CREDIT TRANSACTIONS

CREDIT TRANSACTIONS

All transactions involving the purchase or loan of goods, services, or money in the present with a promise to pay or deliver in the future

Contracts of security

Types:

1. Secured transactions or contracts of real security - supported by a collateral or an encumbrance of property

2. Unsecured transactions or contracts of personal security - supported only by a promise or personal commitment of another such as a guarantor or surety

Security

Something given, deposited, or serving as a means to ensure fulfilment or enforcement of an obligation or of protecting some interest in property

Types of Security

a. personal when an individual becomes surety or guarantor

b. real or property when a mortgage, pledge, antichresis, charge or lien or other device used to have property held, out of which the person to be made secure can be compensated for loss

Bailment The delivery of property of one person to another in trust for a specific purpose, with a contract, express or implied, that the trust shall be faithfully executed and the property returned or duly accounted for when the special purpose is accomplished or kept until the bailor claims it.

Parties:

1. bailor - the giver; one who delivers property

2. bailee- the recipient; one who receives the custody or possession of the thing thus delivered

LOAN (Articles 1933 1961) A contract wherein one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid. (Art 1933)

Characteristics:1. Real Contract delivery of the thing loaned is necessary for the perfection of the contract

NOTE: An accepted promise to make a future loan is a consensual contract, and therefore binding upon the parties but it is only after delivery, will the real contract of loan arise. (Art 1934)

2. Unilateral Contract - once the subject matter has been delivered, it creates obligations on the part of only one of the parties (i.e. borrower).

Kinds:

1. Commodatum when the bailor (lender) delivers to the bailee (borrower) a non-consumable thing so that the latter may use it for a certain time and return the identical thing.

Kinds of commodatum:

a. Ordinary Commodatum use by the borrower of the thing is for a certain period of time

b. Precarium - one whereby the bailor may demand the thing loaned at will and it exists in the following cases:

i. neither the duration nor purpose of the contract is stipulated

ii. the use of the thing is merely tolerated by the owner

2. Simple loan or mutuum where the lender delivers to the borrower money or other consumable thing upon the condition that the latter shall pay the same amount of the same kind and quality.

CommodatumMutuum

Key: COPS-LOTR

1. Object

Non-consumableConsumable

2. Cause

GratuitousMay or may not be gratuitous

3. Purpose

Use or temporary possessionConsumption

4. Subject Matter

Real or personal propertyOnly personal property

5. Ownership of the thing

Retained by the bailorPasses to the debtor

6. Thing to be returned

Exact thing loanedEqual amount of the same kind and quality

7. Who bears risk of loss

BailorDebtor

8. When to return

In case of urgent need, even before the expiration of the termOnly after the expiration of the term

LoanCredit

Delivery by one party and the receipt of other party of a given sum of money or other consumable thing upon an agreement, express or implied, to repay the same. Ability of a person to borrow money or things by virtue of the trust or confidence reposed by the lender that he will pay what he promised.

LoanCredit

1. Interest taken at the expiration of the creditInterest is taken in advance

2. Always on a double name paper (two signatures appear with both parties held liable for payment)Always on a single name paper (i.e. promissory note with no indorse-ment other than the maker)

COMMODATUM (Articles 1935 1952)

Nature:

1. PURPOSE: Bailee in commodatum acquires the temporary use of the thing but not its fruits (unless stipulated as an incidental part of the contract).(Art 1935)

Use must be temporary, otherwise the contract may be a deposit.

2. CAUSE: Essentially gratuitous; it ceases to be a commodatum if any compensation is to be paid by the borrower who acquires the use, in such case there arises a lease contract.

Similar to a donation in that it confers a benefit to the recipient. The presumption is that the bailor has loaned the thing for having no need therefor.

3. SUBJECT MATTER: Generally non-consumable whether real or personal but if the consumable goods are not for consumption as when they are merely for exhibition, consumable goods may be the subject of the commodatum. (Art 1936)

4. Bailor need not be the owner of the thing owned (Art. 1938) since by the loan, ownership does not pass to the borrower.

A mere lessee or usufructuary may lend but the borrower or bailee himself may not lend nor lease the thing loaned to him to a third person (Art 1932[2])

5. Purely Personal (Art 1939): Death of either party terminates the contract unless by stipulation, the commodatum is transmitted to the heirs of either or both parties.

Bailee can neither lend nor lease the object of the contract to a third person.

