Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.

2014

nation or state, or the buying, selling, and exchange

ALLIED SPECIAL LAWS of goods between members of the same community.
in COMMERCIAL LAW
(Atty. Noel Bolivar Lecture Notes) Article 2. What law should govern the Acts of
Commerce?

Memorize!  Whether those who execute them (the act of

commerce) be merchants or not, and whether
COMMERCIAL / MERCANTILE LAW – is that branch of specified In this Code or not, Acts of Commerce
law relating to the rules that govern rights, obligations should be governed by:
and relations of persons engaged in commerce or trade.
1. The provisions contained in the Code of
Commerce
Sources of Commercial Law:
2. By the usages of Commerce generally
1. Legislation, whether commercial or civil observed in each place; and,
2. Contracts
3. Commercial Usages or customs otherwise
 usages of commerce – law merchant
known as “law merchant”
4. Court Decisions.
3. In the absence of both rules, by those of the
civil law
 Law Merchant – refers to commercial law
consisting of customs, practice and usages
 What are deemed to be Acts of Commerce?
which are given the force and effect of law by
courts through judicial pronouncements.
1. Those acts contained in the Code of
Commerce
2. All others of analogous character
CODE OF COMMERCE
 Acts of Commerce that are still governed by the
Article 1. Who are merchants? Code of Commerce:

 For purposes of the Code of Commerce, 1. Charter Parties

merchants are:
1. Those (individuals or natural persons) who,
having legal capacity (Article 4) to engage in
commerce habitually devote themselves to
it.
 Habituality – in engaging in
commerce is attained where there
exists series of act of commerce or
commercial dealings, that is, there
must be continuity or repetition of
commercial acts.
2. Loans on Bottomry and Respondentia
3. Maritime Protest
4. Joint Accounts
JOINT ACCOUNTS – or “cuentas en participation” is a
juridical relationship which exists when a merchant
interests himself in the transaction of another merchant
contributing thereto, the amount of the capital they may
agree upon and participating in the favourable or
unfavourable results thereof in proportion to what they
may determine. This is sometimes called Joint Venture.

2. The commercial or industrial companies  Joint Accounts vs. Partnership

(juridical persons) which may be created in
accordance with existing legislation. 1. JOINT ACCOUNTS has no juridical
personality whereas PARTNERSHIP has
 For example: juridical personality.

1. BP 68 – Corporations 2. JOINT ACCOUNTS cannot adopt a firm name

2. Civil Code – Partnerships whereas PARTNERSHIP has a firm name.
3. Cooperative Code of the Philippines –
Cooperative
3. JOINT ACCOUNTS has no common fund
whereas PARTNERSHIP has common fund.
 Commerce vs. Trade:

COMMERCE – relates to intercourse or dealing with  Acts of Commerce that are now governed by
foreign nations or states, while TRADE – denotes the Civil Code:
business intercourse within the limitations of a
1. Sales

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2. Partnership
3. Agency
4. Loan
5. Deposit
6. Guarantee
Article 3. When does the legal presumption of habitually
engaging in trade arise?
 From the moment the person who intends to
engage therein announces through circulars,
newspapers, handbills, posters exhibited to the
public, or in any other manner whatsoever, an
establishment which has for its object some
commercial operation.
Article 4. What are the qualifications that must be
possessed by a person so that he may have the legal
capacity to habitually engage in Commerce?
1. Having completed the age of 21 years old.
 Article 234 of the Family Code provides:
“Emancipation takes place by the
attainment of majority. Unless otherwise
provided, majority commences at the age
of 18 years.”
 Article 73 of the Family Code further
provides: “Either spouse may may exercise
any legitimate profession, occupation,
business or activity without the consent of
the other.
 May a person between 18 years old to
below 21 years old engage in commerce?
Under Article 4 of the Code of
Commerce in relation to Article 234 of
the family Code, it would appear that
he is not legally capacitated to
habitually engage in commerce
because of the phrase UNLESS
OTHERWISE PROVIDED in the latter
provision.
However, Article 73 of the
Family Code states that if such person
is married, he may engage in
Commerce. If that is so, the possible
conclusion is that if such person is
single, he cannot habitually engage in
commerce, but if he is married, he can.
It is believed that such person,
married or single, may habitually
engage in Commerce because being
married is not a substantial distinction
that makes difference for purposes of
engaging in Commerce. Moreover, the
latter intent of the law discloses that a
person of legal age is qualified to
engage in Commerce.
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2. Not being subject to the authority of the father
or of the mother nor to marital authority.
3. Having free disposition of the property.
 For instance, that he is not suffering from civil
interdiction.
Article 5. Those under 21 years of age and those
incapacitated may CONTINUE, through their guardians,
the business engaged in by their parents or their
predecessors.
 Under 21 years of age – meaning 18 years of
age.
 Incapacitated – meaning insane or demented
person and deaf-mute who does not know how
to write.
Article 13. Absolute Incapacity.
 Who may not engage in Commerce?
1. Those sentenced to the penalty of civil
interdiction.
2. Those judicially declared bankrupt.
3. Those who, on account of Special Laws, or
Provisions, cannot trade.
 May members of the Civil Service engage in
Commerce?
YES, but only with the consent of their
department head.
 SPECIAL LAWS – The Constitution, Civil Service
Decree, anti-Graft and Corrupt Practice Act (R.A.
3019, as amended) and the Code of Conduct
and Ethical Standards (R.A. 6713)
Article 15. May foreigners and companies (foreign
corporations) engage in Commerce in the Philippines?
YES, subject to the laws of their country with
respect to their capacity to contract, and to the
provisions of this Code as regards the:
1. Creation of their establishment in the Philippine
territory.
2. Their mercantile operations; and,
3. Jurisdiction of Courts of the nation.
Very Important!!!
 Commercial Registries in our Jurisdiction:
 Bureau of Trade Regulation and
Consumer Protection – under the DTI;
registration of business name.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
 Office of the Register of Deeds –
registration of Chattel Mortgages
(except vessels) and real mortgages
and other transactions relative to real
property, such as sales.
 Securities and Exchange Commission –
registration of Partnerships and
Corporations
 Bureau of Customs, Philippine
Coastguard and Marina – registration
of vessels
 Land Transportation Office
registration of motor vehicles.
 Air Transportation Office – registration
of civil aircrafts
 National Library – registration of
copyrights.
 Intellectual Property Office –
registration of Patents and designs,
trademarks, trade names and service
marks.
 Board of Investments – registration of
pioneer industries, enterprises
 Office of the Municipal Treasurer –
registration of brands of large cattle
(municipality where owner is a
resident) and issuance of certificates of
transfer (municipality where contract of
sale is made and consummated by the
delivery of the cattle).
Article 33. What should merchants keep?
1. Book of inventories and balances at the end of
the taxable period.
2. Journal
3. Ledger
4. Book/s for copies of letters and telegrams
5. Other books (such as stock and transfer book)
which may be registered by special laws
(example: Corporation Code and NIRC)
Article 48. What are the rules to be observed in order to
measure the probative force of the books of merchant?
1. The book of merchants shall be evidence against
themselves, no proof to the contrary being
admissible; but the adverse party cannot accept
2014
the entries which may be favourable to him and
reject those which may prejudice him.
2. If there should be conflict in the entries of the
books kept by two merchants, and those of one
should have been kept with all the formalities
and those of the other should suffer from any
defect or should lack the requisites prescribed
by this Code, the entries of the books properly
kept shall be admitted against those of the
defective one.
3. If one of the merchants should not present his
books or should manifest that he does not have
them, those of his adversary, kept with all the
legal formalities shall be admitted against him
–
(one of the merchants).
Article 49. For how long should merchants keep their
books?
During all the time that the business may last
and for five (5) years after the liquidation of all their
business and commercial affairs.
Important!!!
Under the NIRC, all books of accounts must be
preserved for a period (3 years or 10 years, as the case
may be) beginning from the last entry in each book, until
the last day prescribed within which CIR is authorized to
make a tax assessment.
Important!!!
Article 51. Should commercial contracts be in a certain
form to be valid?
NO. Commercial Contracts shall be valid in
whatever form (oral or written) and language in which
they may be executed.
Important!!!
Article 52. Are there exceptions to the immediately
preceding rules (that Commercial Contracts shall be valid
in whatever form they may be executed)?
YES, those:
1. Contracts which must be reduced into writing or
require forms or formalities necessary for their
efficacy.
 Examples of Contracts which must be
reduced into writing:
1. Contract of Loan with interest must
be in writing in order that the interest
may be demandable.
2. Agency to sell a piece of land
belonging to the principal, if the SPA of
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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
the agent is oral, the contract of sale
which he may enter into with a 3rd
person is void.
3. Limited Partnership
4. Partnership where real property is
contributed
5. Contract of Antichresis
6. Proxy under B.P. 68
2. Contracts executed in a foreign country in which
the law requires certain instruments, forms or
formalities for their validity, although Philippine
law does not require them.
Article 54. When are contracts entered into by
correspondence perfected?
From the moment the answer (even if such
acceptance is not yet known to the offeror) is made
accepting the offer or the conditions by which the latter
may be modified.
Article 55. In contracts in which an agent or broker
intervenes, when are they considered perfected?
When the contracting parties shall have
accepted the agent’s offer.
Memorize!
Article 567. What are the so called Letters of Credit?
Those issued by one merchant (the drawer of
the letter of credit which is usually a bank, and is known
as the issuing bank) to another (the addressee of the
letter of credit which is usually a bank which makes the
advance of money, and is known as the correspondent
bank or confirming bank) for the purpose of attending to
a commercial transaction (such as importation of goods).
 Example:
A, who is engaged in import-export
business, is intending to purchase goods from D,
A’s supplier from California, USA at a cost of
$100,000.00, but he has no available funds at
that time. A applied a loan from B, A’s
depositary bank in the Philippines, and the latter
issued a letter of credit addressed to C, a bank in
California, USA as follows:
To C:
Pay to D the amount of
$100,000.00 upon your receipt of the
goods from the latter and ship them to
us immediately thereafter.
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We will pay you the said
$100,000.00 including your interest and
shipping cost of the goods as soon as
we receive them in the Philippines.
(Sgd) B
In this example, A is the applicant of
the letter of credit/importer/buyer; B is the
drawer or issuer of the letter of credit or the
issuing bank; C is the addressee of the letter of
credit or the correspondent or confirming bank;
and, D id the beneficiary of the letter of
credit/exporter/seller.
Article 568. What are the essential conditions of letters
of credit?
The essential conditions (or requisites) of letters
of credit are:
1. Issued in favor of a definite person (the
beneficiary of the letter of credit/ seller/
exporter) and NOT to order (as a rule, letters of
credit are non-negotiable instrument, but
modern letters of credit may be issued as
negotiable).
2. Limited to a fixed and specified amount or to
one or more undetermined amounts, but within
a maximum, the limits of which has to be stated
exactly.
Article 569. To what extent is the drawer (issuing bank)
of a letter of credit liable to the person on whom it was
issued (addressee or correspondent or confirming bank)?
For the amount paid by virtue of the letter of
credit and within the maximum fixed therein.
 Letters of Credit may not be protested even
should they not be paid (or honored by the
addressee because letter of credit is issued
merely for accommodation) nor shall the bearer
(applicant/ importer/ buyer, because he is
merely an accommodated party) thereof acquire
any right of action by reason of such non-
payment against the person (drawer/ issuing
bank) who issued them.
 The person paying (addressee/ respondent/
confirming bank) shall have the right to demand
the proof of the identity of the person
(beneficiary/ exporter/ seller) in whose favor the
letter of credit was issued.
Important!!!
Article 570. The drawer of a letter of credit may annul (or
cancel) it, informing the bearer and the person to whom
it is addressed of such revocation. [REVOCABILITY OF
LETTER OF CREDIT]
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

