BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
E. Commercial papers
3'uaranty34 SC "oul$ rec!aracter#e t!e ass'n+ent as a &le$'e or a +ort'a'e F. Security Devices and other Credit Supports/Enhancements
In Sycip, Salazar: "Deed of Assignment Assignment without recourse by way of Security" 1.
Types
(a) Real Estate Estate Mort Mortae ae (!) Chattel Chattel Morta Mortaee
(c) Mortae Trust Trust "ndenture "ndenture (d) (d) #led #lede e (e) $uarantee/Sur $uarantee/Suretyshi etyship/Sta p/Stand!y nd!y %etter %etter o& Credit
8
(&) 'val
() () old oldo out ut
Ao$s Ao$s securt securty y lan'ua'e lan'ua'e suc! suc! as 3)y "ay "ay of securty3 securty3 to secure secure4 4 555n or$er or$er to secure t!e &ro+&t &ay+ent of t!e o)l'aton, ass'n a)solutely t!e recea)les $efne$ )elo" 1so a)solute ass'n+ent "!c! transfers fro+ $ay one )ot! le'al an$ )enefcal ttle fro+ t!e ass'nor to t!e ass'nee2 6ros 6roson on t!at t!at "oul$ "oul$ clarf clarfy y t!at no $acon $acon en &a'o &a'o nten$ nten$e$ e$ fro+ $ay $ay 3not"t! 3not"t!stan stan$n' $n' t!e ass'n+en ass'n+ent, t, t s not t!e ntenton ntenton of t!e &artes to e7tn'us e7tn'us! ! t!e o)l'at o)l'aton. on. 6rnc&al 6rnc&al o)l'aton o)l'aton e7tn'u e7tn'us!e$ s!e$ )y t!e t+e t!e &rocee$s are actually a&&le$ to &ay+ent3 1ao$ ar'u+ent t!at t!ere s $acon en &a'o, t!erefore e7tn'us!+ent of t!e o)l'aton2 Recon Reconey eyanc ancee of t!e recea recea)le )le...o ...onc ncee t!e o)l'a o)l'ato ton n s satsf satsfe e$, $, t!ere9 t!ere9ss an auto+atc reconeyance fro+ t!e ass'nee to t!e ass'nor 1n accor$ance "t! A/0/ of NCC2 3Not!n' 3Not!n' n n t!s ass'n+ ass'n+ent ent s!all s!all )e construe construe$ $ as creatn' creatn' a &le$'e &le$'e or or a c!attel c!attel +ort'a'e3 1so as to clarfy t!e ntenton of t!e &artes2
(h) 'ssinment 'ssinment !y *ay o& Securit Security y
;6a'es <= an$ <> of t!e )oo?
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In cases, you’ll notce t!at t!s "as c!aracter#e$ as a %&le$'e( un$er CM )ecause *ustces’ *ustces’ +n$set +n$set s te$ to t!e Cl Co$e Co$e B-T t!ere s a NCC NCC &roson on free$o+ to contract, an$ o)scure &roson Art. /0/ "!c! states t!at an a)solute coneyance of &ro&erty s +a$e to secure an o)l'aton t!ere s an +&le$ trust. If t!e o)l'aton s fulflle$ )y t!e 'rantor, !e +ay $e+an$ coneyance coneyance of &ro&erty. 1Art. /0/ re+ans o)scure2
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If ass'n+en ass'n+entt s construe construe$ $ as a &le$'e, &le$'e, foreclosure foreclosure "oul$ "oul$ e7tn'us e7tn'us! ! t!e o)l'aton
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If C!attel C!attel Mort'a'e, Mort'a'e, t!ere s re'strat re'straton on re@ure+ re@ure+ents. ents. -nless satsfe$ satsfe$,, t!e +ort'a'e s not al$ as a'anst t!r$ &ersons. T!ere "oul$ )e no aff$at of 'oo$ fat! n $ee$ of ass'n+ents
"!en t!e $ocu+entaton $ocu+entaton s re&lete "t! "t! "or$s suc! as 3)y "ay of securty3, 1
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
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T!s ?n$ of $ocu+ent s s+lar to a $ee$ of ass'n+ent4e9re 'on' to ta?e t!at u& n $erate transactons transactons
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: For IBAA
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Letter of cre$ttrust rece&t a'ree+ent: 8 features
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Loan feature securty feature
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Trust rece&t s a securty a'ree+ent "!ere t!e )an? ac@ures a r'!t oer t!e &rocee$s, not oer oer t!e &ro&erty. &ro&erty.
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IBAA, )y t!e surren$er of t!e sea s!ells, can stll recoer )ase$ on BC of t!e loan contract, not t!e trust rece&t a'ree+ent.
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SC +a$e so+e trou)ln' &ronounce+ents. If you loo? at your SCRA erson, erson, on &a'e =G, st t"o &ara'ra&!, laste sentence.....($stncton )et"een loan feature an$ securty feature: It coneys t!at t!e trust rece&t s NT an accessory to t!e loan transacton "!en n fact t sH It coneys t!e &erce&ton t!at t s se&arate an$ $stnct )ut n realty t s connecte$ "t! one anot!er. A trust rece&t s n t!e sa+e &oston as a &le$'e an$ +ort'a'e, t!us, a securty, "!c! "!c! cannot e7st f t!ere s no &rnc&al o)l'aton.
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;t!e surren$er of t!e 'oo$s e7tn'us!es t!e Cr+nal acton, )ut NT TE CIIL ACTINH
(i) (i) Trus Trustt Recei Receipt pt
'llied +an,in Corp v. -rdone (10) v. #eople (2010) Colinares v. C' (2000) D+# v. #rudential +an, (2003) Rosario Te4tile Mills v. ome +an,ers Savins and Trust (2003)
5intola v. "+'' (167)
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F: 6uca s!ells case: ntola s&ouses "!o )ou'!t 6uca s!ells e7ecute$ a trust rece&t a'ree+ent "t! IBAA. !en s&ouses "ere una)le to sell t!e sea s!ell &ro$ucts, t!ey offere$ to surren$er t!e 'oo$s to IBAA nstea$. IBAA refuse$ to acce&t t!e &ro$ucts. IBAA fle$ a cr+ case for estafa a'anste ntola. ntola. Ds+sse$ "!en ntola ntola S6s cons'ne$ t!e 6uca s!ells to t!e court. IBAA fle$ anot!er case, t!s t+e a cl case for recoery of t!e a+ount un$er t!e Trust Rece&t A'ree+ent. ntola s&ouses ar'ue$ t!at IBAA s alre$y )arre$: No reseraton res *u$cata
#eople v. ita&an (12)
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Trust Trust rece&t rece&t a'ree+e a'ree+ent nt oer &lastc &ro$ucts. &ro$ucts. Ntafan Ntafan assale$ assale$ t!e Trust Trust Rece&ts La" un$er 8 ar'u+ents:
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: No olaton of const r'!t a'anst co+&elln' to &ay for non&ay+ent of $e)ts:
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It alrea$y seres as &rotecton of &u)lc nterest.
2
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
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T!s ?n$ of $ocu+ent s s+lar to a $ee$ of ass'n+ent4e9re 'on' to ta?e t!at u& n $erate transactons transactons
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: For IBAA
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Letter of cre$ttrust rece&t a'ree+ent: 8 features
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Loan feature securty feature
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Trust rece&t s a securty a'ree+ent "!ere t!e )an? ac@ures a r'!t oer t!e &rocee$s, not oer oer t!e &ro&erty. &ro&erty.
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IBAA, )y t!e surren$er of t!e sea s!ells, can stll recoer )ase$ on BC of t!e loan contract, not t!e trust rece&t a'ree+ent.
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SC +a$e so+e trou)ln' &ronounce+ents. If you loo? at your SCRA erson, erson, on &a'e =G, st t"o &ara'ra&!, laste sentence.....($stncton )et"een loan feature an$ securty feature: It coneys t!at t!e trust rece&t s NT an accessory to t!e loan transacton "!en n fact t sH It coneys t!e &erce&ton t!at t s se&arate an$ $stnct )ut n realty t s connecte$ "t! one anot!er. A trust rece&t s n t!e sa+e &oston as a &le$'e an$ +ort'a'e, t!us, a securty, "!c! "!c! cannot e7st f t!ere s no &rnc&al o)l'aton.
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;t!e surren$er of t!e 'oo$s e7tn'us!es t!e Cr+nal acton, )ut NT TE CIIL ACTINH
(i) (i) Trus Trustt Recei Receipt pt
'llied +an,in Corp v. -rdone (10) v. #eople (2010) Colinares v. C' (2000) D+# v. #rudential +an, (2003) Rosario Te4tile Mills v. ome +an,ers Savins and Trust (2003)
5intola v. "+'' (167)
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F: 6uca s!ells case: ntola s&ouses "!o )ou'!t 6uca s!ells e7ecute$ a trust rece&t a'ree+ent "t! IBAA. !en s&ouses "ere una)le to sell t!e sea s!ell &ro$ucts, t!ey offere$ to surren$er t!e 'oo$s to IBAA nstea$. IBAA refuse$ to acce&t t!e &ro$ucts. IBAA fle$ a cr+ case for estafa a'anste ntola. ntola. Ds+sse$ "!en ntola ntola S6s cons'ne$ t!e 6uca s!ells to t!e court. IBAA fle$ anot!er case, t!s t+e a cl case for recoery of t!e a+ount un$er t!e Trust Rece&t A'ree+ent. ntola s&ouses ar'ue$ t!at IBAA s alre$y )arre$: No reseraton res *u$cata
#eople v. ita&an (12)
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Trust Trust rece&t rece&t a'ree+e a'ree+ent nt oer &lastc &ro$ucts. &ro$ucts. Ntafan Ntafan assale$ assale$ t!e Trust Trust Rece&ts La" un$er 8 ar'u+ents:
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: No olaton of const r'!t a'anst co+&elln' to &ay for non&ay+ent of $e)ts:
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It alrea$y seres as &rotecton of &u)lc nterest.
2
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
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No nee$ for +alce. +alce. It s +ala &ro!)tu+ &ro!)tu+ t!us not an ele+ent ele+ent of t!e cr+e. cr+e.
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6uns!+ent s a al$ e7ercse of &olce &o"er.
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;;Dssent ;;Dssentn' n' o&non o&non of C "!c! "!c! &ro&oses &ro&oses cr+nal#at cr+nal#aton on of trust rece&t transacton. Too? Too? out &enalty for trust rece&t olatons...
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Rea$ serously t!e $fferent &rosons an$ $ecsons, SC confuse$ conce&ts of trust rec&ts transactons
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E7a+&le: In ntola, court +entone$ t!at ntola s&ouses !ol$ t!e &ro&erty at t!er o"n rs?5 )ut t!e )an? o"ns t, not t!e entrusteeH
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Trust n Cl Co$e: trustor !as t!e le'al ttle, t!ere’s a trustee, an$ a )enefcary. )enefcary. But n a trust rece&t arran'e+ent: entrustor !as le'al ttle, no &assn' of ttle to t!e entrustee, entrustee "oul$ *ust et!er sell t!e 'oo$s an$ $eler t!e &rocee$s of t!e sale to t!e entruster or *ust return t f fale$ to sell t. T!e )uyer fro+ t!e entrustee s free fro+ t!e securty nterest of t!e entrustee oer t!e 'oo$. T!e ter+nolo'y n t!e trust rece&ts la" s $fferent fro+ t!e conce&ts of Trust n t!e Cl Co$e so t!e SC +'!t !ae )een confuse$.
12 T!at eac! one of t!e o)l'ors )e )oun$ &rnc&ally, an$ t!at !e )e at t!e sa+e t+e a &rnc&al cre$tor of t!e ot!erJ 182 T!at )ot! $e)ts consst n a su+ of +oney, or f t!e t!n's $ue are consu+a)le, t!ey )e of t!e sa+e ?n$, an$ also of t!e sa+e @ualty f t!e latter !as )een state$J 12 T!at t!e t"o $e)ts )e $ueJ 1/2 T!at t!ey )e l@u$ate$ an$ $e+an$a)leJ 102 T!at oer net!er net!er of t!e+ t!ere t!ere )e any retenton retenton or controe controersy rsy,, co++ence$ )y t!r$ &ersons an$ co++uncate$ n $ue t+e to t!e $e)tor. 1<2
9+an,er:s %ien: r'!t to set off t!e $e&ost of ts o"n )orro"er. Reco'n#e$ n case
of Dullas s. 6NB 16= of )oo?2
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t s securty n a sense t!at t!e )an? !as &rotecton a'anst t!e $e&ostor9s o)l'aton "t! t f t!e $e&ostor !as an account "t! t. As a result, t!ere s nettn' of t!e t"o accounts
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le'al co+&ensaton ele+ents: See A8=<.
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T!s refers to t!e conce&t of co+&ensaton n t!e Cl Co$e. T!s s a +o$e of e7tn'us!+ent of o)l'atons usually use$ n a !ol$5out. To )e a)le to use t!s n a conentonal +anner, all re@ustes of le'al co+&ensaton co+&ensaton +ust e7st.
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T!e ISDA Master A'ree+ent A'ree+ent s a 'oo$ e7a+&le "!ere set5off or nettn' s use$. T!s !as )een u&!el$ n our *urs$cton.
(8) (8) Set Seto& o&&/ &/et etti tin n
Art. 8=>. Co+&ensaton s!all ta?e &lace "!en t"o &ersons, n t!er o"n r'!t, are cre$tors an$ $e)tors of eac! ot!er. 1<02
Art. 8=<. In or$er t!at co+&ensaton +ay )e &ro&er, t s necessary: Traders Royal +an, v. Castanares (2010) 3
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
(,) Com&ort %etter (%etter o& a*areness;
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T!ese letters may not )e enforce$ n 6!l&&ne courts. But n case su)s$ary $efaults an$ &arent $oes not !el& out, re&utaton of letter5ssuer s affecte$. T!us, &arent co+&any usually +a?e 'oo$ t!er +oral $utes.
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5)ut t really $e&en$s on !o" t!e letter "rter "rtes t!e letter. If stron'ly "or$e$, t +ay 'e rse to a CA.
Sec. =1; $+% o& 2000
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not really a securty nterest )ut Sr &lace$ t un$er Secton / )ecause t!ere "oul$ )e an 3unsecure$ loans3
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Co+fort letters are usually sent )y a &arent co+&any for a su)s$ary to t!e "oul$5)e len$er )an? t!at t "ll +antan fscal nte'rty an$or controlln' nterest n t!e su)s$ary.
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T!e loan secure$ )y a co+fort letter s an unsecure$, clean loan. T!s s not a 'uarantee )ut rat!er +ore of a +oral o)l'aton +&ose$ )y &arent co+&any unto tself to ensure t!at su)s$ary "ll not $efault.
Secton /. -nsecure$ Loans or t!er Cre$t Acco++o$atons. 5 T!e Monetary Boar$ s !ere)y aut!or#e$ to ssue suc! re'ulatons as t +ay $ee+ necessary "t! res&ect to unsecure$ loans or ot!er cre$t cco++o$atons t!at +ay )e 'rante$ )y )an?s.
;+ay)e you "oul$ fn$ so+e co+fort f t!e ssuer of t!e co+fort letter s t!e &arent co+&any of a )' nternatonal fnancal 'rou& Why issue a comfort letter (and not a straight forward guarantee)?
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6arent co+&any +ay )e &ro!)te$ to ssue 'uarantees un$er contract 1Artcles of ncor&oraton2 2.
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t!ere "oul$ )e an ssue of N e7tenson of 'uarantee s ultra res or ntra res
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N t!e a&&roal of t!e 'uarantee nee$s for+altes 1refer to Cor&o Co$e2
8.
Co+fort letters $o not affect cre$t stan$n' of &arent co+&any snce t s not re@ure$ to )e footnote$ n state+ent of assets an$ la)ltes
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Co+&any &olcy +ay &ro!)t t!e ssuance of 'uarantees
Certain "ssues
Sco&e of t!e Mort'a'e: )l'atons an$ &ro&erty coere$
In C!attel Mort'a'e La", AA6 an$ AIC not nclu$e$ )ecause of Secton 0 an$ = of C!attel Mort'a'e La": 4
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
Art. 8G<. T!e contract of &le$'e or mortgage +ay secure all kinds of obligations , )e t!ey &ure or su)*ect to a sus&ense or resolutory con$ton. Aff$at of oo$ Fat! s nter&rete$ to coer only 6resent o)l'atons an$ only t!e &ro&ertes lste$ t!eren.
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t!s a&&ears to su''est t!at een future o)l'atons +ay )e coere$ )y t!e CM. o"eer, you +ust )e careful n un$erstan$n' t!e Cl Co$e &rosons on Mort'a'e un$er C!a&ter . !en t s&ea?s of a +ort'a'e, t $oesn9t coer )ot! REM an$ CM, only REM. C!attel Mort'a'e s 'oerne$ )y anot!er c!a&terH A8G< s un$er C!a&ter so only concerns REM, not CMH 6lus Secton 0 = of CM
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A st&ulaton n +ort'a'e $ocu+ents "!c! see?s to coer &ro&ertes 1o)l'atons2 ac@ure$ 1ncurre$2 )y +ort'a'or after e7ecuton of +ort'a'e a'ree+ent.
!at f t!e CM &ro$es a contractual st&ulaton t!at t!e CM coers %future o)l'atons(
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Court sa$ t!at t s an enforcea)le o)l'aton for t!e e7ecuton of et!er a ne" $ocu+ent or a+en$ t!e e7stn' $ocu+ent
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Secton =: coers only 6R6ERTIES $escr)e$ n t!e $ee$.
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So any &roson cannot $o t!e trc?. No "ay out )ut to e7ecute a ne" contract or a+en$ t!e e7stn' $ocu+ent. 6a' !n$ na?alsta, "ala naH
'FTER'CAB"RED #R-#ERT (''#)
− &ro&ertes ac@ure$)ou'!t )y t!e $e)tor after t!e concluson of a c!attel +ort'a'e a'ree+ent Floatin chare vs. Fi4ed chare
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n 6!l&&nes, f7e$ c!ar'e$ only. S&ecfc &ro&ertes are su)*ect to a len. Is AAP valid in !# $hattel ortgage%
REM: Oes, n e" of Artcle 8G>0, CC.
(a) 5alidity o& >a&terac?uired property@ and >a&terincurred o!liation@ clauses in a chattel mortae
Art. 8G>0. T!e follo"n' re@ustes are essental to t!e contracts of &le$'e an$ +ort'a'e: 12 T!at t!ey )e consttute$ to secure the fulfillment of a principal obligationJ
'rticle 201; Civil Code
182 T!at t!e &le$'or or +ort'a'or )e t!e absolute owner of t!e t!n' &le$'e$ or 5
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
+ort'a'e$J 12 T!at t!e &ersons consttutn' t!e &le$'e or +ort'a'e !ae t!e free disposal of their property, an$ n t!e a)sence t!ereof, t!at t!ey )e le'ally aut!or#e$ for t!e &ur&ose. T!r$ &ersons "!o are not &artes to t!e &rnc&al o)l'aton +ay secure t!e latter )y &le$'n' or +ort'a'n' t!er o"n &ro&erty. 1>0=2
CM: No, n e" of Secton = of C!attel Mort'a'e La". o"eer, t!ere are e7ce&tons to t!s.
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C!attel Mort'a'e La" &ro$es t!at NLO S-C 6ERSNAL 6R6ERTO AS STATED IN TE MRTAE DC-MENT SALL BE CERED BO TE SAME MRTAE.
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E7ce&ton..............
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Torres s. L+*a&: reoln' stoc? or 'oo$s "!c! are for retal sale 1acc$' to 6rof. Catn$'2: &ers!a)le 'oo$s, su)*et to "ear5an$5tear !en t!e Mort'a'e A'ree+ent &ro$es t!at after5ac@ure$ &ro&ertes +ay )e nclu$e$ as securtes to t!e o)l'aton, an$ a ne" contract or a+en$+ent of t!e contract s e7ecute$ 1as re@ure$ n ACME S!oe, Ru))er 6lastc Cor& s. CA2
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Is AI al$ n REM c!attel +ort'a'e
REM: Artcle 8G<, CC 13all ?n$s of o)l'atons32 su''ests t!at een future &ro&ertes are su)*ect to +ort'a'es. Note: Bel'an Mssonary Case 1see t!e case na lan'2
CM: No, n e" of Secton 0, C!attel Mort'a'e La" re aff$at of 'oo$ fat!.
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5Secton 0, CML re@ures t!at t!e +ort'a'e )e +a$e for t!e &ur&ose of securn' t!e o)l'aton S6ECIFIED IN TE CNDITINS TEREF, AND FR N TER 6-R6SE. As !el$ n Ac+e S!oe, Ru))er 6lastc Cor&, t!e sa$ &roson conte+&lates t!e o)l'aton e7stn' at t!e t+e t!e +ort'a'e "as e7ecute$ AND NT S-BSEP-ENT NES. If t!e +ort'a'e contract &ro$es for AI, t!ere s!oul$ stll )e et!er a ne" contract or an a+en$e$ contract contann' t!e ne" o)l'aton.
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;Note: T!e Aff$at of oo$ Fat! "!c! s&ecfes t!e &ro&ertes su)*ect to t!e a'ree+ent an$ t!e o)l'atons ncurre$ t!erefor. If not lste$, not nclu$e$ n t!e C!attel Mort'a'e
;t s stll necessary to nclu$e a su&&le+ent of REM to coer after ac@ure$ &ro&ertes an$ re'ster t "t! t!e Re'strar of $ee$s so t!at at foreclosure t+e, t!ere "oul$ )e no ssue as to t!e sco&e of t!e REM. Torres v. %im8ap (11)
− 'FTER "CBRRED -+%"$'T"- ('"-)
F: enson alle'e$ly o)tane$ Loans fro+ Torres "!c! "ere secure$ )y t"o c!attel +ort'a'es on t!e $ru' store. enson fale$ to &ay t!e loan so t!e 6lantffs "ante$ to ta?e &ossesson of t!e c!attels an$ foreclose t!er +ort'a'es t!ereon 1t!e $ru'stores $to2. 6
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
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s&rt a)out a !an$ca& to tra$e an$ )usness, "oul$ restran t!e crculaton of ca&tal, an$ "oul$ $efeat t!e &ur&ose for "!c! t!e la" "as enacte$, to "t, t!e &ro+oton of )usness an$ t!e econo+c $eelo&+ent of t!e country.
5enson9s !ers 1&atay na s enson2 alle'e$ t!e follo"n' $efenses: c!attel +ort'a'es ID for lac? of suffcent &artcularty n t!e $escr&ton of t!e &ro&erty +ort'a'e
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STI6-LATIN ALID AND BINDIN: "!ere t!e after5ac@ure$ &ro&erty s n rene"al of, or n su)sttuton for, 'oo$s on !an$ "!en t!e +ort'a'e "as e7ecute$, or s &urc!ase$ "t! t!e &rocee$s of t!e sale of suc! 'oo$s, etc. Co))ey, a "ell5?no"n aut!orty on C!attel Mort'a'es, reco'n#es t!e al$ty of st&ulatons relatn' to after5ac@ure$ an$ su)sttute$ c!attels. 5DA6AT BO E6RESS STI6-LATIN: the mortgage must e&pressly provide that such future ac'uisitions shall be held as included in the mortgage
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T!e case &resents an ECE6TIN to al$ty of AA6. It s &ractca)le an$ soun$.
c!attels sou'!t to )e recoere$ )y t!e &lantffs "ere not t!e sa+e &ro&erty $escr)e$ n t!e +ort'a'e
;NTE: TERE AS A STI6-LATIN IN TE MRTAE A-TRIQIN ENSN T SELL TE DS CERED BO TE MRTAE AND RE6LACE TEM IT TE TER DS TEREAFTER ACP-IRED TC: o
ensons $efaulte$ n &ay+ent
o
+ort'a'es )eca+e $ue
o
&lantffs, as +ort'a'ees, "ere enttle$ to t!e &ossesson of t!e DR- STRES
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ELD: Affr+. Allo"e$ AA6 to )e nclu$e$ n t!e +ort'a'eJ t!e &roson of t!e last &ara'ra&! of secton = of Act. 0G> s not a&&lca)le to $ru' stores, )a#aars, an$ all ot!er stores n t!e nature o& revolvin and &loatin !usiness.
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INTENT F CML: to &ro+ote )usness an$ tra$e n t!ese Islan$s an$ to 'e +&etus to t!e econo+c $eelo&+ent of t!e country
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...t coul$ not !ae )een t!e ntenton of t!e 6!l&&ne Co++sson to a&&ly t!e &roson of secton = a)oe @uote$ to stores o&en to t!e &u)lc for retal )usness, "!ere t!e 'oo$s are constantly sol$ an$ su)sttute$ "t! ne" stoc?, suc! as $ru' stores, 'rocery stores, $ry5'oo$s stores, etc. If sa$ &roson "ere nten$e$ to a&&ly to t!s class of )usness, t "oul$ )e &ractcally +&oss)le to consttute a +ort'a'e on suc! stores "t!out closn' t!e+, contrary to t!e ery
#eoples +an, and Trust Co. v. Dahican %um!er Company (17)
.
N after AA6 are nclu$e$ n t!e $ee$ of +ort'a'e OES.
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It s clear fro+ t!e &roson n )ot! $ee$s of +ort'a'e t!at t!e Lu+)er concesson 3s!all ++e$ately )e an$ )eco+e su)*ect to t!e len3 of )ot! +ort'a'es as f alrea$y nclu$e$ t!eren at t!e t+e of e7ecuton.
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It s co++on an$ lo'cal n cases "!ere t!e &ro&ertes 'en as collateral are perishable or sub(ect to inevitable wear and tear or were intended to be sold or were intended to be used thus becoming inevitable to wear and tear
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6ur&ose: to maintain, to t!e e7tent allo"e$ )y crcu+stances, the oriinal value o& the properties iven as security.
7
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
8.
N t!e +ort'a'e of t!e AA6 s o$ )ecause t!ey "ere not re'stere$ n accor$ance "t! t!e C!attel Mort'a'e La"
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CML DES NT A66LO T TIS CASE. TIS CNCERNS REAL ESTATE MRTAEH
+elian Catholic Missionaries v. Maallanes #ress (12)
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T!e Mort'a'es "ere e7ecute$ "!en t!e LD CIIL CDE "as stll n force. Stll, BT ol$ an$ ne" cl co$es reco'n#e t!at +ac!nery, rece&tacles, nstru+ents or re&lace+ents nten$e$ )y t!e o"ner of t!e tene+ent for an n$ustry or "or?s "!c! +ay )e carre$ on n a )ul$n' or on a &ece of lan$, an$ s!all ten$ $rectly to +eet t!e nee$s of t!e sa$ n$ustry or "or?s. S, t!e &ro&ertes n $s&ute s!oul$ )e $ee+e$ as real estate an$ t!e +ort'a'es e7ecute$ are REMs not CMsH ;So $oes not nee$ to )e re'stere$ a secon$ t+e as c!attel +ort'a'es n or$er to )n$ t!e 3after ac@ure$ &ro&ertes3 an$ affect t!r$ &artes. ;DAA SA MILL CASE not a&&lca)le )ecause n t!s case )ot! &artes reco'n#e$ t!e after ac@ure$ &ro&ertes as REAL 6R6ERTIES an$ not as c!attel.
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;T!s s a +ort'a'e5trust n$enture snce t!e )an? s a trustee for t!e fore'n )an?.
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n t!e $scusson of &ers!a)le collateral...t!en 'oes on to say t!at t s not ++oral, etc. &oor *u$'+ent on t!e cre$tor not to nclu$e suc! &roson n t!e a'ree+ent.. B-T t!ere’s Secton = "!c! &ro!)ts &recsely ncluson of AA6 clauseHHH o" can t )e &oor *u$'+ent
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6lus s"ee&n' &ronounce+ent on e7cluson of collaterals su)*ect to "ear an$ tear. B-T all &roe&rtes are su)*ect to "ear an$ tearH No nee$ een to $scuss t!e sa$ e7ce&ton snce t!s noles &ro&erty "!c! "as cons$ere$ REAL ESTATE MRTAE, not C!attel +ort'a'eH
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F: Ma'allanes 6ress o)tane$ t"o loans:
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1st loan: fro+ 6 el)ronn for 6/?. CATTEL MRTAE on all ts
&rntn' +ac!nery an$ accessores "as e7ecute$ n faor of EILBRNN
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2nd %oan: fro+ Bel'an Cat!olc Mssonares for 6G?. CATTEL
MRTAE on t!e sa+e &ro&ertes e7ecute$ n faor of Bel'an Cat!olc Mssonares
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5el)ronn transferre$ all ts +ort'a'e cre$t to Me+*e
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E4tension o& 1st loan: Me+*e, as successor n nterest of el)ronn, e7ten$e$
an a$$tonal 60? loan, an$ t!e c!attel +ort'a'e e7ecute$ )efore "as +a$e to coer t!e ne" 60? loan
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5fre occurre$. 6ro&ertes coere$ )y t!e CM "ere )urne$. Snce t "as coere$ )y an nsurance &olcy, Me+*e coul$ !ae recoere$ t!e a+ount $ue fro+ t!e nsurance &olcy )ut Bel'an Cat!olc Mssonares fle$ a &etton for "rt of n*uncton to sto& t!e a"ar$ of t!e &rocee$s of t!e nsurance to Me+*e "t! t!e acton to cancel t!e $ocu+ent of transfer of +ort'a'e
N Mort'a'e e7tenson +a$e )y Me+*e 1so t!at t!e CM "oul$ coer after ncurre$ o)l'aton2 s o$
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OES
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5ncrease +a$e )y Me+*e n t!e +ort'a'e cre$t an$ t!e e7tenson +a$e )y Ma'allanes &ress of t!e +ort'a'e to t!e a$$tonal cre$t, w#o the )nowledge or consent of *elgian $atholic as +nd mortgagee, &re*u$ces t!e cre$t of t!e 8n$ 8
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
+ort'a'ee nas+uc! as t!e securty for t!e &ay+ent of sa$ cre$t "as re$uce$ frau$ t!at tates t!e contract of e7tenson of t!e +ort'a'e, ID
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3T!e ncrease of 60,><0.0< +a$e )y t!e $efen$ant ose Ma. Me+*e of t!e +ort'a'e t!ereto, are not only subordinate to the mortgage credit of t!e &lantff co+&any, )en' su)se@uent n t+e an$ n re'straton, )ut sa$ ncrease n t!e securty s also o$.3 ;NTE: court reco'n#e$ t!at t!e +ort'a'e n faor of 6 el)ronn "as &reference$ s. t!e +ort'a'e n faor of Bel'an Cat!olc. But as to t!e e7tenson 'rante$ )y Me+*e, Bel'an Cat!olc "oul$ )e &referre$, as t!e sa$ e7tenson s o$ 1&lus &refer Bel'an )ecause t!e after ncurre$ o)l'aton "as e7ecute$ after t!e +ort'a'e n faor of Bel'an Cat!olc, an$ t!us, subordinate to it . T!e ncrease of t!e +ort'a'e securty )eco+es a ne* mortae n tself, nas+uc! as t!e or'nal +ort'a'e $$ not contan any st&ulaton n re'ar$ to t!e ncrease of t!e +ort'a'e cre$t, an$ een f t $$, sa$ ncrease "oul$ ta?e effect only fro+ t!e $ate of t!e ncrease. A mortgage that contains a stipulation
TE INCREASE IN TE FINANCIAL CREDIT ACCMDATIN -LD NT BE CERED BO TE CM IF N ADDITINAL DC-MENTATINH T!s state+ent )y t!e SC 'es rse to t!e +sta?en noton t!at "e coul$ $o a"ay "t! t!e $ocu+entaton re@ure+entsH
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'cme Shoes; Ru!!er and #lastic Corp. v. C' (1)
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In accor$ance "t! t!e &rosons of secton 0 of Act No. 0G>, ?no"n as t!e C!attle Mort'a'e La", t!e &artes to t!e or'nal $ee$s s"ore t!at t!e sa+e "as +ort'a'e$ 3to secure t!e o)l'atons s&ecfe$ t!eren an$ for no ot!er &ur&ose.3 Net!er t!e ncrease n @ueston, nor t!e e7tenson of t!e +ort'a'e to secure t!e &ay+ent of t!e sa+e s s&ecfe$ n t!e $ee$, conse@uently sa$ e7tenson s o$. 3!ere t!e statute &ro$es t!at t!e &artes to a c!attel +ort'a'e +ust +a?e oat! t!at t!e $e)t s a *ust $e)t, !onestly $ue an$ o"n' fro+ t!e +ort'a'or to t!e +ort'a'ee, t s o)ous t!at a al$ +ort'a'e cannot )e +a$e to secure a $e)t to )e t!ereafter contacte$.3 n SC state+ent on &00 of SCRA: 3T!e ncrease of t!e +ort'a'e securty )eco+es a ne* mortae n tself, nas+uc! as t!e or'nal +ort'a'e $$ not contan any st&ulaton n re'ar$ to t!e ncrease of t!e +ort'a'e cre$t, an$ een f t $$, sa$ ncrease "oul$ ta?e effect only fro+ t!e $ate of t!e ncrease3. B-T
F: ACME SE o)tane$ a loan for 6M fro+ 6ro$ucer9s Ban?. ACME also e7ecute$ a CM "!c! &ro$es t!at the mortae shall also stand as security &or any su!se?uent loans e4tended !y the !an, (#roducer:s +an,) to 'CME S-E.
