REQUIRING GOVERNMENT FINANCIAL INSTITUTIONS TO FORECLOSE MANDATORILY ALL LOANS WITH ARREARAGES, INCLUDING INTEREST AND CHARGES, AMOUNTING TO AT LEAST TWENTY PERCENT (20%) OF THE TOTAL OUTSTANDING OBLIGATION

• Number: Presidential Decree No. 385
• Sections: 7

Preamble

WHEREAS, the government financial institutions, particularly

the Philippine National Bank and its subsidiary, the National

Investment and Development Corporation, the Development Bank of the

Philippines, the Government Service Insurance System, and the Social

Security System, are the largest individual mobilizers of savings and

investment capital in the country;

WHEREAS, these institutions have a large and important role

to play in the economic development of the country by reason of the

magnitude of the resources they command for financing essential and

high-priority programs and projects;

WHEREAS, the loans and investments made by these

institutions in favor of private projects and enterprises reflect the

trust and confidence placed by these institutions in the ability and

willingness of the recipients to use such funds efficiently and

faithfully in pursuing the projects being financed and to manage their

affairs in such a manner as to enable them to pay back their loans and

investments to these institutions on due dates together with the income

and charges thereon;

WHEREAS, borrowing or obtaining investment funds from these

government financial institutions is not a demandable right but is a

privilege enjoyed by the recipients of such funds;

WHEREAS, borrowers or recipients of investment funds from

these financial institutions have a clear, legal and moral obligation to

repay their obligations to these institutions on due dates;

WHEREAS, a number of large borrowers from these institutions

have long records of failure to pay their obligations when due;

WHEREAS, said long-standing delinquencies deny said

financial institutions of substantial cash inflow which could otherwise

be used to finance other development projects for the benefit of the

whole country;

WHEREAS, borrowers who accumulate large arrearages have

already received to the fullest extent the most lenient and patient

consideration that government financial institutions can afford to give;

WHEREAS, the government financial institutions prejudiced by

such borrowers should not be unreasonably hampered in their efforts to

recover their loans and investments in order to rechannel the same to

new or additional projects that further enhance the development of the

country;

WHEREAS, it has been the experience of government financial

institutions that their efforts to recover their large loans and

investments are frequently prevented or delayed by action brought to the

courts by such borrowers;

WHEREAS, in many of foreclosure/collection cases brought to

court, legal niceties and technicalities are invoked in their own favor

by delinquent borrowers to cover and distract the court's attention away

from the undeniable and compelling fact of their delinquencies with

government financial institutions;

WHEREAS, one of the grounds usually invoked by delinquent

borrowers in seeking restraining orders and/or injunctions from the

courts to block the foreclosure by government financial institutions on

their loans are alleged discrepancies between the accounting records of

the creditor and the debtor with respect to the amount of the

outstanding obligations of the debtor, when as a matter of fact the

arrearages have reached such proportions as to render said discrepancies

insignificant;

WHEREAS, it has been shown by the experience of government

financial institutions that in instances where extrajudicial foreclosure

on large loans is successfully pursued, the assets, aside from land,

that form part of the foreclosed collaterals, including buildings,

machinery, equipment, materials, furniture and fixtures, are usually

pilfered or lost rendering it necessary that the foreclosing government

creditor have a writ of possession issued in its favor without delay

after the foreclosure auction sale; and

WHEREAS, the accumulation of such large delinquencies by

borrowers from government financial institutions are not in accord with

the principle of discipline being instilled in the people and promoted

by the New Society;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers in me vested by the Constitution as

Commander-in-Chief of all the Armed Forces of the Philippines, and

pursuant to Proclamation No. 1081, dated September 21, 1972, as amended

by Proclamation No. 1104, dated January 17, 1973, as amended, in order

to effect the early collection of delinquent loans from government

financial institutions and enable them to continue effectively financing

the development needs of the country; and in accordance with desired

policies of achieving changes and reforms in the social and economic

structure of our society, hereby order and decree:

