Code of Commerce+Special Laws (Final) (2)

1. CODE OF COMMERCE a. Merchants and Commercial Transactions (Articles 1-63) 1. Definition of Merchants the midd middle lema man n betwe etween en the the Merchant- is the consumer and manufacturer; a merchant must do business in his own name

1.1. Natural persons •

Those, who having legal capacity to engage in comm commer erce ce,, habi habitu tual ally ly devo devote te them themse selv lves es thereto (Art 1)

»

Lega Legall capa capaci city ty to enga engage ge in commerce: commerce: having completed the age of  18 years1 Having free disposition of their » property (Art 4) Legal presumption of habitually • enga engagi ging ng in comm commer erce ce exis exists ts from from the the moment the person who intends to engage ther therei ein n anno announ unce ces s thro throug ugh h circ circul ular ars, s, newspapers, handbills, posters exhibited to the public, or in any manner whatsoever, an establishmen establishmentt which has for its object some commercial operation. (Art 3) A merchant need not devote his • full time to commerce

the jurisd jurisdict iction ion of the courts of the Philippines. But if there’s a special treaty, the • treaty governs. »

2. Applicable Laws (whether or not executed by merchants) a. Code ode of of Com Comme merc rce e b. If no no provi provisio sion, n, commer commercia ciall custo customs ms c. In the the abse absence nce of thes these e two, two, Civi Civill Code Code • Custom Customs s take take preced precedenc ence e over civil law because because of the progressive progressive character character of comme commerc rce. e. For For cent centur uries ies,, nego negoti tiab able le instruments are governed mostly by customs rath rather er than than law. law. But But civi civill law law can can also also supplement the Code of Commerce – the Code does not contain provisions on extinguishments of obligations or damages.

3. Absolute Disqualification from Trade The following cannot engage in commerce nor hold offic office e or have have any any direc direct, t, admi admini nist stra rati tive ve,, or financial financial interventi intervention on in commercial commercial or industrial industrial companies:

a.

Persons sentenced to the penalty of  civil interdiction, while they have not served their sentence or have not been amnestied or pardoned

 b.

Pers ersons who who have been declared bankrupt, while they have not obtained their their discha discharge rge,, or been author authorize ized d by virt virtue ue of an agre agreem emen entt acce accept pted ed at a general meeting of creditors and approved by judici judicial al author authority ity,, to contin continue ue at the head ead of thei theirr esta establ blis ishm hmen ents ts;; the the discharge being considered in such cases is limi limite ted d to that that expr expres ess sed in the the agreement

c.

Persons Persons who, on acco accoun untt of laws laws or special provisions, may not engage in commerce

1.2. Foreign entities For Foreign eigner ers s and and compa ompani nies es • create created d abroad abroad may engage engage in commer commerce ce subjec subjectt to the laws of their their countr country y with with respect to their capacity to contract, Forei oreig gn corporations and • part partne ners rshi hips ps can can enga engage ge busi busines ness s here, here, provided they get a license from the SEC. For For insu insura ranc nce e comp compan anie ies, s, they they need need a certificate certificate of authority authority from the Insurance Insurance Commission. Banks need a license from the Monetary Board. • Code of Commerce governs: regard regards s the creati creation on » of their their esta establ blis ishm hmen ents ts in Phil Philip ippi pine ne territory, their mercantile » operations, and

4. Rela Re lati tive ve from Trade

Disq Disqua uali lifi fica cati tion on

The followi following ng cannot cannot engage engage in the commer commerce, ce, either in person or by proxy, nor can they hold any offi office ce or have have any any dire direct ct,, admi admini nist stra rati tive ve or financial financial interventi intervention on in commercial commercial or industrial industrial comp compan anie ies, s, with within in the the limi limits ts of the the dist distri rict cts, s, provinces or towns in which they discharge their duties:

1

The Code of Commerce sets it at 21 years, but RA 6809 lowered lowered the majority age to 18 years

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

a.

Justices of the Supreme Court, judges 2 and officials of the department department of public public pros prosec ecut utor ors s in acti active ve serv servic ice. e. This This provision shall not be applicable to the municipal mayors, judges or prosecuting attorneys, nor to those who by chance are tempor porarily discharging the func functi tion ons s of judg judges es or pros prosec ecut utin ing g attorneys.

 b.

Administrative, economic or military heads of districts, provinces or posts

c.

Employees engaged in the collection and administrati administration on of funds of the appointed ted by the Govern Governmen ment. t. State, appoin Persons who by contract administer and collect temporarily or their representatives are exempted.

d.

Stock Stock and commer commercia ciall broker brokers s of  whatever class they may be.

e.

Thos Those e who by virt virtue ue of laws laws or special special provision provisions, s, may not engage engage in comm comme erce rce in a determ termiinate nate territory.

f. g.

Members of Congress (’87 Consti)

President President,, Vice President, President, Cabinet Cabinet memb member ers s and and thei theirr depu deputi ties es or assistants (’87 Consti)

h.

Members of   Constitutional Commission (’87 Consti)

i.

Presid President, ent, Vice Vice Presid President, ent, Members Members of  the Cabinet, Cabinet, Congress, Congress, Supreme Court Court and and the the Cons Consti titu tutio tiona nall Comm Commis issi sion on,, Ombudsman with respect to any loan, guaranty, or other form of financial acco accomm mmod odat atio ion n for for any any busi busine ness ss purpose by any government-owned or controlled bank to them (Art XI, Sec. 16, ’87 Consti)

Absolute Incapacity Extend Extends s throug throughou houtt the Philippines

Effec Effectt of act act is null null and void

a. b.

Those acts contained in the Code of  Commerce all others others of anal analogo ogous us char charact acter er

The Code of Commerce does not attempt anywhere to define what commercial transaction transactions s are. It only specifies 2 general general classes. An act need not be performed by • a merchant in order that it may be considered an act of commerce (Cia Agricola de Ultramar vs. Reyes, 4 Phil 2) •

6. Commercial Contracts 6.1. Enforceability of Contracts i. Commer Commercia ciall contra contracts cts shall shall be valid, valid, what whatev ever er the the form form and and lang langua uage ge,, provid provided ed their their existen existence ce is shown shown by any means established by the civil law. EXCE EXCEPT PT when when the the cont contra ract ct exce exceed eds s P300 (the equivalent of 1,500 pesetas), it cannot be proved by the testimony of  a witnes witness s alone. alone. There must be some some other evidence.

6.2. Efficacy of Contracts i. General Commercial contracts contracts General Rule: Rule: Commercial are consensual, so a written instrument is not necessary. Exception: in the ff cases in Art 52

•

Relative Incapacity Extend Extends s only only to the terr territ itor ory y wher where e the the office officerr is exercis exercising ing his functions Effec Effectt is to subj subjec ectt the violator to disciplinary action or punishment

ii. ii.

Contracts stated in the Code 3 or in specia speciall laws laws4 which which must must be redu reduce ced d to writ writin ing g or requ requir ire e forms or formalities necessary for their efficacy Contra Contracts cts execut executed ed in a foreign foreign • country in which the law requires cert certai ain n inst instru rume ment nts, s, form forms s or form formal alit itie ies s for for thei theirr vali validi dity ty,, although Philippine law does not require them. if these these contr contrac acts ts do not not sati satisf sfy y the the circumstances respectively required, it shall shall not give rise rise to obligat obligations ions or causes of action

6.3. Perfection of Contracts i.

5. Acts of Commerce (Commercial Transactions) Transactions)

Contracts entered into by corres correspon ponden dence ce shall shall be perfect perfected ed from the moment an answer is made accepting the offer or the conditions by which the latter may be modified. (Art 54)

3 2

Judges are no longer disqualified, as per Macariola vs. Asuncion (114 SCRA 77, 1982). Since the relative disqualification of judges is political in nature, this was deemed abrogated by change in sovereignty from Spain to the United States.

The Code requires specific forms for charter parties and loans on bottomry and respondentia (Arts 267, 578, 652 and 720). 4 Negotiable Instruments Law requires negotiable instruments to be in writing. Insurance Code requires payment of premium for a fire insurance contract to exist.

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

ii. Note that receipt of the acceptance by the offeror is immaterial, Theory of   » mani manife fest stat atio ion: n: in comm commer erci cial al transactions, since time is of the essence the contract is perfected from the moment the acceptance is sent, even if it has not yet been rece receiv ived ed by the offe offerror. or. The The offeror can no longer withdraw the offer or change the terms of his offer. Theory Theory of cognit cognition ion:: » in civi civill law, law, when when a cont contra ract ct is entered into by correspondence, it will be perfected only upon receipt by the offeror of the unconditional acceptance of the offeree. iii. iii. Comp Compar are e with with Art 1319 1319,, Civil Civil Code: Code: Perfection is only from the time the offe offero rorr has has actu actual al knowl knowled edge ge of  acceptance. iv. BUT diff differen erentt rule rule when when a broker broker or or agent intervenes: perfection is when the contra contracti cting ng parties parties shall shall have have accepted his offer. (Art 55)

6.4. Indemnification i.

If the penalty penalty for indemnifica indemnification tion is fixed, the injured party may demand through legal means the fulfillment of the contr ontrac actt or the the pena penalt lty y stipulated. Recourse to one one exting extinguis uishes hes the other other unles unless s the contrary is stipulated. (Art 56)

6.5. Interpretation i. Interpretation and compliance in good faith and full enforceability of their provisions in their plain, usual and proper meanings (Art 57) ii. In case of conflicts conflicts between copies of  the contract, and an agent intervened intervened in the negotiation negotiation,, that which appears in the agent’s book shall prevail (Art 58) iii. iii. In case case of doub doubt, t, and and the the rule rules s cannot cannot resolv resolve e the confli conflict, ct, issues issues shal shalll be deci decide ded d in favo favorr of the the debtor (Art 59)

6.6. Miscellaneous provisions i.

Days Days of grac grace, e, cour courttesy esy or oth others ers which under any name whatsoever defer the fulfillment fulfillment of commercial commercial obligations, shall not be recognized, except except those those in which which the parties parties may have previously fixed in contra contract ct or which which are based based on a definit definite e provis provision ion of law. law. (Art (Art 61). 61).

Rati Ratio: o: Time Time is of the the ess essenc ence in comm commer erci cial al cont contra ract cts, s, so days days of  grace are prohibited. 30-day grace grace period period in Exception: 30-day the Insurance Code to pay premiums Debtor is in delay when: If day of perfor performan mance ce » is fixed by the parties or by law, debto debtorr is in defa defaul ultt on the the day day following the day fixed (art 63)

ii .

»

If no period is fixed, 10 days days from from executi execution on of contra contract ct and on 11 th day, debtor in delay without need of demand (Art 62) Potestativ tive peri eriod » (”when debtor desires”), debtor is in delay from demand iii . Art. 50. Commercial contracts. They are governed by: a) Code Code of Comm Commer erce ce b) Special law – if i t’ s the appropriate law like the Insurance Code c) Civil Code – to be app applied in a suppl upplet etor ory y man manner ner to oth other special laws. (This is not the same as in Art. 2. If what is involved is an act of commerce, apply Art. 2. But if it is a commercial contract, apply Art. 50.)

7. Commercial Registry a. A book where entries are made of merchants and of  docu docume ment nts s affe affect ctin ing g thei theirr comm commer erci cial al transactions, or b. An office establ establish ished ed for the purpos purpose e of copyin copying g and reco recorrdin ding verb verba atim tim cert certa ain clas lasses of  documents of commercial nature

7.1. Nature of registration : by

»

individual

merchants – optional by corp corpor orat atio ion n – compulsory, as it is the fact of registration which creates the corporation partnerships with a » capi capita tall of P300 P3000 0 or more more or wher where e the the con contrib tribut utio ions ns consi onsis sts of real eal esta estate te properties – compulsory, per Art. 1772, Civil Code Philippine vessels » with more than 3 tons gross – compulsory »



wit with gross tonnage of 3 tons or less – optional (Bar 



[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

Review Materials in Commercial Law –  J. Miravite, 2005 ed.)

8. Cuentas en Participacion

7.2. Effect of failure to register

•

an indi indivi vidu dua al mercha merchant nt who fails fails to regist register er cannot cannot request the inscription of any document in the the merca mercant ntil ile e regis registr try, y, nor nor take take advantage of its effects (Art. 18, Code of  Commerce) failure to » register register the articles of incorporati incorporation on will not create the corporation »

»

failure to register the partnership does not affect the existe existence nce of juridi juridical cal persona personalit lity, y, whether or not it has P3000 or more or real estate properties in contributions by the partners partners (Bar (Bar Review Review Materi Materials als in Commercial Law – J. Miravite, 2005 ed.)

•

7.3. Bookkeeping of Commerce Nati Nation onal al Inte Intern rnal al Reve Revenu nue e Code Code:: a taxpayer must keep a journal and a ledger. But if his gross quarterl quarterly y receipt receipts s do not exceed P5000, he can keep a simplified set of books. books. In the case of corporati corporations ons and partnership partnerships, s, if their gross income income exceed P25, P25,00 000 0 quar quarter terly ly,, their their book books s must must be audited by an independent CPA. NIRC also requires that the books must • be kept for 3 years. In case of corporations, the Corporation Code requires them to keep record of all business transactions, minutes of meet meetin ing g of BOD BOD and and stoc stockh khol olde der, r, and and stock and transfer book. Art. Art. 48 lays lays down certai certain n evident evidentiar iary y • rules regarding keeping of books: This This is an admi admiss ssio ion n agai agains nstt » inter interes est. t. The The entr entries ies in the the book books s of  merch merchan ants ts may may be used used as evide evidenc nce e against them. If the the book books s of 2 merc mercha hant nts s » conflict where ere 1 book is kept ept in accordance with law while the other is not, the former will prevail. If one one merc erchant does not » pres presen entt his his book books, s, whil while e the the othe otherr presents his and are kept in accordance with with law, law, the the one one who who pres presen ents ts will will prevail, unless the reason for failure to produce is caused by a fortuitous event. If both books are kept in » accordance accordance with law and they conflict, conflict, the court will decide on the basis of the rules of preponderan preponderance ce of evidence evidence by taking into consideration the totality of  o f  the evidence presented by both sides. •

A partnership the existence of which was only known to those who had an interest in the same, being no mutual agreements betw betwee een n the the part partne ners rs and and with withou outt a corporate name indicating to the public in some some way that there there were were other other people people besides the one who ostensibly managed and conducted the business, is exactly the acciden acc idental tal partne partnersh rship ip of  cuen cuenta tas s en  participacion defined in article 239 of the Code of Commerce. Those who contract with the person under whose ose name the business ess of such partnership of  cuentas en participacion is cond conduc ucte ted, d, shal shalll have have only only a righ rightt of  acti action on agai agains nstt such such pers person on and and not not against the other persons interested, and the latter, on the other hand, shall have no right of action against the third person who contracted with the manager unless such manager formally transfers his right to them. (Art 242 of the code Of   Commerce.) (Bourns vs Carman, 1906)

Joint Account No firm name No common fund No juridi juridical cal persona personalit lity y Only ostensible partner liable to 3rd persons Only ostensible partner manages Liqu Liquid idat atio ion n done done by ostensible partner

Partnership Has a firm name Has common fund Has juridi juridical cal persona personalit lity y All gen general eral part partn ners ers liable to 3rd persons All gen general eral part partn ners ers manage Liquidation Liquidation entrusted entrusted to any partner/s

b. Letters of Credit (Articles 567-572) 1. Definition •

•

An engagemen engagementt by a bank bank or other other person person made at the request of a customer that the issu issuer er (bank (bank)) will will hono honorr a draf draftt or othe otherr demands for payment or other complaints with the the condi onditi tion ons s spec specif ifie ied d in the the cred credit it.. (Prudential Bank vs. IAC, 1992). An instrument issued by a bank in behalf of a customer authorizing a beneficiary to draw a draf draftt or draf drafts ts whic which h will will be hono honore red d on presentation to the bank if drawn in

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

•

accordanc accord ance e with with the terms terms and and condit condition ions s specified in the letter of credit. Art. 567, Code of Commerce: those issued by one one merc mercha hant nt to anot anothe herr or for for the the purp purpos ose e of atte attend ndin ing g to a comm commer erci cial al transaction.

cont contra ract ct of sale sale betw betwee een n » buyer and seller contract of the issuing bank » LoC »

2. Purpose •

•

To sati satisf sfy y the the seemi seeming ngly ly irrec irrecon onci cila labl ble e interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who who want wants s to have have cont contro roll of the the good goods s befor before e payi paying ng.. (Ban (Bank k of Amer Americ ica a vs. vs. CA, CA, 1993) The The prim primar ary y pur purpose pose of the LoC is to substitute for and support the agreement of  the buyer/i buyer/impo mporte rterr to pay money under under a contract or other arrangement. It creates in the seller/exporter a secure expectation of  payment.

4. How it works:

3. Nature •

•

•

The buyer may be required required to contract a bank to issue a letter of credit in favor of the seller so that that the issuing issuing bank bank can authori authorize ze the seller to draw drafts and engage to pay them upon their presentment presentment simultaneo simultaneously usly with the tender of documents required by the letter of cred credit it.. The The sell seller er gets gets paid paid only only if he delivers the documents of title over the goods, while while the the buye buyerr gets gets the the goods goods only only afte afterr reimbursing the bank. Basic Bas ic princi principle: ple: bank bank deals deals with with docume documents nts only. As such, they are not qualified to deal with with good goods. s. They They will will act act on the the basi basis s of  documents only. 3 distinct and separate contracts in the LoC: One One link links s the the part party y » applyi applying ng for the LoC (buyer) (buyer) and the party for whose benefit the LoC is issued (seller). Betw Betwee een n the the acco accoun untt » part party y (buy (buyer) er) and and the the issu issuin ing g bank bank.. Under this contract, contract, (sometimes called the "Application and Agreement" or the "Rei "Reimb mbur urse seme ment nt Agre Agreem emen ent" t"), ), the the account party applies to the issuing bank for for a spec pecifie ified d LoC and agree grees s to reimburse the bank for amounts paid by that bank

»

•

Betw Betwee een n the the issu issuin ing g bank bank and and the the bene benefi fici ciar ary y (sell (seller er), ), in order to support support the the contract. contract. It is the LoC proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein Independent contracts involved in a LoC:

Buyer procures LoC and obliges himself to reimburse the issuing bank upon receipt of the documents of title

Issuing bank issues LoC in favor of seller 

Issuing bank opens a LoC with a correspondent bank abroad (bank-to-bank transaction

Seller ships goods to the buyer and delivers documents of title and draft to the issuing (or  negotiating) bank to recover payment

5. Perfection of the LoC •

From the time the correspondent bank makes payment to persons in whose favor the LoC has been opened opened (Belman (Belman Inc. vs. Central Central Bank, 1958)

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

•

Take note: The opening of a LoC is only a mode of payment, which is not an essential requisite of a contract (Johannes Schuback &  Sons vs. CA, 1993). A contract can still be perfected, even without the perfection of a LoC.

docu docume ment nts s actu actual ally ly tall tallies ies with with what what was was loaded aboard ship

BPI vs De Reny Fabrics (1970) •

6. Rules on LoC Bank of America vs. CA (1993) •

•

If ther there e is no prov provis isio ion n in the the Code Code of  Commer Commerce, ce, follow follow Unifor Uniform m Customs Customs and Practice Practice or generally generally observed usages usages and customs Rule Rule of Stri Strict ct Conf Confor ormi mity ty/C /Comp ompli lian ance ce:: Documents Documents tendered tendered must strictly conform conform to the the term terms s of the the LoC. LoC. The The tend tender er of  documents by the beneficiary (seller) must include all documents required by the letter. A corresponden correspondentt bank which departs from what has been stipulated stipulated under the letter of  credit, as when it accepts a faulty tender, acts acts on its own own ris risks and and it may not not thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary

Feati Bank vs CA (1991) •

•

•

8. Parties 8.1. Buyer - procures the LoC and obliges himself to reimbu reimburse rse the issuin issuing g bank bank upon upon receip receiptt of the document’s title

8.2. Issuing bank - undertakes to pay the seller upon receipt of the draft and proper documents of titles and to surr surren ender der the the docu documen ments ts to the the buye buyerr upon upon reimbursement

8.3. Seller - who, in compliance with the contract of  sale, ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment.

8.4. Other parties may include:

An advising or notifying bank does not incur any obligation by the notification. notification. Its only obl obligation is to check the apparent authenticity of the LoC Negotia Negotiatin ting g bank bank has a right right of recour recourse se against the issuer bank. Until the negotiating bank is reimbursed, drawer of the draft is still contingently liable. Relat Relatio ions nshi hip p betw between een the the sell seller er and and the the negotiating bank is like that between drawer and purcha purchaser ser of drafts drafts,, ie. the involv involved ed bank deals only with documents and not on the goods described in the documents.

Advising (notifying) bank - may be utilized to convey to the seller the existence of the credit Confirming bank » - will will lend lend cred credenc ence e to the the LoC LoC issued by a lesser known issuing bank bank.. The The conf confir irmi ming ng bank bank is direct directly ly liable liable to pay the sellersellerbeneficiary Paying bank » - undertakes to encash the drafts drawn by the exporter/seller Instead of going to the » plac place e of the the issu issuin ing g bank bank to clai claim m paymen payment, t, the buyer buyer may approa approach ch another bank (termed the negotiating bank) bank) to have have the draft draft discou discounte nted d (Charles Lee vs CA, 2002) »

7. Oblig bliga atio tions of Part Partiies in Letter of Credit •

Independence Independence Principle Principle: Negotiating Negotiating bank has no duty to verify if what is described in the the LoC LoC or ship shippi ping ng docum document ents s actu actual ally ly tallies with that loaded aboard a ship. Banks do not deal with the property to be exported or shipped shipped to the importer importer,, but deal only with with docum document ents. s. Intern Internati ationa onall cust custom om negates any duty on the part of a bank to verify whether what has been described in lett letter ers s of cred credit its s or draf drafts ts or ship shippi ping ng

LoC is a primary obligation of the bank. It is separate from the underlying contract it may supp suppor ort, t, and and is not not mere merely ly an acce access ssor ory y contract.

9. Letter of Credit-Trust Cr edit-Trust Receipt Transaction •

Bank Bank exte extend nds s loa loan to borr borrow ower er.. Loan Loan is covere covered d by a LoC, LoC, and the securi security ty for the loan is a trust receipt.

10. Kinds of LoC

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

transaction transaction is not not performed. performed. It may be issued in lieu of a performance bond. - an absolute undertaking undertaking to pay the money advanced or the amount for which credit is given on the the faith faith of the the inst instru rume ment. nt. They are primary obligations and not accessory contracts. But while they are a security arrangement, they they are not conver converted ted thereb thereby y into contracts of guaranty. (IBAA vs IAC, 1988)

10.1. Commercial LoC 10.2. Traveller’s LoC Note Note:: No prot protes estt is requ requir ired ed in case case of  dishonor. LoCs are issued to definite persons and not to order, thus non-negotiable.

