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to the consumer by means of exchange or the operations which tends to supply and extend them to him habitually with intent of gain the proper time and place and in good quantity and quality. The merchant is the middleman between the consumer and manufacturer. characteristics of commerce: 1) rapidity - because in commercial transactions time is of the essence 2) habitually – does not cover isolated transactions 3) intent of gain Article 1. Number 1 refers to individuals. Number 2 refer to companies created under the Corporation Code or under the provisions on Partnership in the New Civil Code. Examples of individuals who habitually devotes themselves as merchants. Buada (?) v. Posadas – this fellow loaned money about 5 times, court said that is not habitual. Lastimoso v. Noliente – a person chartered a vessel and sank, what is his liability? The court said that he is not a common carrier, so he is only required to exercise the due diligence of a good father of the family, and not the extraordinary diligence of common carriers. Antham Consolidated case – a foreign company bought copra, the seller was not able to deliver and after 2 more negotiations to allow the seller to comply, the latter was sued. The defendant-seller raised that defense that the foreign company-plaintiff is doing business without a license and therefore cannot sue. The court said this is not doing business because this is an isolated transaction – there is only one contract. The other 2 negotiations are simply extensions of time to allow the seller to comply with his obligation. Jack comments: The conclusion is correct but the reasoning is wrong because buying does not constitute doing business, but it is selling that constitutes doing business where you derive profits. A merchant must do business in his own name. A ship captain is not a merchant even if he performs acts of commerce like entering into a charter party, because he is doing so in behalf of the ship owner. A merchant need not devote his full time to commerce, in De Guzman case, even if it is only a sideline, he is a merchant. The act must not merely be incidental to the practice of a profession. Where a pharmacist concocts a medicine prescribed by a physician and charges the customer for the cost of the materials, the pharmacist is not engaged in business because it is merely incidental to the practice of her profession. Article 2. Acts of commerce, whether specified in the Code or not, should be governed first by the Code of Commerce, and in their absence, by commercial customs, and lastly, by civil law. Notice in the hierarchy, customs take precedence over civil law because of the progressive character of commerce. For centuries, negotiable instruments are governed mostly by customs rather than law. But civil law can also supplement the Code of Commerce - the Code does not contain provisions on extinguishment of obligations or damages. There are three
1609. 4. This is merely evidentiary. entering into a charter party. The reason why the law did not enumerate what are the acts of commerce because commerce is very progressive (you cannot foresee how commerce develops). applying the conflict of law rules that the nationality rules determines the capacity to act. that will be prejudicial to their interests. commercial legislation contracts commercial usages and practices civil law judicial decisions B. Acts of commerce include those contained in the Code and all other analogous acts. he cannot recover consequential damages in consonance with the provisions of the Civil Code on damages. 2. Through a guardian 3. it claimed that it is not doing business here. intercourse and relations of persons engaged in commerce.In Mendoza v. A. Jimenez Transcripts (Code of Commerce. or mercantile pursuits. Note that the age to have legal capacity is now 18 years and not 21 years. Mendoza leased the film “Ang Himala ng Birhen” to be shown in Naga City during the Peñafrancia festival. unless you specifically informed the debtor of the peculiar circumstance that would give rise to consequential damages. Article 4. trade. Even if it was an isolated transaction. 5. A person who is convicted of a crime punishable by reclusion perpetua carries with it the accessory penalty of civil interdiction – hence he cannot engage in business. Sources of commercial law. PAL delivered the film after the festival. it indicated an intention to habitually engage in business hence it can be sued. 2. If the minors are not allowed to continue the lucrative business. Example. Since Mendoza did not inform PAL that this is a religious film to be shown during the religious festival. so Mendoza sued PAL for unrealized profits. Example. under R. natural law scientific law explanatory notes and preamble to laws foreign commercial legislation and case law Article 3. and the law of their country allows him to engage in commerce. A minor here can engage into business: 1. The court said it leased office space at the Luneta Hotel and even sent officers here. by registering the business name with DTI (Business name law). He must also have free disposition of his property. The court said in breach of contract you cannot recover consequential damages if the debtor was not in bad faith. Direct or principal sources 1. Commerce is usually ahead of the law which intended to regulate it. 2. To continue the business already started by their parents. Commercial law – the whole body of substantive jurisprudence applicable to the rights. Indirect sources 1. a Japanese corporation was sued in the Phil. 3. Trust Receipts & Warehouse Receipts) Page 2 of 15 . Article 5. It does not lay down the requisites of engaging in commerce but it tells you that this will create a presumption of an intention to engage in commerce.A. 4. PAL. If the person is a foreigner. Letters of Credit. 3. In a case.
