Aleezah Gertrude Regado

CREDIT TRANSACTIONS 2 D TRANSCRIPT

SYNDICATED LOAN AGREEMENT  bank has a limited amount to lend X.

Parties Rationale: bank does not want to assume the entire risk of a loan, banks will
band together, and they will lend the required funds.
Multiple lenders (acting through a Borrower
common agent) (Ayala Corporation) Recitals or Premises
Consent is manifested by their signatures
Consideration  It provide the context of the transactions. Why is the borrower borrowing or
P 600,000,000 why are the lenders lending the funds. What’s the purpose of the
transaction?
 It’s just like in your Consti it will be the preamble. Useless but sometimes
Basic Structure
useful. This will provide thecontext.
 Parties (who are the lenders, who are the borrowers  Normally it’s not needed but in case of litigation it will provide the context
 Premises –provide context of the loan transaction of the transaction
 Recitals –“whereas clauses” : provide the context of transaction
Terms
 Terms and Conditions
 Definition of terms  the terms of the contract will be the loan, the principal plus interest, the
 Interest period payment and penalties and other provisions.
 Php 6 Million – repayment date 5 yrs with interest of 11.somethings
 Payable quarterly
Drawdowns
*** So you see here the lenders. They’re not just banks. They’re insurance
 Loan proceeds will be released or will be taken by the borrower companies and a retirement fund.
 Example : 600 M loan, every drawdown 100M is released by one lender to
Definitions
borrower.
 Normally in a contract, we have a separate section defining important terms
“lenders may for any cause or reason without notice to borrower terminate this
in the contract. But sometimes you just define as you go along.
agreement to lend”

 Meaning : at any point before the release of loan

 The lender may choose not to proceed Commitment
 This is for the purpose of an opt out  This is the amount committed by the lenders to lend to the borrowers.
 Sometimes just by committing to lend, the borrower pays a corresponding
fee which you call a commitment fee.
 It’s a transaction wherein the bank requires the borrower to pay because the
bank agreed to lend. Not even actually lending, just committing.
LOAN FORM Why would there be a commitment fee?
 Because remember perfection of the loan happens upon release of the
Syndicated Loan Agreement proceeds. So there is a period wherein the bank will make available the
funds, and that availability of the funds will not necessarily coincide with
 it’s a loan by a group of banks.
the release of the funds.
USUAL BANKING PRACTICE  “Single borrower’s limit”
Aleezah Gertrude Regado
CREDIT TRANSACTIONS 2 D TRANSCRIPT
 So there is that period wherein to the mind of the bank, the bank should be
earning on its money that is now parked because it has to be released to the
borrower at anytime during the commitment period.
 That period wherein the funds may be released.
So in certain market conditions, there is a requirement to
pay a commitment fee. Or, let’s say you have a syndicated
bank here, just because they are participating they will also
charge you another participating fee. Because they agreed
to be a part of this consortium of lenders
Interest Rate
 Here you have an interest rate that is fixed. It’s very high actually that time,
11.3135% per annum.
Amount and Terms
 Here the lenders commit up to P600 Million. And it says the lenders agree
to allow a drawdown.
What’s a drawdown?
 It’s a fancier way of saying release of the loan proceeds.
 When the borrower gets the money, it’s what you call a drawdown.
 Drawdown date = date of release of the proceeds
 For every drawdown, the borrower issues a promissory note
 There’s this additional document : PN : incorporating the terms and
conditions of the loan agreement
Qualification.
Here there is a commitment to lend but there’s a qualification.
 “The lenders may, for any reason and without notice to the borrower,
terminate this Agreement to lend”
 So it’s just like saying we are agreeing to lend now but prior to the actual
release, the perfection of the loan, we could terminate this agreement and
we will have no liability.
Is that valid?
 This is not the case of a purely potestative suspensive condition dependent
on the sole will of the debtor.
 Because from the get go, there is a commitment to lend.
 But the bank is just saying, yes we are committing to lend now, but
tomorrow, we can say that we’re backing out and we will have no
liability.
 More like a resolutory condition
 unilateral right to terminate. It’s not even a suspensive condition, it is just a
right to terminate.
Representations and Warranties
 Boiler-plate provisions for any big transaction.
 Lender/Borrower –makes warranties (corporate existence, having
necessary licenses and permits, stockholders approval)
Events of default
 Its stated to pay a monetary obligation on due date = payment default
Now, this is what happens
Day 1 Lender agreed to lend P600 Million
Day 2 Lender released proceeds resulting to perfection of
Loan Contract
Under this agreement and this is usually what happens in a loan transaction.
 There is a loan contract when the lender releases the loan, the borrower
will issue a promissory note in exchange.
 So, this will evidence the release of the loan proceeds as well as the
commitment to pay the obligation.
Meaning, the loan received in accordance with the terms of
the loan agreement.
So you have two documentations of the loan:
(1) the loan contract and
(2) for each draw down you have a promissory note.
Aleezah Gertrude Regado
CREDIT TRANSACTIONS 2 D TRANSCRIPT

