code of commerce etc

8/3/2019 Code of Commerce Etc

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COMMERCIAL LAWBranch of Private Law which governs the rights, obligations and relations of persons engaged in commerce or tradeIt necessarily includes the purchase, sale, exchange ,traffic or distribution ofgoods, commodities ,productions, services of property, (tangible or intangible)including the instruments and agencies by which they are promoted and the meansand appliances by which they are carried on (4blue95)

Constitutional Provisions:1. Economic NationalismArt. XII, Sec. 1. The goals of the national economy are a more equitable distribution of opportunities, income and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full andefficient use of human and natural resources, and which are competitive in bothdomestic and foreign markets. However, the State shall protect Filipino enterp

rises against unfair foreign competition and trade practices.In the pursuit of these goals, all sectors of the economy and all regions of thecountry shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shallbe encouraged to broaden the base of their ownership.2. Filipino First PolicyArt. XII, Sec. 12. The State shall promote the preferential use of Filipino labor, domestic materials, and locally produced goods, and adopt measures that helpmake them competitive.

Sources:1.contracts or transactions whose terms and conditions had been held as bindingas law on the contracting parties unless they are contrary to law ,moral, custom

s, public order or public policy.2. Statutes (like the Code of Commerce, Banking laws etc.)3. Commercial usages generally observed in such place in default of the provisions of the Code of Commerce.

Characteristics:1Equitability- involved exchange of value or consideration2. Progressive-it keeps abreast with the contemporary developments in usages andcustoms practiced by merchants3. Universality-accepted internationally in every civilized society

COMMERCIAL TRANSACTIONS:

Acts governed by Code of Commerce shall be deemed as Commercial Transactions whether performed by merchants or not.4blue95 notes: civil transactions are those governed by the provisions of the Civil Code such as agency, barter, mortgage, loan, deposit and partnership

COMMERCIAL CONTRACTAgreement between two or more merchants or non-merchants binding themselves to give or to do something in commercial transactionsSuch are governed in all matters not expressly provided for in this code or in special laws by the general rules of the civil law.

Contract by correspondence- entered into by correspondence like letters, telegrams but not including those made by phone or through agents. It is perfected from

moment the offeree accepts the offer even before knowledge of said acceptance by the offeror-MANIFESTATION THEORY (others follow the rule of the NCC, that is upon knowledge of offeror of offerees acceptanceCOGNITION THEORY).


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4blue95 notes: Theory of cognition states that contract thru mail or correspondence is perfected upon knowledge of acceptance of the offer by the offeror.4blue95 notes: Theory of Manifestation states that the contract is perfected from the time an answer is made accepting the proposition or the condition by whichthe latter is modified.

MERCHANTS (Natural or Artificial being)

4blue95 notes: Merchants can be an artificial or natural being. In terms of Natural being, Merchants can be a Filipino Merchant or a Foreign Merchant.

Foreign Merchants1. Engaging in CommerceAs to foreign corporations engaging in business in the Philippines, they need alicense from the Securities and Exchange Commission as a general rule.However, the Board of Investments under PD 1789 may impose requirements other than those set by the Corporation Code (Continental v Santiago)2. Investing in the PhilippinesRegulated by the Foreign Investment Act of 1991.

Filipino MerchantsCommercial and industrial companies created in accordance with the Code of commerce including those of special laws are merchants.Natural Persons, to be merchants, must have legal capacity to engage in commerceand should habitually engage themselves therein. To have legal capacity, a natural person must be at least 18 yrs of age and should have free disposition of the property.

Wife:2005 notes: a married woman may engage in business provided she has the qualifications of a merchant. The obligations contracted by her in due course will bindthe conjugal partnership since whatever profits she earns from such business, is income from industry, hence, conjugal.

2005 notes: to avoid liability, the husband should have objected to the act of the wife engaging in business, alleging and proving that his income is sufficientfor the family according to its social standing and that his opposition is founded on serious and valid grounds.--to bind third persons, the latter must have actual knowledge of said objectionor wife should have registered said objection in the mercantile registry if wife is a registered merchant.