the court said that since the entries were not kept properly. Under the corporation law. Letters of Credit. partners have the right to examine the books of account of the partnership. In the winding up of the affairs.000 he can keep a simplified set of books. the Corporation Code requires them to keep records of all business transactions. In case of corporations. Number 2. but if his gross quarterly receipts do not exceed P5. Number 1. Various regulatory agencies of public utilities also examine the records of public utilities. the books cannot be used as evidence against the estate of that deceased partner. Commercial Registries Article 16. the books kept in accordance with law will prevail. One partner countered that said deceased partner owed the partnership – unpaid amounts of lumbers purchased. the Commission of Audit can audit public utilities and private companies which receive public funds.A. This is admission against interest. Article 50. banks need a license from the Monetary Board. if their gross income exceed P25. The entries in the books of merchants maybe used as evidence against them. and stock and transfer book. In the case of corporations and partnerships. Where one book is kept in accordance with law while the other is not kept in accordance with law. Chapman v. minutes of meeting of BOD and stockholder. The insurance commissioner examines the insurance companies once a year. Number 4. If both books are kept in accordance with law and they conflict. The superintendent of banks has supervisors assigned to every bank and examines it once a year. Number 3. The proof presented was the entries in the books but were not posted regularly. 7192. A taxpayer must keep a journal and a ledger. The NIRC also requires that the books must be kept for 3 years. The widow of the husband claimed the share of the deceased husband in the assets of the partnership. the court will decide from the basis of the rules of preponderance of evidence by taking into consideration the totality of the evidence presented by both sides. etc. Commercial contracts. unless the reason for failure to produce is caused by a fortuitous event like they are burned during a fire. the BIR can examine the records of taxpayers. they need a certificate of authority from the Insurance Commission. Garcia – the partnership was engaged in lumber business but was dissolved due to the death of one of the partners. Trust Receipts & Warehouse Receipts) Page 3 of 15 . If one merchant does not present his books. Title Two.000 quarterly their books must be audited by an independent CPA. The SEC can examine the records of corporations and partnership.Under R. If the books of 2 merchants conflict. Article 48. women can now engage in commerce and enter into contracts without disqualification or limitation. This article lays down certain evidentiary rules regarding keeping of books. In case of insurance companies. Bookkeeping of Commerce This is now more covered by the NIRC (revenue code). stockholder and directors have the right to inspect the corporate records and under Article 1806 of the NCC. the one who presents his books will prevail. Title Three. one of the partners continued the business. They were posted several months afterwards. Maritime Industry Authority. They are governed: Jimenez Transcripts (Code of Commerce. Foreign corporations and partnerships can engage business here provided they get a license from the SEC. Register of Deeds. Various offices of registries: SEC. while the other merchant presents his books and are kept in accordance with law.
you apply Article 2. Article 57. Contracts that are illegal cannot be enforced. Civil code – to be applied in a suppletory manner to other special laws.500 pesetas (P300). An exception to Article 51. even if it has not yet been received by the offeror. when a contract in entered into by correspondence. Generally. It is like the Statutes of Frauds – there must be something in writing. In commercial contracts in which a penalty is imposed. When the law provides that the election of one of the remedies will bar resort to the other remedy. the injured party may demand either specific performance or payment of the penalty and recourse to one of these alternative remedies will extinguish the obligation unless the contrary is stipulated. Special law – if its the appropriate law like Insurance code 3. Article 58. Contracts entered into by correspondence shall be perfected from the moment an answer is made accepting the offer or the conditions by which the latter may be modified. Article 51. (Theory of cognition) Correspondence includes all kinds like telegrams. but if it is a commercial contract. it presupposes that the remedy chosen was EFFECTIVE. when the charterer sues for specific performance and the vessel sank. the contract is perfected from the moment the acceptance is sent. telex. In commercial transactions. Commercial contracts should be complied with in good faith. and an agent or broker intervenes. But if the contract amount involved is more that 1. Contracts in which an agent intervenes shall be perfected when the offeree shall have accepted the agent’s offer. Article 54. in a charter party agreement. Code of commerce 2. Article 56. Letters of Credit. so he can fall back to the other remedy – payment of liquidated damages. Trust Receipts & Warehouse Receipts) Page 4 of 15 . e-mail. fax. testimonial evidence is not sufficient. example: Negotiable instruments. Example. This what is involved is an act of commerce. Number 2 – lays down a conflict of law rule Article 53. This is not the same as in Article 2. The offeror can no longer withdraw the offer or change the terms of his offer. Article 52. If there is a conflict between the copies of the contract in possession of the two contracting parties. radiogram. If the agent was informed that the offer has been accepted even if the principal has not been informed. Jimenez Transcripts (Code of Commerce. it will be perfected only upon receipt by the offeror of the unconditional acceptance of the offeree. commercial contracts are valid regardless of their form. you apply Article 50. Article 55. the remedy chosen is not effective. the one kept by the agent or broker will prevail. Number 1 – contracts which according to the Code or special law must be reduced in writing or require formality for their efficacy. Article 59.1. the contract has been perfected. (Theory of manifestation) In civil law. since time is of the essence.
