Autoworld Sales Corporation

March 22, 1984 Autoworld Sales Corporation 549-561 Carlos Palanca Sr. St. Echague, Quiapo, Manila Attention : Mr . Anthony U . Que Gentlemen: This refers to your letter dated March 3, 1984, requesting for clarification/opinion on the queries posed therein. It appears that the above-named company sells vehicles on installment basis to buyers as part of its regular business. Recently finance companies are reducing their business volume and retail financing is now inadequate to match customer requirements. You have been approached by certain clients of yours with excess funds that they are willing to discount the installment notes of your buyers at prevailing rates. You now pose the following queries: 1. Does it violate any SEC rules for Autoworld to discount installment notes to buyers to private individuals instead of to finance companies? 2. Are these private individuals liable to anything by accepting the discounting of installment notes from Autoworld? Section 3(a) of Republic Act No. 5980 (An Act Regulating the Organization and Operation of Financing Companies) defines "financing companies" as follows: "(a) "Financing companies", hereinafter called companies, are corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commissioner and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises either by discounting or factoring commercial papers or accounts receivable , or 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) It is very clear from the aforecited definition that discounting of installment notes is a financing activity. Therefore, the same can only be engaged in by a financing company duly authorized by the Securities and Exchange Commission. The law further provides, thus: "SECTION 10. Penalty . a fine of not less than five thousand pesos (P5,000.00) and not more than ten thousand pesos (P10,000.00) or imprisonment for not more than six months or both, at the discretion of the court, shall be imposed upon: 1. Persons, associations, partnerships, or corporations, including the managing officer thereof, that shall: (a) Engage in the business of a financing company without authority from the Securities and Exchange Commission ;" (emphasis supplied) xxx xxx xxx Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman