2011 Golden Notes Mercantile Law
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MERCANTILELAW
GOLDENNOTES2011UNIVERSITYOFSANTOTOMAS
FACULTYOF
CIVIL
LAW
MANILA
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AcademicYear20112012CIVILLAWSTUDENTCOUNCIL
LesterJohnA.Lomeda PresidentWilfredoT.Bonilla,Jr. VicePresident
RaissaS.Saipudin SecretaryBernadetteFaustineC.Balao Treasurer
MarcMikhaeleJ.Santos AuditorVictorLorenzoL.Villanuea PublicRelationsOfficer
TEAM:BAROPS2011
DianeCamillaR.Borja ChairpersonCarloArtemusV.Diaz ViceChairpersonMaryGraceL.Javier Secretary
RonnRobbyD.Rosales LogisticsCommitteeHeadMarkArthurM.Catabona Asst.LogisticsCommitteeHead
AngeliP.
Albaa
Finance
Committee
Head
VicenteO.PlatonIII HotelAccommodationsHeadKimverlyA.Ong Asst.HotelAccommodationsHead
The UST GOLDEN NOTES is a student-edited work of the Universityof Santo Tomas, Faculty of Civil Law. It is updated annually.Communications regarding the NOTES should be addressed to theAcademics Committee of the Team: Bar-Ops.
ADDRESS: Team Bar-OpsAcademics CommitteeFaculty of Civil LawUniversity of Santo TomasEspaa, Manila 1008
TEL. NO.: (02) 731-4027(02) 4061611 loc. 8578
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2011ACADEMICSCOMMITTEELesterJayAlanE.FloresII Chairperson
KarenJoyG.Sabugo ViceChairforAcademicsJohnHenryC.Mendoza ViceChairforAcademics
JeanelleC.Lee ViceChairforAdministrationandFinanceTheenaC.Martinez ViceChairforLayoutandDesign
EarlLouieM.Masacayan ViceChairforLayoutandDesign
MERCANTILELAWCOMMITTEE
EarlLouieM.Masacayan MercantileLawCommitteeHeadKimverlyA.Ong Asst.MercantileLawCommitteeHead
JoannaMayD.G.Peada Asst.MercantileLawCommitteeHeadMa.ElisaJonalynA.Barquez Member
Angeli
R.
Carpio
Member
AntonetteT.Comia MemberAlbanRobertLorenzoF.DeAlban Member
JoebenT.DeJesus MemberChrisJarkAceM.Mao MemberAnnaMarieP.Obieta MemberRubyAnneB.Pascua Member
FlorAngelaT.Sabaupan MemberGianFrancesNicoleC.Vilches Member
ADVISER
Atty.AmadoE.Tayag
http://penafrancia.net/http://penafrancia.net/http://penafrancia.net/http://penafrancia.net/ -
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FACULTYOFCIVILLAW
UNIVERSITYOFSANTOTOMAS
AcademicYear20112012
ACADEMICOFFICIALS
Atty.NILOT.DIVINADean
Rev.Fr.ISIDROC.ABAO,O.P.Regent
Atty.MARIANJOANNEK.COPUA
FacultySecretary
Atty.ELGINMICHAELC.PEREZLegalCounsel
USTChiefJusticeRobertoConcepcionLegalAidClinic
JudgePHILIPA.AGUINALDOSWDBCoordinator
LENYG.GADIANA,RGCGuidanceCounselor
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Ourdeepestappreciationtoour
Mentors&Inspiration
DeanNiloT.Divina
DeanAmadoL.Dimayuga
JudgeNoli
C.
Diaz
Atty.IrvinJosephM.Fabella
Atty.JacintoD.Jimenez
Atty.AlbertR.Palacios
Atty.GabrielT.Robeniol
Atty.RodolfoP.Soriano
Atty.AmadoT.Tayag
For activating our magnets of curiosity, knowledge and
wisdom and helping us understand the intricate
sphere of Mercantile Law.
AcademicsCommittee2011
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D I S C L A I M E RTheriskofuse,nonuseandmisuseof
thismaterialshallbebornesolely
bytheuser.
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TABLE OF CONTENTS
SYLLABUS FOR 2011 BAR EXAMINATIONSMERCANTILE LAW
November 13, 2011(Second Sunday, Afternoon)
A.Letters
of
Credit...
1
I.Definition/Concept. 1
II.Governinglaws.. 1
III.Natureofletterofcredit. 1
IV.Partiestoaletterofcredit... 2
A.Rightsandobligations ofparties.. 2
V.BasicPrinciplesofletterofcredit.... 4
A.Doctrineofindependence.... 4
B.Fraudexceptionprinciple.. 4
C.Doctrineofstrictcompliance... 4
B.WarehouseReceiptsLaw...5
I.NatureandFunctionsofaWarehouseReceipt... 5
A.Towhomdelivered 6
B.Kinds. 6
c.Distinction
between
aNegotiable
Instrument
and
aNegotiable
Warehouse
Receipt....
7
D.Rightsofaholderofanegotiablewarehousereceiptasagainstatransfereeofanon
negotiablewarehousereceipt........ 7
II.DutiesofaWarehouseman... 8
III.Warehousemans Lien 10
C.TrustReceiptsLaw12
I.Definition/Concept ofaTrustReceiptTransaction 12
A.Loan/securityfeature. 12
B.Ownershipofthegoods,documentsandinstrumentsunderatrustreceipt 12
II.RightsoftheEntruster.. 12
A.Validityofthesecurityinterestasagainstthecreditorsoftheentrustee/innocentpurchasers
forvalue. 13
III.ObligationsandLiabilityoftheEntrustee 13
A.
Payment/Delivery
of
proceeds
of
sale
or
disposition
of
goods,
documents
or
instruments
13
B.Returnofgoods,documentsorinstrumentsincaseofsale 13
C.Liabilityforlossofgoods,documentsorinstruments. 14
D.Penalsanctionifoffenderisacorporation 14
IV.Remediesavailable. 14
D.NegotiableInstrumentsLaw 16I.FormsandInterpretation 16
A.RequisitesofNegotiability. 16
B.Kindsofnegotiableinstrument.. 16
II.Completionanddelivery.. 16
A.Insertionofdate. 16
B.Completionofblanks. 17
C.Incompletebutdeliveredinstruments.... 17
D.Incompleteandundeliveredinstruments 18
E.Complete
but
undelivered
instruments
18
F. CompleteandDeliveredinstruments.........................................................................................19
III.Rulesofinterpretation.. 19
IV.Signature 19
A.Signingintradename 20
B.Signatureofagent 20
C.Indorsementbyminororcorporation 20
D.Forgery 20
V.Consideration 23
VI.Accomodation party 24
VII.Negotiation 25
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TABLE OF CONTENTS
A.Distinguishedfromassignment. 25
B.Modesofnegotiation 26
VIII.RightsoftheHolder 28
A.HolderinDueCourse. 28
B.DefensesagainsttheHolder. 30
IX.LiabilitiesofParties.. 31
A.Maker... 31
B.
Drawer..
32
C.Acceptor.. 32
D.Indorser 32
E.Warranties. 34
X.PresentmentforPayment.. 34
A.Necessityofpresentmentforpayment 34
B.Partiestowhompresentmentforpaymentshouldbemade 35
C.Dispensationwithpresentmentforpayment 36
D.Dishonorbynonpayment. 36
XI.NoticeofDishonor 36
A.Partiestobenotified. 36
B.Partieswhomaygivenoticeofdishonour. 37
C.Effectofnotice 37
D.Formofnotice 37
E.Waiver. 37
F.Dispensation
with
notice
38
G.Effectoffailuretogivenotice 38
XII.DischargeofNegotiableInstrument 39
A.Dischargeofnegotiableinstrument 39
B.Dischargeofpartiessecondarilyliable 39
C.Rightofpartywhodischargedinstrument 40
D.Renunciationbyholder 40
XIII.Materialalteration 40
A.Concept 40
B.Effectofmaterialalteration. 41
XIV.Acceptance 41
A.Definition 41
B.Manner 41
C.Timeforacceptance 42
D.Rulesgoverningacceptance. 42
XV.Presentment
for
Acceptance
42
A.Time/place/mannerofpresentment 43
B.Effectoffailuretomakepresentment 43
C.Dishonorbynonacceptance 43
XVI.PromissoryNotes 44
XVII.Checks 44
A.Definition 44
B.Kinds 44
C.Presentmentforpayment 45
(1)time.. 45
(2)effectofdelay 45
E.InsuranceCode46
I.ConceptofInsurance 46
II.ElementsofanInsuranceContract 46
III.Characteristics/NatureofInsuranceContracts 46
IV.Classes 47
A.Marine.. 47
B.Fire 57
C.Casualty 58
D.Suretyship.. 60
E.Life 61
f.CompulsoryMotorVehicleLiabilityInsurance 62
V.InsurableInterest.. 64
A.InLife/Health 65
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TABLE OF CONTENTS
B.InProperty 66
C.DoubleInsuranceandOverInsurance... 67
D.MultipleorSeveralInterestsonSameProperty...... 69
VI.PerfectionoftheContractofInsurance..... 69
A.OfferandAcceptance/Consensuality.69 (1)Delayinacceptance.... 70
(2)DeliveryofPolicy...... 70
B.
Premium
Payment.....
70
C.NonDefaultOptionsinLifeInsurance..... 72
D.ReinstatementofaLapsedPolicyofLifeInsurance.... 73
E.RefundofPremiums.. 74
VI.RescissionofInsuranceContracts.... 74
A.Concealment... 74
B.Misrepresentation/Omissions.. 76
C.BreachofWarranties......................................................................... 78
VIII.ClaimsSettlementandSubrogation... 80
A.NoticeandProofofLoss. 80
B.GuidelinesonClaimsSettlement.. 81
(1)UnfairClaimsSettlement;Sanctions 81
(2)PrescriptionofAction.... 82
(3)Subrogation.. 82
F.Transportation
Law..84
I.CommonCarriers 84
A.DiligenceRequiredofCommonCarriers 84
B.LiabilitiesofCommonCarriers 84
II.Vigilanceovergoods.. 85
A.ExemptingCauses 85
(1)RequirementofAbsenceofNegligence 87
(2)AbsenceofDelay 87
(3)Duediligencetopreventorlessentheloss 87
B.Contributorynegligence.. 87
C.Durationofliability 87
(1)Deliveryofgoodstocommoncarrier 87
(2)Actualorconstructivedelivery. 88
(3)Temporaryunloadingorstorage. 88
D.Stipulationforlimitationofliability. 88
(1)Void
stipulations.