Letters of Credit. Trust Receipts & Warehouse Receipts) Page 5 of 15 . Article 63. time is of the essence. then apply customs. civil code. it has 30 days = 365 days 2. it shall be demandable 10 days after it was contracted. In Civil Law. the latter said that the loan was not yet due because it is an obligation without a period fixed.the Civil Code. In commercial law. Article 60. Like in civil law. no demand is needed. The court should first to fix the period. the law fixes the period.When there is DOUBT. The imposition of obligation is not presumed. Therefore according to Article 62.if not named. if the parties contemplated a period for the obligation but they did not stipulated as to the duration of the period. That became due on the 10th day after the loan was contracted. first apply the Code of Commerce. there is a provision providing a grace period of 30 days to pay the premium for life insurance policies. If still there is doubt . General rule: Grace periods are not recognized because in commercial transactions. In the Insurance Code. it is the law that fixes the period of 10 days after the contract was signed in case the parties failed to provide for such period. So the court will have to decide what the parties contemplated in the light of the circumstances.if specific month named. The moment the period to perform the obligation lapses. January. or must be ready to comply with his obligation. The court said that such is not necessary because this is a commercial loan. general rule is that even if a contract provides for a period. Obligations that do not have a period fixed by the parties or by the Code. the party does not incur in delay if the other party has not complied with his corresponding obligation. De Antonio got a loan which was a commercial loan. the obligor does not incur in delay. the following day. so 31 days . When the contract provides for a grace period. In contracts where the period for its performance was fixed wither by stipulation or by law. This is similar to the civil code. Diego v. It is because time is of the essence. In civil law. where time is of the essence. in reciprocal obligations. Jimenez Transcripts (Code of Commerce. When it is based on a provision of law. the other party must have complied with his contract. the obligor is in delay. Exceptions: 1. you have to file first a case in court. that is not so. If still it cannot be resolved. Example. then the doubt shall be resolved in favor of the DEBTOR. period Like a charter party may provide for a grace = 24 hours . Of course. If you cannot resolve it. Antonio – this case was decided under the old civil code. Article 62. then number of days in that month will be considered. asking the court to fix the period in the light of the circumstances. unless a demand is made. You have that debtor principle that the debtor’s assumption of an obligation is not presumed. In the Code of Commerce. How to compute period: Days Month Year Article 61. And so the doubt shall be resolved in favor of the debtor. So when Diego sued Antonio. the obligor will be in delay on the day after the date of maturity – that is on the following day. before a party to a contract maybe guilty of delay.
It applied for a letter of credit for its payment with BPI. 7 Governing Rules Letters of credit are governed by the Uniform Customs on Documentary Credits issued by the International Chamber of Commerce. 10 December 2001 Lecture LETTERS OF CREDIT Code of Commerce: Art. Letters of Credit. the seller will be required to submit certain documents together with the draft that he will draw in order to collect. Aside from certain conditions. BPI vs De Reny Fabrics De Reny Fabrics imported dyes. however. if it turns out that the appliance you bought was defective. (p. they are not qualified to deal with goods.Upon submission of the required documents by the seller. the Code of Commerce on Letters of Credit are obsolete. vs Chua Tiep Seng The letter of credit provided that in order to collect. Buyer refuses to pay. BPI paid the seller. Seller is assured of payment because the bank intervenes and makes the commitment to pay. 7 Definition A letter of credit is an instrument issued by a bank in behalf of a customer authorizing a beneficiary to draw a draft/s which will be honored on presentation to the bank if drawn in accordance with the terms and conditions specified in the letter of credit. The idea behind it is like your credit card. Phil. These documents shall be negotiated and agreed upon between the buyer and the seller. Upon it submission. the bank paid. The bank will not guarantee that the goods as delivered by the seller comply with the terms and conditions of the contract. 7 Underlying Idea of a Letter of Credit Roughly at least 85% of importations are financed by letters of credit. When the crates arrived. but chalk. stating that the goods are already loaded on the vessel. the bank has to pay. Trust Receipts & Warehouse Receipts) Page 6 of 15 . that the bill of lading was forged. Litton vs PNB The crates discovered to contain old cigarettes. Useless mag-codal in short. Just like your credit card. commercial invoice. Normally. Banking Corp. which means that the bank which issued the credit card tells the seller that it will pay the goods being bought. packing list. Jimenez Transcripts (Code of Commerce. Jack just gave the basic principles of the subject in his lecture). They’re not competent to deal with a thousand and one type of goods. the seller must submit an on-board bill of lading. It turned out. It’s up to you to run after the department store which sold the appliance to you. They will act on the basis of the documents only. As banks deal with documents only. You walk into a department store and they sell to you on credit although you’re a total stranger because you show your credit card. you cannot sue the bank which issued the card. it was found that they did not contain dyes. The underlying idea of a letter of credit is to ensure certainty of payment. 7 A basic principle in letters of credit is that the bank deals with documents only. So long as the seller submitted the documents required. Same ruling as De Reny Fabrics case. the seller would have to submit together with the draft a bill of lading. 75 of Agbayani) (Note: According to Villanueva. HELD: No! BPI as a bank deals with documents only. and the customer has to reimburse the bank. De Reny Fabric thus refused to pay. Modern letters of credit are strictly bank-to-bank transactions. 567 – Letters of credit are those issued by one merchant to another or for the purpose of attending to a commercial transaction. You still have to pay the bank.
