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COMMERCIAL LAW REVIEWER

SAINT LOUIS UNIVERSITY BAR OPERATIONS


SPECIAL LAWS
CHATTEL MORTGAGE LAW
(Act No. 1508, in relation to Articles 1484, 1485,
2140 and 2141, NCC)
Chattel Mortgage, defined
Chattel mortgage is a contract by virtue of which
personal property is recorded in the Chattel Mortgage egister
as a security for the performance of an obligation! "Art! #$%&'!
Characteristics of chattel mortgage
It is(
"$' an accessory contract because it is for the purpose of
securing the performance of a principal obligation)
"#' a formal contract because of its validity* registration in the
Chattel Mortgage egister is indispensable) and
"+' a nilateral contract because it produces only obligations
on the part of the creditor to free the thing from the
encumbrance on fulfillment of the obligation!
!a"s #rinci#ally go$erning chattel mortgages
,hey are(
"$' the Chattel Mortgage Law* Act -o! $.&/* as amended)
"#' the Civil Code)
"+' the evised Administrative Code) and
"%' the evised Penal Code
%ssential re&isites of chattel mortgage
"$' constituted to secure the fulfillment of a principal obligation)
"#' that the mortgagor be the absolute owner of the thing
mortgage)
"+' the persons constituting the mortgage have the free
disposal of their property* and in the absence thereof* that
they be legally authori0ed for the purpose! "Art!#&/.'
It is also of the essence that when the principal
obligation becomes due* the thing in which mortgage
consists may 'e alienated for the payment to the
creditor "Art! #&/1'!
Mortgagor may be a third person! It is not
necessary that the principal debtor should always be the
mortgagor! "Art! #&/.* par! #'!
(')ect matter of chattel mortgage
2nly movable or personal properties "certain
deviations* however* have been allowed' such as(
"$' shares of stoc3 " the mortgage to be registered both in the
Chattel Mortgage egistries of the province where the
mortgagor resides* and the province where the corporation
has its principal business')
"#' interest in business)
"+' growing crops)
"%' large cattles)
".' machinery treated by the parties as personal property
subse4uently installed on leased land)
"5' motor vehicles "the mortgage to be registered also with the
Land ,ransportation 2ffice'
- with respect to vehicles used for public services*
the mortgage must also carry the approval of
L,67!
"1' house built on rented land but as between the parties only
under the doctrine of estoppel) and
"/' house to be demolished and portable nipa huts for what are
really mortgaged in this case are the materials thereof and
they are* therefore* personal property!
Growing crops and large cattle are considered
personal property under the Chattel Mortgage Law. They
cannot, howeer, !e the o!"ect o# a contract o# pledge
!ecause they are considered i$$oa!le under the Ciil
Code which principally goerns pledge
(imilarities 'et"een *ledge and Chattel mortgage
,hey are(
"$' 7oth are e8ecuted to secure performance of a principal
obligation)
"#' 7oth are constituted only on personal property)
"+' 7oth are indivisible)
"%' 7oth constitute lien on the property)
".' In both cases* when the debtor defaults* the property must
be sold for the payment of the creditor) and
"5' 7oth are e8tinguished by the fulfillment of the principal
obligation and by the destruction of the property pledged or
mortgaged!
+istinctions 'et"een Chattel mortgage and *ledge
"$' In chattel mortgage* the deli$ery of the personal property to
the mortgagee is not necessary* while in pledge* such
delivery is necessary)
"#' In chattel mortgage* the registration of the same in the
Chattel Mortgage egister is necessary for its validity* while
in pledge* registration in the egistry of Property is not
necessary)
"+' ,he #rocedre for the sale of the thing given as security is
different! In chattel mortgage* the procedure is found in
Section $% of Act -o! $.&/* as amended* while in pledge* it
is found in Article #$$# of the -CC)
"%' In chattel mortgage* the e,cess over the amount due after
foreclosure* goes to the debtor* while in pledge* if the
property is sold* the debtor is not entitled to the e8cess
unless it is otherwise agreed upon or e8cept in the case of
legal pledge) and
".' In chattel mortgage* the creditor is entitled to recover any
deficiency e8cept if the chattel mortgage is a security for
the purchase of personal property in installments "see Art!
$%/%'* while in pledge* the creditor is not entitled to recover
the deficiency notwithstanding any stipulation to the
contrary!"Art! #$$.'!
Chattel mortgage and -eal %state mortgage
distingished
"$' In chattel mortgage* the thing mortgaged must be personal
or movable property) in real estate mortgage* the thing
mortgaged must be real or immovable property)
"#' An affidavit of good faith is re4uired to be e8ecuted in a
chattel mortgage but not in a real estate mortgage)
"+' In chattel mortgage* the mortgagor cannot alienate the
thing mortgaged without the written consent of the
mortgagee annotated on the bac3 of the mortgage
instrument) in real estate mortgage* the mortgagor can
alienate the thing mortgaged without the written consent of
the mortgagee and any stipulation prohibiting such
alienation is void!
"%' In chattel mortgage* redemption of the thing mortgaged
may be made only before the sale thereof) in real estate
mortgage* the thing mortgaged may be redeemed after it is
9udicially sold but before 9udicial confirmation of the sale* or
if e8tra 9udicially sold* within $ year from and after the date
of sale!
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
%,tent of chattel mortgage
It covers only property in the contract* and e8cludes
li3e or substituted property thereafter ac4uired by the mortgagor*
notwithstanding any thing in the contract to the contrary!
Exception: In the case of stoc3 or merchandise contained in
drugstores* grocery stores* etc!* which are constantly sold and
substituted with new stoc3!
A stipulation in the chattel mortgage e8tending its
scope and effect to after:ac4uired property is valid and binding
where the after:ac4uired property is in renewal or* in substitution
for* goods on hand when the mortgage was e8ecuted* or is
purchased with the proceeds of the sale of such goods!
Ruling: Acme Shoe* et al! v! CA* et al*! August ##* $;;5!
While a pledge* real estate mortgage* or
antichresis may e8ceptionally secure after:incurred
obligations so long as these future debts are
accurately described* a chattel mortgage* however*
can only cover obligations e8isting at the time the
mortgage is constituted! Although a promise
e8pressed in a chattel mortgage to include debts
that are yet to be contracted can be a binding
commitment that can be compelled upon* the
security itself* however* does not come into
e8istence or arise until after a chattel mortgage
agreement covering the newly contracted debt is
e8ecuted either by concluding a fresh chattel
mortgage or by amending the old contract
conformably with the form prescribed by the Chattel
Mortgage Law!
Affida$it of .ood /aith, defined
An oath in a contract of chattel mortgage wherein the
parties <severally swear that the mortgage is made for the
purpose of securing the obligation specified in the conditions
thereof and for no other purpose and that the same is 9ust and
valid obligation and one not entered into for the purpose of
fraud!
,he absence of the affidavit
vitiates a mortgage only as against
third #ersons without notice* li3e
creditors and subse4uent
encumbrancers
Creation of a chattel mortgage
,he law as it now stands provides for only one way for
e8ecuting a valid chattel mortgage* i.e!* the registration of the
personal property in the Chattel Mortgage egister as security
for the performance of an obligation!
0hen to register
,he law does not provide any specific time within
which a chattel mortgage should be recorded in the Chattel
Mortgage egister!
+ty of -egister of +eeds
,he duties of a register of deeds in respect to the
registration of chattel mortgages are of purely ministerial
character!
-ight of redem#tion
"$' When the condition of a chattel mortgage is bro3en* the
following may redeem(
"a' the mortgagor)
"b' a person holding a subse4uent mortgage) or
"c' a subse4uent attaching creditor
"#' An attaching creditor who so redeems shall be subrogated
to the rights of the mortgagee and entitled to foreclose the
mortgage in the same manner that the mortgagee could
foreclose it!
"+' ,he redemption is made by #aying or deli$ering to the
mortgagee the amount due on such mortgage and the
costs and e8penses incurred by such breach of condition
before the sale thereof! "Sec! $+* Act -o! $.&/'!
-ight ac&ired 'y second mortgagee and s'se&ent
#rchaser
"$' Before payment of debt = After a chattel mortgage is
e8ecuted* there remains in the mortgagor a mere right of
redemption and only this right passes to the second
mortgagee in case of a second mortgage! As between the
first and second mortgages* therefore* the latter can only
recover the property from the former by paying him the
mortgage debt!
"#' After payment of debt = If the only leviable or attachable
interest of a chattel mortgagor in a mortgaged property is
his right of redemption* it follows that the 9udgment or
attaching creditor who purchased the property at the
e8ecution sale could not ac4uire anything e8cept such right
of redemption! >e is not entitled to the actual possession
and delivery of the property without first paying the
mortgaged debt!
1inds of /oreclosre of chattel mortgage
"$' 2dicial foreclosre = the mortgagee institutes an action in
court) and
"#' %,tra)dicial foreclosre = the sale is made by the
mortgagee himself when authori0ed by the chattel
mortgage contract or by special law!
*eriod to foreclose
,he mortgagee may* after +& days from the time of the
condition bro3en* caused the mortgaged property to be sold at
a public auction by a public officer!
,he +&:day period to foreclose a chattel mortgage is
the minimum period after violation of the mortgage condition for
the mortgage creditor to cause the sale at public auction of the
mortgaged chattel with at least ten "$&' days notice to the
mortgagor and posting of public notice of time* place* and
purpose of such sale* and is a period of grace for the mortgagor*
to discharge the mortgage obligation!
A##lication of #roceeds of sale
,he proceeds of the sale are to be applied in the
following order(
"$' Costs and e8penses of 3eeping and sale)
"#' Payment of the obligation secured by the mortgage)
"+' Claims of persons holding subse4uent mortgages in their
order) and
"%' 7alance* if any* shall be paid to the mortgagor* or person
holding under him! "Sec! $%* Act -o!$.&/'!
-ight of mortgagee to reco$er deficiency
"$' Where mortgaged foreclosed = the creditor may maintain
an action for the deficiency although the Chattel Mortgage
Law is silent on this point! ,he reason is that a chattel
mortgage is only given as a security and not as payment
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
(
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
for the debt in case of failure of payment! ,he action must
be brought within $& years from the cause of action
accrues!
"#' Where mortgage constituted as security for purchase
of personal property payable in installments = no
deficiency can be as3ed and any agreement to the contrary
shall be void! "Art! $%/%'!
"+' Where mortgaged property subsequently attached and
sold = the chattel mortgagee is entitled to deficiency
9udgment in action for specific performance "Art! $%/%?$@'
where the mortgaged property is subse4uently attached
and sold! ,he e8ecution sale in such a case is not a
foreclosure sale!
Recto Law %Articles &'(')&'(*, +CC,
It is the law* now reflected in Articles $%/% and $%/. of
the -CC* which provides that in a contract of sale of personal
property the price of which is payable in installments* the vendor
may e8ercise any of the following remedies(
"$' E8act fulfillment of the obligation* should the vendee fail to
pay "specific performance')
"#' Cancel the sale* should the vendeeAs failure to pay cover
two or more installments "not the same as rescission
because here the vendor gets bac3 the ob9ect of the sale
and retains the installments paid) however* this is not
available in the absence of stipulation in the contract')
"+' 6oreclose the chattel mortgage on the thing sold* if one has
been constituted* should the vendeeAs failure to pay cover
two or more installments! In this case* he shall have no
further action against the purchaser to recover any unpaid
balance of the price! Any agreement to the contrary is void!
EAL ES,A,E M2,BABE
%Articles -&-' . -&/&, +CC,
-eal %state Mortgage, defined
A contract whereby the debtor guarantees the
performance of the principal obligation by sub9ecting real
property or real rights as security in case of non:performance of
such obligation within the period agreed upon!
%ssential -e&isites of -eal %state Mortgage
"$' It must be constituted to secure the performance of the
principal obligation!
"#' ,he mortgagor must be the absolute owner of the property
mortgaged!
"+' ,he mortgagor should have the free disposal of the
property mortgaged* and in the absence thereof* he should
be legally authori0ed for the purpose!