89
(2)Limitation ofliabilitytofixedamount. 89
(3)Limitation ofliabilityinabsenceofdeclarationofgreatervalue.. 89
E.Liabilityforbaggageofpassengers. 89
(1)Checkedinbaggage. 89
(2)Baggageinpossessionofpassengers 89
III.SafetyofPassengers 90
A.Voidstipulations 90
B.Durationofliability 90
(1)WaitingforcarrierorBoardingofcarrier 90
(2)Arrivalatdestination 90
C.Liabilityforactsofothers 91
(1)Employees 91
(2)Otherpassengersandstrangers.. 91
D.Extentofliabilityfordamages 92
IV.BillofLading 93
A.Threefoldcharacter 93
B.Deliveryofgoods..................................................................................................................... 93
(1)Periodfordelivery 93
(2)Deliverywithoutsurrenderofbilloflading 94
(3)Refusalofconsigneetotakedelivery 94
C.Periodforfilingclaims 94
D.Periodforfilingactions 94
V.MaritimeCommerce. 95
A.CharterParties.. 95
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TABLE OF CONTENTS
(1)Bareboat/DemiseCharter 95
(1)TimeCharter..................... 95
(3)Voyage/Trip Charter. 95
B.LiabilityofShipownersandShippingAgents 96
(1)Liabilityforactsofcaptain.. 96
(2)Exceptionstolimitedliability... 98
C.AccidentsandDamagesinMaritimeCommerce 99
(1)
General
Average.
99
(2)Collisions.. 100
D.CarriageofGoodsbySeaAct 102
(1)Application. 102
(2)NoticeofLossorDamage 102
(3)PeriodofPrescription 102
(4)Limitationofliability 103
VI.PublicServiceAct 103
A.DefinitionofPublicUtility 103
B.Necessityforcertificateofpublicconvenience 104
(1)Requisites. 104
(a)Citizenship 104
(b)Promotionofpublicinterests 104
(c)Financialcapability 104
(2)Prioroperatorrule 105
(a)Meaning
105
(b)Exceptions 105
(c)Ruinouscompetition 105
C.Fixingofrate 105
(1)Rateofreturn 105
(2)Exclusionofincometaxasexpense 106
D.Unlawfularrangements 106
(1)Boundarysystem 106
(2)Kabitsystem. 106E.Approvalofsale,encumbranceorleaseofproperty 107
VII.TheWarsawConvention 107
A.Applicability 107
B.Limitationofliability 107
(1)Liabilitytopassengers. 107
(2)Liabilityforcheckedbaggage 107
(3)Liability
for
hand
carried
baggage
108
C.WillfulMisconduct 108
G.CorporationLaw 109
I.TheCorporationCode 109
A.Corporation,defined 110
B.Classificationofcorporations.. 110
C.Nationalityofcorporations 112
(1)Controltest 112
(2)Grandfatherrule. 112
D.Corporatejuridicalpersonality 112
(1)Doctrineofseparatejuridicalpersonality 112
(a)Liabilityfortortandcrimes 113
(b)Recoveryofdamages.. 113
(2)Doctrineofpiercingthecorporateveil 113
(a)Groundsforapplicationofdoctrine 114
(b)Testindeterminingapplicability 114
E.Capitalstructure 114
(1)Numberandqualificationsofincorporators 115
(2)Minimumcapitalstockandsubscriptionrequirements.. 115
(3)Corporateterm 115
(4)Classificationofshares 116
F.Incorporationandorganization.. 119
(1)Promoter. 119
(a)Liabilityofpromoter 119
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TABLE OF CONTENTS
(b)Liabilityofcorporationforpromoterscontracts. 119
(2)Subscriptioncontract.. 119
(3)Preincorporationsubscriptionagreements.. 119
(4)Considerationforstocks 120
(5)ArticlesofIncorporation 120
(a)Contents 121
(b)Nonamendableitems 121
(6)
Corporate
name
limitations
on
use
of
corporate
name..
122
(7)RegistrationandissuanceofCertificateofIncorporation. 123
(8)Electionofdirectorsortrustees.. 123
(9)AdoptionofByLaws... 124
(a)Requisitesofvalidbylaws 124
(b)Bindingeffects 124
(c)Amendments. 125
G.Corporatepowers 126
(1)Generalpowers,theoryofgeneralcapacity 126
(2)Specificpowers,theoryofspecificcapacity 127
(a)Powertoextendorshortencorporateterm 127
(b)Powertoincreaseordecreasecapitalstockorincur,create,increase
bondedindebtedness 127
(c)Powertodenypreemptiverights 129
(d)Powertosellordisposeofcorporateassets 130
(e)Power
to
acquire
own
shares
130
(f)Powertoinvestcorporatefundsinanothercorporationorbusiness 131
(g)Powertodeclaredividends 131
(h)Powertoenterintomanagementcontract 133
(i)Ultraviresacts 133i.Applicabilityofultraviresdoctrine.. 133ii.Consequences ofultraviresacts.. 134
(j)Doctrineofindividualityofsubscription 134
(k)Doctrineofequalityofshares. 134
(l)Trustfunddoctrine.. 134
(3)Howexercised.. 134
(a)Bytheshareholders. 134
(b)BytheBoardofDirectors.. 135
(c)BytheOfficers.. 135
H.Stockholdersandmembers.. 135
(1)Fundamental
rights
of
astockholder
135
(2)Participationinmanagement 135
(a)Proxy 135
(b)Votingtrust. 136
(c)Caseswhenstockholdersactionisrequired. 138
i.Byamajorityvote 138
ii.Byatwothirdsvote 138
iii.Bycumulativevoting... 138
(3)Proprietaryrights 138
(a)Righttodividends.. 138
(b)Rightofappraisal..... 138
(c)Righttoinspect.. 139
(d)Preemptive right.... 139
(e)Righttovote.. 139
(4)Remedialrights.. 139
(a)Individualsuit 140
(b)Representativesuit.. 140
(c)Derivativesuit 130
(5)Obligationofastockholder 140
(6)Meetings 141
(a)Regularorspecial. 141
i.Whenandwhere 141
ii.Notice 141
(b)Whocallsthemeetings 141
(c)Quorum 141
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TABLE OF CONTENTS
(d)Minutesofmeetings... 141
I.Boardofdirectorsandtrustees 142
(1)Repositoryofcorporatepowers 142
(2)Tenure,qualificationsanddisqualificationsofdirectors 143
(3)Elections 143
(a)Cumulativevoting 143
(b)Quorum 143
(4)
Removal
144
(5)Fillingofvacancies 144
(6)Compensation 144
(7)Disloyalty 145
(8)Businessjudgmentrule 145
(9)Solidaryliabilitiesfordamages 145
(10)Liabilityforwateredstocks 146
(11)Personalliabilities 146
(12)Responsibility forcrimes 146
(13)Specialfactdoctrine. 146
(14)Insideinformation. 147
(15)Contracts.. 147
(a)Byselfdealingdirectorswiththecorporation. 147
(b)Betweencorporationswithinterlockingdirectors............................... 147
(16)Executivecommittee... 147
(a)Creation
147
(b)Limitationsonitspowers 148
(17)Meetings.. 148
(a)Regularorspecial.. 148
i.Whenandwhere... 148
ii.Notice 148
(b)Whopresides 148
(c)Quorum. 148
(d)Ruleonabstention 149
J.Capitalaffairs 149
(1)Certificateofstock 149
(A)Natureofthecertificate 149
(B)Uncertificatedshares 149
(c)Negotiability.. 150
i.Requirementsforvalidtransferofstocks. 150
(D)Issuance..
151
i.Fullpayment 151
ii.Paymentprorata 151
(E)Stockandtransferbook 151
i.Contents 151
ii.Whomaymakevalidentries 152
(F)Lostordestroyedcertificates 152
(G)Situsofthesharesofstock 153
(2)Wateredstocks 153
(A)Definition 153
(B)Liabilityofdirectorsforwateredstocks 154
(C)Trustfunddoctrineforliabilityforwateredstocks 154
(3)Paymentofbalanceofsubscription.. 154
(A)Callbyboardofdirectors. 154
(B)Noticerequirement.. 155
(4)Saleofdelinquentshares 155
(A)Effectofdelinquency 156
(B)Callbyresolutionoftheboardofdirectors 156
(C)Noticeofsale.. 156
(D)Auctionsale 156
(5)Alienationofshares.. 157
(A)Allowablerestrictionsonthesaleofshares 157
(B)Saleofpartiallypaidshares 157
(C)Saleofaportionofsharesnotfullypaid. 158
(D)Saleofallofsharesnotfullypaid. 158
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TABLE OF CONTENTS
(E)Saleoffullypaidshares. 158
(F)Requisitesofavalidtransfer.. 158
(G)Involuntarydealings 158
K.Dissolution andliquidation.. 158
(1)Modesofdissolution 158
(A)Voluntary 158
i.Wherenocreditorsareaffected. 158
ii.