10.3. Other Reviewer) »

»

kinds:

(Sundiang

Conf Confir irme med d LoC LoC - whene wheneve verr the benefic beneficiar iary y stipul stipulate ates s that that the obligation obligation of the opening bank shall also be made the obligat obligation ion of anothe anotherr bank bank to himself  Irr Irrevoc evocab able le LoC a defi defini nite te undertaking on the part of the issuing bank and constitutes the engagement of that bank to the ben benefi eficiary and bona fide holders of drafts drawn and/or documents presented thereunder, thereunder, that the provisions provisions for for paym paymen ent, t, acce accept ptan ance ce or negot negotia iati tion on cont contai aine ned d in the the cred credit it will will be duly duly fulf fulfil ille led, d, prov provid ided ed that that all all term terms s and and cond condit itio ions ns of the the cred credit it are are complied with. Iss Issuing bank cannot rev revoke oke with withou outt cons consen entt of  ben benefi eficiary and applicant (Without such consent, it cannot be canc cancell elled ed even even by a cour courtt order) Revolv Revolving ing LoC - one » that provides for renewed credit to become available as soon as the openin opening g bank bank has advise advised d that that the negoti negotiati ating ng or paying paying that the drafts already drawn by the the benef enefic icia iarry have been been reimburse to the opening bank by the buyer Back-to-Back LoC - a » credit with identical documentar documentary y requirements requirements and covering covering the same merchandise merchandise as anoth another er LoC, LoC, excep exceptt for a diffe differe renc nce e in the the pric price e of the the merchan merchandis dise e as shown shown by the invo invoic ice e and the the draf draft. t. The The second letter can be negotiated only after the first is negotiated. Standby LoC - a » secu securi rity ty arra arrang ngem ement ent for the the performance of certain oblig obligat atio ions ns.. It can can be draw drawn n against against only if another another business business

11. Sight Drafts •

No presentment acceptance.

required

before

12. Margin Fee •

Tax on sale of foreign exchange. Since the contract of sale is consensual, it falls due as soon as the local bank opens the LoC (Pac (Pacif ific ic Oxyg Oxygen en Comp Compan any y vs. vs. Cent Centra rall Bank, 1968).

1.I. Bulk Sales Law (Act 3952, as amended) 1. Purpose •

To regulate the sale, transfer, mortgage or assignment of goods, wares, mercha merchandi ndise, se, provis provision ions s or materi materials als in bulk, bulk, and prescr prescribi ibing ng penalt penalties ies for the violation of the provisions thereof.

•

To prevent the defrauding of creditors by the secret sale or disposal or mortgage in bul bulk of all all or subst ubsta antia ntiall lly y all all of a merchant’s stock of goods bulk until the creditor of the seller shall have been paid in full.

•

The The law law is pena penall in natu nature re.. Thus Thus,, its its prov provis isio ions ns must must be stri strict ctly ly cons constr true ued d agains againstt the govern governmen mentt and libera liberally lly in favor of the accused.

•

The The gene genera rall sche scheme me of the the law law is to declar declare e such such bulk bulk sales sales fraudu fraudulen lentt and void void as to credi credito tors rs of the the vend vendor or,, or pres presum umpt ptiv ivel ely y so, unles nless s spec pecifie ified d form formal alit ities ies are are obser observed ved,, such such as the the dema demand ndin ing g and and the the givi giving ng of a list list of 

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

cred credit itor ors s, the the givi giving ng of actu actual al or constructive notice to such creditors, by the record or otherwise, and the making of an inventory. (Comments and Cases on Sales – De Leon, 2005 ed.) •

Justifica Justification: tion: police power of the state (Liwanag vs Mengraj)

2. Types of Sales in Bulk •

•

Not Not in the the ordi ordina nary ry cour course se of trad trade e or business  Any  sale, transfer, mortgage or assignment of a stock stock of goods, goods, wares, wares, mercha merchandi ndise, se, provisions, or materials (Sec 2) In the course of trade or business Sale, transfer, transfer, mortgage mortgage or assignment assignment of  all, or substantially all , of the business or trade conducted or of  all, or substantially  all , of the fixtures and equipment used in and about the business (Sec 2) •

•

Exempt Transactions: Sale or mortgage » is made made in the the ordi ordina nary ry cours ourse e of  business When » accompanied with a written waiver by all the seller/mortgagor’s creditors (Sec. 2) Sale by virtue of  » a judicial order (Sec. 8) Sale by assignee assignee » in insolvency or those beyond the reach of creditors Sale of properties » exempt exempt from from attach attachmen mentt or execut execution ion (Rule 39, Sec. 13, Rules of Court) Creditors contemplated: Cred Credit itor or at the the » time of the sale/mortgage Need not be »  judgment creditors Clai Claim m need need not not » be due

Fraudul ent conveyance under the Bulk Sales Law as against transfer in fraud of creditors under the CC: The former is null » and void while while the latter latter (under (under Arts. Arts. 1381-13 1381-1389 89)) is rescis rescissib sible le and is valid valid until set aside by a competent court

fact, made in fraud of creditors (Pandect  of Commerc Commercial ial Law and Juris Jurispru pruden dence ce  Justice Vitug, 1997 ed.) The law covers covers all transa transacti ctions ons,, whether done in good faith or not, or whether the seller is in a state of insolvency or not, as long long as the the tran transa sact ctio ion n fall falls s with within in the the description description of what what is a “bulk “bulk sale”. sale”. Neither Neither the motive nor the intention of the seller, nor the the resu result ltin ing g cons conseq equen uence ce there thereof of to his his estate estate,, consti constitut tutes es an element element of what what is a bulk sale; nor is the proof thereof relevant in determining whether the said transaction falls within the coverage of the law. •

Albercht vs Cudikee (79 Pac. 628) The common use of the term stock  when applied to goods in a mercantile house refers to that which are kept for sale.

Boise Credit Men’s Assoc. vs Ellis (133 Pac. 6) Merchandise must must be cons constr trued ued to mean mean such such things as are usually bought and sold in trade by merc mercha hant nts. s. (Peo (Peopl ple’ e’s s Savi Saving ngs s Bank Bank vs Ben Ben Allsburg, 131 N.W. 101) It means something that is sold everyday, and is constantly going out of the store and being replaced by other goods.

Brown vs Quigley (130 N.W. 690) The The term term (fixtures) refe refers rs to such such arti articl cles es of  merchandise merchandise usually possessed and annexed annexed to the premise premises s occ occupi upied ed by mercha merchants nts to enable enable them them better better to sto store, re, handle handle,, and display display their their wares although removable without material injury to the premises at or before the end of tenancy.

Comments ad Cases on Sales – De Leon, 2000 ed. Lands and buildings are not “goods, merchandise and fixtures” therefore not covered by the BSL.

Philippine Law on Sales – Villanueva, 1998 ed. •

•

»

When When the the law law is duly duly compli complied ed with, with, the credit creditors ors may not object to the transaction, but it may be rescinded if it is shown that it was, in

• •

The qualification “in the normal course of  business” applies only to the first type of  bulk sale defined by law. Fraud and insolvency is not an element of  what constitutes “Bulk Sales”. The law covers all transacti transactions, ons, whether done in good faith or bad f aith.

3. Duties of Persons Selling in Bulk 3.1. Statement of Creditors

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

Vendo Vendorr must must,, befo before re rece receiv ivin ing g from from the the vendee, mortgagee, or agent any part of the purcha purchase se price, price, or any promis promissor sory y note, note, memorandum, memorandum, or other evidence therefore therefore deliver a written statement of creditors with the following information: i.

ii .

names and addresses of all creditors creditors to whom said vendor or mortgagor may be indebted amount of of in indebtedness du due or or owin owing, g, or to beco become me due due or owing to each of said creditors (Sec 3)

The sworn statement shall be registered in the the Bureau eau of Commerc erce. For the registration of each such sworn statement a fee of five pesos shall be charged. charged. (Sec 9) If the vendor/mortgagor receives any part of  the purchase price, or any promissory note, or other evidence of indebtedness indebtedness without without having having first delivered the sworn statement statement and and with withou outt appl applyi ying ng the the purc purcha hase se or mortgage mortgage money of the said property to the pro rata payment of the bona fide claims of  the creditors of the vendor or mortgagor, he shall be deemed to have violated this Act, and any such sale, sale, transf transfer er or mortga mortgage ge shall be fraudulent and void. (Sec 4) If the vendor / mortgagor shall knowingly or willfully make, deliver or cause to be made or delive delivered, red, a statem statement ent which which shall shall not include the names of all such creditors, w/ the correct amount due and to become due to each of them, or shall contain any false or untrue statement, shall be deemed to have violated the provisions of this Act. (Sec 6) The The vend vendor or,, mort mortga gago gor, r, tran transf sfer eror or or assignor assignor must apply the purchase money to the pro-rata payment of bona fide claims of  the the cred credit itor ors s as show shown n in the the veri verifi fied ed statement.

3.2. Inventory and Notification Vendor / mortgagor must, at least ten days before the sale, transfer or execution of a mortgage i. ii .

make a full detailed inventory preserve th the sa same sh showing th the qua quantity and, so far as is possi possibl ble e with with the the exerc exercis ise e of  reason reasonabl able e dilige diligence nce,, the cost price to the vendor, transferor, mortga mortgagor gor or ass assign ignor or of each each

article to be included in the sale, transfer or mortgage

iii.

notify every creditor whose name and and addr addres ess s is set set fort forth h in the the verified verified statement statement personally or by registered mail, of the price, ter terms cond condit itio ions ns of the the sale sale,, transfer, mortgage, or assignment.

3.3. Transfer for Consideration It shall be unlawful for vendor to transfer title with withou outt cons consid ider erat atio ion n or for for a nomi nomina nall consideration only. (Sec 7)

4. Consequences of Noncompliance Any person violating any provision of this Act shall, be punish punished ed by impris imprisonme onment nt not less than than six months, nor more than five years, or fined in sum not exceeding five thousand pesos, or both. (Sec 11)

4.1. 4.1. Inco Incomp mple lete te or fals false e or untr untrue ue sworn written statement is a violation 4.2. Effects of false statements in the schedule of creditors Without knowledge of  » the the buyer buyer:: if the the stat statem emen entt is fair fair upon its face he will be protected With With know knowle ledg dge e or » impu impute ted d know knowled ledge ge of buyer buyer:: the the vendee accepts it at his peril. The sale is valid between the vendor and the vendee vendee but void void as the agains againstt the creditors With names of   » certain certain creditors creditors without without notice: notice: the sale sale is void void as to such such cred credit itor ors, s, whether that omission was fraudulent or not With With resp respec ectt to an » innocent purchaser for value from the original purchaser: purchaser shall be protected

4.3. 4.3. Effe Effect cts s of viol violat atio ion n of law law on transfer As betwe etwee en the parties: valid contract As between » persons other than the creditors: valid As to affected » creditors of the seller/mortgagor: void »

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

Criminal Criminal liability, liability, if expressly provided

»

1.II Warehouse Receipts Law (Act 2137) 1. Purpose and Coverage • •

•

• •

•

• •

• •

To regulate the status, rights and liabilities of the parties in a warehousing contract To protect those who, in good faith and for value, acquire negotiable warehouse receipts by negotiation To rend render er the the titl title e to, to, and and the the righ rightt of  possession of, property stored in warehouses more easily convertible To facilitate the use of warehouse receipts as documents of title In orde orderr to acco accomp mpli lish sh thes these, e, to plac place e a muc much great eater responsibili bilitty on the warehouseman Covers negotiable warehouse receipts, which can only be issued by a warehouseman in the busines business s of receivi receiving ng commod commoditi ities es on deposit for storage. In all other cases where receipts are not issued by a warehouseman, Art. 1507-1520 of the Civil Code applies For public and private warehouses Bills of lading and quedans are governed by Art 1507-1520 and 1636 of the Civil Code (Ratio (Ratio:: Sugar Sugar centra centrals ls that that issue issue quedan quedans s are not warehousemen) But note: a warehouse receipt is also cited in Art 1636 as a document of title All other negotiable receipts are covered by the law on negotiable instruments

2. Definitions 2.1. Warehouseman Person lawfully lawfully engaged engaged in the business of storing goods for profit (Sec. 58a) Duly authorized authorized officer/agent officer/agent of  » a wareho warehouse useman man may validly validly issue a wareho warehouse use receip receiptt (Natio (National nal Bank Bank vs Producer’s Producer’s Warehouse Warehouse Association Association,, 42 Phil 609) »

2.2. Warehouse

Building Building or place where goods are deposited and stored for profit »

