na. Eh ito, buhay pa. Kaya alam mo naman, ‘pag na-ospital ka ngayon, parang taxi
iyan, may metro, pumapatak araw-araw. At alam niyo kung gaano kamahal magkasakit.
Kaya ang sabi ng DOH, bawal magkasakit. Kaya lang, wala ka magagawa. Nandun na sa
ospital. You want your family member to survive. You want him to get well. So ano gagawin
mo? Eh di babayaran mo yung ospital. Kaya lang, ang masama nun, yung metro, patak
nang patak. Kaya earlier, ang dami mong assets. Konting liabilities. Kaya dahil sa madami
kang assets, lahat ng utang mo nababayaran mo.
Kaya lang, like me, an employee. Tapos yung hospital bills, araw-araw, dagdag nang
dagdag. Baka yung income ko from my employment won’t anymore be enough to cover the
hospital bills. Kaya lang, fortunately, mas marami pa rin akong assets, kasama na bahay
ko. Kaya yung bahay ko, tsaka lupa noon, ang present market value, mataas. Kaya
lumalabas, more assets than liabilities. Kaya lang, kita mo nga, from my income as an
employee, hindi ko na mababayaran yung mga utang na iyan.
Alright, so what I do is, I file for suspension of payments. Pwede ba i-defer natin? Ito
ah, ito ang aking proposal. Ito kikitain ko. Babayaran ko kayo according to this schedule.
Iyon lang. Suspension of payments.
Kunyari, approved! Eh di nung ginawa ko yung proposal, nai-budget ko na kung magkano