Interest
 There’s a default penalty of 12% per annum on top of the interest so it’s
possible for you to agree on a penalty in case of default. So you have an
interest and then a penalty.
Repayment Date
 Of course when you have a loan, you have a Repayment date.
 I think the term of the loan is 5 years so you there will be a repayment of
the principal on the 5th year.
Prepayment
 When you do loan transaction this is what you look at.
 When you have a prepayment cost, it allows the borrower to prepay at
anytime following certain conditions.
Normally, right now, when you do transactions like this and you see this, you can
ask it to be waived because it’s a borrower’s market right. You can ask that there
should be no prepayment penalty and you should be allowed to prepay anytime. In
fact, for a consumer’s loan like housing loans, you’re allowed to prepay anytime
without penalty.
 There was a time like this one, wherein if you prepay, you have to pay the
bank x amount.
 Why? Because the bank committed the funds for a given term. Now, they
have to find other investment avenues
 Therefore, the borrower should compensate them. Because in the mean time
they will have to find where they will bring the money now, which will not
earn anything until they find a new investment avenue.
If you don’t need funds, will you borrow? Do you have benefits if you borrow?—
Vetting your reputation in the financial market. To deem yourself as credit worthy
Why do you have to stipulate that? Anyway, ownership transfers from the
borrower, why is it necessary to stipulate the use?
 Because the lender will be concerned with payment and the borrower might
be using it for risky transactions and might end up using the money.
 So it’s the form of control of the lender to make sure that the loan
proceeds will be used for a purpose that will insure the payment.
 Otherwise, there is a greater risk of default if there is no control that is
why you have to control it.
Example:
 Let’s say if I borrowed supposedly for business and then after borrowing, I
use it to buy expensive cars, which are pretty useless, then there is a
greater risk of default because it’s a form of a control.
 If you look at it, it’s not really necessary but it’s for the purpose of
insuring the payment.
 Legally, it’s not required because ownership passes to the borrower.
 Therefore, borrower will have full discretion on how to use the money.
 But to control the risk of default, the lender can impose a specific use.
Take note:
 There could be no offsetting so if you’re going to take the bank even if
there’s another transaction wherein the bank owes, there’s a stipulation
that there shall be no offsetting.
Will that be enforceable?
 Yes and besides if it’s invalid, the validating will be on the borrower.

Conclusiveness of Lender’s Books

 The computation of the lender is conclusive unless there is manifest error.
COPY PASTE PAGE
 Some people question this as it is a unilateral imposition. [No! You have to
show that there’s error. If there’s no error then it should be conclusive.]