to be sold to Hawaii. he refused to issue the certification. for instance. In the cover letter. Landmark decision by the Court of Appeals. the buyer must still reimburse the bank. Letters of Credit.” That’s not the same. bank which issued the letter of credit.” bank can refuse to pay. The buyer took delivery of the logs. 3. But typographical errors can happen. you can always prepare an air-tight contract. In this case you cannot enjoin payment. bank will not pay. it was written “pine timber. seller can be required to submit a certification by a reputable surveyor who will say that he examined the goods and found them to be in accordance with the specifications. When the bank receives the documents. and what was delivered was mere 2 nd-hand steel plates from some dismantled factory in Russia. and will ask the buyer if he agrees to waive the discrepancy. Later. 7 Letters of Credit are interpreted strictly. 7 Procedure when with Discrepancy Seller. Also in a case where the letter of credit specified “Italian marble. claiming discrepancy. New York The importer applied for a letter of credit for goods he imported from India. because bank doesn’t know. to collect. If he refuses. the letter of credit required that the seller must submit an invoice for pine lumber. Buyer applied for a letter of credit to pay. Buyer inspected the bags and found the quality impressive. 7 Fraud in Letters of Credit It’s possible to commit fraud because the seller can submit forged or false documents. But if you’re talking about goods not meeting the specifications. will draw a bill of exchange. Jacob. Then he will submit the documents required. Trust Receipts & Warehouse Receipts) Page 7 of 15 . A forged surveyor’s certification. However in the invoice.” the bank can refuse to pay.HELD: No! The bank does not guarantee the genuineness of the documents submitted by the seller. the bank refused to pay.” and the invoice indicated just “marble. The letter of credit required that to collect. addressed to the Cojack case Mrs. the buyer offered to pay only P1million to Mrs. bank will pay. for this is a case of out and out fraud. If the buyer waives. but if the other party does not intend to fulfill the contract. he’s going to break it. and was actually able to resell them.” the name of Mrs. the bank will state the discrepancies that they discovered. the bank will now forward that to the buyer. the seller must submit a certification by the buyer saying that he has inspected the goods and found them to be in accordance with the terms and conditions of the contract. It might think that a woodle is some exotic food coming from Timbuktu. you cannot enjoin payment. Feati Bank vs CA A naive seller sold logs to an American buyer. by adding a “k. the buyer deliberately misspelled Cojac. Jimenez Transcripts (Code of Commerce. may be submitted. which stated that among the documents to be submitted to collect was a commercial invoice issued by “Cojac. Where a letter of credit was issued for the importation of noodles.” So when Mrs. What was shipped by the seller was garbage. But in the invoice. Buyer ordered P3million worth of bags from her. The buyer refused. Cora Jacob made native bags. When the crates arrived they contained rubbish! HELD: A preliminary injunction may be issued to stop payment. The Seller submitted a certfication from the Bureau of Forest. But then again. Jacob submitted the invoice. and the invoice said “woodle. as when you order brand new steel plates from Russia. Provided the bank acted in good faith. However. Jacob’s business. In an American case. To minimize the risk. For example: 1. The bank dishonored the letter of credit. The bank asked the buyer if it will waive the discrepancy. 2.
seller cannot collect. how will we get reimbursement from you?! You’re not here! We need security! Get a standby letter of credit! Bank will then issue the letter of credit. Bank. plus the amount which was not used up. so they would send their representatives to China to buy the skins and fur from the hunters in the mountains. 7 A letter of credit may be revocable or irrevocable. you’re not doing business here! Supposing we pay huh. Now it’s possible that the case drags on beyond the expiration date of the letter of credit. 7 “Red Clause” This phrase means that the beneficiary can get payment in advance although the goods being sold has not yet been delivered. It will only be jointly and severally liable with the opening bank if it confirmed the letter of credit. Buyer will have to reimburse the bank. we will pay.” Feati Bank vs. HELD: That order is void! It goes against the inherent nature of an irrevocable letter of credit. if you submit a certification that you have been held liable. the said clause was written in red ink. 7 A letter of credit is a contract with a stipulation for the benefit of a 3rd person. in the next month. Since these hunters only accepted cash. 7 Revolving letter of credit is automatically renewed. where the beneficiaries would be their representatives who will buy the furs in the mountains. For instance. the American companies would produce mink coats. Surety will then say. So why red? Because in those days. Phil. Buyer sued. as when the bank every month makes available P50. a foreign corporation not doing business in the Phils sues here asking for a provisional remedy.000. that’s just too bad. Surety will go. The letter of credit would allow the beneficiary to collect the money in advance although he has not yet shipped the skin and the fur. If the beneficiary fails to deliver the goods. the bank can revoke it anytime. so it was the one who received the telex and notified the seller about the letter of credit. CA The letter of credit was issued in California. Company will open a letter of credit with the trader as beneficiary. and Feati Bank was the correspondent bank. telling the surety. It may be cumulative. The court required it to post a bond.000.000 for the month. It may be revolving as to month. who paid through a domestic letter of credit. Seller sued Feati Bank. If revocable. 7 “Evergreen Clause” This phrase means that the bank commits to continue renewing the letter of credit.HELD: That is not what is required by the letter of credit! Since the required certification from the buyer was not produced. Jimenez Transcripts (Code of Commerce. This is common in sugar trading. and obtained a court order ordering the bank not to pay the said beneficiary.000 shall be available. In the old days. HELD: No! The notifying bank is not liable. Usually the beneficiary insists that it should be an irrevocable letter of credit for certainty of payment. So why evergreen? Because it’s always fresh. Virginia Tobacco Administration Case Phil Tobaccco sold tobacco to someone. another P50. Letters of Credit. and instead turn over the proceeds to the buyer. the manufacturers would apply for letters of credit. together with that draft. which is very very rare.000 of the alloted P50. as when you used up only P40. E teka muna. who will in turn buy from the sugar central. subject to renewal upon consumption of the entire amount in a month. It may also be revolving as to amount as when the bank makes available P50. without need of notifying the beneficiary. Ok. make an undertaking that you will keep renewing the letter of credit until the case has been finally decided! The bank will then use an “evergreen clause. An American company will buy sugar here. Trust Receipts & Warehouse Receipts) Page 8 of 15 . It is a contract between the customer who applied for it and the bank which issued it for the benefit of the beneficiary of the letter of credit.