ang aking tatanggapin. Kaya lang tuluy-tuloy pa rin ang hospital bills, palaki nang palaki
nang palaki, such that the time came that my liabilities are now more than my assets. O,
anong gagawin ko ngayon? Hindi na ‘ko makakabayad. What we do is, give up all these
assets and after the creditors---or after the court had ordered the distribution of these
assets, ako yung debtor na iyon, ngayon mas marami na liabilities ko kesa assets, kahit na
yung assets na kinuha sa ‘kin, pinambayad sa liabilities, marami pa ‘kong utang.
Under the law, the person who applies for suspension of payments, in that case, wala na
lahat ng mga assets niya, he wants to start all over again, kaya lang ang nasa isipan niya
palagi, bakit mo kami pinabayaan? Baka bumili naman ulit ng bagong bahay. Kapag nakita
yung bagong bahay ko, attach na naman. Bumili ako ng bagong kotse, Wigo na nga lang,
in-attach pa rin.
Alright, so in short, if you were the debtor, merong remedy in the law. The remedy under
the law is: apply for a discharge. Kaya ano ang epekto ng discharge? The effect of a
discharge is to extinguish forever all obligations which have arisen from credit transactions.
Sinimplehan ko na lang. Kasi hindi lahat ng obligations, extinguished by a discharge. Kaya
to make it simple, lahat ng obligations which have arisen from a credit transaction.
Kasi kung ipapa-enumerate sa inyo, may mga obligations na kahit ibinigay mo na lahat ng
assets mo, na hindi kaya ng obligations mo ‘pag hindi nababayaran, hindi ito extinguished
by a discharge. Ano yung mga iyon? Para madali nga tandaan sabi ko, ‘pag merong
discharge, at extinguished ang obligations, are those that have arisen from credit
transactions. Kaya ano yung hindi extinguished? One of them: taxes. So how do you
settle with the BIR for your unpaid taxes? Kahit magpa-discharge ka, you still have the
obligation to pay your taxes. Kaya para hindi ka naman pressured, hindi ka rin kasuhan
para makulong ka, just compromise with the BIR. Iyon lang naman ang solusyon sa BIR.
Huwag kang makikipag-matigasan sa BIR, talo ka palagi. Kung may tax liability,
compromise. Kapag definite ka na hindi ka covered nung law, ayan, pwede mong ilaban
iyan hanggang Supreme Court. Kaya lang, kung ang ginawa mo naman talaga ay tax
evasion, and the BIR is able to build a case against you, huwag ka na lang lumaban. Best
would be: compromise. Okay yung mga tax liabilities mo, kahit na na-discharge ka na, still
collectible.
Also not extinguished by a discharge are civil liabilities which arose from crimes.
Alam niyo naman diba, basic in criminal law: that a person criminally liable is also civilly
liable. O, convicted ka for a crime, and there is a civil liability. Yung civil liability na iyon
won’t be extinguished by a discharge.
Your legal obligation to provide support. Ikaw, husband meron kang wife, yung wife
mo naglambing sa’yo. Sabi sa’yo ng wife mo “sweetheart, alam mo, hirap na hirap ako nag
sho-shopping kasi andami daming perang dala tapos pag namimili ako antagal tagal, kaya
pag mag che-check out ako sa supermart antagal tagal. Bibilangin ko tapos yung teller
bibilangin pa ulit, pag nagkamali bibilangin pa ulit kaya natatagalan ako. Kaya sweetheart
kung pwede bigyan mon a lang ako ng extension ng credit card mo.”
Pag pinagbigyan mo yun. That could be the second greatest mistake in your life. Yung first?
Marriage. So ngayon meron ka ng extension ng credit card, eto naman si wife pirma lang
ng pirma and pagdating ng statement of account, nasagad yung credit limit mo. Ikaw
naman, binu-budget mo yung income mo. You spend only what you can pay. E kaya lang si
wife napasarap, after all di naman siya nagbabayad but ikaw kaya nasagad yung credit
limit. Ngayon, pag credit card pwede magbayad ng buo which a credit card company may
want, kaya lang I think nowadays, credit card companies prefers that you don’t pay in full,
why? May dagdag.
Sa statement nakalagay total amount due tapos susunod minimum payment. Kunwari P30K
ang amount due. You don’t have to pay that amount in full. Meron yan sa next line,
minimum payment P500. Alright, ngayon while you have that minimum amount payable,
kaya lang ang gastos nyan kasi everytime that you don’t pay in full your billing, yung buong
amount na dapat mong bayaran na ang binayaran mo lang e yung minimum amount or any
other amount will be subject to 3 and a half percent per annum. At pag mabait-bait ang
credit Card Company, 3.55%per annum. Okay?
Kaya nagbayad ka ng minimum kaya lang ang babayaran mong interest e on the total
amount billed which you did not pay in full. Kaya akala mo yung bianayad mo ibabawas?
Hinde ibabawas yun sa susunod na billing. Kaya lang ang masakit dun, sa susunod na
billing, meron ng interest at pag sinama mo yung interest lalong lumaki ang amount
payable. Kaya maraming mga card holders sarap na sarap na mag bayad ng minimum,
kaya lang later makita nila na “Hala! Ganto na kalaki utang ko?” kasi yung interest e
charged on the total amount billed that should have been paid but you were not able to pay.
Kaya yung binayad mong minimum, parang nakabawas ng konti yun pero mas Malaki pa
yung add on charges. Kaya yung mga credit card holders lalo nababaon sa utang kapag ang
binabayaran e yung minimum amount payable. So to wipeout all of your obligations
bayaran mo ng buo.
So in short, ikaw yung husband and binigyan mo ng extension card yung wife mo and she
enjoyed using the credit card. Alright. So, in short, sa dami ng charges lumabas mas
madami na liabilities mo kesa sa assets. Alright. So, in short, ayaw mo naman ma demanda
kasi hinde lang naman yan credit card mo, may iba pa. Alright, so ano gagawin mo ngayon?
Surrender your assets, apply for a discharge. Ngayon edi lahat ng utang mo dun sa credit
card company extinguished forever. Kaya lang, you still have to support your wife. Your wife
may have caused your insolvency but your previous liabilities were extinguished by a
discharge kaya lang your obligation to support your wife is not yet extinguished. So how do
you extinguish your obligation to support you wife? Extinguish your wife. Wag nyo
tototohanin yun ha at criminal act yun. So yun ang suspension of payments.
ELECTRONIC COMMERCE ACT 2000
The purpose of the law is to facilitate domestic and international dealings, which were
entered and perfected by consent, so they have to document. Parties in different places,
how do they document the transaction? Before meron tayong Facsimile machine, as we call
it fax machine. Now we have, electronic mail. So yung fax machine, it was able to transmit.
There was also a time, when documents were transmitted via fax machine, they were using
thermal paper. Yung thermal paper, once exposed to heat, the writings disappear. That’s
why they no longer use machines using thermal paper. Now, the point is, if parties are in
different countries or places in the Philippines, and they wan to enter a written contract,
question is, do they have to meet in one place in the Philippines or could they do it in the
places where they are? Now because of computer technology, nowadays, parties in different
places, they can do documents. Walang problema, yung telepono, nauso na kasi yung
Teleconferencing. But what about those put into writing?
The legislature passed the Electronic Commerce Act, providing legal recognition for
electronic data messages, electronic documents and electronic signature.
The e-Commerce Act recognizes:
1. Electronic data messages