2.3. Warehouse receipt Written acknowledgment by a warehouseman that he has received and holds certain goods therein described in store for the person to whom it is issued Simp Simple le writ writte ten n » contract between the owner of the goods and the war warehou ehous sema eman to pay pay the compensation for that service Bilateral » contra contract; ct; import imports s that that goods goods are in the hous house e of the the ware wareho hous usem eman an and and is a symbolical symbolical representa representation tion of the property property itself. Not a negotiable negotiable » instru instrumen mentt althou although gh it is negoti negotiabl able e as provided by the act. »

3. Nature/Characteristics of  Warehouse Warehouse Receipts 3.1. Function of Warehouse Receipt Negotiation carries with it transfer of title over the commodity covered by the receipt (thus, it has the same function as a negotiable bill of  lading) negotiable warehouse Except: Where a negotiable rece receip iptt is indo indors rsed ed and and deliv deliver ered ed to a creditor as a collateral for a loan If comm commod odit ity y cove covere red d by rec receipt eipt is lost lost throug through h a fortui fortuitou tous s event, event, the debtor debtor will bear loss

Martinez vs PNB (1953) Wher Where e a ware wareho hous use e rec receipt eipt or qued quedan an is tran transf sfer erre red d or endor endorse sed d to a credi credito torr only only to secu securre the the paym paymen entt of a loa loan or deb debt, the transf transfere eree e or endors endorsee ee does does not automa automatic ticall ally y become the owner of the goods covered by the wareh warehou ouse se rece receip iptt or qued quedan an but but he merel merely y retains the right to keep, and with the consent of  the the owne ownerr to sell sell,, them them so as to sati satisf sfy y the the obligation from the proceeds of the sale, this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge, and if  the prope operty cover overed ed by the quedans or warehouse receipts is lost later without the fault or neglige negligence nce of the mortgage mortgagee e or pledgee pledgee or the transferee or endorsee of the warehouse receipt or quedan, then said goods are to be regarded as lost

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

on acco accoun untt of the the real real owner owner,, mort mortga gago gorr or pledgor.

3.2. Form of Warehouse Receipt Sec 2. Warehouse receipts need not be in any particular form but every such receipt must  embody within its written or printed printed terms:

i.

The location of the where e the the goods goods warehouse wher are stored

ii.

The date of the issue of the receipt

iii.

The consec consecuti utive ve numbe numberr of  the receipt

iv.

A stat statem emen entt whet whethe herr the the goods received will be delivered to the bearer, to a spec specif ifie ied d pers person on,, or to a specified person in his order

v. vi. vii. viii.

ix.

Thus Thus,, its its endo endors rsem emen entt and and deli deliver very y shal shalll constitute a sufficient transfer of the title of  the goods (American Foreign Banking Corp. vs Herridge, 49 Phil 975).

3.3. Effect of Non-compliance Non-compliance:

»

Sec. 2. A warehouseman shall be liable to any person injured thereby for all damages caused by the omission from a nego negoti tiab able le rece receip iptt of any any of the the terms terms herein required. If any of these requisites requisites in Sec 2 » are absent, it becomes a deposit only

3.4. Effect of omission of any of the essenti esse ntial al terms t erms :

» » »

A description of the goods or of the packages containing them

»

the h is

If the receipt is issued for goods of which which the wareho warehouse useman man is own owner, er, either solely ely or in common common with with others others,, the fact of such ownership , and A statement of the amount of  advances made and of   liabiliti liabilities es incurred incurred for which which the warehouseman claims a the precis precise e amount amount of  of  lien . If the such advances made or of such liabilities incurred is, at the time of the issue of, unknown to the warehousema warehouseman n or to his agent who who issu issues es it, it, a stat statem emen entt of  the the fact fact that that adva advanc nces es have have been made or liabilities incurred and and the the pur purpose pose ther thereo eoff is sufficient.

The The date date of issu issue e appe appear arin ing g in the the receipt indicates prima facie the date when the contract of deposit is perfected and when the the stor storag age e char charge ges s shal shalll begi begin n to run run against the depositor. •

Warehouseman

is liable for damages receipt is not affected

of or

of 

receipt is not affected

The rate of storage charges

The signature warehouseman authorized agent

Validity

Negotiability of 

The issuance of  a ware wareho hous use e rece receip iptt in the form provided by the law is merely permissive and directory and not mand manda atory tory in the the sens ense that hat if the requirements are not observed, then the good goods s deli delive vere red d for for stor storag age e beco become me ordinary deposits

3.5. Terms that cannot be included

»

Those contrary contrary the prov provis isio ions ns of the the Warehouse to the Receipts Law

»

Those which may impair his obligation to exercise that degree of care in the safekeeping of the goods entrusted to him which a reasonably careful man would exercise in regard to similar goods of his own

»

Those contrary contrary public customs, customs, public to law, morals, public order or public policy

» Those the ware wareho hous usem eman an exempting the liability for misdelivery

from from

» Those the ware wareho hous usem eman an exempting the liability for negligence

from from

3.6. Kinds of Warehouse Receipts The mere fact that the goods deposited are are inco incorr rrec ectl tly y desc descri ribed bed does does not not mak make ineffective the receipt when the identity of  the goods is fully established established by evidence. evidence. •

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

Duplicate Receipts

•

i.

Non-negotiable Sec. 6. When more than one negotiable receipt is issued for the same goods, the word word “dupli “duplicat cate” e” shall shall be plainl plainly y placed placed upon upon the the face face of ever every y such such rece receip ipt, t, except the first one issued. A ware wareho hous usem eman an shal shalll be liab liable le for for all all damages caused by his failure to do so to any one who purchased the subsequent subsequent receipt receipt for value value suppos supposing ing it to be an origin original, al, even even though though the purcha purchase se be afte afterr the the deliv deliver ery y of the the good goods s by the the ware wareho hous usem eman an to the the hold holder er of the the original receipt.

Sec. 4. A receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person non-negotiable ble receipt receipt shall Sec. Sec. 7. A non-negotia have plainly placed upon its face by the war warehousema eman issuing it “nonnegotiable” or “not negotiable.” In case case of the warehouseman’s failure so to do, a holder of the receipt who purchased purchased it for value supposing it to be negotiable, may, at his option, treat such receipt as imposing imposing upon the warehouseman warehouseman the same liabilities he would have incurred had the receipt been negotiable. This This sectio section n shall shall not apply apply to letter letters, s, memoranda, or written ackn acknow owle ledg dgem emen entt of an info inform rma al character. It is tran transf sfer erre red d by its its • delivery delivery to the transferee transferee accompanied accompanied by a deed deed of ass assign ignmen ment, t, donati donation on or other form of transfer • Effect of failure to mark “negotiable”: does not render it non-neg non-negoti otiabl able e if it contai contains ns words words of  negotiability

ii.

Negotiable Sec. 5. A receipt in which it is stated that the goods received will be delivered to the beare bearerr or to the the order order of any any person named in such receipt No prov provis isio ion n shal shalll be inse insert rted ed in a nego negoti tiab able le rece receip iptt tha that it is nononnegotiable. Such provision shall be void. It is negotiated either by delivery or indorsement When negotiable receipt not • required to be surrendered •

Estrada vs CAR (1961) (No surrender needed if ordered by court) The SC ordered ordered the manage managerr of Moncad Moncada a Bon Bonded ded Warehouse to release shares in palay w ithout the necess necessity ity of produc producing ing and surren surrender dering ing the original of the warehouse receipts issued. The SC stated stated “our order must be carrie carried d out in the meantime that this cases have not been finally decided decided in order order to amelio ameliorat rate e the precari precarious ous situa ituati tio on in whic which h said said peti petiti tion oner ers s find find themselves.” 

Negotiable vs Non-negotiable

•

receipts

Non-Negotiable If goods are sold by assignment, assignee must advise warehouseman. Until he does, his rights may be defeated by a subsequent attaching creditor, or a subsequent levy on execution, or a vendor’s lien or stoppage in transitu that could be enforced against the assignor Rights of the transferee: 1. Title of the goods, as against the transferor (merely steps into the shoes) 2. Right to notify the warehouseman of the transfer and acquire the direct obligation of the warehouseman warehouseman to hold the goods for him

Goods represented can be subject to attachment attachment or levy by execution (Sec. 42)

Negotiable As long as the goods covered by a negotiable warehouse receipt, these goods may not be attached etc.

Rights of the person to whom it is negotiated (holder): 1. Title to the goods of  the person negotiating the receipt and title of the person to whose order the goods were to be delivered 2. Direct obligation of the warehouseman to hold possession of the goods for him, as if the warehouseman warehouseman directly contracted with him Negotiation defeats the lien of the seller of the goods (sec. 9) Goods represented cannot be subject to attachment or levy by execution, unless in proper circumstances circumstances (Sec. 25)

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

Deliver to X – this is » non-ne non-negot gotiab iable. le. To sell sell the goods, goods, the the ware wareho hous use e rec receipt eipt must must be assigned Deliver to X or order » this is negotiable. negotiable. The goods can be sold sold by spec specia iall endor endorse semen mentt and and delivery Deliver to X or bearerbearer- this is negotiable negotiable because it is deliverable to bearer. The goods can be sold by delivery. »

Lost/destroye

•

d receipts Sec. 14. Lost / destroyed receipts Where a negotiable receipt has been lost   / dest destro royed yed,, a cour courtt may may orde orderr the the delivery of the goods upon satisf satisfact actory ory proof proof of  » loss/ destruction giving of a bond with » sufficient sureties to be approved by the court to protect the the ware wareho hous usem eman an from from any any liability liability or expense, expense, which he or any any pers person on inju injure red d by such such delivery may incur by reason of  the origin original al receip receiptt remain remaining ing outstanding A cour courtt may may also also orde orderr paym paymen entt of  warehousema warehouseman’s n’s reasonable reasonable costs and counsel fees. The delivery of goods shall not relieve the wareho warehouse useman man from from liabili liability ty to a person to whom the negotiable receipt has been/shall been/shall be negotiated negotiated for value without notice of the proceedings/delivery of goods.

4. Assignment and Negotiation Sec 41. A person to whom a negotiable receipt has been duly negotiated acquires thereby: a. Such title to the goo goods as the person negoti negotiati ating ng the receipt receipt to him had or had ability to convey to a purchaser in good faith for value, and also such title to the goods as the depositor or person to whos whose e order order the goods goods were were to be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith for value, and

b. The direct obligation of the warehouseman to hold hold poss posses essi sion on of the the good goods s for him him according to the terms of the receipt as fully as if the war warehouseman and contracted directly with him. Note: Negotiable Warehouse Receipt is different from a Negotiable Instrument  Note: Negotiation takes effect as of the time when the indorsement is actually made.

Negotiable Warehouse Receipts Allow negotiation If deliberately If altere altered, d, it is still altered, altered, it becomes vali valid, d, but can be null and void enforced only accdg to its original tenor Subject is money Subject is merchandise Negotiable Instruments

Obje Object ct of valu value e is the instrument itself 

Obje Object ct of valu value e is the goods deposited

Liability of   Liability of   intermediate parties intermediate parties is secondary (NIL) is none none (for failure failure to deliver goods) If originally payable If originally payable to bear earer, er, it will will to bearer but is alwa always ys rema remain in so endorsed endorsed specially, specially, even if it is it will become endors endorsed ed specia specially lly deliverable deliverable to order or in blank and can only be negotiated by indo indorrseme sement nt and delivery Holder in due Endorsee, even if a course may obtain a holder in due title better than that course, obtains only which the party such title as the negoti negotiati ating ng to him person person negotia negotiatin ting g had had over the goods Who • warehouse receipt:

» »

may

negotiate

a

its owner

any person to whom the possession the possession or custody custody of the rece receipt ipt has has been been entr entrus usted ted by the the owner, if, by the terms of the receipt, the the good goods s are are deli delive vera rabl ble e to the the perso person n to whom whom the the poss posses essi sion on or custody of receipt has been entrusted

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

•

or in such a form that it may be negotiated by delivery (Sec. 40) Warranties:

»

that

receipt

is

legal

right

to

genuine

» negotiate

»

no knowl knowledg edge e of  defects that may impair receipt

»

right right of transf transfer er over goods goods and and that that the the to title title over goods are merchantable

The indors • indorser er does does not guaran guarantee tee that that the wareho warehouse useman man will comply with his duties (Sec. 45) Cred Credit itor or rece receiv ivin ing g the the • ware wareho hous use e receip receiptt whic which h is give given n as a collateral makes no warranty (Sec. 46)

5. Rights and Duties of a Warehouseman 5.1. Rights »

Degree of Care

warehouseman n may may inse insert rt in a Sec Sec 3. A warehousema receipt issued by him any other terms and  conditions provid provided ed that that such such terms terms and conditions shall not: xxx a) in any wise wise impa impair ir his his obli obliga gati tion on to exerc exercis ise e that that degre degree e of care care whic which h a reasonably reasonably careful careful man would exercise exercise in regard to similar goods of his own Wareh Warehou ouse sema man n is Gene Genera rall Rule Rule:: required to exercise such degree of care which a reasonable reasonable careful owner would exercise over similar goods of his own. He shall be liable for any loss or injury to the the good goods s caus caused ed by his his fail failur ure e to exercise such care.