NOTE:Use of the thing loaned may extend to members of the bailees household except:

a. contrary stipulation;

b. nature of the thing forbids such use

Obligations of the Bailee: (Arts 1941 1945)

1. To pay for the ordinary expenses for the use and preservation of the thing loaned. (Art 1941)

2. To be liable for the loss of the thing even if it should be through a fortuitous event in the following cases: (KLAS D)a. when he keeps it longer than the period stipulated, or after the accomplishment of its use

b. when he lends or leases it to third persons who are not members of his household

c. when the thing loaned has been delivered with appraisal of its value

d. when, being able to save either of the thing borrowed or his own things, he chose to save the latter; or

e. when the bailee devoted the thing for any purpose different from that for which it has been loaned (Art 1942)

3. To be liable for the deterioration of thing loaned (a) if expressly stipulated; (b) if guilty of fault or negligence; or (c) if he devotes the thing to any purpose different from that for which it has been loaned

4. To pay for extraordinary expenses arising from the actual use of the thing by the bailee, which shall be borne equally by both the bailor and the bailee, even though the bailee acted without fault, unless there is a stipulation to the contrary (Art 1949 par 2)

5. To return the thing loaned

The bailee has no right to retain the thing loaned as security for claims he has against the bailor even for extraordinary expenses except for a claim for damages suffered because of the flaws of the thing loaned.

NOTES:

However, the bailees right extends no further than retention of the thing loaned until he is reimbursed for the damages suffered by him.

He cannot lawfully sell the thing to satisfy such damages without courts approval.

In case there are two or more bailees, their obligation shall be solidary.

Obligations of the bailor (Art 1946 Art 1952):

1. To respect the duration of the loan

(GENERAL RULE: Allow the bailee the use of the thing loaned for the duration of the period stipulated or until the accomplishment of the purpose for which the commodatum was instituted.

(EXCEPTIONS:

a. In case of urgent need in which case bailee may demand its return or temporary use;

b. The bailor may demand immediate return of the thing if the bailee commits any act of ingratitude specified in Art. 765.

2. To refund to the bailee extraordinary expenses for the preservation of the thing loaned, provided the bailee brings the same to the knowledge of the bailor before incurring them, except when they are so urgent that the reply to the notification cannot be awaited without danger.

3. To be liable to the bailee for damages for known hidden flaws.

Requisites:

a. There is flaw or defect in the thing loaned;

b. The flaw or defect is hidden;

c. The bailor is aware thereof;

d. He does not advise the bailee of the same; and

e. The bailee suffers damages by reason of said flaw or defect

NOTES:

If the above requisites concur, the bailee has the right of retention for damages.

The bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to the bailee.

SIMPLE LOAN OR MUTUUM (Art 1953 1961) A contract whereby one party delivers to another, money or other consumable thing with the understanding that the same amount of the same kind and quality shall be paid. (Art. 1953)

NOTES:

The mere issuance of the checks does not result in the perfection of the contract of loan. The Civil Code provides that the delivery of bills of exchange and mercantile documents, such as checks, shall produce the effect of payment only when they have been encashed (Gerales vs. CA 218 SCRA 638). It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected.

The obligation is to pay and not to return because the consumption of the thing loaned is the distinguishing character of the contract of mutuum from that of commodatum.

No estafa is committed by a person who refuses to pay his debt or denies its existence.

Simple Loan/MutuumRent

1. Delivery of money or some consumable thing with a promise to pay an equivalent of the same kind and quality Delivery of some non-consumable thing in order that the other may use it during a certain period and return it to the former.

2. There is a transfer of ownership of the thing delivered

There is no transfer of ownership of the thing delivered

3. Relationship between the parties is that of obligor-obligeeRelationship is that of a landlord and tenant

4. Creditor receives payment for his loanOwner of the property rented receives compensation or price either in money, provisions, chattels, or labor

from the occupant thereof in return for its use (Tolentino vs Gonzales, 50 Phil 558 1927)

LoanSale

1. Real contractConsensual contract

2. Generally unilateral because only borrower has obligationsBilateral and reciprocal

NOTE: If the property is sold, but the real intent is only to give the object as security for a debt as when the price is comparatively small there really is a contract of loan with an equitable mortgage.

Commodatum/ MutuumBarter

1. Subject matter is money or fungible thingsSubject matter is non-fungible, (non consumable) things

2. In commodatum, the bailee is bound to return the identical thing borrowed when the time has expired or purpose servedThe thing with equivalent value is given in return for what has been received

3. Mutuum may be gratuitous and commodatum is always gratuitous Onerous, actually a mutual sale

Form of Payment (Art 1955):

1. If the thing loaned is money - payment must be made in the currency stipulated, if it is possible; otherwise it is payable in the currency which is legal tender in the Philippines and in case of extraordinary inflation or deflation, the basisi of payment shall be the value of the currency at the time of the creation of the obligation

2. If what was loaned is a fungible thing other than money - the borrower is under obligation to pay the lender another thing of the same kind, quality and quantity. In case it is impossible to do so, the borrower shall pay its value at the time of the perfection of the loan.

Interest The compensation allowed by law or fixed by the parties for the loan or forbearance of money, goods or credits

Requisites for Demandability: (ELI)1. must be expressly stipulated

Exceptions:

a. indemnity for damages

b. interest accruing from unpaid interest

2. must be lawful

3. must be in writing

Compound Interest

(GENERAL RULE: Unpaid interest shall not earn interest.

