Wheels of Jus­tice

On cars about to be re­pos­sessed QUES­TION: Is it le­gal for the repo guys to stealth­ily— or even force­fully—take your car away? What is the proper pro­ce­dure if your car is re­pos­sessed?

Top Gear (Philippines) - - Contents - ROBBY CONSUNJI

Yes, it is le­gal for the court sher­iff or the mort­gagee bank of­fi­cer to ex­er­cise stealth and rea­son­able force to re­pos­sess a mort­gaged car due to the mort­gagor car owner’s fail­ure to pay an amount owing to the bank un­der the loan and chat­tel mort­gage.

The pro­ce­dure for the mort­gagee bank to re­pos­sess a mort­gaged car is gov­erned by the prom­is­sory note and the chat­tel mort­gage en­tered into by the bank and buyer/owner. It is fur­ther gov­erned by the Chat­tel Mort­gage Law (Act No. 1508), the Civil Code, the Rules of Court, and the Re­vised Pe­nal Code. Un­like other coun­tries, the Philip­pines does not have a law specif­i­cally gov­ern­ing “fair debt-col­lec­tion prac­tices” for cred­i­tors, debt col­lec­tors, and re­pos­ses­sion guys (repo guys).

Read the fine print of the terms and con­di­tions in the signed copy of the Prom­is­sory Note and Chat­tel Mort­gage. Typ­i­cally, it states that the bank agrees to lend the buyer the fi­nanced amount, which the buyer agrees to pay back on an in­stall­ment ba­sis with in­ter­est for a term rang­ing from one to five years. To guar­an­tee pay­ment of the loan, the buyer will mort­gage the car in fa­vor of the bank. In the event of a fail­ure to pay or a breach of the con­tract, the bank can fore­close and take pos­ses­sion of the mort­gaged car. The bank will then sell the car at a pub­lic auc­tion, and ap­ply the pro­ceeds as pay­ment for the loan.

The most im­por­tant con­tract clause will read: “In the event of de­fault, the bank shall be en­ti­tled to be the at­tor­ney-in-fact of the bor­rower with full power to en­ter the premises where the mort­gaged car is lo­cated, and to take ac­tual pos­ses­sion and con­trol of the mort­gaged car with­out the need for any court order or any writ­ten per­mis­sion from the bor­rower mort­gagor.” The Prom­is­sory Note and Chat­tel Mort­gage used by the banks for car loans con­tains many sub­tle terms and con­di­tions.

The ‘stan­dard’ con­tract clauses can be any of the fol­low­ing: the bor­rower must keep the mort­gaged car at the ad­dress on record with the bank; he must keep the car free and clear of all other mort­gages and en­cum­brances; he must use the car for pri­vate or per­sonal use; he must not use the car as a taxi or ‘for hire’ ve­hi­cle; he shall reg­is­ter the car in com­pli­ance with law; he can­not as­sign, sell, mort­gage or en­cum­ber, or trans­fer pos­ses­sion of the car with­out prior writ­ten con­sent of the bank; he must al­low the bank to in­spect the car at any rea­son­able time; he must keep the car cov­ered by a com­pre­hen­sive in­sur­ance pol­icy; and he must main­tain the car in good and run­ning con­di­tion.

If the bor­rower uses the car ‘for hire’ by the pub­lic, he can be held crim­i­nally and civilly li­able for fraud and dam­ages to com­pen­sate the bank for the ac­cel­er­ated de­pre­ci­a­tion and loss in mar­ket value of the car.

If the bor­rower fails to pay on a due date any in­stall­ment, in­ter­est, penalty or amount payable, or is in breach or fails to per­form any of his obli­ga­tions in the Prom­is­sory Note and Chat­tel Mort­gage, the bank may de­clare him in de­fault of the con­tract, fore­close on the mort­gage, and re­pos­sess the car. The bank may bid at the auc­tion sale un­der ju­di­cial or ex­tra­ju­di­cial pro­ceed­ings.

The bank may re­sort to ei­ther: an ex­tra­ju­di­cial fore­clo­sure as pro­vided un­der the Chat­tel Mort­gage Law (Act No. 1508), or a ju­di­cial fore­clo­sure of the chat­tel mort­gage. The for­mer mort­gage is premised on the vol­un­tary sur­ren­der of the car by the owner to the bank; the lat­ter is premised on the re­fusal of the owner to turn over the car to the bank. The bank must in­voke the aid of the com­pe­tent court by fil­ing a re­plevin case against the owner un­der the Rules of Court.

In a re­plevin case, the bank seeks a court order to re­cover pos­ses­sion and to take de­liv­ery of the mort­gaged car. The court shall is­sue an order and the cor­re­spond­ing writ of re­plevin, de­scrib­ing the car al­leged to be wrong­fully de­tained and re­quir­ing the sher­iff forth­with to take such prop­erty into his cus­tody.

The sher­iff has the power to break open the premises of the mort­gagor. The Rules of Court pro­vide that if the mort­gaged car or any part thereof “be con­cealed in a build­ing or en­clo­sure, the sher­iff must de­mand its de­liv­ery, and if it be not de­liv­ered, he must cause the build­ing or en­clo­sure to be bro­ken open and take the prop­erty into his pos­ses­sion. Af­ter this, he must keep the car in a se­cure place and shall be re­spon­si­ble for its de­liv­ery to the party en­ti­tled thereto.

Be­cause the Philip­pines does not have a law gov­ern­ing “fair debt-col­lec­tion prac­tices” for cred­i­tors, debt col­lec­tors, and repo guys, the repo pro­ce­dure is gov­erned by the gen­eral laws. The repo guy can take away your car, but as­sum­ing the breach of con­tract ex­ists, you can­not re­port it as car­napped.

The repo guy can en­ter or break open premises where the car is con­cealed, but he can­not use vi­o­lence or force on the per­son of the car owner or a rep­re­sen­ta­tive. He can­not use ob­scen­i­ties, in­sults or pro­fane lan­guage, which amounts to a crim­i­nal act. He can take the car and its ac­ces­sories, but he can­not take your non­mort­gaged or per­sonal prop­erty on board the car. Fi­nally, he can em­ploy high-tech de­vices to track down or re­motely shut off the car, pro­vided he does not vi­o­late any pri­vacy laws.

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