2. Electronic documents
3. Electronic signature MDS
When we talk about computer, nowadays, images can be transmitted through computers.
Mga pictures napapadala.
Now, sabi ko sa inyo, the purpose is to allow electronic documents.
In any legal proceedings, nothing in the application of the rules on evidence shall deny the
admissibility of an electronic data message, or electronic document on the ground that it is
in electronic form or that it is not in the standard written form.
Simply: Yung admissibility cannot be denied only because it is in electronic form.
What rules should you observe in the authentication of electronic documents so they may
be admissible?
The Supreme Court issued a circular: A.M. No. 01-7-01, August 1, 2009.
If there is a case involving the presentation of electronic documents, kailangan basahin mo

muna yung A.M. No. 01-7-01.
In connection with the e-Commerce Act, kapag sinabing electronic commerce, may mga
bank transactions dito. If you need to withdraw any amount, what must usually be done?
Dati, lakad ka doon sa branch. To withdraw, fill up ka ng withdrawal slip which you sign and
then you give it to the teller. And then you sign again sa “received payment.”
Withdrawal and Bank Transfers under the E-Commerce Act

Alright, nowadays how do you do withdrawals? Eh di ATM na lang, saksak mo lang yung
card mo and then you have a withdrawal. Now, that is a commercial transaction. So the
question is when do you say there is already a consummation of your transaction with the
bank. Kapag withdrawal, sabi ng E-Commerce Act, upon the dispensation of the cash, where
the cash has been dispensed by the machine. Tandaan niyo, sa bangko kapag nagbigay sila
ng pera, papipirmahin ka pa, dito walang pirma. So ang tanong, when is the transaction
considered consummated? Upon the machine dispensing the cash.
Kaya lang ito, isa pa, the ATM can be used in bank transfers. Halimabawa meron akong
account sa RCBC Savings, ikaw, meron ka ring sariling account sa RCBC savings but we are
in different places, yung account ko sa kanila and yung account mo sa Cebu. Then sabi mo,
pwede bang padalhan mo ko ng pera? Sabi ko naku, kanino natin papadala? Malayo ang
Western Union, malayo ang Lhuillier, saka matagal pa yun. Walang problema, using the
ATM you can do bank transfer. In short, if you are going to do bank transfer, by deposit, to
your account, I can do it through the machine, yung ATM. Ang tanong, when is the
transaction said to be consummated? Upon the debit of one account and the credit to
another. So kapag na-idebit na yung account ko and na-icredit na rin yung sayo, the
transaction is consummated.
The law provides electronic transactions made through networking among banks, or
linkages thereof with other entities or networks. Ganito, dati ang mga bangko may kanya-
kanyang ATM lamang. I remember ang una niyan BPI. So ang BPI had ATMs in their
different branches. Kaya lang ang ATM noon ng BPI pang-BPI transactions only and then
later nagkasamahan ang mga Bangko and BPI. Then other banks formed Bancnet, others
formed Megalink. Sabin g Central Bank mag-isa na kayo, kaya ngayon Megalink, Bancnet, I
think even yung sa BPI, iisa na lang, kaya nagkaron ng Net World. Ngayon continuing from
the information, “Electronic transactions made through networking among banks, or
linkages thereof with other entities or networks nd vice versa, shall be deemed
consummated upon the actual dispensing of cash or the debit of one account and the
corresponding credit to another.” Ngayon ito yung very common nowadays, di ba ang mga
cards ngayon, yung iba may credit cards, yung iba naman may debit cards. Mamimili kayo
using your debit card, so in short cash din. Kaya ang tanong, when is the transaction
consummated? Upon the debit of one account and the credit of another.
Acts Penalize under the E-Commerce Act
1. Hacking (other word is crackling)- It is unauthorized access into a computer system