"%' When the principal obligation becomes due* the property
mortgaged may be alienated for the payment of such
obligation!
".' ,he sub9ect matter of the contract must be immovable
property or alienable real rights upon immovables!
(')ect Matter of Mortgage
,hey are(
"$' immovables) and
"#' alienable real rights imposed upon immovables!
Characteristics of Mortgage
"$' real contract)
"#' accessory contract)
"+' subsidiary contract) and
"%' unilateral contract because it creates only an obligation on
the part of the creditor who must free the property from the
encumbrance once the obligation is fulfilled!
Kinds of Mortgages
A mortgage may be(
"$' 3olntary 4 one which is agreed to be between the parties
or constituted by the will of the owner of the property on
which it is created!
"#' !egal 4 one re4uired by law to be e8ecuted in favor of
certain persons!
"+' %&ita'le 4 one which* although it lac3s the proper
formalities of mortgage* shows the intention of the parties
to ma3e the property as a security for a debt!
Effects of Mortgage
"$' Creates real right 4 A mortgage creates a real right) a lien
inseparable from the property mortgaged* which is
enforceable against the whole word! Cntil discharged* it
follows the property wherever it goes and subsists
notwithstanding changes of ownership!
"#' Creates merely on encm'rance 4 A mortgage does not
involve a transfer* cession or conveyance of property but
only constitutes a lien thereon! It gives the mortgagee no
right or claim to the possession of the property* and*
therefore* a mere mortgagee has no right to e9ect an
occupant of the property mortgaged!
Extent of Mortgage
A real estate mortgage constituted on immovable
property is not limited to the property itself but also e8tends to all
its accessions* improvements* growing fruits and rents or
income* as well as to the proceeds of insurance should the
property be destroyed* or the e8propriation value of the property
should it be e8propriated!
oreclosure! defined
6oreclosure is the remedy available to the mortgagee
by which he sub9ects the mortgaged property to the satisfaction
of the obligation to secure which the mortgage was given!
"alidity and Effects of oreclosure
"$' In a real estate mortgage* when the principal obligation is not
paid when due* the mortgage has the right to foreclose the
mortgage and to have the property sei0ed and sold with a view
of applying the proceeds to the payment of the principal
obligation!
6oreclosure is valid where the debtor is in default of
his obligation!
"#' ,he essence of a contract of mortgage indebtedness is that
a property has been identified or set apart from the mass of the
property of the debtor:mortgagor as security for the payment of
money or the fulfillment of an obligation to answer the amount of
indebtedness in case of default of payment!
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
*
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
,he power to foreclose a mortgage or not resides in
the mortgagee!
"+' 2nce the proceeds have been applied to the payment of
obligation* the debtor cannot anymore be re4uired to pay*
unless* of course* there is a deficiency between the amount
of the loan and the foreclosure sale price* because the
obligation has already been e8tinguished!
"%' ,he rule is that statutory provisions governing public notice
of foreclosure sales must be strictly complied with* and
even slight deviations there from will invalidate the sale or
render it at least voidable!
1inds of /oreclosre
"$' 2dicial foreclosre 4 it is an ordinary action) governed by
ule 5/ of the rules of Court
"#' %,tra)dicial foreclosre 4 foreclosure under power of sale
contained in the mortgage) governed by Act -o! +$+.* as
amended
0udicial 1oreclosure under the Rules o# Court %Rule 2(,
0udicial action #or the 3urpose
A mortgage may be foreclosed 9udicially by bringing
an action for that purpose* in the proper court which has
9urisdiction over the area wherein the real property involved or a
portion thereof* is situated!
Order o# Mortgagor to pay Mortgage de!t
If the court finds the complaint to be well:founded* it
shall order the mortgagor to pay the amount due upon the
mortgage debt or obligation with interest and other charges
within a period of not less than ;& days or more than $#& days
from entry of 9udgment "Sec! #* ule 5/'
4ale to the highest !idder
If the mortgagor fails to pay at the time directed in the
order* the court* upon motion* shall order the property to be sold
to the highest bidder at public auction "Sec! +* Ibid!'
Con#ir$ation o# 4ale
,he sale when confirmed by an order of the court*
also upon motion* shall operate to divest the rights of all parties
to the action and to vest their rights in the purchaser sub9ect to
such right of redemption as may be allowed by law!
E5ecution o# 0udg$ent
-o 9udgment rendered in an action for foreclosure or
mortgage can be e8ecuted otherwise than in the manner
prescribed by law on mortgages* because parties to an action
are not authori0ed to change the procedure which it prescribed!
Application o# proceeds o# sale
,he proceeds of the sale shall be applied to the
payment of the(
"a' costs of sale)
"b' the amount due the mortgagee)
"c' claims of 9unior emcumbrances or
persons holding subse4uent
mortgages in the order of their
priority) and
"d' the balance* if any!
E5ecution o# sheri##6s certi#icate
In 9udicial foreclosure* the foreclosure is not complete
until the sheriffAs certificate is e8ecuted ac3nowledged and
recorded! In the absence of a certificate of sale* no title passes
by the foreclosure proceedings to the vendee!
EXTRAJUDICIAL
FORECLOSURE OF REAL
ESTATE MORTAE
%Act +o. /&/*, as a$ended !y Act +o. '&&(,
*r#ose of the la" ((ec. 1)
,o regulate the manner in which the e8tra9udicial
foreclosure and redemption of real estate mortgages may be
made!
0here to condct the sale of the mortgaged real
estate
,he sale must be made within the province in which
the property sold is situated!
In case the place within said province in w+hich the
sale is to be made is the sub9ect of stipulation* such the sale in
said place in the municipal building of the municipality in which
the property or part thereof is situated!
Notice -e&irement
-otice shall be given by posting notices of the sale for
not less than twenty "#&' days in at least three public places of
the municipality or city where the property is situated!
If the property is worth more than four hundred pesos*
such notice shall also be published once a wee3 for at least
three consecutive wee3s in a newspaper of general circulation
in the municipality or city!
personal notice to the mortgagee is not re4uired
to be a newspaper of general circulation@
: it is enough that <it is published
for the dissemination of local news
and general information( that is
has a bonafide subscription list of
paying subscribers) that it is
published at regular intervals!D
5o" shold the sale 'e made
,he sale must be made(
"$' at public auction)
"#' between ; oAcloc3 in the morning and % oAcloc3 in the
afternoon) and
"+' shall be under the direction of then sheriff of the province*
the 9ustice or au8iliary 9ustice of the place of the
municipality in which such sale has to be made* or of a
notary public of said municipality* who shall be entitled to
collect the fee foe each day of actual wor3 performed* in
addition to his e8penses!
*ersons "ho may #artici#ate in the 'idding
At any sale* the creditor* trustee* or other person*
authori0ed to act for the creditor* may participate in the bidding*
and purchase under the same conditions as any other bidder*
unless the contrary has been e8pressly provided in the
mortgage or trust deed under which the sale is made
0ho may redeem the foreclosed #ro#erty
"$' the debtor)
"#' his successors in interest* or
"+' any 9udicial creditor or 9udgment creditor of said
debtor* or
"%' any person having a lien on the property or deed of
trust under which the property is sold!
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
,
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
*eriod of -edem#tion
At any time within the term of one "$& year from the
date when the certificate of sale issued by the Sheriff is
registered in the 2ffice of egister of Eeeds!
-ight to -eco$er the deficiency
In e8tra9udicial foreclosure of mortgage* the
mortgagee has the right to recover the deficiency from the
debtor where the proceeds of the sale are insufficient to pay the
debt!
Procedure to be followed in E8tra 9udicial 6oreclosure of
mortgage "Supreme Court Administrative 2rder -o!+ dated
2ctober $;* $;/%'
"$' Application must be filed before the E8ecutive Fudge
through the cler3 of court who is also the E8:2ffice Sheriff)
"#' In case of real estate mortgage* before the auction sale is
conducted* the cler3 of court must e8amine whether the
re4uirements of the law have been complied with* that is*
whether the notice of sale has been posted for not less
than #& days in at least three "+' public places of the
municipality or city where the property is situated* and if
such property is worth more than P%&&!&&* that such
notice has been published once a wee3 for at least three
"+& consecutive wee3s in a newspaper of general
circulation in the municipality or city
"+' ,he certificate of sale must be approved by the E8ecutive
Fudge or in his absence* by the Gice E8ecutive Fudge)
"%' Where the application concerns the e8tra9udicial
foreclosure of mortgages of real estate andHor chattels in
different locations covering one indebtedness* only one
filing fee corresponding to such indebtedness shall be
collected
".' ,he cler3 of court* apart from the official receipt of the fees*
shall issue a certificate of payment indicating the amount of
indebtedness* the filing fees collected* the mortgages
sought to be foreclosed* the description of the real estate
andHor chattels mortgaged and their respective locations*
which certificate shall serve the purpose of having the
application doc3eted with the Cler3 of Court of the places
where other properties are located and of allowing the
e8tra9udicial foreclosure to proceed thereat!
"5' ,he notice of sale shall be published in a newspaper of
general circulation pursuant to Section $ of PE $&1; and
non:compliance therewith shall constitute a violation of
Section 5 thereof!
"1' ,he application shall be raffled among all sheriffs* including
those assigned to the 2ffice of the Cler3 of Court and
Sheriffs assigned in the branches!
"/' After the redemption period has e8pired* the Cler3 of Court
shall archive the records!
";' -o auction sale shall be held unless there arte at least two
"#' participating bidders* otherwise* the sale shall be
postponed to another date! If on the new date set forth for
the sale there shall not be at least two "#' bidders* the sale
shall then proceed! ,he names of the bidders shall be
reported to the Sheriff of the -otary Public* who conducted
the sale to the Cler3 of Court before the issuance of the
certificate of sale!
-edem#tion (of foreclosed #ro#erty), defined
edemption may be defined as a transaction by which
the mortgagor reac4uires or buys the property which may have
passed under the mortgage or divests the property of the lien
which the mortgage may have created!
1inds of -edem#tion
,hey are(
"$' %&ity of -edem#tion 4 the right of the mortgager to
redeem the mortgaged property after his default in the
performance of the conditions of the mortgage but before
the sale of the mortgaged property! In 9udicial foreclosure*
the mortgagor may e8ercise his e4uity of redemption
before but not after the sale is confirmed by the court!
"#' -ight of -edem#tion 4 the right of the mortgagor to redeem
the mortgaged property within a certain period after it was
sold for the satisfaction of the mortgage debt! In all cases
of e8tra9udicial sale* the mortgagor may redeem the
property at any time within the term of one "$' year from
and after the date of registration of the sale! In 9udicial
foreclosure* the general rule is that the mortgagor cannot
e8ercise his right of redemption after the sale is confirmed
by the court!
%ffect of %,ercise of the right of redem#tion
,he redemption defeats the inchoate right of the
purchaser and restores the property to the same condition as if
no sale had been made! It does not give to the mortgagor a
new title* but merely restores to him the title freed of the
encumbrance of the lien foreclosed!
%ffect of failre to e,ercise the right of redem#tion
If no redemption is made within the prescribed period*
the purchaser has the absolute right to a writ of possession
which is the final process to carry out or consummate the
e8tra9udicial foreclosure! >enceforth* the mortgagor loses his
right over the property!
,>E I-S2LGE-CI LAW
"Act -o! $;.5* as amended'
6nsol$ency, +efined
: the state of a person whose liabilities are more than
his assets! It is that relative condition of manAs assets and
liabilities that the former if all made immediately available* would
not be sufficient to discharge the latter "'alance sheet test'!
: the inability of a person to pay his debts as they
become due in the ordinary course of business "e&ity test'!
Insolvency law "IL' is subsidiary to the Civil Code!
6or the "IL' to be A33L7CA8LE(
- there must be a proceeding in insolvency in the
proper RTC.
#urposes of $%
"$' ,o effect an e4uitable distribution of the ban3ruptAs property
among his creditors!
"#' ,o benefit the debtor in discharging him from his liabilities
and enabling him to start afresh with the property set apart to
him as e8empt!
