CHAPTER 5

DOCUMENTS IN CREDIT TRANSACTIONS

 Documents that are used in credit transactions could be classified into two major types:
 Those used for credit evaluation to eventually approve or disapproved an applicant.
 Those used to document an approved credit transaction.

PART I
Document Required for Credit Evaluation
INITIALS USED:

 ITR – Income Tax Return

 It would show the gross income and taxable income for salaried individual. It does not
reflect the applicant’s true “take-home” Income.

 Bank Statement
 is a document that is issued by a bank once a month to its customers, listing the
transactions impacting a bank account. The statement provides the following
information: The beginning cash balance in the account. + The total amount of each
deposited batch of checks and cash.

 Board of Directors
 A board resolution of a company authorizing the issue of corporate credit in the name of
the executive director.

 Original Certificate of Title

 A certificate of title is a state or municipal-issued document that identifies the owner or
owners of personal or real property. A certificate of title provides documentary
evidence of the right of ownership mainly for real estate.

 SEC Registration (Securities and Exchange Commission)

 It indicate the ‘birth’ of a corporation. Prior to the date of the registration certificate
from SEC, the corporation did not exist. Without a SEC registration, a corporation does
not exist, and cannot transact any business of any kind whatsoever.

 Financial Statements
 are formal records of the financial activities and position of a business, person, or other
entity. Relevant financial information is presented in a structured manner and in a form
which is easy to understand

 DTI and Business Permits

 These are required for every establishment and they have to be displayed prominently
in the place of business. All the applicant has to do is to make copies for submission to
the bank.
  Serial Numbers
 are a deterrent against theft and counterfeit products, as they can be recorded, and
stolen or otherwise irregular goods can be identified. Some items with serial numbers
are automobiles, electronics, and appliances.
 With this, we can assure that the item that you have that would serve as collaterals in
future purposes was truly yours.

 Transfer Certificate of Title

 For starters, a transfer certificate of title (also known as a deed of sale or deed of
absolute sale) is the property title of a given piece of land with or without a physical
structure built on it.
 It contains details pertaining to the geophysical elements of the land as well as its
registration number and name of the owner. The transfer certificate of title
authenticates the ownership of the land as well as the ‘air space’ in it, which is also
called ‘air rights’, which gives the owner the right to build or develop in the air space
above the property.
 Furthermore, the TCT should also show the title’s transfer history which includes a
record of previous TCT’s that were legally canceled due to the cycle of ownership.

PART II
DOCUMENTATION AND INSTRUMENTS USED FOR APPROVED CREDIT APPLICATION

 There is a need to distinguish between a document and an instrument.

 A document, in this book, is defined as just any piece of paper on which is written words or
transactions; a document becomes an instrument when it confers the power to transfer, assign,
negotiate, alienate, buy or sell real or personal rights.

SAMPLE OF INSTRUMENTS

PROMISSORY NOTE

 A promissory note is either negotiable or non-negotiable. A non-negotiable promissory note

cannot be transferred from one hand to another. It cannot be assigned or negotiated. By
contrast a negotiable promissory note can be purchased, sold, used as a collateral for a loan. For
a pronote to be negotiable, it must comply with requirements of the negotiable instruments
law:

 It must be complete and regular in its face.

 It must be signed by the maker.
 It must contain an unconditional promise to pay a definite sum of money.
 It must be payable on demand or a fixed future date.
 It must be payable to a specific person or a bearer
DEED OF ABSOLUTE SALE

 A deed of absolute sale transfers the ownership and possession of the thing bought to the
buyer. In the sale of a car or a motorcycle, the ownership must be transferred to the buyer so
that the vehicle can be registered with the LTO or Land Transportation Office.

CHATTEL MORTGAGE

 Chattel mortgage, sometimes abbreviated CM, is the legal term for a type of loan contract used
in some states with legal systems derived from English law. Under a typical chattel mortgage,
the purchaser borrows funds for the purchase of movable personal property from the lender.

TRUST RECEIPTS

 A trust receipt, by itself, is not a credit instrument. If it is used in a credit transaction, then
becomes a credit instrument. These are being used by a popular cosmetic company.

 This type of transaction is governed by P.D. 115, or the Trust Receipts Law. The seller is called
the ‘entruster’ and the holder of the goods the ‘entrustee’.

WAREHOUSE RECEIPTS

 A warehouse receipt, obviously issued by a warehouse (usually a government-registered and

bonded warehouse. It is not a credit instrument. It is a document used in a deposit transaction.
However when the farmer uses his warehouse receipt to obtain a loan, then a credit transaction
arises, and the warehouse receipt becomes a credit instrument.

PLEDGE

 In a contract of pledge, used in pawnshops, it is essential that the thing pledged is in the
possession of the pledgee. (or with a 3 rd party by mutual agreement. The borrower is called
pledger, who puts up his personal property (the thing pledged) and the lender, who takes
possession of the thing pledged, is called the pledgee (the pawnshop). Every movable property
or incorporeal right could be the object of a pledge provided that it is capable of possession.