in order to corrupt, to alter, to steal, or to destroy. It includes introduction of computer
virus. Yung ibang tao ang gusto ay gumawa ng computer program, and yung iba naman
H gustong makialam sa files ng ibang tao. Walang masama kung gagawa ka ng computer
program, ang masama kung mag-access ka sa computer files of others. It is a crime.
(insert chika about coriander/cilantro).
2. Infringement of intellectual property rights-- Piracy or the unauthorized

copying of a protected work. Ang tawag ng abogado is piracy, kaya lang ang tawag ng
P iba is plagiarism. So first is hacking, second Infringement of Intellectual Property Right
and also violation of Consumer's Act. That will be all about E-Commerce Act.
PHILIPPINE COMPETITION ACT

Walang masama about competition. What the law does not allow is unfair competition. In
the RPC, felony( malabo) is defined as unfair competition and it is penalized. Walang
masama sa competition in fact the government encourages competition because if there is
competition the economy improves. But if you are going to constrict competition some
products may not be anymore affordable to some. So the law punishes unfair competition.
ACA
PURPOSES OF THE LAW: 1. prohibit anti-competitive agreements; 2. prohibit
ADP abuse of dominant position; 3. prohibit anti-competitive merges and acquisition. ACMA
Dominant position, I suggest that you read it, no need to memorize. Basahin so that you
will have idea. What is the difference between a merger and acquisition? Actually,
the greatest concern of the Philippine Competition Act—is the regulation of merger and
acquisition. How you understand merger under corporation code, yun yun. In the
corporation code, the union of 2 or more corporations where one survives and the other is
dissolved. Acquisition-- there could be one corporation and it may acquire another or other
corporation. But the Corporation that acquires other or another corporation—they dont
combine. The corporation that acquires the other or others allows the other or others to
keep their identity.
If you can recall, Henry Sy ang dami niyang acquisition and one that I mentioned—dati
mayroong Manila Banking Corporation owned by Puyat (?) Family. It became bankrupt but
eventually it was reopened, kaya lang when it was reopened the Puyat family decided to
sell it out, yung Manila bank ibinenta kay Henry SY. Henry Sy after acquiring it, He did not
merge it with China Bank. Ang ginawa niya yung Manila Banking Corporation upon acquiring
it, made it as China Bank Savings. Makikita niyo ngayon-- may china bank savings, thats an
acquisition kasi hindi naman pinagsama ang corporation but the China Bank Corporation
owns the China Bank Savings. Another acquisition of Henry Sy is Private development bank
of Tambunting Family-- the Planter's Development Bank. Another acquisition, is yung Rural
Bank –yung One Network Bank.
And as mentioned before, in the mid-80’s in America, there have been a lot of corporate
raiding. And one example that I have mentioned was, uh… until now, meron tayong Proctor
& Gamble. Kaya lang, acquired. Another example, NABISCO. It acquired Phillip Morris. Are
they operating separately? Yes. ‘Yan ang acquisition.
Another example, San Miguel Corporation, acquired Petron. San Miguel Corporation decided
to diverfy into the power industry. The first move of San Miguel Corporation was to acquire
all Petron shares. Kaya, Petron is controlled by San Miguel Corporation.
Alright. Marami ang mga acquisition sa atin. Sa education din, marami. Merong corporation
ang pangalan ay PIGMA/BIGMA. Yang PIGMA/BIGMA na ‘yan, dating mining company lang
‘yan. And then it diversified into power. Tapos pumasok sa housing. One other acquisition of
PIGMA/BIGMA, yung University of Pangasinan. Another one, sa Nueva Ecija, Araulo
University. Saan pa? Sa Ilo-ilo, University of Ilo-ilo. Sino pa ba? STI. Computer. STI. At one
time, it wanted to acquire Philippine Women’s University (PWU).
Alright? So, talking about the Philippine Competition Act.
Philippine Competition Commission.