Use of Proceeds

 The loans shall be used exclusively to finance the borrower’s working

capital requirements.
 Who’s the borrower here? Ayala Corporation.
 So it should be used only for business.
Aleezah Gertrude Regado
CREDIT TRANSACTIONS 2 D TRANSCRIPT

CREDIT TRANSACTIONS  In case of default (12% pa) , it shall continue to be the basis of accrual of
interest based on damages
Wrap up
What if the contract is not a loan/forbearance of money, example sale?
LOAN
Syndicated Loan agreement
 There’s interest only when the parties agreed in writing
 It can also occur by virtue of damages (interest by virtue of damages) Parties
Loan/Forbearance of money Not-loan or
Multiple lenders (acting through a Borrower
forbearance of money
common agent) (Ayala Corporation)
Mutuum (loan) /
Forbearrance (estorres case) – Consent is manifested by their signatures
allowed use of funds for the Consideration
mean time P 600,000,000
Interest Legal interest rate 6% (prior 6% pa
to July 1,2013 12% pa) - Basis Civil
- Basis interest fixed code  Here you see here a form of a contract
by BSP Article
Title:
- If parties agreed for 2209
an interest rate, it  what the contract is : Syndicated loan agreement
will be followed
Judgment It will continue to be the legal 6% but the basis will What is a syndicated loan agreement?
(Final and rate of 6% be interest for
executory) loan/forbearance of  Group of banks lending to one borrower
money (estorres v.  Why do we have that one? Certain lenders don’t want to be fully exposed,
supanagan) sometimes there is a legal limitation (single borrowers limitation)
- It is now a  It’s just like making an investment, you don’t want to put your money in
monetary one single venture
obligation
- No longer Parties
based on
2209  Lenders : banks, insurance companies and investment house and a
Agreement Follow such agreement retirement fund lending , trust department of a bank , investment house
of payment - Will the interest earn interest?  Therefore you have multiple lenders and a single borrower
of interest - GR:  Single borrower: Ayala Corporation
There shall be no compounding of interest  Third party : Insular investment as an agent of lenders (like a
- Except representative of all the lenders handling certain administrative matters
1 when there is judicial demand (filing of like notices, distribution of communication)
complaint in court)
2 agreed upon in writing that there shall be Date
compounding of interest
 Better if there’s only one date appearing in the document, above or at the
bottom
Interest  there is a stipulated rate (of course you follow it)  Either the date of signing or the date of notarization
Aleezah Gertrude Regado
CREDIT TRANSACTIONS 2 D TRANSCRIPT

 If you have different dates, rules may apply Interest rate

 For example BIR example, will assess based on the earlier date
 11.3135% -- fixed rate, meaning there is no adjustment all throughout the
Whereas clauses/Recitals loan.