Section 1

SECTION 1. It shall be mandatory for government financial

institutions, after the lapse of sixty (60) days from the issuance of

this Decree, to foreclose the collaterals and/or securities for any

loan, credit, accommodation, and/or guarantees granted by them whenever

the arrearages on such account, including accrued interest and other

charges, amount to at least twenty percent (20%) of the total

outstanding obligations, including interest and other charges, as

appearing in the hooks of account and/or related records of the

financial institution concerned. This shall be without prejudice to the

exercise by the government financial institutions of such rights and/or

remedies available to them under their respective contracts with their

debtors, including the right to foreclose on loans, credits,

accommodations and/or guarantees on which the arrearages are less than

twenty percent (20%).

Section 2

SEC. 2. No restraining order, temporary or permanent

injunction shall be issued by the court against any government financial

institution in any action taken by such institution in compliance with

the mandatory foreclosure provided in Section 1 hereof, whether such

restraining order, temporary or permanent injunction is sought by the

borrower(s) or any third party or parties, except after due hearing in

which it is established by the borrower and admitted by the government

financial institution concerned that twenty percent (20%) of the

outstanding arrearages has been paid after the filing of foreclosure

proceedings.

In case a restraining order or injunction is issued, the borrower

shall nevertheless be legally obligated to liquidate the remaining

balance of the arrearages, paying ten percent (10%) of the arrearages

outstanding as of the time of foreclosure, plus interest and other

charges, on every succeeding thirtieth (30th) day after the issuance of

such restraining order or injunction until the entire arrearages have

been liquidated. These shall be in addition to the payment of

amortizations currently maturing. The restraining order or injunction

shall automatically be dissolved should the borrower Tail to make any of

the above-mentioned payments on due dates, and no restraining order or

injunction shall be issued thereafter. This shall be without prejudice

to the exercise by the government financial institutions of such rights

and/or remedies available to them under their respective charters and

their respective contracts with their debtors, nor should this provision

be construed as restricting the government financial institutions

concerned from approving, solely at its own discretion, any

restructuring, recapitalization, or any other arrangement that would

place the entire account on a current basis: Provided, however. That at

least twenty percent (20%) of the arrearages outstanding at the time of

the foreclosure is paid.

All restraining orders and injunctions

existing as of the date of this Decree on foreclosure proceedings filed

by said government financial institutions shall be considered lifted

unless finally resolved by the court within sixty (60) days from date

hereof.

Section 3

SEC. 3. Upon the application for foreclosure of

the collateral of delinquent borrowers, whether judicially or extra

judicially, by any government financial institution, the court and/or

officials concerned shall immediately act and give priority to the same

and schedule the publication thereof within five (5) days from receipt

of the application, the auction sale to be held not later than ten (10)

days from the date of the last publication. The Certificate of Sale must

be issued on the date of sale and the same must be registered by the

Register of Deeds concerned not later than five (5) days after

submission of the Certificate of Sale.

Section 4

SEC. 4. As a result of foreclosure or any other legal

proceedings wherein the properties of the debtor which are foreclosed,

attached, or levied upon in satisfaction of a judgment are sold to a

government financial institution, the said properties shall be placed in

the possession and control of the financial institution concerned, with

the assistance of the Armed Forces of the Philippines whenever

necessary. The Petition for Writ of Possession shall be acted upon by

the court within fifteen (15) days from the date of filing.

Section 5

SEC. 5. The government financial institutions are

hereby directed to report to the Office of the President any official

who delays the proceedings as provided herein or who violates any of the

provisions of this Decree. Actions taken pursuant to the provisions of

this Decree shall, likewise, be reported by the government financial

institution concerned to the Monetary Board, through the Governor,

Central Bank of the Philippines, in accordance with such schedule, forms

and procedures as the Governor may prescribe for the purpose.

Section 6

SEC. 6. This Decree shall take effect immediately.

Done in the City of Manila, this 31st day of January, in the

year of Our Lord, nineteen hundred and seventy-four.

(Sgd.) FERDINAND E. MARCOS

President

Republic of the Philippines

By the President:

(Sgd.) ALEJANDRO MELCHOR

Executive Secretary