(EXCEPTIONS:

1. when judicially demanded

2. when there is an express stipulation (must be in writing in view of Art. 1956)

Guidelines for the application of proper interest rates

1. If there is stipulation: that rate shall be applied

2. The following are the rules of thumb for the application/imposition of interest rates:

a) When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages.

b) With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

i. When the obligation breached consists of payment of a sum of money (loan or forbearance of money), the interest shall be that which is stipulated or agreed upon by the parties. In absence of an agreement, the rate shall be the legal rate (i.e. 12% per annum) computed from default.

NOTE: The interest due shall itself earn legal interest from the time it is judicially demanded

ii. In other cases, the rate of interest shall be six percent (6%) per annum.

NOTE: No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. When the demand cannot be established, the interest shall begin to run only from the date of the judgment of the court is made.

iii. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph i or ii above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (Eastern Shipping Lines vs. CA, July 12, 1994)

NOTES:

Central Bank Circular No. 416 fixing the rate of interest at 12% per annum deals with loans, forbearance of any money, goods or credits and judgments involving such loans, or forbearance in the absence of express agreement to such rate

Interest as indemnity for damages is payable only in case of default or non-performance of the contract. As they are distinct claims, they may be demanded separately. (Sentinel Insurance Co., Inc. vs CA, 182 SCRA 517)

Central Bank Circular No. 905 (Dec. 10, 1982) removed the Usury Law ceiling on interest rates for secured and unsecured loans, regardless of maturity.

Validity of unconscionable interest rate in a loan

Supreme Court in Sps. Solangon vs. Jose Salazar, G.R. No. 125944, June 29, 2001, said that since the usury law had been repealed by CB Cir. No. 905 there is no more maximum rate of interest and the rate will just depend on the mutual agreement of the parties (citing Lim Law vs. Olympic Sawmill Co., 129 SCRA 439). But the Supreme Court said that nothing in said circular grants lenders carta blanche authority to raise interest rates to level which will either enslave their borrowers or lead to a hemorrhaging of their assets (citing Almeda vs. CA, 256 SCRS 292). In Medel vs. CA, 299 SCRA 481, it was ruled that while stipulated interest of 5.5% per month on a loan is usurious pursuant to CB Circular No. 905, the same must be equitably reduced for being iniquitous, unconscionable and exorbitant. It is contrary to morals, (contra bonos mores). It was reduced to 12% per annum in consonant with justice and fair play.

DEPOSIT (Articles 1962 2009) A contract constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same.

Characteristics:

1. Real Contract - contract is perfected by the delivery of the subject matter.

2. Unilateral (gratutitous deposit) - only the depositary has an obligation.

3. Bilateral (onerous deposit) - gives rise to obligations on the part of both the depositary and depositor.

DepositMutuum

1. Purpose

Principal purpose is safekeeping or custodyPrincipal purpose is consumption

2. When to Return

Depositor can demand the return of the subject matter at willThe lender must wait until the expiration of the period granted to the debtor

3. Subject Matter

Subject matter may be movable or immovable propertySubject matter is only money or other fungible thing

4. Relationship

Relationship is that of lender (creditor) and borrower (debtor).

Relationship is that of depositor and depositary.

5. Compensation

There can be compensation of credits.NO compensation of things deposited with each other (except by mutual agreement).

DepositCommodatum

1. Purpose is Safekeeping1. Purpose is the transfer of the use

2. May be gratuitous2. Essentially and always gratuitous

3. Movable/corporeal things only in case of extrajudicial deposit3. Both movable and immovable may be the object

( Kinds of Deposit:

1. Judicial (Sequestration) takes place when an attachment or seizure of property in litigation is ordered.

2. Extra-judicial

a. Voluntary one wherein the delivery is made by the will of the depositor or by two or more persons each of whom believes himself entitled to the thing deposited. (Arts 1968 1995)

b. Necessary one made in compliance with a legal obligation, or on the occasion of any calamity, or by travellers in hotels and inns (Arts 1996 - 2004), or by travellers with common carriers (Art 1734 1735).

NOTE: The chief difference between a voluntary deposit and a necessary deposit is that in the former, the depositor has a complete freedom in choosing the depositary, whereas in the latter, there is lack of free choice in the depositor.

JudicialExtra-judicial

1. Creation

Will of the courtWill of the parties or contract

2. Purpose

Security or to insure the right of a party to property or to recover in case of favorable judgmentCustody and safekeeping

3. Subject Matter

Movables or immovables,

but generally immovablesMovables only

4. Cause

Always onerousMay be compen-sated or not, but generally gratuitous

5. When must the thing be returned

Upon order of the court or when litigation is endedUpon demand of depositor

6. In whose behalf it is held

Person who has a rightDepositor or third person designated

(GENERAL RULE: Contract of deposit is gratuitous (Art 1965)

(EXCEPTIONS:

1. when there is contrary stipulation

2. depositary is engaged in business of storing goods

3. property saved from destruction without knowledge of the owner

NOTES:

Article 1966 does not embrace incorporeal property, such as rights and actions, for it follows the person of the owner, wherever he goes.