"+' ,o have a uniform procedure in asserting the claims against
an entity threatened by insolvency in a manner which would
prevent creditors from obtaining any preference by paying one
or some ahead of the others!
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
-
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
&ature of the #roceedings 'nder the $%
,he proceedings are considered in rem* hence
binding upon the whole world! All persons having an interest on
the sub9ect matter involved* whether notified or not are e4ually
bound!
-emedies o#en to an insol$ent de'tor
Cnder the law* the insolvent debtor may be permitted
to(
$! to petition the court to suspend payments of his
debts) 2
#! to be discharged from his debts and liabilities by
voluntary or involuntary insolvency proceedings!
"Sec! $'!
(s#ension of #ayments, +efined
It is the postponement by court order* of the payments
of debts of one who* while possessing sufficient property to
cover his debts* foresees the impossibility of meeting them
when they respectively fall due! "Sec! #* par! $'!
*r#ose of (s#ension
- to suspend or delay payments!
7asis of (s#ension
- the probability of the debtorAs inability to meet his
obligations when they respectively fall due!
*rocedral -e&irements
(he petition should be filed by a debtor)
$! possessing sufficient property to cover all his debts)
#! foreseeing the impossibility of meeting them when they
respectively fall due) and
+! petitioning that he be declared in the state of suspension of
payments! ,he petition need not be verified!
The petition should !e acco$panied !y9
$! a verified schedule containing a full and true statement of
the debts and liabilities of the petitioner with a list of
creditors* residence* sum due* nature of liability*
consideration* e8isting pledge* lien or security! "Sec! $.')
#! a verified inventory containing a list of creditors* description
of all the property including those e8empt from e8ecution
and statement as to value of each item of property* location
and encumbrances thereon! "Sec! $5')
+! a statement of assets and liabilities)
%! proposed agreements he re4uests of his creditors!
%ffects of /iling of *etition
,he following are the effects(
$! -o disposition in any manner of his property may be made
by the petitioner e8cept insofar as concerns the ordinary
operations of commerce or of industry in which he is
engaged! "Sec! +* par! #'!
#! -o payments may be made by the petitioner e8cept in the
ordinary course of his business or industry! "ibid!')
+! Cpon re4uest to the court* all pending e8ecutions against
the debtor shall be suspended e8cept e8ecution against
property especially mortgaged! "Sec! 5'!
Creditors affected 'y the filing of #etition
2nly those creditors included in the schedules filed by
the debtor shall be cited to appear and ta3e part in the meeting!
"Sec! .'!
Creditors N89 affected 'y order of ss#ension of
#ayments
,hey are the following(
$! Persons having claims for personal labor* maintenance*
e8penses of last illness or funeral of the wife or children of
the debtor incurred in si8ty "5&' days immediately
preceding the filing of the petition) and
#! Persons having legal or contractual mortgages! "Sec! ;'!
(te#s in (s#ension
$! 6iling of petition by the debtor! "Sec! #')
#! Issuance by the court of an order calling a meeting of
creditors! "Sec! +')
+! Publication of the order and service of summons!
"Sec! %')
%! Meeting of creditors for the consideration of debtorAs
proposition! "Sec! %')
.! Approval by creditors of the debtorAs proposition! "Sec!
/')
5! 2b9ections* if any* made wHin $& days following the
meeting! "Sec! $$') and
1! Issuance by the court of an order directing that the
argument be carried out in case the decision is
declared valid! "Sec! $$'
-le of E2C7LE MAF2I,I in the meeting of
creditors
,he ma9ority shall be #H+ of the creditors voting upon
same proposition* which #H+ represent at least +H. of the total
lia'ilities of the debtor! "Sec! /?e@'!
When proposed agreement deemed re*ected
If the number of the creditors re4uired for holding a
meeting does not attend thereat!
,he two ma9orities mentioned in Sec! /?e@ are not in
favor of the proposed agreement! "Sec! $&'!
Cases for 8')ection to +ecisions of Creditors
,hey are(
$! Eefects in the call for the meeting* in the holding
thereof* and in the deliberation had thereat which
pre9udice the rights of the creditors)
#! 6raudulent connivance between one or more creditors
and the debtor to vote in favor of the proposed
agreement) and
+! 6raudulent conveyance of claims for the purpose of
obtaining a ma9ority! "Sec! $#'!
Cor#orate (s#ension of *ayments
Section ."d' of PE ;&#:A has transferred original and
e8clusive 9urisdiction over petitions for suspensions of payments
by corporation to the SEC* and in addition* it increased the
co$erage of :ss#ension of #ayments; for cor#oration to inclde
a sitation "hen the assets of the de'tor<cor#oration are less
than its lia'ilities, "hen it is nder a management committee or
a reha'ilitation recei$er.
3ursuant to the 4u!section *.- o# the
4ecurities Regulation Code, the "urisdiction o#
the 4EC oer corporate suspension o#
pay$ents proceedings is trans#erred to the
R(Cs+ Conse:uently, the e5isting
"urisprudence on corporate suspension o#
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
.
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
pay$ents proceedings under 4ection *%d, o#
3; <=-)A should now apply to the R(C+
*o"er to A##oint Management Committee nder *+
=02<A
Cnder Section 5"c' and "d' of PE ;&#:A* in order to
effectively e8ercise its 9urisdiction* the ,C is empowered(
$! ,o appoint one or more receivers of the property* real or
personal* which is the sub9ect of action pending before the
,C in accordance with the pertinent provisions of the
ules of Court)
#! In appropriate cases* appoint a rehabilitation receiver of
corporations not supervised or regulated by other
government agencies who shall have* in addition to the
powers of a regular receiver under the provisions of the
ules of Court* such functions and powers as provided in
the Eecree) and
+! Cpon petition or motu proprio* to appoint a management
committee* board* or body to underta3e the management of
corporations not supervised or regulated by other
government agencies in appropriate cases when there is
imminent danger of dissipation* loss wastage or destruction
of assets of other properties or paraly0ation of business
operations of such corporations which may be pre9udicial to
the interest of minority stoc3holders* parties:litigants or the
general public!
!egal effect of A##ointment of Management
Committee>-eha'ilitation -ecei$er
Section 5"c' of PE ;&#:A provides that <upon
appointment of a management committee* rehabilitation
receiver* board or body! ! ! all actions for claims against the
corporation! ! ! under management or receivership pending
before any court* tribunal* board or body shall 'e ss#ended
accordingly!D

+ifferences 'et"een (s#ension of *ayments
*roceedings nder the 6nsol$ency !a" (6!) and nder *+ =02<A
$! ,he appointment of a management committee or a
rehabilitation receiver automatically ta3es the case out of
the provisions of IL and would ma3e the provisions of PE
;&#:A e8clusively applicable)
#! Cnder the IL* the suspensive effect of the order issued
pursuant to the petition for suspension of payment does not
cover secured creditors* while the suspensive effect under
PE ;&#:A upon appointment of the management committee
or rehabilitation receiver* would cover all corporate
creditors* both secured and unsecured)
+! Cnder the IL* in the absence of any agreement among the
corporate creditors* the suspension would e8pire after +
months) whereas* under PE ;&#:A* the suspensive effect
has no time limit and would prevail for so long as the
corporate debtor is under a management committee or
rehabilitation receiver and there is no directive to have its
assets li4uidated)
%! ,he effectiveness of final agreement on the manner of
payment of the obligations of the corporate debtor is
sub9ect to the 4ualifying ma9ority votes re4uired under the
IL) whereas* under PE ;&#:A* the management committee
or the rehabilitation receiver is granted sufficient powers to
ta3e such measures as are necessary to bring bac3 to
financial health the distressed company without need to
obtain approval of the corporate creditors!
Cor#orate -eha'ilitation, defined
Cor#orate reha'ilitation as a process <to try to
conserve and administer the corporationAs assets in the hope
that it may eventually be able to return from financial stress to
solvency! It contemplates of the continuation of corporate life
and activities so that it may be able to return to its former
condition of successful operations and financial stability!D
*reference of secred creditors retained
Secured creditors retain their preference over
unsecured creditors* 't enforcement of sch #reference is
e&ally ss#ended #on the a##ointment of a management
committee, reha'ilitation recei$er 'oard or 'ody! ,his
suspension shall not pre9udice or render ineffective the status of
a secured creditor as compared to a totally unsecured creditor!
PE ;&#:A does not state anything to this effect! What it merely
provides is that all actions for claims against the cor#oration,
#artnershi# or association shall 'e ss#ended .,his should give
the receiver a chance to rehabilitate the corporation if there
should still be a possibility for doing so! ,he 3ey phrase is
e&ality in e&ity
>owever* in the event that the rehabilitation is no
longer feasible and claims against the distressed corporation
would eventually have to be settled* the secured creditors shall
en9oy preference over the unsecured creditors* sub9ect only to
the provisions of the -CC on Concurrence and Preference of
Credit!
*o"er to !i&idate Cor#orate +e'tor
Cnder Sec! 5"d'* the ,C may* on the basis of the
findings and recommendation of the management committee* or
rehabilitation receiver* board or body* or in its own findings*
determine that the continuance in business or such corporation
or entity would not be feasible or profitable nor wor3 to the best
interest of the stoc3holders* parties:litigants* creditors* or the
general public* and order the dissolution of such corporation or
entity and its remaining assets li4uidated accordingly!
>OL?+TAR@ 7+4OL>E+C@
Concept o# >oluntary 7nsolency
A voluntary insolvency proceeding is e8actly what its
name implies and the debtor is under no obligation* and cannot
be forced* to bring such proceeding) nor with his default* through
failure to appeal in an involuntary proceeding* convert the
proceedings to a voluntary ones!
Natre of 3olntary 6nsol$ency
An insolvent debtor* owing debts e8ceeding in amount
the sum of P$*&&&!&& may apply to be discharged from his
debts and liabilities by petition to the RTC of the province or city
in which he has resided for si8 "5' months ne8t preceding the
filing of such petition!
+istinctions 'et"een (s#ension of *ayments and
6nsol$ency
$! In the former* the purpose is to suspend or delay the
payment of debts* while in the latter* to discharge the
debtor from the payment of debts)
#! In the former* the debtor has sufficient property to pay his
debts* while in the latter* the debtor does not have sufficient
property to pay all his debts)
+! In the former* the amount of indebtedness is not affected*
while in the latter* the creditors receive less than their
credits* and in case where there are preferences* some
creditors may not receive any amount at all) and
%! In the former* the number of the creditors is immaterial*
while in the case of involuntary insolvency* three or more
creditors are re4uired!
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
/
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
(te#s in 3olntary 6nsol$ency
3rocedure in general #or oluntary insolency(
$! 6iling of the petition by the debtor praying for the
declaration of insolvency "Sec! $%')
#! Issuance of an order of ad9udication declaring the petitioner
insolvent "Sec! $/')
+! Publication and service of the order declaring a state of
insolvency "Sec! $;')
%! Meeting of creditors to elect the assignee in insolvency
"Sec! +&')
.! Conveyance of the debtorAs property by the cler3 of court to
the assignee "Sec! +#')
5! Li4uidation of the debtorAs assets and payment of his debts
"Sec! ++')
1! Composition* if agreed upon "Sec! 5+')
/! Eischarge of the debtor on his application "Sec! 5%'* e,ce#t
a corporation "Sec! .#')
;! 2b9ection to the discharge* if any "Sec! 55') and
$&! Appeal in certain cases "Sec! 5#'
Requisites of #etition for "oluntary $nsol,ency
,he petition* which must be $erified* is to be filed =
$! by an insolvent debtor*
#! owing debts e8ceeding in amount the sum of P$*&&&!&&*
+! in the ,C of the province or city in which he has resided
for si8 "5' months ne8t preceding the filing of such petition*
and
%! setting forth in his petition the following(
"a' his place of residence)
"b' the period of his residence therein immediately
prior to the filing of petition)
"c' his inability to pay all his debts in full)
"d' his willingness to surrender all his property*
estate* and effects not e8empt from e8ecution for
the benefit of the creditors) and
"e' an application to be ad9udged insolvent "Sec! $%'!