Number of members, five (5). Four (4) commissioners. Ngayon, one of the members should
be a lawyer. Another member should be an eonomist. So yung dalawang ‘yan, mandated
professionals. Kaya sa ngayon, wala pang qualified sa inyo dito. Ako, at least qualified na
ako. Lawyer. At kailangan, at least 10 years experience.
Dapat ang members ng PCC ay may lawyers at economist with at least 10 years experience.
Ang term of the members of the commission, original term ay 7 years kaya lang walang re-
appointment unlike the members of the Monetary Board na may re-appointment.
Sa PCC, straight. Kaya lang diba lima sila. Siyempre first batch, not all of them have a term
of 7 years hindi dapat sabay-sabay ang expiration ng term, otherwise kapag sabay-sabay
lahat yan, edi yung mga papalit diyan mangangapa yan.
So the law provides that some would serve for 5 years, others for 3 years.
To what office is the commission attached? PCC is attached to the Office of the
President.
Yung rulings ng commission are final unless there was fraud. But if you want to contest any
order of the commission, then Court of Appeals. Kadalasan naman kapag Office of the
President, next step is Court of Appeals, hindi na RTC.
To have a quorum, 3 members and also to pass resolutions, also at least 3

members. Unlike in a corporation, the majority quorum kaya pwede dalawa. Kaya lang ito,
parang sa monetary board 3 for a quorum and 3 to pass a resolution.
What are the prohibited acts under the law? There are multiple acts which are per se
prohibited.
Acts that are per se prohibited: (1) restricting competition as to price or components
thereof or other terms of trade and ito, it’s very true. Halimbawa, fixing prices at an auction
or in a form of bidding including bid suppression, bid rotation and market allocation.
Alright ganito yan ha, when you want to deal with government, how do you do it? By
bidding. That’s why in government offices, merong tinatawag na bids and awards
committee. This is very common, in fact it is public knowledge na kapag merong
government project, construction especially yung provided ng statute let us say at the start
of the year, what are your projects? Kelan mo ipapabid mga iyan, let us say I’m a
contractor, he is a contractor, she is a contractor, another contractor another contractor.
PROHIBITED ACTS
SECTION 1. Anti-Competitive Agreements.
(a) The following agreements, between or among competitors, are per se prohibited:
R (1) Restricting competition as to price, or components thereof, or other terms of

trade;
(2) Fixing the price at an auction or in any form of bidding, including cover bidding,
F bid suppression, bid rotation and market allocation, and other analogous practices of
bid manipulation.
(b) The following agreements, between or among competitors, which have the object or
effect of substantially preventing, restricting, or lessening competition shall be prohibited:
(1) Setting, limiting, or controlling production, markets, technical development, or

investment;
(2) Dividing or sharing the market, whether by volume of sales or purchases,