Where
creditors
are
affected
159
iii.Byshorteningofcorporateterm. 159
(B)Involuntary. 159
i.Byexpirationofcorporateterm 159
ii.Failuretoorganizeandcommencebusinesswithin2years
fromincorporation 159
iii.Legislative dissolution 159
iv.Dissolution bytheSECongroundsunderexistinglaws159
(2)Methodsofliquidation.. 160
(a)Bythecorporationitself.. 160
(b)Conveyance toatrusteewithina3yearperiod.. 160
(c)Bymanagementcommitteeorrehabilitationreceiver 161
(d)Liquidationafterthreeyears 161
l.Othercorporations 161
(1)Closecorporations 161
(A)Characteristics
of
aclose
corporation
162
(B)Validityofrestrictionsontransferofshares 162
(C)Issuanceortransferofstockinbreachofqualifyingconditions.. 162
(D)Whenboardmeetingisunnecessaryorimproperlyheld..162
(E)Preemptiveright 163
(F)Amendmentofarticlesofincorporation 163
(G)Deadlocks 163
(2)Nonstockcorporations. 163
(A)Definition 163
(B)Purposes 163
(C)Treatmentofprofits 164
(D)Distributionofassetsupondissolution. 164
(3)Religiouscorporations 164
(A)Corporationsole 164
i.Nationality 164
ii.Religious
societies
165
(4)Foreigncorporations 166
(A)Basesofauthorityoverforeigncorporations 166
i.Consent 166
ii.Doctrineof"doingbusiness"(relatetodefinitionunderthe
ForeignInvestmentsAct,RA7042) 166
(B)Necessityofalicensetodobusiness 168
i.Requisitesforissuanceofalicense.. 168
ii.Residentagent.. 169
(C)Personalitytosue. 169
(D)Suabilityofforeigncorporations 169
(E)Instanceswhenunlicensedforeigncorporationsmaybeallowedtosue
Isolatedtransactions 170
(F)Groundsforrevocation oflicense 170
M.Mergerandconsolidation.. 170
(1)Definition andconcept 170
(2)Constituentv.consolidatedcorporation 170
(3)Planofmergerorconsolidation.. 171
(4)Articlesofmergerorconsolidation.. 171
(5)Procedure. 171
(6)Effectivity. 172
(7)Limitations.. 172
(8)Effects.... 172
H.SecuritiesRegulationCode(RA8799)173
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I.Statepolicy(purpose).. 173
II.PowersandfunctionsoftheSEC. 173
A.Regulatory 173
B.Adjudicative. 173
III.Securitiesrequiredtoberegistered. 174
A.Exemptsecurities 174
B.Exempttransactions. 175
IV.
Procedure
for
registration
of
securities
175
V.Prohibitionsonfraud,manipulationandinsidertrading 178
A.Manipulationofsecurityprices.. 178
B.Shortsales.. 178
C.Fraudulenttransactions 178
D.Insidertrading 178
VI.Protectionofinvestors.. 179
A.Tenderofferrule 179
B.Rulesonproxysolicitation. 180
C.Disclosure rule. 181
VII.Civilliability. 181
I.BankingLaws.184
I.TheNewCentralBankAct(RA7653). 184
A.Statepolicies. 184
B.Creation
of
the
Bangko
Sentral
ng
Pilipinas
(BSP)..
184
C.Responsibility andprimaryobjective.. 184
D.MonetaryBoard Powersandfunctions 185
E.HowtheBSPhandlesbanksindistress 185
(1)Conservatorship 185
(2)Closure 186
(3)Receivership 186
(4)Liquidation.. 187
F.HowtheBSPhandlesexchangecrisis.. 188
(1)Legaltenderpower 188
(2)Rateofexchange. 188
II.LawonSecrecyofBankDeposits(RA1405,asamended) 189
A.Purpose 189
B.Prohibitedacts 189
C.Depositscovered.. 189
D.Exceptions.
190
E.Garnishmentofdeposits,includingforeigndeposits.. 191
F.Penaltiesforviolation 191
III.GeneralBankingAct(RA8791). 192
A.Definition andclassificationofbanks 192
B.Distinctionofbanksfromquasibanksandtrustentities. 192
C.Bankpowersandliabilities 193
(1)Corporatepowers. 193
(2)Bankingandincidentalpowers. 194
D.Diligencerequiredofbanks relevantjurisprudence. 194
E.Natureofbankfundsandbankdeposits.. 195
F.Stipulationoninterests. 196
G.Grantofloansandsecurityrequirements.. 197
(1)Ratioofnetworthtototalriskassets 197
(2)Singleborrowerslimit 197
(3)Restrictions onbankexposuretoDOSRI(directors,officers,stockholdersand
theirrelatedinterests) 198
H.Penaltiesforviolations 198
(1)Fine,imprisonment 198
(2)Suspensionorremovalofdirectororofficer 199
(3)Dissolution ofbank 199
IV.PhilippineDepositInsuranceCorporationAct 199
A.Basicpolicy 199
B.Conceptofinsureddeposits 199
C.Liabilitytodepositors. 199
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TABLE OF CONTENTS
(1)DepositliabilitiesrequiredtobeinsuredwithPDIC..... 199
(2)Commencementofliability. 200
(3)Depositaccountsnotentitledtopayment 200
(4)Extentofliability. 200
(5)Determinationofinsureddeposits. 200
(6)Calculationofliability. 201
(a)Perdepositor,percapacityrule.... 200
(b)
Joint
accounts..
201
(c)Modeofpayment.. 201
(d)Effectofpaymentofinsureddeposit 201
(e)PaymentsofinsureddepositsaspreferredcreditunderArt.2244,
CivilCode 201
(f)Failuretosettleclaimofinsureddepositor 202
(g)Failureofdepositortoclaiminsureddeposits 202
i.Examinationofbanksanddepositaccounts.. 202
ii.Prohibition againstsplittingofdeposits 203
iii.ProhibitionagainstissuancesofTROs,etc. 203
J.IntellectualPropertyLaw(excludingImplementingRulesandRegulations)204
I.IntellectualPropertyRightsingeneral 204
A.Intellectualpropertyrights 204
b.Differencesbetweencopyrights,trademarksandpatent 204
C.Technology
transfer
arrangements..
204
II.Patents.. 204
A.Patentableinventions.. 205
B.Nonpatentableinventions 206
C.Ownershipofapatent 207
(1)Righttoapatent 207
(2)Firsttofilerule 207
(3)InventionscreatedpursuanttoaCommission 208
(4)Rightofpriority 208
D.Groundsforcancellationofapatent 209
E.Remedyofthetrueandactualinventor.. 209
F.Rightsconferredbyapatent 210
G.Limitationsofpatentrights 210
(1)Prioruser.. 210
(2)Usebythegovernment.. 210
H.Patent
infringement..
211
(1)Testsinpatentinfringement. 211
(a)Literalinfringement.. 211
(b)Doctrineofequivalents. 211
(2)Civilandcriminalaction. 212
(3)Prescriptiveperiod. 212
(4)Defensesinactionforinfringement. 213
I.Licensing 213
(1)Voluntary 213
(2)Compulsory... 213
J.Assignmentandtransmissionofrights.. 214
III.Trademarks.. 215
A.Definitionsofmarks,collectivemarks,tradenames 215
B.Acquisitionofownershipofmark. 216
C.Acquisitionofownershipoftradename 216
D.Nonregistrablemarks 217
E.Prioruseofmarkasarequirement 217
F.Teststodetermineconfusingsimilaritybetweenmarks.... 218
(1)Dominancytest 218
(2)Holistictest 218
G.Wellknownmarks 219
H.Rightsconferredbyregistration 219
I.Usebythirdpartiesofnames,etc.similartoregisteredmark....... 219
J.Infringementandremedies 219
(1)Trademarkinfringement. 219
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TABLE OF CONTENTS
(2)Damages. 220
(3)RequirementofNotice.. 220
K.Unfaircompetition.. 221
L.Tradenamesorbusinessnames 222
M.Collectivemarks. 222
N.Criminalpenaltiesforinfringement,unfaircompetition, falsedesignationoforigin,and
falsedescriptionormisrepresentation 223
IV.
Copyrights.
223
A.Basicprinciples,Secs.172.2,175,and181 224
B.Copyrightableworks 224
(1)Originalworks. 224
(2)Derivativeworks. 224
C.Noncopyrightableworks... 225
D.Rightsofcopyrightowner. 226
E.Rulesonownershipofcopyright.. 229
F.Limitationsoncopyright. 231
(1)Doctrineoffairuse 233
(2)Copyrightinfringement.. 234
(a)Remedies.. 235
(b)Criminalpenalties 235
K.SpecialLaws.236
I.The
Chattel
Mortgage
Law
(Act
1508
in
rel.
to
Arts.
1484,
1485,
2140
and
2141
of
the
Civil
Code)
236
A.Essentialrequisites 236
B.Formalrequisites.. 236
C.Registration,whenandwhere. 236
D.Afteracquiredproperty.. 236
E.Afterincurredobligation. 236
F.Rightofjuniormortgagee 237
G.Foreclosureprocedure 237
H.Redemption. 237
I.Claimfordeficiency 237
(1)Generalrule 237
(2)Exception.. 237
(3)Article1484. 237
II.RealEstateMortgageLaw(Act3135,asamendedbyRA4118).. 238
A.Coverage. 238
B.Remedies
available
to
mortgagee
upon
default
of
the
mortgagor.
238
C.Needforspecialpowerofattorney. 238
D.Authoritytoforecloseextrajudicially. 238
E.Procedure.. 239
(1)Wheretofile. 239
(2)Wheretosell.... 239
(3)Postingrequirement... 239
(4)Publicationrequirement.. 239
(a)Sufficiencyofnewspaperpublication.. 239
(b)Needforrepublicationincaseofpostponement. 240
(c)Personalnoticetothemortgagorwhenandwhennotneeded.240
F.Possessionbypurchaserofforeclosedproperty. 240
G.Remedyofdebtorifforeclosureisnotproper. 240
H.Redemption.. 240
(1)Whomayredeem 240
(2)AmountofRedemptionprice. 240
(3)Periodforredemption. 240
(4)Effectofpendencyofactionforannulmentofsale 241
I.Writofpossession. 241
(1)Ministerialdutyofthecourt 241
(2)Enforcementagainstthirdparties 241
(3)Pendencyofactionforannulmentofsale 241
J.Annulmentofsale. 241
III.TruthinLendingAct(RA3765) 242
A.Purpose. 242
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TABLE OF CONTENTS
B.Obligationofcreditorstopersontowhomcreditisextended. 242
C.Coveredandexcludedtransactions. 242
D.Consequencesofnoncompliance withobligation.. 242
IV.AntiMoneyLaunderingLaw(RA9160,asamendedbyRA9194) .243
A.Policyofthelaw. 243
B.Coveredinstitutions 243
C.Obligationsofcoveredinstitutions.. 243
D.
Covered
transactions.
243
E.Suspicioustransactions. 243
F.Whenismoneylaunderingcommitted.. 244
G.Unlawfulactivitiesorpredicatecrimes 244
H.AntiMoneyLaunderingCouncil(AMLC).. 244
I.Functions 245
J.Freezingofmonetaryinstrumentorproperty 245
K.Authoritytoinquireintobankdeposits. 245
V.ForeignInvestmentsAct(RA7042).. 246
A.Policyofthelaw. 246
B.Definition ofterms.. 246
(1)Foreigninvestment.. 246
(2)"Doingbusiness"inthePhilippines 246
(3)Exportenterprise 247
(4)Domesticmarketenterprise 247
C.Registration
of
Investment
of
Non
Philippine
Nationals.........................................................