+ocments to accom#any the *etition
,hey are the following(
$! A ,erified schedule which must contain =
"a' a full and true statement of all debts and liabilities
of the insolvent debtor) and
"b' an outline of the facts giving rise or which might
give rise to a cause of action against such
insolvent debtor "Sec! $.') and
#! A ,erified in,entory which must contain =
"a' an accurate description of all the personal and
real property of the insolvent e8empt or not from
e8ecution including a statement as to its value*
location* and encumbrances thereon) and
"b' an outline of the facts giving rise or which might
give rise to a right of action in favor of the
insolvent debtor "Sec! $5'!
%ffect of errors in descri#tion or omission of #ro#erty
in in$entory
$! ,hat the property is erroneously or ambiguously
described in the insolventAs inventory will not affect the
title of purchasers in the insolvency proceedings! All
the property of the insolvent passes to his assignee
and is administered in the insolvency proceedings
regardless of the errors in the inventory!
#! If the insolvent omits property from his inventory*
through either mista3e or fraud* it is the duty of the
assignee to have the inventory amended so as to
include it and to ta3e possession and administer it!
+! Even property e8empt from e8ecution must be
included in order to preclude possible fraudulent
omissions under the prete8t that such property is
e8empt! 7ut where the petitioner did not attach an
inventory to its petition for insolvency* alleging under
oath that it had no property to inventory* the lac3 of
inventory was held not fatal to the petition because it
must be assumed* until proven otherwise* that the
petitioner was stating the truth!
%ffect of the /iling of *etition
2nce the petition is filed* it i#so facto ta3es away and
deprives the debtor:petitioner of the right to do or commit any
act of preference as to creditors* pending the final ad9udication!
%ffect of cort order declaring the de'tor insol$ent
Cpon the filing of the petition* the court* as a matter of
course* shall issue an order declaring the petitioning debtor
insolvent "Sec! $;'! ,he effects of such order are the following(
$! All the assets of the debtor not e8empt from e8ecution are
ta3en possession of by the sheriff until the appointment of a
receiver or assignee "Ibid!')
#! ,he payment to the debtor of any debts due to him and the
delivery to the debtor or to any person for him of any
property belonging to him* and the transfer of any property
by him are forbidden "Ibid!')
+! All civil proceedings pending against the insolvent debtor
shall be stayed "Ibid!') and
%! Mortgages or pledges* attachments or e8ecutions on
property of the debtor duly recorded and not dissolved are
not* however* affected by the order "Sec! .;'!
*rohi'ited Acts of an 6nsol$ent
,he following are forbidden(
$! ,he payment to the debtor of any debts due him!
#! ,he delivery to the debtor or to any person for him of any
property for him of any property belonging to said debtor!
+! ,he transfer of any property by the debtor!
All civil proceedings pending against the insolvent are
stayed* either by forbidding the maintenance of such
actions* or by authori0ing the insolvency court to grant such
stay!
7+>OL?+TAR@ 7+4OL>E+C@
Natre of 6n$olntary 6nsol$ency *roceedings
It is not a mere personal action against the insolvent
for the collection of debts) but its purpose is to impound all of his
non:e8empt property* to distribute it e4uitably among his
creditors* and to release him from further liability! It is
accordingly a proceeding in rem as well as in personam!
(te#s in 6n$olntary 6nsol$ency
,hey are the following(
$! 6iling of the petition by three or more creditors* who are
residents of the Philippines* with an aggregate credit of not
less than P$*&&&!&&* none of whom become a creditor by
assignment within thirty "+&' days prior to the filing of the
petition)
#! Issuance of the order re4uiring the debtor to show cause
why he should not be ad9udged insolvent)
+! Service of order to show cause)
%! 6iling of answer or motion to dismiss)
.! >earing of the case)
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
0
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
5! Issuance of order or decision ad9udging the debtor
insolvent)
1! Publication and service of order)
/! Meeting of creditors for election of an assignee in
insolvency)
;! Conveyance of the debtorAs property by cler3 of court to the
assignee)
$&! Li4uidation of assets and payment of debts)
$$! Composition* if agreed upon)
$#! Eischarge of the debtor on his application* e8cept a
corporation)
$+! 2b9ection to the discharge* if any) and
$%! Appeal in certain cases!
-e&isites of *etition for 6n$olntary 6nsol$ency
,he petition is to be filed by =
$! ,hree or more creditors*
#! -one of whom has become such a creditor by assignment*
within +& days prior to the filing of said petition*
+! Whose credits accrued in the Philippines*
%! ,he total amount of which credits is not less than
P$*&&&!&&* and
.! In the ,C of the province or city in which the debtor
resides or has his principal place of business!
,he petition =
$! Must be verified by at least three of the petitioning
creditors*
#! Must set forth one or more acts of insolvency mentioned in
the law* and
+! Must be accompanied by a bond* approved by the court
with at least two sureties* in such a penal sum as the court
shall direct!
Acts of 6nsol$ency
,he following are acts of insolvency when a creditor
can invo3e in filing a petition to declare a debtor in a state of
involuntary insolvency(
$! Intention to depart or departure from the Philippines to
defraud creditors)
#! Absence from the Philippines to defraud creditors)
+! Concealment of debtor to avoid legal process)
%! Concealment or removal of his property to avoid legal
process)
.! Confession of 9udgment in favor of a creditor to defraud
other creditors)
5! Allowing default 9udgment in favor of a creditor to defraud
other creditors)
1! Allowing his property to be ta3en under legal process in
preference of a particular creditor to defraud other
creditors)
/! Ma3ing conveyance* assignment or transfer of his property
to defraud his creditors)
;! Ma3ing conveyance* assignment or transfer of his property
in contemplation of insolvency)
$&! Eefault of a merchant or a tradesman to pay his current
obligations for a period of +& days)
$$! 6ailure to pay money on deposit or received in a fiduciary
capacity for a period of +& days after demand) and
$#! Insufficiency of property to satisfy an e8ecution issued
against him!
Ad)dication of 6nsol$ency
Where the debtor fails to appear or admits the
allegations of the petition* or the evidence of the petitioner is
sufficient* an ad9udication of insolvency shall be made! ,he
declaration of insolvency retroacts to the date of the filing of the
petition for insolvency!
+istinctions 'et"een $olntary insol$ency and
in$olntary insol$ency
$! In the former* one creditor is sufficient* while in the latter*
three or more creditors are re4uired)
#! In the former* it is filed by the insolvent debtor* while in the
latter* it is filed by three or more creditors who possess the
4ualifications re4uired by law)
+! In the former* the debtor must not be guilty of any of the
acts of insolvency enumerated in Section #&* while in the
latter* the debtor must have committed one or more of such
acts of insolvency)
%! In the former* the amount of indebtedness must e8ceed
P$*&&&!&&* while in the latter* it must not be less than
P$*&&&!&&)
.! In the former* a bond is not re4uired* while in the latter* the
petition must be accompanied by a bond)
5! In the former* an order of ad9udication of insolvency may be
granted e8 parte* while in the latter* it is granted only after
hearing)
1! In the former* the petition is filed in the ,C of the province
or the city in which the debtor has resided for 5 months*
while in the latter* the length of residence is immaterial) and
/! In the former* the court issues the order of ad9udication
declaring the petitioner insolvent upon the filing of the
voluntary petition* while in the latter* the debtor is not
ad9udicated insolvent until after the hearing of the case!
A447G+EE4
Assignee, ;e#ined
A person elected by the creditors or appointed by the
court to whom an insolvent debtor ma3es an assignment of all
his property for the benefit of his creditors!
Creditors not entitled to $ote in the election of
assignee
,hey are the following(
$! ,hose who did not file their claims at least two days prior to
the time appointed for such election "Sec! #;')
#! ,hose whose claims are barred by the statute of limitations
"Ibid!')
+! Secured creditors unless they surrender their security or
lien to the sheriff or receiver or unless they shall first have
the value of such security fi8ed as provided in Section .;)
and
%! >olders of claims for unli4uidated damages arising out of
pure tort!
7ond of Assignee
After his election* the assignee is re4uired to give a
bond for the faithful performance of his duties! ,o establish his
official character and his right to sue in that capacity* it is
incumbent on the assignee to show that the bond re4uired has
been given!
#roperties if insol,ent that pass to the assignee
,hey are(
$! All real and personal property* estate and effects of the
debtor including all deeds* boo3s and papers in relation
thereto)
#! Properties fraudulently conveyed)
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
1
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
+! ight of action for damages to real property) and
%! ,he undivided share or interest of the insolvent debtor in
property held under co:ownership
*ro#erties of insol$ent that do not #ass to the
assignee
,hey are(
$! Property e8empt from e8ecution)
#! Property held in trust)
+! Property of the con9ugal partnership or absolute community
so long as said partnership or community e8ists insofar as
the insolvent debtorAs obligations have redounded to the
benefit of the former)
%! Property over which a mortgage or pledge e8ists unless the
creditor surrenders his security or lien)
.! After:ac4uired property e8cept fruits and income of
property owned by the debtor and which had passed to the
assignee in insolvency)
5! -on:leviable assets li3e a life insurance policy which does
not have any cash surrender value) and
1! ight of action for tort which is purely personal in nature!
%ffects of assignment
,hey are(
$! ,he assignee ta3es the property in the plight and
conditions that the insolvent held it)
#! Cpon appointment* the legal title to all the property of the
insolvent is vested in the assignee* and the control of the
property is vested in court)
+! All actions to recover all the estate* debts and effects of the
insolvent shall be brought by the assignee and not by the
creditors) and
%! ,he assignment shallJ
- dissolve any attachment levied within one month
ne8t preceding the commencement of insolvency
proceedings)
- vacate and set aside 9udgment entered in any
action commenced within +& days immediately
prior to the commencement of insolvency
proceedings) and
- vacate and set aside any e8ecution issued
thereon) and
- vacate and set aside any 9udgment entered by
default or consent of the debtor within +& days
prior to the commencement of insolvency
proceedings!
*o"ers of the assignee
,he assignee shall have the power(
$! ,o sue and recover all the estate* debts and claims
belonging to or due to the creditors)
#! ,o ta3e into possession all the estate of the debtor e8cept
property e8empt from e8ecution)
+! In case of a non:resident or absconding or concealed
debtor* to demand and receive of every sheriff all the
property and moneys in his possession belonging to the
debtor)
%! ,o sell* upon court order* any estate of the debtor which
has come into his possession)
.! ,o redeem all mortgages and pledges and to satisfy any
9udgment which may be an encumbrance on any property
sold by him)
5! ,o settle all accounts between the debtor and his debtors*
sub9ect to the approval of the court)
1! ,o compound* under the order of the court* with any person
indebted to such debtor) and
/! ,o recover any property fraudulently by the debtor!
+ties of the assignee
,he assignee shall have the following duties(
&. ,o register the assignment to him of the real estate of the
debtor)
-. ,o file the schedule and the inventory of the property of the
debtor)
/. ,o convert* as speedily as possible* the estate* real and
personal* into money)
'. ,o 3eep a regular account of all moneys received by him as
assignee)
*. ,o petition the court to allow the private sale of the debtorAs
property if it appears that it is for the best interest of the
estate)
2. ,o file a 9ust and true accounts of all receipts and
payments)
A. ,o file accounts upon order of the court on motion of two or
more creditors)
(. ,o distribute such dividends as he may be re4uired) and
<. ,o file his final account within one "$' year from the date of
order of ad9udication!
-ale of assets
$! Benerally : ,he law provided for the reduction of the
insolventAs assets into cash by means of public sales!
Proceedings for the sale of assets are proceedings in rem!
,he only 4uestion of 9urisdiction is the power of the court
over the sub9ect matter without regard to the parties who
may have interest in it! ,here are no adversary parties to
the proceedings!
#! Persons competent to purchase : 2n the sale in
insolvency proceedings* the insolvent will not generally be
permitted to purchase the assets* either in his own name or
acting through a dummy! If he does so* the property
purchased becomes sub9ect to the claims of his creditors!