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ntal 6M Loan "as &a$ )y ACME SE 1t!erefore at t!s &ont, t!e CM "as e7tn'us!e$2.
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su)se@uently, ACME S!oe o)tane$ anot!er loan fro+ 6ro$ucer9s Ban? for 6M 1note: N ne" CM "as e7ecute$2
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ACME s!oe $efaulte$ on t!er 6M o)l'aton so 6ro$ucer9s Ban? sou'!t t!e ETRA-DICIAL FRECLS-RE F TE CATTEL MRTAE
in regard to future advances in the credit will take effect only from the date the same are made and not from the date of the mortgage.
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Re+e+)er t!s )ecause t!s case s cte$ n t!e ne7t caseH
N a clause n a c!attel +ort'a'e t!at &ur&orts to l?e"se e7ten$ ts coera'e to o)l'atons yet to )e contracte$ or ncurre$ s al$
− N. Rule n faor of ACME −
ID. S!oul$ e7ecute a ne" CM oer t!e ne" $e)t R A+en$ t!e ol$ 9
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
contract confor+a)ly "t! t!e for+ &rescr)e$ n t!e CML
for t!e &ay+ent to t!e sa$ +ort'a'ee n a$$ton to t!e aforesa$ notes of t!e &urc!ase &rce or cost of any an$ all 'asolne, tres, auto+o)le accessores or &arts, an$ re&ars furns!e$ or +a$e )y t!e sa$ +ort'a'ee at any t+e u& to t!e $ate t!s +ort'a'e s co+&letely satsfe$ as an$ "!en t!e sa+e )eco+es $ue, and of any other indebtedness of the mortgagor in favor of the mortgagee incurred in any other manner whatever .
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;Refusal to e7ecute a ne" a'ree+ent )y t!e )orro"er $efault
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;t!e re+e$y of foreclosure can only coer $e)ts e&tent at the time of constitution and during the life of the $ sought to be foreclosed
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;SEC0, CML: Aff$at of F: t!e &artes +ust e7ecute an oat! t!at t!e +ort'a'e s +a$e for t!e &ur&ose of SEC-RIN TE BLIATIN S6ECIFIED IN TE CNDITINS TEREF, AND FR N TER 6-R6SE4
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C!oa Son' acte$ as surety for 6GG for a certan An'eles for &ants an$ accessores t!e latter o)tane$ fro+ Macon$ray. Macon$ray ass'ne$ ts cre$t to Luneta, as C!oa Son' stll !a$ 6/G )alance. C!ao Son' &a$ 6/G so t!ere "as P1 left unpaid .
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4t!e $e)t referre$ to n t!e la" s a current, not an o)l'aton t!at s yet +erely conte+&late$.
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C!oa Son' "as a)le to &ay all t!e 6Ns t!ou'!. But snce t!ere s stll 6GG left un&a$ arsn' fro+ t!e surety +a$e )y C!oa Son', t!e cre$t of "!c! "as ass'ne$ to Luneta, Luneta refuse$ to e7tn'us! t!e CM.
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DECISIN IN ACME SE C-LD AE BEEN ALRIT IT-T CITIN TE BELIAN CATLIC CASE. BO -ST CITIN SECTIN 0, IT’S CLEAR. Bel'an contra$cts t!e early &oston. Secton 0 stll re@ures $ocu+entaton )ut t!e Bel'an case $oesn9tH
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C!ao Son' sol$ t!e auto to n' Lon' Ta?.
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For t!e non&ay+ent of t!e 6GG, Luneta sou'!t t!e forclosure of t!e CM. S!erff attac!e$ t!e auto 1&&or n' Lon' Ta? :1 2
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n' Lon' Ta? fle$ &etton for "rt of n*uncton an$ $a+a'es s. Luneta. CFI rule$ a'anst !+
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NTE: SIR INTENDS T CANE IS P-ESTINSH IS ST-DENTS TEND T CITE ACME SE AND BELIAN IN REMH ACME an$ BELIAN concerns CMHH
N t!e surety secure$ )y n' Lon' Ta? s nclu$e$ n t!e CM e7ecute$ )y n' Lon' Ta? n faor of Luneta Motor Co -n %ion Tia, v. %uneta Motor Co. (16)
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F: C!ao Son' &urc!ase$ a C!rysler Se$an fro+ Luneta Motors co for 6.>?, secure$ )y > 6Ns for 6GG eac! an$ a CM n faor of Luneta. CM nclu$e$ a clause as follo"s:
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OES
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Instru+ents of +ort'a'e, as sa$ E7!)t 8, are )n$n', "!le t!ey su)sst, not only u&on t!e &artes e7ecutn' t!e+ )ut also u&on t!ose "!o later, )y &urc!ase or ot!er"se, ac@ure t!e &ro&ertes referre$ to t!eren.
. . t )en' e7&ressly a'ree$ furt!er t!at t!s +ort'a'e s!all also sere as securty 10
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
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T!e r'!t of t!ose "!o so ac@ure sa$ &ro&ertes s!oul$ not an$ can not )e su&eror to t!at of t!e cre$tor "!o !as n !s faor an nstru+ent of +ort'a'e e7ecute$ for t!e for+altes of t!e la", n 'oo$ fat!, an$ "t!out t!e least n$caton of frau$. T!s s all t!e +ore true n t!e &resent case, )ecause, "!en t!e &lantff &urc!ase$ t!e auto+o)le n @ueston on au'ust 88, <, he )new, or at least, it is presumed that he )new, by the mere fact that the instrument of mortgage, !&hibit +, was registered in the office of the register of deeds of anila, that said automobile was s ub(ect to a mortgage lien . In &urc!asn' t, "t! full ?no"le$'e t!at suc! crcu+stances e7ste$, t s!oul$ )e &resu+e$ t!at !e $$ so, ery +uc! "lln' to res&ect t!e len e7stn' t!ereon, snce !e s!oul$ not !ae e7&ecte$ t!at "t! t!e &urc!ase, !e "oul$ ac@ure a )etter r'!t t!an t!at "!c! t!e en$or t!en !a$.
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Ka"a"a na+an s LTH alan' na&unta sa ?anya. May CA )a s!a a'anst C!ao Son'
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SC al$ate$ an AI6 "o een e7&lann' "!y. Sr nclu$e$ t!s case so t!at you "oul$ ?no" t!at t!ere9s a SC t!at contra$cts "!at s &ro$e$ n la". T!s case su&&orts t!e "ron' &oston. But snce t s also su&&orte$ )y SC, 3le'al &ractce )eco+es +ore nterestn'43
#rudential !an, v. 'lviar (2003)
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F: 1loan 2 S&s. Alar o)tane$ a 680G? loan fro+ 6ru$ental Ban? an$ as a securty, t!ey e7ecute$ a REM oer t!er &arcels of lan$ n San uan. T!e REM contane$ a 3)lan?et clause$ra'net clause3 1see )elo" n t!e $ecson2 1loan 82 Don Alar e7ecute$ a 6N for 68,/G,GGG n faor of 6ru$ental Ban? secure$ )y a 3!ol$5out3 on t!e +ort'a'or9s 1Alar9s2 fore'n currency san's account "t! 6ru$ental Ban? an$ Alar9s &ass)oo? s to )e surren$ere$ to 6ru$ental Ban? untl t!e a+ount secure$ )y t!e !ol$out s settle$.
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1loan 2 Anot!er 6N for 60/0,GGG "as e7ecute$ )y Don Alar, t!s t+e n )e!alf of DNALC tra$n' 1t!e s&ouses are t!e C!ar+an an$ t!e 6 of t!e co+&any2, n faor of 6ru$ental Ban?. T!s "as secure$ )y 3Clean 6!ase out of TD CA <8: +eann' t!at t!e te+&orary oer$raft ncurre$ )y DNALC tra$n' s to )e conerte$ nto an or$nary loan. 6ru$ental )an? a&&roe$ t!e stra'!t loan. Securtes "ere $ee$ of ass'n+ent on 8 6Ns e7ecute$ )y Banco+ Realty Cor&4.an$ c!attel +ort'a'e on arous !eay an$ trans&o e@u&+ent
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Alars &a$ 6ru$ental Ban? 68M to )e a&&le$ to t!e o)l'atons of Alars 1as B Alar Realty an$ Deelo&+ent Inc2 an$ for t!e release of t!e REM for 6/0G? 1cf 680G? at t!e start2 "!c! coere$ t!er 8 San uan lots. 6ay+ent "as ac?no"le$'e$ an$ 6ru$ental Ban? released the mortgage oer t!e 8 &ro&ertes. STILL, 6R-DENTIAL BANK MED FR ETRA-DICIAL FRECLS-RE F TE MRTAE N TE 6R6ERTO, ar'un' t!at t!e Alars !a$ t!e total o)l'aton of 6,G>,80.> coern' 6Ns 1t!e frst loan anot!er loan r$ loan2.
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Alars fle$ for DAMAES &rayer for ssuance of "rt of &rel+nary n*uncton: cla+e$ to !ae &a$ &rnc&al loan secure$ )y t!e 8 San uan &ro&ertes )y &ay+ent of 68M
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s. 6ru$ental Ban?: 6ay+ent of 68M "as for t!e o)l'atons of B ALIAR REALTO DE9T CR6 un$er a se&arate loan secure$ )y a se&arate +ort'a'e 1an$ not )y t!e s&ousesH t!e+seles2
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TC: &rocee$ "t! foreclosureJ MFR: reerse 5 een a"ar$e$ $a+a'es n faor of Alars. T!e REM only coers t!e st loan an$ not t!e su)se@uent loans.
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T!e >!lan,et mortae clause@ rele$ u&on )y 6ru$ental Ban? applies only to future loans obtained by the mortgagors! and not by parties other than the said mortgagors! such as "onalco #rading! $nc.! for "!c! res&on$ents +erely
s'ne$ as offcers t!ereof.
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CA: Affr+e$: "!le a contnun' loan or cre$t acco++o$aton )ase$ on only one securty or +ort'a'e s a co++on &ractce n fnancal an$ co++ercal nsttutons, such agreement must be clear and une%uivocal. In t!e nstant case, 11
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
t!e &artes e7ecute$ different promissory notes agreeing to a particular security for each loan. T!us, t!e a&&ellate court rule$ t!at t!e e7tra*u$cal foreclosure sale of t!e &ro&erty for t!e t!ree loans s +&ro&er.
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5+ort'a'es 'en to secure &uture advancements are valid and leal contracts, an$ t!e a+ounts na+e$ as cons$eraton n sa$ contracts $o not l+t t!e a+ount for "!c! t!e +ort'a'e +ay stan$ as securty f fro+ t!e four corners of t!e nstru+ent t!e ntent to secure future an$ ot!er n$e)te$ness can )e 'at!ere$.
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In t!s case:
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T!at for and in consideration of certain loans, overdraft and other credit accommodations obtained from the ortgagee by the ortgagor and#or ---------------- hereinafter referred to , rres&ecte of nu+)er, as DEBTR, an$ to secure the payment of the same and those that may hereafter be obtained , t!e &rnc&al or all of "!c! s !ere)y f7e$ at T"o un$re$ Ffty T!ousan$ 1680G,GGG.GG2 6esos, 6!l&&ne Currency, as "ell as t!ose t!at t!e Mort'a'ee +ay e7ten$ to t!e Mort'a'or an$or DEBTR, nclu$n' nterest an$ e7&enses or any ot!er o)l'aton o"n' to t!e Mort'a'ee, "!et!er $rect or n$rect, &rnc&al or secon$ary as a&&ears n t!e accounts, )oo?s an$ recor$s of t!e Mort'a'ee, t!e Mort'a'or $oes !ere)y transfer an$ coney )y "ay of +ort'a'e unto t!e Mort'a'ee, ts successors or ass'ns, t!e &arcels of lan$ "!c! are $escr)e$ n t!e lst nserte$ on t!e )ac? of t!s $ocu+ent, an$or a&&en$e$ !ereto, to'et!er "t! all t!e )ul$n's an$ +&roe+ents no" e7stn' or "!c! +ay !ereafter )e erecte$ or constructe$ t!ereon, of "!c! t!e Mort'a'or $eclares t!at !et s t!e a)solute o"ner free fro+ all lens an$ ncu+)rances. . . .
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SC: ALL TER LANS INCL-DEDH 6artes nten$e$ t!e real estate +ort'a'e to secure not only the P&'!. loan from the petitioner! but also
5o"eer, t foun$ t!at t!e s&ouses !as not &a$ un$er t!e st o)l'aton as t!e 68M &ay+ent "as for t!e o)l'aton of t!e B Alar Realty an$ Deelo&+ent Inc an$ not n t!er &ersonal ca&acty
N T!e 3Blan?et +ort'a'e clause3 or t!e 3$ra'net +ort'a'e clause3 e7&ressly coers not only t!e st loan )ut also t!e 8 su)se@uent loans An$ f t s al$
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serces, recor$n' fees, et cetera.
5Court !el$ t!at t!e r$ loan "as clearly not coere$ )y t!e 3)lan?et +ort'a'e clause3 )ecause t!e sa$ loan "as un$erta?en )y t!e s&ouses n )e!alf of DNALC an$ not n t!er &ersonal ca&acty. No &ercn' of cor&orate el as no e$ence of eason an$ frau$ "as s!o"n.
>!lan,et mortae clause/dranet clause@G
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5one "!c! s s&ecfcally &!rase$ to subsume all debts of past or future origins .
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5s!oul$ )e carefully scrutn#e$ an$ strctly construe$
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5Mort'a'es of t!s c!aracter ena)le t!e &artes to provide continuous dealings , t!e nature or e7tent of "!c! +ay not )e ?no"n or antc&ate$ at t!e t+e, an$ they avoid the e&pense and inconvenience of e&ecuting a new security on each new transaction
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5o&erates as a convenience and accommodation to the !orro*ers as t +a?es aala)le a$$tonal fun$s "t!out t!er !an' to e7ecute a$$tonal securty $ocu+ents, t!ere)y san' t+e, trael, loan closn' costs, costs of e7tra le'al
future credit facilities and advancements that may be obtained by the respondents. T!e ter+s of t!e a)oe &roson )en' clear an$ una+)'uous,
t!ere s net!er nee$ nor e7cuse to construe t ot!er"se.
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The pro!lem: oul$ t!e 3)lan?et Mort'a'e clause$ra'net clause3 a&&ly "!en
t!e su)se@uent loans are coere$ )y se&arate securtes 12
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
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8 SCLS F T-T:
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Dra'net clause coers ALL TER DEBTS, EEN IF TE TER DEBT IS SEC-RED BO ANTER MRTAE Dra'net clause "oul$ not secure a note t!at s ot!er"se secure$ as to ts entrety. oul$ only coer t!e $efcency after e7!austn' t!e securty s&ecfe$ t!eren. 1so &a' +ay natra &an' o)l'aton, yun un' un$er n' $ra'net clause
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SC: 8n$ sc!ool of t!ou'!tH
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RELIANCE N TE SEC-RITO TEST: "!en t!e +ort'a'or ta?es anot!er loan for "!c! anot!er securty "as 'en t coul$ not )e nferre$ t!at suc! loan "as +a$e n relance solely on t!e or'nal securty "t! t!e %$ra'net clause,( )ut rat!er, on t!e ne" securty 'en
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&rocee$s as to t!e secon$ loan.
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Pualfcaton to t!e al$ty of t!e AI clause: Dra'net Clause
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Een f t!ere s a Dra'net Clause n REM "!c! +'!t !ae secure$ future o)l'atons, "!en t!e future o)l'atons are secure$ se&arately,
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R: +ort'a'ee cannot foreclose t!e REM to satsfy t!e un&a$ su)se@uent o)l'atons. E7!aust frst t!e s&ecfe$ collateral for t!e loan, not t!e &ro&erty un$er t!e Dra'net clauseH
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: unless t!ere9s an e7&lct st&ulaton to t!e contraryH
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ustce Tn'a, "!o loes to cte A+ercan *urs&ru$ence, s sayn' t!at $ra'net clause s use$ n +ort'a'es to allo"4.!e s actually $escr)n' a Mort'a'e Trust In$enture 1t!e 6!l&&ne E@ualent2H
atio t!e %$ra'net clause( n t!e frst securty nstru+ent consttute$ a
contnun' offer )y t!e )orro"er to secure furt!er loans un$er t!e securty of t!e frst securty nstru+ent, an$ t!at when the lender accepted a different security he did not accept the offer
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;!ere $ee$s a)solute n for+ "ere e7ecute$ to secure any an$ all ?n$s of n$e)te$ness t!at +'!t su)se@uently )eco+e $ue, a balance due on a note, after e&hausting the special security given for the payment of such note, was in the absence of a special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving of the special security T!s s reco'nton t!at "!le t!e %$ra'net clause( su)ssts, t!e securty s&ecfcally e7ecute$ for su)se@uent loans +ust frst )e e7!auste$ )efore t!e +ort'a'e$ &ro&erty can )e resorte$ to.
