Financial Lease

Letter of Credit
- Issuing Bank’s promise to pay the Beneficiary provided all the terms and conditions in
said undertaking are stricylt complied with
- Payment mechanism in international trade
- Promise to a Seller/EXPORTER to unconditionally pay

Other Terms:

a. Documentary Credit
b. Bankers Comercial Credit
c. Letter of Undertaking

Types:
a. Irrevocable LC
- Issuing bank’s promise cannot be changed nor withdrawn wihtou the Seller’s and the
Buyer’s consent

b. Revocable LCs
- Reserves the right to cancel the before ACTUAL shipment is made even without the
consent of any party

However – the if the good is loaded – even if a revocable LC cannot be changed anymore.
- No longer in control or possession of owner
- When is it?
- Bill of Lading – evidence that the goods are already loaded; document of title

c. Confimed LC
- Where the correspondent bank guarantees the beneficiary that the issuing bank will pay
its obligation according to the LC terms and conditions.

Parties
A. Merchants
- A. Buying – Seeling
B. Importer – Exporter

B. Bank 0 Intermediaries
- Opening/Issuing Bank
- Correspondent Bank
Process Flow in Letter

 Impoter
1. Negotitates and finalizes a Purchase Orfder with foreign supplier
2. Applies with a Local Bank to open a Letter of Credit for a named foreign supplier
- Sets up the required Marginal Deposit
- Pays ½ of 1.0% LC Opening Charges

 Opening Bank
- Issues the irrevocable LC to the foreign supplier thru a nominated correspondent bank

 Advising Correspondent Bank

- Informan sens the LC to the named foreign supplies

 Foreign Exporter
5. Manufactures and ships the ordered Goods per KC
6. Submits the LC required documents to the Opening Bank thru the Advising Bank -
Bill of Lading

 Opening Bank
- Checks the received documents for compliance
- Advises the Importer to pay its importation to receiv the negotiable Bill of Lading

 Importer
- Pays the Opening Bank the LC amount and receives the Bill of Lading
- Receives the Goods shipped from the Carrier through the Bill of Lading
- Pays the Customs Duties and VAT/Local Taxes, Wharfage Dues, Warehouse Charges
- Brings in the in-bound shipment as receipts of goods purchased

 Advising Correspondent Bak

- Pays the LC proceeds to the foreign Supplier

 Foreign Exporter
- Receives the proceeds of his Sales via LC

Basic Principles in Letters of Credit

 Doctrine of Independence
- The Opening Bank assures the Seller/Beneficiary of prompt payment, independent of
any breach of the Main Contract – to preclude the issuing bank from determining
whether the main contract is actually accomplished or not.

- Bank will not be prevented from paying even if there is a breach.

  Doctrine of Strict Compliane
- The beneficiary must tender all documents required by the LC – strictly to conform with
the LC terms
- A correspondent bank – which accepts faulty tender not stipulated in the LC may NOT
recover from the Buyer/Issuing bank – any payment method to the Beneficiary from the
buyer/issuing bank, any payment to the beneficiary

- In the PH, a local supplier – sells logs- JP Morgan issues –

 Fraud Exception Principle

Fraud is an exception to the independed principle where there is untruthfulness of a
certificate for LC payment to merit an injunction;
- Injunction is the remedy for fraudulent abuse in LC negotiation when:
a. The Fraud, with clear proof, constitutes fraudulent abuse of the LC’s independent
purpose, and not only fraud under the main agreement
b. Irreparable Injury or recovery of damages can be seriously dangered when no
injunction

Liabilities of Correspondent Bank:

a. As an Advising or Notifying Bank

- No liability as regards the settlement of the LC

b. As a Confirming Bank
- Assumes the liability of a Surety

c. Negotiating Bank
- Discounts the Demand Draft

Governing Laws in Letters of Credit

A. Uniform Customs and Practice for Documentary Credits

B. International Chamber of Commerce
- Rules are incorporated voluntarily into contracts, the rules are flexible while providing a
stable base for international review, including judicial scrutiny,

Export Packing Credit Line

- Packing credit is a loan to exporters/sellers to finance the goods procurement before
shipment
 A seller/exporter with an irrevocable letter of crferdit can borrow from the bank – an
export packing loan – of about 80% of the LC value – by putting up the LC as his
collateral
  The Advance is to purchase raw materials, process, manufacture, packs, market and
transport the required goods and services
 The packing credit is also used for financing the working capital and meet the
requirements of wages, travel expenses, utility payments, for companies listed as
exporters.
 The lending bank serves as the advising correspondent bank so he can immediately
withhold.
- The 80% proceeds of the LC to pay the packing loan as experts

PPSA

- Expressly repealed
- Single Type of Transaction – Security Interest

- Any kind of personal property

- Tangible and Incorporeal Rights

- Not exclusive

- CANNOT INCLUDE: Aircraft and Ship

Security Interest – property right in collateral

- Extends to identifiable

Creation of Security Intenrest

- Created in Security Agreement
- Written/ Can be in one or more writing
- Can cover future agreement
o When he gains the power to encumber him

Tangible – even with acessorry / transform – but will only cover

Commingling – will extend to the mass

Perfection of Security Interest

- Becomes binding with 3rd parties
- Nas

How is it perfected?
a. Through Secuirty Ageement
b. Register
c. Possession
 d. Control

Control Agreement
- Must be under oath with date and time
- Written agreement with the grantor
- Intermediary Agreement

PPSA
- Mandated to create Electronic Registry
- Acess the information to contract here
- Public Record
- Can cover multiple agreements
- Effectivity of notivce – until the time indicated

Notice: Written information of the grantor – otherwise – seriously misleading notice