7ut otherwise* any person legally 4ualified to contract may
purchase at a 9udicial sale unless he has a duty to perform
in reference thereto which is inconsistent with the character
of a purchaser or is so connected with the transaction that
his individual interest as a purchaser may be inconsistent
with his duty!
+! ,itle ac4uired : As a general rule* the purchaser at a
9udicial sale ta3es by virtue of his purchase all the right*
title* and interest of the interest of the parties to the
proceedings in and to the property conveyed to him! ,he
circumstances that an insolvent schedule contain an
erroneous or ambiguous description of certain property
does not affect the title of the purchaser! All the property
passes to the assignee and is sold regardless of its
description in the schedules
+i$idends in insol$ency, +efined
A parcel of the fund arising from the assets of the
estate* rightfully allotted to a creditor entitled to share in the
fund* whether in the same proportion with other creditors or in a
different proportion!
It is paid by the assignee only upon the order of the
court!
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+)
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
CLA44717CAT7O+ A+;
3RE1ERE+CE O1 CRE;7T4
*reference of credit, defined
A legal situation whereby one person is given a
superior right or claim over another! 6or this reason* the law as
to preference shall be strictly construed!
Concrrence of credits, defined
Implies the possession by two or more creditors of
e4ual rights or privileges over the same property or all of the
property of the debtor!
Classi#ication o# Credits
%Arts. --'&, --'-, --'', B --'*,
7. 3re#erred and concurring with respect to speci#ic $oa!le
property o# the de!tor %Art. --'&,, which are ))
"$' Euties* ta8es* and fees due thereon to the State or any
subdivision thereof)
"#' Claims arising from misappropriation* breach of trust* or
malfeasance by public officials committed in the
performance of their duties* on the movables* money or
securities obtained by them)
"+' Claims for the unpaid price of movable sold* as long as
they are in the possession of the debtor* up to the value of
the same) and if the movable has been resold by the debtor
and the price is still unpaid* the lien may be enforced on the
price) this right is not lost by the immobili0ation of the thing
by destination* provided it has not lost its form* substance
and identity) neither is the right lost by the sale of the thing
together with other property for a lump sum* when the price
thereof can be determined proportionally)
"%' Credits guaranteed with a pledge so long as the thing
pledge are in the hands of the creditor* or those guaranteed
by a chattel mortgage* upon the things pledged or
mortgaged* up to the value thereof)
".' Credits for the ma3ing* repairs* safe3eeping or preservation
of personal property* on the movable thus made* repaired*
3ept or possessed)
"5' Claims for laborersA wages* on the goods manufactured or
the wor3 done)
"1' 6or e8penses of salvage* upon the goods salvaged)
"/' Credits between the landlord and the tenant* arising from
the agricultural leasehold contract* on the share of each in
the fruits or harvest)
";' Credits for transportation* upon the goods carried* for the
price of the contract and incidental e8penses* until their
delivery and for thirty days thereafter)
"$&' Credits for lodging and supplies usually furnished to
travelers by hotel:3eepers* on the movables belonging to
the guest* as long as such movables are in the hotel* but
not for the money loaned to the guests)
"$$' Credits for seeds and e8penses for cultivation and harvest
advanced to the debtor* upon the fruits harvested)
"$#' Credits for rent for one "$' year* upon the personal property
of the lessee e8isting on the immovable leased and on the
fruits of the same* but not on the money or instruments of
credit)
"$+' Claims in favor of the depositor if the depositary has
wrongfully sold the thing deposited* upon the price of the
sale!
In the foregoing cases* if the movables to which the lien or
preference attaches have been wrongfully ta3en* the
creditor may demand them from any possessor* within +&
days from the unlawful sei0ure!
$$+ #referred and concurring .ith respect to specific
immo,able and real rights of the debtor /Art+
00102! .hich are)
"$' ,a8es due upon the land or building)
"#' 6or the unpaid price of real property sold* upon the
immovable sold)
"+' Claims of laborers* masons* mechanic and other wor3men*
as well as of architects* engineers and contractors*
engaged in the construction* reconstruction or repair of
buildings* canals* or other wor3* upon said buildings* canals
or other wor3s)
"%' Claims of furnishers of materials used in the construction*
reconstruction* or repair of buildings* canals* and other
wor3s* upon aid buildings* canals or other wor3s)
".' Mortgage credits recorded in the egistry of Property* upon
the real estate mortgaged)
"5' E8penses for the preservation or improvement of real
property when the law authori0es reimbursement* upon the
immovable preserved or improved)
"1' Credits annotated in the egistry of Property* in virtue of a
9udicial order* by attachments or e8ecutions* upon the
property affected* and only as to later credits)
"/' Claims of co:heirs for warranty in the partition of an
immovable among them* upon the real property thus
divided)
";' Claims of donors of real property for pecuniary charges or
other conditions imposed upon the donee* upon the
immovable donated)
"$&' Credits of insurers* upon the property insured* for the
insurance premium for two "#' years!
,hose credits which en9oy preference in relation to
specific real property or real rights* e8clude all other to the
e8tent of the value of the immovable or real right to which
the preference refers! "Art! ##%/* -CC'!
If there are two or more credits with respect to the
same specific real property or real rights* they shall be
satisfied #ro rata* after the payment of the ta8es and
assessments upon the immovable property or real right!
"Art! ##%;'!
III! #referred insofar as to other real and personal
properties of the debtor /Art+ 00112+ 3rder of preference is
obser,ed+ (hese are)
"$' Credits for services rendered the insolvent by employees*
laborers* or household helpers preceding the
commencement of the proceedings in insolvency)
"#' Proper funeral e8penses for the debtor* or children under
his or her parental authority who have no property of their
own* when approved by the court)
"+' E8penses during the last illness of the debtor or of his or
her spouse and children under his or her parental authority*
if they have no property of their own)
"%' Compensation due to the laborers or their dependents
under laws providing for indemnity for damages in cases of
labor accident* or illness resulting from the nature of the
employment)
".' Credits and advancements made to the debtor for the
support of himself or herself* and family* during the last
year preceding the insolvency)
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
++
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
"5' Support during the insolvency proceedings* and for +
months thereafter)
"1' 6ines and civil indemnification arising from a criminal
offense)
"/' Legal e8penses* and e8penses incurred in the
administration of the insolventAs estate for the common
interest of the creditors* when properly authori0ed and
approved by the court)
";' ,a8es and assessments due the national government*
other than those mentioned in Articles ##%$* -o! $* and
##%#* -o! $)
"$&' ,a8es and assessments due any province other than those
referred to in Articles ##%$* -o! $* and ##%#* -o! $)
"$$' ,a8es and assessments due any city or municipality* other
than those mentioned in Articles ##%$* -o! $ and ##%#* -o!
$)
"$#' Eamages for death or personal in9uries caused by a 4uasi:
delict)
"$+' Bifts due to public and private institutions of charity or
beneficence)
"$%' Credits which* without special privilege* appear in "a' a
public instrument) or "b' in the final 9udgment* if they had
been the sub9ect of litigation! ,hese credits shall have
preference among themselves in the order of priority of the
dates of the instruments and of the 9udgments* respectively
,he credits enumerated in Articles ##%$ and ##%#*
although preferred as against other credits in respect to specific
property of the insolvent* do not have preference as among
themselves* and shall be satisfied #ro rata from the specific
property* after the payment of the duties* ta8es and fees due the
state or any subdivision thereof! 2n the other hand* the credits
enumerated in Article ##%% not only are preferred as against
other credits* but they are preferred as against each other* in the
order of enumeration!
3ART+ER4H734 A+; COR3ORAT7O+4
When partnership may be declared insolvent
A partnership may be ad9udged insolvent during the
continuation of the partnership business or after its dissolution
but before the final settlement thereof!
Properties included in the insolvency proceedings(
Cpon order of the court* the following property shall be
ta3en(
"$' All the property of the partnership) and
"#' All the separate property of each of the partners*
e8ceptJ
"a' separate properties of limited partners)
and
"b' properties which are e8empt by law!
3ROO1 O1 ;E8T4
*ro$a'le +e'ts
,he debts which may be proved against the estate of
the debtor in insolvency proceedings are the following(
$! All debts due and payable from the debtor at the time of the
ad9udication of insolvency!
#! All debts e8isting at the time of the ad9udication of
insolvency but not payable until a future time* a discount
being made if no interest is payable by the terms of the
contract)
+! Any debt of the insolvent arising from his liability as
indorser* surety* bail or guarantor* where such liability
became absolute after the ad9udication of insolvency but
before the final dividend shall have been declared)
%! 2ther contingent debts and contingent liabilities contracted
by the insolvent if the contingency shall happen before the
order of final dividend) and
.! Any debt of the insolvent arising from his liability to any
person liable as bail* surety* or guarantor or otherwise* for
the insolvent* who shall have paid the debt in full or in part!
Contingent claim, defined
A claim in which liability depends on some future
event that may or may not happen and which ma3es it uncertain
whether there will be any liability!
+e'ts that may N89 'e #ro$ed
,he following debts are not provable or allowed in
insolvency proceedings(
$! Claims barred by the statute of limitations)
#! Claims of secured creditors with a mortgage or pledge in
their favor unless they surrender their security)
+! Claims of creditors who hold an attachment or e8ecution on
the property of the debtor duly recorded and not dissolved)
%! Claims on account of which a fraudulent preference was
made or given)
.! Support* as it does not arise from any business transaction
but from the relation of marriage) and
5! A claim for unli4uidated damages arising out of a pure tort
which neither constitutes a breach of an e8press contract
nor results in any un9ust enrichment of the tortfeasor that
may form the basis of an implied contract!
Alternati$e rights of secred creditor
,hey are the following(
$! ,o maintain his right under the security or lien and ignore
the insolvency proceedings* in which case it is the duty of
the assignee to surrender to him the property encumbered)
or
#! ,o waive his right under the security or lien and thereby
share in the distribution of the assets of the debtor* or
+! ,o have the value of the encumbered property appraised
and then share in the distribution of the assets of the debtor
with respect to the balance of his credit!
COM3O47T7O+
Com#osition defined
It is an agreement* made upon a sufficient
consideration* between an insolvent or embarrassed debtor and
his creditors* whereby the latter for the sa3e of immediate or
sooner payment* agree to accept a dividend less than the whole
amount of their claims* to be distributed pro rata* in discharge
and satisfaction of the whole debt!
-e&irements for a 3alid 8ffer of Com#osition
,hey are as follows(
$! ,he offer of the terms of composition must be made after
the filing in court of the schedule of property and
submission of the list of creditors)
#! ,he offer must be accepted in writing by a ma9ority of the
creditors representing a ma9ority of the claims which have
been allowed)
+! It must be made after depositing in such place designated
by the court* the consideration to be paid and the costs of
the proceedings) and
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+(
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
%! ,he terms of the composition must be approved or
confirmed by the court!
When court may confirm composition
,he court shall confirm a composition on the
application of the debtor if satisfied that(
$! It is for the best interest of the creditors)
#! ,he debtor has not been guilty of any of the acts* or of a
failure to perform any of the duties which would create a
bar to his discharge) and
+! ,he offer and its acceptance are in good faith and have not
been made or procured in a manner forbidden by the Act!
Effects of the Confirmation of Composition
,he following are the effects(
$! ,he consideration shall be distributed as the 9udge shall
direct)
#! ,he insolvency proceeding shall be dismissed)
+! ,he title to the insolventAs property shall revest in him) and
%! ,he insolvent shall be released from his debts!
0hen confirmation may 'e set aside
,he court may* upon application of a party in interest*
filed at any time within 5 months after the composition has been
confirmed* set the same aside and reinstate the case if it shall
be made to appear upon trial(
"$' ,hat fraud was practiced in the procuring of such
composition) and
"#' ,hat the 3nowledge thereof has come to the petitioner
since the confirmation of such composition!

the effect of lawful composition is e4uivalent to discharge!
the corporation will not be discharged by a lawful
composition! It is only for natral #erson!
