CredTrans – notes on forms

1. 2016-08-23
Term / tenor / duration (same terms)

Why 91, 182, 364 – actually a period of 3 months, … but add +1 so that it’s divisible by
7.

Gov’t as taxing authority will allow government to always collect funds for it to pay back
T-bills.

PNB v. Rocamora
That clause itself negates the principle of mutuality.
Silence does not always mean consent

A third party without paying or consent shall be reimbursed…. to the extent.

Solidbank v. Permanent Homes case

Mutuality not violated because the borrower can say no (rejecting) and just pre-pay the
loan
JSP: In reality, no option. Won’t have funds to prepay the loan. The case of Solidbank.
But take note of that, in that case, no violation of mutuality. It’s still part of jurisprudence.
But it’s not a practical thing if you apply to long-term loans.

A better formula for both parties: benchmark + “spread” =

*every quarter, the interest shall be adjusted following the benchmark plus a fixed rate
of spread so the formula will vary depending on benchmark. Parties can agree to a
formula to adjust interest rate, in that case, will not violate mutuality of contracts. But
banks want fixed rates esp. when having a shorter period.
*normally, when dealing with banks,

*or alternatively, lender puts a floor, borrower puts a cap, in their best interests.

Ø Syndicated Loan Agreement

o à parties ß
§
o à recitals/premises ß
§ provides the context of the transaction (like the preamble in the
Constitution, useless but sometimes useful)
§ case resorting to the preamble.
§ Loan
o Loan

By Jason L. Sy | Block 2D 2016

 o P+I
o Payment
o signature
Ø contract example:
o banks, insurance companies, retirement fund
o Take note of the commitment
§ Sometimes by committing to lend, the borrower pays a fee,
commitment fee.
§ Also may charge participation fee (none in example)
o Perfection of loan – upon release of proceeds
Ø Section 2
o Drawdown – release of the loan proceeds
o There is a commitment to lend, but there’s qualification to pay 2.01 – “we
are agreeing to lend, but prior to perfection of the loan, we will terminate
this agreement and we will not be liable.”
o Purely potestative (dependent on sole will of debtor)? No because from
the start there is a commitment to lend. You may argue it’s resolutory.
Unilateral right to terminate, not even a suspensive condition.
o 2.02 – how the loan should be made available.
o Day 1: L à loan contract à B
§ 600 M
§ Day 2: release à the borrower then issues in exchange a
promissory note (evidence of release of loan proceeds and a
commitment to pay the obligation in accordance with the term
agreement)
o Interest is paid quarterly.
o 2.04-b – default penalty on top of interest.
o 5 years – term – so principal to be paid at the end of 5 years.
o Prepayment clause allows the borrower to prepay anytime, under any of
the stated conditions.
§ There is also a prepayment penalty. Normally, it’s a borrower’s
market now.
§ Ex. Housing loans – allowed to prepay anytime without penalty.
o 2.07 – computation of the lender is conclusive unless there is manifest
error.
§ Seems unilateral? Show error. If not, conclusive.
o 2.08 Use of proceeds
§ Borrower here is Ayala – why necessary to stipulate the use.
§ Form of control of the lender to make sure the loan proceeds will be
used for a purpose that will ensure payment, otherwise, greater risk
of default (ex. Not generating income).
§ Not necessary but necessary for ensuring purpose of control the
risk of default (not needed from a legal standpoint).
o Section 5

By Jason L. Sy | Block 2D 2016

 § If lender lends P600M, the borrower would have to pay P600M plus
interest.
§ Whatever taxes should be paid by the borrower.
§ “Yield protection” – we will receive the amount without any
deduction.
§ You cannot pass on the tax imposed on the overall income of the
bank. Generally, on the side of the bank, if it’s 1%, we receive 6M,
exclusive of all deductions. 6M net
§ “syndicate”
§ if there is change in law that will occur to tax, if there’s an imposition
that would cause ……
§ Take note, there could be no offsetting. If it is not valid, the burden
of invalidating it would be on the borrower.