 Annul or cancel – such as when the applicant is

already insolvent.

Article 571. The bearer of a letter of credit shall pay the

amount received (by the bearer from the buyer/s of the
imported goods in the Philippines) to the drawer without
delay (in accordance with the agreement contained in the
trust receipt).

Article 572. When is a letter of credit considered VOID in

fact and in law?

If the bearer of a letter of credit does not make

use thereof within the period agreed upon with the
drawer, or in default of a period fixed, within six (6)
months counted from its date, in any point in the
Philippines and within twelve (12) months outside
thereof.

 Letters of Credit under the Code of Commerce,

however, are NOT negotiable instruments being
issued in favor of a specified person and not to
order nor to bearer.

 Definition of Terms:

 Irrevocable letter of credit – means

that the issuing bank may not, without
the consent of the beneficiary (seller)
and the applicant (buyer), revoke his
undertaking under the letter.

 Confirmed letter of credit – pertains to

the kind of obligation assumed by the
correspondent bank, where the latter
gives absolute assurance to the
beneficiary that it will undertake the
issuing bank’s obligation as its own
according to the terms and conditions
of credit.

 Notifying Bank – is a correspondent

bank which assumes no liability except
to notify the beneficiary of the
existence of the letter of credit.

 Negotiating Bank – is a correspondent

bank which buys or discounts a draft
under the letter of credit.

 Confirming Bank – is a correspondent

bank which assumes direct obligation
to the seller and its liability is primary
as if the correspondent bank itself had
issued the letter of credit.

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TRUST RECEIPTS LAW
P.D. No. 115
 Purposes of the Law:
a. To encourage and promote the use of the
trust receipts as additional and convenient
aid to commerce and trade.
b. To provide for the regulation of trust
receipt transactions in order to assure the
protection of the rights and the
enforcement of obligations of the parties
involved therein.
c. To declare misuse and/or misappropriation
of goods or proceeds realized from the sale
of goods, documents or instruments
released under trust receipts as criminal
offense (swindling or estafa).
 Definition of Terms:
 Document – written or printed
evidence of title to goods such as
warehouse receipts, bill of lading,
quedan and dock warrant.
 Entrustee – the person having or taking
possession of the goods, documents or
instruments (such as promissory notes,
certificates of deposit, bond certificate
and certificate of stock) under a trust
receipt transaction.
 Entrustor – the person holding title
(beneficial title) over the goods,
documents, instruments subject of a
trust receipt transaction.
 Instrument – means any negotiable
instrument defined in the NIL; any
certificate of stock, or bond or
debenture or any certificate of deposit,
participation certificate or receipt, any
credit or investment instrument
whereby the entrustees, after the
issuance of the trust receipt, appears
by virtue of possession and the face of
the instrument to be the owner (legal
owner).
 Security Interest (or beneficial
interest) – a property interest in goods
(such as imported goods), documents
or instruments to secure performance
of some obligations of the entrustee or
of some third persons to the entruster.
Memorize!
Trust Receipt – the written or printed document signed
by the entrustee in favor of the entruster containing
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terms and conditions substantially complying with the
provisions of this Decree.
Important!!!
 What constitutes a trust receipt transaction?
Any transaction by and between the
entruster and the entrustee whereby the
entruster who owns or holds beneficial title or
security interests over certain specified goods,
documents or instruments, releases the same to
the possession of the entrustee upon the
latter’s execution and delivery to entruster of a
signed document called the “trust receipt”
wherein the entrustee binds himself to hold the
designated goods, 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, instruments
themselves if they are unsold or not otherwise
disposed of, in accordance with the terms and
conditions specified in the trust receipt.
 In the case of goods delivered under trust
receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster
shall retain his title over the goods whether in
its original or processed form until the entrustee
has complied fully with his obligation under the
trust receipt.
 Note: Transactions of traders and dealers in
securities are NOT trust receipt transactions.
 The sale of goods, documents or instruments by
a person in the business of selling goods,
documents or instruments for profit, who at the
outset of the transaction, has, against the buyer,
general property rights in such goods, document
or instruments, or who sells the same to the
buyer on credit, retaining title or other interest
as security for the payment of the purchase
price, does NOT constitute a trust receipt
transaction and is outside the purview and
coverage of this Decree.
 Trust Receipt – specifically applied to a written
instrument whereby a banker (entrustee) having
advanced money for purchase of imported
merchandise and having taken title in his own
name, delivers possession to an importer on
agreement in writing to hold the merchandise in
trust for the banker till he is paid.
 By this arrangement (of trust receipt), a banker
advances money to an intending importer and
thereby lends the aid of capital, of credit, or of
business facilities and agencies abroad, to the
enterprise of foreign commerce. Much of this
trade could hardly be carried on by any other
means, and therefore, it is of the first
importance that the fundamental factor in the
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
transaction, the banker’s advance of money and
credit, would receive the amplest protection.
 Beneficial title vested in entruster.
Accordingly, in order to secure that the
banker shall be repaid at the critical point – that
is, when the imported goods finally reach the
hands of the intended vendee – the banker
takes the beneficial title to the goods at the very
beginning.
A trust receipt is thus considered a
security transaction intended to aid in financing
importers and retail dealers who do not have
sufficient funds or resources to finance the
importation or purchase of merchandise and
who may not be able to acquire credit except
through utilization, as collaterals, of the
merchandise imported or purchased.
Memorize!
 Entruster remains a lender or creditor.
The entruster des not become the real
owner of the goods. It is merely the holder of a
security title for the advances it had made to the
importer. The goods the importer had
purchased, through the bank financing, remain
the importer’s property and he holds it at his
own risk.
If under the trust receipt, the bank is
made to appear as the owner, it is but artificial
expedient, more of a legal fiction than fact, for if
it were so, it could dispose of the goods in any
manner it wants, which it cannot do, just to give
consistency with the purpose of the trust receipt
of giving a stronger security for the loan
obtained by the importer. To consider the bank
as the true owner form the inception of the
transaction would be to disregard the loan
feature involved.
Memorize!
 Letters of Credit – trust receipt arrangement.
A bank extends to a borrower a loan
covered by the letter of credit with the trust
receipt as a security for the loan. In other words,
the transaction involves a loan feature
represented by the letter of credit and a security
feature which is in the covering trust receipt.
 Form and Contents of trust receipts
A trust receipt need NOT be in any
particular form, but every such receipt must
substantially contain:
a. A description of the goods, documents or
instruments, subject of the trust receipt.
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b. To dispose of them in the manner provided
for the trust receipt; and,
c. To turn over the proceeds of the sale of the
goods, documents or instruments to the
entruster or as appears in the trust receipt
or to return the goods, documents or
instruments in the event of their non-sale.
 Currency in which a trust receipt may be
denominated.
A trust receipt may be denominated in
Philippine Currency or any foreign currency
acceptable and eligible as part of international
reserves of the Philippines.
 Right of the Entruster
The entruster shall be entitled to the
proceeds from the sale of the goods, documents
or instruments released under a trust receipt to
the entrustee to the extent of the amount
owing to the entruster or appears in the trust
receipt, or to the return of the goods,
documents or instruments in case of non-sale.
The entruster may cancel the trust and
re-take possession of the goods, instruments or
documents subject to the trust or the proceeds
realized therefrom at any time upon default or
failure of the entrustee to comply with any of
the terms and conditions of the trust receipt
and the entruster in possession of the goods,
documents or instruments may, on or after
default, give notice to the entrustee of the
intention to sell.
The entrustee shall receive any surplus
but shall be liable to the entruster for any
deficiency.
 Entruster NOT responsible on sale by
entrustee.
The entruster holding a security
interest shall not be responsible (such as for
branch of warranty against hidden defects) as
principal or as vendor under any sale or contract
to sell made by the entrustee.
Very Very Important!!!
 Liability of entrustee for loss.
The risks of loss shall be borne by the
entrustee. Loss of goods, documents or
instruments which are the subject of a trust
receipt, pending their disposition, irrespective of
whether or not it was due to the fault or
negligence of the entrustee, shall not extinguish
his obligation to the entruster for the value
thereof.
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 Right of Purchaser for value and in good faith.