;74CHARGE
+ischarge defined
A discharge is the formal and 9udicial release of an
insolvent debtor from all his debts contracted prior to the
insolvency proceedings* with the e8ception of those e8pressly
named by law!
7y discharge* the debtor is released from
the obligation of all his debts which were or might be proved in
the proceedings* so that they are no longer a charge upon him
and so that he may thereafter engage in business and ac4uire
property without its being liable for the satisfaction of such
former debts
0hen to A##ly for +ischarge
A debtor may applyJ
to the ,C for a discharge*
at any time after the e8piration of + months from the
ad9udication of insolvency*
7C, not later than $ year from such ad9udication of
insolvency*
C-LESS the property of the insolvent has not been
converted into money without his fault* thereby
delaying the distribution of dividends among the
creditors in which case the court may e8tend the
period!
Circmstances "hich 7ar +ischarge
-o discharge shall be granted* or if granted* shall be
invalid* in the following cases(
"$' 6alse swearing)
"#' Concealment of any part of his estate or effects)
"+' 6raud or willful neglect in the care of his property or in the
delivery thereof to the assignee)
"%' Procuring his property to be attached or sei0ed on
e8ecution within $ month before the commencement of
insolvency proceedings)
".' Eestruction* mutilation* alteration or falsification of his
boo3s* documents or papers)
"5' Biving fraudulent preference to a creditor)
"1' -on:disclosure to the assignee of a proven false or
fictitious debt within $ month after ac4uiring 3nowledge)
"/' 7eing a merchant* failure to 3eep proper boo3s of
accounts)
";' Influencing the action of any creditor* at any state of the
proceedings* by any pecuniary consideration)
"$&' Effecting any transfer* conveyance or mortgage in
contemplation of insolvency)
"$$' Conviction of any misdemeanor under the Insolvency Law)
"$#' In case of voluntary insolvency* he has received the benefit
of insolvency within 5 years ne8t preceding his application
for discharge) and
"$+' If insolvency proceedings in which he could have applied
for a discharge are pending by or against him in the ,C of
any other province or city!
!egal effects of discharge
"$' It releases the debtor from all claims* debts* liabilities and
demand set forth in the schedule or which were or might
have been proved against his estate in insolvency! >ence*
non:provable debts are not affected whether or not they
were properly scheduled!
"#' It operates as a discharge of the insolvent and future
ac4uisitions* but permits mortgages and other lien creditors
to have their satisfaction out of the mortgage or sub9ect of
the lien)
"+' It is a special defense which may be pleaded and be a
complete bar to all suits brought on any such debts* claims*
liabilities or demands)
"%' It does not operate to release any person liable for the
same debt* for or with the debtor* either as partner* 9oint
contractor* indorser* surety* or otherwise) and
".' ,he certificate of discharge is #rima facie evidence of the
fact of release* and the regularity of such discharge!
Where a debtor is 9udicially declared insolvent* the
remedy of the guarantor or surety would be to file a contingent
claim in the insolvency proceeding* if his rights as such
guarantor or surety are not to be barred by the subse4uent
discharge of the insolvent debtor from all his liabilities!
+e'ts released 'y discharge
"$' All claims* debts* and liabilities* and demands set forth in
the schedule) and
"#' All claims* debts* liabilities and demands which were or
might have been proved against the estate in insolvency!
+e'ts not released 'y discharge
"$' ,a8es or assessments due the Bovernment* whether
national or local)
"#' Any debt created by the fraud or embe00lement of the
debtor)
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+*
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
"+' Any debt created by the defalcation of the debtor as a
public officer or while acting in a fiduciary capacity)
"%' Eebt of any person liable for the same debt* for or with the
insolvent debtor* either as partner* 9oint contractor* indorser*
surety or otherwise!
".' Eebts of a corporation because is not granted a discharge)
"5' Claim for support) otherwise it will ma3e the law a means of
avoiding the enforcement of the obligation* moral and legal*
devolving upon the husband to support his family)
"1' Eischarged debt but revived by a subse4uent new promise
to pay because the discharge does not put to an end the
moral obligation to pay)
"/' Claims for unli4uidated damages arising out of a pure tort)
";' Claims of secured creditors)
"$&' Claims not in e8istence or not mature at the time of the
discharge are generally unaffected thereby) and
"$$' Claims that are contingent at the time of the discharge are
not barred thereby* and conse4uently* an action may be
maintained against the debtor for collection thereof!
0hen discharged may 'e re$o?ed
A discharge in insolvency may be revo3ed by the court
which granted it on petition of any creditorJ
$! Whose debt was proved or provable against the estate in
insolvency* on the ground that the discharge was
fraudulently obtained)
#! Who has discovered facts constituting the fraud
subse4uent to the discharged) and provided*
+! ,he petition is filed within one year after the date of the
discharge!
1RA?;?LE+T 3RE1ERE+CE4 A+;
TRA+41ER4
Meaning of transfer
A transfer within the meaning of the Insolvency Law*
includes the sale and every other and different modes of
disposing of or parting with property* or the possession of
property* absolutely or conditionally* as a payment* pledge*
mortgage* gift* or security!
A deposit of money is not a transfer!
When preferential transfer exists
,o constitute a #referential transfer* there must be a
parting with the insolventAs property for the benefit of the creditor
and a conse4uent diminution of the insolventAs estate with the
result that such creditor receives a greater proportion of his
claim than other creditors of the same class!
A deposit of money to oneAs credit in a ban3 does not
create any preference! ,he estate of the depositor is not
diminished for there is an obligation on the part of the ban3 to
pay the amount of the deposit as soon as the depositor may see
fit to draw a chec3 against it!
0hen fradlent #reference e,ists
A fradlent #reference is committed when the debtor
procures any part of his property to be attached* se4uestered* or
sei0ed on e8ecution or ma3es any payment* pledge* mortgage*
assignment* transfer* sale or conveyance of any part of his
property* whether directly or indirectly* absolutely or
conditionally* to any one under the following circumstances(
$! ,he debtor is insolvent or in contemplation of insolvency)
#! ,he transaction in 4uestion is made within +& days before
the filing of a petition by or against the debtor)
+! It is made with a view to giving preference to any creditor or
person having a claim against him) and
%! ,he person receiving a benefit thereby has reasonable
cause to believe(
a! that the debtor is insolvent) and
b! that the transfer is made with a view to
prevent his property from coming to his
assignee in insolvency* or to prevent the
same from being distributed ratably among
his creditors* or to defeat the ob9ect of or
any way hinder the operation of or evade
the provisions of the Insolvency Law!
0hen #resm#tion of frad e,ists
If such payment* pledge* mortgage* conveyance* sale*
assignment* or transfer is not made in the usual and ordinary
course of business of the debtor* or if such sei0ure is made
under a 9udgment which the debtor has confessed or offered to
allow* that fact shall be #rima facie evidence of fraud!
0hen fradlent transfer e,ists
A fradlent transfer is any payment* pledge*
mortgage* conveyance* sale* assignment* or transfer of property
of whatever character made by the insolvent within $ month
before the filing of a petition in insolvency by or against him*
e8cept for a valuable pecuniary consideration in good faith!
Such a transfer is void!
%ffect of fradlent transfer
As against the creditors of the insolventJ
- any conveyance or assignment fraudulently
made is void! >ence* no title is ac4uired by the
transferee
3E+AL 3RO>747O+4
Acts criminally #nisha'le nder this Act
A debtor who commits any of the following acts shall*
upon conviction thereof* be punished by imprisonment* for not
less + months nor more than . years for each offense(
I! After the commencement of insol,ency proceedings 44
"$' Concealing any part of his estate)
"#' Eestroying* altering* mutilating or falsifying any
boo3* deed* document* or writing relating thereto)
"+' emoving the same with the intent to prevent or
delay its recovery by the assignee)
"%' Ma3ing any payment* gift* sale* assignment*
transfer or conveyance of property belonging to
his estate with li3e intent)
".' Spending any part thereof in gaming)
"5' Concealing from his assignee or omitting from
the schedule any part of his property with intent
to defraud)
"1' 6ailing to disclose to his assignee the fact that a
person has proved a false or fictitious claim
against his estate within $ month after coming to
the 3nowledge or belief thereof) or
"/' Attempting to account for any of his property by
fictitious losses or e8penses)
$$+ Within 5 months before commencement of insol,ency
proceedings)
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+,
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
$! 2btaining on credit from any person any goods or chattels
with intent to defraud* under the false pretense of carrying
an ordinary course of business)
#! Ma3ing any pledge or disposition of* otherwise than by
'ona fide transactions in the ordinary course of his trade*
with intent to defraud* any of his goods or chattels which
have been obtained on credit and remained unpaid for)
+! Suffering loss in any 3ind of gaming when such loss is one
of the causes determining the commencement of
insolvency proceedings)
%! Selling at a loss or for less than the current price any goods
brought on credit and still unpaid for) or
.! Advancing payment to the pre9udice of his creditors!
777. ;uring proceedings #or suspension o# pay$ents9
$! Concealing or destroying any property belonging to his
estate)
#! Eestroying* altering* mutilating or falsifying any boo3* deed*
document* or writing relating thereto)
+! Ma3ing any payment* sale* assignment* transfer* or
conveyance of any property belonging to his estate)
%! Spending any part thereof in gaming)
.! 6alsely swearing to the schedule and inventory with intent
to defraud his creditors) or
5! Giolating in any manner whatsoever the in9unction issued
by the court under Section +!
M74CELLA+EO?4 3RO>747O+4
%ffect of death of insol$ent de'tor #ending insol$ency
#roceedings
$t depends)
$! If the debtor shall die after the order of ad9udication* the
proceedings shall be continued and concluded in li3e
manner and with li3e validity* and effect as if he had lived!
#! If the death occurs 'efore the order of ad9udication* the
proceedings shall be discontinued! ,he claims must be
filed in the proper testate or intestate proceedings as
provided by the ules of Court on the settlement of a
decedentAs estate!
+ty of cort "here #ro#erty e,em#t from e,ection
It shall be the duty of the court having 9urisdiction of
the proceedings* upon petition and after hearing held upon due
notice* to e8empt and set apart* for the use and benefit of the
insolvent* such real and personal property as is by law e8empt
from e8ecution!
0hen insol$ency #roceedings deemed to commence
,he filing of a petition by or against a debtor upon
which* or upon an amendment of which* an order of ad9udication
in insolvency may be made* shall be deemed to be the
commencement of proceedings in insolvency under the Act!
0hen #etition may 'e dismissed
,he court* upon giving due notice* may dismiss the
petition and discontinue the proceedings at any time before the
appointment of an assignee(
$! If it be a voluntary petition* upon the application of the
debtor* if no creditor files written ob9ections)
#! If a creditorAs petition* upon the application of the
petitioning creditors) or
+! 7y written consent of all creditors filed in court* in which
case* the proceedings may be dismissed at any time!
After the appointment of an assignee* dismissal is not
allowed without the consent of all parties interested in
or affected thereby!
0hen a##eal may 'e ta?en to the (#reme Cort
An appeal may be ta3en to the Supreme Court in the
following cases(
"$' 6rom an order granting or refusing an ad9udication in
insolvency and in the latter case* from the order fi8ing the
amount of costs* e8penses* damages* and attorneyAs fees
allowed the debtor)
"#' 6rom an order allowing or re9ecting a creditorAs claim when
the amount in dispute e8ceeds P+&&!&&)
"+' 6rom an order allowing or denying a claim for property not
belonging to the insolvent* presented under Section %/)
"%' 6rom an order settling an account of an assignee)
".' 6rom an order against or in favor of setting apart
homestead or other property claimed as e8empt from
e8ecution) and
"5' 6rom an order granting or refusing a discharge to the
debtor!
C2P2A,E E>A7ILI,A,I2-
Interim ules of Procedure on Corporate ehabilitation
"A!M! -o! &&:/:$&:SC'* effective Eecember $.* #&&&
What is the scope o# the rulesC %ule $* Sec! #'
,he rules apply to petitions for rehabilitation filed by
corporations* partnerships and associations pursuant to PE ;&#:
A* as amended!