248
D.Foreigninvestmentsinexportenterprises. 248
E.Foreigninvestmentsindomesticmarketenterprises. 248
F.ForeignInvestmentNegativeList.. 248
Appendices. 250
AppendixA:NegotiableWarehouseReceiptandNonNegotiableWarehouseReceipt. 250
AppendixB:Liabilitiesofthosesecondarilyliable........................................................................................ 251
AppendixC:MarineandLifeInsurance.........................................................................................................252
AppendixD:CorporationandPartnership....................................................................................................253
AppendixE:VoteRequirementforCorporateActs...................................................................................... 254
AppendixF:Conservatorship,ReceivershipandLiquidation........................................................................255
AppendixG:UniversalBank,CommercialBankandThriftBank...................................................................256
AppendixH:NationalizedandSeminationalizedBusinesses.......................................................................257
Index.............258
Bibliography......... 262
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LETTERS OF CREDIT
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
1UNIVERSITY OF SANTO TOMAS
F a c u l t a d d e D e r e c h o C i v i l
LETTERSOFCREDIT
I. DEFINITION/CONCEPTQ:WhatisLetterofCredit(LC)?
A: It is any arrangement, however named or
described,whereby
abank
(issuing
bank),
acting
at the request and on the instructions of a
customer (applicant) or on its own behalf, binds
itselfto:
1. Pay to the order of, oraccept andpay
drafts drawn by a third party
(Beneficiary),or
2. Authorize another bank to pay or to
acceptandpaysuchdrafts,or
3. Authorizes another bank to negotiate,
againststipulateddocument(s),
Provided, the terms and conditions of the credit
are
complied
with.(Art.
2,
Uniform
Customs
&
PracticeforDocumentaryCredits.)
Note: They are in effect absolute undertakings to
pay the money advanced or for the amount for
which the credit is given on the faith of the
instrument.
Q:WhatisthedurationofLC?
A:
1. Upontheperiodfixedbytheparties;or
2. Ifnoneisfixed:
a. 6 months from its date if used in
thePhilippines;
b. 12 months if used abroad (Art
572,ibid).
Q:WhatarethekindsofLC?
A:
COMMERCIALLETTERS
OFCREDIT
STANDBYLETTERSOF
CREDIT
Involvecontractsofsale.Involvenonsale
transactions.
Payableupon
presentationby
the
sellerbeneficiaryof
documentsthatshowhe
hasperformedhis
contract.
Payableupon
certificationbythe
beneficiaryofthe
applicantsNON
performanceofthe
agreement.(Transfieldv.
LuzonHydroCorp.,G.R.
No.146717,Nov.22,
2004)
Q: Is irrevocable letter of credit and confirmed
letterofcreditsynonymous?
A: An irrevocable letter of credit is not
synonymous withaconfirmed letterofcredit. In
an irrevocable letter of credit, the issuing bank
may not, without the consent of the beneficiary
and
the
applicant,
revoke
its
undertaking
under
the letter, whereas, in a confirmed letter of
credit,thecorrespondentbankgivesanabsolute
assurancetothebeneficiarythatitwillundertake
the issuingbanksobligationas itsownaccording
to the terms and condition of the credit.
(PrudentialBankandTrustCompanyv. IAC,G.R.
No.74886,Dec.8,1992)
Q:Canacourtorderthereleasetotheapplicant
the proceeds of an irrevocable letter of credit
withouttheconsentofthebeneficiary?
A:No,suchorderviolates the irrevocablenature
ofthe
letter
of
credit.
The
terms
of
an
irrevocable
letter of credit cannot be changed without the
consentoftheparties,particularlythebeneficiary
thereof. (Phil.VirginiaTobaccoAdministrationv.
DeLosAngeles,G.R.No.L27829,Aug.19,1988)
II.GOVERNINGLAWQ: What is the law governing letter of credit
(LC)?
A: It is the Uniform Customs and Practice (UCP)
for documentary Credits for International
Chamber of Commerce governs the Letters of
credit(Metropolitan
Waterworks
vs.
Daway,
G.R.
No.160723,July21,2004).
Articles567to572of theCodeofCommerceon
Letters of Credit are obsolete. However, in the
absence of any provision in the Code of
Commerce, commercial transaction shall be
governed by the usages and customs generally
observed.(Sec.2,CodeofCommerce)
III. NATUREOFLETTEROFCREDITQ:WhatisthenatureandpurposeofLC?
A:
To
ensure
certainty
of
payment.
The
seller
is
assuredofpaymentbecausethebank intervenes
and makes the commitment to pay. This
addressesproblemsarisingfromsellersrefusalto
part with his goods before being paid and the
buyers refusal to part with his money before
acquiringthegoods,thus,facilitatingcommercial
transactions.
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USTGOLDENNOTES2011
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
2
Q:WhataretheessentialconditionsofLC?
A:
1. Issued infavorofadefinitepersonandnottoorder.
Note: The Uniform Commercial Practice for
DocumentaryCredits
allows
letters
of
credit
to
bepayabletoorder
2. Limited to a fixed or specified amount,ortooneormoreamounts,butwithamaximumstatedlimit.(Article568,Ibid)
Note:Ifanyoftheseessentialconditionsisnotpresent,theinstrumentismerelyconsideredasaletterofrecommendation.
Q: In case the buyer was not able to pay its
obligation under the letter of credit, can the
banktakepossessionoverthegoodscoveredby
thesaid
letter
of
credit?
A: No. The opening of a Letter of Credit did notvest ownership of the goods in the bank in theabsenceofa trustreceiptagreement.A letterofcredit is a mere financial device developed bymerchants as a convenient and relatively safemodeofdealingwiththesalesofgoodstosatisfythe seemingly irreconcilable interests of a seller,who refuses to part with his goods before he ispaid,andabuyer,whowants tohavecontrol ofthe goods before paying. (Transfield Philippines,Inc.v.LuzonHydroCorporation,G.R.No.146717,
Nov.22,2004)
IV.PARTIESTOALETTEROFCREDIT
Q: Who are the parties to a Letter of Credit
transaction?
A:
1. Applicant/Buyer/Importer procurestheletterofcredit,purchasesthegoodsand obliges himself to reimburse theissuing bank upon receipt of thedocumentstitle.
2. Issuing Bank One which, whether a
payingbank
or
not,
Issues
the
letter
of
credit and undertakes to pay the sellerupon receipt of the draft and properdocuments of title from the seller andto surrender them to the buyer uponreimbursement.
3. Beneficiary/Seller/Exporter In whosefavor the instrument is executed. Onewhodeliversthedocumentsoftitleand
draft to the issuing bank to recoverpayment.
The number of parties may be increased.Modern letters of credit usually involvebanktobank transactions. The followingadditionalpartiesmaybe:
1. Advising/notifying bank Thecorrespondent bank (agent) of theissuing bank through which it advisesthebeneficiaryoftheLC.
2. Confirming bank bank which, upontherequestofthebeneficiary,confirmstheLCissued.
3. Payingbankbankonwhichthedraftsare to be drawn, which may be theissuingbankoranotherbanknot inthecityofthebeneficiary.
4. Negotiating bank bank in the city ofthebeneficiarywhichbuysordiscountsthe drafts contemplated by the LC, ifsuch draft is to be drawn on theopening bank not in the city of thebeneficiary.
Q:WhatarethestagesofLC?
A:
1. Contractofsalebetweenthebuyerandseller
2. ApplicationforLCbythebuyerwiththe
bank
3. IssuanceofLCbythebank4. Shippingofgoodsbytheseller5. Execution of draft and tender of
documentsbytheseller6. Redemption of draft (payment) and
obtaining of documents by the issuingbank
7. Reimbursement to the bank andobtainingofdocumentsbythebuyer
A.RIGHTSANDOBLIGATIONSOFPARTIES
Q:Explainthethree(3)distinctbut intertwined
contractrelationships
that
are
indispensable
in
a
letterofcredittransaction.
A:
1. Between the applicant/buyer/importerandthebeneficiary/seller/exporterTheapplicant/buyer/importeristheonewhoprocures the letter of credit while thebeneficiary/seller/exporter is the one
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LETTERS OF CREDIT
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
3UNIVERSITY OF SANTO TOMAS
F a c u l t a d d e D e r e c h o C i v i l
who in compliance with the contract of
sale ships the goods to the buyer and
deliversthedocumentsoftitleanddraft
to the issuing bank to recover payment
for the goods. Their relationship is
governedbythecontractofsale.
2. Betweenthe
issuing
bank
and
the
beneficiary/seller/exporter The issuing
bank is theone that issues the letterof
credit and undertakes to pay the seller
upon receipt of the draft and proper
documents of title. On the other hand,
the beneficiary/seller/exporter
surrendersdocumentoftitletothebank
incompliance with the terms of the LC.
Their relationship is governed by the
termsoftheLC.
3. Between the issuing bank and the
applicant/buyer/importer The
applicant/buyer/importer
obliges
himself to reimburse the issuing bank
upon receipt of the documents of title.
Their relationship is governed by the
termsoftheapplicationfortheissuance
oftheletterofcreditbythebank.(2002
BarQuestion)
Q:Isanissuingbankaguarantor?
A: No, the concept of guarantee visavis the
conceptofirrevocableLCisinconsistentwitheach
other. LCs are primary obligations and not
security contracts and while they are security
arrangements,
they
are
not
converted
thereby
intocontractsofguaranty.(MWSSv.Hon.Daway,
G.R.No. 160732,June21,2004)
Q:Whenisthebankentitledtoreimbursement?
A: Once the issuing bank shall have paid the
beneficiaryafterthe latterscompliancewiththe
terms of the LC. Presentment for acceptance to
thecustomer/applicantisnotaconditionsinequa
non for reimbursement. (PrudentialBank v. IAC,
G.R.No.74886,Dec.8,1992)
Q:Whatistheconsequenceofpaymentuponan
expiredLC?