 Will provide the premises for the context of the transaction Repayment date
 In this case: the borrower needs loan of P600,000 to finance its working
capital requirement  Due date
 In a certain case, the court was able to decide what type of contract is  Payment of loan in full : 5 years from the initial borrowing
involved based on the whereas clauses: it provides a context of the
AMOUNT AND TERMS
transaction
 Lenders confirm their obligation to lend P600 M
Definition
 Qualification:
 You can either define as you go along (example: while you write a  lenders may for any cause or reason terminate the agreement without notice
contract, provide so) and without prejudice to any obligation already incurred by the borrower
 You can provide a section for definitions
Availability of the loan
 Importance : common understanding of the terms used in the contract and
to avoid ambiguity  Provides that how the law should be made available. It’s like a ritual.
 Use only one term all throughout  Lenders will make available the funds at their respective offices
o Advance- amount to be lent to the borrower  But what actually happens, they place an account and the proceeds will be
sent to that account
Stages  Each release of the proceeds = promissory note
Day 1 Signing :  How do you borrow? There is (a) a notice of borrowing, and(b) a
you have a contract to lend and borrow
certificate issued with each borrowing, (c) a certificate confirming the
Day 2 Drawdown
representations and warranties, and other sets of documents. Then the
you have a perfect contract of loan
release of loan by the lender bank can release in tranches depending on the agreement.
 When the lender releases a loan, the borrower must issue a  So in a contract of loan you have 2 documents (1) Loan (2) Promissory
promissory note note
 Each drawdown = another promissory note
 Tax due on the note : Documentary stamp tax on the When you see a loan contract
promissory note
 You insert special provisions
Day 3 : Payment
 But there’s this boiler plate provisions, which means its particularly the
same
 P600,000 divided based on a schedule, each lender only agreed to lend up to a  Only special stipulations are added
certain amount
Prepayment
Interest payment date
 When you do loan transaction this is what you look at.
 Quarterly, on the last day of the quarter
 When you have a prepayment cost, it allows the borrower to prepay at
 Express 3 months and not quarter.
anytime following certain conditions.
 Otherwise it may be construed differently.
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CREDIT TRANSACTIONS 2 D TRANSCRIPT
In oblicon : you can’t force pre-payment because there is benefit of term
Here, the following conditions are:
1. There should be prior notice, the payment must be given on an interest
payment date,
2. it must be in multiples of so many millions.
3. But there is a kicker, aside from paying accrued interest there must be a
payment of a prepayment penalty.
 If you are the lender you will insist I the pre-payment penalty
 You basically lose the benefit of the interest that will accrue during the
remaining of the term and you have already committed funds
 If you are the borrower, you negotiate for the removal of this because
you want to pay anytime without any penalty
 Here the borrower allowed a pre-payment
 There must be prior notice and payment is given pro-rata to lenders, it shall
be made on an interest payment date
WHY? -- simplicity of administering the loan
 Normally, right now, when you do transactions like this and you see this,
you can ask it to be waived because it’s a borrower’s market right.
 You can ask that there should be no prepayment penalty and you should be
allowed to prepay anytime. In fact, for a consumer’s loan like housing
loans, you’re allowed to prepay anytime without penalty.
 There was a time like this one, wherein if you prepay, you have to pay the
bank x amount.
 Why? Because the bank committed the funds for a given term. Now, they
have to find other investment avenues
 Therefore, the borrower should compensate them. Because in the mean time
they will have to find where they will bring the money now, which will not
earn anything until they find a new investment avenue.
 If you don’t need funds, will you borrow? Do you have benefits if you
borrow?—Vetting your reputation in the financial market. To deem yourself
as credit worthy
Conclusiveness of Lender’s Books
 The computation of the lender is conclusive unless there is manifest error.
 So if you can show that there’s error there may be a correction, otherwise it
would amount to unjust enrichment
 Some people question this as it is a unilateral imposition. [No! You have to
show that there’s error. If there’s no error then it should be conclusive.]
Use of Proceeds
 The loans shall be used exclusively to finance the borrower’s working
capital requirements.
 Who’s the borrower here? Ayala Corporation.
 So it should be used only for business.
Why do you have to stipulate that? Anyway, ownership transfers from the
borrower, why is it necessary to stipulate the use?
 Because the lender will be concerned with payment and the borrower might
be using it for risky transactions and might end up using the money.
 So it’s the form of control of the lender to make sure that the loan
proceeds will be used for a purpose that will insure the payment.
 Otherwise, there is a greater risk of default if there is no control that is
why you have to control it.
Example:
 Let’s say if I borrowed supposedly for business and then after borrowing, I
use it to buy expensive cars, which are pretty useless, then there is a
greater risk of default because it’s a form of a control.
 If you look at it, it’s not really necessary but it’s for the purpose of
insuring the payment.
 Legally, it’s not required because ownership passes to the borrower.
 Therefore, borrower will have full discretion on how to use the money.
 But to control the risk of default, the lender can impose a specific use.
Funding and Yield Protection
 It’s simply this, if the lender lends you P600 Million
 All payment due to lenders, must meet such amount, even if there’s a
change in law, taxation scheme or any adverse circumstance
 When you practice, you have to learn to write this lengthy, the terms matter
 The payment shall always be in full regardless of anything that may be
imposed by the government
 EXCLUDING (taxes imposed on the overall income of the lenders) –that
for be the account of the borrower
 Corporate income tax—for the account of the lender
 The borrower should pay P600 Million plus the interest. Let’s say for the
interest, the lender wants to get 1% per month or P6 Million and it’s valid.
o The funding and yield protection, what does it say?
 That this 1% per month should be received by the lender without any
deduction whatsoever.
Aleezah Gertrude Regado
CREDIT TRANSACTIONS 2 D TRANSCRIPT
 It should be received completely by the lender. Whatever taxes that need to
be paid based on the payment of the interest should be paid by the
borrower.
 So if there will be an additional 0.1% to be paid, the amount should be
grossed up in such a way that upon payment of the interest, the P6 Million
would be the net amount to be received by the lender.
 It’s just like saying we will receive the amount of P6 Million completely
without deduction.
(b) amount to be paid to lender should be grossed up, the lender will still
receive 1 million
 whatever happens, the lender should receive fixed amount without any
deduction
 Except : Lender –shoulders tax on its overall income