A contract for the rent of safety deposit boxes is not an ordinary contract of lease of things but a special kind of deposit; hence, it is not to be strictly governed by the provisions on deposit. The relation between a bank and its customer is that of a bailor and bailee. (CA Agro vs CA, 219 SCRA 426)

Obligations of the Depositary (Art 1972 1991):

1. To keep the thing safely (Art 1972)

Exercise over the thing deposited the same diligence as he would exercise over his property

2. To return the thing (Art 1972)

Person to whom the thing must be returned:a. Depositor, to his heirs and successors, or the person who may have been designated in the contract

b. If the depositary is capacitated - he is subject to all the obligations of a depositary whether or not the depositor is capacitated. If the depositor is incapacitated, the depositary must return the property to the legal representative of the incapacitated or to the depositor himself if he should acquire capacity (Art 1970).

c. If the depositor is capacitated and the depositary is incapacitated - the latter does not incur the obligation of a depositary but he is liable:

i..to return the thing deposited while still in his possession;

ii.to pay the depositor the amount which he may have benefited himself with the thing or its price subject to the right of any third person who acquired the thing in good faith (Art 1971)

Time of return: a. Upon demand even though a specified period or time for such return may have been fixed except when the thing is judicially attached while in the depositarys possession or should he have been notified of the opposition of a third person to the return or the removal of the thing deposited. (Art 1998)

b. If deposit gratuitous, the depositary may return the thing deposited notwithstanding that a period has been fixed for the deposit if justifiable reasons exists for its return.

c. If the deposit is for a valuable consideration, the depositary has no right to return the thing deposited before the expiration of the time designated even if he should suffer inconvenience as a consequence.(Art 1989)

What to return: product, accessories, and accessions of the thing deposited (Art 1983)

3. Not to deposit the thing with a third person unless authorized by express stipulation (Art 1973)

The depositor is liable for the loss of the thing deposited under Article 1973 if:

a. he transfers the deposit with a third person without authority although there is no negligence on his part and the third person;

b. he deposits the thing with a third person who is manifestly careless or unfit although authorized even in the absence of negligence; or

c. the thing is lost through the negligence of his employees whether the latter are manifestly careless or not.

4. If the thing deposited should earn interest (Art 1975):

a. to collect interest and the capital itself as it fall due

b. to take steps to preserve its value and rights corresponding to it

5. Not to commingle things deposited if so stipulated (Art 1976)

6. Not to make use of the thing deposited unless authorized (Art 1977)

(GENERAL RULE: Deposit is for safekeeping of the subject matter and not for use. The unauthorized use by the depositary would make him liable for damages.

(EXCEPTIONS:

1. When the preservation of the thing deposited requires its use

2. When authorized by the depositor

NOTE: The permission to use is NOT presumed except when such use is necessary for the preservation of the thing deposited.

Effect if permission to use is given (Art 1978):

1. If thing deposited is non-consumable, the contract loses the character of a deposit and acquires that of a commodatum despite the fact that the parties may have denominated it as a deposit, unless safekeeping is still the principal purpose.

2.If thing deposited consists of money/consumable things, the contract is converted into a simple loan or mutuum unless safekeeping is still the principal purpose in which case it is called an irregular deposit. Example: bank deposits are irregular deposits in nature but governed by law on loans.

7. When the thing deposited is delivered sealed and closed :

a. to return the thing deposited in the same condition

b. to pay for damages should the seal or lock be broken through his fault, which is presumed unless proved otherwise

c. to keep the secret of the deposit when the seal or lock is broken with or without his fault (Art 1981)

NOTE: The depositary is authorized to open the thing deposited which is closed and sealed when (Art 1982):

i. there is presumed authority (i.e. when the key has been delivered to him or the instructions of the depositor cannot be done without opening it)

ii. necessity

8. To change the way of the deposit if under the circumstances, the depositary may reasonably presume that the depositor would consent to the change if he knew of the facts of the situation, provided, that the former notifies the depositor thereof and wait for his decision, unless delay would cause danger

9. To pay interest on sums converted to personal use if the deposit consists of money (Art 1983)

10. To be liable for loss through fortuitous event (SUDA): (Art 1979):

a. if stipulated

b. if he uses the thing without the depositor's permission

c. if he delays its return

d. if he allows others to use it, even though he himself may have been authorized to use the same

NOTES:

Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. (Art 1980) The general rule is that a bank can compensate or set off the deposit in its hands for the payment of any indebtedness to it on the part of the depositor. In true deposit, compensation is not allowed.