Exception: He shall not be liable for any loss or injury which could not have been avoided by the exercise of such care. Exception to the exception: He may limit his liability to an agreed value of  the property received received in case of loss. He cann cannot ot stip stipul ulat ate e that that he will will not not be respon responsib sible le for any loss loss caused caused by his negligence. »

To be paid

In case of nonpayment, to exercise his lien on the goods deposited »

To refu refuse se deli delive very ry in proper legal circumstances

»

5.2. Duties

» Issu Issue e a ware arehous house e required form for goods receipt in the required received »

Obliga Obligatio tion n

to

Delive Deliverr

Goods warehouse useman man,, in the absenc absence e of  Sec 8. A wareho some some lawful lawful excuse excuse provid provided ed by this this Act, Act, is bound to deliver the goods upon a demand made either by the holder of a receipt for the goods or by the depositor; if such demand is accompanied with: 1. an offe offerr to sati satisf sfy y the the wareh warehous ouse e man’s lien 2. an offe offerr to surr surren ende derr the rec receip eipt, t, if negotiable, negotiable, with such indorsements indorsements as woul ould be necessary for the negotiation of the receipt; and 3. a read readin ines ess s and will willin ingn gnes ess s to sign, sign, when when the goods are deliver delivered, ed, an acknowledgem acknowledgement ent that they have been delivered, delivered, if such such signat signature ure is requested by the warehouseman. The burden shall be upon the warehouseman to establish the existence of a lawful excuse for such refusal.

General Rule: a demand should be made on the warehous warehousema eman n in order order that that the duty to deliver the goods will arise warehouseman n has Exception: when the warehousema rendered it beyond his power to deliver the the goods goods,, deman demand d may may be disp dispen ense sed d with [Art. 1169(3), Civil Code] wareho hous usem eman an is just justif ifie ied d in Sec 9. A ware delivering the goods to one who is: the the perso person n lawf lawful ully ly entit entitle led d to the the 1. possession of the goods, or his agent; a person who is either himself entitled 2. to delive delivery ry by the the term terms s of a nonnonnego negoti tiab able le rece receip iptt issu issued ed for for the the goods, or who has written written authority authority from from the the perso person n so enti entitl tled ed eith either er indorsed upon the receipt or written upon another paper; or a person in possession of a negotiable 3. rece receipt ipt by the the terms terms of whic which h the the goods are deliverable to him or order, or to bear bearer er,, or whic which h has been been

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

indorsed to him or in blank by the person to whom deli elivery ery was was promised by the terms of the receipt or by his his medi mediat ate e or imme immedi diat ate e indorser.

Sec. 10. When a warehouseman delivers the goods goods to one one who who is not not in fact fact lawfu lawfull lly y enti entitl tled ed to the the poss posses essi sion on of them, them, the the war warehou ehous sema eman sha shall be liab liable le as for for conversion to all having a right of property or possession in the goods if he delivered the goods otherwise than as authorized by (b) and (c) of Sec 9 Though he delivered the goods as authorized by said subdivisions he shall be so liable, if  prior to such delivery he had eit her: 1.

2.

been been req reques uested ted,, by or on on behal behalff of  the person lawfully entitled, not to make such delivery or had had info inform rmat atio ion n that that the deli delive very ry about to be made was to one not lawfully entitled

Conversion - an unau unauth thor oriz ized ed assu assump mpti tion on and and exercise of the right of ownership over goods belonging to another through the alteration of their their condit condition ion or the exclusio exclusion n of the owner’s right (Bouvier’s Law Dictionary)

had had reaso reasona nabl ble e time time to asce ascert rtai ain n the the validi validity ty of the various various claims claims;; he is not excused from liability in case he makes a mistake (Comments and Cases on Credit  Transactions – De Leon, 2002 ed.)

•

•

Orig Origin inal al acti action on or coun counte terc rcla laim im for for interpleader, whichever is appropriate. In such such case case,, the the ware wareho hous usem eman an will will be reliev relieved ed from from liabil liability ity in deliver delivering ing the goods to the person found by the court to have a better right (Comments and Cases on Credit Transactions – De Leon, 2002 ed.) Other instances when the warehouseman may refuse to deliver: when when the the hold holder er of the the rece receip iptt » does not satisf satisfy y the conditi conditions ons prescribed in Sec. 8 when when the the ware wareho hous usem eman an has has » legal title in himself on the goods, such such title title or right right being being derived derived dire direct ctly ly or indi indire rect ctly ly from from the the transfer made by the depositor at the the time time or subs subseq equen uentt to the the deposit for storage, or from the warehouseman’s lien (Sec. 16)

warehouse useman man cannot cannot Genera Generall rule: rule: The wareho refuse to deliver on the ground that he owns the goods (bailee (bailee cannot cannot assert assert title title to the goods entrusted to him). Exceptions: In the 2 cases mentioned above

Sec. 17. If more than one person claims the title/possession of the goods, the warehouseman may, either as a defense to an action or as an original suit, require all known claimants to interplead. Sec. 18. If: 1. someon someone e ot other her than than the the depos deposito itorr or pers person on clai claimi ming ng under under him him has has a claim claim to the title title or posses possessio sion n of  goods AND 2. the the ware wareho hous usem eman an has infor informa mati tion on of such claim the wareho warehouse useman man shall shall be excuse excused d from from liability for refusing to deliver the goods until he has had: 2. reaso easona nabl ble e time time to asce ascert rta ain the the validity of the adverse claim OR 3. brin bring g lega legall proc procee eedi ding ngs s to compe compell claimants to interplead •

Sec. Sec. 18 not applicab applicable le to cas cases es where where the the wareh warehou ouse sema man n hims himsel elff make makes s a claim to the goods (67 C.J. 536)

•

In case there are adverse claimants, the warehouseman can refuse to deliver the goods to anyone of them until he has

Where the goods have already been lawfully sold to third persons to satisfy the warehouseman’s lien or disposed of  because because of their perishable perishable nature nature (Sec. 36) In the valid exercise of  » the warehouseman’s lien (Sec. 31) The warehouseman will » not be required to deliver the goods if such such had had been lost lost.. But But this this is without prejudice to liabilities which may be incurred by him due to such loss. »

»

On

commingling

of 

Goods

General Rule : Sec. 22 A warehouseman shall keep the goods so far separate from 1. the goods goods of o othe therr depos deposito itors rs and 2. from other goo goods of the the same deposit depositor or for which which a separat separate e receipt has been issued as to permit permit at all times the identi identific ficati ation on and redelivery of the goods deposited.

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

delivery on receipt, or else he is liable on entire receipt (Sec 12) If  alteration is authorized, warehouseman is liable as altered. If  not not auth author oriz ized, ed, wareh warehou ouse sema man n is liable as originally issued (Sec 13)

Exception: Sec. 23. 1. If autho authori rize zed d by agree agreeme ment nt or cust custom om and 2. Good Goods s are are fung fungib ible le the warehouseman may mingle with other goods of the same kind and grade.



•

The various depositors shall own the entire mass and each shall be entitled to such portion as the amount deposited by him bears to the whole. The The ware wareho hous usem eman an shal shalll be severally liable to each depositor for the care and redelivery of his share of such such mass mass to the the same same exte extent nt and under the same circumstances as if the good goods s had had been been kept kept separate.

Effects of alteration:

Alteration immaterial (tenor of receipt not changed)



»

To insure the goods in proper circumstances 

Altera Alteration tion materi material al but authorized Mater Materia iall alter alterat atio ion n innocently made Mater Materia iall alter alterat atio ion n fraudulently made

Where the law provides

Where it was an  the depos deposit itor or to inducement for the enter into the contract 

Established practice

Where Where the wareho warehouse use receipt contains a to that effect representation 

» To mark a non-negotia non-negotiable ble warehouse warehouse receipt receipt as such

A frau fraudu dule lent nt alter alterat atio ion n cann cannot ot • dives divestt the the titl title e of the the owne ownerr of the the stored goods and the warehouseman is liable to return them to the owner • A bona bona fide fide hold holder er acqu acquir ires es no righ rightt to the the good goods s unde underr a lost lost or stolen negotiable receipt or to which the indorsemant of the depositor has been forged

»

To mark as such the duplicates of a negotiable warehouse receipt

»

To give ive the proper notice in case of sale of the goods as provided in the law

» To take up and cancel cancel the wareho warehouse use recei receipt pt when the goods are delivered »

Other Duties If  ware wareh house ousema man n fail fails s to canc cancel el receipt when he delivers goods, he is liab liable le if receip receiptt shou should ld turn turn up again (Sec 11) Wareh ouse ousema man n shou should ld recor ecord d part partia iall 



(WON (WON frau fraudu dule lent nt;; WON WON autho uthori rize zed d) wareh arehou ouse sema man n is liable liable on the altered altered receip receiptt acc accdg dg to its original tenor Ware Wareho hous usem ema an is liab liable le accd accdg g to its its terms as altered Liab Liable le accd accdg g to its its original tenor Liab Liable le accd accdg g to the the orig origin inal al teno tenorr to a purchaser purchaser of receipt receipt for valu value e with withou outt noti notice ce and and even even to the alterer an d subsequent purchasers with noti notice ce (exce (except pt that that liab liabil ilit ity y is limi limite ted d only to delivery as he is excused from any liability)

Ware Wareh hous ousema eman is liab liable le for issuing issuing receipt receipt for non-existing non-existing goods or misdescribed goods (Sec. 20) 

Effect of misdescription of goods: Wareho Warehouse useman man is under under • the the obli obliga gati tion on to deli delive verr the the identical property stored with him and if he fails to do so, he is liable directly to the owner. As agai agains nstt a bona bona fide fide • purchaser of a warehouse receipt, the wareho warehouse useman man is estopp estopped ed from from denying that he has received the goods described in the receipt

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

If the description • consis consists ts merely merely of marks marks or label label upon the goods or upon the pack packag ages es cont contai aini ning ng them them,, the the warehouseman is not liable even if  the goods are not of the kind as indicated in the marks or labels. Warehouseman is estopped to set up title in himself (Sec 16) Non-delivery Non-delivery or goods do not correspond to description => warehouseman is liable

who took the goods in good faith for value would have been valid.

