CLASS D

MANUAL OF OPERATION
FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

CHAPTER 8

PRE-RELEASE DOCUMENTATION

Loan documentation commences subsequent to loan approval. It refers to

the process that commits into writing the grant of the credit or loan by the
Bank and the client’s concurrence to the terms and conditions imposed by the
Bank.

A. REASONS FOR LOAN DOCUMENTATION

1. Convenience – Terms and conditions will be enforced

expediently

2. Evidentiary – Collection of loan in case of borrower’s default can

be imposed, since documents have greater weight as evidence
than mere oral representations

3. Validity of stipulation to pay interest – The New Civil Code, Art.

1956 states that “no interest shall be due unless it has been
expressly stipulated in writing”

B. HOW LOANS ARE DOCUMENTED

Loans are documented by means of CONTRACT which is referred to as

the meeting of minds between two or more persons whereby one
person binds himself with respect to the other, to give something or to
render some service.

C. ESSENTIAL ELEMENTS OF A CONTRACT

1. Consent – Manifested by the concurrence of the offer and the

acceptance upon a definite thing and a valid cause

2. Object – Subject matter of the contract

3. Cause – It is the essential or proximate purpose which parties

have in view at the time of entering into the contract

Example:

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MANUAL OF OPERATION
FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

Elements of
Creditor Borrower
Contract
Object Payment of the loan Loan
Cause Loan Loan payment
Consent Agreement to the terms and
conditions of the loan

0801 GENERAL GUIDELINES

A. PRIMARY LENDING DOCUMENTS

1. Loan/Line Agreement

a. Contract between the LANDBANK and the client

covering the grant of a loan by the former to the
latter under certain terms and conditions.

b. The LA (Exhibit 8.1) is executed for long-term

loans, while the Line Agreement (Exhibit 8.2) is
executed for short-term loans granted by the
LANDBANK.

c. The line agreement covers the granting of credit

facilities such as STLL, L/C or T/R Line, EPCL, DBPL,
EBPL, and the like.

d. Contents of the Loan/Line Agreement

· Loan type and purpose

· Amount
· Interest rate (rate and repricing)
· Penalties and charges
· Manner of Repayment (principal and interest)
· Availment
· Events of default
· Collateral
· Other Terms and Conditions Imposed by LAG
· Representations and warranties
· Covenants
· Attorney’s fees
· Venue in case of litigation
· Other provisions not generally covered by the
PN or documents securing the obligation

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MANUAL OF OPERATION
FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

2. Rediscounting Line Agreement (Exhibit 8.3) - a

document used for credit accommodations under the FIs
and credit coop rediscounting line facilities.

3. DBPL Agreement (Exhibit 8.4) – a line agreement under

which checks payable to the borrower as payee thereof in
the ordinary course of its business will be purchased by
the lender.

4. Line Extension Agreement (Exhibit 8.5) – used to

document extension of line beyond AED so as to cover the
provisions of the previous line.

5. Restructuring Agreement (Exhibit 8.6) – used to

document restructuring proposals in instances when a
borrower fails to meet maturing obligations.

6. PN (Exhibit 8.7)

a. An unconditional promise in writing made by one

person to another, signed by the maker, engaging
to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to
bearer

b. A principal evidence of indebtedness and is to be

considered along with the loan/line agreement

c. Contents

· PN date
· Date of maturity
· PN number
· Amount of loan
· Manner of payment (principal and interest)
· Interest rate (rate and repricing)
· Attorney’s fee
· Other fees and charges
· Escalation/de-escalation clause
· Acceleration clause
· Penalty
· Venue in case of litigation

7. DS (Exhibit 8.8) – a document disclosing to the client

the details of the loan to be released. The DS is attached
to the PN.
8. NOLA (Exhibit 8.9)

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MANUAL OF OPERATION
FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

a. This document, otherwise known as the NOLA, is

used when PLCs opt to execute NOLA instead of
standard line agreement in documenting approved
line renewal. Execution of NOLA, however, shall
only be allowed when there is concurrence of the
following:

1) There is no increase/decrease in the amount

renewed; and

2) There is no change in any of the terms and

conditions of the line.

b. Hence, the issuance of NOLA to the borrower shall

serve the purpose of informing the clients of the
pre-release requirements. This will provide time for
the clients to comply with said pre-release
requirements from the time the loan is approved up
to the time loan documentation is in process and
legal review.

B. GUIDELINES IN ACCOMPLISHING THE LOAN DOCUMENTS

1. Recitals – the historical enumeration of pertinent incidents

or explanatory notes leading to the agreement of the
contracting parties being documented.

a. These are commonly referred to as the “Whereas

clauses”

b. For LA, the approved loan amount shall be in words

and figures.

c. For CLA, the approved loan amount shall be in

words and figures and indicate the approved
facility/ies.

d. For DBPL and rediscounting agreements, the

approved loan amount shall be in words and
figures.

2. Dispositive Portion – the heart of the contract.

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FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

a. Contains the final and definite agreement of the

parties concerning the terms and conditions of the
loan/line as approved in the CFP.

b. Usually started and indicated by the phrase “Now

Therefore”

1) For LA

a) Loan amount

b) Loan Purpose

c) Term

d) Interest (rate and repricing)

e) Penalty

f) Fees and charges (including pre-

payments)

g) Mode of Release

h) Manner of Repayment (principal and

interest)

i) Collateral

j) Other terms and conditions imposed

by the LAG

2) For CLA

a) The same terms and conditions as that

of LA

b) Availability of the PN

c) AED

d) Expiry date

e) Other terms and conditions imposed

by the LAG

3) For DBPL Agreement

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FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

a) Loan amount

b) Purpose of the line

c) Interest rate

d) AED

e) Expiry date

4) For Rediscounting Line Agreement

a) Loan amount

b) AED

c) Interest rate

d) Expiry date

e) Purpose

f) Repayment

g) Penalty

3. Testimonium Clause – ending or closing of the agreement

of the parties; the last paragraph of the contract, which
usually starts with the phrase “In Witness Whereof”.

4. Signature Portion – manifestation of consent of the

parties to the terms and conditions of the contract;
signatures refer to those of the parties or their
representatives and witnesses. At least two witnesses,
representing both parties to the contract must sign over
their respective printed names on the spaces provided
under “Signed in the presence of”.

For LGU, corporate and coop accounts, the Treasurer or

other key officers shall serve as witness to the loan
signing. The AO or AA may also serve as witnesses.

5. Acknowledgment – a certification by the Notary Public

that the parties are known to him, the parties personally

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Pre-Release Documentation

appeared before him; and the contract is a voluntary act

and deed of the parties.

C. COLLATERAL OR SECURITY DOCUMENTS – These are

documents executed to accompany the loan/line agreements.
In effect, these are accessory contracts that cannot exist or
stand alone without the principal lending documents.

The common collateral or security documents used by the Bank

are:

1. REM (Exhibit 8.10)

a. Concept

A contract by which a client or third party

mortgagor secures in favor of the Bank the
fulfillment of principal obligation subjecting as
security immovable (real) property or real rights
over them in the event the principal obligation is
not fulfilled at the time stipulated.

b. Essential requisites

1) Should be constituted to secure the

fulfillment of a principal obligation;

2) Mortgagor should be the absolute owner of

the property/ies mortgaged; and

3) Mortgagor must have the free disposal of his

property and in the absence thereof, legally
authorized for the purpose.

c. The total amount of loan approved facility shall be

fully covered by REM unless the approval provides
for a lower amount to be secured. In this case, the
execution of an amended REM is no longer
necessary should actual availment is up to the total
amount of approved facility.
d. As a matter of policy, only first REM is allowed. If
REM over a property that is subject to other
superior lien is accepted as collateral, this must be
set forth in the proposal and approval

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MANUAL OF OPERATION
FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

e. Registration of REM at the ROD of the province or

city where the property is located.

Note: In case of untitled lands offered as collateral,

registration of REM shall be done in the
Assessor’s Office of the City or Municipality
where the property is located.

f. Guidelines in accomplishing the REM

1) Heading: the date and place of execution of

the REM must be indicated.

2) Parties: the Bank as Mortgagee and the

owner of the mortgaged property/ies as
Mortgagor.

3) Recital clause: the name of the borrower and

the aggregate loan/line granted to the
Borrower (unless otherwise provided for in
the CFP) in words and figures should be
typewritten in blanks provided in the recital
clause.

4) List of properties: the property offered AS

collateral should be listed in this portion and
identified by title number/s, ROD, technical
description, area and registered owner/s. If
the space provided therein is not sufficient,
then all the collateral to be listed should be
printed on a separate sheet attached as
Annex A to the REM. This sheet shall also be
signed by all the parties to the contract
including the witnesses.

2. CM (Exhibit 8.11)

a. Concept: similar to REM except that the object of

the contract is chattel or personal property

b. Essential Requisites

1) Should be constituted to secure the

fulfillment of a principal obligation;

2) Mortgagor should be the absolute owner of

the property/ies mortgaged; and

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MANUAL OF OPERATION
FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

3) Mortgagor must have the free disposal of his

property and in the absence thereof, legally
authorized for the purpose.

c. Registration of CM

1) The CM must be registered with the ROD of

the province or city where the owner resides
and the mortgaged chattel is located or
ordinarily kept.

2) In case of motorized vehicle, the mortgage

must be further registered with the LTO.

3) In case of ships or vessels, it is sufficient that

the mortgage is registered with the MARINA.

4) In case of aircrafts, the mortgage must be

further registered with the Philippine ATO.

d. Guidelines in accomplishing the CM

1) Heading: the date and place of execution of

the CM should be indicated

2) Parties: the Bank as Mortgagee and the

owner of mortgaged property/ies as
Mortgagor

3) Recital clause:

a) the name of the borrower and the

aggregate loan/line granted to the
Borrower (unless otherwise provided
for in the CFP) in words and figures
should be typewritten in blanks
provided in the recital clause

b) the desired venue of the parties in

case of auction sale, other than the
venues already provided therein

4) List of chattels

The property offered for collateral should be

listed in this portion and sufficiently identified
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FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

and their location at the time of the

constitution of the mortgage. If the space
provided therein is not sufficient, then all the
collateral to be listed should be printed on a
separate sheet attached as Annex “A” to the
CM. This sheet must also be signed by all the
parties to the contract including the
witnesses.

3. REM and CM Contracts (Exhibit 8.12)

a. Concept: covers immovable properties and their

improvements, chattel or personal property, and
real rights over immovable properties, and movable
properties

b. Essential requisites, general rule, policy, etc. are

same as that of REM and CM

4. PN with Deed of Assignment (Exhibit 8.13)

a. Concept

Credits or other incorporeal rights are offered as

collateral to secure the payment of a loan when
due. The common objects of assignment are
receivables, PNs, deposits/money market
placements, government securities, inventories,
produce, and the like.

5. Contract of Pledge (Exhibit 8.14)

a. Concept

Refers to instances where the chattel or personal

property serving as collateral, instead of being
recorded or registered, is delivered to the creditor
or designated third person

b. Salient Features

1) Possession is lodged with the creditor or

designated third person.

2) If the thing pledged is returned to the owner

(pledgor), the pledge is extinguished and any

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MANUAL OF OPERATION
FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

stipulation/agreement to the contrary is

VOID.

3) Release may only be made if there is a pre-

approved substitution of collateral or new
collateral is delivered simultaneous to the
release.

4) Upon foreclosure of the pledge, the debtor

cannot be made to answer for any deficiency
even if it is stipulated in the agreement.

5) On the other hand, if the proceeds exceed

the obligation, the debtor cannot recover the
excess unless it is previously agreed upon.

6. CSA (Exhibit 8.15), otherwise known as JSS

a. Concept of Suretyship

A person binds himself solidarily with the principal

borrower

b. Salient Features

1) The surety is in effect a co-borrower.

2) When the loan becomes due, the creditor

need not even make a demand on the
debtor. He can collect straight from the
surety.

3) The CSA shall be required for all types of

loans, if the borrower is a corporation or
partnership.

4) Documentation: CSA shall exhibit the

personal circumstances of the sureties and
not their official capacity.

5) In cases of loans not fully secured, execution

of JSS may be required to the following:

Borrower Requirement

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Pre-Release Documentation

Corporation At least two (2) from among

the following: majority
stockholder (if individual),
BOD Chairman (or any BOD
member) and/or President
(or its equivalent)/Treasurer
(or its equivalent)

Association At least two (2) key officers,

e.g., President (or its
equivalent)/Treasurer (or its
equivalent), etc.

6) If the surety is married, the spouse shall also

sign the CSA.

7) In case of deviation, exemption shall be

secured from LAG.

7. Other Pre-release documentation requirements

a. For all loan types

CPI No. 2009-002 (Appendix 8.1) entitled

“Revised Environmental Policy Relative to Credit
Delivery” subjects/requires all LANDBANK financed
projects to Environmental Assessment and
Monitoring by the EPMD

1) ECC (Exhibit 8.16) for all covered projects

2) ECR for projects under Group I per the

Revised DENR Administrative Order No.
2003-30 as updated by DENR Memo Circular
2007-002
b. For LGU Loans

1) Borrowing resolution to authorize the LCE to

borrow

2) Borrowing ordinance must contain the

approval of the proposed loan’s Terms and
Conditions, where, all the resolutions
required from the LGU shall be enumerated

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3) Both borrowing resolution and borrowing

ordinance shall be passed by the
Sanggunian, as defined below:

LGU Sanggunian LCE

Province Panlalawigan Governor
City Panlungsod Mayor
Municipality Bayan Mayor

a) Confirming, approving, and ratifying

all previous representations, acts,
warranties, and all the terms and
conditions of the loan

b) Authorizing the mortgage/assignment

of certain personal and/or real
property and declaring that the
property offered as collateral are
patrimonial and not actually devoted
to public use and prohibiting the
conversion of said property to public
use or service

c) Assignment of 20% IRA and other

revenues and income in favor of
LANDBANK

d) Committing not to contract other

loans/credit with other creditors/banks
as to impair the LGU’s paying capacity
for the duration of the loan

e) Directing the LGU Treasurer and

accountant to enter the loan in the
appropriate books of the LGU
f) Designating the LANDBANK as the
LGU’s official depository bank for IRA
and major depository bank for its
other deposits, revenue and collections
which designation shall not be revoked
while the loan obligations remain
outstanding and directing the
Secretary to provide a copy of this

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MANUAL OF OPERATION
FOR THE ADLS PROVINCIAL LENDING CENTERS
Pre-Release Documentation

Resolution to DBM or other IRA-

administering office

g) Appropriating the amount for loan

repayment in the LGU’s annual budget
until the loan, interest and other
charges are fully paid

h) Authorizing LANDBANK to deduct for

set-off and/or deduct amounts from
any deposits or funds of the LGU with
LANDBANK and apply the same to the
payment of the loan or any portion
thereof, or interests and penalties
thereon as may be deemed necessary
by the LANDBANK

4) Certification on the following:

a) Joint Certification of Budget

Appropriation issued by the budget
officer and local treasurer noted by the
LCE that:

1} The LGU equity, amount of

repairs and maintenance of the
sub-project and equipment,
insurance premium and the
principal and interest
repayments on the loan have
been fully appropriated

2} Full provision has been

appropriated by the LGU for its
obligation

b) Certification by the LGU Treasurer

noted by the LCE that the proposed
sources or repayments are available
and not restricted by law or its other
obligation

c) Certification by the LGU Treasurer and

Accountant, noted by the LCE that the
contractual obligation/loan shall be
entered or has been entered (as may

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MANUAL OF OPERATION
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Pre-Release Documentation

be applicable), in the LGU books of

accounts

For Items a), b) and c), a joint

certification to be signed by the
Budget Officer, Treasurer and
Accountant, noted by the LCE, may be
considered.

d) Certification by the BAC duly noted by

the Provincial LCE that the LGU has
complied with RA 9184, the
Government Procurement Reform Act
of 2003, as well as COA rules and
regulations

5) In the case of a SEF, 20% must be assigned

in favor of LANDBANK duly supported by a
resolution passed by the local school board
expressly:

a) Ratifying all previous representations

and warranties of the LGU and all
terms and conditions of the
Assignment of SEF entered into
between LANDBANK and the LCE on
behalf of the LGU.

b) Authorizing the LGU treasurer to

disburse funds from the SEF in
accordance with the assignment.

c) Designating LANDBANK as the official

depository bank for the SEF and
authorizing the LGU treasurer to
deposit the same to LANDBANK.
d) In case where the SEF is assigned,
Deed of Assignment of SEF in favor of
LANDBANK indicating that said
assignment shall be irrevocable until
the loan, including the interest and
other charges thereon is fully paid.

6) In case of financing of waste disposal

projects, clearance or certification of
acceptance from the barangay/s where the
projects will be located

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7) MB Opinion on the Monetary and Balance of

Payments Implications of Proposed Domestic
Borrowings by LGUs, including the following:

a) Borrowing Ordinance approving the

proposed loan terms and conditions
as well as the specific project/s to be
funded.

b) Other applicable requirements under

RA No. 7160, such as the provincial
validation of the municipality/city
ordinance, if applicable.

c) A Waiver of the Confidentiality of Bank

Information (Exhibit 8.17).

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