Minor: If Pilipino should have guardian or parents, if foreign, if law of his nation allows him to go to business, then it is also allowed here in RP.2005 notes: A minor cannot engage in commerce except where minor merely continues the business engage in by his deceased parents in which case, he may do so through his guardian. A minor may invest in stocks of a corporation.2005 notes: Under PD 734, a minor at least 7 yrs old, able to read and write andwith sufficient discretion, may open with a bank savings or time deposits and withdraw the same without assistance of parents or guardian.

DISQUALIFIED TO BE MERCHANTS:

Absolute disqualifications:1. Serving the penalty of civil interdiction2. Insolvents3. Absolutely disqualified by special laws

Relative disqualifications:

1. Judicial and prosecuting officials in active service2. Admin, economic and military chiefs3. Govt collection agents and custodian


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4. Stock and commercial brokers5. Those who by special laws cannot trade in specified territories

Books of Merchants1. Those required by Code of Commerce2. National Internal Revenue Code3. Special laws

Probative Value of such books:1. Evidence against the merchants themselves2. If books of 2 merchants conflict, those kept properly shall prevail3. If one keeps the books, the other does not and cannot explain their absence,the books of the former shall be admitted against the latter4. If both keep their books properly, but the entries conflict, the court shallaccept other proofs.

REGISTRATIONRegistration by Individual is optional, while registration of corporation is compulsory.Registries provided are: Registry for individual merchants kept by Bureau of Dom

estic Trade for individual, Register of Deeds for individual merchants in province, and Registry for Juridical persons kept by the SEC for corporations and partnerships (capital of P3000 or more) and Registry of Vessels kept by bureau of coast guard.

Joint Account Partnership- is a business arrangement whereby 2/more persons interest themselves in the business of another making contributions and participating in the results of the business.Differ from Commercial partnership is that former has no common name, no commonfund and no juridical personality and only the ostensible partner is liable andmanage by the ostensible partner alone.

Joint Account transaction of merchants where other merchants agree to contribute

the amount of capital agreed upon, and participating in the favorable or unfavorable results thereof in the proportion they may determine.

A particular partnership is distinguished from a joint adventure, to wit: (a) ajoint adventure is a sort of informal partnership with no firm name and no legalpersonality. In a joint account, the participating merchants can transact business under their own name and can be individually be liable. (b) A joint adventure is limited to a single transaction although business of pursuing to a successful termination may continue for a number of years, a partnership relates to a continuing business of various transactions of certain kind.

BULK SALES LAWThis was enacted during the Philippine Commission. It was patterned after the laws of the different states in the United States but I think this was patternedafter the bulk sales law of New York because the bulk sales law of the differentstates varies specially in the Midwest where the bulk sales law would even cover agricultural products.

The bulk sales law must be interpreted strictly for two reasons:(1) It is penal;(2) It is in derogation of the natural right to dispose of ones property.The purpose of the law is to prevent the fraudulent sale of the goods in bulk.

Section 2 defines what a sale in bulk is. It says sale, transfer, and mortgage.So mortgage is included or assignment of stocks of goods, wares, etc.

There are three transactions contemplated here.(1) A sale of stock of goods other than in the ordinary course of trade. So peo


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ple just buy commodities in the department store and there is no violation. Ifsomebody goes there and buys everything, lock, stock and barrel, so that will bea sale in bulk.(2) A sale of all or substantially all of the business or trade. Again it wouldcover sales, transfer, mortgage or assignment of all or substantially all of the business or trade.(3) The sale, transfer, mortgage or assignment of all or substantially all of th

e fixtures and equipment used in the business of the seller. The book says theterm fixtures refers to things which merchants annex to their premises, which stores, handle and display their goods.