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;any a+)'uty n a contract "!ose ter+s are susce&t)le of $fferent nter&retatons +ust )e rea$ a'anst t!e &arty "!o $rafte$ t, 6ru$ental Ban?.
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;B-T 6R-DENTIAL BANK coul$ stll su)*ect t!e &ro&ertes to foreclosure &rocee$n's for t!e un&a$ 680G?, "!c! )ot! TC an$ CA foun$ to !ae not yet )een &a$. If t!ere are $efcences for t!e secon$ loan, coul$ also a&&ly t!e
Cuyco v. Cuyco (200)
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F: 6ettoners o)tane$ a 6.0M loan fro+ res&on$ents, secure$ )y REM oer t!er Cu)ao &ro&erty.
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REM &ro$es:
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6RIDED EER, t!at s!oul$ t!e MRTAR $uly &ay or cause to )e &a$ unto t!e MRTAEE or !s !ers an$ ass'ns, t!e sa$ n$e)te$ness of NE MILLIN FIE -NDRED T-SAND 6ESS 1,0GG,GGG.GG2, 6!l&&ne Currency, to'et!er "t! t!e a'ree$ nterest t!ereon, "t!n t!e a'ree$ ter+ of one year on a +ont!ly )ass t!en t!s MRTAE s!all )e $sc!ar'e$, an$ ren$ere$ of no force an$ effect, ot!er"se t s!all su)sst an$ )e su)*ect to
13
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
foreclosure n t!e +anner an$ for+ &ro$e$ )y la".
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1eto an' na5'ets ?o4un' 6.0M loan lan' an' ?asa+a2
Su)se@uently, &ettoners o)tane$ a$$tonal loans fro+ t!e res&on$ents n t!e a''re'ate a+ount of 6,80G,GGG.
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R: a mortae lia!ility is usually limited to the amount mentioned in the
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6ettoners only &a$ 68<,=GG )ut $efaulte$ as to t!e rest.
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Res&on$ents fle$ a co+&lant for foreclosure of +ort'a'e, alle'n' t!at t!e loans 1all of t!e+2 "ere secure$ )y t!e REM an$ as of Au'ust , <<=, t!e $e)t a+ounte$ to 6,<=,8/./ 1"t! nterest of > +o2
: o"eer, t!e a+ounts na+e$ as cons$eraton n a contract of +ort'a'e $o not l+t t!e a+ount for "!c! t!e +ort'a'e +ay stan$ as securty f fro+ t!e four corners of t!e nstru+ent the intent to secure future and other indebtedness can be gathered . T!s st&ulaton s al$ an$ )n$n' )et"een t!e &artes an$ s ?no"n n A+ercan urs&ru$ence as t!e %)lan?et +ort'a'e clause,( also ?no"n as a %$ra'net clause.(
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s. 6ettoners: REM only coers 6.0M loan, no a'ree+ent t!at t!e > nterest "as to )e co+&oun$e$ +o as t "as &er annu+H
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A >dranet clause@ o&erates as a conenence an$ acco++o$aton to t!e )orro"ers as t +a?es aala)le a$$tonal fun$s "t!out t!er !an' to e7ecute a$$tonal securty $ocu+ents, t!ere)y san' t+e, trael, loan closn' costs, costs of e7tra le'al serces, recor$n' fees, et cetera.
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!le a real estate +ort'a'e +ay e7ce&tonally secure future loans or a$ance+ents, these future debts must be sufficiently described in the mortgage contract. An o)l'aton s not secure$ )y a +ort'a'e unless t co+es farly "t!n t!e ter+s of t!e +ort'a'e contract. EER, t s clear fro+ a &erusal of t!e real estate +ort'a'e t!at there is no stipulation that the mortgaged realty shall also secure future loans and advancements. T!us, "!at a&&les s t!e 'eneral rule a)oe state$.
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!at t!e &artes coul$ !ae $one n or$er to )n$ t!e realty for t!e a$$tonal loans "as
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to e7ecute a ne" real estate +ort'a'e or
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Faln' to $o so, t!e realty cannot )e )oun$ )y suc! a$$tonal loans, "!c! +ay )e recoere$ )y t!e res&on$ents n an or$nary acton for collecton of su+s of +oney.
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−
RTC: For res&on$ents
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CA: REM "as e7&ressly nten$e$ to coer only t!e or'nal 6.0M loan an$ t!e su)se@uent 60G? an$ 60GG? loans, not t!e 60G? loan, t!e 68GG? loan an$ 680G? loan. 8 nterest +&ose$ )y TC also &ro&er
contract.
N t!e 8 nterest rate +&ose$ )y TC 6ro&er
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OES. As "as !el$ n Eastern s!&&n' lnes an$ n t!e la". Interest on *u$cal a"ar$s untl &a$.
N all fe a$$tonal loans "ere nten$e$ to )e secure$ )y t!e real estate +ort'a'e
−
N.
to a+en$ t!e ol$ +ort'a'e confor+a)ly "t! t!e for+ &rescr)e$ )y t!e la".
14
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
stipulation to the contrary.
N t!e a+ount of o)l'aton s!oul$ nclu$e nterest
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In &le$'e, f t!ere9s a $efcency4
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OES. Rule >.8 &ro$es so.
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R: Cre$tor cannot cla+ $efcency once foreclosure o)tane$
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No $ra'net clause nole$ !ereH
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EC: f st&ulate$
(!) o de&iciency claim in a plede
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6actu+ co++soru+ s not allo"e$ un$er R6 La"s. If you !ae a +ult&le securty a'ree+ent 1c!attel +ort'a'e, REM, &le$'e, ass'n+ent2 for t!e sa+e &rnc&al o)l'aton, ALAOS REMEMBER TAT FRECLS-RE F TE P.!D/! S-LD BE DNE LAST 1As t!ere9s a &ro!)ton to un$er'o ot!er re+e$es un$er Artcle 802
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Sr "as sayn' so+et!n' a)out &le$'e of s!ares of stoc? an$ t!e ar'u+ent t!at t!e stus s not 6!l&&nes )ut sr sa$ t!at een f t )e ar'ue$ t!at stus not n R6, R6 la"s "oul$ stll a&&ly4)asta sorry I $on9t ?no" e!...
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o de&iciency claim in a plede
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'rt. 2113. T!e sale of t!e t!n' &le$'e$ s!all e7tn'us! t!e &rnc&al
o)l'aton, "!et!er or not t!e &rocee$s of t!e sale are e@ual to t!e a+ount of t!e &rnc&al o)l'aton, nterest an$ e7&enses n a &ro&er case. If t!e &rce of t!e sale s +ore t!an sa$ a+ount, t!e $e)tor s!all not )e enttle$ to t!e e7cess, unless t s ot!er"se a'ree$. "& the price o& the sale is less; neither shall the creditor !e entitled to recover the de&iciency; not*ithstandin any
(c) De&iciency claim in a chattel mortaeH e4ception ('rticle 1=6=; par ; Civil Code)
Art 0121 In a contract of sale of personal property t!e price of "!c! s &aya)le n nstall+ents, t!e en$or +ay e7ercse any of t!e follo"n' re+e$es:
... 12 Foreclose t!e c!attel +ort'a'e on t!e t!n' sol$, f one !as )een consttute$, s!oul$ t!e en$ee9s falure to &ay coer t"o or +ore nstall+ents. ...In t!s case, !e s!all !ae no furt!er acton a'anst t!e &urc!aser to recoer any un&a$ )alance of t!e &rce. Any a'ree+ent to t!e contrary s!all )e o$. 1/0/5A5a2
Ree" for Artcle />/: eneral Rule: Cre$tor s!all al"ays )e enttle$ to collect t!e $efcency *u$'e+ent. 1 Ablaza v Ignacio, U322.
15
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
$ene$.
Di&&erentiatin #lede and Chattel Mortae
#lede
Chattel Mortae
In &le$'e, t!e &le$'or cannot )e +a$e ans"era)le for $efcency after foreclosure snce t!e &rnc&al o)l'aton s e7tn'us!e$. T!us, foreclosure of &le$'e +ust )e your last remedy.
R: Action for deficiency is allowed 1C!attel Mort'a'e La", arr$o . Tuason2
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arr$o co++ence$ a cl case s. 6la Tuason, an$ no" "t! !er !us)an$, for t!e recoery of t!e alle'e$ )alance n t!e earler case. MTD fle$ )y Tuason. TC for T-ASN,
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CFI: Affr+e$ $s+ssal of cl case n &ursuance to Article &11' of *ivil *ode : 'rticle 2113 providesG
3. . . T!e sale o& the thin pleded s!all e7tn'us! t!e &rnc&al o)l'aton, "!et!er or not t!e &rocee$s of t!e sale are e@ual to t!e a+ount of t!e &rnc&al o)l'aton, nterest an$ e7&enses n a &ro&er case. If t!e &rce of t!e sale s +ore t!an sa$ a+ount, t!e $e)tor s!all not )e enttle$ to t!e e7cess, unless t s ot!er"se a'ree$. $f the price of the sale is less! neither shall the creditor be
E7ce&ton: Artcle />/12, Cl Co$e Recto La".
6oss)le Soluton: Su)*ect &le$'e to fore'n la".
$arrido v. Tuason (16)
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F: 6la Tuason e7ecute$ a CM oer !er car for t!e su+ of 6? "!c! s!e o"e$ to ose arr$o. As s!e "as una)le to &ay, ose arr$o co++ence$ a case for t!e foreclosure of t!e CM atty9s fees an$ costs 1note: not for collecton of t!e outstan$n' o)l'atonH2
entitled to recover the deficiency! notwithstanding any stipulation to the contrary.3
N arr$o coul$ stll cla+ t!e $efcency
− N, )ut )ase$ on res *u$cata, not )ecause t!ere "as alrea$y foreclosure of t!e CM.
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TC: &ay 6? nterests 6GG costs 1een f arr$o &raye$ for foreclosureH2
;Artcle 80 of t!e Cl Co$e $oes not a&&ly to C!attel Mort'a'e. Artcle 80 s nconsstent "t! t!e &rosons of t!e C!attel Mort'a'e La", an$ t!at, accor$n'ly, the chattel mortgage creditor may maintain an action for the deficiency.
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"rt of e7ecuton ssue$, car of Tuason "as sol$ at a &u)lc aucton for 600G "t! arr$o as t!e !'!est )$$er as t!ere "as stll 6/0G left unsatsfe$ 60 alle'e$ly s&en$ to carry out "rt of e7ecuton an$ 6,8 as a''re'ate outstan$n' )alance $ue un$er $ecson, arr$o fle$ +otons 1for alas "rt of e7ecuton2 "!c! "ere )ot!
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TC +ust !ae a&&le$ 80 )ase$ on Artcle 8/ of CC "!c! &ro$es t!at &rosons on &le$'e s!all )e a&&lca)le to c!attel +ort'a'es 3nsofar as t!ey are not n conflct "t! t!e C!attel Mort'a'e La"3. But as t $oes conflct, t s!oul$ not )e a&&le$H
16
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
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CNFLICT DI ?o rn ala+ e!. e!e. Eto sa) sa footnote sa case:
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T!e last &art of t!e secon$ &ara'ra&! of Secton / of Act No. 0G>, &ro$es:
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SECTIN /. Sale of &ro&erty at &u)lc
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3. . . T!e &rocee$s of suc! sale s !all )e a&&le$ to t!e &ay+ent, frst, of t!e costs an$ e7&enses of ?ee&n' an$ sale, an$ t!en to t!e &ay+ent of t!e $e+an$ or o)l'aton secure$ )y suc! +ort'a'e, an$ t!e res$ue s!all )e &a$ to &ersons !ol$n' su)se@uent +ort'a'es n t!er or$er, an$ t!e )alance, after &ayn' t!e +ort'a'es, s!all )e &a$ to t!e +ort'a'or or &erson !ol$n' un$er !+ on $e+an$.3
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6ero !ellur!, t!s conte+&lates a stuaton "!ere t!ere s e7cess n t!e &rocee$s of t!e sale, an$ not "!en t!ere9s a $efcency. So !o" $oes t!s conflct
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TC +'!t !ae acte$ un$er t!e +&resson t!at t!e frst case "as for t!e foreclosure of a c!attel +ort'a'e. But t!e frst case "as an or$nary +oney *u$'+ent so no &reous ruln' on foreclosure
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...1o?ay eto &a'?a'ets ?o a, snce $ &a na+an *u$cally or$ere$ an' foreclosure, &e$e &a +a'foreclosure on ot!er &ro&ertes to coer t!e $efcency of t!e +oney *u$'+ent. In t!s case, arr$o &raye$ for foreclosure an$ not &ay+ent )ut snce t!e MTC or$ere$ &ay+ent nstea$, no *u$cal or$er of foreclosure2
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SC: Munc&al court s!oul$ !ae NT DENIED &lantff9s +oton for ssuance of alas "rt of e7ecuton
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5)ut snce nstea$ of fln' an a&&eal to t!e $enal of !s +oton, t!e $ecson of t!e MC !ae )een fnal an$ e7ecutory an$ t!us )n$n' an$ res *u$cata on t!e Cl Acton !e later fle$.
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NTE: !y $$ CM arse May sale )a or +ay utan' lan' If +ay sale, A/>/ "oul$ a&&lyH
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T!ere9s no e7&lct state+ent n t!e C!attel Mort'a'e la" "!c! &ro$es t!at t!e cre$tor coul$ recoer $efcency. SC nter&rete$ t an$ $eclare$ t!at t!ere9s suc! r'!t IT-T E6LAININ O4 Sr sa$ t!at n &reous cases, t!e ruln' "as $fferent )ut !e $$n9t ass'n to us t!e sa$ cases )ecause t "as not ass'ne$ to !+ "!en !e "as a stu$ent...
#C" %easin and Finance v. Tro8an Metal "ndustries (2010)
Mana Financial Services $roup v. Colarina (2003)
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F: Colorna )ou'!t on installment fro+ Ma'na Fnancal Serces a Su#u? Multca). e e7ecute$ a 6N for t!e )alance of 688<,8>/ an$ e7ecute$ an nte'rate$ 6N an$ $ee$ of CM oer t!e Multca) as securty.
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5Colorna fale$ to &ay t!e +ont!ly a+ort#aton, "t! accu+ulatn' un&a$ )alance of 6,G=. Colorna stll fale$ to &ay ns&te of $e+an$s so MANA fle$ a CM6LAINT FR FRECLS-RE of CATTEL MRTAE " RE6LEIN
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5)on$ "as fle$ )y MANA, "rt of re&len "as ssue$
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TC: Colarna &ay t!e 6,G= &lus &enalty atty9s fees costs. In case of non&ay+ent, +ultca) s!all )e sol$ at &u)lc aucton
−
RTC: affr+ 17
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
−
+ort'a'ee $este$ of ttle
CA: co+&lant "as for foreclosure of t!e c!attel +ort'a'e so "ron' to or$er Colorna to &ay t!e )alance $ue
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5f non&ay+ent: foreclosure one of t!e re+e$es un$er A/>/
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4+ay et!er )e *u$cal or e7tra*u$cal
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;;; Snce the petitioner has undenia!ly elected a remedy o& &oreclosure
!at s t!e true nature of a foreclosure of c!attel +ort'a'e un$er Artcle />/12
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OEOH Eto na un' snasa) n +a9a+ C!tH
under 'rticle 1=6=() o& the Civil Code; it is !ound !y its election and thus may not !e allo*ed to chane *hat it has opted &or nor to as, &or more. n
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+'CR'C M-T-R C-. 5S. M"%%': %-n$ou)te$ly t!e &rnc&al o)*ect
t!s &ont, t!e Court of A&&eals correctly set as$e t!e tral court’s $ecson an$ nstea$ ren$ere$ a *u$'+ent of foreclosure as &raye$ for )y t!e &ettoner.
of t!e a)oe a+en$+ent 1referrn' to Act /88 a+en$n' Art. /0/, Cl Co$e of >><2 "as to remedy the abuses committed in connection with the foreclosure of chattel mortgages. T!s a+en$+ent prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing the suit against the mortgagor for a deficiency (udgment T!e al+ost nara)le result of t!s &roce$ure "as t!at the mortaor &ound himsel& minus the property and still o*in practically the &ull amount o& his oriinal inde!tedness.@ EREG
M'$'
#R'ED
+-T
F-R
#'MET
-F
− Not yet, )ut snce t!e e!cle s "t! Ma'na alrea$y an$ Ma'na consstently ao"e$ t!at t elects t!e re+e$y of foreclosure, CA correctly $recte$ t!e foreclosure of t!e e!cle.