(d) borrower’s obligation under this section shall survive the repayment of the
loan –it shall be for the account of the borrower
What will be the taxes imposed?
 Let’s say I think for banks lending it’s the gross proceeds tax that’s
imposed on the interest and then this is how we negotiate, this is accepted
by the bank.
 You cannot pass on the tax imposed on the overall income of the bank.
 So for income tax purposes, let’s say withholding, it should be part of this.
 That’s how you negotiate. But generally, if you’re part, on the side of the
bank, you use this clause saying basically that we have to receive P6
Million exclusive of all deductions.
 The net interest proceeds should be P6 million a month.
 That’s why they’re called a syndicate of tax, they’re like gangsters.
 They impose a lot of fees on you. If you look at that provision, if there is a
change in law, that will require the lender to pay some form of tax to the
government.
 This rate should be grossed up to cover that extra imposition so that in the
end, the lender will get 1% of P600 Million.
 If there’s an imposition that will result to a deduction of 0.1%, again this
amount should be grossed up so that it will be 1.1%.
 So when this is deducted 1% will still go to the bank, P6 Million still.
Change of circumstance : law, rule, etc
 Increase the cost of lenders in obtaining the loan /cost of compliance
 Borrower shall either pre-pay the loan pursuant to the prepayment cause or
shoulder the cost
 Based on Solid bank case
Representations and Warranties
 Boiler-plate provisions for any big transaction.
 Lender/Borrower –makes warranties (corporate existence, having
necessary licenses and permits, stockholders approval)
 Looking at the bottom there is a representation –affirm the fact that a
corporation is a validly existing corporation : check the business permit,
check the SEC
 Confirm representation and warranty : check board resolution allowing the
borrowing/ stock holders consent
Enforceability and validity
 Check corporate existence
 Check if there are no laws that will be violated by the contract
No breach
 When the borrower executes the loan agreement, the borrower will not
breach any loan/corporate rules
 How do you know? –certificate : Ask corporate officers to certfify
No default
- Ask finance guy/ executive officer of the company
THREATENED ACTION or LITIGATION:
 Again you will rely, on the in house counsel that these are the only cases
pending right now.
 Of course sometimes you actually don't have to say there are no pending
or threatened litigation affecting the transaction or involving any asset of
borrower. Sometimes you can just disclose.
 There's no way a big corporation will have no legal case. Somehow it will
have case involving its properties.
MATERIAL AND ADVERSE.
 You look at Item H- pending or threatened litigation.
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CREDIT TRANSACTIONS 2 D TRANSCRIPT
- "There are no pending or threatened legal actions before any court or
tribunal against or affecting the borrower or any of its assets"-- this is
important, the clause after that one -- "WHICH IF ADVERSELY
DETERMINED MAY MATERIALLY AND ADVERSELY AFFECT
THE FINANCIAL CONDITION OR OPERATION OF THE
BORROWER."
 Because sometimes there will be default, but that default may not be
material and adverse to the business of the borrower.
Example: Let's say borrower has credit cards for all key officers.
Then one day, he forgot to pay by inadvertence. That's a default.
But let's say it's only worth P10K, even if the credit card company
wins, it's not material and adverse because it's only P10K.
FINANCIAL STATEMENTS: again you have to rely on a counter
representation or certification by the relevant finance officer.
Ranking
- Promissory note 1, promissory note 2, promissory note 3
- Preference of promissory note
- Example when one is notarized, it shall be prioritized
Positive covenants—certain undertakings that should be fulfilled by the borrower
during the subsistence of the loan
 Obligation to do
o A reiteration of how the proceeds would be used
o Periodically submit reports to the lenders
o Borrower shall ensure that it continues with its corporate existence,
would have necessary government permits and approvals
o How do you prove that? –General information sheet submitted by
the corporation, audited financial statements
o Undertaking to pay and discharge taxes and other charges