Sec. 29. A warehouseman loses his lien:

1.

by surrenderi surrendering ng goods

2.

by refusing to deliver the goods when a demand is made with which he is bound to comply





possession possession of

warehouse useman man having having a valid valid lien lien Sec. Sec. 31. 31. A wareho agains againstt the person person demandi demanding ng the goods goods may refu refuse se to deli delive verr the the good goods s unti untill the the lien lien is satisfied. The ware wareho hou usema seman’ n’s s lien lien is possessory in nature (PNB vs Judge Se) Involuntary parting w ith • possession of goods ordinarily does not result in loss loss of his his lien lien by a ware wareho hous usem eman an (93 (93 C.J.S. 59) A warehouseman who has • released his lien by the surrender of the goods may not thereafter claim a lien on other goods of the same depositor for unpaid charges on the goods if the goods were delivered to him under different bailments The loss of the warehouseman’s warehouseman’s • l ie n does not necessarily mean th e extinguishm extinguishments ents of the depositor’s depositor’s obligation to pay pay the the ware wareho hous usin ing g fees fees and and char charges ges which subsists to be a personal liability Remedie Remedies s discus discussed sed in PNB vs. • Sajo, 292 SCRA 202 (1998) To refuse refuse to deliver deliver » the goods until his lien is satisfied (Sec 31) To sell the goods by » publi blic auction and apply the proc proceed eeds s to the the valu value e of the the lien lien (Sec 33 and 34) Effects: the wareho warehouse useman man is not liable for non-delivery even if the receipt given for the good goods s were were nego egotiat tiated ed (Sec. 36) where the sale was made with withou outt the the publ public icat atio ion n requ requir ired ed and and befo before re the the time provided by law, such sale is void and the purc purcha hase serr of the the good goods s acqu acquir ires es no titl title e in them them (Eas (Easte tern rn Pape Paperr Mill Mills s Co., Co., Inc. vs Republic Ware Wareho hous usin ing g Corp Corp,, 170 170 SCRA 595) By other mean eans » allowed by law to a creditor against against •

6. Warehouseman’s Lien Sec. 27. A warehouseman shall have a lien on the goods deposited or on the proceeds thereof  for

1.

all lawful lawful charge charges s for storag storage e and preservation of goods

2.

all all law lawful clai laims for for mone oney adva advanc nced ed,, inte intere rest st,, insu insura ranc nce, e, tran transp spor orta tati tion on,, labor labor,, weigh weighin ing, g, coop cooper erin ing, g, and and othe otherr char charges ges in relation to such goods 3. all reason reasonabl able e charge charges s for notice notice and advertisements of sale

4.

where default default has sale sale of goods goods where been made in satisfying the warehouseman’s lien

In case of a negotiable receipt, the charges that are present at the time of  the issuance of the receipt must be so stated in the the rece receip iptt with with the the amou amount nts s there thereof  of  specifi specified. ed. If the existin existing g charges charges are not stated, the warehouseman shall have no lien thereon, except only for charges for storage of those goods subsequent to the date of the receipt. •

Sec. Sec. 28. 28. enforced:

A

ware wareho hous usem eman an’s ’s

lien lien

may may

be

1.

against all goods belo belong ngin ing g to the the pers person on who who is liable as debtor for the claims

2.

against all goods belo belong ngin ing g to othe others rs whic which h have have been deposited at any time by the person who is liable as debtor for the claims If such such pers person on had had been been so entrusted with the possession of  goods such that a pledge by him at the time of the deposit to one

the





[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

his his debt debtor or,, to coll collec ectt from from the the depositor all charges an d adva advanc nces es whic which h the the depos deposit itor or expressly expressly or impliedly impliedly contracted contracted with with the wareho warehouse useman man to pay (Sec 32) Other Other remed remedie ies s » allowed by law to enforce a lien agains againstt persona personall proper property ty (Sec (Sec 35) The warehouseman may refuse to deliver goods to any any hold holder er of the the rece receip iptt when when the the storage fee stipulated in the receipt has not yet been paid •

PNB vs. Se (1996) While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shal shalll be effec effected ted only only upon upon paym paymen entt of the the stor storag age e fees. fees. Imper Imperat ativ ive e is the the righ rightt of the the warehouseman to demand payment of his lien at this juncture, because in accordance with Section 29 of the Ware Wareho hous use e Recei eceipt pts s Law, Law, the ware wareho hous usema eman n lose loses s his his lien lien upon upon goods goods by surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the possession of the goods without requ requir irin ing g paym paymen entt of his his lien lien,, beca becaus use e a warehouseman's lien is possessory in nature. •

But But the the ware wareho hous usema eman n cann cannot ot refu refuse se to deliv deliver er the the goods goods becau because se of an adver adverse se claim of ownership [PNB vs. Sayo, 292 SCRA 202 (1998)]

•

Rule Rules s on atta attach chme ment nt/e /exe xecu cuti tion on of  goods deposited: In cas case e of negoti negotiabl able e receip receipt, t, » the goods cannot be attached or levied in execution unless: receipt is first surrendered i ts negotiation is enjoined receipt is impounded by the court (Sec. 25) Credit Creditor’ or’s s remedie remedies: s: seek for the attach attachmen mentt of the receipt receipt or seek seek aid from from cour courts ts to comp compel el the the debt debtor or to satisfy claims by means allowed by law in rega regard rd to prop proper erty ty whic which h cann cannot ot readil readily y be attach attached ed or levied levied upon upon by ordinary process (Sec. 26) 





Not applicable: If the depositor is not the owner of  • the goods (thief) or one who has no

• •

righ rightt to conv convey ey titl title e to the the goods goods binding upon the owner Acti Action ons s for rec recover overy y or manua anuall delivery of goods by the real owner Where Where attach attachmen mentt is made made prior prior to the issuance of receipt

Rights Rights acquir acquired ed by attach attaching ing credit creditors ors cannot be defeated by the issuance of a nego negoti tiab able le rece receip iptt of titl title e there thereaf afte terr (Internatio (International nal Breeding Breeding Co. vs Terminal Terminal Warehouse Co., 126 Atl. 902) In case of a non» nego negoti tiab able le rece receip ipt, t, the the goods goods can can be attached, provided it is done prior to the notificati notification on of the warehouseman warehouseman of the transfer transfer (Sec. 42); reason: absent such notice, notice, both the warehousema warehouseman n and the sherif sherifff have have a right right to assume assume that that the goods are still owned by the person whose name appears in the receipt

7. Liabilities

Warehouseman or his agent

Civil liabilities For damages suff suffere ered d for for failure to comply comply with with legal duties

Criminal liabilities 1. issu issuan ance ce of recei eceip pt s for goods not received (Sec. 50) 2. issu issuan ance ce of receipt containing false statement (Sec. 51) 3. issu issuan ance ce of dupl duplic icat ate e negotiable warehouse recei eceip pt not marked as such (Sec. ec. 52) 4. issu issuan ance ce of a negotiable warehouse recei eceip pt for goods of   whic which h he is an owner without statin stating g such such fact of   ownership (Sec. 51) 5. delivery of 

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

Civil liabilities

3rd persons

Criminal liabilities goods without obtaining negotiable warehouse receipt receipt (Sec. 54) Negotiation of warehouse receipt issued for mortgaged good goods s wit with intent to deceive

2.3. Receipt Any receipt receipt issued issued by a wareho warehouse useman man for commodities delivered to him.

Gonzales vs Go Tiong (1958) The kind or nature of the receipts issued by him him for for the the depos deposits its is not not very very mater materia ial, l, much less decisive. Though it is desirable that receipts receipts issued issued by a bonded warehouseman warehouseman shou should ld conf confor orm m to the the prov provis isio ions ns of the the Warehouseman Receipts Law, said provisions are not manda mandatory. tory. Under Section Section 1 of the Wareho Warehouse use Receip Receipts ts Act, Act, the issuance issuance of a warehouse receipt in the form provided by it is merely merely permi permiss ssiv ive e and and dire direct ctor ory y and and not not obligatory. •

Any » farm farm,, agri agricu cult ltur ural al horticultural product;

General Bonded Warehouse Act (Act 3893 as amended by RA 247)

•

•

animal and animal husbandry or livestock, dairy or poultry product;

» »

water, marine or fish product;

mine minera ral, l, chem chemic ical al,, medicinal product;

drug drug

or

» forestry product; and any raw, processed, processed, manufactu manufactured red or finished finished product or by-product

An act act to regu regula late te the the busi busine ness ss of  rece receiv ivin ing g commo commodi diti ties es for for stor storag age, e, giving giving the direct director or of Commer Commerce ce and Industry the duty to enforce if, providing penalties for violation of the provisions, exem exempt ptin ing g coop cooper erat ativ ive e mark market etin ing g associ ass ociati ations ons of commod commodity ity produc producers ers from application thereof. To protect depositors by giving them a direct recourse against the bond filed by the warehouseman in case of the latter’s insolvency To encourage the establishment of more warehouses

2. Definition Terms

or

»

1. Purpose •

Commodities

» good good,, arti articl cle, e, or merc mercha hand ndis ise, e, either of dome domest stiic or of fore oreign which h may may be produc productio tion n or origin origin, whic traded or dealt in openly and legally.

3. Business of Receiving Commodities for Storage The business of receiving commodities for storage shall include any contract or transaction wherein

1.

the the ware wareho hous usem eman an is obli obliga gate ted d to return the very same commodities delivered to him or pay its value ;

2.

the commod commoditi ities es deliver delivered ed is to be milled for and on account of the owner thereof;

3.

the commodities delivered is with the commodi commoditie ties s commingled with deliv deliver ered ed by or belon belongi ging ng to othe otherr perso persons ns and and the the ware wareho hous usem eman an is obligated to return the commodities of  the same kind or pay its value.

of  

2.1. Warehouse Every building, structure, or other protected enclosure in which commodities are kept for storage.

2.2. Warehouseman A person engaged in the business receiving commodities for storage

The kinds kinds of commodi commodity ty to be deposited must be those, which may be traded or or dealt in in openly and and legally. legally. Thus, Thus, •

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

illeg illegal al and and proh prohib ibit ited ed goods goods may may not not be validly received (Sec. 2) The wareho warehouse useman man is • not covered by law if the owner merely rents space to a certain group of persons because the the law law cove covers rs ware wareho hous use e that that acce accept pts s goo goods: ds: (a) storage, (b) mil milling and commin commingli gling ng with with the obliga obligatio tion n to return return the same quantity or to pay their value.

Limjoco vs Director of Commerce (1965) Any contract or transacti transaction on wherein wherein the palay delivered is to be milled for and on account of  the the owne ownerr shal shalll be deem deemed ed incl includ uded ed in the the business of receiving rice for storage. In other words, it is enough that the palay is delivered, even if only to have it milled. In this case it is a fact that palay is delivered to appe appell llan antt and and some someti time mes s pile piled d insi inside de her her "camalig" in appreciable quantities, to wait for its turn in the milling process. This is precisely the situation covered by the statute. The main intention of the law-maker is to give prot protec ecti tion on to the the owne ownerr of the the comm commod odit ity y agai agains nstt poss possib ible le abus abuses es (and (and we migh mightt add add negligence) of the person to whom the physical control of his properties is delivered.

4. Requirement of License No pers person on shal shalll enga engage ge in the the busi busine ness ss of  receiving receiving commodities commodities for storage storage without without first securing a license therefore from the Director of  the Bureau Bureau of Commer Commerce ce and Indust Industry. ry. Said Said license shall be annual and shall expire on the thirty-first day of December. Any person applying for a license shall set forth in the application

•

•

the plac place e or plac place es where here the busine business ss and wareho warehouse use are to be established or located and the maximum quantity commodities to be received .

of  

There shall be imposed an annual license fee of: P50 for the first 1000 square meters of  • prot protec ecte ted d encl enclos osur ure e or 1000 1000 cubi cubic c meters of storage space, or any fraction of such enclosure or space, and 2 ½ centavos for each additional square • meter or cubic meter.

5. Requirement of Bond The application shall be accompanied by a cash bond or a bond secured secured by real estate estate or signed by a duly duly author authorize ized d bondin bonding g compan company y at not

less less than than 33 1/3% 1/3% of the the mark market et valu value e of the the maximum quantity or commodities to be received. Said bond shall be so conditioned as to respond for the market market value value of the commodi commodities ties actua actually lly deli elivered and recei eceiv ved at any time the warehouseman is unable to return the commodities or to pay its value. The bond shall be approved by the Director of the Bureau of Commerce and Industry before issuing a license under this Act. Whenever the Director shall determine that a bond approved by him has become insufficient, he may require an additional bond or bonds to be given by the warehouseman concerned. Any person injured by the breach of any obligation to secure which a bond is given, shall be entitled to sue on the bond in his own name in any court of  competent jurisdiction to recover the damages he may have sustained by such breach. Nothing contained herein shall except any property of assets of any warehouseman from being sued on in case case the the bond bond given given is not not suffi suffici cien entt to respond for the full market value of the commodities received by such warehouseman.