Any purchaser of goods from an

entrustee with right to sell, or of documents or
instruments through their customary form of
transfer, who buys the goods, documents or
instruments for value and in good faith form the
entrustee, acquires said goods, documents or
instruments free from the entruster’s security
interest.

If the entrustee fails to remit the

proceeds to the entruster, the latter has no right
of action against the purchaser.

 Validity of the entrustee’s security interest as

against creditors.

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.

The entruster is a preferred creditor as

against the other creditors of the entrustee.

 Penalty Clause

The failure of the entrustee to turn

over the proceeds of the sale of the goods,
documents or instruments covered by a trust
receipt or to return said goods, documents or
instruments if they were not sold or disposed of
in accordance with the terms of the trust receipt
shall constitute the crime of estafa (RPC, Article
315 [1]b).

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
BULK SALES LAW
(as amended)
Act No. 3952
Bulk Sales Law – is a law which provides that the sale of
all or any portion of the stock of merchandise other than
in the ordinary course of trade or business shall be
fraudulent and void against the creditors of the seller
unless the seller delivers to the buyer a list of the
former’s creditors and the buyer, in turn, notifies such
creditors of the proposed sale.
The REASON for this is because when a
merchant sells all of his merchandise as goods, the result
is that he will close or stop his business and his creditors
may not be paid of the claims against the merchant.
 Purpose of the Bulk Sales Law
To prevent the secret or fraudulent sale or
conveyance of goods in bulk until the creditors of the
seller shall have been paid in full.
 Sales of goods in bulk which are exempt from
the coverage of this law, hence, are valid:
1. Sale by a vendor who is an executor,
administrator, receiver or assignee in
insolvency by a public officer acting under
judicial process.
2. Sale by a vendor who produces and delivers
to the buyer a written waiver of the
provisions of this law from his creditors.
3. If the sale refers to properties exempt from
attachment or execution.
 What is/ are deemed to be sale and transfer in
bulk?
Under Section 2 of this law, the following acts
are deemed to be a sale and transfer in bulk:
1. Any sale of a stock of goods otherwise than
in ordinary cause of trade and the regular
prosecution of the business of the vendor.
2. Any sale of all or substantially all, of the
business or trade, theretofore conducted by
the vendor.
3. Any sale of all, or subsequently all, of the
fixtures and equipment used in and about
the business of the vendor.
 If such vendor produces (the written waiver
comes from the creditors of the seller and the
latter shall deliver it to the buyer of the goods in
bulk) and delivers (to the buyer) a written waiver
of the provisions of this Act from his creditors
as shown by verified statements (Section 3 of
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this Act), then the provisions of this Section shall
not apply (meaning, the sale in bulk is VALID).
 Statement of Creditors (Section 3)
It shall be the duty of every person who
shall sell any stock of goods in bulk, before
receiving from the vendee any part of the
purchase price, to deliver such vendee a written
statement, sworn to substantially of the names
and addresses of all creditors to whom said
vendor may be indebted, together with the
amount of indebtedness due or owing, or to
become due or owing by said vendor to each of
said creditors.
 Note: If the seller does not comply with this
requirement, the sale shall be fraudulent and
valid and shall make him criminally liable.
 Fraudulent and void sale, transfer or mortgage
(Section 4)
Whenever any person shall sell,
mortgage, transfer, or assign any stock of goods,
wares, merchandise, provisions or materials, in
bulk, for cash or on credit, and shall receive any
part of the purchase price, or any promissory
note, or other evidence of indebtedness for said
purchase price or advance upon mortgage,
without having first delivered to the vendee or
mortgagee or to his or its agent or
representative, the sworn statement provided
for in section three hereof, and without applying
the purchase or mortgage money of the said
property to the pro rata payment of the bona
fide claim or claims of the creditors of the
vendor or mortgagor, as shown upon such
sworn statement, he shall be deemed to have
violated this Act, and any such sale, transfer or
mortgage shall be fraudulent and void (good
faith on the part of the buyer is immaterial).
 Inventory (Section 5)
It shall be the duty of every vendor,
transferor, mortgagor, or assignor, at least ten
days before the sale, transfer or execution of a
mortgage upon any stock of goods, wares,
merchandise, provisions or materials, in bulk, to
make a full detailed inventory thereof and to
preserve the same showing the quantity and, so
far as is possible with the exercise of reasonable
diligence, the cost price to the vendor,
transferor, mortgagor or assignor of each article
to be included in the sale, transfer or mortgage,
and notify every creditor whose name and
address is set forth in the verified statement of
the vendor, transferor, mortgagor, or assignor,
at least ten days before transferring possession
thereof (goods involved).
 Note: Non-compliance of their requirement will
result to criminal liability of the vendor.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

 Any vendor, transferor, mortgagor or assignor of

any stock of goods, wares, merchandise,
provisions or materials, in bulk, or any person
acting for, or on behalf of any such vendor,
transferor, mortgagor, or assignor, who shall
knowingly or wilfully make, or deliver or cause
to be made or delivered, a statement, as
provided for in section three hereof, which shall
not include the names of all such creditors, with
the correct amount due and to become due to
each of them, or shall contain any false or
untrue statement, shall be deemed to have
violated the provisions of this Act.

 Note: Non-compliance with this requirement

shall make the vendor criminally liable but the
sale is valid.

 It shall be unlawful for any person, firm or

corporation, as owner of any stock of goods,
wares, merchandise, provisions or materials, in
bulk, to transfer title to the same without
consideration or for a nominal consideration
only.

 The sworn statement containing the names and

addresses of all creditors of the vendor shall be
registered in the Bureau of Trade Regulation
and Consumer Protection of the DTI.

 Any person violating any provision of this Act

shall, upon conviction thereof, be punished by
imprisonment not less than six months, nor
more than five years, or fined in sum not
exceeding five thousand pesos, or both such
imprisonment and fine, in the discretion of the
court.

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

THE WAREHOUSE RECEIPTS LAW g. Signature of the warehouseman;

(as amended)
Act No. 2137 h. If the receipt is issued for goods of which the
warehouseman is owner, the fact of such
 Questions and Answers: ownership;

1. Is a warehouse receipt a negotiable  It is possible that although the

instrument? warehouseman is the owner of the
goods stored in his warehouse, he
NO, because it does not contain an issues a warehouse receipt in his favor
unconditional promise or order to pay a so that if he needs money, he can easily
sum certain in money. What it contains is negotiate the receipt without
an undertaking to deliver the goods delivering the goods to the person in
described therein. whose favor he negotiates the receipts.

2. Is a warehouse receipt a document of title?

i. Amount of advances (made by the
warehouseman such as for freight and handling
YES, warehouse receipt is one of
cost not yet paid by the owner of the goods)
the documents of title to goods
made and of liabilities incurred (in favor of third
enumerated under Article 1636 of the New
persons such as coopering cost) for which the
Civil Code.
warehouseman claims a lien;
3. Is a warehouse receipt a negotiable
 A warehouseman shall be liable to any person
document of title?
injured thereby, for all damages caused by the
omission from a negotiable receipt of any terms
IT DEPENDS. If the goods described
herein required.
in the warehouse receipt are deliverable to
bearer or order of a specified person or to a
 The omission of the essential terms enumerated
specified person or his order, the
above will not affect the validity of the
warehouse receipt is negotiable. It the
warehouse receipt without prejudice to
goods described in the warehouse receipt
whatever damages third person may suffer by
are deliverable to a specified person, it is
reason of the omission.
NOT a negotiable document of title.

 Warehousemen – a person lawfully engaged in

Non-negotiable Receipt – a receipt in which it is stated
the business of storing goods for profit.
that the goods received will be delivered to the depositor
or to any other specified person (Section 4).
 Warehouse – means every building, structure,
or other protected inclosure in which
commodity is kept for storage.
Negotiable Receipt – a receipt in which it is stated that
the goods received will be delivered to the bearer or to
the order of any person named in such receipt (Section
Section 2. Essential terms (or basic contents) of
5).
warehouse receipts:

 Warehouse receipts need NOT be in any

Important!!!
particular form but every such receipt must
embody within its written or printed terms:
Section 6. Duplicate receipts must be so marked.
a. The location (address) of the warehouse;
When more than one negotiable receipt (two or
more negotiable receipt issued on different dates
b. The date of issue of the receipt;
covering the same goods not two or more copies of the
same receipt) is issued for the same goods, the word
c. number of receipt;
“duplicate” shall be plainly placed upon the face of every
such receipt, except the one first issued.
d. A statement whether the goods received will be
delivered to the bearer (negotiable), to a
A warehouseman shall be liable for all damages
specified person (non-negotiable), or to a
(monetary because the warehouseman cannot deliver the
specified person or his order or to the order of a
goods to two or more persons) caused by his failure to do
specified person (negotiable).
so to anyone who purchased the subsequent receipt for
value supposing it to be an original, even though the
e. The rate (amount) of storage charges; purchase be after the delivery of the goods by the
warehouseman to the holder of the original receipt.
f. Description of the goods;