Irregular depositMutuum

1. The consumable thing deposited may be demanded at will by the depositor 1. Lender is bound by the provisions of the contract and cannot demand restitution until the time for payment, as provided in the contract, has arisen

2. The only benefit is that which accrues to the depositor2. Essential cause for the transaction is the necessity of the borrower

3. The irregular depositor has a preference over other creditors with respect to the thing deposited3. Common creditors enjoy no preference in the distribution of the debtors property

Rule when there are two or more depositors (Art 1985):

1. If thing deposited is divisible and depositors are not solidary: Each depositor can demand only his proportionate share thereto.

2. If obligation is solidary or if thing is not divisible: Rules on active solidarity shall apply, i.e. each one of the solidary depositors may do whatever may be useful to the others but not anything which may be prejudicial to the latter, (Art. 1212) and the depositary may return the thing to anyone of the solidary depositors unless a demand, judicial or extrajudicial, for its return has been made by one of them in which case, delivery should be made to him (Art. 1214).

3. Return to one of depositors stipulated. The depositary is bound to return it only to the person designated although he has not made any demand for its return.

NOTES:

The depositary may retain the thing in pledge until full payment of what may be due him by reason of the deposit (Art 1994).

The depositors heir who in good faith may have sold the thing which he did not know was deposited, shall only be bound to return the price he may have received or to assign his right of action against the buyer in case the price has not been paid him (Art 1991).

Obligations of the Depositor (Art 1992 1995):

1. To pay expenses for preservation

a. If the deposit is gratuitous, the depositor is obliged to reimburse the depositary for expenses incurred for the preservation of the thing deposited (Art 1992)

b. If the deposit is for valuable consideration, expenses for preservation are borne by the depositary unless there is a contrary stipulation

2. To pay loses incurred by the depositary due to the character of the thing deposited

(GENERAL RULE: The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited.

(EXCEPTIONS:1. at the time of the deposit, the depositor was not aware of the dangerous character of the thing

2. when depositor was not expected to know the dangerous character of the thing

3. when the depositor notified the depository of the same

4. the depositary was aware of it without advice from the depositor

Extinguishment of Voluntary Deposit (Art 1995)

1. Loss or destruction of the thing deposited

2. In case of gratuitous deposit, upon the death of either the depositor or the depositary

3. Other causes, such as return of the thing, novation, merger, expiration of the term fulfilment of the resolutory condition, etc (Art 1231)

Necessary Deposits

1. Made in compliance with a legal obligation

2. Made on the occasion of any calamity such as fire, storm, flood, pillage, shipwreck or other similar events (deposito miserable)

3. Made by travellers in hotels and inns or by travellers with common carrier

Deposit by Travellers in hotels and inns:

The keepers of hotels or inns shall be responsible as depositaries for the deposit of effects made by travellers provided:

a. Notice was given to them or to their employees of the effects brought by the guest; andb. The guests take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects.

NOTES:

Liability extends to vehicles, animals and articles which have been introduced or placed in the annexes of the hotel.

Liability shall EXCLUDE losses which proceed from force majeure. The act of a thief or robber is not deemed force majeure unless done with the use of arms or irresistible force.

The hotel-keeper cannot free himself from the responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation to such effect shall be void.

Notice is necessary only for suing civil liability but not in criminal liability.

WAREHOUSE RECEIPTS LAW (WRL)

(Act No. 2137)PURPOSES OF THE LAW:

1. To regulate the status, rights and liabilities of the parties in a warehousing contract.

2. To protect those who, in good faith and for value, acquire negotiable warehouse receipts by negotiation.

3. To render the title to, and right of possession of, property stored in warehouses more easily convertible.

4. To facilitate the use of warehouse receipts as documents of title.

5. In order to accomplish these, to place a much greater responsibility on the warehouseman.

Section 1.1 ( The WRL applies to warehouse receipts issued by a warehouseman as defined in Section 58(a) of the Act, and in all other cases where receipts are not issued by a warehouseman, the CIVIL CODE (ART. 1507-1520) applies.

WAREHOUSEMAN

( A person lawfully engaged in the business of storing goods for profit (Sec 58[a]).

WAREHOUSE

( The building or place where goods are deposited and stored for profit

WAREHOUSE RECEIPT

( Written acknowledgement by a warehouseman that he has received and holds certain goods therein described in store for the person to whom it is issued.

( Simple written contract between the owner of the goods and the warehouseman to pay the compensation for that service.

( Bilateral contract; imports that goods are in the hands of a warehouseman and is a symbolical representation of the property itself.

( Not a negotiable instrument although it is negotiable as provide by the act.

FORMS AND CONTENTS OF THE RECEIPT1. LOCATION OF WAREHOUSE- to enable the holder to determine where the goods are deposited.

2. DATE OF ISSUE OF RECEIPT- indicates the date of perfection of contract of deposit and when the storage charges shall begin.

3. CONSECUTIVE NUMBER OF RECEIPT- to identify each receipt with the goods for which it was issued.

4. PERSON TO WHOM GOODS ARE DELIVERABLE- determines the person or persons who shall prima facie be entitled lawfully to the possession of the goods deposited.

