FINANCIAL LEASE AND OTHER FINANCING company does not extend a warranty of fitness
TRANSACTIONS of the equipment for any particular use.
Intent of the financial lessor is to recover the FINANCING COMPANIES- are corporations, except price of the equipment banks, investment houses, savings and loan Lease agreement is non-cancellable associations, insurance companies, cooperatives OBLIGATION OF THE LESSEE and other financial institutions organized or 1. To pay the amortization up to at least 70% of operating under other special laws, which are the acquisition cost primarily organized for the purpose of extending 2. To pay the lessor for incidental expenses and a credit facilities to consumers and to industrial, margin of profit; and commercial or agricultural enterprises, by direct 3. To shoulder the cost of repairs, maintenance, lending or by discounting or factoring commercial insurance and preservation of the property papers or accounts receivable, or by buying and purchased. selling contracts, leases, chattel mortgages, or other No obligation to purchase evidences of indebtedness, or by financial leasing of Financial lease will not be invalidated based on movable as well as immovable property (RA 5980, the allegation of the lessee that rent for the use Sec. 3(a)) of movable constitutes value of movable leased 1. FINANCIAL LEASE- mode of extending credit FORMS OF FINANCIAL LEASE through a non-cancelable lease contract under 1. Finance company purchases on behalf or at the which the lessor purchases or acquires movable or instance of the lessee the heavy equipment or immovable property in consideration of the periodic machinery which the latter is interested to buy payment by the lessee of a fixed amount of money but has insufficient funds sufficient to amortize at least 70% of the purchase 2. When seller or dealer of heavy equipment price or acquisition cost, including any incidental leases it to the interested buyer expenses and a margin profit overn an obligatory Financial lease is a contract sui generis It is a contract of adhesion period of not less than two years during which the Nature of right over the property lessee has the right to hold and use the leased - Legal title is lodged in the financial lessor property, but with no obligation to purchase the - Financial lessee is entitled to possession and leased property from the owner-lessor at the end of use of leased equipment lease contract (RA 5980 as amended by RA 8556, Financial lessor does not extend a warranty of Sec 3(d)) fitness of the equipment REQUISITES: - Financial lessee can directly enforce a. The lessor purchases or acquires movable or warranty against supplier immovable property Lessee shall bear the loss b. The purchase or acquisition is at the instance of Leasing company is liable under the registered the lessee owner rule if lessee caused damage or injury in c. The lessee agrees that as a consideration, he the negligent operation of leased vehicle if will make periodic payment of a fixed amount of financial lease is not registered money sufficient to amortize at least 70% of the - Their remedy is to resort to third party purchase price or acquisition cost, including any complaints against lessees incidental expenses and a margin of profit 2. ASSIGNMENT OF CREDIT- an act of transferring, d. The payment is over an obligatory period of not either onerously or gratuitously, the right of an less than 2 years; and assignor to an assignee who would then be capable e. During the period agreed upon for payment, the of proceeding against the debtor for enforcement or lessee has the right to hold and use the leased satisfaction of the credit property. Purchase discount- difference between value of 3 BASIC CHARACTERISTICS (Beltran v. PAIC) credit assigned and the net amount paid by a. The legal title to the leased equipment is lodges financing company for such purchase in the financial lessor Purchase discount is limited to 14% of value of b. The financial lessee is entitled to the possession credit assigned exclusive of interest and other and use of the leased equipment charges c. The financial lessee is obligated to make 3. RECEIVABLES FINANCING- mode of extending credit periodic payments denominated as lease through the purchase by or assignment to, a rentals, which enable the financial lessor to financing company of evidence of indebtedness or recover the purchase price of the equipment open accounts by discounting or factoring which had been paid to the supplier thereof; DISCOUNTING- type of receivables financing and whereby evidences of indebtedness of third d. The financing company, being an extender of party are purchased by, or assigned to, a credit rather than an ordinary equipment rental financing company in an amount or consideration less than their face value - Discounting line- credit facility with a merchandise as shown by the invoice and the financing company or bank, which allows draft. business entity to sell, on a continuing basis, - Second letter of credit can be negotiated its accounts receivable at a discount only after the first one - Discount- sale of a receivable at less than its e. General LC- one addressed to any and all face value persons without naming any one in particular FACTORING- type of receivables financing f. Special LC- addressed to a particular individual, whereby open accounts, not evidenced by a firm or corporation by name written promise to pay supported by g. Straight LC- one that does not run in favor of documents, are purchased by, or assigned to, a purchasers of drafts drawn financing company in an amount or for a h. Fixed LC- can be exhausted either when drafts consideration less than the outstanding balance for payment have been drawn by the of the open accounts beneficiary for full amount of credit or when time for drawing upon the letter has expired LETTERS OF CREDIT i. Sight LC- payable on demand as distinguished from Time LC which is payable within a certain LETTERS OF CREDIT- engagement by a bank or other period person made at the request of a customer that the Irrevocable letter of credit refers to the duration issuer will honor drafts or other demands for