Mr. Alfonso A. Dantes

May 23, 1980 Mr. Alfonso A. Dantes Vice President for Operations Alliance Financial Corporation Rm. 301, Equitable Bank Building 741 C.M. Recto Ave., Tondo, Manila Dear Mr. Dantes: This has reference to your letters dated March 18, 1980 and April 21, 1980 requesting opinion on the queries posed relative to certain provisions of RA 5980 otherwise known as the Financing Company Act. As a matter of policy, this Commission refrains from rendering its opinion on any hypothetical question presented before it involving any of the statutes entrusted to it for administration and enforcement, unless the case is an actual one and the correct and pertinent facts thereof are fully disclosed to the Commission. However, for purposes of general information only the following may be imported: It appears from your letter of March 18, 1980 that on January 1st, A executed a promissory note (PN) in favor of Creditor B for P100,000.00 with interest at 12% per annum, payable in one year. On July 1st, B discounts said PN to financing company C. (1) Query I: Can C charge the full discount rate of 14% of the value of the PN of P100,000.00? C can only charge a purchase discount equivalent to the period covering July 1 to December 31, pursuant to paragraphs 1 and 2, Section 5 of the Financing Company Act. (2) Query II: Since the PN is discounted on July 1st, is C entitled to the entire 12% interest specifically on the PN purchase, or only the ratable proportion thereof? C is not entitled to the entire 12% interest on the PN purchased but only to the ratable proportion of interest since the PN was discounted only on July 1st. (3) Query III: If the PN being discounted is payable within two years, can C deduct the amount of the discount for the entire period of the PN, viz in this case, more than one year? Yes, the deduction of purchase discount for the entire period of the promissory note is allowable. It also appears that on January 1st, X executed a PN in favor of Creditor Y, with interest at 12% per annum, payable in 12 monthly installments. On January 2nd, Y discounts said PN to financing company Z. (4) Query: In the computation of the discount, should the diminishing balance of the account be taken into consideration or not? The purchase discount is based on the amount of the promissory note while the interest is on the diminishing balance of the note. It appears also that Creditor E has several post-dated checks from his various customers, which E discounts with financing company F. (5) Query: Can F treat each particular post-dated check as a separate and independent paper or transaction and correspondingly collect a service charge of 2% but not exceeding P200.00 on the value of each post-dated check? Yes. Since the post-dated checks are issued by different customers, each particular check therefore can be treated as an independent paper or transaction. However, post-dated checks issued by the same customer are considered one transaction, irrespective of the number of checks, for purposes of determining the amount of service charge. (6) Query: When is the purchase of accounts receivable or evidences of indebtedness considered factoring under Section 5, paragraph 3 of the Financing Company Act. ( Letter of April 21, 1980 ) MISSING PAGES