ESSAY. EXPLAIN EVERYTHING. CREDIT TRANSACTION.

SPECIAL EXAMINATION

1. State and outline the procedure in Extra-Judicial Forclosure of Real Mortgage. 10 pts.

2. DaCorp Inc., a Philippine Gunsmith Corporation, through its president & corporate treasurer &
secretary applied with 56Bank for a continuing confirmed commercial letters of credit to cover the
supply contract on the purchases by the corporation of goods described in the covering L/C
applications as "raw metal bits" from Leighton & Co. Inc, an Australian mining company. All the
applications of the corporation were approved, and the corresponding Commercial L/C Agreements
were executed. DaCorp likewise executed a mortgage with a dragnet clause over its building and
machinery in favor of 56Bank together with its loan application which was approved.

Thence, 56Bank issued confirmed commercial letters of credit addressed to its correspondent
banks in Australia, with uniform instructions for them to notify the beneficiary thereof, Leighton &
Co. Inc., that they have been authorized to negotiate the latter's sight drafts up to the amounts
indicated in each delivery receipt, if accompanied, upon presentation, by a full set of negotiable clean
"FOB" ocean bills of lading covering the merchandise appearing in the LCs that is, raw metal bits.

DaCorp failed to pay 56Bank on the deliveries starting the month of December 2015, because
of business reverses and unclear guidelines regarding new Philippine Gun Regulation Law. DaCorp
also protested payment of the deliveries for the month of January 2016 because the delivery consists
of “raw iron ore”, instead of “raw metal bits”. Leighton demanded payment from 56Bank for
deliveries on December 2015, January 2016, and February 2016 upon presenting clean full set of
“FOB” ocean bills of lading. 56Bank likewise demanded payment from DaCorp for the months of
December 2015, January 2016, and February 2016 with warning that in case of non-payment, 56Bank
shall initiate foreclosure of the real estate mortgage. 56Bank attached said demand letter to Dacorp on
their reply to Leighton contending that they may not be forced to pay Leighton since DaCorp failed to
pay them. DaCorp contended that 56Bank cannot initiate foreclosure since the mortgage only
covered the initial transaction on the first application of loan, hence cannot be liable for subsequent
payment of the deliveries.

a. Can 56Bank be made liable to pay the letters of credits in favor of Leighton? 10 pts.

b. Can payment to Leighton for January 2016 be suspended pending resolution of the protest
made by DaCorp? 10 pts.

c. Can the Real Estate Mortgage be foreclosed by 56Bank, in the event, the latter pays Lieghton?
10 pts.

3. TAKUSA Cooperative sought rehabilitation and suspension of payment of its accruing debt
amounting to Php 28,450,234.00, as of February 28, 2018. TAKUSA presented their semi annual
income of Php 2,000,000.00 to Php 2,500,000.00 depending on the harvest of its member. The
rehabilitation plan estates that mortgagee bank shall receive 20% of the semi annual income, while
the Minimum Corporate Income Tax shall be paid in full in the amount of Php 400,000.00 annually,
but the unsecured creditors shall received 25% due to high interest rates and the illegally dismissed
laborers shall received 20% to be applied to their back wages and the remaining 15% be distributed to
its members as annual dividend. The mortgagee bank protested because the plan is inequitable and
violates its rights to be paid with preference. The laborers likewise asserted their right to be paid first
as against the owners. The Rehabilitator defended the plan as the same conforms to the standards set
by Financial Rehabilitation and Insolvency Act and because it is a rehabilitation plan, it is not
necessary that the rules on concurrence and preference of credits must be followed.
a. Is the contention of the mortgage bank correct? 10 pts

b. Is the contention of the laborers correct? 10 pts.

c. Is the contention of the Rehabilitator correct? 10 pts.

4. Distinguish the following:

 a. Secured from Unsecured Loan. 5 pts.

b. Pledge from Chattel Mortgage. 5 pts.

c. Real Mortgage from Anthecrisis. 5 pts.

5. The City of Digos approved the construction of the Digos Public Market. Despite 100% percent
completion, the City failed to pay the contractor JCC Builders, Inc., on the reason that the Internal
Revenue Allotment of the City is not enough to pay its obligation. JCC Builders, Inc., sued for
collection of some of money with preliminary attachment on the Building-Digos Public Market to
enforce its Contractor’s Lien based on Article 2242 of the New Civil Code, claiming that, it is a
preferred creditor of the City of Digos. LGU Digos claimed that payment of its debt is suspended
until after designation of rehabilitator pursuant to Financial Rehabilitation and Insolvency Act.

a. Can the contractor’s lien of JCC be accorded preferential treatment in the payment of the
City’s obligations? 10 pts.

b. Is the contention of the LGU Digos correct? 10 pts.