Letter to a Lawyer

Dear Attorney,

I hope this letter finds you well. I am writing to seek your professional advice regarding a matter that concerns the sale of a motorcycle I am still paying for through installment financing with a company. Due to financial difficulties, I am considering selling the motorcycle to transfer the burden of payments to someone else.

However, I want to ensure that my actions are legal and avoid any criminal or civil liabilities. Could you please advise on the legal consequences of selling a financed motorcycle, as well as any necessary steps to ensure compliance with the law?

Thank you for your guidance. I am looking forward to your advice.

Sincerely,
A Concerned Motorcycle Owner

Legal Article: The Legal Implications of Selling a Financed Motorcycle in the Philippines

Introduction

In the Philippines, the sale of a financed motorcycle—or any financed asset—raises several legal issues. These include potential violations of the financing agreement, criminal liability, and civil consequences. This article explores the legal intricacies of selling a motorcycle under financing, applicable laws, and the proper procedures to avoid liability.

1. The Nature of a Financing Agreement

When you purchase a motorcycle through financing, you typically enter into a loan or lease agreement with the financing company. Key terms in these agreements include:

Ownership Clause: The financing company often retains ownership of the motorcycle until the loan is fully paid.
Non-Sale Clause: Many agreements explicitly prohibit the sale, transfer, or disposal of the vehicle without the lender's consent.
Breach of Contract: Selling the motorcycle without approval constitutes a breach of contract.

Under Article 1159 of the Civil Code of the Philippines, obligations arising from contracts have the force of law between the parties. This means any violation of the financing agreement exposes the borrower to legal liability.

2. Legal Consequences of Selling a Financed Motorcycle

2.1. Criminal Liability: Estafa (Article 315 of the Revised Penal Code)

Selling a financed motorcycle without the consent of the financing company may constitute Estafa, or fraud, under Article 315(1)(b) of the Revised Penal Code. The elements of Estafa in this context are:

Obligation to Deliver or Return: The borrower has an obligation to return the financed motorcycle if required.
Misappropriation or Disposal: The borrower disposes of the motorcycle without authority.
Damage to Another Party: The financing company suffers financial harm as a result.

If convicted of Estafa, penalties include imprisonment ranging from six months to 20 years, depending on the value of the motorcycle and the amount of damage.

2.2. Civil Liability: Breach of Contract

Selling the motorcycle violates the financing agreement, leading to civil liability. Under Article 1191 of the Civil Code, the financing company may demand rescission of the contract and the return of the vehicle or payment of the remaining balance in full. Additionally, damages may be awarded to compensate the financing company for losses incurred.

3. Proper Procedures to Avoid Liability

3.1. Notify the Financing Company

To avoid legal consequences, you must notify the financing company of your intention to sell the motorcycle. Many financing companies allow for an assumption of loan, where the buyer assumes responsibility for the remaining payments under specific terms.

3.2. Secure Written Consent

Request and secure written consent from the financing company to proceed with the sale. This document should outline the terms of the sale and any conditions required to avoid breaching the contract.

3.3. Execute a Deed of Sale with Assumption of Mortgage

If the financing company agrees, prepare a Deed of Sale with Assumption of Mortgage. This document transfers ownership to the buyer while stipulating that the buyer will continue making payments to the financing company.

3.4. Ensure Proper Documentation

Both the seller and the buyer must keep copies of the following documents:

Written consent from the financing company.
Deed of Sale with Assumption of Mortgage.
Updated payment records for the motorcycle.

4. Recommendations for Buyers

If you are a buyer interested in purchasing a financed motorcycle, take the following precautions:

Verify the Financing Agreement: Ensure the financing company allows for assumption of loan.
Request Documentation: Ask for the financing company's consent and review the Deed of Sale with Assumption of Mortgage.
Confirm Payments: Verify the current payment status of the motorcycle to avoid inheriting arrears.

5. Practical Tips for Sellers

5.1. Full Disclosure

Inform the buyer of the motorcycle's financing status and provide all relevant documentation. Transparency protects you from allegations of fraud.

5.2. Avoid Informal Sales

Do not sell the motorcycle without notifying the financing company. Informal sales can lead to serious criminal and civil consequences.

5.3. Explore Other Options

If selling is not feasible, consider the following alternatives:

Loan Restructuring: Negotiate with the financing company for revised payment terms.
Voluntary Surrender: Return the motorcycle to the financing company to reduce outstanding obligations.

6. Applicable Laws and Jurisprudence

6.1. Revised Penal Code

Article 315(1)(b): Estafa involving misappropriation or disposal of property.
Penalties are determined based on the value of the misappropriated property.

6.2. Civil Code of the Philippines

Article 1159: Contracts have the force of law between parties.
Article 1191: Remedies for breach of contract include rescission and damages.

6.3. Relevant Jurisprudence

Case of People v. Tan (G.R. No. 186556): This case affirmed that unauthorized disposal of financed property constitutes Estafa.
Case of Toyota Financial Services Philippines v. CA (G.R. No. 186433): The Supreme Court emphasized the importance of respecting financing agreements.

Conclusion

Selling a financed motorcycle in the Philippines without proper procedures carries serious legal risks, including criminal liability for Estafa and civil liability for breach of contract. To avoid these consequences, borrowers must adhere to their financing agreements, secure consent from the financing company, and execute proper documentation.

By following the guidelines outlined in this article, both sellers and buyers can ensure compliance with Philippine law while protecting their rights and interests. Legal advice is always recommended to navigate the complexities of financing agreements.