It thus insists that the said payments should be deducted from the amount due. HELD: No! A letter of credit is not an accessory obligation. and so it must honor the lien. the Thai Bank dishonored it. Since the goods will normally be consigned to the bank. dissatisfied with the real estate mortgage executed by the spouses. there is a usually a stipulation in the application giving the bank the right of lien on money or property you own which it may have in its possession. The couple thus would have to reimburse the bank. When the amount fell due. it was then required that for every letter of credit. required them to get a stand-by letter of credit. HELD: Bank of America liable! Under negotiable instruments law. the bank will require the buyer to sign a trust receipt to take delivery of the goods. the marginal deposits was one of the tools used by the Central Bank to reduce the demand for dollars. absolute and unconditional obligation.7 A letter of credit is a primary. the drawer warrants that the bill of exchange will be paid. But meanwhile. 669 of Agbayani. claiming that it was told by the spouses that some payments have been made. the applicant assigned his time deposit to a 3rd party. which credited them the proceeds right away. For example. and then they indorsed it to Bank of America. That’s why the bank will have to pay even if there be a deficiency or defect in the goods. agreeing to pay upon presentment of Philamlife of a certification that the spouses had defaulted on the loan. assignee or PNB? HELD: PNB! It had lien on the deposit. Letters of Credit. PNB Case Somebody applied for a letter of credit in the Phil. Philamlife Case A couple took a housing loan from Philamlife. the buyer applied for a letter of credit from a bank in Thailand. Later. The correspondent bank in RP was Bank of America and so it notified the seller here that a letter of credit had been opened in the Thai bank. 7 Marginal Deposits In the old days. saying that the letter of credit is fake. Philamlife later drew a draft and submitted the certification. the question was who has a better right to collect the money. But when the bill of exchange was presented. CA A Philippine company sold rope to a buyer in Thailand. banks do not require marginal deposits unless the financial standing of the customer is in bad shape. marginal deposit of say 30% must be given to the bank. National Bank. Insular Bank of Asia in America issued the letter of credit. TRUST RECEIPTS The letters of credit usually go hand in hand with trust receipts. The seller thus drew a bill of exchange to collect. PNB has the right to set-off or demand reimbursement with any deposit. It is supposed to be independent of the underlying transaction which gave rise to its issuance. having the said stipulation in the appliaction. To pay for it. Insular Bank refused to pay the entire face amount of the letter of credit. Trust Receipts & Warehouse Receipts) Page 9 of 15 . But now. 7 Stipulation on Bank’s Lien on Applicant’s Property Whenever you apply for any transaction in the bank. The assignee merely stepped into the shoes of the assignor. Bank of America vs. Their remedy would be to run after Philamlife for reimbursement of overpayment. PD 115: Trust Receipts Decree provisions Jack read in class) (p. Bank of America sued the beneficiary to recover. they would have to reimburse the bank. It is not an accessory obligation. I just reproduced the particular Jimenez Transcripts (Code of Commerce. Philamlife.
They failed to export them. They borrowed from a bank and executed a trust receipt over the shells they were intending to export. Vintola Case A couple were involved in exporting Puka Shells. as they were not materials which they manufacture into finished products. The bank was not paid. documents or instruments. Case Philippine Blooming Mills imported some materials and applied for a letter of credit from a bank. it sought to collect payment. here they are.” Untitled Case Client of the bank bought purchased goods. HELD: NO! In a trust receipt transaction. the president signed a trust receipt in favor of the bank. Since we are holding these Puka Shells in trust for you. So they went to the bank and said. in accordance with the terms and conditions specified in the trust receipt. instruments themselves if they are unsold or not otherwise disposed of. Letters of Credit. When the equipment arrived. Should they be able to sell the car. When the bank was not paid.Sec. The President insists that the equipment delivered. No further formality of execution or authentication shall be necessary to the validity of a trust receipt. For instance. who owns or holds absolute title or security interests over certain specified goods.we don’t owe you anymore. within the meaning of this Decree. 4 What Constitutes a Trust Receipt TransactionA trust receipt transaction. Trust receipts are used for both domestic and international transactions. documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods. which were installed in the factory. they will turn over the cars. If not. The borrower cannot compel the bank to accept the Puka Shells as payment. and another person referred to in this Decree as the entrustee. the title really belongs to the trustee. is any transaction by and between a person referred to in this Decree as the entruster. 4 of the Trust Receipts Law says “to sell or otherwise dispose. was not covered by the letter of credit. Sec. The application for credit had nothing to do with the purchases. Jimenez Transcripts (Code of Commerce. help yourselves. HELD: No! The transaction is not covered by the Trust Receipts Law because the bank did not acquire any lien or title to the goods. proceeds shall be used to pay back Filinvest. releases the same to the possession of the entrustee upon the latter’s execution and delivery to the entruster of a signed document called the “trust receipt” wherein the entrustee binds himself to hold the designated goods. The bank filed a criminal case against the president. documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods. Trust Receipts & Warehouse Receipts) Page 10 of 15 . Filinvest will then require the buyer to sign a trust receipt for the cars. It later applied for credit facilities from the bank. Toyota Bel-Air will buy 20 cars from Toyota Motors. The bank required the applicant to sign a trust receipt for the goods which he had purchased. 7 Trust Receipts Used also in Domestic Transactions.” Installation in the factory is a case of “otherwise disposed. whereby the entruster. The bank does not own the Puka Shells. or for other purposes substantially equivalent to anyone of the following: xxx Allied Banking Corp. 3 (j) “Trust Receipt” shall refer to the written or printed document signed by the entrustee in favor of the entruster containing terms and conditions substantially complying with the provisions of the Decree. They were purchased independent of the applicant’s transaction with the bank. This is just a security arrangement. HELD: Covered! Sec. It borrows money from Filinvest to pay.