The commentators say that this law refers to first merchants, the middleman between the Manufacturer and the consumer. It does not apply to manufacturers. WhenFord Philippines closed its factory here in 1978, they sold their plant withoutcomplying with the bulk sales law. They were manufacturers. The bulk sales law did not apply to them. You must be a merchant. The only decisions we have applying this law is from the Court of Appeals. An old case, somebody who owned afoundry shop sold the shop and the C.A. said it was not covered by the law because it was not engaged in selling goods. It was involved in lease of services b

ecause it would only fabricate some wrought iron products if the customer goes there and makes an order and they would make it in accordance with his specification. Like if the customer wants grills for his house, they will fabricate the grills incorporating the design that he wants. So if the customer wants a steelgate, this fellow will fabricate in accordance with the design. Or he wants a wrought iron set for his garden so this must be fabricated. Thats why you have more recently the Union Glass case where Union Glass became insolvent and they liquidated their indebtedness to Development Bank. They made a dacion en pago of their factory and that was being questioned. The Court said that Union Glass wasengaged in the lease of services. They would only make a glass product if a customer goes in and places the order in accordance with the specifications of thelatter. Example, here is somebody opening a restaurant and he would like mirrors in the foyer to give a spacious look. So they will design it and lets say put

peacocks or flowers depending on the design which the customer wants. In thosetwo cases, it was held that the conveyance was not covered by the bulk sales law.

The law also does not apply to sales by executors, administrators, receivers, assignees in insolvency or public officers acting under judicial force like writ of execution, foreclosure of mortgage since the sale is made under the supervision of the court. The law presumes that it is not fraudulent so it is exempted.

If a sale is covered by the bulk sales law, there are three obligations which the seller has to comply with.(1) Under Section 3, he will prepare an affidavit stating an inventory of all his debts. So that affidavit will indicate the names of his creditors, their addresses, and the amount due them. When we talk of creditors, we do not refer onlyto a lender. It may be someone who has a claim for damages because he was injured in an accident or somebody suing damages for libel. So creditor here is comprehensive. So thats the first obligation. They must prepare that sworn inventory and must register it with the Department of Trade and Industry. So you mustgive an inventory to the buyer and register that with the Dept. of Trade and Industry. Before it was the Bureau of Commerce who was in charge of that and that was transferred to the Bureau of Domestic Trade, although the last time I heard it was transferred to the Bureau of Consumer Protection of the Dept. of Tradeand Industry. So that is what you do. Prepare a sworn inventory, give a copy to the buyer, and register it with the Dept. of Trade.(2) At least 10 days before the delivery, you must make an inventory of the prop

erties that you will deliver and give the terms and conditions of the sale and give that to his creditors.(3) He must apply the proceeds of the sale in payment of the claims of his credi


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tors pro rata.

If a sale is covered by this law and the seller does not comply with this, the sale will be void. But there is an alternative way of complying with this law. The other one is to get a written waiver from all your creditors. This was askedin the bar exam many years ago, what are the alternative ways by which a sellercan comply with the bulk sales law? First one is he does these things-makes hi

s inventory, give a copy to the buyer, register with DTI, and at least 10 days before the delivery he makes an inventory of the properties he will deliver and state the terms and conditions of the sale and notify his creditors. The third,he applies the proceeds to pay his creditors. The alternative method is gettinga written waiver from all his creditors.

INSOLVENCY LAWOur insolvency law, the portion of this on suspension of payment was copied formthe Code of Commerce for there is no such provision in the American law.

Chapter 2 Suspension of PaymentsThis chapter that deals with suspension of payments is different from the suspen

sion of payment that you file in the court with the transfer of jurisdiction ofintra-corporate cases to the RTC. The Insolvency law contemplates a situation where the borrower is not insolvent his assets exceed his liability, except that he has a liquidity problem. It contemplates a situation where the debtor will notbe able to pay off his debts when they become due. Like when you have a real estate developer and sales are poor. The developer has a numerous lots and housesbut since he cannot sell them, he doesnt have money to pay off his debts.SECTION 2 says that when a debtor has sufficient properties to cover his debts but he foresees that he will be unable to pay them when they become due; he may file a petition for suspension of payment.