How should the rules !e construedK "ule #* Sec! #'
,he rules are to be liberally construed in order to carry
out the ob9ectives of Sections ."d' and 5"c' and "d' of PE ;&#:A*
and to assist the parties in obtaining a 9ust* e8peditious and
ine8pensive determination of cases!
What is the nature o# the proceedings under the rulesC%ule
+'
,he proceedings under the rules shall be in rem!
Furisdiction over all those affected by the proceedings shall be
considered as ac4uired upon publication of the notice of the
commencement of the proceedings in a newspaper of a general
circulation in the Philippines!
,he proceedings shall also be summary and non:
adversarial in nature! 6or e8ample:
"a' motions to dismiss* for bills of particulars* for new trail or
for reconsideration* among others* are prohibited "ule
+*Sec! $')
"b' the court may decide matters on the basis of affidavits and
other documentary evidence " ule +* Sec! $')
"c' pleadings and documents may be filed with the court or
served on the other parties* when so authori0ed by the
court* by facsimile transmission "fa8' or electronic mail
"email' "ule +* Sec! +')
"d' incase of voluminous pleading or document* the court may*
motu proprio or upon motion* waive the re4uirement of
service* provided that a copy thereof* together with all its
attachments* is duly filed with the court and made available
for e8amination and reproduction by any party* and
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+-
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
provided* further that a notice of such filing and availability
is duly served on the parties "ule +* Sec! .') and
"e' any orders issued by the court under the rules is
immediately e8ecutory* and a petition for review or appeal
therefrom shall not stay the e8ecution of the order unless
restrained or en9oined by the appellate court "ule +* Sec!
.'!
Who $ay petition #or reha!ilitationC "ule %* Sec! $'
"a' any debtor who foresees the impossibility of meeting its
debts when they respectively fall due) or
"b' any creditor or creditors holding at least #.L of the
debtorAs total liabilities!
Where should a petition #or reha!ilitation !e #iledC "ule +
Sec! #'
Petitions for rehabilitation shall be filed in the
appropriate egional ,rial Court having 9urisdiction over the
territory where the debtorAs principal office is located!
Are the rule o# court applica!le to the proceedingsC "ule #*
Sec! #'
Ies* the rules of court* where appropriate* shall apply
suppletorily to proceedings under the rules!
What are the contents o# the petition #iled !y the de!torC
"ule %* Sec! #'
"a' name and business of the debtor)
"b' nature of debtorAs business)
"c' history of the debtor)
"d' cause of the debtorAs inability to pay its debts)
"e' all the pending actions or proceedings 3nown to the debtor
and the courts or tribunals where they are pending)
"f' threats or demands to enforce claims or liens against the
debtor)
"g' the manner by which the debtor may be rehabilitated and
how such rehabilitation may benefit the general body of
creditors* employees and stoc3holders!
What should !e attached to the petition #iled !y the de!torK
"ule %* Sec!%'
"a' audited financial statements as of the end of the debtorAs
last fiscal year)
"b' interim financial statements as of the end of the month
prior to the filing of the petition)
"c' schedule of debts and liabilities)
"d' inventory of assets)
"e' rehabilitation plan)
"f' schedule of the debtorAs cash flow)
"g' affidavit of general financial condition)
"h' names of at least three nominees for the position of
ehabilitation receiver* including their 4ualifications and
contact information)
"i' certificate under oath attesting to the fact that "i' the filing
has been duly authori0ed* and "ii' the directors and
stoc3holders have irrevocably approved andHor consented
to all actions or matters necessary and desirable to
rehabilitate the debtor including* but not limited to*
amendments to the articles of incorporation and by:laws
"or articles of partnership') increase or decrease in the
authori0ed capital stoc3) issuance of bonded indebtedness)
alienation* transfer or encumbrance of assets of the debtor*
and modification of shareholderAs rights!
What are the attach$ents tot eh petition #iled !y
creditor%s,K "ule % Sec! %'
"a' rehabilitation plan)
"b' list of nominees to the position of rehabilitation receiver)
under what circu$stance could the petition !e dis$issedC
"ule %* Sec! $$'
the petition shall be dismissed if no rehabilitation plan
is approved by the court upon the lapse of $/& days from the
date of initial hearing! ,he court may grant an e8tension beyond
this period if it appears by convincing and compelling evidence
that the debtor may be rehabilitated! In no instance* however*
shall the period for approving or disapproving a rehabilitation
plan e8ceed $/ months from the date of filing of the petition!
What are the contents o# the order that the court shall issue
i# it #inds the petition #or reha!ilitation to !e su##icient in
#or$ and su!stanceC "ule %* Sec! 5 and $$'
If the court finds the petition to be sufficient in form
and substance* it shall* not later than . days from the filing of
the petition issue an order which shall* among others(
"a' appoint a rehabilitation receiver and fi8 his bond)
"b' stay enforcement of all claims* whether for money or
otherwise and whether such enforcement is by court action
or otherwise* against the debtor* its guarantors and
sureties not solidarily liable with the debtor)
"c' prohibit the debtor from selling* encumbering* transferring
or disposing in any manner any of its properties e8cept in
the ordinary course of business)
"d' prohibit the debtor from ma3ing any payment of its
outstanding liabilities as the date of filing of the petition)
"e' prohibit the debtorAs suppliers of goods or services from
withholding supply of goods or services in the ordinary
course or business for as long as the debtor ma3es
payments from the services and goods supplied after the
issuance of the stay order)
"f' fi8 the initial hearing on the petition not earlier than %. days
but not later than 5& days from the filing thereof)
"g' direct the petitioner to publish the order in a newspaper of
general circulation in the Philippines once a wee3 for two
consecutive wee3s)
"h' direct all creditors and interested parties "including the
SEC' to file and serve on the debtor a verified comment or
opposition to the petition* with supporting affidavits and
documents* not later than $& days before the date of the
initial hearing and putting them on notice that their failure to
do so will bar them from participating in the proceedings!
1or how long the stay holder to !e e##ectieC"ule %* Sec!
$$'
,he stay order shall be effective from the date of its
issuance until the dismissal of the petition or termination of the
rehabilitation proceedings!
Could the stay order !e $odi#ied or ter$inatedC Could
conditions !e set #or its continuanceC Could a clai$ !e
relieed #ro$ the coerage o# the orderC"ule %* Sec $#'
Ies* to all the 4uestions! ,he court may* on motion or
motu proprio* terminate* modify* or set conditions for the
continuance of the stay order* or relieve a claim from the
coverage thereof* upon showing that:
"a' any of the allegations of the petition* or any of the
contents of any attachment* or the verification thereof* has
ceased to be true)
"b' a creditor does not have ade4uate protection over
property securing its claim) or
"c' the debtorAs secured obligation is more than the fair
mar3et value of the property sub9ect of the stay and such
property is not necessary fort eh rehabilitation of the debtor!
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+.
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
What is the concept o# ade:uate protection oer propertyK
"ule %* Sec $#'
A creditor does not hae ade:uate protection oer
property securing its clai$ i# it can !e shown that)
"a' the debtor fails or refuses to honor a pre:e8isting agreement
with the creditor to 3ept he property insured)
"b' the debtor fails or refuses to ta3e commercially reasonable
steps to maintain the property) or
"c' the property has depreciated to the e8tent that the creditor is
undersecured!
What are the contents o# the reha!ilitation planC "ule %*
Sec .'
"a' the desired business targets or goal* and the duration and
coverage of the rehabilitation)
"b' the terms and conditions of such rehabilitation)
"c' the material financial commitments to support the
rehabilitation plan)
"d' the means for the e8ecution of the rehabilitation plan* e!g!
conversion of debts into e4uity* restructuring the debts*
dacion en pago* sale of assets or controlling interest)
"e' li4uidation analysis* i!e! an estimate of the proportion of the
claims that the creditors and stoc3holders would receive if
the debtorAs properties were li4uidated)
"f' other relevant information to enable a reasonable investor
to ma3e an informed decision on the feasibility of the
rehabilitation plan!
What is the power o# the court to cra$ down a reha!ilitation
planK"ule %* Sec! #+'
,he power of the court to cram down a rehabilitation
plan refers to its authority to approve a rehabilitation plan even
over the opposition of the creditors holding a ma9ority oft eh total
liabilities of the debtor if* in its 9udgment* the rehabilitation of the
debtor is feasible and the opposition of the creditors is
manifestly unreasonable! In determining whether or not he
opposition of the creditor is manifestly unreasonable* the court
shall consider the following(
"a' the plan would li3ely provide the ob9ecting class of the
creditors with compensation greater than that which they
would have received if the assets of the debtor were sold
by the li4uidator within a three:month period)
"b' that the shareholders or owners of the debtor lost at least
their controlling interest as a result of the plan) and
"c' that the rehabilitation receiver has recommended approval
of the plan!
What is the e##ect o# the approal o# the court o# the
reha!ilitation plan on the de!tor and creditorsK"ule %* Sec!
#%'
,he approval of the rehabilitation plan by the court
shall result* among other effects* in the said plan and its
provisions being binding upon the debtor and all the persons
who may be affected by it* including the creditors* whether or not
such persons have participated in the proceedings or opposed
the plan or whether or not their claims have been scheduled!
What is the pri$ary tasD o# the reha!ilitation receierC ;oes
he taDe oer the $anage$ent and control o# the de!torK
"ule %* Sec $%'
The reha!ilitation receier i$ple$ents the
reha!ilitation plan a#ter its approal !y the court. His
pri$ary tasD is to study the !est way to reha!ilitate the
de!tor and to ensure that the alue o# the de!tor6s property
is reasona!ly $aintained pending the deter$ination o#
whether or not the de!tor should !e reha!ilitated.
>e does not ta3e over the management and control of
the debtor but simple oversees and monitors closely the
operations of the debtor during the pendency of the
proceedings! ,his reflects the concept of debtor:in:place! 6or
this purpose* he has been granted the powers* duties and
functions of a receiver under PE $%&#:A* as amended* and the
ules of Court!
E,AIL ,AEE LI7EALIMA,I2- AC,
26 #&&&
RA (A2-
-%9A6! 9-A+%
Any act* occupation or calling of habitually selling
direct to the general public merchandise* commodities or goods
for consumption!
PCP2SE(
,o promote consumer welfare in attracting* promoting
and welcoming productive investments that will bring down
prices for the 6ilipino Consumer* create more 9obs* promote
tourism* assist small manufacturers* stimulate economic growth
and enable Philippine goods and services to become globally
competitive through the liberali0ation of the retail trade sector!
ELEME+T4E
$! ,he seller must be habitually engaged in selling)
#! ,he sale must be direct to the general public)
+! ,he ob9ect of the sale is limited to merchandise*
commodities or goods for consumption!
EFCE3T7O+E
$! Sales by a manufacture to the general public if his capital
does not e8ceed one hundred thousand pesos "P$&&*
&&&!&&'
#! Sales by a farmer or agriculture selling the products of his
farm!
+! Sales in restaurant operations by a hotel owner or inner:
3eeper irrespective of the amount of capital! Provided* that
the restaurant is incidental to the hotel business!
%! Sales which are limited only to products manufactured*
processed or assembled by a manufacture through single
outlet* irrespective of capitali0ation!
.! -atural: born citi0en of the Philippines who has lost his
Philippines citi0enship but who resides in the Philippines
shall be granted the same rights as 6ilipino citi0ens!
/8-%6.N %@A69B *A-96C6*A968N
6oreign 9uridical entity must register with SEC and E,I
6oreign Individuals registered with E,I!
Category A = Enterprises with paid:up capital of the peso
e4uivalent of less than CSN#!.M shall be reserved e8clusively
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+/
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
for 6ilipino Citi0ens and Corporations wholly owned by 6ilipino
Citi0ens!
Category 8 : Enterprises with paid:up capital of the peso
e4uivalent of CSN#!.M but less than CSN1!.M may be wholly
owned by foreigners e8cept for the first # years after the
effectivity of this Act wherein foreign participation shall be limited
to not more than 5&L of total e4uity!