5. RATE OF STORAGE CHARGES- states the consideration for the contract from the view of the warehouseman.

6. DESCRIPTION OF GOODS OR PACKAGES-general object is for identification so that the identical property may be returned.

7. SIGNATURE OF WAREHOUSEMAN- best evidence that the warehouseman has received the goods described in the receipt and has bound himself to assume all obligations in connection therewith.

8. WAREHOUSEMANS OWNERSHIP OF OR INTEREST IN GOODS- to prevent abuses.

9. STATEMENT OF ADVANCES MADE AND LIABILITIES INCURRED- to preserve the lien of the warehouseman over the goods stored or the proceeds thereof in his hands.

( Effects of omission of any of the essential terms:1. Validity of receipt not affected

2. Warehouseman liable for damages

3. Negotiability of receipts not affected

4. Contract converted to ordinary deposit

a) TERMS THAT CANNOT BE INCLUDED

1. Those contrary to the provisions of the WRL.

2. 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.

3. Those contrary to law, morals, good customs, public order or public policy.

4. Those exempting the warehouseman from liability for misdelivery.

5. Those exempting the warehouseman from liability for negligence.

( Kinds:1. Negotiable where the goods are deliverable to bearer or to the order of the person specified. (Sec. 5)

( It is negotiated by either delivery or indorsement.

( Persons who may negotiate a warehouse receipt:

a. Owner thereof, or

b. Any person to whom the possession or custody of the receipt has been entrusted by the owner, if, by the terms of the receipt, the goods are deliverable to the person to whom the possession or custody of receipt has been entrusted or in such a form that it may be negotiated by delivery. (Sec 40)

( No provision shall be inserted in a negotiable receipt that it is non-negotiable. Such provision, if inserted, shall be void. (Sec. 5)

( When more than one negotiable receipt is issued for the same goods, the word Duplicate shall be plainly placed upon the face of every such receipt, EXCEPT the first one issued. A warehouseman shall be liable for all damages caused by his failure to do so to any one who purchased the subsequent receipt for value supposing it to be an original, even though the purchase be AFTER the delivery of the goods by the warehouseman to the holder of the original receipt. (Sec 6)

2. Non-negotiable the goods received will be delivered to the depositor or to any specified person. (Sec. 4)( The receipt should be stamped on its face non-negotiable, otherwise a holder believing it to be negotiable may treat the receipt as negotiable. (Sec. 7)

( It is transferred by its delivery to the transferee accompanied by a deed of assignment, donation or other form of transfer.

EFFECT OF FAILURE TO MARK NEGOTIABLE OR NON-NEGOTIABLE

1. Failure to mark negotiable does not render it non-negotiable if it contains words of negotiability.

2. Failure to mark non-negotiable shall make it negotiable (if the holder purchased it for value supposing it to be negotiable).

NEGOTIABLE INSTRUMENTNEGOTIABLE WAREHOUSE RECEIPT

Subject

MoneyMerchandise

Object of value

Instrument itselfGoods deposited

Liability of intermediate parties

Secondary (NIL)None (for failure to deliver the goods)

Effect of deliberate alteration

Null and voidValid, but enforceable only in accordance with its original tenor

Conversion from bearer to order

A originally bearer instrument will always be suchConverted to an order WR if specially endorsed

Significance of holder in due course

May obtain a better titleObtains only the title which the party negotiating had over the goods

NEGOTIABLE WRNON-NEGOTIABLE WR

May be acquired through negotiationMay be acquired through transfer or assignment

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 directly contracted with him.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 to hold the goods for him.

Negotiation defeats the lien of the seller of the goods (Sec. 49)

Goods represented cannot be subject to attachment or levy by execution, unless in proper circumstances (Sec. 25)Goods represented can be subject to attachment or levy by execution (Sec. 42)

WARRANTIES

a. That receipt is genuine

b. Legal right to negotiate

c. No knowledge of defects that may impair receipt

d. Right of transfer to title over goods and that the goods are merchantable

Note: The indorser does not guarantee that the warehouseman will comply with his duties (Sec.45)

LOST OR DESTROYED RECEIPTS

(If the receipt is lost or destroyed, it is essential that the court shall pass upon the question and make sure that the receipt is really lost or destroyed before the goods are delivered or a new receipt is issued.