TE
-+%"$'T"- 'D F-REC%-SBRE -F TE C'TTE%. o*ever; !y prayin &or the &oreclosure o& the chattel; Mana renounced *hatever claim it may have under the #.
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N t!ere !as )een an actual foreclosure of t!e e!cle
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'rt 1=6=() #R-"+"TS -TER 'CT"- T- REC-5ER '
SC: A contract of c!attel +ort'a'e s t!e nature of a con$tonal sale of &ersonalty. IT-T E6LAININ O IT AS S EEN AFTER SAOIN IT AS INACC-RATE, IN CERRA . RDRI-EQ. S IR: T!e c!aracter#aton of CM as con$tonal sale !as )een a)an$one$ snce t!e enact+ent of Cl Co$e 1A8/ of NCC2.
B#'"D +'%'CE -F TE #BRC'SE #R"CE 'FTER F-REC%-SBRE. In ot!er "or$s, n all &rocee$n's for t!e foreclosure of
c!attel +ort'a'es e7ecute$ on c!attels "!c! !ae )een sol$ on t!e nstall+ent &lan, t!e +ort'a'ee s l+te$ to t!e &ro&erty nclu$e$ n t!e +ort'a'e.
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5NAT-RE F CNTRACT F CATTEL MRTAE: con$tonal sale of &ersonal &ro&erty 'en as securty for t!e &ay+ent of a $e)t, or t!e &erfor+ance of so+e ot!er o)l'aton s&ecfe$ t!eren, t!e con$ton )en' t!at t!e sale s!all )e ID -6N TE SELLER 6AOIN R 6ERFRMIN TE BLIATIN S6ECIFIED. 5f con$ton &erfor+e$: +ort'a'e an$ sale ++e$ately )eco+e o$,
(d) Dacion en pao *ith repurchase (as an alternative to &oreclosure o& mortae)
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T!s set5u& s use$ to $o a"ay "t! foreclosure &rocee$n' 18
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
R' 1
−
Dacon en 6a'o: +o$e of e7tn'us!n' an o)l'aton "!ere)y t!e $e)tor alenates n faor of t!e cre$tor &ro&erty for t!e satsfacton of +onetary $e)tJ e7tn'us! u& to a+ount of &ro&erty unless " contrary st&ulatonJ A s&ecal for+ of &ay+ent )ecause ele+ent of &ay+ent s +ssn': IDENTITO Sr9s )oo?:
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result s t!e sa+e, n t!e sense t!at t!e +ort'a'or en$s u& "t! t!e &ro&erty )ut no foreclosure &rocee$n'4
REM +ay )e foreclose$ u$cally or e7tra*u$cally:
Iudicially
E4tra8udicially
R>, Rules of C 6ro
Act 0
No r'!t of re$e+&ton, only an e@uty of re$e+&ton 1r'!t of +ort'a'or to e7tn'us! t!e +ort'a'e an$ retan o"ners!& of t!e &ro&erty )y &ayn' t!e +ort'a'e $e)t "n &ero$ of not less t!an
R'!t of re$e+&ton
Is t!s a crcu+enton of &actu+ co++soru+
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OES. 6recsely, t!e +ort'a'e s set as$e. N +ort'a'e to s&ea? of n t!e frst &lace as t9s su)sttute$ "t! anot!er contractual arran'e+ent. But al$ as t s un$er t!e free$o+ of t!e &artes to contract.
(e) E&&ect o& >stay order@ on en&orcement o& security
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In 6etton for Re!a)ltaton, t!e Court +ay ssue a stay or$er "!c! "or?s as a stan$stll or$er &ro!)tn' cre$tors to enforce t!er securtes.
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court nee$s to see f t!e &etton s suffcent n for+ an$ su)stance
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3Cra+ $o"n3 clause
(&) Foreclosure o& real estate mortae Section =7; $+% o& 2000
R: yr 1n$$ualnatural &erso certfcate of sale : +ont!s +a7 for ur$cal 6erson
;;If t!e +ort'a'ee )an? 5 follo" Secton /= ;f +ort'a'ee)an? VVV t!ere9s al"ays r'!t of re$e+&ton, re'ar$less f *u$cal or e7tra*u$cal 555"n year counte$ fro+ t!e $ate of re'stratonof t!e certfcate of sale n t!e Re'stry of 6ro&erty 1uerta s. CA2 4)ut &ero$ s!ortene$ un$er BL f -RIDICAL 6ERSN: +ont!s fro+ 19
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
e7tra*u$cal foreclosure
a$+nster t!e sa+e n accor$ance "t! la". 1RIT F TE 6-RCASER T ENTER 6R6ERTO AFTER SALE 5 -ERTA S. CA2
4fore'n )an?s may not !ene&it fro+ t!e 8n$ &ara'ra&! of Secton /= snce t +ay not )e a)le to resort to e7tra*u$cal foreclosure an$ t!erefore, "ll )e una)le to )eneft fro+ t!e 8n$ &ara'ra&! of A=
SECTIN /=. Foreclosure of eal +state ,ortgage. W
Any petition n court to en8oin or restrain the conduct o& &oreclosure proceedins nsttute$ &ursuant to t!s &roson s!all )e iven due course only upon the &ilin )y t!e &ettoner o& a !ond n an a+ount f7e$ )y t!e court con$tone$ t!at !e "ll &ay all t!e $a+a'es "!c! t!e )an? +ay suffer )y t!e en*onn' or t!e restrant of t!e foreclosure &rocee$n'.
In t!e eent of foreclosure, "!et!er *u$cally or e7tra*u$cally, Not"t!stan$n' 'ct 13, of any +ort'a'e on real estate "!c! s securty for any loan or ot!er cre$t acco++o$aton 'rante$,
8uridical persons "!ose &ro&erty s )en' sol$ &ursuant to an e7tra*u$cal
foreclosure, t!e mortaor or de!tor "!ose real &ro&erty !as )een sol$ for t!e full or &artal &ay+ent of !s o)l'aton s!all !ae t!e riht *ithin one year a&ter the sale o& the
s!all !ae t!e right to redeem the property n accor$ance "t! t!s &roson
real estate; to redeem the property
until; !ut not a&ter; the reistration o& the certi&icate o& &oreclosure sale *ith the applica!le Reister o& Deeds
)y &ayn' t!e a+ount $ue un$er t!e +ort'a'e $ee$, "t! nterest t!ereon at t!e rate
"!c! n no case shall be more than three (-) months after foreclosure ,
s&ecfe$ n t!e +ort'a'e, an$ all t!e costs an$ e7&enses ncurre$ )y t!e )an? or nsttuton fro+ t!e sale an$ custo$y of sa$ &ro&erty less t!e nco+e $ere$ t!erefro+. 1RIT T REDEEM 6R6ERTO N OEAR FRM DATE F REISTRATIN F TE CERTIFICATE F SALE IN TE REISTRO F 6R6ERTO2
"!c!eer s earler. "ners of &ro&erty t!at !as )een sol$ n a foreclosure sale &ror to t!e effectty of t!s Act s!all retan t!er re$e+&ton r'!ts untl t!er e7&raton. 1=>a2
o"eer, t!e purchaser at t!e aucton sale concerne$ "!et!er n a *u$cal or e7tra*u$cal foreclosure s!all !ae t!e r'!t to enter u&on an$ ta?e &ossesson of suc! &ro&erty ++e$ately after t!e $ate of t!e confr+aton of t!e aucton sale an$
RA N. 20
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
Sec. . Any &roson of la" to t!e contrary not"t!stan$n', &rate real &ro&erty +ay )e +ort'a'e$ for a &ero$ not e4ceedin &ive years, rene"a)le for anot!er fe,
acts 6an'lnan an$ C!ua "ere c!ar'e$ an$ concte$ of @ualfe$ t!eft for 68=0?
fro+ C!na Ban?n' Cor&oraton. In furt!erance of t!e *u$'+ent, 6an'lnan e7ecute$ n faor of C!na Ban?n' Cor&oraton a &u)lc nstru+ent enttle$ DEED F TRANSFER "!ere)y !e ce$e$ an$ transferre$ to CBC a &arcel of lan$ locate$ n Manla.
)ut t!e +ort'a'ee or !s successor n nterest,
5!en CBC &resente$ t!e $ocu+ent to t!e Re'strar of Dee$s, Re'strar $ene$ t )ecause CBC "as alen5o"ne$ an$ as suc!, )arre$ fro+ ac@urn' lan$s n t!e 6!l&&nes
if dis'ualified to ac'uire or hold lands of the public domain in the Philippines ,
5CBC su)+tte$ +atter to t!e Lan$ Re'straton Co++sson for Resoluton.
shall not !id or ta,e part in any sale o& such real property as a conse@uence of
LRC: unre'stra)le
n faor of any n$$ual, cor&oraton, or assocaton,
suc! +ort'a'e.
E%DG C+C cannot reister the property in their name
Sr: fore'n )an?s can )e +ort'a'ees )ut cannot ac@ure t!e &ro&erty n a foreclosure sale4only enttle$ to &rocee$s of t!e sale
5Secton 80, RA = &ar X an$ 1$2 ARE NT A66LICABLE T ALIEN BANKSH
Note !o"eer t!at RA s&ecfes *u$cal foreclosure, not e7tra*u$cal foreclosure - #'R JG
1o?ay, I can9t fn$ t any"!ere n RA 4"ala na+an' na?as&ecfy ?un' *u$cal or e7tra*u$cal )asta as a conse@uence of suc! +ort'a'e2 See &a'e 04
3Sec. 80. Any co++ercal )an? +ay &urc!ase, !ol$, an$ coney real estate for t!e follo"n' &ur&oses: 1c2Suc! as s!all )e coneye$ to t n satsfacton of debts previously contracted in the course of its dealings J
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t!e 3$e)ts3 referre$ to are NLO TSE RES-LTIN FRM 6REI-S LANS AND TER SIMILAR TRANSACTINS MADE R ENTERED INT BO A CMMERCIAL BANK IN TE RDINARO C-RSE F ITS B-SINESS AS S-C
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3CIIL LIABILITO3 arsn' fro+ a cr+nal offense AS NT A DEBT
Reister o& Deeds v. China +an,in Corp (12) 21
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
RES-LTIN FRM A LAN R A SIMILAR TRANSACTIN AD BETEEN T 6ARTIES IN TE RDINARO C-RSE F BANKIN B-SINESS
SECTIN 80 SEC 08 of t!e NE LA SECTIN 08. Ac@uston of Real Estate )y ay of Satsfacton of Cla+s. W Not"t!stan$n' t!e l+tatons of t!e &rece$n' Secton, a )an? +ay ac@ure, !ol$ or coney real
- #'R (D)
&ro&erty un$er t!e follo"n' crcu+stances: 3Sec. 80. Any co++ercal )an? +ay &urc!ase, !ol$, an$ coney real estate for t!e follo"n' &ur&oses:
08.. Suc! as s!all )e +ort'a'e$ to t n 'oo$ fat! )y "ay of securty for $e)tsJ
1$2 Suc! as t s!all &urc!ase at sales under (udgments, decrees, mortgages, or trust deeds !el$ )y t an$ suc! as t s!all &urc!ase to secure $e)ts $ue to t.
08.8. Suc! as s!all )e coneye$ to t n satsfacton of $e)ts &reously contracte$ n t!e course of
But no suc! )an? s!all !ol$ t!e &ossesson of any real estate un$er +ort'a'e or trust $ee$, or t!e ttle an$ &ossesson of any real estate &urc!ase$ to secure any $e)t $ue to t, for a lon'er &ero$ t!an fe years.3
ts $ealn'sJ or
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t!e $ee$ of transfer Y sale +a$e )y rtue of *u$'+ent, $ecree, +ort'a'e, or trust $ee$ !el$ )y CBC
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real &ro&erty n @ueston "as not &urc!ase$ )y CBC to secure $e)ts $ue t
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$e)ts: refer only to suc! $e)ts as +ay )eco+e &aya)le to a&&ellant )an? as a result of a )an?n' transacton.
- 'rument that consti prohi!ition should !e li!erally construed to !e limited to #ERM'ET 'CAB"S"T"- -F RE'% EST'TE + '%"ES
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t!e const &ro!)ton s ABSL-TE IN TERMS. S+t! Bell Co Case not a&&lca)le )ecause "!at "as allo"e$ to )e re'stere$ t!ere "as a 0G5year LEASE "!c! $oes not nole transfer of $o+non oer t!e lan$
T!s s t!e case "!en SOCI6 lost 1SOCI69s $a$ "as one of t!e foun$ers of C!na Ban?2
08.. Suc! as t s!all &urc!ase at sales un$er *u$'+ents, $ecrees, +ort'a'es, or trust $ee$s !el$ )y t an$ suc! as t s!all &urc!ase to secure $e)ts $ue t. Any real &ro&erty ac@ure$ or !el$ un$er t!e crcu+stances enu+erate$ n t!e a)oe &ara'ra&! shall be disposed of by the bank within a period of five (') years or as may be prescribed by the ,onetary /oard : 6ro$e$, !o"eer, T!at t!e )an? +ay, after sa$ &ero$, contnue
to !ol$ t!e &ro&erty for ts o"n use, su)*ect to t!e l+tatons of t!e &rece$n' Secton. 180a2
See sr9s annotaton of t!e sectonH 3st &ara'ra&! of +y annotaton4 t too? +e !ours to &ut u& t!s &ara'ra&!3 22
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
El o)ar Fl&no: Ban? +a$e so+e effort n F to sell t!e &ro&erty "n 0 years. So su)stantal co+&lance "t! Secton 08.
&ro&ertes untl t!e $sc!ar'e of t!e &rnc&al o)l'aton, EER 6SSESSR F TE LAND MAO BE.
No" t!ere are onlne sales of t!e R6AH N S&ouses !ae r'!t to r e$ee+
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OES. But r'!t alrea$y &rescr)e$.
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5as successors5n5nterest of MICC, t!ey !ae r'!t to re$ee+ year FRM TE DATE F REISTRATIN F TE CERTIFICATE F SALE TE REISTRO F DEEDS. T!at s, fro+ uly 8<, <>0 1t!us, -NTIL -LO 8<, <>2
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But snce t!ey fale$ to re$ee+ "t!n sa$ &ero$, r'!t &rescr)e$. "ners!& of t!e su)*ect &ro&ertes "as t!us consol$ate$ n faor of BF
#aderes v. C' (2003)
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acts MICC o)tane$ a loan fro+ Banco Fl&no San's an$ Mort'a'e Ban?
an$ e7ecute$ REM oer 8 &arcels of lan$, nclu$n' 8 &arcels of lan$ n 6@ue "!c! MICC sol$ t!ou'! unre'stere$.
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5snce MICC $efaulte$ n t!er o)l'aton, Banco Fl&no fle$ 6ETITIN FR TE ETRA-DICIAL FRECLS-RE of MICC9s Mort'a'e 1@ueston: f e7tra*u$cal, )a?t +ay &etton2.
N t!ere "as a )n$n' AREEMENT FR RE6-RCASE N.
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5Aucton Sale: BF $eclare$ t!e !'!est )$$er. Certfcate of Sale ssue$ n faor of BF. 5N REDEM6TIN N RELEMENTARO 6ERID so BF fle$ a &etton for ssuance of "rt of &ossesson of foreclose$ &ro&ertes "!c! "as 'rante$. Notce to acate sere$ on s&ouses "!o )ou'!t 8 lan$s fro+ MICC. S&ouses 1&ettoners2 fle$ &etton )efore CA 5 $s+sse$ for lac? of +ert.
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1a&&arently t!ere "ere ne'otatons entere$ )y t!e S&ouses "t! BF. o"eer, t!e corres&on$ence fale$ to s!o" t!at t!e &artes a'ree$ to t!e aluaton of t!e &ro&ertes an$ t!at any of t!e &artes a'ree$ to t!e re$e+&ton on a f7e$ &rce2
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Court !el$ t!at t!e corres&on$ence )et"een t!e &artes reeals a)sence of DEFINITE FFER AND ABSL-TE ACCE6TANCE F TE DEFINITE FFER.