A: An issuing bank which paid the beneficiary of
an expired letter of credit can recover the
payment from the applicant which obtained the
goods from the beneficiary to prevent unjust
enrichment.(RodzssenSupplyCo.v.FarEastBank
andTrustCo,G.R.No.109087,May9,2001)
Q: Should the marginal deposit made by the
customer, in possession of the bank be first
deducted from the principal indebtedness
beforecomputingtheinterest?
A: Yes, since it is supposed to be returned upon
compliance with his obligation. Indeed, it would
be
onerous
to
compute
interest
and
other
charges on the face value of the letter of credit
which the issuing bank issued, without first
creditingorsettingoffthemarginaldepositwhich
theimporterpaidtoit.Requiringtheimporterto
pay the interest on the entire letter of credit
without deducting first his marginal deposit
wouldbeaclearcaseofunjustenrichmentbythe
bank.(Abadv.CA,G.R.42735,Jan.22,1990)
Q:Whataretheliabilitiesofcorrespondent
banks?
A:
ROLE LIABILITYNotifying/Advising
Servesasanagentof
theissuingbank;
Warrantstheapparent
(Appearanceto
unaidedsenses)
authenticityofthe
LetterofCredit.(Bank
ofAmericaNT&SAv.
CA,G.R.No. 105395,
Dec.10,1993)
Doesnotincurany
obligationmorethan
justnotifyingthe
seller/beneficiaryofthe
openingoftheLCafter
ithasdeterminedits
apparentauthority.
(BankofAmericaNT&
SAv.CA,G.R.No.
105395,Dec.10,1993)
Notliablefordamages
unlessthedocumenton
itsfaceismanifestly
fake.
Confirming
Lendscredencetothe
LCissuedbyalesser
knownbank.
Directobligation,asifit
istheonewhichissued
theLC.
Negotiating
Buysthesellersdraft
andlateronsellsthe
drafttotheissuing
bank.
Dependsonthestageof
negotiation,thus:
1.Beforenegotiation
Noliabilitywithrespect
totheseller.Merely
suggestsitswillingness
tonegotiate.
2.Afternegotiation A
contractualrelationship
willthenarise,making
thebankliable.
Paying
Mayeitherbethe
issuingbankorany
otherbankintheplace
ofthebeneficiary.
Directobligation.
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USTGOLDENNOTES2011
4MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
V. BASICPRINCIPLESOFLETTEROFCREDIT
A.DOCTRINEOFINDEPENDENCE
Q:Whatistheindependenceprinciple?
A: The relationship of the buyer and the bank is
separateand
distinct
from
the
relationship
of
the
buyerandsellerinthemaincontract;thebankisnot required to investigate if the contractunderlying the LC has been fulfilled or notbecause in transactions involving LC, banks dealonly with documents and not goods (BPI v. DeReny Fabric Industries, Inc., L2481, Oct. 16,
1970).Ineffect,thebuyerhasnocourseofactionagainsttheissuingbank.
Q: What is the effect of the buyers failure to
procureanLCtothemaincontract?
A: The LC is independent from the contract of
sale.
Failure
of
the
buyer
to
open
the
Letter
of
Credit does not prevent the birth of the SalesContract. (RelianceCommodities, Inc. v.DaewooIndustrial Co. Ltd., G.R. No. 100831, Dec. 17,
1993) The opening of the LC is only a mode ofpayment. The LC is not an essential requisite tothecontractofsale.
Q:InacontractofloansecuredbyastandbyLC,
can the partial payments made on the loan be
added in computing the issuing banks liability
underitsownstandbyletterofcredit?
A: No, although these payments could result in
thereduction
of
the
actual
amount,
which,
could
ultimatelybecollectedfromtheissuingbank,thelatters separate undertaking under its letters ofcreditremain.This isbecausethe letterofcreditis an absolute and primary undertaking which isseparate and distinct from the contractunderlying it. (InsularBankofAsia&America v.IAC,Nov.17,1988)
B.FRAUDEXCEPTIONPRINCIPLE
Q: What is the exception to the independence
principle?
A:The
Fraud
exception
rule.
It
provides
that
the
untruthfulness of a certificate accompanying ademand for payment under a standby letter ofcredit may qualify as fraud sufficient to supportan injunction against payment. (Transfield v.LuzonHydro,G.R.No.146717,Nov.22,2004)
C.DOCTRINEOFSTRICTCOMPLIANCE
Q:Whatisthedoctrineofstrictcompliance?
A: The documents tendered by theseller/beneficiary must strictly conform to theterms of the letter of credit. The tender of
documentsmust
include
all
documents
required
by the letter. Thus, a correspondent bank whichdepartsfromwhathasbeenstipulatedundertheLCactsonitsownriskandmaynotthereafterbeable to recover from the buyer or the issuingbank,asthecasemaybe,themoneythuspaidtothebeneficiary.(FeatiBankandTrustCompanyv.CA,G.R.No.940209,Apr.30,1991)
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WAREHOUSE RECEIPTS LAW
UNIVERSITY OF SANTO TOMAS
F a c u l t a d d e D e r e c h o C i v i l ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
5
WAREHOUSERECEIPTSLAW
(ACT2137ASAMENDED)
I. NATUREANDFUNCTIONSOFAWAREHOUSERECEIPT
Q:Whatisawarehousereceipt?
A: A written acknowledgment by the
warehouseman that he has received and holds
certaingoodsthereindescribedinhiswarehouse
for the person towhom thedocument is issued.
The warehouse receipt has twofold functions,
that is, it is a contract and a receipt. (Telengtan
Bros.& Sons v. CA,G.R.No. L110581, Sept 21,
1994)
Q: Distinguish Warehouse Receipts Law from
DocumentsOfTitleunderCivilCode.
A:
WAREHOUSERECEIPTS
LAW
DOCUMENTSOF
TITLE
UNDERCIVILCODE
Warehousereceipts
issuedbywarehouses,
whetherpublicor
private,bondedornot.
Otherreceiptsof
documentsissuedin
bailmentcontractsother
thanwarehousereceipts
(CivilCode15071520)
Q:Whoisawarehouseman?
A:Aperson,naturalorjuridical,lawfullyengaged
inthebusinessofstoringofgoodsforprofit.(Sec.
58,WRL)
Q:What
is
awarehouse?
A: The building or place where goods are
depositedandstoredforprofit.
Q:Whomayissuewarehousereceipt?
A:
1. A warehouseman, whether public or
private,bondedornot.(Sec.1)
2. A person authorized by a
warehouseman.
Q:What istheformofawarehousereceiptand
whatare
its
essential
terms?
A: It need not be in particular form but must
embodywithinitswrittenorprintedterms:
1. Thelocationofthewarehouse
2. Thedateoftheissue
3. Theconsecutivenumberofthereceipt
4. A statement whether the goods
received will bedelivered to bearer, to
a specified person or to a specified
personorhisorder
5. Fees
6. Adescriptionofthegoods
7. Thesignatureofthewarehouseman
8. If the receipt is issued for goods of
whichthewarehouseman istheowner,
either
solely
orjointly
or
in
common
withothers,thefactofsuchownership;
and
9. Astatementoftheamountofadvances
made and of liabilities incurred for
whichthewarehousemanclaimsa lien.
(Sec.2)
Q:Whataretheeffectsofomissionofanyofthe
essentialterms?
A:
1. A warehouseman shall be liable to any
person injured thereby for all damages
causedby
the
omission
2. Validityofreceiptnotaffected
3. Negotiabilityofreceiptsnotaffected
4. Contract is converted to ordinary
deposit. (Gonzalesv.GoFiong&Luzon
Surety Co., G.R. No. 91776, Aug. 30,
1958)
Q:What istheeffectwhenthegoodsdeposited
areincorrectlydescribed?
A: Itdoesnotmake thereceipt ineffectivewhen
the identity of the goods is fully established by
evidence. Thus, the indorsement and delivery
shall
constitute
sufficient
transfer
of
the
title
of
the goods. (American Foreign Banking Corp. v.
Herridge,G.R.No.L21005,Dec.20,1924)
GR: Warehouseman shall be liable for
damages for nonexistence or
misdescription of goods at the time of its
issue.
XPN:Whenthegoodsaredescribedbased
on:
1.Seriesorlabelsuponthem
2.Statementthatthegoodsareofcertain
kind.
Q:Whattermsmayandmaynotbeinserted?
A:Awarehousemanmayinsertinareceiptissued
by him any other terms and conditions provided
thatsuchtermsandconditionsshallnotbe:
1. Contrary to the Warehouse Receipts
Law.(Sec.3)
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USTGOLDENNOTES2011
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
6
2. Terms reducing the required diligenceofthewarehouseman.(Ibid.)
3. Contraryto law,morals,goodcustoms,publicorderorpublicpolicy.
4. Those exempting the warehousemanfrom liability for misdelivery or for notgivingstatutorynoticeincaseofsaleof
goods.
5. Those exempting the warehousemanfromliabilityfornegligence.
A.TOWHOMDELIVERED
Q:Towhomshouldthegoodsbedelivered?
A:
1. To the person lawfully entitled to thepossessionofthegoods,orhisagent;
2. Tothepersonentitledtodeliveryundera nonnegotiable instrument or withwrittenauthority;or
3. To
the
lawful
order
of
a
negotiable
receipt. (person in possession of anegotiablereceipt)(Sec.9)
B.KINDS
Q:Whatarethekindsofwarehousereceipt?
A:
1. Negotiablewarehousereceipt2. Nonnegotiablewarehousereceipt
Q:Whatisanegotiablewarehousereceipt?
A:It
is
areceipt
in
which
it
states
that
the
goods
receivedwillbedeliveredtothebearerortotheorder of any person named in such receipt (Sec.5). It is negotiated by either delivery orindorsementplusdelivery.
Note:Noprovisionshallbe inserted inanegotiablereceipt that it is nonnegotiable. Such provision, ifinserted, shall be void. A negotiable warehousereceipt cannot be converted into nonnegotiable.(Sec.5)
Q:Whomaynegotiate?
A:
1. Theownerthereof;or2. Anypersontowhom thepossessionor
custody of the receipt has beenentrustedbytheowner,if,bythetermsofthereceipt,thegoodsaredeliverabletotheorderofthepersontowhomthepossession or custody of receipt hasbeen entrusted or in such form that itmaybenegotiatedbydelivery.(Sec.40)
Q:Whathappensiftheindorsementisnecessary
butthenegotiablereceiptwasonlydelivered?
