CASE
STUDY

Presentation of Case 1
Company X is a motor vehicle dealer for the past fifteen years and Mr. A is one of its avid customers. The firm has no problem in Mr. A in terms of its paying practices because it pays its obligation in relatively good order. But in 1971 and 1972, Mr. A suffered a series of business reverses which forced him to suspend business operations and thereby incurred further losses. Because of this financial reverses, he was not able to implement his planned replacement buses. Aggravated by the high cost spare parts, income from operations literally nose-dived, thereby preventing from keeping up-to-date his installment accounts with Company X. By the end of 1972, on six vehicle accounts outstanding with Company X. Mr. A was overdue by about P100,000 consisting of around four monthly installments.
In consideration of his past patronage, the company did not press collection as it would with other account. Instead, the company’s credit officer called Mr. A and discussed with him the financial problem. A 2-month moratorium was granted in hope that Mr. A could recover and thus resume payments. But in early 1973, when the accounts were seven-installment overdue or an aggregate amount of P150, 000, Company X decided to file a court action. The company chose to file a case for a sum of money since they know that they cannot recover the amount of outstanding by repossessing the vehicles which by that time were already much depreciated.
Mr. A did not contest the case in the court. Instead, he asked for time to make full payment. He had applied for loan with a government bank which he hoped to fully pay the accounts. After making token partial payments, the parties filed a compromise agreement in court whereby Mr. A promised to pay the amount of P200, 000 within two months from date of compromise. Mr. A was confident that with the approval of