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Important!!!
Section 7. What is the effect of the warehouseman’s
failure to mark the receipt as non-negotiable (or not
negotiable)?
A non-negotiable receipt shall have plainly
placed upon its face by the warehouseman issuing it
“non-negotiable”, or “not negotiable”.
In case of the warehouseman’s failure so to do,
a holder of receipt who purchased it for value supposing
it to be negotiable, may, at his option, treat such receipt
as imposing upon the warehouseman the same liabilities
(the holder can compel the warehouseman to deliver to
him the goods even if the receipt is non-negotiable) he
would have incurred had the receipt been negotiable.
Very Important!!!
Section 8. When is the warehouseman obliged to deliver
the goods?
A warehouseman is bound to deliver the goods
upon a demand made either by the holder (in the case of
negotiable warehouse receipt) of a receipt for the goods
or by the depositor (in the case of non-negotiable
warehouse receipt), if such demand is accompanied with:
a. An offer to satisfy the warehouseman’s lien
(advances made, liabilities incurred and storage
charges)
b. An offer to surrender the receipt, if negotiable,
with such indorsements as would be necessary
(order negotiable warehouse receipt) for the
negotiation of the receipt; and,
c. A readiness to sign, when the goods are
delivered, an acknowledgment that they have
been delivered, if such signature is requested by
the warehouseman.
 The warehouseman will be criminally liable if he
delivers the goods without obtaining possession
of the receipt.
Very Important!!!
Section 9. To whom is the warehouseman justified
(meaning, the warehouseman cannot be held liable for
misdelivery) in delivering the goods?
a. to the person (such as done, attaching creditor,
person to whom the court awarded the goods such
as under Sections 14 and 18) lawfully entitled to the
possession of the goods;
b. to a person (depositor) who is either himself entitled
to delivery by the terms of a non-negotiable receipt
issued for the goods or who (agent) has written
authority (Special Power of Attorney) from the
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person so entitled, either indorsed upon the receipt
or written upon another paper;
c. to a person in possession of a negotiable receipt by
the terms of which the goods are deliverable to him
or order, or bearer, or which has been endorsed to
him.
 Instances where written Special Power of
Attorney is required by law to be in writing:
1. When the agent is authorized by the
depositor or goods who is a holder of a non-
negotiable warehouse receipt;
2. Proxy under BP 68;
3. Authority of the resident agent of a foreign
corporation under BP 68;
4. Authority of an agent to sell a piece of land
belonging to his principal,
Important!!!
Section 10. What is the warehouseman’s liability in case
of misdelivery (or for “conversion”) of the goods?
Where a warehouseman delivers the goods to
one who is not in fact lawfully entitled to the possession
of them (such as the depositor who allegedly lost the
receipt when in fact he negotiated it to another person),
the warehouseman shall be liable as for conversion to all
having a right of property or possession in the goods if he
delivered the goods otherwise than as authorized by
subdivisions (b) and (c) of the preceding section, and
though he delivered the goods as authorized by said
subdivisions, he shall be so liable, if prior to such delivery
he had either:
(a) Been requested, by or on behalf of the person
lawfully entitled to a right of property or
possession in the goods, not to make such
deliver; or
(b) Had information that the delivery about to be
made was to one not lawfully entitled to the
possession of the goods.
Section 11. What is the effect of the warehouseman’s
failure to cancel the receipt upon delivery of the goods?
Except as provided in section thirty-six
(perishable or hazardous goods), where a warehouseman
delivers goods for which he had issued a negotiable
receipt and fails to take up and cancel the receipt, he
shall be liable (for the damage representing the value of
the goods without prejudice to his criminal liability under
Section 54) to anyone who purchases for value in good
faith such receipt, for failure to deliver the goods to him,
whether such purchaser acquired title to the receipt
before or after the delivery (to the person who did not
surrender the warehouse receipt) of the goods by the
warehouseman.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
 The above provisions are NOT applicable to non-
negotiable receipts because the warehouseman
may make delivery without requiring their
surrender and cancellation; Provided, the
depositor or his agent signs an acknowledgment
receipt of such delivery. The reason for this is
that the goods may only be delivered or
released by the warehouseman to the depositor
or his agent, hence, the receipt cannot be
negotiated to a third person so that the
warehouseman will not incur any liability for
misdelivery.
Section 13. What is the effect of alteration of a receipt?
The alteration of a receipt shall NOT excuse the
warehouseman who issued it from any liability if such
alteration was:
(a) Immaterial,
(b) Authorized (by the warehouseman), or
(c) Made without fraudulent intent.
Important!!!
Material and fraudulent alteration (such as
increasing the quantity of the goods) of a receipt shall
not excuse the warehouseman who issued it from
liability to deliver according to the terms of the receipt as
originally issued, the goods for which it was issued but
shall excuse him from any other liability to the person
who made the alteration. Any purchaser of the receipt
for value without notice of the alteration shall acquire
the same rights against the warehouseman which such
purchaser (he can claim the difference from the person
who made the alteration) would have acquired if the
receipt had not been altered at the time of purchase.
 If the alteration is material and fraudulently
made, the warehouseman is liable (to deliver
the goods) according to the original tenor of the
receipt to a purchaser of the receipt for value
without notice, and even to the alterer and
subsequent purchasers with notice except that
as regards to the last two, the warehouseman’s
liability is limited only to delivery as he is
excused from any other liability.
Important!!!
Section 14. What are the remedies available in case the
receipts are lost or destroyed?
Where a negotiable receipt has been lost or
destroyed, a court of competent jurisdiction may order
the delivery of the goods upon satisfactory proof of such
loss or destruction and upon the giving of a bond (by the
person who demands the release or delivery of the goods)
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with sufficient sureties to be approved by the court to
protect the warehouseman from any liability or expense,
which he or any person injured by such delivery may
incur by reason of the original receipt remaining
outstanding.
The delivery of the goods under an order of the
court shall not relieve the warehouseman from liability
(to pay the value of the goods and the bond shall answer
for their liability) to a person to whom the negotiable
receipt has been or shall be negotiated for value without
notice of the proceedings or of the delivery of the goods.
Section 15. What is the effect of duplicate receipts?
A receipt upon the face of which the word
"duplicate" is plainly placed is a representation and
warranty by the warehouseman that such receipt is an
accurate copy of an original receipt properly issued and
uncancelled at the date of the issue of the duplicate, but
shall impose upon him no other liability.
 Question: A deposited his goods in the
warehouse of B and the latter issued a
negotiable warehouse receipt in favor of B. Two
days later, A sold the goods to B but the latter
failed to demand from the former, the
surrender of the warehouse receipt. One week
later, A negotiated the negotiable warehouse
receipt to C and the latter paid the former for
the value of the goods without knowledge that
the goods represented by the negotiable
warehouse receipt was already sold by A to B.
Two days later, C demanded from B the release
of the goods but B refused on the ground that
he already derived title over the goods because
A sold them to him. Is B correct?
Answer: B is NOT correct because under the
law, the warehouseman is obliged to deliver the
goods to the person who can present or
surrender the negotiable warehouse receipt.
 The warehouseman may NOT be compelled to
deliver the goods by virtue of the duplicate only
unless the procedure provided for in Section 14
is followed.
Section 16. Can the warehouseman set up title in
himself?
GENERAL RULE: No title or right to the possession of the
goods, on the part of the warehouseman, shall excuse
him from liability for refusing to deliver the goods
according to the terms of the receipt.
EXCEPTION: If such title or right is derived directly or
indirectly:
1. from a transfer made by the depositor (in favor
of the warehouseman) at the time of or
subsequent to the deposit for storage; or,
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
 if the depositor transferred his title to
the goods to the warehouseman after
the issuance of the negotiable
warehouse receipt, the latter must
retake possession of the negotiable
warehouse receipt he issued to the
depositor so that he will be excused
from liability for refusing to deliver the
goods)
2. from the warehouseman's lien (the
warehouseman cannot be compelled to deliver
the goods until his lien, such as storage charges,
is fully satisfied).
Important!!!
Section 17. What is the remedy available in case two or
more persons claim title or possession over the goods?
If more than one person claims the title or
possession of the goods, the warehouseman may, either
as a defense to an action brought against him for non-
delivery of the goods or as an original suit
(warehouseman will file a complaint in interpleader),
whichever is appropriate, require all known claimants to
interplead.
Section 18. When is the warehouseman excused from
liability for refusing to deliver the goods in cases where
another person, other than the depositor, is claiming
under the latter (depositor)?
If someone (such as donee or attaching creditor
or any other adverse claimant) other than the depositor
or person (such as endorsee of an order negotiable
warehouse receipt or bearer of a bearer negotiable
warehouse receipt) claiming under him (depositor) has a
claim to the title or possession of goods, and the
warehouseman has information of such claim, the
warehouseman shall be excused from liability for
refusing to deliver the goods until the warehouseman
has had a reasonable time to ascertain the validity of the
conflicting claim or to bring legal proceedings to compel
claimants to interplead.
 What are the duties of the warehouseman in
case there are several claimants to the goods?
1. He must determine, within a reasonable
time, the validity to the conflicting claims
and delver to the person whom he finds is
entitled to the possession of the goods, OR
2. For his own protection, he must file a
complaint in interpleader and require the
different claimants to litigate among
themselves. In such case, the
warehouseman will be relieved from
liability in delivering the goods to the
person whom the court finds to have a
better right.
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Section 20. What is the liability of the warehouseman in
case of non-existence or misdescription of goods?
A warehouseman shall be liable to the holder of
a receipt for damages caused by the non-existence of the
goods or by the failure of the goods to correspond with
the description thereof in the receipt at the time of its
issue.
Section 21. Can the warehouseman be held liable for any
loss or injury to the goods? Yes.
A warehouseman shall be liable for any loss or
injury to the goods caused by his failure to exercise such
care in regard to them as reasonably careful owner
(ordinary diligence) of similar goods would exercise, but
he shall not be liable, in the absence of an agreement to
the contrary, for any loss or injury to the goods which
could not have been avoided (fortuitous event) by the
exercise of such care.
Very Very Important!!!
BAR FAVORITE
Section 25. When can there be an attachment or levy
upon the goods for which a negotiable receipt has been
issued?
If goods are delivered to a warehouseman by
the owner or by a person (agent) whose act would bind
the owner, and a negotiable receipt (if the receipt is non-
negotiable, the goods are subject to attachment or
execution because no third person can be prejudiced
thereby and because of Section 42) is issued for them,
they (the goods, because the negotiable warehouse