6. Requirement of Insurance Every person licensed to engage in the business of  receiving commodities for storage shall insure the commodities so received and stored against fire. For palay and corn license, a bond with the National Grains Authority is required; also an insurance cover is required

•

7. Duties of Warehouseman

Bonded

7.1. Storage of Commodities Every warehouseman shall receive for storage, so far as his license and the capacity of his warehouse warehouse permit, any commodities commodities,, of the kind customarily stored therein by him, which may be tendered to him in a suitable condition for warehousing, in the usual manner and in the ordina ordinary ry and usual usual course course of busine business, ss, without without making making any discriminat discrimination ion between pers person ons s desi desiri ring ng to avai availl them themse selv lves es of  warehouse facilities.

7.2. Give the necessary bond 7.3. Insure against fire the commodity received (Sec. 6)

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

7.4. 7.4. Record Record-Ke -Keepi eping ng and and Rep Report orting ing Requirements

i.

Every warehouseman shall keep a complete record of:

ii.

• • •

receiving a quantity of commodity greater than its capacity or that specified in the license, if the goods deposited are lost or destroyed (Sec. 12)

the commodities received by him, the the rece receipt ipts s issu issued ed ther theref efor or of the the withdrawals, the the liqu liquid ida ation tions s and all all rece receip ipts ts returned to and cancelled by him.

iii.

He shal shalll make make repo report rts s to the the Direc Directo torr of  Bureau of Comm ommerc erce and Ind Industry concern erning his war warehouse and the cond condit itio ions ns,, cont conten ents ts,, oper operat atio ions ns,, and and business.

7.5. Observe Observe rules and regulatio regulations ns of the Bureau Bureau of Domest Domestic ic Trade Trade (Sec. 9) •

A person injured by the breach of the warehouseman may sue on the bond put up by the the ware wareho hous usem eman an to reco recover ver dama damage ges s he may may have have sust sustai aine ned d on count of such breach. In case the bond is insufficient to cover full market value of the commodity stored, he may sue on any property or assets of the warehouseman not exempt by law from attachment and execution (Sec. 7)

1. Definition of Trust Receipt •

8. Warehouse Receipts Law vs. General Bonded Warehouse Act General Bonded Warehouse Act Regulates and supervises ware wareho hous uses es whic which h put up a bond

*Bar Review Materials in Commercial Law - Jorge Miravite, 2002 ed.

9. Liabilities a. civil: civil: breach breach of obliga obligatio tions ns secure secured d by the bond b. criminal:

connivance with a warehouseman for the purpos purpose e of evadin evading g the license license requirement (Sec. 13)

1.III Trust Receipts Law (PD 115)

•

Warehouse Receipts Law Prescribes the mutu mutual al duti duties es and and rights of a wareho warehouse useman man who issu issues es ware wareho hous use e receip eipts, and h is depositor, and covers all warehouses warehouses whether whether bonded or not

engaging in business covered by the Act in violation of the licens ense requirement (Sec. 11)

•

• • • • •

As a docu docume ment nt,, it is a writt written en or prin printed ted document signed by the entrustee in favor of  the entruster whereby the latter releases the goods to the possession of the former upon the entrustee’s entrustee’s promise promise to hold  said goods in trust for the entruster, to sell or dispose of the goods, and to return the proceeds thereof to the extent of what is owing to the entruster; OR to return the the good goods, s, if unso unsold ld or not not otherwise dispose of (Sec. 4) Trust Trust Receipt Receipt transa transacti ction on – a separa separate te and independent independent security security transact transaction ion intended intended to aid in financing financing importers importers and retail dealers who do not have sufficient funds to finance the importation importation/purch /purchases ases and who may not be able able to acqui cquire re credi reditt exc except ept thr through ough utilization utilization,, as collateral, collateral, of the merchandis merchandise e imported/purchased (Nacu vs. CA; South City Home vs. BA Finance) Goods are owned by the bank, and are only releas released ed to the importer importer in trust trust after after the grant of the loan. The bank acquires a security interest in the goods as holder of a security title for the advances it made to the entrustee. Entrustee must deliver money or return unsold goods to entrustor Bank is preferred over other creditors. Bank is also not liable to buyer of goods as vendor Purchaser from entrustee gets good title. No particular form is required for trust receipt, but it must substantially contain: Desc escription of the » good goods, s, docu docume ment nts s or inst instru rume ment nts s subject of the TR Total Total invoic invoice e value value of  » the goods and the amount of the draft to be paid by the entrustee

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

Undertaking or commitment of the entrustee

»

a



to hold hold in trus trustt for the entruster the goods, documents or instruments therein described



to disp dispos ose e of them them in the the the manner manner provided provided for in the trust receipt

to turn over the proceeds of  the sale of the goods, docume documents nts or instru instrumen ments ts to the entruste entrusterr to the extent of  the amount owing to the entruster or as appears in the trus trustt rece receip iptt or to retu return rn the the goods, documents or instruments in the event of their nonnon-sa sale le with within in the the perio eriod d specified therein (Sec. 5) the the trus trustt receip receiptt may may » cont contai ain n othe otherr term terms s and and cond condit itio ions ns agreed upon by the parties in addition to those hereinabove enumerated provided that such terms and conditions shall not be contrary to provisions of this Decree, any any exis existi ting ng laws laws,, publ public ic poli policy cy or morals morals,, public public order order or good good custom customs s (Sec. 5) trust receipts are » denomi denominat nated ed in Philip Philippin pine e curren currency cy or acceptable and eligible foreign currency 

2. Purposes of the Law To encour encourage age the use of and promote promote • tran transa sact ctio ions ns base based d on trus trustt rece receip ipts ts;; regulate the use of trust receipts; encourage and promote the use of trust receipts as an additional and convenient aid to commerce and trade To regulate trust receipt transactions in • order to assure the protection of the rights and the enforcement of the obligations of the parties involved To declare the misuse or • misappropri misappropriation ation of goods or the proceeds reali realized zed from from the the sale sale of goods goods relea release sed d under trust receipts as an offense punishable under Art. 315, RPC (Sec. 2) To punish the dishonesty and abuse of  • conf confid idenc ence e in the the hand handli ling ng of mone money y or goods to the prejudice of another regardless of whether whether or not the latter latter is the owner (Colinares vs. CA, 2000)

3. Nature of Trust Receipt Transaction

Any tran transa sact ction ion by and and betw between een an Sec Sec 4. Any entruster and an entrustee, whereby the entruster, who owns/holds absolute title or • security interests over certain specified goods, documents or instruments releas releases es the same to the possessi possession on of the • entrus entrustee tee upon upon the latter' latter's s executi execution on and delivery of a signed document called a "trust receipt" wherein the entrustee binds himself  to hold the designated » goods, documents documents or instruments instruments in trust for the entruster and to sell ell or othe otherrwis wise » dispos dispose e of the goods, goods, docume documents nts or inst instru rume ment nts s with with the the oblig obligat ation ion to turn over over to the ent entruster the proceeds or the goods, documents or instru instrumen ments ts themsel themselves ves if they they are unsold or for other purposes substantially equivalent to any of the following: 

In the case of goods or documents to sell / procure their sale; or • to manufacture or process the • goods goods with with the the purp purpos ose e of  ultima ultimate te sale: sale: Provid Provided ed that that the entruster shall retain title over the goods whether in its origi origina nall or proc proces esse sed d form form until til the entrustee has complied fully with h is obli obliga gati tion on unde underr the the trus trustt receipt; or to load oad, unload, ship or • tran transh ship ip or othe otherw rwis ise e deal deal with them in a manner prelim prelimina inary ry or necess necessary ary to their sale; or In instruments, 

the

case

of  

to sell or procure their sale or exchange; or to deli deliver ver them them • to a principal; or to effect the • consummation of some transactions involving deli deliver very y to a depos deposit itor ory y or register; or to effe effec ct thei theirr • pres presen enta tati tion on,, coll collec ectio tion n or renewal •

The sale sale of goods/ goods/doc docume uments nts/ins /instru trumen ments ts by a person person in the business business of sellin selling g such such for profit who, who, at the outset outset of the transact transaction, ion, has, as against the buyer,

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

general general property property rights in such goods/ documents/instruments, or who who sell sells s the the same same to the the buyer buyer on • credit, retaining title or other interest as security for the payment of the purchase price does not constitute constitute a trust receipt transaction transaction and is outside the purview and coverage of this Decree. •

Notes : This is not a simple loan transaction between • a creditor and debtor-importer The The law law war warran rants the the vali validi dity ty of the the • entruster’s entruster’s security interest as against against the creditors of the trust receipt agreement. PD 115 Although the entrustee is not the owner of the good goods, s, anyo anyon ne who who buys from him acquires good good titl title e over over the the goods Even if the entrustee is not the owner, he bears risk of loss while the the good goods s are are in his his possession

Civil Code Buye Buyerr acqu acquir ires es only only wha whatev tever title the seller seller has at the time time the the sale sale is perfe perfect cted ed (Art 1505) Generally, owner bears loss

Landl & Co. (Phil) Inc. vs Metropolitan Bank (2004) A trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security for a loan.

Allied Banking vs Ordonez (1990) (Capital goods are covered.) Applies even to goods not destined for sale or manufacture, and would include items obtained to repa repair ir and and main mainta tain in equi equipm pmen entt used used in business

4. Trust Receipts as Against Other Transactions (Notes on Selected Commercial Laws: A Guide for Bar Reviewees, Tristan Catindig, 2003 ed.) Other transactions Chattel subjects the Mortgage proper property ty to a lien Pledge financer possesses the property Conditiona Conditionall There is a

Trust Receipt Transaction no lien is created over the property pers person on fina financ nced ed possesses th e property There is no sale of 

Sa l e

sale o off th the property from the seller to the buyer Consig Consignme nment nt 1.B 1.Bipa iparti rtite te 2.Consignor retains ownership of  the property

the property from the the entr entrus uste terr to the entrustee

1. Tripartite 2. Seller does not retain retain title to the property

Colinares vs CA (2000) (Loan vs trust receipts transaction) This This situat situation ion belies belies what what normal normally ly obtain obtains s in a pure pure trust trust receip receiptt transa transacti ction on where where goods goods are owned owned by the the bank bank and and only only relea release sed d to the the importer in trust subsequent to the grant of the loan. The bank acquires a “security interest” in the good goods. s. The The owne owners rshi hip p of the the merc mercha hand ndis ise e contin continues ues to be vested vested in the person person who had advanced payment until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should be turned over to him. The The ban bank take takes s ful full titl title e to the the good goods s and continues to hold that as his indispensable security until the goods are sold and the vendee is called upon to pay for them. Trust receipts partake of the nature nature of a condit conditiona ionall sale sale where where the importer importer bec becomes omes absol bsolu ute owne ownerr of the imp importe orted d merchandise as soon as he has paid its price.

Consolidated Bank vs CA (2001) (Simple loan vs trust receipt transaction) The delivery to Corporation of the goods subject of  the trust trust receip receiptt occ occurr urred ed long long before before the trust trust recei receipt pt itse itself lf was was execu execute ted. d. This This situ situat ation ion is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted.