Debt-to-equity ratio
 Based on the financial/ accounting standards
 These are controls of the bank for the lenders
 If the borrower exceeds this financial ratios, there is default = a violation
of the provision of the contract
Negative covenant –reverse. It is the borrower saying that the borrower will not
encumber any other asset in favor of other creditors unless the benefit of such
encumbrance is also given to the lender
o In effect you are saying: Borrower shall not secure any
indebtedness. None of the properties must be secured by any other
security arrangement
o Undertaking of the debtor not to encumber any of his assets
o Unless benefit of encumbrance is extended proportionately to the
other creditors
o EXEMPTIONS—encumbrance already existing at time of loan and
disclosed to the lenders in writing
o Statutory liens should be excluded
 Periodically the borrower shall inform the lender that there is no default
through a certificate
Sale or Lease of assets
 Consent of borrower must be given
 All/ Some of the assets
Dividends
 Borrower shall not pay dividends to its stockholders (other than dividends
payable solely in shares of its capital stock following an event of default)
 Ayala : public corporation, so you must insert this provision
 But there can be dividend declaration on the form of shares, there’s no
cash coming out from the company, only shares
Events of default
(1) Its stated to pay a monetary obligation on due date = payment default
Grace period
 2 days: not really a grace period (for administrative lapses)
 Given only because of failure to pay due to inadvertence , for those lapses,
not for the purpose of raising funds
 There is no automatic default
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CREDIT TRANSACTIONS 2 D TRANSCRIPT
(2) If borrowers fails to perform any other term, obligation or covenant in
the loan, Longer period of 5 calendar days :
(3) Error in the representation of borrower
(4) Cross default
Cross default provision
 You default in one contract with the narrower so the borrower defaults in
one contract, he is also deemed in default in this contract
 Borrower in default in one contract, he is also in default of the loan
agreement.
 If debtor defaults in a transaction A, even if there is no default in
transaction B, B can go after the debtor
 The purpose of cross default is to place them on equal footing. They can
both run after the debtor especially if the debtor is in a precarious financial
condition
Remedy of borrower in a cross default
 You can at least put a threshold depending on the capacity of borrower.
 Example threshold 10 M dollars –default in credit card
 Meaning : if it’s this amount, we can readily absorb. It shall not amount to
default
 If you can’t provide an amount, qualify what kind of default you are talking
about : what affects MATERIALLY AND ADVERSELY AFFECT your
ability to fulfill your obligation
 But it’s better to have an amount so there may be an amount to qualify
(h) default based on the assessment of lenders
 change in the circumstance of the borrower, change according to
interpretation of the borrowers, would reasonably affect their ability to
comply
 There may be an issue here because it’s the lender who determines
 But generally as long as the lenders would use a standard to determine
such, it shall pass any judicial scrutiny
Attachment/Garnishment
 Default event contemplates: an asset of a borrower is attached
 Attached –placed under custody of court subject to the result of dispute
/judgment
 Levy—enforce upon execution, the assets of the losing party
 Borrower’s concern – just like a cross-default provision, there must be a
qualification (materially and adversely affect obligation)
EFFECT OF DEFAULT
Acceleration clause
 Commitment—terminated
 Entire amount of loan, due and payable
 Borrower loses the benefit of the period
 Borrower will pre-pay
 Be careful with a penalty, in oblicon, such penalty substitute interest
 Place : it shall be in addition of the interest
Indemnity clause
 Anything : for the account of the lender
 contractual transfer of risk between two contractual parties generally to
prevent loss or compensate for a loss which may occur as a result of a
specified event
SECTION 9.01- Miscellaneous provisions
Right of Set-Off- "
 Borrower grant the lenders a general lien"The BORROWER hereby gives
the LENDERS a general lien upon, and/or right of setoff, and/or right to