receipt itself is subject to attachment under Article 26)
cannot thereafter, while in the possession of the
warehouseman, be attached by garnishment or
otherwise (such as replevin), or be levied upon under an
execution unless the receipt be first surrendered to the
warehouseman or its negotiation enjoined (by the Court).
The warehouseman shall in no case be compelled to
deliver the actual possession of the goods until the
receipt is surrendered to him or impounded by the court.
 Example:
A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt in favor
of the former. A is indebted to C and C filed a collection
case against A, and the Court issued judgement ordering
A to pay C. The sheriff demanded payment from A but
the latter had no money. C informed the sheriff that A
owns goods stored in the warehouse of B.
1. Can the sheriff compel B to release the goods of
A to him (sheriff)?
NO, the goods covered by a negotiable
warehouse receipt are exempt from execution.
2. C filed a motion for the issuance of writ of
injunction to prohibit the negotiation of the
negotiable warehouse receipt which is in A’s
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
possession and the Court granted the motion
and issued the appropriate writ of injunction.
The sheriff presented to B the writ of injunction
and demanded the release of goods but B
refused to release the goods. Is B correct?
YES, the warehouseman shall in no case
be compelled to deliver actual possession of the
goods until the surrender of the receipt to him.
3. What should C do in order that the
warehouseman be compelled to release the
goods?
C must file a motion to impound the
negotiable warehouse receipt, which means to
order A to surrender the negotiable warehouse
receipt to the Court.
Section 26. What are the creditor’s remedies in reaching
negotiable receipts?
A creditor whose debtor is the owner of a
negotiable receipt shall be entitled to such aid from
courts, by injunction and otherwise, in attaching such
receipt (the negotiable warehouse receipt itself is subject
to attachment but NOT the goods) or in satisfying the
claim by means thereof (by filing a collection case and
attach then the negotiable warehouse receipt and then
sell at public auction the goods covered by such receipt)
as is allowed at law or in equity.
Section 27. (Here the receipt is non-negotiable) What are
the claims included the warehouseman’s lien?
Subject to the provisions of section thirty (the
receipt is negotiable), a warehouseman shall have a lien
on goods deposited or on the proceeds thereof in his
hands (in the case of perishable goods), for all:
1. lawful charges for storage and preservation of
the goods;
2. lawful claims for money advanced, interest,
insurance, transportation, labor, weighing,
coopering and other charges and expenses in
relation to such goods
3. reasonable charges and expenses for notice, and
advertisements of sale
 When the goods are covered by a non-
negotiable warehouse receipt, the lien of the
warehouseman are for storage charges,
advances, liabilities and expenses for
advertisement and sale even if they are not
stated or enumerated in the warehouse receipt.
 If the goods are covered by negotiable
warehouse receipt, the lien of the
warehouseman are for storage, charges, etc.
which must be stated or enumerated in the
negotiable warehouse receipt.
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Important!!!
Section 30. What are the liens of the warehouseman
when the goods are covered by negotiable warehouse
receipt?
If a negotiable receipt is issued for goods, the
warehouseman shall have no lien thereon except for:
1. charges for storage expressly enumerated
2. other charges
 When goods are covered by a negotiable
warehouse receipt, the storage charges and
other charges must be stated and or
enumerated on said receipt so that the person
to whom the receipt is negotiated will know
how much he will pay the warehouseman if he
will secure the release of the goods and this
amount will be considered in fixing the amount
to be paid to the person negotiating such
negotiable warehouse receipt.
Important!!!
Section 34. What should the warehouseman do in case
the goods stored are of perishable or hazardous nature?
If goods are of a perishable nature, or by
keeping will deteriorate greatly in value, the
warehouseman may give such notice to the owner or to
the person in whose names the goods are stored to
satisfy the lien upon such goods and to remove them
from the warehouse and in the event of the failure of
such person to satisfy the lien and to receive the goods
within the time so specified (in the notice), the
warehouseman may sell the goods at public or private
sale without advertising. If the warehouseman, after a
reasonable effort, is unable to sell such goods, he may
dispose of them in any lawful manner (he may donate
the goods to a charitable institutions or he may deliver
them to local officials) and shall incur no liability by
reason thereof.
Section 35. Are other remedies for the enforcement of
lien allowed? Yes.
The remedy for enforcing a lien herein provided
does not preclude any other remedies (such as action for
collection of sum of money) allowed by law for the
enforcement of a lien against personal property nor bar
the right to recover so much of the warehouseman's
claim as shall not be paid by the proceeds of the sale of
the property.
Section 36. What is the effect of sale of the goods?
After the goods have been fully and lawfully sold
to satisfy a warehouseman's lien, or have been lawfully
sold or disposed of because of their perishable or
hazardous nature, the warehouseman shall not
thereafter be liable for failure to deliver the goods to the
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
depositor or owner of the goods or to a holder of the
receipt given for the goods when they were deposited,
even if such receipt be negotiable.
Memorize!!!
 Remedies available to a warehouseman in
enforcing his lien:
1. By refusing to deliver the goods until the
lien is satisfied (Section 31)
2. By causing the extrajudicial sale of the
property and applying the proceeds to the
value of the lien (Sections 33 and 34)
3. By filing a civil action for the unpaid
charges.
Important!!!
Section 37. (Similar to Article 1508 of the New Civil Code)
 When may a negotiable receipt be negotiated
by delivery?
A negotiable receipt may be negotiated by
delivery:
a. Where the warehouseman undertakes to
deliver the goods to the bearer, or
b. Where the warehouseman undertakes to
deliver the goods to the order of a specified
person, and such person or a subsequent
indorsee of the receipt has indorsed it in
blank or to bearer.
 When may a negotiable receipt be negotiated
by indorsement?
Any holder may indorse the negotiable
receipt to himself or to any other specified person
(hence the receipt shall thereafter be negotiated only
by the indorsement of such indorsee):
a. Where the goods are deliverable to bearer;
or,
b. where a negotiable receipt has been
indorsed in blank or to bearer
 In this case, the bearer warehouse
receipt is converted to an order
warehouse receipt. The rule is different
under the Negotiable Instruments Law
because a bearer instrument on its
face, is never converted into an order
instrument regardless of special
endorsements thereon.
 A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt
as follows:
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The goods hereunder described are
deliverable to B.
(Sgd) B
A indorsed the said negotiable warehouse
receipt to himself as follows:
Deliver to myself.
(Sgd) A
In the hands of A, the bearer
warehouse receipt is converted to an order
warehouse receipt and A can negotiate it to C
either by endorsement either to a specified
person or in blank or to bearer.
 Some Examples:
1. A stored his goods in the warehouse of B and
the latter issued a warehouse receipt as follows:
The goods hereunder described are
deliverable to the order of A.
(Sgd) B
A negotiated the warehouse receipt to
C by simply affixing his signature at the back of
the warehouse receipt and delivered it to C. The
endorsement made by A to C is an endorsement
in blank which converts the order negotiable
warehouse receipt into a bearer warehouse
receipt. Hence, C can negotiate the warehouse
receipt to D by mere delivery.
2. A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt
as follows:
The goods hereunder described are
deliverable to A.
(Sgd) B
A negotiated the warehouse receipt to
C by placing at the back of the warehouse
receipt the following:
Deliver to C.
(Sgd) B
The endorsement made by A to C is a
special endorsement, hence, in the hands of C
the warehouse receipt remains an order
warehouse receipt and will require indorsement
by C if he negotiates it to C.
C negotiated the warehouse receipt to
D, by placing at the back of the warehouse
receipt the following:
Deliver to bearer.
(Sgd) C
In the hands of D, the order warehouse
receipt has been converted into a bearer
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
warehouse receipt. Hence, D can negotiate the
warehouse receipt to E by mere delivery.
Section 38. (See Article 1509 of the New Civil Code)
Can a negotiable receipt be negotiated by indorsement?
Yes.
A negotiable receipt may be negotiated by the
indorsement (coupled with delivery) of the person to
whose order the goods are deliverable. Such
indorsement may be in blank, to bearer or to a specified
person.
 If the endorsement is in blank or to bearer, the
order negotiable warehouse receipt is converted
into a bearer negotiable warehouse receipt
negotiable by delivery. If the endorsement of a
negotiable warehouse receipt is special, the
order negotiable warehouse receipt remains an
order negotiable warehouse receipt negotiable
by endorsement coupled with delivery.
 Advantages of a negotiable warehouse receipt:
1. It protects a purchaser for value and in
good faith;
2. The goods covered by it cannot be
garnished or levied upon under execution
unless it is surrendered (to the
warehouseman), or impounded, or its
negotiation enjoined (and the receipt is
impounded by the Court);
3. In case of negotiation, the holder acquires
the direct obligation of the warehouseman
to hold possession of the goods for him
without notice to such warehouseman; and,
4. The goods it covers are not subject to
seller’s lien (The right of a holder of a
negotiable warehouse receipt is superior to
the right of an unpaid seller) or stoppage in
transitu.
 Question: A sold goods worth Php1,000,000.00
to B on November 19, 2013. The contract provides that B
will pay the Php1,000,000.00 on December 31, 2013. On
November 20, 2013, B stored the goods in the
warehouse of C and the latter issued an order negotiable
warehouse receipt in favor of B. On December 1, 2013, B
negotiated the receipt in favor of D.
On December 31, 2013, B failed to pay and the
latter discovered that the goods of B are stored in the
warehouse of C. On January 2, 2014, D demanded from C
the release of said goods contending that he is exercising
his right as an unpaid seller and is also demanding the
release of said goods from C.
Who is the rightful owner of the goods?
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Answer: The rightful owner of the goods is D because
goods which are covered by a negotiable warehouse
receipt are not subject to seller’s lien. Otherwise stated,
the right of a holder of a negotiable warehouse receipt is
superior to the right of an unpaid seller.
Important!!!
Section 40. Who may negotiate a receipt?
A negotiable receipt may be negotiated:
a. By the owner thereof, or
b. By 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 warehouseman undertakes to
deliver the goods to the order of the person
(such as agent or trustee) to whom the
possession or custody of the receipt has
been entrusted, or if, at the time of such
entrusting, the receipt is in such form that it
may be negotiated by delivery.
Question: A stored his goods in the warehouse of B and
the latter issued a warehouse receipt worded as follows:
The goods herein described are deliverable to
the order of A.
(Sgd) B
A entrusted the possession of the negotiable
warehouse receipt in favor of his friend C because at that
time, A will be going to Manila and he was afraid that he
may lose or misplace the said negotiable warehouse
receipt.
May C negotiate the negotiable
warehouse receipt entrusted to him by A?
Answer: NO, C cannot negotiate the negotiable
warehouse receipt because the receipt does not contain
an undertaking on the part of the warehouseman (B) to
deliver the goods to the order of the person to whom the
possession of the negotiable warehouse receipt has been
entrusted.
 A stored goods in the warehouse of B and the
latter issued a negotiable warehouse receipt as
follows:
The goods hereunder described are
deliverable to the order of A or to the order of
the person to whom the possession of the