Robles vs CA (1991) (Bipartite transactions are covered). In decid decidin ing g WON WON the the deliv delivery ery trus trustt rece receip ipts ts covered covered a trial trial sale sale transa transacti ction on or one that fell fell under the trust receipts law, the SC found that the requisites under Sec 4 were met: 1) Param aramou oun nt reta retain ined ed owne ownerrship ship of the office equipment covered by the re ceipts; 2) poss posses essi sion on of the good goods s was subj subjec ectt to a fiduciary obligation to return them within a specif specified ied period period or to acc accoun ountt for the proceeds thereof 

5. Parties

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

5.1. Entruster lender/financier perso person n hold holdin ing g title title over over the the goods, goods, docume documents nts or instru instrumen ments ts subject of a trust receipt transaction transaction;; releases releases possession possession of  the goods goods upon upon executi execution on of trust trust receipt not the owner of the goods, but » merely a holder of security interest if it is made to appea appearr in the » trus trustt rece receipt ipt as the the owner owner of the the good goods s purc purcha hase sed, d, it is mere merely ly theore theoretic tical, al, an artifi artificia ciall expedie expedient nt and more of fiction than fact (Garcia vs. CA; Vintol Vintola a vs. IBAA; IBAA; PNB vs. Pineda); see, however, the contrary view view of Prof Prof.. Catin atindi dig g and the the ruli ruling ngs s in Coli Colina nare res s vs. vs. CA and and Prudential Bank vs. IAC » »

5.2. Entrustee borrower/buyer »  /importer person to » whom whom the goods are deliver delivered ed for sale or processing in trust, with the obligation to return the proceeds of  sale sale of the the good goods s or the the good goods s themselves to the entruster the owner wner of  » the goods purcha purchased sed;; in fact, fact, the law imposes on him the risk of loss of the goods. Res perit domino.

5.3. Seller of the goods not strictly and actually a party to the trust receipt tran transa sact ctio ion, n, but but a part party y to the the contract of sale with the buyer/importer (entrustee) »

6. Rights/Duties Entruster

of

the

6.1. Rights of Entruster

»

The Sec.7. entruster shall be entitled to the proceeds from the sale of the goods, documents or inst instru rume ment nts s to the the exte extent nt of the the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of  non-sale, and 



to the the enfo enforc rcem emen entt of all all other rights conferred on him in the trust receipt Exte Extent nt of secu securi rity ty » interest as agai again nst the the innoce innocent nt purcha purchaser ser for value value – not preferred (Sec. 11) as against creditors of entrustee – preferred (Sec. 12) 





Prudential Bank vs NLRC (1995) (Nature of interest of entruster in goods covered) The security security interest interest of the entruste entrusterr is not merel merely y an empt empty y or idle idle titl title. e. To a cert certai ain n extent, extent, such interes interestt becomes becomes a "lien" "lien" on the goods goods becaus because e the entrus entruster ter's 's advanc advances es will will have to be settled first before the entrustee can consolidate his ownership over the goods. The law warrants the validity of petitioner's security inter interes estt as agai agains nstt all all credi credito tors rs of the the trus trustt receipt agreement. The only exception is when the properties are in the hands of an innocent purchaser for value and in good faith.

Prudential Bank vs NLRC (1995) The goods covered by trust receipts cannot be levied upon by creditors of the entrustee. The entruster may cancel the trust and take poss posses essi sion on of the the good goods, s, docu docume ment nts s or inst instru rume ment nts s subj subjec ectt of the the trus trustt or of the the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee. The The entr entrus uste terr in poss posses essi sion on of the the good goods, s, docume documents nts or instru instrumen ments ts may, may, on or after after default default,, give give notice notice to the entruste entrustee e of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be applied to the payment of the expenses • thereof; to the payment of the expenses • of re-taking, keeping and storing the goods, documents or instruments; to the satisfaction of the • entr entrus uste tee' e's s inde indebt bted edne ness ss to the the entruster.

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

The entrustee shall receive any surplus but shal shalll be liab liable le to the the entr entrus uste terr for for any any deficiency.

To give possession of the goods » to the entrustee To give at least 5 days notice to » the entrustee entrustee of the intention intention to sell the goods at an intended public sale

State Investment vs CA (2000) (Entruster not entitled to proceeds of sale of  goods not covered by trust receipt) The evidence for PNB fails to establish that the vehicles sold to the Francos were among those covered by the trust receipts. Neither the trust receipts receipts covering the units units imported imported nor the corr corres espon pondi ding ng bill bills s of ladi lading ng cont contai ain n the the chassis chassis and engine engine numbers numbers of the vehicles in question.

of

the

7.1. Rights of Entrustee

» To receiv receive e the surplus from the public sale »

To have possession of the goods as a condition for his liability under the Trust Receipt Law (Ramos vs. CA)

7.2. Duties of Entrustee Sec. 9.

»

hold the goods, documents documents or instrument instruments s in trust for the entrus entruster ter and shall shall dispos dispose e of  them them stri strict ctly ly in acco accord rdan ance ce with with the the ter terms and cond condit itio ion ns of the trus trustt receipt;

»

receive the proceeds in trust for the entruster and turn over the same to the extent of  the amount owing to the entruster or as appears on the trust receipt;

»

keep keep said said goods goods capable of  or proceeds proceeds separate separate and capable identification;

»

6.2. Duties of Entruster

7. Rights/Duties Entrustee

»

insure the goods for their total value against loss from from fire fire,, thef theft, t, pilf pilfer erag age e or othe otherr casualties;

return the goods, documents documents or instruments instruments in the event of non-sale or upon demand ;

»

observe all other the trus trustt terms and condit terms condition ions s of the receipt Vintola vs IBAA (1987) (Liability of entrustee not extinguished by return of goods to entruster) IBAA IBAA did did not not becom become e the the real real owne ownerr of the the goods ; it was merely the holder of a security titl title e for for the the adva advanc nces es it had had made made to the the Vintola Vintolas. s. The goods goods remain remain the Vintol Vintolas’ as’ own property. The trust receipt arrangement did not convert the IBAA into an investor. The fact that the Vintolas Vintolas were unable unable to sell sell the seashe seashells lls does does not not affec affectt IBAA IBAA's 's righ rightt to reco recove verr the the advances made under the Letter of Credit

7.3. Risk of Loss borne by entrustee Sec. 10. The risk of loss shall be borne by the entrustee ; irrespective of whether or not it was due to the fault or negligence of the entrustee, shall not extinguish his obligation to the entruster for the value thereof.

7.4. Non-Liability of Entruster for Sale by Entrustee Sec. 8. The entruster holding a security interest shall shall not, not, merely merely by virtue virtue of such such intere interest st or having given the entrustee liberty of sale or other disposition of the goods, documents or inst instru rume ment nts s be resp respon onsi sibl ble e as prin princi cipa pall or as vendor under any sale or contract to sell made by the entrustee.

8. Purchaser in Good Faith Acquisition by purchaser of goods in • good faith Sec 11. Any purchaser of goods from an entrustee with right to sell, or of documents or instruments throug through h their their custom customary ary form form of transf transfer, er, who buys such for value and in good faith from the entrus entrustee tee,, acquir acquires es said said goods, goods, docume documents nts or instru instrumen ments ts free free from from the entrus entruster ter's 's securi security ty interest.

9. Remedies Available

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]

•

•

• •

•

Failure to turn over proceeds of the sale of  goods or to return unsold goods is a public nuisance to be abated by the imposition of  pena penall sanc sancti tion ons s (Tio (Tiomi mico co vs. vs. Cour Courtt of  Appeals, 1999). The offense is malum prohibitum. There is no need to prove damage to the entrustor. (Metrop (Metropolit olitan an Bank Bank vs. Tonda, Tonda, 2000), 2000), or intent to defraud (People vs. Cuervo, Cuervo, 1981) Offense: estafa under Art 315 of the Revised Penal Code. Also, liable for damages under Art. 33, CC (Prudential vs. IAC, PP vs. Cuervo, MBTC vs. Tonda) Effect of compliance: befo before re crim crimin inal al » charge – no criminal liability after charge, » before conviction – extinguishments of criminal liability Liab Liabili ility ty of entr entrus uste tee e accr accrue ues s on his his • fail failur ure e to compl comply y with with his his obli obliga gati tion on to return return.. It is not absolu absolutely tely necessary necessary that that the entrus entruster ter cancel cancels s the trust trust and take take possession of the goods to be able to enforce his rights under this law. PD 115 allows the bank to take • possession of the goods covered by the trust receipts. receipts. Thus, Thus, even though though the the bank took took possession of the goods covered by the trust receipts, the entrustees remained liable for the entire amount of the loans covered by the trust receipts (Phil. Blooming vs. CA)

Lee vs Rodil (1989) Acts Acts invo involv lvin ing g the the viola violati tion on of trus trustt rece receip iptt agreements occurring after 29 Jan 1973 would make make the acc accuse used d crimin criminall ally y liable liable for estafa estafa under par1(b), Art 315 of the RPC, pursuant to the explicit provision in Sec. 13 of P.D. 115.

Allied vs. Ordoñez The penal provisions of PD 115 encompasses any act violative violative of the obligatio obligation n covere covered d by the trust receipt. receipt. It is not limited to transact transactions ions in goods which are to be sold, reshipped or stored, but but also also appl applie ies s to good goods s proc proces esse sed d as a compon component ent of a produc productt ultima ultimatel tely y sold sold to the general public.

punish punishabl able e under under Sec. Sec. 13 of the Trust Receip Receipts ts Law (PD 115) in relation to Article 315(1) (b) of  the the Revi Revise sed d Pena Penall Code Code.. Bein Being g base based d on an obligation ex contractu and not ex delicto, the civil action may proceed independently of the criminal proc procee eedi ding ngs s inst instit itut uted ed agai agains nstt peti petiti tion oner ers s regardless of the result of the latter.

People vs Nitafan (1992) (Violation of PD 115 is an offense against public order, not property) The Trust Receipts Receipts Law punishes the dishonesty dishonesty and abuse of confidence in the handling of money or goods - it does not seek to enforce payment payment of  the loan. Thus, there can be no violation of a right against against imprisonment imprisonment for non-paymen non-paymentt of a debt. P.D. 115, like BP 22, punishes the act "not as an offense against property, but as an offense against public order.” Thus the law states that a breach of  a trust trust receip receiptt agreeme agreement nt makes makes one liable for estafa.

Philippines Bank vs Ong (2002) The Supreme Court ruled that a Memorandum of  Agre Agreem emen entt ente entere red d into into betw betwee een n the the bank bank-entr entrus uste terr and and entr entrus uste tee e exti exting ngui uish shed ed the the obligation under the existing trust receipt because the agreement did not only reschedule the debts of the the entr entrus uste tee e but but it prov provid ided ed prin princ cipal ipal conditions conditions which are incompatibl incompatible e with the trust agreement. Hence, the liability for breach of the Memorandum of Agreement would be purely civil in nature and no criminal liability under the Trust Receipt Law can be imposed.

Prudential Bank vs. NLRC (1995) Entrustor can: o cancel cancel trust trust and take posses possessio sion n of the goods file a 3rd party party claim claim or separa separate te civil civil o action at any time upon default or failure of entrus entrustee tee to comply comply with terms terms and conditions of the trust agreement

Sarmiento, Jr. vs. CA (2002) The The brea breach ch of obli obliga gati tion on of a trus trustt rece receip iptt agreeme agreement nt is separa separate te and distin distinct ct from from any criminal liability for “misuse and/or misappropriation of goods or proceeds realized from the sale of goods, documents or inst instru rume ment nts s relea release sed d under under trus trustt rece receip ipts ts”, ”,

[Lorybeth_Baldrias.head] [Nayna_Malayang. [Nayna_Malayang.deputy] [Dionne_Sanchez. acads] [Jam_Jacob.design] [Bobbie_StaMaria.printing] [Miles Malaya. lectures] [Japee_DeLeon.poli_law] [Ascheia_Yumul. rem_law] [Paul_Sorino/Judy_R [Paul_Sorino/Judy_Ripol. ipol.civ_law] [Hya_Rafael/Mac_M [Hya_Rafael/Mac_Macapagal. acapagal.crim_law] [Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus. legal_ethics] [Lianne_Gervasio.comm_law] [Ces_Sicangco/Rowena_Romero.tax_law]