A:
1. Thetransfereeacquirestitleagainstthetransferor
2. There is no direct obligation of the
warehouseman;and
3. The transferee can compel thetransferor to complete the negotiationby indorsing the instrument.Negotiation takes effect as of the timewhentheindorsementisactuallymade.
Q: In case the signature of an owner of a
negotiable receipt was forged and the forger
whonow holds thenegotiable receipt wasable
towithdrawthegoodsfromthewarehouseman.
What are the rights of the owner of the
negotiablereceipt?
A:
If
under
the
terms
of
the
negotiable
warehouse receipt, the goods are deliverable tothe depositor or to his order, the owner of thesaid negotiable receipt may proceed against thewarehouseman and/or the holder. Without thevalid indorsement of theowner to the holderorinblank,thewarehousemanisliabletotheownerforconversion inthemisdelivery.If,however,bythe terms of the negotiable warehouse receipt,the goods are deliverable to bearer (eitherbecause it is so expressed in the warehousereceipt or because of a blank indorsement by apersontowhoseorderthegoodsaredeliverable)the owner may only proceed against the holder.
The
warehouseman
is
not
liable
for
conversion
where the goods are delivered to a person inpossessionofabearernegotiableinstrument.
Q: What is the rule when more than one
negotiablereceiptisissuedforthesamegoods?
A: A warehouseman shall be liable for alldamagescausedbyhisfailuretodosotoanyonewho purchased the subsequentreceipt for valuesupposing it to be an original, even though thepurchasebeafterthedeliveryofthegoodsbythewarehouseman to the holder of the originalreceipt(Sec.6).
Note: The word duplicate shall be plainly placeduponthefaceofeverysuchreceipt,exceptthefirstoneissued.(Sec.6.
Q: What are the warranties on a warehouse
receipt?
A: A person who, for value, negotiates ortransfers a receipt by indorsement or delivery,
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WAREHOUSE RECEIPTS LAW
UNIVERSITY OF SANTO TOMAS
F a c u l t a d d e D e r e c h o C i v i l ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
7
including one who assigns for value a claim
secured by a receipt, unless a contrary intention
appearswarrants:
1. Receiptisgenuine
2. Legalrighttonegotiateortransferit
3. No knowledge of defects that may
impair the validity or worth of the
receipt
4. That he has a right to transfer title to
the goods and that the goods are
merchantable or fit for a particular
purpose whenever such warranties
would have been to transfer without a
receipt of goods represented thereby.
(Sec.44)
Note: The indorsee does not guarantee that the
warehousemanwillcomplywithhisduties.(Sec.45)
Acreditorreceivingthewarehousereceiptgivenasa
collateralmakesnowarranty.(Sec.46)
Q:Whatisanonnegotiablewarehousereceipt?
A:It isareceipt inwhich itstatesthatthegoods
received delivered to the depositor or to any
otherspecifiedperson.(Sec.4)
Q:Whatisrequiredinanonnegotiablereceipt?
A: Itshallhaveplainlyplaceduponitsfacebythe
warehouseman issuing it nonnegotiable, or
notnegotiable.(Sec.7)
Note:Failuretomarknonnegotiableshallmakeit
negotiable
(if
the
holder
purchased
it
for
valuesupposingittobenegotiable).
Q:Howisittransferred?
A: A nonnegotiable warehouse receipt may be
transferred by its delivery to the transferee
accompanied bya deed of assignment, donation
orotherformoftransfer.
Q:Whatistheeffectofindorsement?
A: Even if the receipt is indorsed, the transferee
acquiresnoadditionalright(Sec.39)
C.DISTINCTIONBETWEENANEGOTIABLEINSTRUMENTANDANEGOTIABLE
WAREHOUSERECEIPT
Q: Distinguish negotiable instrument from a
negotiablewarehousereceipt.
A:
NEGOTIABLE
INSTRUMENT
NEGOTIABLE
WAREHOUSERECEIPT
Contains an
unconditional promise
topay asumcertain in
money.
Does not contain an
unconditional promise to
pay a sum certain in
money.
Thesubject
is
money.
The
subject
is
merchandise.
Thenegotiable
instrumentistheobject
ofvalue.
Thewarehousereceiptis
nottheobjectofvalue.
Intermediateparties
becomesecondarily
liable.
Intermediatepartiesare
notliableforthe
warehousemansfailure
todeliverthegoods.
D.RIGHTSOFAHOLDEROFANEGOTIABLE
WAREHOUSERECEIPTASAGAINSTA
TRANSFEREEOFANONNEGOTIABLE
WAREHOUSERECEIPT
Q: Distinguish the rights of a holder of a
negotiablewarehousereceiptfromtherightsof
a transferee of a nonnegotiable warehouse
receipt.
A:SeeAppendixA.
Q: Coco was issued by a warehouseman a
negotiable receipt for safekeeping by the latter
ofhisgoods.CanthejudgmentcreditorofCoco
levy by execution the goods covered by the
negotiablereceipt?
A:
The
goods
cannot,
while
in
the
possession
ofthe warehouseman, be attached by garnishment
or otherwise, or be levied upon under an
executionunless thereceiptbe first surrendered
to the warehouseman, or its negotiation
enjoined. The warehouseman cannot be
compelledtodelivertheactualpossessionofthe
goods until the receipt is surrendered to it or
impoundedbythecourt.
Q: Assuming that prior to the levy, the receipt
wassoldtoYoyoonthebasisofwhichhefileda
claim with the sheriff. Would Yoyo have better
rights to the goods than the creditor? Explain
youranswer.
A:Yes.Yoyo,asaholderforvalueofthereceipt,
hasabetterrighttothegoodsthanthecreditor.
It isYoyothatcansurrenderthereceiptwhich is
in its possession and can comply with the other
requirements which will oblige the
warehouseman to deliver the goods, namely, to
signareceiptforthedeliveryofthegoods,andto
paythewarehouseman'sliensandfeesandother
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USTGOLDENNOTES2011
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
8
charges.(1999BarQuestion)
Q: Bon took the goods of Angela without her
consent and deposited the same with a
warehouseman. The latter issued to Bon a
negotiablereceipt which she indorsed for value
to Ryan. Between Angela and Ryan, who has
betterright
over
the
goods?
Why?
A:Ryanhasbetterrighttothegoods.Thegoodsare covered by a negotiable warehouse receiptwhich was indorsed to Ryan for value. ThenegotiationtoRyanwasnot impairedbythefactthat Bon took the goods without the consent ofAngela, as Ryan had no notice of such fact.Moreover,Ryanisinpossessionofthewarehousereceipt and only he can surrender it to thewarehouseman.(Sec.8,WRL)
Q: What is the proper recourse of the
warehouseman if he is uncertain as to who is
entitledto
the
goods?
Explain.
A:Sincethere isaconflictingclaimofownershipor title, the warehouseman should file acomplaint in interpleader requiring Ryan andAngela to interplead. The matter involves a
judicialquestionastowhoseclaimisvalid.(2005BarQuestion)
Q:Whatistherulewhereawarehousereceiptis
transferredtosecurepaymentofa loanbyway
ofpledgeormortgage?
A: The pledgee or mortgagee does not
automaticallybecome
the
owner
of
the
goods
but
merely retains the right to keep and with theconsentoftheownertosellthemsoastosatisfythe obligation from the proceeds for the simplereasonthatthetransactionisnotasalebutonlyamortgage or pledge. Likewise, if the property islost without the fault or negligence of themortgageeorpledgee,thensaidgoodsaretoberegarded as lost on account of the real owner,mortgagor orpledgor. (PNBv.Sayo,Jr.,G.R.No.129198,July9,1998)
Q: Does the nonpayment by the original
depositors of the purchase price render the
furthernegotiation
of
the
receipt
invalid?
A: No, the negotiation of the warehouse receiptby the buyer of goods purchased from anddeposited to the warehouseman is valid even ifthe warehouseman who issued the negotiablewarehousereceiptwasnotpaidbythebuyer.Thevalidityofthenegotiationcannotbe impairedbythe fact that the owner/warehouseman was
deprivedofthepossessionofthesamebyfraud,mistakeor conversion. (PNBv.NoahsArkSugarRefinery,G.R.No.107243,Sept.1,1993)
II. DUTIESOFAWAREHOUSEMAN
Q: What are the obligations of a
warehouseman?
A:
1. To takecare of the goods entrusted tohissafekeeping
2. To deliver them to the holder of thereceipt or the depositor providedthere is demand by the depositoraccompaniedbyeither:a. An offer to satisfy the
warehousemanslienb. Anoffertosurrenderthereceipt,if
negotiable with such
indorsements
as
would
be
necessary for the negotiation ofthereceipts;or
c. A readiness and willingness tosign, when the goods aredelivered, an acknowledgementthatthey have been delivered, ifsuch signature isrequestedbythewarehouseman(Sec.8);and
3. To keep the goods separate from thegoods of other depositors, except ifauthorizedbyagreementorbycustom,fungible goods may be mingled with
other
goods
of
the
same
kind
and
grade.
Q: When is the need for a demand by the
depositornotnecessary?
A: When the warehouseman has rendered itbeyondhispowertodeliverthegoods.
Q: When is refusal to deliver by the
warehousemanjustified?
A:
1. If the warehousemans lien is notsatisfied
by
the
claimants.
(Sec.
31)
2. Where the goods have already beensoldtosatisfythewarehousemans lienor because of their perishable orhazardousnature.(Sec.34)
3. If the warehouse receipt is negotiatedbacktohim.
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UNIVERSITY OF SANTO TOMAS
F a c u l t a d d e D e r e c h o C i v i l ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
9
4. When the holder does not satisfy the
conditionsprescribedinSection8:
a. Nonsatisfaction of
warehousemanslien.
b. Failure to surrender warehouse
receipt.
c. Refusal
to
sign
the
acknowledgement receipt,
acknowledging the receipt of the
goodsfromthewarehouse.
5. Thefailurewasnotduetoanyfaulton
thepartofthewarehouseman:
a. Upon request by or on behalf of
the person lawfully entitled. (Sec.
10)
b. If he had information that the
delivery about to be made was to
onenotlawfullyentitled.(Ibid.)
c. Ifseveralpersonsclaimthegoods.
