Ponce Enrile Reyes & Manalastas

April 18, 1996 Ponce Enrile Reyes & Manalastas 3rd Flr., Vernida IV Bldg., Alfaro St., Salcedo Village, 1227 Makati, M.M. Attention : Attys . Rosanno P . Nisce & Philip Z . A . Nazareno S i r : This refers to your letter dated March 18, 1996 requesting confirmation that the business transaction described hereunder does not violate any legal restriction under R.A. 5980, as amended, otherwise known as the FINANCING COMPANY ACT. To summarize, your " Clients " plan to engage in the wholesale distribution of electronic and household products and other consumer items to accredited independent " Dealers " who shall purchase the products on credit and/or installment basis for eventual sale to the latter's " Customers " also on installment basis and who shall be required to execute Promissory Notes in favor of the dealers . To satisfy the dealers' outstanding obligations, your clients may accept assignments by the dealers of said customers promissory notes to off-set such obligations, but such acceptance shall be on a case-to-case basis and shall be made only after your clients own credit evaluation of the dealers' customers. If your clients agree to the assignment, they shall become the new obligee/creditor of the customers' promissory notes with a right to collect the monthly installment payments thereon directly from the customers concerned. Any excess amounts collected by your clients from the dealers' customers on the monthly installment payments shall forthwith be reimbursed to the dealers. The New Rules and Regulations to Implement the Provisions of Republic Act No. 5980, As Amended, otherwise known as the Financing Company Act defines "financing companies" as follows: a. " FINANCING COMPANIES " are corporations or partnerships, except those supervised by the Central Bank of the Philippines, Office of the Insurance Commission and the Bureau of Cooperatives Development, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises by discounting or factoring commercial papers or accounts receivable ; by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness; or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property." (Emphasis supplied) The terms "discounting" in the above definition is further defined as follows: "h. " DISCOUNTING " is a type of receivables financing whereby evidences of indebtedness of a third party, such as installments contracts, promissory notes , and similar instruments, are purchased by, or assigned to, a financing company in an amount or for a consideration less than their face value (Emphasis supplied) To constitute a financing activity as defined in the above definitions, the assignment of the accounts receivables should be at a discounted value. In the present case, it would appear from the facts presented that the assignment of the promissory notes does not fall under the term "discounting" as the purpose of the assignment is to off-set the dealers' obligations to your clients arising from the sale of products on credit . The transaction therefore would partake only of a nature of an " installment sale ", payment of which is subject to the pertinent provisions of the Civil Code, particularly Title VI thereof relative to " sales ". prcd On the matter of the applicability of RA 1180 , otherwise known as the Retail Trade Nationalization Act . on the wholesale transaction of your clients, the Commission would no longer make a remark on the said issue since the Bureau of Trade Regulation and Consumer Protection of the Department of Trade, in its letters addressed to you dated January 11, 1996 and February 8, 1996, had already issued its opinion on the matter. Please take note however that under Section 1 of said Law, "No person who is not a citizen of the Philippines, and no association, partnership, or corporation the capital of which is not wholly owned by citizens of the Philippines, shall engage directly or indirectly in the retail business: . . .". The use of the word "indirectly" is of paramount importance for it underscored the policy of the state to prohibit indirect means of engaging in retail business. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner