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Credit Q & A:
In case the buyer was not able to pay its obligation under the letter of credit, can the bank take possession over
the goods covered by the said letter of credit?
No. The opening of a Letter of Credit did not vest ownership of the goods in the bank in the absence of a trust receipt
agreement. A letter of credit is a mere financial device developed by merchants as a convenient and relatively safe
mode of dealing with the sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part
with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. (Transfield
Philippines, Inc. v. Luzon Hydro Corporation, G.R. No. 146717, Nov. 22, 2004)
Can a court order the release to the applicant the proceeds of an irrevocable letter of credit without the consent
of the beneficiary?
No, such order violates the irrevocable nature of the letter of credit. The terms of an irrevocable letter of credit cannot
be changed without the consent of the parties, particularly the beneficiary thereof. (Phil. Virginia Tobacco Administration
v. De Los Angeles, G.R. No. L-‐27829, Aug. 19, 1988)
What is the effect of the buyer’s failure to procure a Letter of Credit to the main contract?
The Letter of Credit is independent from the contract of sale. Failure of the buyer to open the Letter of Credit does not
prevent the birth of the Sales Contract. (Reliance Commodities, Inc. v. Daewoo Industrial Co. Ltd., G.R. No. 100831, Dec.
17, 1993) The opening of the Letter of Credit is only a mode of payment. The LC is not an essential requisite to the
contract of sale.
What is the loan and security feature of the trust receipt transaction?
A trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank
extends a loan covered by the Letter of Credit, with the trust receipt as a security for the loan. In other words, the
transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering
trust receipt. A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest"
in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation.
(Sps. Vintola vs. Insular Bank of Asia and America, G.R. No. 73271, May 29, 1987)
In the event of default by the entrustee on his obligation under the trust receipt agreement, is it absolutely
necessary for the entruster to cancel the trust and take possession of the goods to be able to enforce his right
thereunder?
The law uses the word "may" in granting to the entruster the right to cancel the trust and take possession of the goods.
Consequently, the entrustee has the discretion to avail of such right or seek any alternative action, such as a third party
claim or a separate civil action which it deems best to protect its right, at any time upon default or failure of the entrustee
to comply with any of the terms and conditions of the trust agreement. (South City Homes, Inc. v. BA Finance
Corporation, G.R. No. 135462, Dec. 7, 2001)
Can deposits in a savings account opened by the buyer subsequent to the TR transaction be applied to
outstanding obligations under the TR account?
No, the receipt of the bank of a sum of money without reference to the trust receipt obligation does not obligate the
bank to apply the money received against the trust receipt obligation. Neither does compensation arise because
compensation is not proper when one of the debts consists in civil liability arising from criminal. (Metropolitan Bank
and Trust Co. v. Tonda, G.R. No. 134436, Aug. 16, 2000).
JDS NOTES
8.17.19
There is formalities only for the sake of stipulated interest
5,000,000 given in 5 tranches every 2 years, the contract is unenforceable by reason of SOF
If its partially complied its, SOF no longer applies
What do you mean by consumable thing?
Why cant the bailee use the fruits in a commodatum?
Commodatum- least transmission of rights
Commodatum is a personal contract
How do you know that a commodatum is a precarium?
When can you demand the thing in a commodatum, refer to extinguishment of the contract page 22.
Art. 1163 applies in commodatum
Food of the carabao is to be borne by the bailees.
There can be compensation in commodatum by direct provision, 1287
Hidden defects-bailor must not be aware, but for the provision to apply, there must be knowledge.
When does natural obligations or soliutio indebiti apply? NO- there must be prescription and voluntary payment (with
knowledge), solution indebiti-mistake (CONSIDER BOTH)
There is still a usury law, but its suspended. It’s not repealed.
If its unconscionable, the court may reduce the interest.
Kinds of interest- conventional, compensatory, interest on interest
8.20.19
Benchmark of floating rate: Must be (1) agreed by the parties and must (2) not be dependent on the will of one of
the parties.
Availability period-
Cross default- it is a provisions that puts a borrower in default if the borrower defaults on another obligation.
1. Monetary/Conventional-stipulated interest
When shall it accrue:
a. Delivery of the funds
2. Compensatory
a. Based on actual damages
b. Can you still collect even if there is no stipulation?
c. When will it start to run?
3. Interest on interest
4. Interest on judgment
6% interest rate
Civil Code
Transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the
performance of obligations in general.