receipt has been entrusted by A.
(Sgd) B
If A entrusted the possession of the
negotiable warehouse receipt to C, the latter
can validly negotiate the said negotiable receipt.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
 A stored goods in the warehouse of B and the
latter issued a negotiable warehouse receipt as
follows:
The goods hereunder described are
deliverable to the order of A.
(Sgd) B
A negotiated the negotiable warehouse
receipt to C, by blank endorsement or by simply
affixing his signature of to the negotiable
warehouse receipt. C entrusted the possession
of the negotiable warehouse receipt to his
friend, D. May D negotiate the said negotiable
warehouse receipt?
YES, because at the time of the
entrusting of the negotiable warehouse receipt
it was such form that it may be negotiated by
mere delivery considering that the only
endorsement is endorsement in blank which
converted the order negotiable warehouse
receipt to bearer negotiable warehouse receipt
which is negotiable by mere delivery.
Important!!!
Section 41. What are the rights of a person to whom a
receipt has been negotiated?
A person to whom a negotiable receipt has been duly
negotiated acquires thereby:
a. title to the goods as the person negotiating the
receipt to him had and also such title to the
goods as the depositor or person to whose
order the goods were to be delivered had, and
b. the direct obligation of the warehouseman to
hold possession of the goods for him according
to the terms of the receipt as fully (there is no
need on the part of the person to whom the
negotiable warehouse receipt has been
negotiated to notify the warehouseman) as if
the warehouseman and contracted directly with
him.
 A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt
worded as follows:
The goods hereunder described are
deliverable to the order of A.
(Sgd) B
A negotiated the negotiable warehouse
receipt by placing at the back thereof, the
following:
Deliver to C.
(Sgd) A
C negotiated the negotiable warehouse
receipt by placing at the back thereof, the
following:
18
2014
Deliver to D.
(Sgd) C
In this case, D acquired the title to the
goods as the person (C) negotiating the receipt
to him had, and D also acquired the previous
title to the goods as the depositor or person (A)
to whose order the goods were to be delivered
had.
Section 42. What are the rights of a person to whom a
receipt has been transferred?
A person to whom a receipt (order negotiable
warehouse receipt which is transferred by delivery
without endorsement) has been transferred but not
negotiated acquires thereby, as against the transferor
(but not as against the depositor or person to whose
order the goods are to be delivered if the latter is not the
immediate transfer), the title to the goods.
If the receipt is non-negotiable, and the
depositor transfers it to another person, the latter
acquires the title to the goods and such person
(transferee) also acquires the right to notify the
warehouseman of the transfer to him of such receipt
(because without such notification, the transferee cannot
compel the warehouseman to deliver or release the
goods to him [transferee]) and thereby to acquire the
direct obligation of the warehouseman to hold
possession of the goods for him according to the terms
of the receipt.
Prior to the notification of the warehouseman
by the transferor or transferee of the transfer of the non-
negotiable receipt, the title of the transferee to the
goods may be defeated:
1. by the levy of an attachment or execution
upon the goods by a creditor of the
transferor, or
 If the levy or attachment or execution
upon the goods was made by the
creditor prior to the sending of notice to
the warehouseman either by the
transferor or the transferee of the
transfer of non-negotiable warehouse
receipt, the creditor of the transferor
has the better right to the goods.
 If the levy, etc. was made by the
creditor after the sending of notice to
the warehouseman by the transferor or
the transferee of the transferor of the
non-negotiable warehouse receipt, the
transferee has the better right over the
goods.
 The creditor who made the levy etc.
need not notify the warehouseman of
such levy, etc. to acquire a better right
to the goods.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
2. by a notification to the warehouseman by
the transferor or a subsequent purchaser
from the transferor of a subsequent sale of
the goods by the transferor.
 The previous transfer of the non-
negotiable warehouse receipt may
have been without prejudice to the
right of the transferor to sell the
goods covered by the non-
negotiable warehouse receipt such
as when the previous transfer of
the non-negotiable warehouse
receipt is only to secure the
payment of a debt.
 If the subsequent purchaser of the
goods from the transferor has
notified the warehouseman of the
subsequent sale prior to the
sending of notice to the
warehouseman by the previous
transfer of the non-negotiable
warehouse receipt, the subsequent
purchaser has the better right to
the goods; otherwise, the
transferee shall have better right to
the goods.
 Section 42 (par.1): A stored his goods in the
warehouse of B and the latter issued a
negotiable warehouse receipt worded as
follows:
The goods hereunder described are
deliverable to the order of A.
(Sgd) B
A is indebted to C and when the debt
matured, A was unable to pay C and the former
requested an extension of time for payment and
he transferred his negotiable warehouse receipt
to C as a way of security. C likewise transferred
the said negotiable warehouse receipt to D and
the latter paid the former (C) for the value of
the goods. D acquired title to the goods as
against his transferor, C, but D did not acquire
title to the goods as against A, the depositor or
person to whose order the goods are
deliverable.
Section 43. What is the effect of transferring a negotiable
receipt for value by delivery and the endorsement of the
transferor is essential for negotiation?
Where a negotiable receipt is transferred for
value by delivery and the indorsement of the transferor
is essential for negotiation, the transferee acquires a
right against the transferor to compel him to indorse the
receipt. The negotiation shall take effect as of the time
when the indorsement is actually made.
 When is the indorsement of the transferor
essential for negotiation?
19
2014
1. First negotiation of an order negotiable
warehouse receipt.
2. Subsequent negotiation of an order
negotiable warehouse receipt if the only or
last endorsement is special.
3. Subsequent negotiation of a bearer
negotiable warehouse receipt if the only or
last endorsement is special.
Section 44. What are the warranties of a sale of receipt?
A person who, for value, negotiates or transfers a receipt
by indorsement and/or delivery, including one who
assigns for value a claim secured by a receipt warrants
that:
a. receipt is genuine,
b. he has a legal right (he is the owner of the
receipt as well as the goods) to negotiate or
transfer it,
c. he has knowledge of no fact which would
impair the validity or worth of the receipt, and ,
d. the goods are merchantable or fit
Very Important!!!
Section 45. Is the indorser liable for the failure of the
warehouseman or previous indorsers to fulfill their
obligations? No.
The indorsement of a receipt shall not make the
indorser liable for any failure on the part of the
warehouseman or previous indorsers of the receipt to
fulfill their respective obligations.
 The only instance where the endorser is liable is
when he breaches any of the four warranties in
Section 44, and his liability thereunder is for
damages.
 Under the NIL, the general endorser engages
that on due presentment, the instrument shall
be accepted as paid or both, as the case may be
according to its tenor, and that if it be
dishonoured and the necessary proceedings on
dishonour be duly taken, he will pay the amount
thereof to the holder.
Memorize!!!
BAR FAVORITE
Section 47. When is negotiation not impaired by fraud,
mistake or duress?
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
The validity of the negotiation of a receipt is not
impaired by the fact that such negotiation was a breach
of duty on the part of the person making the negotiation
or by the fact that the owner of the receipt was induced
by fraud, mistake or duress or to entrust the possession
or custody of the receipt to such person, IF the person to
whom the receipt was negotiated or a person to whom
the receipt was subsequently negotiated paid value
therefor, without notice of the breach of duty, or fraud,
mistake or duress.
Question: A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt as
follows:
The goods hereunder described are deliverable
to bearer.
(Sgd) B
C, one of the employees of A, stole the aid
negotiable warehouse receipt and negotiated it to D by
delivery. D paid the value for the goods without notice
that C has stolen the said negotiable warehouse receipt.
Is the negotiation made by C to D valid?
Answer: The negotiation made by C to D is valid even if A
was deprived of the possession of the negotiable
warehouse receipt by theft, because such ground (theft)
is included in Article 1518 of the New Civil Code. In case
of any inconsistency of the provisions in the New Civil
Code and in the Warehouse Receipts Law, the provisions
in the New Civil Code will prevail.
 Article 1518 of the New Civil Code – even if the
negotiable warehouse receipt was stolen by the
person negotiating the negotiable warehouse
receipt, the negotiation is valid provided the
person to whom the negotiable warehouse
receipt was negotiated is a purchaser for value
in good faith.
Section 48. What is the effect of subsequent
negotiation?
Where a person having sold or mortgaged the
goods which are in warehouse and for which a
negotiable receipt has been issued, or having sold or
mortgaged the negotiable receipt representing such
goods, continues in possession of the negotiable receipt,
the subsequent negotiation (this is valid, hence, the
person to whom the negotiable warehouse receipt was
negotiated has better right to the goods than the first
purchaser or the mortgagee) thereof by that person
(considered as trustee or agent of the first purchaser or
the mortgagee) to any person (he becomes the owner of
the goods) receiving the same in good faith, for value and
without notice of the previous sale or mortgage shall
have the same effects as if the first purchaser or
mortgagee of the goods or receipt had expressly
authorized the subsequent negotiation.
 The subsequent purchaser, however, must have
taken the receipt in good faith and for value in
20
2014
order to acquire a better right (compared to the
first purchaser or mortgagee).
Section 49. Does negotiation defeat the vendor’s lien?
Yes.
Where a negotiable receipt has been issued for
goods, no seller's lien or right of stoppage in transitu
shall defeat the rights of any purchaser for value in good
faith to whom such receipt has been negotiated. Nor
shall the warehouseman be obliged to deliver or justified
in delivering the goods to an unpaid seller unless the
receipt is first surrendered for cancellation.
 When the seller delivered the goods to the
buyer, the former reserved his right to retake
possession of the goods in case of non-payment
of the price. Hence, the seller’s lien still exists.
 The right of purchaser for value in good faith
over the goods is superior to the right of an
unpaid seller.
 The right of stoppage in transitu is impliedly
excluded by the New Civil Code because such
right, under the law on sales in the New Civil
Code, can only be availed of by the seller if the
goods are still in transit which cannot be availed
of here because the goods are no longer in
transit since they are already in the warehouse
of warehouseman.
Section 50. What is the effect of issuing a receipt for
goods which are not actually received by the
warehouseman?
A warehouseman who issues or aids in issuing a
receipt (negotiable or not) knowing that the goods for
which such receipt is issued have not been actually
received by such warehouseman, or are not under his
actual control at the time of issuing such receipt, shall be
guilty of a crime.
Section 51. What is the effect of issuing a receipt which
contains a false statement?
A warehouseman who fraudulently issues or
aids in fraudulently issuing a receipt for goods knowing
that it contains any false statement, shall be guilty of a
crime.
Section 52. What is the effect of issuing a duplicate
which is not so marked?
A warehouse who issues or aids in issuing a
duplicate or additional negotiable receipt for goods
knowing that a former negotiable receipt for the same
goods is outstanding and uncancelled, without plainly
placing upon the face thereof the word "duplicate" shall
be guilty of a crime.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