and the entruster in possession of the goods. Otherwise it will be pactum comissorium. Letters of Credit. sell the goods documents or instruments at public or private sale. Sec. Loss of goods. (5) return the goods. (4) keep said goods or proceeds thereof whether in money or whatever form. at a public sale. The loan was also secured by a real estate mortgage. give notice to the entrustee of the intention to sell. (2) receive the proceeds in trust for the entruster and turn over the same to the entruster or as appears on the trust receipt. documents or instruments which are the subject of a trust receipt . If Toyota Bel-Air sells a car. 10 Liability of entrustee for lossThe risk of loss shall be borne by the entrustee. The borrower opposed the foreclosure.The entruster holding a security interest shall not. Sec. irrespective of whether or not it was due to the fault or negligence of the entrustee. pilferage or other casualties.The entrustee shall: (1) hold the goods. documents or instruments in the event of non-sale or upon demand of the entruster. be responsible as principal or as vendor under any sale or contract to sell made by the entrustee. PNB sought to foreclose the mortgage. Trust Receipts & Warehouse Receipts) Page 11 of 15 . and the entruster may. documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or conditions of the trust receipt or any other agreement between the entruster and the entrustee. Sec. documents or instruments free from the entruster’s security interest. HELD: No! The bank merely has a lien on the goods. become a purchaser. or of documents or instruments through their customary form of transfer. 8 Entruster not responsible on sale by entrustee. theft. acquires said goods. who buys the goods. 12 Validity of entruster’s security interest as against creditors Jimenez Transcripts (Code of Commerce. and may. 7 Rights of the Entruster (par 2) – xxx The entruster may cancel the trust and take possession of the goods. Since the bank has not foreclosed. To realize it. it can still foreclose the real estate mortgage. (3) insure the goods for their total value against loss from fire. payment not having been made. separate and capable of identification as property of the entruster. and it turns out it’s a lemon.Sec. on or after default. Sec. Sec. and (6) observe all other terms and conditions of the trustee not contrary to the provisions of this Decree. not less than five days after serving or sending of such notice. documents or instruments under the terms of the trust receipt transaction. documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt. claiming that PNB already got back the goods. shall not extinguish his obligation to the enruster for the value thereof. it must foreclose. documents or instruments for value and in good faith from the entrustee. pending their disposition. xxx PNB Case PNB repossessed the goods covered by the trust receipt. merely by virtue of such interest or having given the entrustee liberty of sale or other disposition of the goods. the buyer can run after Filinvest(see above example). 11 Rights of purchaser for value and in good faith – Any purchaser of goods from an entrustee with right to sell. documents or instruments may. 9 Obligations of the Entrustee.
3. the person entitled to the delivery under the non-negotiable receipt or who has authority from the person who is entitled to the delivery of the goods. there are two basic obligations of a warehouseman: to deliver the goods and to safeguard the goods. like a lien for storage fees. But don’t worry. WAREHOUSE RECEIPTS LAW (The early part of the lecture was not included in the tape perhaps because the recorder was turned on a little late. Duplicate Copies Now if there are duplicate copies of the warehouse receipt. there’s nothing much to miss. which is usually the case. Now the demand for the delivery of the goods is accompanied by three things: 1. then he will be protected and the receipt will be treated as negotiable. an offer to pay any lien which the warehouseman may have. if it is a negotiable warehouse receipt. Trust Receipts & Warehouse Receipts) Page 12 of 15 . 1. To Deliver the Goods Now. as a rule the warehouseman is required to deliver the goods.The entruster’s 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 duration of the trust receipt agreement. then the person in possession of the receipt So if the warehouseman wrongfully delivers the goods to someone who is not entitled to possession. Jimenez Transcripts (Code of Commerce. then he will be liable for damages to the person lawfully entitled to the delivery. a stipulation that it is not negotiable will be void. Usually they would print in red letters across “NON-NEGOTIABLE” coz if the warehouseman fails to do that and somebody believed in good faith that it was negotiable. then the word “DUPLICATE” shall be plainly worded on the face of the duplicate copies otherwise the person who suffered damages because he bought a duplicate warehouse receipt and it did not indicate that it was a duplicate copy but he thought that it was the original receipt. Letters of Credit. So if it’s a non-negotiable receipt. Now if the warehouse receipt is one where the goods are deliverable to bearer or under. or his agent 2. somebody could claim the goods and deliver the goods again. Obligations of the Warehouseman Now.. and the goods are deliverable to bearer or to order but it was indorsed. It’s all in the handout given to us. Now if it is not negotiable then it must plainly state to be nonnegotiable. 2. Negotiable or Non-Negotiable Warehouse Receipts If the warehouse receipt says it is to be delivered to order or to bearer. then it is negotiable. Now if the warehouseman refuses to deliver the goods then the burden is on him to show that he has a just cause to refuse to deliver the goods. then the person to whom the goods are supposed to be delivered or someone to whom he gave a special power of attorney. well he could sue the warehouseman for damages. an offer to surrender the warehouse receipt if it is negotiable coz otherwise if he does not surrender that and it continues circulating. and 3. a readiness and willingness to sign an acknowledgment that he has received the goods. Now the warehouseman will be discharged from liability if he delivers the goods to the following three people: 1. so. the person lawfully entitled to the goods.