hold and/or apply to the loan obligations...any amount or property in the
possession, control or custody of the lenders."
 This is about legal compensation If you're the lender, you have money in
your possession.
 The relationship between borrower and lender is debtor creditor and vice
versa. Technically you can have offsetting, if there is another transaction.
 There was a case before when somehow money passed through the bank.
Somehow it was remitted through one bank. The lender and borrower had
a transaction. In another transaction, the money was remitted through the
bank, which was not even a depository bank. I think the bank there, offset
or compensated the obligations because the borrower was in default. The
Court said it was not allowed.
 Remember that Citybank Case?To avoid those issues, there is this
provision: that ANY property or funds of the borrower coming to the
possession or control of the lenders can be made subject to compensation.
Right of Sell and Transfer of properties
 power of attorney to sell
Interest several
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CREDIT TRANSACTIONS 2 D TRANSCRIPT
 indicates that lenders are joint and not solidary
VENUE
 know where a case would be filed
 Example there’s multiple parties with different locations
 Stipulate a venue of any action
 It should be exclusive
 Or you may specify : arbitration
 Provide the governing law and the institution which shall administer the
administration
9.15 All lenders waive preference in Article 2244 (14) of the Civil Code
Art. 2244. With reference to other property, real and personal, of the debtor, the
following claims or credits shall be preferred in the order named:
(14) Credits which, without special privilege, appear in (a) a public instrument; or
(b) in a final judgment, if they have been the subject of litigation. These credits shall
have preference among themselves in the order of priority of the dates of the
instruments and of the judgments, respectively. (1924a)
 Should any of the lenders be minded to have their promissory note
notarized, there shall be no one to be prioritized
 Will discuss this in the concurrence and preference of credits
OPINION OF COUNSEL OF BORROWER
How do you check the veracity of the warranties?
 You cover yourself by a certificate to affirm a fact under oath
 Specify that you are rendering an opinion only based on Philippine law
 Oblicon provision : Art. 1341. A mere expression of an opinion does not
signify fraud, unless made by an expert and the other party has relied on
the former's special knowledge. (n)
OPINION OF COUNSEL OF LENDER
 Signature of lenders representative are genuine
 All matters and facts : true
 It’s just the counsel, confirming the proper execution of the loan contract
APPLICATION OF PAYMENTS
 When you receive payment, there is a sequence of what you pay first.
(1) COST (penalties and interest and then principal)That's why you have
that presumption, if there is a payment of a later installment, the earlier
installment is paid.
(2) INTEREST SEVERAL- this is just a reiteration that the lenders,,they are
not solidarily obliged in this contract
- That's pretty much it.
- The only issues are the default provissions as well as certain undertakings
such as the negative covenants.
- SO if you are the borrower make sure that they will not interfere with your
business operations.
“solidarily guarantees payment of an obligation”
 Guarantor is transformed as a surety
(Carodan v. China Banking corporation
- Provision of law states that when a guarantor binds himself solidarily
liable Provisions on solidary obligations must apply
- That is not necessarily true
- Surety cannot be a solidary debtor, there must be a default first
- You use this doctrine
- Rosalina along with the principal debtors Barbara and Rebecca is still
liable as a surety for the deficiency amount
- There was an agreement: surety agreement –changes could be made to the
principal obligation without notice or consent of the surety = pre-consent
or pre-approval of changes in the principal obligation
- This is one way of extinguishing a guaranty/surety = both agree to
materially alter as to increase the burden on the surety/guarantor
- The surety & guarantor can claim extinction of surety or guarantee.. Way
out –stipulate that surety/guarantor consents to any change even without
notice to them
QUIZ: depends
- Coverage : loan and guaranty
- Whether we discuss it or not