Extinguished:
a. Fulle Performance
b. No more obligation to give

- The Grantor may apply now for termination

- Also when security instrument was not granted at all

PERFECTION through POSSESSION

- Posession over the personal property

PERFECTION through CONTROL

a. Creation of Security Interest
b. Through the Conclusion
c. Investment Property – Notation of the Secuirty Interest in the Book

- Nothing in the PPSA can compel intermediary agreement with the control agreement
- Except: Request of the Grantor

Rules:
a. If the collateral produces money, negotiable instrument – the securioyt will extends
without need of further agreement
- Continously agreement
- But if the proceeds aree different from the money –

PRIORITY (PREFERENCE) OF SECUIRTY INTERESTS

- IRR –
 - Priority -right of a person in encumbered assets in preference
- Gets to be paid to others

PPSA – movables 2241, 2242, 2246, 2247

GR: The priority of security interest – determined according to the time registration or
perfection by other means
- Without regard to the order of creation

Spcific Rules:
a. Deposit Account
- Any rights instituted – may have to set off
- They shall priority over
- Gullas v. National Bank
- A bank has the right to set off for payment of any indebtedness to it
- A security interest in a deposit account which is perfected by a control agreement
- Several security interest – determine the conclusion

Electronic Securities
- In case the security interest – then these are the rules:
a. Perfected by notation in the books
b. Perfected by control agreement
c. Registration of notice

- Just determine the conclusion of the control agreement

If held by intermediary – then will take the priority over.

Purchase Money Security Interest

- Securtiy interest in the goods taken by the seller to secure
- This enables to obtain goods/ secure the payment of the price
- If the PMSI – is on consumer goods – will have conflicting interest
- Within 3 business days

- Over inventory, intelllectua; property, or livestock – will exist if perfected:

 a. If the grantor receives the goods – or acquired the rights
b. Secured Creditor must give notice – mulitiple transaction – don’t have to identify

What if no notice in Livestock?

- Then priority is given to the security interest in the livestock which secures the grantor
in getting food, medicines, livestocks.

- Negottiable Instutments, Security

- Possession by the secured creditor

What if the grantor becomes insolvent?

- The Security Interest prioir to the insolvency proceedings – shall remain perfected and
retain priority it has before the commenencement proceedings.

- Status? Shall constitute a lien.

ENFORCEMENT

Secured Creditor
- Extrajudicially and Judicially

Rights:
a. Expedited of the Re- Possessrion
- Upon default
Req:
1. Must be written
2. Must be without breach of the peace

- If a fixture – he has priority abd nay even remove the fixture – with due care –
extrajudicially
- If always with BREACH OF PEACE
- Should not take ej- must be Judicially

Expedited Hearing
- Now issue the order granting

b. Higher Ranking Secured Creditor Can Take Over Enforcement

- He has priority
- May be invoke at ANY TIME
- Can use any method allowed in PPSA and IRR
 c. Retention
- Upon default, in full or partial
- By sending proposal
- Any other party + grantor
- Only way to enforce is THROUGH sending proposal
Content:
a. Amount required to satisfy the obligation
b. Amount of the obligation proposed to be satisfied
c. Secured creditor proposes to acquire collateral which is described
d. Date

Qualififcation in Full
- Will not be granted if there is a rejection to those parties who are required to be
notified – within 20 days from the time the proprosal sent to them
Partial
- Secured Creditor was able topacquire AFFIRMATIVE CONSENT in writing of all the
addressees within 20 from the sending of the proposal

d. Right ot Dispose
- Whether to public or private
- Present condition or Commericial Reasonable

Req:
a. Commercially Reasonable Manner
- In conformity with common practice
- It will not be considered – even if a better price

Method, Manner, Lease, License

a. Sale
- Done in an auction form
- Satisfied requirement
- Has to be done in good faith
o Experienced dealer
o If the participating dealer – does not practice collusive
o There must be a record which identifies
o Colalteral must be awarded to the highet bidder
 Next higher if cannot be paid in cash
- The seller must:
o Give notice to: Grantor, Secured Creditor – 5 days registered, Secured Creditor
given notice to the Grantor
- Must be posted in Registry – of notice, the manner, the time – publicly accessible
 Notice the Grantor – may waive upon default
- He may make adverstisement

AUCTION?
a. Governemtn Agency
b. Private Entiteite
- Must give the rule to Dept. of Finance for approval

Appliucation of Proceeds
- 1. The reasonable expenses
- 2. Applied to obligations
- 3. Claims of subordinate – junior
o If written demand is received before the proceeds had been distributed

 Excess – grantor shall receive

 Deficiency – grantor will still be liable;
Except: If there is a stipulation

What if Secured Creditor Damages

- Also liable

e. Special Rights
In case of default – Extrajudicia;ly

1. Accounts Receivable – may instruct by SC to give to hum

2. Negotiable Instrument by Possession – can calim from the instrument itself or the
goods
3. Deposit Account – pay the balance to the Secured Creditor
a. Security Agreement
b. Affidavit Entitled
4. Damages
f. Damages

RIGHTS OF THE GRANTOR

a. In case where the secured creidot is not applying rules, then the Court may order or
restrain collection of the collateral
b. Right of Redemption
- Any party who are entitled of notice
o Entitled to redeem
- Not applicable if the grantor expressly waives
- If the collateral has been disposed already
- Secured credito has retained following the rules on retention
- Buyer has acquired at the public sale or private sale – free from any lien
 - If the SC leases or liceneses
- Lease or License – enjoy the right

IF SC did not comply

- Then the buyer or leseee/licenese – only in good faith

Transitional Rights

a. Perfection shall continue:

i. Until it exists
ii. Law has been fully effected
Enforcement
- Prior Law
- PPSA
- Except if Court Proceedings – then prior law – if already in effect before PPSA