N s&ouses !ae su&eror r'!t oer BF 1alle'n' Buyers n F2 N !ouse s!oul$ !ae )een e7clu$e$ fro+ t!e aucton s ale
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N. Sale occurre$ AFTER MRTAE n faor of BF re'stere$. A real r'!t or len n faor of BF !a$ alrea$y )een esta)ls!e$, su)sstn' oer t!e 23
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
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N. Artcle //>, NCC $oes not a&&ly
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5T!e !ouses &urc!ase$ )y t!e s&ouses fro+ MICC are +&roe+ents on t!e &ro&ertes su)*ecte$ to t!e REM, t!us coere$ )y t!e REM as +&roe+ents are $ee+e$ &art of real &ro&erty
5Santa'o fle$ a co+&lant for re$e+&ton an$ s&ecfc &erfor+ance "t! RTC s. BF 5BF Fle$ MTD: no re$e+&ton effecte$ "n year fro+ $ate of re'straton. 9RTCG dismissed redemption complaint
a N "rt of &ossesson coul$ stll )e enforce$ after > years fro+ &ro+ul'aton a
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OES. R'!t of a&&lcantsu)se@uent &urc!aser to re@uest for t!e ssuance of a "rt of &ossesson of lan$ NEER 6RESCRIBES
;C'G reversed TCG sustained complaint &o r redemption a
If you re'ster your REM an$ !ae t annotate$ to t!e )ac? of your ttle, su)se@uent )uyers of t!e lan$ are )oun$ )y t!e REM
a a
+anco Filipino Savins and Mortae +an, v. C' (2003) acts Santa'o Me+oral 6ar? o)tane$ a loan "t! BF an$ e7ecute$ a REM oer a &arcel of lot. Because of $efault, BF foreclose$ REM an$ certfcate of sale "as ssue$ n faor of BF.
5Santa'o +anfeste$ ts nterest to e7ercse ts r'!t to re$e+&ton an$ offere$ as &ay+ent 6=GG? 1loan "as for 60GG?2. De&uty l@u$ator 'ae Santa'o untl en$ of Marc! <<8 to ne'otate &ay+ent. Santa'o re+tte$ 60G? to +anfest "lln'ness to re$ee+ &ro&erty. Santa'o later offere$ 6M for t!e &ro&erty. Senor 6 $e+an$e$ later 60,>G,GGG as &urc!ase &rce of &ro&erty.
N DEFINITE REDEM6TIN 1offer "as not cou&le$ "t! ten$er of t!e &rce2 Co+&lant $$ not state t!at Santa'o ten$ere$ correct re$e+&ton &rce "n re$e+&ton &ero$
Co+&lant alle'e$ t!at as eary as Au'ust , << 1 +ont!s )efore t!e e7&raton of t!e statutory &ero$ for re$e+&ton2, Santa'o e7erte$ earnest efforts to effect re$e+&ton Santa'o $$ $e&ost t!e &rce "!c! t!ey )elee$ "as t!e a'ree$ re$e+&ton &rce, "t! t!e )elef t!at BF "as ne'otatn' n F rante$ t!at Santa'o s )arre$, as t!e &artes entere$ nto a ne" contract e7ten$n' &ero$ "n "!c! to &urc!ase &ro&erty, Santa'o coul$ stll &urc!ase &ro&erty 555Santa'o ten$ere$ &ay+ent an$ cons'ne$ a+ount of 6,GG,<>=.< n accor$ance "t! CA $ec
E%DG &or +F. - C-' &or redemption. Re'ar$less f Santa'o "as $l'ent n
assertn' ts "lln'ness to &ay, REDEM6TIN N TE 6ERID ALLED BO LA IS NT A MATTER F INTENT *45 A 64!S5I78 79 PA!85 7 ;A.ID 5!8D! 79 94.. !D!P5I78 PI$! <#8 SAID P!I7D
;Banco Fl&no . CA 18GG02: T!e r'!t of re$e+&ton +ust )e e7ercse$ "t!n t!e 24
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
""". -ther Ta4 Matters
s&ecfe$ t+e l+t, "!c! s one 12 year fro+ $ate of re'straton of certfcate of sale. In case of $sa'ree+ent oer t!e re$e+&ton &rce, t!e re$e+&toner +ay &resere !s r'!t of re$e+&ton t!rou'! *u$cal acton "!c! n eery case +ust )e fle$ "t!n t!e sa+e one 12 year.
'. 'pplica!le Ta4es
Note: Re$e+&ton a+ount as &ro$e$ n Secton /= of BL s $fferent fro+ t!at n Rules of Court. T!s s to nsure t!at t!e )an? "ll not ncur losses.
1.
"ncome Ta4
2.
DST
.
$RT
;6rosons of BL are *u7ta&ose$ "t! RC &rosons.
8. DST If non )an?
Re$e+&ton &rce: foreclosure sale
Ban?
Re$e+&ton &rce: +ort'a'e $ee$ nterest
e.'. loan 6M, REM, foreclose$, sol$ for only 60GG?
BIR RR <5: If t!e loan a'ree+ent an$ securty $ece are e$ence$ )y a'ree+ent 1o+n)us a'ree+ent2, &ay only t!e !'!er DST
e.'. )orro"er entere$ nto t!e ff transactons 1I9+ not sure f t!s s accurate4 s!oul$ fn$ t!e a&&lca)le DST rates2:
!at t!e +ort'a'or "oul$ $o to re$ee+ t!e &ro&erty s to 'e you )ac? 60GG?:: f non5)an? 6M nterests :: f )an?
Tanchan v. 'llied +an,in Corporation (2006)
Transacton DST to )e &a$ ;8GGM Loan a'ree+ent GGT ;GGM Loan a'ree+ent 0GT ;0GM Loan A'ree+ent =0T ;REM securn' t!e 8GGM an$ GGM loan GG,GG ;CM securn' t!e 8GGM GGM loan GG,GG ;'uarantee securn' t!e 0GM loan G ;)ut f t!ere9s an o+n)us a'ree+ent, &ay 6=GG,GG or 6=0,GG Fro+ Sr9s lecture t!e ot!er +eetn': 25
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
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If t!e )an? len$s +oney, t!e nterest s su)*ect to 'ross rece&ts ta7 1nor+ally 02 )ut t!e sa+e a+ount s nclu$a)le as &art of t!e 'ross nco+e of t!e )an?, t!e net ta7a)le &orton of "!c! s ta7e$ )y nco+e ta7 1G )e'nnn' 8GG<2. DST also +&ose$ on certan )an? transactons:
fro+ all ta7es EC: nterest nco+e fro+ fore'n currency loans "t! RESIDENTS: su)*ect to G fnal ta7 rate Fro+ Sr9s lecture t!e ot!er +eetn': FCD-s are ta7e$ $fferently.
1a2 loan a'ree+ents an$ 6Ns: .0 of t!e a+ount n t!e transacton T!e nco+e of FCD-s 1)2 &le$'es, +ort'a'es, trust rece&ts: .8 of t!e a+ount nole$ n t!e transacton 1c2 )ut f co+)ne loansecurty 1o+n)us a'ree+ent2: .0 1!'!er )et"een t!e t"o2 1$2 f ass'n+ent: 60.GG 1ta7 certfcate2 . ross Rece&ts Ta7
fro+ fore'n currency transactons: G fnal "t!ol$n' ta7 1s!oul$ )e "t! res$ence: nclu$e local KB, local )ranc!es of Fore'n )an?s, ot!er fc$us, o)us2 It use$ to )e t!at t!s ons!ore G ta7 s +&ose$ n leu of t!e ot!er ta7es. No" t!e la" s not ery clear )ecause t!e 3In leu3 of &roson "as $elete$ n t!e NLRC. Intent )efore "as to encoura'e fore'n )an?s to nest n t!e 6!l&&nes 1t!us +as ?ontn' ta7 +&ose$ on t!e+2. If FCD- $ere nco+e fro+ non5fore'n currency transacton: re'ular cor&orate nco+e ta7 rate 1G2
+. Ta4ation o& FCDBs and -+Bs R' o. 2=
f t!e counter&arty s a nonres$ent: nco+e $ere$ )y t!at nonres$ent s not ta7a)le !ereJ s+larly, t!e nco+e )y FCD- s not ta7e$. S faorte custo+er of a FCD- s a nonres$ent, as t!ere s no ta7H
+"R Rulin o. 03210
B. Ta7aton of FCD-s an$ B-s RA <8
R: All nco+e $ere$ fro+ transactons "t! NNRESIDENTS are EEM6T
C. Ta4 minimiin structures 1.
-mni!us areement
2.
>-riinatin !an,@ structure 26
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
+n)us A'ree+ent An o+n)us loan a'ree+ent s a loan a'ree+ent "t! t!e +ort'a'e a'ree+ent alrea$y nclu$e$ as one of t!e &rosons
F s actually a 3FRNT3, an$ t!ere)y turns aroun$ an$ e7ecutes a &artc&aton a'ree+ent "local )an?s FCD-s, n effect +a?n' t!ese local )an? FCD-s 3slent &artc&ants3. Anot!er araton noles t!e )oo?n' of t!e 3front3 1l?e IFC2 of an 3A3 loan n ts )oo?s, an$ anot!er 3B3 loan, &artc&ate$ n )y local )an?s for "!c! t!e 3front3 acts as suc!.
s!oul$ also nclu$e a "aer 1f +ort'a'e s REM2 of t!e cre$t &references n NCC as a loan a'ree+ent "t! &ar &assu &roson re@ures t!at t!e loan a'ree+ent s!oul$ not )e notar#e$. o"eer, REM s re@ure$ to )e notar#e$. Fro+ Sr9s lecture last t+e: To co+&ly "t! t!e latter re@ure+ent, t!e cre$tor n t!e loan a'ree+ent s!oul$ "ae t!e &reference of cre$t &roson n t!e NCC an$ s&ecfy t!at t!e notar#aton s only for t!e &ur&ose of t!e loan a'ree+ent An o+n)us a'ree+ent s a ta7 +n+#n' structure )ecause for e7ecutn' transactons, DST s re@ure$ to )e &a$ for eac! transacton. o"eer, as t!e o+n)us a'ree+ent co+)nes t"o transactons, only DST s re@ure$ to )e &a$ 1BIR RR <5 re@ures t!e !'!er rate )e &a$2
K-riinatin !an,K structure (a.,.a. KFrontin StrcutureK)
T!s s ot!er"se ?no"n as frontn' )an? structure. It ta?es a$anta'e of ta7 e7e+&ton status of fore'n len$ers. It s a for+ of ta7 ao$ance. In t!s structure, a fore'n )an? acts as cre$tor on recor$ "!le $o+estc )an? &artc&ates slently. In t!s structure, a frontn' entty)an? "!c! en*oys TA5EEM6TIN or a LER TA RATE un$er &realn' ta7 la"s 3FRNTS3 for "!at "oul$ ot!er"se )e $rect len$ers to a )orro"er. T!e frontn' )an? 1F2 len$s $ollars+oney to )orro"er 1B2, a local co+&any, "o nee$ of "t!ol$n' ta7es on nterest &ay+ents )ecause of t!e ta75e7e+&ton or ta7 treaty oerr$es 1lo"er ta7es2.
$ea s t!e )orro"er "oul$ loo? for a )an? t!at s e7e+&t fro+ 6!l&&ne nco+e ta7 Et!er un$er ;ta7 treaty ;NIRC SEC 8: Fnancal nsttutons 'ettn' 4fro+ t!er 'oern+ent 1a2 Inco+e Dere$ )y Fore'n oern+ent. 5 Inco+e $ere$ fro+ nest+ents n t!e 6!l&&nes n loans, stoc?s, )on$s or ot!er $o+estc securtes, or fro+ nterest on $e&osts n )an?s n t!e 6!l&&nes )y 12 fore'n 'oern+ents, 12 fnancn' nsttutons o"ne$, controlle$, or en*oyn' refnancn' fro+ fore'n 'oern+ents, an$ 12 nternatonal or re'onal fnancal nsttutons esta)ls!e$ )y fore'n 'oern+ents.
;Ban? $oesn9t "ant to &ay ta7 "!en t len$s +oney 1nterest nco+e ta7 an$ ot!er nco+e ta7es fro+ ts transactons2. 1C!ec? TA FR ARE EEM6T FRM 6AOIN INCME TAESH2. So t!ey "oul$ searc! for ot!er )an?s "!o are EEM6T fro+ &ayn' ta7es. 27
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
"5. #ro8ect Financin
6ro*ect Fnancn' s t!e fnancn' of an econo+c asset ca&a)le of 'eneratn' enou'! reenues to coer o&eraton costs an$ $e)t sercn' for a $uraton of t+e lon'er t!an t!e lfe of suc! asset. It s +ost often un$erta?en n &ro*ects noln' electrcty an$ &o"er 'eneraton, trans&ortaton nfrastructures an$ t!e l?e. !at usually !a&&ens s t!at a s&onsor un$erta?es to coer t!e ntal fnancn' of t!e &ro*ect, len$ers are resorte$ to coer t!e $efcency, a S6ECIAL 6RECT EICLE 1S62 s esta)ls!e$ 1"!c! s usually a *ont enture or l+te$ &artners!&2 to un$erta?e t!e )ul$n' of t!e nfrastructure, t!e S6 enters nto a loan a'ree+ent "t! t!e len$ers )ac?e$ )y securtes: +ort'a'e oer t!e assets of t!e S6 an$ &le$'e of e@uty of s&onsors4. 1!ay, )asta on &a'e G2
SIR n lecture Relates to nfrastructure &ro*ects you see aroun$ e.'. MRT, &o"er &lants, s?y"ay4 Oou !ae a &ro*ect, ts econo+c lfe +ore or less s +ore t!an 80 years 1+ust e7cee$ t!e ter+ of t!e loan2. It s antc&ate$ )y t!e len$ers t!at t!e &ro*ect "oul$ earn reenues )ecause t!e len$ers "oul$ loo? at t!e reenues t s a "t!out recourse transacton so t!e len$ers usually nee$ an offta?er If t!e &ro*ect $oes not earn reenues, t!e len$ers "oul$ not 'et &a$. So t s essental for t!e &ro*ect to !ae an offta?er 1entty t!at9s 'on' to )uy t!e &u)lc &ro*ect2 e.'. n &o"er&lant &ro*ect FFTAKER: N6C 1N N6C uses t!e electrcty 'enerate$ )y t!e &o"er
&lant, N6C !as to &ay2 In MRT ffta?er: DTC 1een f no)o$y r$es t!e tran, DTC "oul$ stll &ay t!e &ero$c lease &ay+ents2 S&onsors of t!e &ro*ect 5t "oul$ esta)ls! a s&ecal &ur&ose co+&any
S6NSRS VVVesta)ls!VVV S6ECIAL 6-R6SE CM6ANO 1S62 VVV S&onsors "oul$ &ro$e an EP-ITO "!c! "oul$ fun$ t!e &ro*ect 1)ut t9s not suffcent2 so t!ere "oul$ )e len$ers t!at "oul$ &ut +oney n t!e co+&any LENDERS: +anly )an?s an$ +ultlateral $eelo&+ent )an?s suc! as ADB, -S EIM Ban? or a&an EIM Ban?4 VVVT!e &ro*ect co+&any "oul$ +ort'a'e to t!e len$ers 1trustee $es'nate$ )y t!e len$ers2 t!e &ro&ertye@u&+entfacltes VVVt!ere "oul$ )e REM, CM, &le$'e of s!ares 1&le$'e$ )y t!e s&onsors n faor of t!e len$ers not )ecause t!e s!ares are ery alua)le on t!e stan$&ont of t!e len$ers4)ut for t!e len$ers to )e a)le to ta?e oer t!e &ro*ect co+&any *ust n case t!e s&onsors "oul$ not )e a)le to &ay t!e loan VVVto +a?e sure t!at t!e reenues are all $elere$ an$ re+tte$ to t!e len$ers, t!ere9s t!e TR-ST RETENTIN ACC-NTAREEMENT "!eren all reenues fro+ t!e &ro*ect "oul$ )e re+tte$ e.'. all &ay+ents fro+ N6C are re+tte$ to t!e trust account +ana'e$ )y t!e trustees of t!e len$ers. If for nstance t!ere9s a nee$ to &ay t!e e+&loyees of t!e &ro*ect co+&any, a re@uest "oul$ )e +a$e to t!e trustee of t!e account to release 1$s)urse2 +oney fro+ t!e account 1t!e $a'ra+ $ra"n )y sr 3loo?s l?e a "aterfall3 so t s calle$ cas! "aterfall account2 VVVt!e ssue s N t!e co+&any coul$ )e o"ne$ )y fore'ners 1as usually, fore'ners &ro$e t!e fun$s2 5SC ruln' sa$ t!at 1+&lctly2 yes, )ecause t!e actual o&eraton s natonal#e$, not t!e facltes 5 &ara n'an' +ay 'anto na &na)asa on MRT
28
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
+. +-T and similar aranements -peration Maintenance 'reement
usually len$ers re@ure tec!ncans to run t!e faclty to +a?e sure t!at t "oul$ earn reenues Fel$ Lst transfer: t!e arran'e+ent n MRT Re!a)lttate5&erate5Transfer: re!a)ltate Re!a)ltate5"n: "nterCreditor 'reement
len$ers a'ree a+on' t!e+seles !o" to sync!ron#e t!er acttes n case t!ere9s a $efault
;-nsolcte$ 6ro&osal e.'. Me'a"orl$ 6ro&osal 5$eelo& !ectares of lan$ n lo)al Cty e.'. Ter+nal BT La"
;MNIB-S AREEMENT...contan all t!ese a'ree+entsHHH
5. Derivative Transactions '. Mechanism
'. Concept
"t!out recourse fnancn' T!ere +ust )e a 'uarantee$ ta?er&urc!aser of t!e out&ut of t!e &ro*ect
Fnancal asset $ere$ fro+ anot!er fnancal asset .e. o&ton on treasury )ll
e.'. MRT VVr$n' &u)lc 6o"er &lant VV N6C len$ers loo? to reenues of t!e &ro*ect as t!e +an soure of t!e &ay+ent 1!ence, t s +&ortant t!at t!e &ro*ect s earnn' +oney2
CALL 6TIN: o&ton to )uy 6-T 6TIN: o&ton to sell 5t!e o&ton s calle$ a $erate
;)uyer: one "!o "ants t!e o&ton 29
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
seller"rter: one 'n' t!e o&ton Fro+ ree"er: ;A+ercan &ton: e7ercse o&ton )efore t!e str?e $ate 1any t+e $urn' t!e o&ton &ero$2 5+ore fle7)le )ut !'!er &re+u+
;Euro&ean &ton: e7ercse o&ton on t!e str?e $ate 1en$ of t!e o&ton2 5strcter )ut lo"er &re+u+
;Ber+u$an &ton: E7ercse o&ton on any $ate DER"5'T"5E C-TR'CT
−
contract for t!e $fferences concerne$ "t! t!e $fferences )et"een t!e &rce on str?e $ate an$ &rce on tra$e $ate
DER"5'T"5E
a fnancal nstru+ent, t!e alue of "!c! s $e&en$ent u&on t!e &rce of one or +ore ot!er assets, suc! as co++o$tes, fore'n currences, etc. 5re&!rase: t!ey are fnancal assets "!c! $ere t!er alue fro+ ot!er fnancal assets suc! as: 12 e@uty, securtes 182 f7e$5nco+e securtes 12 fore'n currency an$ 1/2 co++o$tes 5a?a Contracts for $fferences: $fference )et"een a'ree$ future &rce an$ actual &rce
DER"5'T"5E TR'S'CT"-
one t!at noles $erates .e. for"ar$ fore'n e7c!an'e contract TRADE DATE: 60= Z After +ont!s 1str?e $ate2: 6G Z 5t!e )uyer s sa$ to )e 3n t!e +oney3 )ecause !a !as a 'an of 6Z B-T IF D-RIN TE STRIKE DATE4 60 Z 5)uyer s 3out of +oney3 )ecause !e loses 6Z. ence, !e s!all fore'o t!e o&ton an$ "ll )uy t!e $ollars else"!ee. ;C-RRENCO SA6 5s+ultaneous &urc!ase an$ sale of currency noln' t!e sa+e counter &arty
&ur&ose: +ana'e rs?s of e7&osurenest+ent to t!e un$erlyn' fnancal assets t re&resents t can et!er )e 6TINS R FRARDS
a. 6TINS ;CALL 6TIN: t!e )uyer s 'en t!e r'!t 1not o)l'aton2 to &urc!ase an asset at a s&ecfe$ &rce on or )efore a s&ecfe$ $ate ;6-T 6TIN: t!e sellerr$er s 'en t!e r'!t 1not t!e o)l'aton2 to sell an asset for a s&ecfe$ &rce on or )efore a s&ecfe$ $ate 30
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
). FRARD 5noles t!e BLIATIN to et!er )uy or sell an asset at a s&ecfe$ &rce on or )efore a s&ecfe$ $ate
Illustraton: Co. A "ll )uy -SZM +t!s fro+ no" at 6!6/G-SZ ForE7 Rate n +t!s Stuaton 6!60G-SZ In t!e +oney 6!6G-SZ ut of t!e +oneyJ )ut n t!e +ar?et 6!6/G-SZ At t!e +oneyJ e7ercse for"ar$ 'en assure$ a+ount co++on e7a+&les of Derate Transactons: ;currency s"a& ;for"ar$ contract ;call o&ton ;&ut o&ton T!s s a contract for $fferences. T!e nco+e s $ere$ fro+ t!e $fference )et"een a'ree$ settle+ent &rce an$ actual +ar?et &rce on t!e a'ree$ settle+ent $ate. CBRREC SL'#G
It s t!e s+ultaneous )uyn' an$ selln' of currences noln' s&ot 1near le'2 an$ for"ar$ 1far le'2 rates.