(A court may order delivery only:

1. Upon proof of the loss or destruction of the receipt

2. Upon giving of a bond with sufficient sureties to be approved by the court

RIGHTS AND OBLIGATIONS OF THE WAREHOUSEMAN

RIGHTSOBLIGATIONS

1. To be paid

2. In case of non-payment, to exercise his lien on the goods deposited

3. To refuse delivery in proper legal circumstances1. To issue a WR in the required form for goods received

2. To take care of the goods deposited with ordinary and reasonable diligence

3. To deliver the goods to the person lawfully entitled

4. Not to commingle the goods deposited, unless goods are fungible and of the same kind and grade, giving rise to co-ownership over commingled mass

5. To insure the goods in proper circumstances

6. To mark a non-negotiable WR as such

7. To mark as such the duplicates of a negotiable WR

8. To give the proper notice in case of sale of the1 goods as provided in the WRL

9. To take up and cancel the WR when the goods are delivered

DUTY TO DELIVER

1. When: Upon a demand made by the holder of a receipt or by the depositor, unless there is a legal excuse; if such demand is accompanied with:

a. Offer to satisfy the warehousemans lien.

b. Offer to surrender the receipt, if negotiable, with such endorsement as would be necessary for the negotiation of the receipt. and

c. Readiness and willingness to sign an acknowledgment when the goods are delivered, if such signature is requested by the warehouseman. (Sec. 8)

(Generally, a DEMAND should be made on the warehouseman in order that the duty to deliver the goods will arise. EXCEPT when the warehouseman has rendered it beyond his power to deliver the goods, demand may be dispensed with. (Art. 1169[3], CIVIL CODE)

PERSON TO WHOM GOODS MUST BE DELIVERED

1. Person lawfully entitled to possession of goods or his agent (person to whom a competent court has ordered delivery of goods; attaching creditor; purchaser)

2. Person entitled to delivery under a non-negotiable receipt or with written authority

3. Person in possession of a negotiable receipt

INSTANCES WHEN WAREHOUSEMAN MAY LEGALLY REFUSE TO DELIVER GOODS 1. When the holder of the receipt does not satisfy the conditions prescribed in Section 8 of the Act.

2. When the warehouseman has legal title in himself on the goods, such title or right being derived directly or indirectly from the transfer made by the depositor at the time or subsequent to the deposit for storage, or from the warehousemans lien (Sec. 16).3. a. If he had been requested by a person lawfully entitled to a right of property or possession in the goods not to make delivery to any person; b. If he had information that the delivery to be made was to one not lawfully entitled to the possession of the goods; (Sec. 10) 4. Where the goods have already been lawfully sold to third persons to satisfy the warehousemans lien or disposed of because of their perishable nature. (Sec 36)

5. In case of adverse claimant/s (Secs. 17 & 18)

6. In the valid exercise of the warehousemans lien. (Sec. 31)b) EFFECTS OF ALTERATION

1. ALTERATION IMMATERIAL- (whether fraudulent or not; authorized or not) warehouseman is liable on the altered receipt according to its original tenor.

2. ALTERATION MATERIAL BUT AUTHORIZED- the warehouseman is liable according to its terms as altered.

3. MATERIAL ALTERATION INNOCENTLY MADE- liable according to its original tenor.

4. MATERIAL ALTERATION FRAUDULENTLY MADE- liable according to the original tenor to a purchaser of receipt for value without notice and even to the alterer and subsequent purchasers with notice (except that liability is limited only to delivery as he is excused from any liability).

( A fraudulent alteration cannot divest the title of the owner of the stored goods and warehouseman is liable to return them to the owner.

( A bona fide holder acquires no right to goods under a lost or stolen negotiable receipt or to which the indorsement of the depositor has been forged.

WAREHOUSEMANS LIENA. Extent

1. Lawful charges for storage and preservation of the goods;

2. Lawful claims for money advanced; and

3. Reasonable charges and expenses for notice and advertisement of the sale, and the sale of goods. (Sec. 27)

( 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 receipt with the amounts thereof specified. If the existing 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

B. Remedies for enforcement:

1. Refuse delivery of the goods until his lien is satisfied; (Sec. 31)

2. Sale of the goods and applying the proceeds to the value of the lien; (Secs. 33 & 34)

3. By the other means allowed by law to a creditor against his debtor (Sec. 32); or such other remedies allowed by law for the enforcement of a lien against personal property. (Sec. 35)

C. Against what property lien may be enforced:

1. Against the goods of the depositor who is liable to the warehouseman as debtor whenever such goods are deposited; and

2. Against goods of other persons stored by the depositor who is liable to the warehouseman as debtor with authority to make a valid pledge.

D. Loss of the lien:

1. By surrendering possession thereof; or

2. By refusing to deliver the goods when a demand is made with which he is bound to comply. (Sec. 29)

( The warehousemans lien is possessory in nature. (PNB v. Judge Se)

WHAT WAREHOUSEMAN CAN DO IN CASE OF ADVERSE CLAIMANTS (SECS. 17 & 18)

1. Refuse to deliver the goods to anyone of them until he has had reasonable time to ascertain the validity of the various claims;

2. Original action or counterclaim for interpleader, whichever is appropriate.

RULES ON ATTACHMENT/EXECUTION OF GOODS DEPOSITED1. Negotiable receipt: the goods cannot be attached or levied in execution UNLESS:

a. The receipt is first surrendered; or

b. Its negotiation is enjoined; or

c. The receipt is impounded by the court. (Sec. 25)

( Creditors remedies: seek for the attachment of the receipt or seek aid from courts to compel the debtor to satisfy claims by means allowed by law in regard to property which cannot readily be attached or levied upon by ordinary process. (Sec 26)( Not applicable:

1. If the depositor is not the owner of the goods (thief) or one who has no right to convey title to the goods binding upon the owner.