2. 2016-08-30
Ø Notice:
o contract is not notarized
o none of the PN be notarized; if there’s notarization, it states that there
should be no preference to the lender (?)
Ø
o if there’s notarization, there’s a waiver….
Ø Greater preference. A notarized document will be preferred.
Ø Acknowledgement vs. jurat
o Acknowledgement – has a legal significance (if notarized); it will have
preference compared to a credit in a private instrument.
o Preference will be relevant only if debtor is insolvent.
Ø Fixed rate here
o Not a rate to be adjusted periodically
o Here, only a 5-year term, so somehow there would be no sudden increase
or decrease in a cost of money (but if term is 10+ years, the fixed rate is
unfavorable).
o Very low interest rate now, so very easy to borrow now.
§ If possible, borrow from a bank (for 2 ot 5%) and even re-lend it (or
§ If you have a fixed rate, what’s your way out? NO WAY OUT. You
have to ride through that problem out.
o That's why in certain loan agreements, they (the lenders) have a fixed rate
and have an opt-out. Possible to define what an extraordinary inflation is,
ex. An inflation rate of X% based on the CPI will be extraordinary inflation,
but I’d say, there’s periodic adjustment or a formula that would adjust itself
based on a given benchmark.
Ø Counsel’s opinion for the borrower
o Reiteration of representation and warranties

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 o If counsel’s opinion is deliberately wrong or grossly negligent, that would
amount to bad faith, it would amount to fraud. Opinions are not considered
fraud unless made by an expert and relied upon by a party.
o Gives comfort to the lenders.
Ø Due diligence by lenders; representations and warranties by the borrower and
confirmation of the borrower’s … through the legal opinion
o Three layers of misinformation.
Ø Doing a counsel’s opinion
o There’s a form. Your obligation as counsel to borrower – to render the
opinion exactly as in the form.
o Confirm each and every representation first. Where legal skill will come in.
§ “Duly organized and validly existing” – SEC (you can check online),
and also ask borrower set of articles (or you may just ask the
borrower for an SEC certification that the corporation).
§ Good standing – SEC
Ø Borrower has the authority to enter into this contract.
o You require a board resolution.
Ø Section 4, page 11. No Breach
o CYA – Cover Your Behind
o To protect yourself, you
o You are not really relying on due diligence but relying on the certifications
(that’s a shortcut but not a good thing).
o This is the same for the “no default”
Ø The same with “threatened action or litigation.”
o You will rely on in-house counsel to say these are only pending cases right
now (p. 12, h). You may just sometimes disclose.
o Important: (p. 12, h) > “Pending or Threatened Action. There are no
pending or (to the knowledge of the BORROWER) threatened legal
actions, suits or proceedings before any court or administrative agency of
any jurisdiction (i) with respect to any of the transactions contemplated by
this Agreement, or (ii) against or affecting the BORROWER, and/or any of
its properties or assets which, if adversely determined, may materially
and adversely affect the financial condition or operations of the
BORROWER or impair the ability of the BORROWER to perform its
obligations hereunder.”
o Underlined phrase – important. Let’s say borrower has credit cards for all
key officers, one day he forgot to pay by inadvertence. That’s a default,
but just worth 10,000, so that may not be material.
Ø i. Financial Statements
o Rely on counter….
Ø 4.02
o Representations and warranties must be true and correct until the full
payment of loan obligations. On each draw down rate and each interesst
Ø Section 5.01 – Positive Covenants

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 o Undertakings of the borrower
o If you're the lender, you want to specify the use of the proceeds to
minimize default – a venture that will ensure the payment.
Ø No security in this loan but actually secured in reverse – look at the negative
covenants
o Negative Pledge – an undertaking with the borrower that no asset will be
encumbered.
§ Section 5.02 a
o A security in reverse: the borrower shall not encumber or allow
encumbrance.
o “We are Ayala, you will get a negative pledge covenant”
o Of course, there are exceptions: ex. Encumbrances by law and other
exceptions.
o Borrower must be mindful of these negative pledge – see Section 5.02 c.
§ Also covered in item d (or e??)
o Also see item e. – tricky – ex. If borrower is a real estate company, if you
are selling your assets it may be during the course of business. You have
to be careful with that case. “Ordinary cause of business” may not be
enough for the lawyers, they could say “to eliminate doubt, condo
buying…. Etc”
Ø Section 6 – Conditions for Borrowing
o There must be a notice of borrowing and borrowing certificate.
o All this will happen in a day.
Ø Section 7 – Events of Default
o This is what you have to know.
o You have this not only in loan contracts but all other contracts.
o “Each of the following events constitutes an Event of Default”
o Grace Period – time to pay (7.01a)
§ If you don’t get to pay on a time set, there is a grace period that
kicks in the moment you don’t pay.
§ You ask for like 2 days because of small mistake (ex. Processing of
payment), not because of lack of funds. This is to cover
inadvertence > This is peculiar – in other loan contracts, you say
you will pay on a due date.
o 7.01b
§ refers to obligations which are non-monetary.
§ There is a period to remedy in which case.
§ 5 days from notice by the lender.
§
o 7.01d
§ a “cross-default provision”:
• if a borrower defaults in another obligation, it automatically is
in default in this loan contract.

By Jason L. Sy | Block 2D 2016

 • Purpose: if other creditors are running after the debtor, the
lenders of this contract will also be able to run after the
lender (reminds you of the provision in the Civil Code when
debtor loses benefit of the period).
• You may still be paying the obligations of this loan contract
but the borrower is already defaulting on other obligations.
• You want to be in the same position to go after any and all
assets of the borrower.
§ If you are the counsel for the borrower, and you see this provision,
advise: if you want to have it deleted, you delete it.
• So you impose a threshold
o 7.01e
§ refers to instances of financial distress and insolvency
§ to allow lenders to go after the available assets of the borrower.
o The others you just go through them.
o 7.01i
§ a peculiar provision
§ This is any feeling of financial insecurity by the lenders will warrant
this provision. Valid? Ex. You, as a lender, don’t like the new set of
board members.
§ How will you say it’s valid?
• Purely potestative condition
• Lender would say I would no longer want to lend because I
don’t like the officers.
• It’s just a matter of perspective. It’s the continuation of the
loan, even if you don’t do that, it negates on the mutuality of
contracts.
§ This one is like a big corporation, a syndicated banks – you
CANNOT say it’s a contract of adhesion (Student Question):
§ But you can say:
• Purely potestative
• Violates mutuality
§ On the other hand, you can argue:
• It is mixed / purely potestative
• Abuse of right doctrine
§ But if you’re the lender, you want this in the contract.
§ But you could say: “you could put that, but it runs counter against
legal principles.” It’s a question of law, not unethical. IF you are the
counsel, you have to advise your client properly.
§ Unless, it’s a crime, you can’t just say the provision is contrary to
law.
o 7.01k –
§ attachment or garnishment
§ Garnishment: the same but specific with respect to funds.

By Jason L. Sy | Block 2D 2016

 § Levy: when there is an execution, a sale of assets to satisfy
judgment.
§ Borrower – not beneficial to him (as counsel you say: “this one is
not good”). If you accept, you should accept with qualifications?
This is like your cross-default which has an adverse material effect
on the borrower. And that default, under the cross-default, should
have a material and adverse.
§ An attachment of the car – the entire loan obligation technically will
be due and demandable because there is no qualification.
§ Attachment or garnishment – setting a threshold, or if you don’t
have an amount: the attachment/garnishment/levy should have an
effect of….
o 7.01m
§ another cross-default provision but with respect to monetary
obligations including the payment of purchase price. Again, there is
a threshold, but somehow, borrower forgot to put threshold for the
attachment.
§ There are events which are reasonable on its face, or may involve
an inconsequential amount…
§ “material and adverse effect” > magic words
o 7.02 – consequence of default
§ acceleration clause:
o Agent – representative for certain administrative matters
o Section 9 – Miscellaneous
o 9.01 – borrower gives…
§ Background: a case before was there (this is legal compensation).
In a deposit, borrower = creditor, bank = debtor (give deposit upon
demand).
§ There was a case before where somehow money passed through 1
bank. Bank when it was remitted, offsetted because the borrower …
SC said that there’s no case for legal compensation (Citibank case
– foreign bank done abroad, it may have been done properly) ---- to
avoid these issues, there’s this clause – any property/funds of
borrower may be subject to compensation.
o 9.03
§ Glimpse: when you receive payment, there is sequence of
payment: in order: cost, penalties payment, principal (ex. Recall:
later vs. earlier installments, etc.)
o You have notices.
o The only tricky issues in a loan contract:
§ Default provisions (borrower must be alert)
§ As well as certain undertakings: negative covenants (borrower must
watch out that negative covenants will not interfere with business
operations).

By Jason L. Sy | Block 2D 2016

 o Lender’s Counsel – can simply say that this transaction is authorized. You
don’t do anything more.
§ And it’s not contrary to law (it’s a loan contract)
Ø Especially if it’s a small contract, you don’t get much concessions. (8:07PM)
Ø Sci-Fi – artificial intelligence might control us. Like today, Waze tells you where to
pass.