Eastern Shipping
1. Loan, forbearance of money- 12% p. a. computed from judicial or extra-judicial demand
2. Breach of obligation, not constituting a loan or forbearance of money- 6% p. a. computed from judicial or
extra-judicial demand, if can be established certainly, otherwise, computed from finality of the decision.
3. Judgment awarding a sum of money- 12% p.a. computed from finality of the decision.
8.27.19
End
1) Monetary interest Finality of judgment
2) Compensatory interest
3) Interest on interest
4) Interest on judgment Satisfaction of judgment sum
Parties may enter in a loan agreement even if the loan was in foreign currency.
So you cannot compel. If the agreement is to pay in US dollars you have to pay in US dollars. Unless it is impossible
to deliver such currency, then in the currency which is the legal tender in the Philippines.
For instance there is foreign currency emergency, and the BSP will suspend payment thru US Dollars.
Legal tender means such currency which in a given jurisdiction can be used for the payment of debts, public and
private, and which cannot be refused by the creditor.
The legal tender covers all notes and coins issued by the Bangko Sentral ng Pilipinas and guaranteed by the Republic
of the Philippines. The amount of coins that may be accepted as legal tender are:
2. 25 centavos or less – in amount not exceeding P100. 00 (BSP Circular No. 537, Series of 2006, July 18, 2005).
Finance charge
Amount to be financed
What is the penalty to the creditor? Twice to finance charge given by the creditor
A deposit need not be a contract, it may be created by law or by judicial action, in that case, that is a judicial deposit.
Principal purpose=safekeeping
It may be onerous.
Art. 1965. A deposit is a gratuitous contract, except when there is an agreement to the contrary, or unless the
depositary is engaged in the business of storing goods.
Deposit, Gratuitous-unilateral
Contract of loan- unilateral, mutuum is created when there is delivery of the object, not reciprocal oblgiation
9.7.2019
Obligations of a depositary
4. Collect interest from BICS (bonds, instruments, certificates, securities), preserve the their value and rights
7. Be liable to FE
8. Must return a thing closed and sealed if delivered also closed and sealed
12. Advised the depositor if he discovered that the thing has been stolen
13. Return the same if he may have reasonable grounds to believe ta the thing has not been lawfully acquired
14. If solidary and thing is not divisible, 1212 and 1214 shall govern, return it only to the person designated
17. Deliver the sum or other thing to the depositor if the thing was lost by force majure or government
Obligation of depositor
18. If depositors are not solidary, thee cannot demand more than his hare
The delivery of the money by the creditor is not yet part of the contract of loan.
Capacity is necessary to demand the return of the thing. 1986 example, so the administrator can demand but not the
minor
1. Judicially attached
2. Opposition
3. 30-day
4. Right of retention
Deposit-all damages
Onerous-as GR deposit cannot return immediately, XPN: 1984,’if the depositary has reasonable grounds to believe
that the thing has not been lawfully acquired by the depositor, the former may return the same
GR: he cannot
Even if there is authority to use, the principal use must be for safekeeping
1992. if onerous it presumes na part na ang expenses for preservation of the thing, unless otherwise stipulated.
Commodatum:
Depositor is obliged for the preservation of thing whether ordinary or extraordinary (must be gratuitous!)
Right of retention is broader in scope in a contract of deposit, unlike a bailee. In deposit, if you are not paid, you can
retain the thing but in commodatum, you really have to return the thing
The right of action must be assigned to you. Action to recover the price only but not the thing, because the 3rd
person was a buyer in GF.
Necessary deposit, you must be a transient. If 1 year ka na dun ,then that is a lease, not a deposit.
The reason why there is necessary deposit, because the law says so, by the operation of law.
Deposit- real, bilateral or unilateral, primary purpose is for safekeeping,you may be allowed to use (irregular) or you
may use it because it is necessary for the preservation,
9.14.19
The consignee in a bill of lading is the buyer, only the buyer can claim
The issuing bank if there is a valid presentment the issuing bank is primarily liable- that is the independence principle
Contention of contractor- that only the issuing bank can call on the letter of credit and not the LHC
The 3 requisites for enjoinment must be determined by te court, otherwise the independent principle be watered
down
Correspondent banks
-negotiating
-notifying
-confirming
HSBC: I will pay after Klokner pays me, is that a valid defense?
9.28.19
But in trust receipts law, even if security interest lng, you can have absolute title
In allied bank- goods are not intended for sale or resale- what are the products?
Surety and guaranty are accessory contracts
Counter guaranty
Drugnet clause