(Sec.17)
d. If the warehouseman needs
reasonable time to ascertain the
validity of the claim if someone
other than the depositor claims
titletothegoods.(Sec.18)
e. If the goods are lost, despite
ordinary care by the
warehouseman.
Q:Whatifthereceiptsarelostordestroyed?
A: A court of competentjurisdiction may order
thedeliveryofthegoodsonly:
a. Upon satisfactory proof of the loss or
destructionofthereceipt;and
b. Upon the giving of a bond with
sufficient sureties to be approved by
thecourt.(Sec.14)
Note: The delivery of the goods under an order of
the court shall not relieve the warehouseman from
liabilitytoapersontowhomthenegotiablereceipt
has been or shall be negotiated for value without
notice of the proceedings or of the delivery of the
goods.(Sec.14)
Q:
When
does
the
duty
to
insure
the
goods
arise?
A:
1. Wherethelawprovides
2. Where it was an inducement for the
depositortoenterintothecontract;
3. Establishedpractice;or
4. Where the warehouse receipt contains
arepresentationtothateffect.
Q:Whatisconversion?
A:Anunathorizedassumptionandexerciseofthe
right of ownership over goods belonging to
anotherthrough thealterationof theircondition
or the exclusion of the owners right. (Bouviers
LawDictionary)
Q: What are the instances where a
warehousemanisliableforconversion?
A:
1. Where the delivery is made to person
otherthanthoseauthorized
2. Evenifdeliveredtopersonsentitled,he
maystillbeliableforconversionifprior
todelivery:
a. He had been requested not to
makesuchdelivery;or
b. He
had
received
notice
of
the
adverse claim or title of a third
person.
Q:Givetheeffectsofalterationofthereceipton
theliabilityofthewarehouseman.
A:
1. Alteration immaterial whether
fraudulent or not, whether authorized
or not, the warehouseman is liable
on the altered receipt according to its
originaltenor
2. Authorizedmaterial
alteration
the
warehouseman is liable according to
thetermsofthereceiptasaltered
3. Material alteration innocently made
the warehouseman is liable on the
altered receipt according to its original
receipt
4. Material alteration fraudulently made
warehouseman isliable according to
the original tenor of the receipt to a
purchaser of the receipt for value
withoutnotice,andevento the alterer
and
subsequent
purchasers
with
noticeexcept that as regards to
the last two, thewarehousemans
liability is limitedonlytodeliveryashe
isexcusedfromanyliability
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USTGOLDENNOTES2011
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
10
Q: What are the instances where a
warehousemaniscriminallyliableforhisacts?
A:
1. Issuance of receipts for goods notreceived.(Sec.50)
2. Issuance of receipt containing false
statement.(Sec.
51)
3. Issuance of duplicate negotiablewarehousereceiptnotmarkedassuch.(Sec.52)
4. Issuance of a negotiable warehousereceiptofwhichheisanownerwithoutstatingsuchfactofownership.(Sec.53)
5. Delivery of goods without obtainingnegotiablewarehousereceipt.(Sec.54)
6. Negotiation of receipt for mortgagedgoods.(Sec.55)
7. Issuance of warehouse receipts forgoodnotreceived.(Sec.50)
8. Comminglingofgoods.(Sec.24)
Q: What are the other acts for which
warehousemanisliable?
A:
1. Failure to stamp duplicate on copiesofnegotiablereceipt.(Sec.6)
2. Failure to place nonnegotiable ornotnegotiable on a nonnegotiablereceipt.(Sec.7)
3. Misdeliveryofgoods.(Sec.10)4. Failure to effect cancellation of a
negotiable receipt upon delivery of thegoods.(Sec.11)
5. Issuingreceipt
for
non
existing
goods
or
misdescribedgoods.(Sec.20)6. Failure to take care of the goods. (Sec.
21)
7. Failure to give notice in case of sale ofgoodstosatisfylien(Sec.33)orbecausethe goodsare perishableor hazardous.(Sec.34)
III. WAREHOUSEMANSLIEN
Q:Whatiscoveredbythewarehousemanslien
over the goods deposited or on the proceeds
thereof?
A:
1. Chargesforstorageandpreservationofthegoods(insuranceandothersmaybeincludedaslongasitisstipulated)
2. Money advanced, interest, insurance,transportation, labor, weighing,
coopering and other charges andexpensesinrelationtosuchgoods
3. Charges and expenses for notice, andadvertisements of sale, and for sale ofthe goods where default had beenmade insatisfyingthewarehousemans
lien.(Sec.
27)
Q: What are the remedies available to a
warehouseman to enforce his warehousemans
lien?
A:
1. By refusing to deliver the goods untilthelienissatisfied
2. By causing the extrajudicial sale of theproperty and applying the proceeds ofthevalueofthelien
Note:Where
the
sale
was
made
without
the publication required and before thetimeprovidedbylaw,suchsaleisvoidandthe purchases of the goods acquires notitletothem.
3. By filing a civil action for collection ofthe unpaid charges or by way ofcounterclaiminanactiontorecovertheproperty from him or such otherremedies allowed by law for theenforcement of a lien against personalproperty or to a creditor against hisdebtor, for the collection from the
depositor
of
all
the
charges
which
the
depositorhasboundhimselftopay.
Q: Against whose goods may the lien be
enforced?
A:
1. Goods belonging to the person who isliableasdebtor;and
2. Goods belonging to others which havebeen deposited at any time by thedebtor with authority to make a validpledge.(Sec.28)
Q:Howmaythewarehousemanlosehislien?
A:
1. Bysurrenderingpossessionthereof,or
2. Byrefusingtodeliverthegoodswhenademandismadewithwhichheisboundtocomply.(Sec.29)
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WAREHOUSE RECEIPTS LAW
11UNIVERSITY OF SANTO TOMAS
F a c u l t a d d e D e r e c h o C i v i l ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
Note:Whereanegotiablereceiptisissued,with the
exception of the charges for the storage or
preservation of goods for which a negotiable
receipt hasbeen issued,the lien exists only for
otherchargesexpressly enumerated in the receipt
so far as they arewrittenalthoughtheamountof
thesaidchargeisntstated.
Lossof liendoesnotmeanthatthewarehouseman
doesnothaveanyotherremedy.
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USTGOLDENNOTES2011
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
12
TRUSTRECEIPTSLAW(P.D.115)
I. DEFINITION/CONCEPTOFATRUSTRECEIPT
TRANSACTION
Q:Whatisatrustreceipttransaction?
A:It
is
any
transaction
between
the
entruster
and
entrustee:
1. Whereby the entruster who owns orholdsabsolutetitleorsecurityinterestsover certain specified goods,documents or instrument, releases thesame to the possession of entrusteeupon the latters execution of a TRagreement.
2. Whereintheentrusteebindshimselftohold the designated goods in trust fortheentrusterand,incaseofdefault,to
sell
such
goods,
documents
or
instrument with the obligation to turnover to the entruster the proceeds totheextentoftheamountowingtoitorto turn over the goods, documents orinstrumentitselfifnotsold.(Sec.4,P.D.115)
Q:Whatisatrustreceipt(TR)?
A:ItisthewrittenorprinteddocumentsignedbytheentrusteeinfavoroftheentrustercontainingtermsandconditionssubstantiallycomplyingwiththeprovisionsofPD115.
Q:WhatarethetwoviewsregardingTR?
A:
1. Asacommercialdocument(Sec.4,P.D.115)
2. As a commercial transaction It is aseparate and independent securitytransaction intendedtoaid infinancingimportersandretaildealerswhodonothavesufficient funds. (Nacuv.CA,G.R.No.108638,Mar.11,1994)
Q:Are
LC
and
TR
negotiable
instruments?
A: Letters of credit and trust receipts are notnegotiable instrument, but drafts issued inconnection with letters of credit are negotiableinstruments. Hence, while the presumption ofconsideration under the negotiable instrumentlaw may not necessarily be applicable to trustreceipts and letters of credit, the presumption
that the drafts drawn in connection with theletters of credit have sufficient considerationapplies.(Leev.CA,G.R.No.117913,Feb.1,2002)
A.LOAN/SECURITYFEATURE
Q: What is the loan and security feature of the
trustreceipt
transaction?
A: A trust receipt arrangement is endowed withits own distinctive features and characteristics.Underthatsetup,abankextendsaloancoveredbytheLetterofCredit,withthetrustreceiptasasecurity for the loan. In other words, thetransaction involves a loan feature representedby the letter of credit, and a security featurewhich is in the covering trust receipt. A trustreceipt, therefore, is a security agreement,pursuant to which a bank acquires a "securityinterest"inthegoods.Itsecuresanindebtednessand there can be no such thing as securityinterest that secures no obligation. (Sps.Vintolavs. Insular Bank of Asia and America, G.R. No.
73271,May29,1987)
B.OWNERSHIPOFTHEGOODS,DOCUMENTS,
ANDINSTRUMENTSUNDERATRUSTRECEIPT
Q:Whoistheownerofthearticlessubjectofthe
TR?
A:Theentrustee.Atrustreceipthastwofeatures,the loan and security features. The loan isbrought about by the fact that the entruster
financed
the
importation
or
purchase
of
the
goodsunderTR.Untilandunlessthisloanispaid,theobligation topaysubsists. If the entrustee ismade to appear as the owner, it was but anartificialexpedient,moreoflegalfictionthanfact,for if it were really so, it could dispose of thegoods in any manner that it wants, which itcannotdo.Toconsidertheentrusteeasthetrueowner from the inception of the transactionwould be to disregard the loan feature thereof.(Rosario Textile Mills Corp. v. Home Bankers
Savings and Trust Company, G.R. No. 137232.
June29,2005)
II.RIGHTSOFTHEENTRUSTER
Q:Whoisanentruster?
A: A lender, financer or creditor. Person holdingtitle over the goods documents or instruments(GDI) subject of a trust receipt transaction;releasespossessionof thegoodsuponexecutionoftrustreceipt.(Sec.3[c])
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TRUST RECEIPTS LAW
UNIVERSITY OF SANTO TOMAS
F a c u l t a d d e D e r e c h o C i v i l ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
13
Q:Whataretherightsoftheentruster?
