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Recovery In Credit

Granted
Maria Ysabella Yee
1.
Remedies In Case of Non-Payment
Remedies In Case of Non-Payment
Factors:
1. The loan or credit transaction has been consumed.
2. There was complete transfer of possession and ownership (by
delivery).
*questions on goods in transit will not be covered here.
3. The seller has discharged with his obligation to deliver a
determinate thing, but the buyer refuses to, or cannot pay.
4. There are no product defects or violations of warranties on the part
of the seller.

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“2.
Classification of Credit

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Classification of Credit
1. Simple loan (Mutuum)
a. Loans on fungible & consumable things
b. Cash loan
2. Durables: appliances
3. Movables: vehicles
4. Immovables
a. Real Estate
b. Credit secured by immovables

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Simple Loan
Definition: Fungible and Cash Loan and
Simple Loan or Consummable Things. Merchandise.
Mutuum. Fungible: Cash Loan:
Products expressed in Pay back in same currency
The debtor’s obligation units of measure (weight, & amount, unless
is to give back the number or volume). otherwise stated (Art. 1249)
items borrowed with
Obligation: to return Obligation: loan, to pay
similar items (same
quality, kind and Consummable: Merchandise:
quantity). Cash to be paid back in Unsecured and secured.
same kind and quantity Obligation: sale, to pay
Obligation: to pay

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Durables: Appliances
Durables. Deed of Conditional Motivation of Debtor.
Thing stays with the Sale. Continued possession of
owner who enjoys its Transfers the possession the debtor.
benefits for an amount of but reserves or withholds
time the ownership as retained
by the seller.

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Movables: Vehicles
Deed of Absolute Sale. Rationale.
Movables must be sold on Loan on movables are
an absolute basis as per mortgaged back to the
Art. 2085 par. 2: seller directly after.
…That the pledgor or
morgagor be the absolute
owner of the thing
pledged or mortgaged…

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For Brand-New:
Movables: Vehicles Second-Hand
Deed of Absolute Sale
PN/CM

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Immovables
Real Estate. Credit Secured by
Installment sales on a Immovables.
piece of property. Cash loan secured by real
estate.

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3.
Factors for determining recovery
efforts
Recovery Efforts
Factors:
1. Nature of the object of the credit (cash or merchandise);
2. If loan is secured or not;
3. If secured, nature of the property used as security (personal, movable,
immovable, incorporeal rights);
4. Nature of the documents used (mortgage, pledge, trust receipt);
5. Nature of the relationship between the buyer and seller;
6. Nature of the seller’s business;
7. Special circumstances attending the sale or credit transaction.

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Debtor’s Motivation to Pay
1. IN A REAL ESTATE MORTGAGE
* The Market Value of the property mortgaged is substantially more than the balance
of the loan.

To Illustrate: BUT: (After 3 years – no payment on


Real Estate Property: part of debtor)
Php 1,000,000.00 Loan balance: Php 860,000.00
Mortgage value (50% of MV): Php 500,000.00
Interest: 24% annual (Php 120,000.00) Php 860,000 vs. Php 1,000,000

Php 620,000 < Php 1,000,000


Difference diminishes therefore the
motivation to pay acts accordingly.
The difference is vast. Motivation to pay is high.
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Debtor’s Motivation to Pay
2. MERCHANDISE (WHOLESALER AND RETAILER)
a. Profitable relationship;
b. Higher credit limit or better terms; or
c. Protection of credit standing for trade references.

3. END-USERS OR CONSUMERS
a. Movable Items: Very low which is why it is sold by withholding ownership.
b. Consumables (edible and potable): unpredictable which is why most
establishments are cash-basis.

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“4.
Friendly Recovery Efforts

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Friendly Efforts
1. Term Extension – adding days to the due date of the
account
2. Merchandise Return or Swap – if most of the merchandise
have remained unsold; if the merchandise cannot be
sold in the debtor’s locality; if the goods can still be sold
somewhere else.
3. Condonation of penalties and surcharges
Condonation: forgiving of debt

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Friendly Efforts
4. Restructuring
a. Simple - terms are extended and terms are reduced to affordable
levels
b. Document Substitution
e.g., from accounts receivable (sales invoice) to notes receivable
(promissory note)
*Advantages of PN:
(1) Strengthens financial condition of the creditor;
(2) A negotiable PN could be used to pay debts, or
collateral.
c. Novation – change in credit agreement
*Dual function of novation:
(1) Extinguish or modify;
(2) Substitute. 17
Friendly Efforts

5. Deposit of durables and movables at the branch store –


with promise that surcharges and penalties would be
suspended.
6. Debtor substitution – the debtor is replaced by another
debtor with a more established credit reputation

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Friendly Efforts
7. Dacion en Pago – debtor who has a property securing the debt, sells the
property to the creditor to settle his debt; credit standing is not adversely
affected.
“Art. 1245. Dation in payment whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the law of
sales.”
e.g., D owes C Php 30,000. To fulfill the obligation, D with the consent of C,
delivers a piano.
If the piano is worth less than Php 30,000, the conveyance must be
deemed to extinguish the obligation to the extent only of the value agreed
upon unless the parties by their agreement have considered the piano as
full payment, in which case, the obligation is totally extinguished.

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Friendly Efforts
8. Addition of guarantor or surety – if the debtor has a lot of
financial difficulties, debtor substitution is not possible

Rationale:
Art. 1236. Creditor is not bound to accept payment by a third
person unless stipulated BECAUSE “a creditor should have the
right to insist on the liability of the debtor” (Report of the Code
Commission, p. 12)

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Friendly Efforts
9. Securitization – applies to unsecured credit obligations.
The creditor may request the debtor to collateralize his debt.
To persuade the debtor, the creditor may provide a generous term
extension or possible condonation of surcharges and penalties.

Advantages to Debtor. Advantages to Creditor.


‐ Discontinuation of collection pressure; ‐ Protection of asset
‐ Opportunity to have plenty of time to ‐ There is a specific collection time frame
reorganize his financial resources; and he may readjust his own resources
‐ Opportunity to keep his credit reputation in accordingly.
tact.

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