Section 53. What is the effect of issuing a

warehouseman’s goods or receipts which do not state
that fact?

Where there are deposited with or held by a

warehouseman goods of which he is owner, such
warehouseman, knowing this ownership, issues or aids in
issuing a negotiable receipt for such goods which does
not state such ownership, shall be guilty of a crime.

Section 54. What is the effect of delivering goods

without obtaining a negotiable receipt?

A warehouseman who delivers goods out of the

possession of such warehouseman, knowing that a
negotiable receipt the negotiation of which would
transfer the right to the possession of such goods is
outstanding and uncancelled, without obtaining the
possession of such receipt shall, except in sections
fourteen (lost or destroyed receipt) and thirty-six
(perishable or hazardous goods), be guilty of a crime.

Section 55. What is the effect of negotiating a receipt for

mortgaged goods?

Any person who deposits goods to which he has

no title, or upon which there is a lien or mortgage, and
who takes for such goods a negotiable receipt which he
afterwards negotiates for value with intent to deceive
and without disclosing his want of title or the existence
of the lien or mortgage, shall be guilty of a crime.

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
GENERAL BONDED
WAREHOUSE ACT
(as amended)
Act No. 3893
Warehouse – means every building, structure, or other
protected inclosure in which commodity is kept for
storage.
Receipt – means any receipt issued by a warehouseman
for commodity delivered to him.
For purposes of this Act, the business of receiving
commodity for storage shall include any contract or
transaction wherein the:
 Warehouseman is obliged to return the very
same commodity delivered to him or to pay its
value (the warehouseman is engaged in trading
business in addition to warehousing business).
 Commodity (such as sugar cane or palay or
copra) delivered is to be milled (the
warehouseman is engaged in milling business in
addition to warehousing business) for and on
account of the owner thereof.
 Commodity delivered is comingled with
commodity delivered by or belonging to other
persons, and the warehouseman is obligated to
return the commodity of the same kind or to
pay its value.
Section 3. No person shall engage in the business of
receiving commodity for storage without first securing a
license therefor from the Director of the Bureau of Trade
Regulation and Consumer Protection.
Important!!!
Section 5. The application for a license to engage in the
business of receiving commodity for storage shall:
1. State the place where the business and the
warehouse are to be established or located;
2. State the maximum quantity and market value
of commodity to be received; and,
3. Be accompanied by a cash bond or bond
secured by a real estate (property bond) or
signed by a duly authorized bonding company
(surety bond).
 The amount of the bond shall be fixed
by the Director at not less than one-
third (1/3) per cent of the market value
of the maximum quantity of commodity
to be received.
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2014
 Said bond shall respond for the market
value of the commodity actually
delivered and received at any time the
warehouseman is unable to return the
commodity or to pay its value.
Section 6. Every person licensed to engage in the
business of receiving commodity for storage shall insure
the commodity so received and stored against fire.
 The term “fire insurance” shall include insurance
against loss by fire, lightning, windstorm,
tornado or earthquake or other allied risk such
as flooding but only when such risks are covered
by extension to file insurance policies (extended
coverage provision) or under separate policies.
Section 7. Any person (depositor of goods) injured shall
be entitled to sue on the bond of his own name in any
court of competent jurisdiction to recover the damages
he may have sustained by such breach. Nothing
contained herein shall exempt any property or assets of
any warehouseman licensed under this Act, not
exempted by law from attachment and execution, from
being sued on, in case the bond is given is not sufficient
to respond for the full market value of the commodity
received by such warehouseman.
 Liability of the warehouseman id NOT limited to
his bond.
Section 8. Every warehouseman shall receive for storage
in the usual manner and in the ordinary and usual course
of business, without making any discrimination between
persons desiring to avail themselves of warehouse
facilities:
1. So far as his license and the capacity of his
warehouse permit;
2. Any commodity of the kind customarily stored
therein by him;
3. In a suitable condition for warehousing.
 The business of warehousing involves public
interest.
 Question: May a person compel a
warehouseman to receive for storage his
person’s commodity?
Answer: YES, provided the requisites (above)
are present.
Section 11. Any person engaging in the business of
receiving commodity for storage in violation of Section 3
(without license) shall be deemed guilty of misdemeanor.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

Section 12. Any warehouseman licensed under this Act

receiving a quantity of commodity greater than that
specified in his application and license shall be fined
double the market value of the commodity so received in
excess of the quantity of commodity he is authorized to
receive.

 What are the obligations of the

Warehouseman?

1. To secure the required license;

2. To post the required bond;
3. To insure the commodity received and
stored against fire;
4. To issue warehouse receipts for said
commodity;
5. To answer for damages;
6. Not to discriminate;
7. To keep a complete record;
8. To make reports
9. To conduct his warehouse in all other
respects in compliance therewith (Numbers
7 and 8);
10. Not to receive a quantity of commodity
greater than that specified in his application
and license.