The following documents shall be attached to the petition:1. A verified schedule containing a full and true statement of the debts and lia

bilities of the petitioner with a list of creditors, their addresses, sum due each, nature of liability, consideration thereof, and any existing pledge, lien orsecurity2. A verified inventory containing a list of creditors, an accurate descriptionof all property, real and personal, of the petitioner including property exemptfrom execution and a statement of the value of each property, its location, andencumbrances thereon, if any3. The proposed agreement he requests of his creditorsThe court will then call a meeting of the creditors to be published in a newspaper of general circulation and in addition, notice to be sent to the creditors.

The filing of the petition will produce the following effects:1. The court will enjoin the creditor from disposing of his properties except inthe ordinary course of business.Example:A department store can continue selling its merchandise to customers but it cannot enter into bulk sales.2. The court shall enjoin the petitioner from making any payment other than necessary expenses of business.Example:You will have to continue paying, for example, rent, employees salaries, electricity, and taxes.3. Upon request to the court, all pending executions against the debtor shall besuspended except execution against property especially mortgagedIf there is a writ of execution issued against the debtor, that writ will be sus

pended. The debtor should file a motion to suspend execution unless it is a mortgage indebtedness because then the mortgagee may proceed to foreclose the mortgage


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The court will send notices to creditors and only those creditors who were included in the schedule filed by the petitioner shall be cited to appear and take part in the meeting of creditors. They will be required to bring with them writtenproof of their respective claims, otherwise they will not be allowed to participate in the meeting.

DOUBLE MAJORITY

You need a double majority of the creditors to agree on the same proposition toeffect a suspension of payments. The majority shall be 2/3 of the creditors voting upon the same proposition, which 2/3 represent at least 3/5 of the total liabilities of the petitioner.Example:In the petition for suspension of payments, the borrower will state there that what his proposal is. The proposal says payment in 2 years. The judge will call for a vote. Assuming that there are ten creditors, and the borrower owes them a total of P1M. There should be 2/3, so at least 7 creditors must agree to that, and those who agree must represent at least 3/5 of the entire debt, meaning P600k.If rejected, the court will ask for any other suggestion. Then someone will suggest 18 months. Vote again. Rejected again. Another suggests 1 year. Then they w

ill vote again. If you muster the required double majority, the court will orderthe parties to abide by that. If no double majority could be mustered on any proposal, then the court will dismiss the case and every creditor will be free topursue his claim.

The law provides for certain claims which could not be covered by suspension ofpayments. Creditors not affected by order of suspension of payments:1. Those having claims for personal labor, maintenance, expenses for the last illness and funeral of the wife or children of the debtor incurred in the 60 daysimmediately preceding the filing of the petition2. Those having legal contractual mortgages.

If the creditors agree on a proposition, anybody who does not agree may object b

ased on the three grounds mentioned in the law:1. Defects in the call for the meeting, in the holding thereof, and the deliberations had thereat which prejudice the rights of the creditors2. Fraudulent connivance between one or more creditors and the debtor to vote infavor of the proposed agreement3. Fraudulent conveyance of claims for the purpose of obtaining a majorityExample:One of the creditors is a crony of the debtor. He assigns his credit to 4 persons for the purpose of getting a majority and they will agree to what the debtor is proposing.So that vote, when approved by double majority, is binding upon all persons whotook part in the meeting, but not those who did not attend or did not vote unless they consent to the result of the voting.If the debtor fails to comply with what was agreed upon, then the rights of thecreditors will be revived as if no suspension of payments took place.

VOLUNTARY INSOLVENCYChapter 3 deals with voluntary insolvency. Here, the assets of the debtor are less than his liabilities. The law says that if the debtor is insolvent, he can bethrown into insolvency if he owes more than P1000. This was enacted in 1909 sothe amount is unrealistic.

SUSPENSION OF PAYMENTSINSOLVENCYPurpose is to delay or suspend the payment of debtsPurpose is to discharge the debtor from payment of debtsDebtor has sufficient properties to pay his debtsDebtor does not have sufficient properties to pay his debtsThe amount of indebtedness is not affectedCreditors receive less than their credits, and in cases where there are preferences, some creditors may not receive anything at allIn voluntary insolvency, it is the debtor who will voluntarily file the petition

. He will file an inventory stating his assets and liabilities and he shall include even his properties which are exempt from execution because he should not take it upon himself to make the judgment that certain properties should not be in


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cluded. He should let the court decide whether or not they should be excluded inhis estate for being exempt from execution.If he failed to include certain assets or certain creditors in the inventory hesubmitted, if he acted in good faith, that can be amended to correct the omission. But if there was a fraudulent intent, then he will not be entitled to a discharge, because the main idea behind voluntary insolvency is to give somebody whois insolvent a chance to be discharged of his debts and to make a fresh start.