territory, type of goods or services, buyers or sellers, or any other means.
(c) Agreements other than those specified in (a) and (b) of this Section, which have the
object or effect of substantially preventing, restricting, or lessening competition shall also be
prohibited.
Provided, that those which contribute to improving the production or distribution of goods
and services or to promoting technical or economic progress, while allowing consumers a
fair share of the resulting benefits, may not necessarily be deemed a violation of the Act.
(d) For purposes of this Section, entities that control, are controlled by, or are under
common control with another entity or entities, have common economic interests, and are
not otherwise able to decide or act independently of each other, shall not be considered
competitors.
SECTION 2. Abuse of Dominant Position.
(a) It shall be prohibited for one or more entities to abuse their dominant position by
engaging in conduct that would substantially prevent, restrict, or lessen competition,
including:
(1) Selling goods or services below cost with the object of driving competition out of
the relevant market. Provided, that in the Commission’s evaluation of this fact, it
shall consider whether such entity or entities had no such object and that the price
established was in good faith to meet or compete with the lower price of a
competitor in the same market selling the same or comparable product or service of
like quality.
(2) Imposing barriers to entry or committing acts that prevent competitors from
growing within the market in an anti-competitive manner, except those that develop
in the market as a result of or arising from a superior product or process, business
acumen, or legal rights or laws;
Examples as per lecture of Dean Abella (Prohibited Acts)
1. Four government contractors, agreeing to collude to fix the price, share bidding
prices. (Bigayan sa bidding) SOP or lagay sa govt official given upon award of
contract. Walang bagsakan ng presyo. Other bidders will bid higher, para may sure
winner. Simulated bidding or collusion.
2. Bawasan ang production ng produkto (Controlling the production)
3. Dividing or Sharing of markets, pag ang isang bidder nasa area na ng Nueva Ecija,
wala ng ibang papasok duon, sa Bulacan na yung iba.
4. Doctrine of Abuse of dominant position.
Abuse of dominant position, ito yung sinabi ko kanina don’t memorize because there are
two pages to memorize and it’s not practical to do it kasi kung magtanong halimbawa yung
2% kung hindi mo masagot eh di okay lang 98 kanalang. Basta basahin niyo nalang don’t
exert effort.
Compulsory Notification
This is mentioned in the law kayalang yung rule it was issued by the commission and the
latest is that PCC Memorandum Circular No. 18-001 dated March 1, 2018 kumbaga ito last
month lang. Okay? So tandaan niyo ah PCC Memorandum Circular No. 18-001 it was issued
March 1, 2018. Alright. So ano contents ng Circular na yan?
It says parties to a merger or acquisition are required to provide notification when 1) the
aggregate annual gross revenue revenues in into properties in the Philippines or value of
the properties in the Philippines of the ultimate parent entity ay the parent entity did not
acquire okay? Without parent entity be at least ay sorry it exeeds 5 billion pesos dati kasi
kulang nung ginawa yan noon kulang kayalang with the Circular of the Commissioner itself
tinaasan into 5 Billion and may isa pa the value of the transaction exceeds 2 billion pesos
dati yan 1B lang kaya gustong pakialaman ng PCC yung acquisition by Grab of Uber kasi
nga naman malaking halaga yan kayalang ang pinagiisipan ko wala din magagawa ang PCC
since the transaction took place outside the Phillipines.
Tulad ngayon diba uber by these day it won’t involve anymore kasi nagcreate din sila gawin
niyo na yan ano magagawa ng PCC? Pwede bang sabin ng PCC hindi pwede matuloy yan
pwede ba yun eh the transaction took place abroad sasabihin hindi pwedeng matuloy yan
anong gagawin? Wala namang power outside the Philippines yun ang aking concern.
So while the Philippine law wherein there will be trasaction would take place involving
parties with principal offices abroad or the transaction consummated ano pang magagawa
ang PCC hindi naman pwede mag nullify ng transactions which take place abroad but
anyway this remains to be seen.
Ngayon ang tanong covered by the dito ang mga bangko? Mines, Trust Companies,
Insurance Companies, Educational Institutions also covered by the Competition Act? YES.
Kung ano man ang magiging merger or acquisition of Mines, Trust Companies, Building and
Associations, Public Utilities, Educational Institutions. Syempre as you learned in
Corporation Law kung meron yang merger or kung meron yang consolidation the Articles of
Merger or Consolidation should first pass the covered regulator.
Alright. Ganun din ang mangyayari, kayalanng instead of the Articles of Merger or
Consolidation from the government regulator going straight to the SEC hindi daan ka muna
sa Philippine Competition Commission. Never pang stop over muna bago SEC. Maliwanag?
Kasi dati the government regulator halimbawa Monetary Board o kaya CHED o kay
Insurance Commissioner mula doon diretso na sa SEC ngayon hindi dapat muna sa
government regulator then Philippine Competition Commission or PCC maliwanag?
That’s from the Philippine Competition Commission nagpahaba lang naman talaga yung
enumeration. Just take note of those prohibited and those that are not prohibited and the
last one is prohibited is abuse of dominant position..