A:
1. To receive the proceeds from the sale
of the goods, documents, or
instruments to the extent of the
amountowingtohim
2. To the returnof thegoods,documents
orinstruments(GDI)incaseofnonsale
and enforcement of all other rights
conferredtohiminthetrustreceipt
3. May cancel the trust and take
possession of the goods, upon default
or failure of the entrustee to comply
withanyofthetermsandconditionsof
thetrustreceipt.(Sec.7,P.D.115)
A.VALIDITYOFTHESECURITYINTERESTAS
AGAINSTTHECREDITORSOFTHE
ENTRUSTEE/INNOCENTPURCHASERS
FOR
VALUE
Q:Asbetweentheentrusterandthecreditorsof
the entrustee, who has a better right over the
goods?
A: The entruster. His security interest in goods,
documents, or instruments pursuant to the
written terms of a trust receipt shall be valid as
against all creditors of the entrustee for the
durationofthetrustreceiptagreement.(Sec.12,
P.D.115)
Q: Who can defeat the rights of the entruster
overthegoods?
A:Apurchaser in good faith.He acquiresgoods,
documents or instruments free from the
entruster'ssecurityinterest.(Sec.11,P.D.115)
III.OBLIGATIONSANDLIABILITYOFTHE
ENTRUSTEE
Q:Whoisanentrustee?
A:Aborrower,buyer,importerordebtor.Person
to
whom
the
goods
are
delivered
for
sale
or
processing in trust, with the obligation to return
the proceeds of sale of the goods or the goods
themselvestotheentruster.(Sec.3[b])
Q:Whataretheobligationsandliabilititesofthe
entrustee?
A:
1. To hold good, documents and
instruments (GDI) in trust for the
entrusterandtodisposeofthemstrictly
inaccordancewiththetermsofTR;
2. Toreceive theproceedsof thesale for
theentrusterandtoturnoverthesame
to the entruster to the extent of
amountowing
to
the
entruster;
3. To insure GDI against loss from fire,
theft,pilferageorothercasualties.
4. To keep GDI or the proceeds thereof,
whether in money or whatever form,
separate and capable of identification
aspropertyoftheentruster;
5. To return GDI to the entruster in case
theycouldnotbesoldorupondemand
oftheentruster;and
6. To
observe
all
other
conditions
of
the
trustreceipts.(Sec.9,P.D.115)
A.PAYMENT/DELIVERYOFPROCEEDSOFSALEORDISPOSITIONOFGOODS,DOCUMENTSOR
INSTRUMENTS
Q: What is the order in the application of
proceedsortheTRtransactions?
A:
1. Expensesofthesale
2. Expensesderivedfromstoringthegoods
3. Principalobligation
Q:Istheentrusteeliableforthedeficiency?
A: Yes, but any excess shall likewise belong to
him.(Sec.7,P.D.115)
B.RETURNOFGOODS,DOCUMENTSORINSTRUMENTSINCASEOFNONSALE
Q:Whatistheobligationoftheentrusteeincase
the goods, documents or instruments were not
sold?
A: The entrustee should return the goods,
documents,or
instruments
to
the
entrustor.
(Sec.
4,P.D.115)
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USTGOLDENNOTES2011
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
14
C.LIABILITYFORLOSSOFGOODS,DOCUMENTS
ORINSTRUMENTS
Q: Who shall bear the loss of goods which are
thesubjectofTR?
A: The entrustee. Loss of goods, documents or
instruments
which
are
the
subject
of
a
TR,
pendingtheirdisposition,irrespectiveofwhetherornotitwasduetothefaultornegligenceoftheentrustee, shall not extinguish his obligation totheentrusterforthevaluethereof.(Sec.10,P.D.115)
D.PENALSANCTIONIFOFFENDERISA
CORPORATION
Q: What acts or omissions are penalized under
theTRLaw?
A:
The
TR
Law
declares
the
failure
to
turn
over
goodsorproceedsrealizedfromsalethereof,asacriminal offense under Art. 315(l)(b) of RPC(estafa). The law is violated whenever theentrusteeorpersontowhomtrustreceiptswereissued fails to: (a) return the goods covered bythe trust receipts; or (b) return the proceeds ofthe sale of said goods. (Metropolitan Bank v.Tonda,G.R.No.134436,Aug.16,2000)
Q: Does P.D. 115 violate the prohibition in the
Constitution against imprisonment for non
paymentofadebt?
A:
No.
What
is
being
punished
is
the
dishonesty
andabuseofconfidenceinthehandlingofmoneyorgoodstotheprejudiceofanotherregardlessofwhetherthelatteristheownerornot.Itdoesnotseektoenforcepaymentofthe loan.Thus,therecan be no violation of a right againstimprisonmentfornonpaymentofadebt.(Peoplev.Nitafan,G.R.No.81559,Apr6,1992)
Q: Is lack of intent to defraud a bar to the
prosecutionoftheseactsoromissions?
A:No.Themerefailuretoaccountorreturngivesrise to the crime which is malum prohibitum.
There
is
no
requirement
to
prove
intent
todefraud (Ching v. Secretary of Justice, G.R. No.
164317, Feb. 6, 2006; Colinares v. CA, G.R. No.
90828,Sept.5,2000;Ongv.CA,G.R.No.119858,
Apr.29,2003)(2006BarQuestion)
Q:Whatistheeffectofinsufficiencyofproofof
deliveryofgoods?
A: Estafa cannot lie. (Ramos v. CA, G.R. No. L399225,Aug.21,1987)
Q:Whatwillhappentothecriminalactionifthe
entrusteecomplied
with
his
obligation
under
the
TRagreement?
A:
1. If compliance occurred before thecriminal charge there is no criminalliability.
2. Ifcomplianceoccurredafterthechargeeven before conviction the criminalactionwillnotbeextinguished.
Q: What is the penal sanction if offender is a
corporation?
A: The Trust Receipts Law recognizes theimpossibility of imposing the penalty ofimprisonment on a corporation. Hence, if theentrustee is a corporation, the law makes theofficers or employees or other personsresponsible for the offense liable to suffer thepenalty of imprisonment. The reason is obvious,corporations, partnerships, associations andother juridical entities cannot be put to jail.Hence, the criminal liability falls on the humanagent responsible for the violation of the TrustReceiptsLaw.(Ongvs.CA,G.R.No.119858,April29,2003)
IV.REMEDIESAVAILABLE
Q:Intheeventofdefaultbytheentrusteeonhis
obligationunderthetrustreceiptagreement, is
it absolutely necessary for the entruster to
cancel the trust and take possession of the
goodstobeabletoenforcehisrightthereunder?
A:Thelawusestheword"may"ingrantingtotheentruster the right to cancel the trust and takepossession of the goods. Consequently, theentrusteehasthediscretiontoavailofsuchrightor seek any alternative action, such as a thirdparty
claim
or
a
separate
civil
action
which
it
deemsbesttoprotect itsright,atanytimeupondefaultorfailureoftheentrusteetocomplywithany of the terms and conditions of the trustagreement.(SouthCityHomes,Inc.v.BAFinanceCorporation,G.R.No.135462,Dec.7,2001)
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TRUST RECEIPTS LAW
15UNIVERSITY OF SANTO TOMAS
F a c u l t a d d e D e r e c h o C i v i l ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
Q: Can the repossession of the goods by the
entrusterbeconsideredaspayment?
A:No,paymentwouldlegallyresultonlyafterthe
entruster has foreclosed on the securities, sold
thesameandappliedtheproceedsthereoftothe
entrusteesobligation.Sincethetrustreceipt isa
mere
security
arrangement,
the
repossession
by
the entruster cannot be considered payment of
the loan/advances given to the entrustee under
the letter of credit/trust receipt. (PNBv.Pineda,
G.R.No.46658,May13,1991)
Q. Earl failed to comply with his undertaking
underthetrustreceiptheissuedinfavorofABC
bank.Thebankfiledbothcriminalandcivilcases
against Earl. The court proceeded with the civil
caseindependentlyfromthecriminalcase.Isthe
court correct in proceeding independently
althoughacriminalcaseisalsoinstituted?
A:Yes,
the
complaint
against
Earl
was
based
on
the failure of the latter to comply with his
obligationasspelledoutintheTR.
Thisbreachof
obligation is separate and distinct from any
criminal liability for "misuse and/or
misappropriation of goods or proceeds realized
fromthesaleofgoods,documentsorinstruments
released under trust receipts", punishable under
Section13oftheTrustReceiptsLaw.Beingbased
onanobligationexcontractuandnotexdelicto,
thecivilactionmayproceedindependentlyofthe
criminal proceedings instituted against
petitioners regardless of the result of the latter.
(Sarmientov.CA,G.R.No.122502,Dec.27,2002)
Q. What is the effect of novation of a trust
agreement?
A. Where the entruster and entrustee entered
into anagreementwhichprovides forconditions
incompatible with the trust receipt agreement,
the obligation under the trust receipt is
extinguished. Hence, the breach in the
subsequent agreement does not give rise to a
criminal liability under P.D. 115 but only civil
liability.(PhilippineBankv.Ong,G.R.No.133176,
Aug.8,2002)
Q:
What
are
the
defenses
to
negate
criminal
liabilityoftheentrustee?
A:
1. Compliancewiththetermsofthe trust
receipteitherbypayment,returnofthe
proceedsorreturnofthegoods.
2. The transaction does not fall under PD
115. (Colinares v.CA,G.R.No.90828,
Sept. 5, 2000, Consolidated v. CA,G.R.
No.114286,Apr.19,2001)
Note:Inthesecases,theexecutionofaTR
was made after the goods covered by it
had
been
purchased,
making
the
buyer
the owner thereof. The transaction does
not involve a trust receipt but a simple
loaneventhoughthepartiesdenominate
thetransactionasoneofatrustreceipt.
3. Nonreceipt of the goods or where
proofofdeliveryofgoodscoveredbya
trust receipt to the accused is
insufficient. (Ramos v. CA, G.R. No. L
399225,Aug.21,1987)
4. Cancellation of the trust receipt
agreement and taking into possession
ofthe
goods
by
the
entruster.
Note:Mererepossessionofthegoodswill
extinguishcriminalliability.
5. Compromise by parties before filing of
information in court. (Ong v. CA, G.R.
No.119858,Apr.29,2003)
6. Novation before the filing of the
criminalcomplaint.
7. Loss of goods without fault of the
entrustee.
8. Consignment.
Q:Candeposits inasavingsaccountop