;;;A )an? cannot en'a'e n $erate transactons "t!out necessary BS6 lcense. E7a+&le n sr fro+ lecture FRARD: )uy currency fro+ t!e future e.'. you9re a )orro"er, you earn an nterest rate eery +ont!s at Z. Oou "ant to loc? t!e nterest rate. Let9s assu+e t!at t!e E7c!an'e rate s Z60G 5you enter nto a for"ar$ contract, you )uy Z "!c! s e@ualent to 60G. 4 +ont!s fro+ no":
Su&&osn' e7c!an'e rate s Z.GG6G Oou +a$e t!e r'!t $ecsonH In t!e +oney: you "oul$ e7ercse your o&tonH 1you antc&ate a 'an2 Z.GG 60G ut of t!e +oney: t!e +ar?et &rce +ont!s fro+ no" s lo"er t!an t!e a'ree$ &rce un$er t!e for"ar$ a'ree+ent 5 you "oul$ not e7ercse your o&ton to )uy 1you "oul$ *ust lose t!e &re+u+ you &a$2. Oou "oul$ )uy so+e"!ere else not un$er for"ar$ contract Z.GG600 At t!e +oney 8 Derates In t!e 6!l&&nes . E@uty relate$ securtes 8. E7c!an'e for De)t Securtes All ot!er transactons outs$e t!e e7c!an'e are calle$ TC 1oer t!e counter2: IN -S . Ne" Oor? Future E7c!an'e 8. Ne" Oor? Cotton E7c!an'e . CSCE 1Coffee Su'ar an$ Cocoa E7c!an'e2 5co++o$tes E7c!an'e In E7c!an'e: you !ae re+e$y: clearn' a'ency +a?es sure t!at t!e )uyer s a)le to &ay an$ t!e seller s a)le to $eler E7c!an'e Tra$e$ Derates 5'oerne$ )y a'ree+ents n &rescr)e$ for+s 5TC $erates: t!ere9s an or'an#aton t!at too? ntate to &ro$e unfor+ $ocu+entaton 1Internatonal S"a&s an$ Dealers Assocaton 5ISDA2 5 see )elo" CRSS5C-RRENCO SA6 1refer to $a'ra+ on &a'e /> of t!e ree"er2
+. +S# %icensin Re?uirements
31
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
A. BS6 Lcensn' Re@ure+ents Secton G8 1BS6 Crcular2 5t!e lcense "ll ena)le t!e lcensee to en'a'e n currency for"ar$s an$ currency s"a& 2 Types o& %icenseG
a. Re'ular Derate lcense: any )an?, NBPB, afflate ). E7&an$e$ Derate Lcense: only Co++ercal an$ unersal )an?s can a&&ly +S# Circ. o. 1023
Secton 8. eneral Aut!orty 5any ;BANK ;NBPB ;An$ or ts su)s$aresafflates 4+ay en'a'e n fnancal $erates acttes u&on &ror a&&roal of t!e BS6 5a )an? +ay en'a'e n $erate acttes BT n ts RB- an$ FCD-e7&an$e$ FCD+S# Circ. o 2701
VFI s!all !e$'e suc! $erates Vt!e rs? )en' !e$'e$ s alrea$y e7stn' "t! t!e FI tself
c. No lcense $erates SC6E: -B an$ KB " no lcense 5"!at +ay )e $one: ;tra$e ;sell ;$eal ;ta?e &ostons for t!er o"n account or n )e!alf of custo+ers n currency s"a&s an$ ;for"ar$s " tenor of one year or less ;sell ot!er $erate &ro$ucts of lcense$ enttes to ts custo+ers 6RIDED Vcusto+er currently !as a rs? " t!e )an? t "s!es to !e$'e
$. For en'a'n' n $erate transactons as en$5users SC6E: Ban?s, NBPB, t!er BS6 su&erse$ FI 5no lcense nee$e$ as t!ey are &urely en$5users +S# Circ 3=
a. for e7&an$e$ $erates aut!orty SC6E: NLO -Bs an$ KBs 5"!at +ay )e $one after ac@urn' lcense: +ay ;tra$e ;Sell ;$eal ;ta?e &ostons n currency s"a& ;for"ar$ of any tenor as "ell as all ot!er $erates for t!er o"n account or on )e!alf of custo+ers
). For re'ular $erates aut!orty SC6E: ot!er Fnancal nsttutons 1Fs2 su&erse$ )y t!e BS6 &e$e 5"!at +ay )e $one after ac@urn' lcense: +ay ;sell $erate &ro$ucts to ts custo+ers 6RIDED
5latest Crcular on $erate transactons ;f )an?s $oes !e$'n', no nee$ for lcense )ut ot!er t!an t!at, nee$s s&ecal lcense ;cor&orates 1cor&oratons2: not 'oerne$ )y BS6, t "oul$ $e&en$ on t!e artcles of ncor&oratons on N t!ey coul$ enter nto $erate transactons 1or else, transacton s ultra res2
555n ot!er *urs$ctons, cor&orates $oes not $o ultra res transactons: t!ey coul$ $o anyt!n'H But sr t!n?s t9s )etter to re'ulate t!e acttes of t!e cor&orates4 )ecause t soun$s 'oo$4ultra res..
C. "SD' Master 'reements 32
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
<<8 ISDA MASTER AREEMENT 1nternatonal s"a& $ealer9s assocaton2 5stan$ar$#e $ocu+entaton 5cannot +o$fy ter+s of a'ree+ent 5!ae to use sc!e$ule to c!an'e t!e a'ree+ent 5one of t!e +ost carefully $rafte$ a'ree+ent 5!as = &a'es lon' of lsts of Derate A'ree+ents
C!ua s'ne$ a Tra$' Contract an$ ot!er $ocu+ents "o )en' a"are of t!e rs?s nole$ C!ua "as as?e$ to $e&ost a'an 6GG?. S!e "ante$ to "t!$ra" !er +oney )ut DIAQ "oul$n9t allo" !er C!ua nsttute$ t!e &resent acton to recoer !er +oney I: N t!e TRADIN CNTRACT s ALID ELD: ALID IN ITSELF B-T TRANSATIN CARRIED -T T IM6LEMETN IT ID
Cross5out nettn' 5you !ae a +aster a'ree+ent "!c! you "ant to a+en$: you can9t *ust cross t out. T!e +aster a'ree+ent stays as s, you !ae to +a?e a sc!e$ule to t!e +aster a'ree+ent "!c! reflect t!e a+en$+ent
Co++o$ty F7tures Contract 5s&ece of securtes 5a'ree+ent to )uy or sell a s&ecfe$ @uantty an$ 'ra$e of a co++o$ty at a future sale at a &rce esta)ls!e$ at t!e floor of e7c!an'e
SCED-LE 5contans t!e ter+s a'ree$ u&on )y t!e &artes 5actual transactons e$ence$ )y confr+aton 5contans a seral a'ree+ent clause 1any an$ all transactons are cons$ere$ as one a'ree+ent2 VVV'ross out nettn' &roson satsfes t!e $elery re@ure+ent to ren$er a future contract al$
Ter+s of Contract s'ne$ )y C!ua 5na&al "ll act as )ro?er an$ "ll $rectly trans+t t!e or$er of custo+ers 1nclu$es C!ua2 to ts &rnc&al Fran?"ell Enter&rses n K. T!e later "ll t!en &lace t!e or$er to To?yo E7c!an'e. 5!o"eer, n t!s case, t!ere "as no e$ence t!at t!e or$ers an$ t!e +oney "ere trans+tte$ to Fran?"ell.
If t!ere9s a $efault on t!e &art of &arty, all of t!ese transactons are nette$ suc! t!at only nu+)er e+er'es. Sn'le a'ree+ent: all t!e a'ree+ents treate$ as a sn'le transacton 1t!en sr $scusses c!erry &c?n'2 5 See )elo"
-napal #hilippines Commodities v. C' (1)
F: na&al s a re'stere$ an$ lcense$ co++o$ty futures )ro?er. Susan C!ua "as nte$ )y Da#, Account E7ec. f na&al, to nest n t!e co++o$ty futures tra$n' )y $e&ostn' 60GG?
;t!e tra$n' contract IS ALID IN ITSELF )ecause t co+&les "t! t!e R-LE AND RE-LATINS N CMMDITO F-T-RES TRADIN ;B-T t!e transacton "!c! "as carre$ out to +&le+ent t!e contract DEIATED fro+ t!e true +&ort of t!e a'ree+ent Vno actual $elery to Fran?"ell Vfnal settle+ent s +a$e )y &ay+ent of t!e $fferences of &rces 5t!e $ealn's )eca+e +ere s&eculate contracts n "!c! &artes +erely AMBLE n t!e rse an$ fall of &rces IC IS ILLEAL As suc!, t!e tra$n' contract )eca+e n t!e nature of a AMBLIN CNTRACT IC IS N-LL AND ID. na&al . CA: In ISDA, t!ere s nettn' off of a'ree+ents "!c! +ay 'e rse to 'a+)ln' ssues. In case t!ere s )ut &reten$e$ $elery of 'oo$s nole$ n t!e transactons, t!e Cl Co$e &roson &ro!)tn' 'a+)ln' s olate$. 33
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
SIR: T!ere9s a secton t!at &en$n' t!e ssuance of SEC of rules of tra$n' of securtes of futures, tra$n' s sus&en$e$. o"eer, n t!e $ocu+ent calle$ ISTRO F BACKR-ND of SEC, "!at s sus&en$e$ s &u)lc tra$n' of co++o$ty future transactons
na&al !a&&ene$ "!en co++o$tes tra$n' "as stll allo"e$. T!e &ro)le+ n t!s case s t!at een f t!e contract "as al$, ts +&le+entaton "as suc! t!at t!ere "as no $elery of t!e co++o$ty, n olaton of ART 8G>, NCC
T!e ssue no" s N cross5currency s"a&&n' after t!s, or contracts a)out currences, s co+&re!en$e$ n ART 8G>. In ot!er "or$s, s ForE7 securtes S!are of stoc?s N, N4But s t 'oo$s
Loo? at A: oo$s $efne$. It e7clu$es +oney an$ le'al ten$er n t!e 6!l&&nes. It s +&le$ to nclu$e fore'n e7c!an'e. If t!at s t!e case, t!en s Fore7 su&&ose$ to )e conte+&late$ un$er Art 8G> SIR says no, )ecause ntro$uctory &ara'ra&! of A states t!at t!e $efnton of 'oo$s un$r t!at artcle s for t!e ttle of sales, not un$er t!e ttle of aleatory contracts. S A8G> $oes not conte+&late fore7.
First #hilippine "nternational +an, v. C' (1)
F: Frst 6!l&&ne Internatonal Ban? "ent nsolent : C!erry &c?n' 1l@u$ator &c?s out t!e contracts not faora)le to t!e nsolent )an?2 s not allo"e$. T!e conserator s not allo"e$ to $sre'ar$ contracts unfaora)le to t!e nsolent )an?. 5&o"er of conserator s not unlateral... SECTIN =G, nsolency la"
5&ro!)ts t!e sale, transfer, etc. of t!e assets of t!e nsolent +ont! &ror to fln' for nsolency 5$oes not a&&ly to )an?s an$ nsurance co+&anes )ecause t!ey !ae t!er o"n set of nsolency rules F6IC . CA: C!erry &c?n' s not allo"e$ n 6!l&&ne *urs$cton. T!e &o"ers 'rante$ to t!e conserator, enor+ous an$ e7tense as t!ey are, cannot e7ten$ to t!e &ost facto re&u$aton of &erfecte$ transactons. t!er"se, t!ey "oul$ nfrn'e u&on non5+&ar+ent of contracts clause n Consttuton. SIR: 5)ecause of t!e sn'le transactons clause, t!ere9s no c!erry &c?n' )ecause t!ere "oul$ only )e one c!erry to &c? &a'e == of sr9s )oo?