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BANKING – ABELLA NOTES 2.

LETTERS OF CREDIT and TRUST RECEIPTS

What Law Governs Letters of Credits?

O(2) a mortgagor must be the owner of the thing mortgaged.

CHATTEL MORTGAGE LAW

So ang question now is: What is an AFFIDAVIT OF GOOD FAITH? It is a sworn

1. Sue for Specific Performance; or

2. Foreclose the mortgage.

Pag merong subasta, always 3 possibilities:

2. Highest bid simply covers the total claim

As the law provides, in a deed of mortagge or in a separate insturment, the

Maliwanag? Ngayon kung nagkamali si publisher wag ka na magalit madali naman

Magbabayad na ito. kaya lang naman nafoforeclose kasi walang bumabawi.

Ikaw naman you agree. Sigurado ba yan? Sige.

May nagbabawal ba? Wala. Eh di valid yan.

Di mo ibibigay? Sheriff tuloy tayo ngayon

Kailan ang period of redemption? 1 year.

Di ba 12 months? Magkaiba yun!

Who may exercise the right of redemption?

The law says, the rules of court says: (MSC)

b. His successor-in-interest; and

c. A judgement creditor of the mortgagor.

How does on exercise the right?

By making a valid tender of redemption price within the redemption period.

Eh and tanong ngayon, ano yung redemption price?

There are different rules on this.

I. If a mortgaee is a GOCC created by a special law, known as its charter, the

What is a Blanket Clause also known as Dragnet Clause? It is a stipulation in a

Debtor who may File for Rehabilitation

P1,000,000.00. Dati P1,000.00. May mapapala ka pa ba doon P1,000,000.00. Kaya dito sa

O kunwari, approved na yung rehabilitation plan. Ngayon, ang ganda ng pagkakagawa ng

Kunyari, approved! Eh di nung ginawa ko yung proposal, nai-budget ko na kung magkano

ELECTRONIC COMMERCE ACT 2000

The e-Commerce Act recognizes:

1. Electronic data messages

Now, sabi ko sa inyo, the purpose is to allow electronic documents.

Simply: Yung admissibility cannot be denied only because it is in electronic form.

If there is a case involving the presentation of electronic documents, kailangan basahin mo

Withdrawal and Bank Transfers under the E-Commerce Act

Acts Penalize under the E-Commerce Act

1. Hacking (other word is crackling)- It is unauthorized access into a computer system

2. Infringement of intellectual property rights-- Piracy or the unauthorized

PHILIPPINE COMPETITION ACT

Alright? So, talking about the Philippine Competition Act.

Philippine Competition Commission.

To have a quorum, 3 members and also to pass resolutions, also at least 3

SECTION 1. Anti-Competitive Agreements.

R (1) Restricting competition as to price, or components thereof, or other terms of

(1) Setting, limiting, or controlling production, markets, technical development, or

(2) Dividing or sharing the market, whether by volume of sales or purchases,

SECTION 2. Abuse of Dominant Position.

Examples as per lecture of Dean Abella (Prohibited Acts)

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