3. 2016-09-06
Ø FORMS – Surety form.pdf
o Equitable Bank is now BDO.
o This one is an example of a surety agreement.
o An undertaking by a surety to pay the obligation.
o From the start, see distinction between surety and solidary debtor.
§ Surety liable the moment principal debtor defaults.
§ The moment surety becomes liable upon due date without any
condition, technically not a surety anymore.
o “In case of default by the borrower” < stipulation. Otherwise, no distinction
between surety and solidary debtor.
o JSP: Not a good formulation – awkwardly worded.
o Any change in the principal obligation shall be automatically be covered by
the surety.
o “including all extensions of payment, renewals, regrants, increase,
novation of obligations and all other obligations of whatever kind and
nature,”
o ^Better way to do it is specify. [8:25PM]
o in the signature, very careful: with marital consent.
o Borrower 1: Borrower 2
§ By: X By Y:
§ X
• *you may be considered an accommodation party or a surety
if you signed twice (two capacities).

Ø INDEMNITY
o Has nothing to do with loan, it’s a corporate transaction.
o Section 1(c) – immediately caused to be incurred by those having benefit
of surety
o There is also a provision of an obligation to pay upon receipt of a claim.
o Looking at the structure, better if you specify the amount of indemnity,
interest, penalty, and damages, if you’re interested.
o Otherwise, follow the default rule: what you pay except + judicial costs. Do
not rely on damages awarded by the court. You specify how much you
want as damage. But be careful, for liquidated damages, that’s the cap.
You cannot claim extra. You also must state: “in addition to other remedies

By Jason L. Sy | Block 2D 2016

 and rights, afforded by laws (or some other wording.)” not to be confined
with the said cap.
o Section 4 – the moment you pay, there will be indemnity.
§ There’s a requirement of consent.
o A sample indemnity undertaking
o If you’re acting for the surety, your concerns would be: (1) security, (2)
indemnity. Of course, due diligence also.
§ Indemnity – needs to be specified what indemnity would include
and then the security for that. The security must be given by a third
party.

4. 2016-09-20
Ø SEE PLEDGE FORM
o Not a good form
o What’s wrong in the form: does not address deficiency in collateral value.
o No place designated for keeping of pledged property.
o This is a simple form
o No provisions here protecting the pledgee (no “maintenance of collateral
value” provision)
o As pledgor, no control also where property may be kept.
o Take note of #3: “3. Rights Over Pledged Securities. (a) The Pledgee, in
the event of default by the Pledgor in the payment of the Loan, (i) may
have all or any portion of the Pledged Securities transferred to its name or
to the name of its nominee”
§ May appear as Pactum Commisorium
§ But see the following clauses.
§ Looking at the clause, it is an example of transfer for purposes of
administration. Meant to facilitate fruits accruing from the securities,
not a transfer of ownership. Hence, not a Pactum Commisorium.
o Section 4: remember with no authorization, it cannot be done. Unless
pledgee can say it’s entrusted to an agent.
o Section 5: Effects of Default
§ Public or private sale – as per agreement as seen here.
§ Title 5(b) – application of proceeds – not really a necessary
provision. Obligation will be extinguished anyway.

5. 2016-09-27
Ø SEE SAMPLE REM FORM.
o Looking at the REM, it’s the same format.
o Recitals, etc.
o Obligation of the mortgage supposed to secure a loan of a certain amount.
o Sec. 1

By Jason L. Sy | Block 2D 2016

 § Identify the mortgaged property by naming the certificate of title and
giving description.
§ In this case, condominium.
o Sec. 2
§ Boiler plate provision – representations and warranties
§ That mortgagor is absolute owner, property is free of any
encumbrance (not yet clear) EXCEPT THIS MORTGAGE and
statutory liens and encumbrances <<< for an accurate
representation or warranty (see (a)).
o Default
§ “4.02 Upon the occurrence of an Event of Default and at any time
thereafter, the Mortgagee may declare the Obligations secured
hereby to be forthwith due and payable, and shall forthwith
foreclose this Mortgage, judicially or extrajudicially under Act No.
3135, as amended.”
§ ^This is enough.
§ Forgetting this clause will be costly in case of default by mortgagor.
o At the end, there is an acknowledgement: That the parties appeared
before the notary public (1st par.), but you have 2nd par. (Certain registry of
deeds want that the number of pages are indicated or else they’ll refuse
and ask you to re-execute.) << The Registry can just say you are formally
deficient.

By Jason L. Sy | Block 2D 2016