5". Securitiation
'. Concept
Securt#aton 5+eans )y "!c! t!e selleror'nator $scounts recea)les to t!e )uyer on a true sale )ass 5a)solute transfer: cre$tors of t!e seller cannot reac! t!e assets 5"t!out recourse transacton 5)uyer +ust )e a S&ecal 6ur&ose Entty 1s&ecal &ur&ose cor&oraton or s&ecal &ur&ose trust2 VVt!e S6E re&ac?a'es t!e recea)les n t!e asset &ool an$ ssues a securty ?no"n as ABS 1Asset Brac?et Securty2 1See &art B2 34
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
5recea)les transfor+e$ nto securtes DIFFERENTIATED FRM AN S6: S6: noles )a$ $e)ts Securt#aton: &erfor+n' recea)les 1cre$t car$ recea)les, 6LDT2
+. 'sset!ac,ed securities
B. Asset5)ac?e$ securtes VVABS s sol$ to nestors "!o loo? to reenues collecte$ fro+ t!e asset &ool VVt!ere s oercollateral#aton n t!s stuaton BS6 Crc. >0 5r'natn' )an? cannot use ts o"n trust $e&art+ent to ssue ABS, !as to $o t t!rou'! anot!er )an?
C. Securitiation 'ct o& 200= (R.'. 27)
SECTIN . Defnton of Ter+s. 5 For &ur&ose of t!s Act, t!e ter+: 1a2 3Securt#aton3 +eans t!e &rocess )y "!c! assets are sol$ on a "t!out recourse )ass )y t!e Seller to a S&ecal 6ur&ose Entty 1S6E2 an$ t!e ssuance of asset5 )ac?e$ securtes 1ABS2 )y t!e S6E "!c! $e&en$, for t!er &ay+ent, on t!e cas! flo" fro+ t!e assets so sol$ an$ n accor$ance "t! t!e 6lan. 1)2 Asset5)ac?e$ securtes 1ABS23 refer to t!e certfcates ssue$ )y an S6E, t!e re&ay+ent of "!c! s!all )e $ere$ fro+ t!e cas! flo" of t!e assets n accor$ance "t! t!e 6lan.
1c2 3Assets3, "!et!er use$ alone or n t!e ter+ 3Asset5)ac?e$ securtes,3 refer to loans or recea)les or ot!er s+lar fnancal assets "t! an e7&ecte$ cas! &ay+ent strea+. T!e ter+ 3Assets3 s!all nclu$e, )ut s!all not )e l+te$ to, recea)les, +ort'a'e loans an$ ot!er $e)t nstru+ents: 6ro$e$, T!at recea)les t!at are to arse n t!e future an$ ot!er recea)les of s+lar nature s!all )e su)*ect to a&&roal )y t!e Securtes an$ E7c!an'e Co++sson 1SEC2 or t!e Ban'?o Sentral n' 6l&nas 1BS62, as t!e case +ay )e: 6ro$e$, furt!er, T!at t!e ter+ 3Assets3 s!all e7clu$e recea)les fro+ future e7&ectaton of reenues )y 'oern+ent, natonal or local, arsn' fro+ royaltes, fees or +&osts. 1$2 3Asset 6ool3 +eans t!e 'rou& of $entfe$, !o+o'eneous assets un$erlyn' t!e ABS. 1e2 3Co++sson3 refers to t!e Securtes an$ E7c!an'e Co++sson 1SEC2. 1f2 3Cre$t En!ance+ent3 +eans any le'ally enforcea)le sc!e+e nten$e$ to +&roe t!e +ar?eta)lty of t!e ABS an$ ncrease t!e &ro)a)lty t!at t!e !ol$ers of t!e ABS recee &ay+ent of a+ounts $ue t!e+ un$er t!e ABS n accor$ance "t! t!e 6lan. 1'2 3r'nator3 +eans t!e &erson or entty "!c! "as t!e or'nal o)l'ee of t!e Assets, suc! as fnancal nsttuton t!at 'rants a loan or a cor&oraton n t!e )oo?s of "!c! t!e Assets "ere create$ n accor$ance "t! t!e 6lan. 1!2 36lan3 +eans t!e &lan for securt#atons as a&&roe$ )y t!e Co++sson 12 3Secon$ary Mort'a'e Insttuton 1SMI23 +eans an entty create$ for t!e &ur&ose of en!ancn' a secon$ary +ar?et for res$ental +ort'a'es an$ !ousn'5relate$ ABS. 1*2 3Seller3 +eans t!e &erson or entty "!c! coneys to t!e S6E t!e Assets for+n' t!e Asset 6ool n accor$ance "t! t!e 6lan. In +ost nstances, t!e Seller +ay tself )e t!e r'nator. 1?2 3Sercer3 refers to t!e entty $es'nate$ )y t!e S6E to collect an$ recor$ &ay+ents recee$ on t!e assets, to re+t suc! collectons to t!e S6E, an$ &erfor+ suc! ot!er serces as +ay )e s&ecfcally re@ure$ )y t!e S6E, e7clu$n' asset +ana'e+ent or a$+nstraton. 1l2 3S&ecal 6ur&ose Entty 1S6E23 +eans et!er a S&ecal 6ur&ose Cor&oraton 1S6C2 or a S&ecal 6ur&ose Trust 1S6T2. 1+2 3S&ecal 6ur&ose Cor&oraton 1S6C23 refers to a *ur$cal &erson create$ n accor$ance "t! t!e Cor&oraton Co$e of t!e 6!l&&ne solely for t!e &ur&ose of securt#aton an$ to "!c! t!e Seller +a?es a true an$ a)solute sale of assets. 1n2 3S&ecal 6ur&ose Trust 1S6T23 +eans a trust a$+nstere$ )y an entty $uly lcense$ to &erfor+ trust functons un$er t!e eneral Ban?n' La", an$ create$ 35
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
solely for t!e &ur&ose of securtes an$ to "!c! t!e Seller +a?es a true an$ a)solute sale of assets SIR: een f securt#aton act &asse$ 8GG/, not +uc! securt#aton transacton un$er t!e act 5@ute recently, )ecause of t!e su)6r+e &rces, securt#aton ac@ure$ )a$ re&utaton 5S6 Entty 1S6E2, "!c! can )e an S6C or S6 trust, "ll )e t!e one to ssue t!e asset5 )ac?e$ securtes 1ABS2 ABS: recea)les t!at "ere ac@ure$ )y t!e S6E 55t9s source or re&ay+ent "oul$ co+e fro+ t!e o)l'ors of t!e recea)les 55t!e !ol$ers of ABS are loo?n' to t!e &ay+ents fro+ t!e o)l'ors, n a sense, t9s a l+te$ recourse
DNE: Collateral#aton e.'. Issue s 6M, t!e &ool of recea)les su&&ortn' t s , SELLER of t!e r ecea)les or'nator lo)e, S+art, 6LDT4 Sercer can also )e t!e or'nator S6T: trust $e&art+ent can act as one. A +ere account "n trust $e&art+ent 1t!ere can )e seeral S6Ts n one trust $e&art+ent2 S6C: cor&oraton t!at s for+e$ an$ esta)ls!e$ for t!e &ur&ose of t!at sn'le securt#aton transacton 55+ore cu+)erso+e: s!oul$ !ae )oar$ of $rectors, +eet re&ortn' re@ure+ents of SEC4etc. 5555EER, f you use an S6T, t "oul$ )e easer t!an S6CH
5)ut "!y s t t!at t!ere9s not +uc! securt#aton transactons: a )an? t!at "ant to enter a securt#aton transacton CANNT -SE ITS N TR-ST DE6ARTMENTH T!e S6T +ust )e n$e&en$ent fro+ t!e RIINATRH 5sr says t!s s!oul$ )e reerse$ as t!e trust $e&art+ent of a )an? s se&arate an$ $stnct fro+ t!e )an?9s o&eratonsH
N a )an? can &urc!ase ABS BS6 ssue$ Crc /> t!at states t!at )an? can ac@ure ABS 1to t!at effect, t!ere9s un$erlyn' securtes +entone$ )ut sr sa$ t!at t9s t!e sa+e as ABS2
e.'. s!are of L-s on t!e to)acco ta7es "ere securt#e$ 1)ut t!ere9s a &roson n t!e ne" act "!c! &ro!)ts securt#aton of ta7 reenues. Sr says t!e e7a+&le s not coere$ )y t!e &ro!)ton )ecause t s not reenue flo", t s not l@u$ yet42
5"". DueDilience "nvestiation
Due $l'ence tea+ n a la"fr+: e7a+nes an entty4 8 ty&es: 1. #rospectus
Due Dl'ence 5$ere$ fro+ securtes act "!ere t!ere9s astate+ent to t!e effect t!at securtes to )e sol$ to t!e &u)lc +ust )e re'stere$ "t! SEC an$ t!ere +ust )e a &ros&ectus acco+&anyn' state+ent an$ t!e facts +entone$ t!eren +ust )e accurate n all +ateral res&ect, no o+ssons "!c! "oul$ +a?e any state+ent n t +slea$n'. In t!at act, t "as a $efense on t!e &art of t!e ssuer t!at t !as e7ercse$ D-E DILIENCE n +a?n' t!e RS n t!e &ros&ectus. T!at $efense s su&&orte$ )y t!e ssuer9s e+&loyn' a D-E DILIENCE TEAM. [so )al? sa D-E DILIENCE TEAM: ns&ects t!e $ocu+ents of t!e co+&any, transactons, etc. to +a?e sure t!at all +ateral nfor+aton a)out t!e co+&any s correct4 -n$er SRC, $ue $l'ence s no lon'er a $efense. T!e KNLEDE DEFENSE s t!e only $efense left: t!e ssuer or un$er"rter +'!t esca&e la)lty f &roes t!at &urc!aser !a$ ?no"le$'e of t!e fact ncorrectly state$. D-E DILIENCE +ay )e +t'atn' crcu+stance n a$+n case )efore SEC )ut not $efense.
5"!at entty n t!e 6!l&&nes e7&ect lots of recea)les BANKSHHH 36
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
2. 'c?uisition Due Dilience
e.'. 6!la+lfe s )en' s ol$ )y AI, t!ere are seeral la"yers an$ un$er"rters4 Nye?, +oot )ecause transacton "as a)orte$
E.'. Fore'n )an? )uys R6 )on$s For ZM 5)ut fore'n )an? "orres a)out cre$t5"ort!ness of R6 1no5electon ne"s42 so t "ants to 'et r$ of t!e transacton "t! R6. S )an? ssues CLN to a local )an?, local )an? 'es ZM to fore'n )an? n e7c!an'e of CLN. T!e a'ree+ent s t!at t!e CLN "oul$ carry a !'!er nterest t!an t!e cre$t rate4 t!en I9+ lost4
5""". Certain Financial #roducts/Esoteric Structures
'. Trade 'ccount/+ro,erin
e.'. SMC !as seeral $ealers4SMC $elers &ro$ucts to SMC, Dealers "oul$ not &ay all at once
Cas! settle+ent: fore'n )an? "oul$ sell ts !ol$n's of R6 )on$s to +ar?et 1an$ &ro)a)ly for a lesser &rce2. T!e &rocee$s of t!e sale "oul$ t!en )e &a$ to t!e local )an?
6!yscal settle+ent: t!e R6 )on$ s $elere$ to t!e local )an?J t!s s )etter )ecause t!e R6 )on$ s t!e +ost &r+e 1nonrs? te+2 n t!e 6!l&&nes. If "orse co+es to "orst, t!e local )an? "oul$ stll )e &a$ n 6esos.
SMC coul$ +an$ate a )an? to loo? for nestors t!at "oul$ )uy t!e recea)les ". Certain -ther Matters
)an? actn' for seeral nestors, nestors "oul$ enter a'ree+ent "t! t!e )an? to loo? for nest+ents
!en SMC sells recea)les to a )an? re&resentn' seeral nestors, t!e )an? +erely 'es 6ARTICI6ATIN 6ARTICI6ATESCNFIRMATIN SALE to t!e nestors, t!s "ay t!e )an? recees co++sson 1Manla Ty&e of Tra$e Bro?ern'2
+. Credit%in,ed otes/Deposits
'. 'ntiMoney %aunderin 'ct
Fnancal Acton Tas? Force 1FATF2: a tas? force or'an#e$ )y $eelo&e$ countres "!c! $entfe$ noncoo&erate countres 16!l&&nes "as for+erly nclu$e$ n t, to'et!er "t! Nauru an$ Russa2 5f t!e 6!l&&nes $$ not co+&ly "t! t "n t!e $ea$lne, t!ere9s a sanctonH 1+oney 5 re+ttances to t!e 6!l&&nes "oul$ )e cross c!ec?e$, +eann' $elay n t!e rece&t 37
BANKS AND FINANCIAL INTERMEDIARIES: Atty. Rafael Morales
of re+ttances n t!e 6!l&&nes2 5!o"eer, st AMLA "as not co+&lant n certan as&ects.
AMLC: aut!or#e$ to free#e assets )ut t!s &o"er ta?en out fro+ t, s!oul$ &etton CA for free#n' of assets 1)ut t!s s &ro)le+atc )ecause a +ole n t!e SC coul$ easly nfor+ t!e +oney5laun$erer of t!e atte+&t to free#e t!e latter9s assets, an$ t!us t!e account "oul$ )e "$ra"n2 5 T!e 8n$ AMLA "as nferor fro+ t!e st one )ut t )eca+e co+&lant )ecause t!e one "!o c!ec?e$ t "ne$ an$ $ne$ "t! Con'ress+enH
n cases "!en t!ere9s no nee$ for free#n' or$er fro+ CA: ;5*ac?n' ;Dru' traffc?n' 1as f t!e frst t!n' t!at t!e olators "oul$ $o s to $e&ost t!e &rocee$s of t!er lle'al acts n t!e )an?sH2 5t!ere9s also su''eston t!at la"yers )e "!stle5)lo"ers: B-T TIS -LD NT D BECA-SE F TE CNFIDENTIALITO AREEMENT BETEEN LAOERS AND CLIENTS
5t!ere are +any reco++en$atons of t!e FATF: )ut only fe" are ta?en 5a+on' t!e reco++en$aton s to a+en$ t!e )an? secrecy la"4 5t!res!!ol$ a+ount lo"ere$4f you transact "t! coere$ nsttutons an$ t!e a+ount of t!e transacton s a)oe t!e t!res!ol$, t!e )an? s o)l'ate$ to fle a CTR4)ut een f lo"er t!an t!e t!res!ol$ an$ t!e )an? "oul$ )e sus&cous, t!e )an? coul$ stll fle a 3sus&cous transacton re&ort3 1CA: I $on9t ?no" "!y t9s CTR "!en t stan$s for sus&cous transactons re&ort42
+. Scurities Reulation Code
B. Securtes Re'ulaton Co$e 5statute n Securtes la", a+on' "!c! are: ;Trut! n len$n' act ;BL &ros: trut! n )orro"n' act ;SRC: trut! n securtes act 5&ersons "!o "ant to sell securtes nee$ to co+&ly "t! t!e re@ure+ents of re'straton )y SEC E7ce&tons: . E7e+&t securtes: "!en sol$ to t!e &u)lc, no nee$ to re'ster t 1e7a+&le, 'o9t securtes ssue$ to t!e &u)lc42 8. Securtes sol$ n transactons classfe$ as e7e+&t n SEC: e.'. 6rate &lace+ent 555*ust fle "t! SEC a notcefor+ of e7ce&ton "n G$ fro+ $ate of sale . ffs!ore offern': not coere$ )y SEC )ecause SEC "oul$ not !ae *urs$cton oer sale of securtes outs$e t!e 6!l&&nes ;SEC coul$ co+e u& "t! a lst of e7e+&t securtes an$ transactons ;so+e of t!e lst are $scusse$ n Sr9s )oo?4"!c! s unfortunately out of stoc?4 !e!e. 5Any &u)lc offern' of securtes s &ro!)te$ unless t!e securtes are re'stere$ " SEC an$ SEC !as $eclare$ effecte t!e Re'straton State+ent 6RIATE 6LACEMENT: sale to not +ore t!an < non@ualfe$ )uyers 1@ualfe$ )uyers are t!e )an?s, fnancal nsttutons2 6-BLIC FFERIN: ran$o+ or n$scr+nate offern' to t!e &u)lc 1any +e+)er of @ualfe$ )uyers2 Pualfe$ )uyers: t!ey can fen$ for t!e+seles ;;;To ao$ re'ulaton )y t!e SEC: FFSRE FFERIN: a contract s s'ne$ a)roa$ an$ &ay+ents are +a$e t!rou'! FCDINSIDER TRADIN: "!en you are n &ossesson of nfor+aton not ?no"n to t!e &u)lc, you9re not su&&ose$ to tra$e "t! t!at s!ares untl t!e &u)lc "as +a$e a"are of t!e nfor+aton 1only after $sclosure can an ns$er tra$e2 5ns$er tra$n' rules +eant to re+e$y t!e asy++etry n nfor+aton to +a?e t!e ns$er an$ non5ns$er &ar &assu n ter+s of nfor+aton 38