When the court receives the petition, it will issue an order declaring the petitioner insolvent and will order the sheriff to take possession of his propertiesexcept those which are exempt from execution. Meanwhile, the debtors of the petitioner will be prohibited from paying him or delivering to him any property belonging to him which may be in their possession.The court will then call a meeting of the creditors to appoint an assignee, an administrator who will take over all the assets of the insolvent in favor of thecreditors. The main idea behind this is to have an orderly and systematic way ofdistributing the remaining assets among the creditors, otherwise it will be free for all, each creditor trying to grab and attach whatever he can so he gets more than the other creditors. So, to avoid that mad scramble where everybodys trying to get an advantage over the other, everything just goes to a common pot that

will be distributed according to the rules of concurrence and preference of credits. So the court will call a meeting of the creditors that will be published in the newspaper and they will also be given copies of the order.While action is pending, the insolvent shall be suspended (dont know what this means). Once an assignee has been appointed by the court, the sheriff shall turn over to him properties of the insolvent and legal title will be vested upon the assignee for the benefit of the creditors.If a claim is secured by a mortgage or a pledge, and a case is already pending,the case shall be suspended until an assignee is appointed by the court. Once anassignee is appointed, what the secured creditor should do is to file a MOTIONTO BE EXCLUDED from the insolvency proceeding because he intends to pursue his lien on the mortgage.If the case has not yet been filed, the creditor should file in the insolvency c

ourt a MOTION FOR LEAVE OF COURT to file the case because he intends to enforcehis lien to foreclose the mortgage. Once the assignee has been appointed, he will be allowed to proceed.If the claim is unsecured and a complaint was already filed in court as an ordinary claim, the case may be allowed to continue but only for the purpose of determining how much is really due to the creditor. Once there is a final judgment, the creditor cannot ask for execution. He has to join the other creditors in sharing the common pot according to the rules on concurrence and preference of credits. He will now file a claim with the insolvency court based on the decision.But if a case has not been filed, the creditor cannot file a claim because whathe should do is to file his claim in the insolvency proceedings once an assigneehas been appointed.

PHIL. TRUST CO. V NATIONAL BANKEffect of filing a Petition: Once a petition is filed, it ipso facto takes awayand deprives the debtor petitioner of the right to do or commit any act of preference as to creditors, pending the final adjudication.

ACTS OF INSOLVENCYIn voluntary insolvency, the filing of a petition for voluntary insolvency is anact of insolvency.

In involuntary insolvency, the following are considered act of insolvency and the petition for involuntary insolvency must set forth one or more of the following:

1. Intention to depart from the Philippines with t defraud creditors2. Absence from the Philippines to defraud creditors3. Concealing self to avoid service of legal processes


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4. concealing pr removing property to avoid its being attached or taken on legalprocess5. confession of judgment in favor of a creditor to defraud other creditors6. allowing default judgment in favor of a creditor to defraud other creditors7. Allowing property to be taken under legal process in preference of a particular creditor to defraud other creditors8. Making conveyance, assignment or transfer of his property to defraud his cred

itors9. Making conveyance, assignment or transfer of his property in contemplation ofinsolvency10. Default of a merchant or tradesman to pay his current obligations for a period of 30 days11. Failure to pay money on deposit or received in a fiduciary capacity for a period of 30 days after demand12. Insufficiency of property to satisfy execution against him

Assets of the insolvent which are not exempt from execution will then be distributed among his creditors in accordance with the rules of concurrence in preference of credits in the Civil Code. There is a provision in the Labor Code which

says the claim of laborers take over and priority over all other place includingtaxes of the government.