of the letter of credit while a confirmed letter of payment upon compliance with the conditions credit pertains to the kind of obligation specified in the credit (Prudential Bank v. IAC) assumed by the correspondent bank Bank merely substitutes its own promise to pay NATURE OF LETTERS OF CREDIT for the promise to pay of one of its customers Financial device developed by merchants as a who in return promises to pay the bank the convenient and safe mode of dealing with sales amount of funds mentioned in the letter of of goods to satisfy the interests of a seller and a credit plus credit or commitment fees mutually buyer agreed upon In standby credit, beneficiary avoids burden of Governed by Code of Commerce on Letters of litigation and receives his money promptly upon Credit and encompasses only Art. 567-572 presentation of required documents which are obsolete PARTIES IN A LETTER OF CREDIT - Now embodied in the Uniform Customs and 1. Buyer- procures the letter of credit and obliges Practice for Documentary Credits (UCP) himself to reimburse the issuing bank upon KINDS OF LETTERS OF CREDIT receipt of the documents of title 1. Commercial Letter of Credit- used in the trade 2. Bank- issues the letter of credit, which of goods undertakes to pay the seller upon receipt of the 2. Standby Letter of Credit- security arrangement draft and proper documents of titles and to for the performance of work or service surrender the documents to the buyer upon KINDS OF COMMERCIAL CREDIT a. Confirmed LC- whenever the beneficiary reimbursement 3. Seller- ships the goods to the buyer and delivers stipulates that the obligation of the opening documents of title and draft to the issuing bank bank shall also be made the obligation of a bank to recover payment to himself Modern letters of credit parties: b. Irrevocable LC- definite undertaking on part of a. Buyer or importer issuing bank and constitutes the engagement of b. Seller or beneficiary that bank to the beneficiary and bona fide c. Opening bank who issues letter of credit holders of drafts drawn, that provisions for d. Notifying bank which advises the payment, acceptance or negotiation contained beneficiary of the letter of credit in the credit will be duly fulfilled, provided that e. Negotiating bank which is any bank in the all terms and conditions of the credit are city of the beneficiary complied with f. Paying bank which buys or discounts the c. Revolving LC- credit that provides for renewed drafts by the letter of credit credit to become available as soon as the g. Confirming bank which confirms the letter opening bank has advised that the negotiating of credit issued by the opening bank or paying bank that the drafts already drawn by OBLIGATIONS OF ISSUING BANK the beneficiary have been reimbursed to the 1. To make payment to or to the order of a third opening bank by the buyer party (beneficiary) or is to accept and pay the d. Back-to-Back LC- credit with identical bills of exchange drawn by the beneficiary documentary requirements and covering the 2. To authorize another bank to effect such same merchandise as another letter of credit, payment, or to accept and pay such bills of except for a difference in the price of the exchange 3. To authorize another bank to negotiate, against - FRAUD EXCEPTION: exists when the stipulated documents, provided that the terms beneficiary, for the purpose of drawing on and conditions of the credit are complied with the credit, fraudulently presents to the Obligation of the issuing bank is solidary with confirming bank, documents that contain, the person requesting for its issuance, except expressly or impliedly, material otherwise stipulated representations of fact that to his Article 13- Standards for Examination of knowledge are untrue Documents: Banks must examine all documents - Remedy for fraudulent abuse is an stipulated in the credit with reasonable care, injunction and should not be granted seven banking days following the day of receipt unless: of documents to determine whether to take up a. There is clear proof of fraud or refuse the documents b. Fraud constitutes fraudulent abuse of Doctrine of Strict Compliance- issuing bank the independent purpose of the letter must see to it that the terms of the letters of of credit and not only fraud under the credit are strictly complied with main agreement - his obligation is to deliver to the paying c. Irreparable injury might follow if bank the tender documents stipulated in injunction is not granted the letter of credit - Protection of innocent party is emphasized Issuing bank may or may not be the paying bank under the Uniform Commercial Code Seller of the merchandise is called the beneficiary of the credit instrument TRUST RECEIPTS LAW The buyer-importer is the person who applies PD 115- Trust Receipts Law for and for whose benefit the issuing bank Obligation to pay the issuing bank may also be issues the letter of credit secured by trust receipts Notifying or advising bank assumes no liability The bank becomes the entruster of the goods except to notify and/or transmit to beneficiary while the buyer-importer is the entrustee the existence of letter of credit Enacted to safeguard commercial transactions Confirming bank assumes the direct obligation and to offer an additional layer of security to to the seller; it is as if it issued the letter of the lending bank credit TRUST RECEIPT TRANSACTION- any transaction by Negotiation bank buys or discounts a draft and between the entruster and entrustee, whereby under the letter of credit and its liability the entruster, who holds absolute title or security depends on the stage of negotiation: interests over certain specified goods, documents or - Before negotiation, it has no liability with instruments, releases the same to the possession of respect to the seller the entrustee upon the latters execution and - After negotiation, contractual relationship delivery to the entruster of a signed document will prevail between negotiating bank and called a trust receipt wherein the entrustee binds seller himself to hold the designated goods, document or TRANSACTIONS INVOLVED: instrument in trust for the