Category C : Enterprises with paid:up capital of the peso
e4uivalent of CSN1!.M or more may be wholly owned by
foreigners( provided* however* that in no case shall the
investments for establishing a store in Categories 7 and C be
less than the peso e4uivalent CS/+&*&&&!
Category ; : Enterprises speciali0ing in high end or lu8ury
products with paid:up capital of the peso e4uivalent of
CSN#.&*&&& per store may be wholly owned by foreigners
REG74TRAT7O+E
A. 1oreign . owned corporation, association,
partnership #or$ed and organiGed under
3hilippines Laws
- Securities and e8change commission
"SEC' and "E,I'
8. 1oreign . owned single proprietorship . ;T7
6oreign investor shall be re4uired to maintain in the
Philippines the full amount of the prescribed minimum capital!
E5ceptionE the foreign investor has notified the SEC
and
E,I of its intention to repatriate its capital and cease
operations in the Philippines!
,he actual use in Philippines of the inwardly remitted
minimum capital re4uirements = monitored by the SEC!
7AN.18 (%N9-A! N. *6!6*6NA( AN+ +96
- Will verify or confirm inward remittance
of the minimum re4uired capital
investment
- 6ailure retail stores shall secure
certification from the said agencies!
6oreign investor ac4uiring shares of stoc3 of Local
etailers whose net worth in e8cess of CS N #*.&&*&&&!&& may
purchase only up to a minimum of 5&L of the e4uity within the
first two "#' years from the affectivity percentage consistent with
the allowable foreign participation!
@AA!6/6CA968N 8/ /8-%6.N -%9A6!%-( C
$! A minimum of two hundred million CS dollar "CSN
#&&*&&&!&&' net worth in its parent corporation!
#! 6ive ".' retailing branches or franchises in operation
anywhere around the world unless such retailers has at
least one "$' store capitali0ed at a minimum of #.M
+! 6ive ".' year trac3 record in retailing
%! 2nly rational from or 9udicial entities formed or incorporated
in countries which allow the entry of 6ilipino retailers* shall
be allowed to engaged in retail trade in the Philippines
;T7 = authori0ed to pre = 4ualify all foreign retailers and
shall 3eep a record of 4ualified foreign retailers!
The 7nter . Agency Co$$ittee on Tari## and Related
Matters o# the +ational Econo$ic ;eelop$ent
Authority %+E;A, 8oard shall formulate and regularly
update a list of foreign retailers of high = end or lu8ury and
render an annual report on the same to congress!
3rohi!ited Actiities o# Huali#ication 1oreign
Retailers(
$! -ot allowed to engage in certain retailing of activities
outsides their accredited stores through the use of mobile
or rolling stores or carts
#! ,he use of sales representative
+! Eoor to door selling
%! estaurants and sari: sari stores
.! 2ther retailing activities
Provided* such detailed list of prohibited activities shall
hereafter be formulated by the E,I!
6M*!%M%N96N. A.%NC6%(
,he E,I* in coordination with the SEC* the -EEA* and the
7SP shall formulate and issue the implementing rules and
regulations!
3enaltyE
A! Any person found guilty(
$! Imprisonment of not less than 5 years and one "$' day
but not more than eight "/' years
#! 6ive = of not less than $M but more than #&M
7! In the case of associations* partnership* or
corporations(
$! Imposed upon its partners* presidents* directors and
manager and other officials responsible for the
violation!
#! It not a 6ilipino citi0en immediate deportation
+! If public officer to the penalty* dismissal and
permanent dis4ualification from public office!
888888888888888888888888888888888888888888888888888888888
6I-A-CI-B C2MPA-I AC,
RA (**2

/6NANC6N. C8M*AN6%(
Corporations or partnerships* e8cept those regulated
by the Central 7an3 of the Philippines* the Insurance
commissioner and the Cooperative Administration 2ffice! Which
are primarily organi0ed for the purpose of e8tending credit
facilities to consumers and to industrial* commercial or
agricultural enterprises* either by discounting or factoring
commercial pares or accounts receivable* or by buying and
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+0
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
selling contracts* leases* chattel mortgages or other evidence of
indebtedness* or by leasing of motor vehicles* heavy e4uipment
and industrial machinery* business and office machines and
e4uipment* appliances and other movable property!
3OL7C7E4E
$! ,o regulates and promote activities of financing and leasing
company to place their operations on a sound* competitive*
stable and efficient basis
#! ,o recogni0e and strengthen their critical role in providing
medium and long term credit for investment in capital
goods and e4uipments for small and medium enterprises!
+! ,o curtail and prevent practices pre9udicial to public interest
H to have a better position and efficient service in a fair
manner to the general public* industry* commerce*
agriculture and thereby more fully contribute to sound
development of the national economy
1inancing Co$panies . are Corporations EFCE3TE
$! 7an3s
#! Investment houses
+! Saving and loam associations*
%! Insurance companies
.! Cooperatives
5! 2ther financial institutions organi0ed under other special
laws
4EC?R7T@ O1 EFCHA+GE COMM7447O+ %4EC,
Empowered to enforce provisions implementing
regulation EOCEP, as the 7SP have supervisory authority
under A -o! 15.+
95% M8N%9A-B 78A-+ 8/ 95% 7(*
Empowered to prescribe the ma8imum rate of rental
fees* services and other changes of financing company in
consultation with financing companies and the SEC!
-%@A6-%M%N9 /8- -%.6(9-A968N
Aside from re4uiring compliance with the provisions of
the corporation code!
$! All the re4uirements of e8isting laws to engage in the
business should be complied with the applicant
#! ,he organi0ation* integrity and responsibility of the
organi0ers should assure the protection of the interest of
the general public!
+! All the re4uirements of this Act have been complied with!
Provided( financing companies registered prior to the
approval of this Act shall fill an information sheet with the
SEC with 5& days after notice!
-6.59( AN+ *80%- 8/ /6NANC6N. C8M*ANB
$! Engage in 4uasi = ban3ing and money mar3et operations
with prior approval of the 7SP
#! Engage in trust operations sub9ects to the Beneral ban3ing
Act upon prior approval of the 7SP
+! Issue bonds and other capital instruments sub9ect to rules
and regulations of the 7SP!
%! ediscount their paper with government financial
institutions
.! Participate in special loan or credit programs
5! Provide foreign currency loans and leases to ente%rprises
who lain foreign currency by e8ports(
-%.6(9-B 8/ /6NANC6A! !%A(%
,he egistry of Eeeds shall open and maintain a register of
financial leases* ad9unct to the chattel mortgage registry
LEA4E REG74TER 4HALL CO+TA7+E
$! -ameH Eescription of property including
a! 7rand nameH name of manufacturer
b! -ame of model) if any
c! Iear of model) if available
d! Serial number) if any
#! Ac4uisition cost
+! -ame of owner H finance company lessee
%! -ame of lessee
.! Eate of lease agreementH schedule
5! Eate of e8piry of lease
1! Eate of entry in lease registry
*%NA!9B>6%(
$! A fine of not less than P $&*&&& and not more than P
$&&*&&&!&&
#! Imprisonment for not more than 5 mos! 2r both at the
discretion of the court* shall be imposed upon(
a! Persons* associations* partnerships or
corporation* managing officer that shall(
i! Engage in business without authority
from the SEC
ii! >old themselves out to be financing
companies
iii! Giolate provisions of this Act
b! Any officer* employee* or agent of a financing
company who shall(
$! Pnowingly and willingly ma3e any false
statement or misleading with respect to
any material
#! 2vervalues on aid in overvaluing any
securities to influence action of the
company on any loan or discounting
line
+! Any officer* employee or e8aminer of
the SEC who shall commit* connive* aid
or assist in the commission of acts
enumerated in the preceding section
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
,>E ,C,> I- LE-EI-B AC,
R.A. /A2*
Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
+1
COMMERCIAL LAW REVIEWER
SAINT LOUIS UNIVERSITY BAR OPERATIONS
A LAW SCPPLEME-,I-B 2 C2MPLIME-,I-B ,>E A-,I:
CSCI LAW CICCMGE-,EE EGE- 7I 7A-PS!
3?R3O4EE
,o protect citi0ens from a lac3 of awareness of the
true cost of credit to the user by assuring a full disclosure of
such cost with a view of preventing the uninformed use of credit
to the detriment of the national economy!
-%@A6-%M%N9 8/ +6(C!8(A-%
,he creditor shall furnish the debtor prior to the
consummation a loan or sale * a clear statement in writing
containing the ff(
$! Cash price or delivered price of the property or service
#! Amounts to be credited as down payment and trade:in
+! ,he difference the amounts of cash price and as down
payment
%! ,he charges* individuality itemi0ed
.! ,otal amount to be financed
5! ,he percentage that the finance charges bears to the total
amount to be finance as a simple annual rate!
(im#le Annal -ate
Is the uniform percentage* which represents the ratio* on
annual basis* between the finance charges and the amount to
be financedK
In case of Simple Payment upon maturity(
Q # 8 finance charge 8 $# 8 $&& L
Amount to be financed maturity rate in months
In the case of normal installment type of credit of at least $
yr! In deviation
Q #8 finance charge 8 no! of payments in a year
Amount to be financed total number of payment R $
In cases where the credit matures in less than a yr*
the same formula will apply e8cept that the number of payments
in a year would refer to the number of installment periods!
In cases where credit terms provides for premium or
penalty charges depending on for e8ample* the timeliness of the
debtors payment* the annual rate to be disclosed in writing shall
be the rate for regular payments!
E11ECT O1 +O+ ;74CLO4?REE
$! ,he creditor is liable to the debtor for P$&& or amount
e4ual to twice the finance charge* whichever is greater
provided liability shall not e8ceed P#*&&& on any credit
transaction! Action to recover penalty must be brought
within $ year from date of violation!
#! ,he creditor can be held criminally liable!
+! ,he transaction is still valid!
4CO3E O1 REH?7REME+T4E
,he regulations shall apply the ff! types of credit
transactions(
$! Any loans* mortgages* deeds of trust* advances and
discounts
#! Any conditional sale
+! Any rental:purchase contract
%! Any contract for hire* bailment or leasing of property
.! Any option* demand* loan* ledge
5! Any transaction or series of transactions having a similar
purpose
,>E 66! CA,EB2IES 26 CEEI, ,A-SAC,I2- AE
2C,SIEE ,>E SC2PE 26 ,>E SAIE EBCLA,I2-S(
$! Credit transactions which to not involve the payment of
finance which to not involve the payment of finance charge
by the debtor
#! Credit transactions in which the debtor specifies a definite
and fi8ed set of terms such as ban3 deposits* insurance
contracts* etc!
Phil! Bovernment
: -o punishment or penalty shall apply
Any Person
$! 6ined by not less P $*&&& nor more than P .* &&&
#! Imprisonment for not less than 5 mos! -or more than $
year
+! 7oth
266ICES AC,>2IMEE ,2 E-62CE CLES A-E
EBCLA,I2-S
$! Eepartment of Commercial and Savings 7an3
#! Eepartment of rural ban3 and Savings and Loan
Association
+! 2ffice of -on:ban3 6inancial Intermediaries
,he respective heads of the + departments have the
authority to e8amine all boo3s* documents* papers or
records of creditors
Creditor
Shall include but shall not be limited to ban3s and
ban3ing institutions* insurance and bonding co!* savings and
loan associations* credit unions* financing companies* etc!

Prepared by the COMMERCIAL LAW SECTION Chief MARLON CORPUZ Assistant Chief MA. LOURDES COMTIAG Members MARLON
BACUNO, VOLTAIRE GARCIA, JEANNYLENE ISIP, BEVERLY MANZANO, KATHRYN BOLINAS, LOTTA OBADO, GRESIL SANTOS and
VENUS DUGAYON. All Ri!"# R$#$%&$d by the SAINT LOUIS UNIVERSITY COLLEGE O' LAW BAR OPERATIONS ())*.
()