the warehouseman cannot be compelled to deliver the goods. Because if that warehouse receipt. Now if the goods are covered by a negotiable warehouse receipt and the warehouseman delivers the goods without asking for the surrender of the warehouse receipt and that falls into the hands of a buyer in good faith and for value. Trust Receipts & Warehouse Receipts) Page 13 of 15 . you will notice that a warehouse receipt is not like a negotiable instrument. they contained rocks. there are two exceptions: 1. if he acquired title to the goods coz they were transferred to him like if they were covered by negotiable warehouse receipt and the receipt was indorsed to him. if the goods were sold coz they were perishable or hazardous. Again as a rule the warehouseman cannot refuse to deliver the goods on the ground that he owns the goods. and he foreclosed his lien. Now. the warehouseman is still liable but he is liable on the basis of the original terms of the warehouse receipt. Or. Of course. if there is an alteration in the warehouse receipt. a buyer in good faith and for value will be protected and could hold him liable for damages. he should cancel the warehouse receipt and issue a new one for the balance of the goods or indicate on the receipt that there has been a partial delivery. Letters of Credit. then he can file a claim against that bond. Until this is done. Again. 2. he’d be liable for damages to that person. If the warehouse receipt is negotiable and it was lost. Now if it turned out when the crates are opened. made with a fraudulent intent. However. Likewise. even if it was unauthorized. the warehouseman cannot refuse to deliver the goods because a third person is claiming to be entitled to the goods. As a rule. So he must freeze the warehouse receipt by asking that renegotiation be enjoined and/or that the warehouse receipt be surrendered. To Safeguard the Goods Jimenez Transcripts (Code of Commerce. Now to escape liability what he should do is to indicate a statement stating that “the crates are alleged to contain” coz when you say alleged that it is what is alleged but I do not guarantee that they really contain fruits and not rocks. then as I said. or 2. he must first ask that the indorsement or renegotiation be enjoined because it could be negotiated to someone who could take it in good faith and for value. the bailee cannot assert title to the goods entrusted to him. This was asked in the bar exams before: If the warehouse receipt is negotiable. So the injunction there will be in aid of attachment of the goods. the warehouseman will be excused from delivering the goods if the goods were sold earlier to satisfy his lien coz he was not paid the storage fees. which is negotiable was negotiated. Or if he delivered only a part of the goods. However the warehouseman may withhold delivery until he has some reasonable opportunity to investigate the validity of the claim of the third person or to file an action for interpleader. if he fails to comply with this. they are empty or the warehouse receipt says there are crates containing fruits and when they opened.Now as a general rule. to file an action for interpleader. and a creditor wants to levy on the goods. well to get delivery. For instance. time and again. well the warehouseman will be liable if the contents do not correspond to what is in the warehouse receipt. that’s the safest cause of action for him to take. the person who took it in good faith and for value. you have to file a case in court and get a court order ordering the warehouseman to deliver the goods upon proof of the loss of the receipt and posting of a bond to protect the warehouseman from liability because the warehouse receipt is still outstanding. he can assert title to the goods as a ground to refuse to deliver the goods. he has an unpaid lien and he foreclosed his lien and he bought the goods during the auction sale In those two cases.