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
R.A. 3591
(as amended by R.A. 9302 and R.A. 9576)
PHILIPPINE DEPOSIT INSURANCE
CORPORATION
The Creation of the Philippine Deposit Insurance
Corporation (PDIC)
There is hereby created a Philippine Deposit
Insurance Corporation (private corporation created by
law or GOCC) which shall insure the deposits in all banks
(domestic and resident foreign corporation engaged in
banking business in the Philippines) which are entitled to
the benefits of insurance under this Act, and which shall
have the powers hereinafter granted (SECTION 1).
Purpose of the Law:
The Corporation shall promote and safeguard
the interests of the depositing public by way of providing
permanent and continuing insurance coverage on all
insured deposits (SECTION 1).
Board of Directors: Composition and Authority
The powers and functions of the Corporation
shall be vested in and exercised by a Board of Directors
which shall be composed of five (5) members as follows
(SECTION 2):
a. Secretary of Finance – ex-officio Chairman of the
Board without compensation.
b. Governor of the Bangko Sentral ng Pilipinas, -ex-
officio member of the Board without
compensation.
c. President of the Corporation – appointed by the
President of the Philippines from either the
Government or private sector to serve on a full-
time basis for a term of six (6) years. The
President of the Corporation shall also serve as
Vice Chairman of the Board.
d. Two (2) members from the private sector –
appointed for a term of six (6) years without
reappointment by the President of the
Philippines.
No person shall be appointed as member of the
Board unless he be of good moral character and of
unquestionable integrity and sense of responsibility.
The Secretary of Finance and the Governor of
the Bangko Sentral may each designate a representative,
whose position shall not be lower than an
undersecretary or deputy governor respectively, to
attend such meetings and to vote on behalf of their
respective principals.
24
2014
DEFINITION OF TERMS (SECTION 4):
 Insured Bank – any bank the deposits of which
are insured in accordance with the provisions of
this Act.
 Non-insured bank – means any bank the
deposits of which are not insured (such as
foreign branch of a domestic bank).
 Deposit – the unpaid balance of money or its
equivalent received by a bank in the usual
course of business and for which it has given or
is obliged to give credit to a commercial,
checking, savings, time or thrift account which is
evidenced by passbook, check or check book
and/or certificate of time deposit, printed or
issued in accordance with Bangko Sentral rules
and regulations
Provided, That any obligation of a bank
which is payable at the office of the bank
located outside of the Philippines shall not be a
deposit for any of the purposes of this Act or
included as part of the total deposits or of
insured deposit.
Memorize!!!
 Insured Deposit – the amount due to any bona
fide depositor for legitimate deposits in an
insured bank net of any obligation of the
depositor (such as bank loan) to the insured but
not to exceed P500,000.00.
In determining such amount due to any
depositor, there shall be added together all
deposits in the bank maintained in the same
right and capacity for his benefit either in his
own name or in the name of others. A joint
account regardless of whether the conjunction
"and," "or," "and/or" is used, shall be insured
separately from any individually-owned deposit
account
Problems and Solutions:
1. The amount of time deposit is P2,000,000 with
interest earned of P200,000. The depositor has
an outstanding loan with the bank in the
amount of P1,000,000. How much is the insured
deposit?
Amount of Deposit - P2,000,000
Interest Earned - 200,000
Amount Due - P1,200,000
Less: Bank Loan – 1,000,000
Net Amount Due - P1,200,000
Insured Deposit - P500,000
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
2. The amount of savings deposit is P1,000,000and
the interest earned is P20,000. The depositor
has an outstanding loan with the bank of
P800,000. How much is the insured deposit?
Amount of Deposit - P1,000,000
Interest Earned - 20,000
Amount Due - P1,020,000
Less: Bank Loan – 800,000
Net Amount Due - P220,000
Insured Deposit - P220,000
 The insured deposit is the net amount due or
P500,000 whichever is lower.
3. A has a deposit in the form of savings account
with bank X amounting to P300,000. A, together
with his brother B, has a time deposit with the
same bank in the amount of P500,000.
The savings deposit of A of P300,000 is
an insured deposit and the joint account deposit
of A and B of P500,000 is separately an insured
deposit.
Important!!!
 Transfer Deposit – a deposit in an insured bank
made available to a depositor by the
Corporation as payment of insured deposit of
such depositor in a closed bank and assumed by
another insured bank.
Bank A, located in Naga City, was ordered closed
by the monetary board of BSP. The PDIC was
designated by the BSP as receiver of Bank A. The
PDIC has determined that the total insured
deposits of Bank A is P100,000. And the PDIC
deposited said amount with Bank B, also located
in Naga City. This P100,000 deposited by the
PDIC with Bank B is called transfer deposit.
Whenever the PDIC approves a claim
by a depositor in Bank A, the depositor can
withdraw his claim from Bank B.
ASSESSMENT OF MEMBER BANKS
The assessment rate (similar to insurance
premium rate) shall be determined by the Board of
Directors: Provided, That the assessment rate shall not
exceed one-fifth (1/5) of one per centum (1%) per
annum.
The semi-annual assessment (or semi-annual
insurance premium) for each insured bank shall be one-
half (1/2) of the assessment rate multiplied by the
assessment base but in no case shall it be less than Five
thousand pesos (P5,000.00). The assessment base shall
be the amount of the liability of the bank for deposits
25
2014
without any deduction for indebtedness of depositors
(SECTION 6).
The total deposit is P1,000,000,000. How much
is the semi-annual assessment?
The semi-annual assessment is
(P1,000,000,000 x 1% ÷ 2) P1,000,000.
POWERS AS A CORPORATE BODY
The Corporation as a corporate body shall have
the power, among others, to conduct examination of
banks with prior approval of the Monetary
Board: Provided, That no examination can be conducted
within twelve (12) months from the last examination
date: Provided, however, That the Corporation may, in
coordination with the Bangko Sentral, conduct a special
examination as the Board of Directors, by an affirmative
vote of a majority of all of its members, if there is a
threatened or impending closure of a bank; Provided,
further, That, notwithstanding the provisions of R.A.
1405 (Bank Secrecy Law), as amended, Republic Act No.
6426, as amended, Republic Act No. 8791, and other
laws, the Corporation and/or the Bangko Sentral, may
inquire into or examine deposit accounts and all
information related thereto in case there is a finding of
unsafe or unsound banking practice (SECTION 8 [Eighth]).
POWERS, RESPONSIBILITIES AND PROHIBITIONS
Personnel of the Corporation are hereby
prohibited from (SECTION 9):
1. being an officer, director, consultant,
employee or stockholder, directly or
indirectly, of any bank or banking
institution except as otherwise
provided in this Act;
2. receiving any gift or thing of value from
any officer, director or employee
thereof;
3. revealing in any manner information
relating to the condition or business of
any such institution.
Notwithstanding the provisions of this Section
and Section 2 (C), members of the Board of
Directors and personnel of the Corporation may
become directors and officers of any bank and
banking institution and of any entity related to
such institution in connection with financial
assistance (Section 17[D]) extended by the
Corporation to such institution and when, in the
opinion of the Board, it is appropriate to make
such designation to protect the interest of the
Corporation.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Borrowing from any bank or banking institution
by examiners and other personnel of the
examination departments of the Corporation
shall be prohibited only with respect to the
particular institution in which they are assigned,
or are conducting an examination. Personnel of
other departments, offices or units of the
Corporation shall likewise be prohibited from
borrowing from any bank or banking institution
during the period of time that a transaction of
such institution with the Corporation is being
evaluated, processed or acted upon by such
personnel.
Borrowing by all full-time personnel of the
Corporation from any bank or banking
institution shall be secured (with mortgaged
property) and disclosed to the Board, and shall
be subject to such further rules and regulations
as the Board may prescribe. (As amended by
R.A. 7400, 13 April 1992)
Whenever it shall be appropriate for the
Monetary Board of the Bangko Sentral ng
Pilipinas to appoint a receiver of any banking
institution pursuant to existing laws, the
Monetary Board shall give prior notice and
appoint the Corporation as receiver [Section 20
(d) New Central Bank Act] (SECTION 10).
The assets of the closed bank under receivership
shall be deemed in custodia legis in the hands of
the receiver (PDIC). From the time the closed
bank is placed under such receivership, its
assets shall not be subject to attachment,
garnishment, execution, levy or any other court
processes (SECTION 10).
PERMANENT INSURANCE FUND
To carry out the purposes of this Act, the
permanent insurance fund (similar to capital
stock in an ordinary corporation) shall be Three
billion pesos (P3,000,000,000.00) (SECTION 13)
The Deposit Insurance Fund (similar to stock
holder’s equity in ordinary corporation) shall be
the capital account of the Corporation and shall
principally consist of the following (SECTION 13):
1. the Permanent Insurance Fund;
2. assessment collections (or insurance
premiums);
3. reserves for insurance and financial
assistance losses (similar to appropriation
retained earnings in ordinary corporation);
and,
4. retained earnings (the accumulated profits
of the PDIC which are not appropriated for
any special purposes).
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PAYMENT OF INSURED DEPOSITS
Whenever an insured bank shall have been
ordered closed by the Monetary Board pursuant
to Section 30 of R.A. 7653 (New Central Bank
Act), payment of the insured deposits on such
closed bank shall be made by the Corporation as
soon as possible either(SECTION 14):
1. by cash, or
2. by making available to each depositor a transfer
deposit in another insured bank in an amount
equal to insured deposit of such depositor.
Very Important!!!
The Corporation, upon payment to any
depositor, shall be subrogated to all rights of the
depositor. Such subrogation shall include the
right on the part of the Corporation to receive
the same dividends and payments from the
proceeds of the assets of such closed bank and
recoveries on account of stockholders’ liability
as would have been payable to the depositor on
a claim for the insured deposits but, such
depositor shall retain his claim for any uninsured
portion of his deposit. All payments by the
Corporation of insured deposits in closed banks
partake of the nature of public funds, and as
such, must be considered a preferred credit
similar to taxes due to the National Government
in the order of preference under Article 2244 of
the New Civil Code (SECTION 15).
CORPORATE FUNDS
It is hereby declared to be the policy of the State
that the Deposit Insurance Fund of the
Corporation shall be preserved and maintained
at all times. Accordingly, all tax obligations of
the Corporation for a period of five (5) years
reckoned from the date of effectivity of this Act
(R.A. 9576) shall be chargeable to the Tax
Expenditure Fund (TEF; Provided, That, on the
6th year (2015) and thereafter, the Corporation
shall be exempt from income tax, final
withholding tax, value-added tax on
assessments collected from member banks, and
local taxes (Section 17 [c]).
Important!!!
FINANCIAL ASSISTANCE
When the Corporation has determined that an
insured bank is in danger of closing, in order to
prevent such closing, the Corporation, is
authorized to make loans to, or purchase the
assets of, or assume liabilities of, or make
deposits in, such insured bank, upon such terms
and condition as the Board of Directors may
prescribe, when in the opinion of the Board of
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

Directors, the continued operation of such bank

is essential to provide adequate banking service
in the community or maintain financial stability
in the economy.

The authority of the Corporation under the

foregoing paragraph to extend financial
assistance to, assume liabilities of, purchase the
assets of an insured bank in danger of closing
may also be exercised in the case of a closed
insured bank if the Corporation finds that the
resumption of operations of such bank is vital to
the interests of the community: Provided, That
the reopening and resumption of operations of
the closed bank shall be subject to the prior
approval of the Monetary Board.(As amended
by R.A. 7400, 13 April 1992)

ISSUANCE OF BONDS, DEBENTURES AND OTHER

OBLIGATIONS

With the approval of the President of the

Philippines, the Corporation is authorized to
issue bonds, debentures, and other obligations,
both local or foreign, as may be necessary for
purposes of providing liquidity for settlement of
insured deposits in closed banks as well as for
financial assistance as provided herein (SECTION
19).

All notes, debentures, bonds, or such obligations

issued by the Corporation shall be exempt from
taxation both as to principal and interest, and
shall be fully guaranteed by the Government of
the Republic of the Philippines (SECTION 19).

SANCTIONS AND PENALTIES

No court, except the Court of Appeals, shall

issue any temporary restraining order,
preliminary injunction or preliminary mandatory
injunction against the Corporation for any action
under this Act (SECTION 22).

The Supreme Court may issue a restraining

order or injunction when the matter is of
extreme urgency involving a constitutional
issue, such that unless a temporary restraining
order is issued, grave injustice and irreparable
injury will arise (SECTION 22).

Any restraining order or injunction issued in

violation of this Section is void and of no force
and effect and any judge who has issued the
same shall suffer the penalty of suspension of at
least sixty (60) days without pay (SECTION 22).

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