2. Actions for recovery or manual delivery of goods by the real owner

3. Where attachment is made prior to the issuance of receipt

2. Non-negotiable receipt: the goods can be attached, provided it is done prior to the notification of the warehouseman of the transfer, (Sec. 42)

( Reason: Absent such notice, both the warehouseman and the sheriff have a right to assume that the goods are still owned by the person whose name appears in the receipt.

DUTY TO INSURE THE GOODS

1. Where the law provides

2. Where it was an inducement for the depositor to enter into the contract

3. Established practice

4. Where the WR contains a representation to that effect

LIABILITIES

CIVILCRIMINAL

Warehouseman or his agent

For damages suffered by reason of failure to comply with legal duties1. Issuance of receipts for goods not received

2. Issuance of receipt containing false statement

3. Issuance of duplicate negotiable WR not marked as such

4. Issuance of a negotiable WR for goods of which he is an owner without stating such fact of ownership

5. Delivery of goods without obtaining negotiable WR

Third persons

Negotiation of WR issued for mortgaged goods with intent to deceive

CRIMINAL OFFENSES

1. Issuance of receipt for goods not received (Sec. 50)

2. Issuance of a receipt containing false statement (Sec. 51)

3. Issuance of a duplicate receipt not so marked (Sec. 52). Except, if the original is declared lost or destroyed by the court.

4. Issuance of a receipt involving warehousemans goods which does not state such fact (Sec. 53)

5. Delivery of goods without obtaining negotiable receipt (Sec. 54)

6. Negotiation of receipt for mortgaged goods (Sec. 55)

C. GENERAL BONDED WAREHOUSE ACT (GBWA)

(Act No. 3893, as amended by R.A. 247)

PURPOSES:

1. To protect depositors by giving them a direct recourse against the bond filed by the warehouseman in case of the latters insolvency;

2. To regulate the business of receiving commodities for storage;

3. To encourage the establishment of more warehouses.

WRL VIS--VIS GBWA (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)

Section 1.2 WRLSection 1.3 GBWA

Section 1.4 Prescribes the mutual duties and rights of a warehouseman who issues warehouse receipts, and his depositor, and covers all warehouses whether bonded or notSection 1.5 Regulates and supervises warehouses which put up a bond

APPLICABILITY

( The GBWA applies to a warehouseman engaged in the business of receiving commodity for storage, including contracts or transactions:

a) Wherein the warehouseman is obligated to return the very same commodity delivered to him or to pay its value;

b) Wherein the commodity delivered is to be milled for and on account of the owner thereof;

c) Wherein commodity delivered is commingled with commodity delivered by or belonging to other persons, and the

warehouseman is obligated to return commodity of the same kind or to pay its value. (Sec. 2)

( The kinds of commodity to be deposited must be those, which may be traded or dealt in openly and legally. Thus, illegal and prohibited goods may not be validly received. (Sec. 2)

IMPORTANT FEATURES:

1. Necessity of a license to operate and/or manage a warehouse from the Bureau of Domestic Trade2. Necessity of filing a bond

3. Direct recourse by the depositor against the bond filed by the warehouseman

4. Compulsory insurance against fire upon the goods deposited for their full value

5. Regulation by the Bureau of Domestic

( Compliance with the WRL is not mandatory and indispensable. A mere formal defect or absence of a warehouse receipt in accordance with the WRL does not preclude the application of the GBWA. However, it is desirable that a bonded warehouseman issue a warehouse receipt which conforms to provisions of the WRL. (Gonzales vs. Go Tiong, August 30, 1958)

DUTIES OF A COVERED WAREHOUSEMAN

1. Secure the required license; (Sec. 3)

2. Give the necessary bond in an amount at least 33 1/3% of the market value of the maximum quantity of commodity to be received; (Sec. 4)

3. Insure against fire the commodity received; (Sec. 6)

4. Receive, without discrimination, any commodity for storage as far as his license and the capacity of his warehouse may permit; (Sec. 8)

( Penalty: Fine for double the market value of the commodity so received in excess of the authorized quantity. (Sec.12)

5. Keep a complete record of all commodities received by him, of the receipts issued therefor, of the withdrawals, of the liquidation, and of all receipts returned to and canceled by him;

6. Observe rules and regulations of the Bureau of Domestic Trade. (Sec. 9)

LIABILITIES

CIVILCRIMINAL

Breach of obligations secured by the bond1. Engaging in business covered by the GBWA in violation of the license requirement

2. Connivance with a warehouseman for the purpose of evading the license requirement

3. Receiving a quantity of commodity greater than its capacity or that specified in the license, if the goods deposited are lost or destroyed

NOTES IN CREDIT TRANSACTIONS

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