Trust Receipts & Warehouse Receipts) Page 14 of 15 . and to sign an acknowledgment. Or he refuses to deliver the goods when the person is entitled to the goods because he’s offering to pay the lien. Now the warehouseman refused to deliver the sugar to this pledgee on the ground that since the buyer to pay it in full for the sugar it was still the owner of the sugar. let’s say because of a rain. Notice of the sale must be published once a week for two consecutive weeks in a newspaper of general circulation in the place where the sale will be held. However if the loss was due to a fortuitous event. Then the buyer pledged the sugar to somebody else. So if there is partial loss. If he does not comply with this publication requirement the sale will be void. Loss of Warehouseman’s lien Now a warehouseman may lose his lien. remember the lien is a retaining lien. So another instance where the goods may be sold is when they are perishable or hazardous that they might damage other properties. So you have that PNB case where a sugar central sold the sugar and issued a negotiable warehouse receipt to the buyer. the Japanese burned Manila especially in Ermita. so the warehouseman after notifying the owner to remove the goods and the owner does not do so may sell the goods in public or private sale without need of notice. then the advertisement should be posted in at least six conspicuous places at least ten days before the sale. The fact that the buyer did not pay you does not mean that the buyer did not acquire title. it is presumed that he is at fault. if he surrenders the goods. everybody will share proportionately in the loss. So the warehouseman lost his lien over the sugar. under the law you lose your lien. Now that’s why the court has said the warehouseman may refuse to deliver the sugar covered by a negotiable warehouse receipt if it indicates that he has a claim for storage fees and his claim for storage fees has not been paid. the excess will be given to the person to whom the goods would have been delivered. sacks of rice which were deposited were commingled. Malate. Like during the battle for the liberation of Manila. And the warehouseman must segregate the goods of the different depositors unless they are authorized either by stipulation or by practice or by custom to commingle goods which are fungible. he loses his lien. And if the goods are lost. If he’s unable to sell then he may dispose of them in any manner. And so the loss due to the fire will be due to a fortuitous event. So if the sale pushes through then the warehouseman should deduct the expenses for the sale and apply the balance to the amount he is claiming. to surrender the warehouse receipt. He must give them at least ten days from receipt of the notice to pay. Binondo.Now the second obligation of a warehouseman is the safekeeping of the goods. Letters of Credit. If he is not paid then he may proceed to foreclose his lien. so he may donate them to any charitable institution. then he may commingle them and then each depositor will own on a pro-rata basis a portion of the common mass. but the warehouseman refuses so he loses his lien. some of the sacks were spoiled and damaged. And if there’s any excess. Jimenez Transcripts (Code of Commerce. and because of the rain. Satisfying the Warehouseman’s Lien Now so how does the warehouseman satisfy his lien? Well he will foreclose his lien having notice to the person for whose account he is holding the goods and to any other person who he knows has a claim in the goods. so he can’t claim to have lien for handling fees or for transportation. That’s why the court said in one case where the warehouseman was claiming handling fees but there was no indication in the warehouse receipt that he has a claim for handling fees. The court said that is wrong. he will not be liable. If there is no newspaper in the place. In fact that is also in the Civil Code. obligations and contracts. Warehouseman’s Lien Now a warehouseman has a lien on the goods for all lawful charges but he should indicate in the receipt the charges for which he is claiming a lien. Title passed in the delivery and therefore you do not have a valid excuse for not delivering the goods and when the ground you are invoking for not delivering the goods is not justified.
issued a warehouse receipt for sugar then they sold the sugar and indorsed the negotiable warehouse receipt. These are like the warranties of an indorser in the Negotiable Instruments Law. But if the receipt is negotiable and the goods are deliverable to order. then it becomes deliverable to bearer. Warranties Now a person who negotiates a warehouse receipt warrants certain things. He warrants: 1. But the court said no. Now a negotiable warehouse receipt may be indorsed. he has no knowledge of any fact that will impair the validity of the receipt 4. may be negotiated by the owner of the receipt or by a person to whom he entrusted the possession of the negotiable warehouse receipt. so the transferee can compel the transferor to indorse the warehouse receipt but negotiation will take effect only on the date the indorsement is made. and the owner transferred the receipt without indorsing it. in Makati along Pasig River. That’s why I told you earlier that in this case of PNB this Noah’s Ark. Trust Receipts & Warehouse Receipts) Page 15 of 15 . Now you see a warehouse receipt is not like a negotiable instrument. if the warehouseman does not deliver the goods. Or that the owner was induced by fraud. Under the law even if the negotiation was made because of fraud. Likewise if the goods are covered with a negotiable warehouse receipt. Now if the goods are deliverable to order and was indorsed in blank.Negotiation of Warehouse Receipts Now if the receipt is negotiable like if it is deliverable to bearer. Now if the goods are covered by a negotiable receipt and the owner sold or mortgaged or pledged them twice and he remained in possession of the receipt. the second buyer will be protected. we retain title to the goods so the pledge is not valid. to negotiate it. that he has the right to transfer title to the goods a 5. that he has a legal right to negotiate or to transfer it 3. then you indorse and deliver. And the law says the validity of the negotiation of a warehouse receipt is not impaired by the fact that the negotiation was a breach of duty by the person who negotiated it. If deliverable to order. That is not true in warehouse receipts coz the holder cannot run after the person who indorsed it to him. The buyer now pledged the sugar with PNB as collateral for a loan. the holder can run after the indorsers. Noah’s Ark was claiming that the buyer did not pay us in full. Jimenez Transcripts (Code of Commerce. the holder can’t run after the indorser. Of course with the fault of the first buyer coz he did not get the warehouse receipt. the person to whom it was indorsed would acquire valid title if he acquired it in good faith and for value. if the maker or acceptor does not pay. Now if the warehouse receipt is not negotiable it may be assigned and the assignee will only acquire whatever rights the assignor had. that’s why he was able to sell the receipt a second time or this case of double sale. The person to whom it is negotiated will only acquire whatever title the person indorsing it had. Letters of Credit. it was in such a form as to be negotiable by delivery. In negotiable instruments. it is enough to deliver the receipt. that the receipt is genuine 2. that the goods are merchantable or fit for a particular purpose But a warehouse receipt is not like a negotiable instrument. mistake or duress to entrust the possession of the receipt to such a person if it was negotiated to a person who took it in good faith and for value. if at the time he entrusted it. a lien of the seller as an unpaid seller will not defeat the right of a buyer in good faith and for value.
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