entruster and to sell or 1. Independent contracts otherwise dispose of such with the obligation to a. Contract of sale between the buyer and seller b. Contract of buyer with the issuing bank- bank turn over to the entruster the proceeds thereof to agrees to issue the LC in favor of the seller the amount owing to the entruster or as appears in subject to reimbursement or payment by the the trust receipt or the goods, documents or buyer of whatever is paid to the seller plus instruments themselves if they are unsold or not proper consideration agreed by the parties otherwise disposed of, in accordance with the terms c. Letter of credit proper- bank obligates itself to and conditions specified in the trust receipt. pay the seller after presentation to the bank of In case of goods or documents a. To sell the goods or procure their sale tender documents stipulated upon b. To manufacture or process the goods with the Other contracts may be actually involved INDEPENDENCE PRINCIPLE- Contracts involved purpose of ultimate sales - Provided that entruster shall retain its title in letter of credit arrangement are to be over the goods whether in its original or maintained in a state of perpetual separation - Assures the seller or beneficiary of prompt processed form until the entrustee has payment independent of any breach of the complied fully with his obligation under the main contract trust receipt - Banks only deal with documents and not c. To load, unload, ship or otherwise deal with with goods, services, or obligations which them in a manner preliminary or necessary to they relate their sale - Issuing bank and beneficiary can invoke the In case of instruments a. To sell or procure their sale or exchange independence principle doctrine b. To deliver to them to a principal performance of some obligation of the c. To effect the consummation of some entrustee or of some third persons to the transactions involving delivery to a depository entruster and included title, whether or not or register expressed to be absolute, whenever such d. To effect their presentation, collection or title is in substance taken or retained for renewal security only Not applicable to contract to sell where the Trust agreement is a collateral agreement ownership of the good is retained by the seller - Transaction involves loan feature Not applicable to simple loan represented by letter of credit and a PARTIES security feature, which is the covering trust The ENTRUSTEE is obliged to: receipt a. Hold the goods, documents or instruments in 2. VIEW THAT THE ENTRUSTER OWNS THE GOODS trust for the entruster and shall dispose of them Entrustee cannot mortgage the properties that strictly in accordance with the terms and are covered by trust receipts conditions of the trust receipt agreement Entruster does not retain absolute ownership b. Receive the proceeds in trust for the entruster - Right of entrustee over the goods has all and turn over the same to the entruster to the earmarks of ownership though subject to extent of the amount owing to the entruster or limitations imposed by law and the as appears on the trust receipt agreement of the parties c. Insure the goods for their total value against - Trust receipt is a limitation on the loss from fire, theft, pilferage or other casualties ownership of the entrustee d. Keep said goods or proceeds thereof whether in REMEDIES OF ENTRUSTER money or whatever form, separate and capable 1. SPECIFIC PERFORMANCE- entruster can file an of identification as property of the entruster action to pay his obligation to pay the loan e. Return the goods, documents or instruments in 2. RETAKING OF POSSESSION- entruster may cancel the event of non-sale or upon demand of the the trust and take possession of the goods, entruster observe all other terms and documents or instruments subject of the trust or of conditions of the trust receipt not contrary to the proceeds realized therefrom at any time the provisions of the decree - Does not result in the full satisfaction of the The ENTRUSTER shall be entitled to: entrustees obligation a. The proceeds from the sale of the goods, PENALTY CLAUSE documents or instruments released under a Sec. 13 of PD 115 trust receipt to the entrustee to the extent of - Crimed is malum prohibitum but is classified the amount owing to the entruster or as as estafa under par. 1(b), Article 315 of RPC appears in the trust receipt - Entrustee is liable under Trust Receipts Law: b. The return of the goods, documents or a. if he did not turn over proceeds of the instruments in case of non-sale sale c. The enforcement of all other rights conferred on b. if he did not return the goods when him in the trust receipt lawfully demanded or if the goods are PURPOSE OF ACQUISITION OF GOODS not meant for sale Goods covered by trust receipt are meant for c. If he did not pay the value of the goods sale or disposition by the entrustee - May be commited by corporation or other Not only for the purpose of sale, but as well for juridical entity and making officers purpose of installing them in the machineries responsible for the offense and equipment of the entrustee = separate personality of a corporation not Two scenarios in trust receipt transaction a defense a. Refers to money received under the obligation - If there is novation of the trust receipt involving the duty to deliver it (entregarla) to agreement to the extent that same is the owner of the merchandise sold extinguished, criminal liability of the b. Refers to merchandise received under the corporate officers shall also be extinguished obligation to return it (devolvera) to the owner NATURE OF ENTRUSTERS RIGHT OVER THE GOODS 1. VIEW THAT OWNERSHIP IS NOT ACQUIRED BY ENTRUSTER Trust receipt evidences the absolute title or security interest of the entruster over the goods Entruster-bank does not acquire real ownership over the subject goods - What is acquired is mere security interest - SECURITY INTEREST- a property interest in goods, documents, or instruments to secure
A Simple Guide for Drafting of Conveyances in India : Forms of Conveyances and Instruments executed in the Indian sub-continent along with Notes and Tips