CHAPTER 4 INVOLUNTARY INSOLVENCYChapter 4 deals with involuntary insolvency. In this case, it is the creditors who will file the petition. Three or more creditors who are residents of the Philippines whose total credits exceed P1000. But none of them must have been a creditor by assignment within 30 days upon the filing of the petition.Notice this recurring 30-day cut-off period in the law. The law usually presumesthat things done within 30 days before the filing of a petition is fraudulent in nature.

The creditors must be residents of the Philippines and their credits must have b

een approved in the Philippines.

STATE INVESTMENT HOUSE, INC.Citibank, Bank of America and Standard Chartered Bank joined in filing a petition to declare a debtor insolvent. It was argued that they are not residents because they are foreign corporations. Held: Foreign corporations licensed to do business in the Philippines are residents and may therefore file a case for involuntary insolvency.

The debts must further be approved here. Taking, for example the above-mentionedforeign banks, if the debt was approved from a branch abroad, then you cannot file a petition here for insolvency.The petitioners will be required to post a bond to answer for damages should thepetition be dismissed. This is important because once a petition for insolvencyis filed against the debtor, its reputation will definitely be tarnished and its name shall appear in the list circulated to Credit Managers Association of thePhilippines.When the petition is filed, the court will order the borrower to explain why heshould not be declared an insolvent. Meanwhile, all the people who owe him shallbe ordered not to deliver to him any money or properties which are in their possession. If the court finds the petition is not meritorious, then it shall be dismissed. On the other hand, if the court finds the petition to be meritorious, the borrower will be declared insolvent and he will be required to submit a schedule of his assets and liabilities. The sheriff shall be ordered to take possession of his properties until an assignee can be appointed by the court. The court,

as in the case of voluntary insolvency, shall cause a notice to call a meetingof the creditors for the appointment of an assignee and that will published in anewspaper of general circulation and copies of the order shall be sent to the c


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of, may be adjudged insolvent, either on the petition of the partners or any oneof them, or on the petition of three or more creditors of the partnership, qualified as provided in section twenty of this Act, in either of which cases the court shall issue an order in the manner provided by this Act, upon which all theproperty of the partnership, and also all the separate property of each of the partners, if they are liable, shall be taken, excepting such parts thereof as maybe exempt by law; and all creditors of the partnership, and the separate credit

ors of each partner, shall be allowed to prove their respective claims; and theassignee shall be chosen by the creditors of the partnership, and shall also keep separate accounts of the property of the partnership, and of the separate estate of each member thereof. The expenses of the proceedings shall be paid from the partnership property and the individual property of the partners in such proportions as the court shall determine. The net proceeds of the partnership property shall be appropriated to the payment of the partnership debts and the net proceeds of the individual estate of each partner to the payment of his individual debts. Should any surplus remain of the property of any partner after paying hisindividual debts, such surplus shall be added to the partnership assets and be applied to the payment of the partnership debts. Should any surplus of the partnership property remain after paying the partnership debts, such surplus shall be

added to the assets of the individual partners in the proportion of their respective interests in the partnership. Certificate of discharge shall be granted orrefused to each partner as the same would or ought to be if the proceedings hadbeen by or against him alone under this Act; and in all other respects the proceedings as to the partners shall be conducted in like manner as if they had beencommenced and prosecuted by or against one person alone. If such partners residein different provinces, the court in which the petition is first filed shall retain exclusive jurisdiction over the case. If the petition to be filed by less than all the partners of a partnership those partners who do not join in the petition shall be ordered to show cause why they, as individuals, and said partnership, should not be adjudged to be insolvent, in the same manner as other debtorsare required to show cause upon a creditor's petition, as in this Act provided;and no order of adjudication shall be made in said proceedings until after the h

earing of said order to show cause.

SECTION 52. Corporations and sociedades anonimas; Banking The provisions of this Act shall apply to corporations and sociedades anonimas, and upon the petition of any officer of any corporation or sociedad anonima, duly authorized by thevote of the board of directors or trustees, at a meeting specially called for that purpose, or by the assent in writing of a majority of the directors or trustees as the case may be, or upon a creditor's petition made and presented in themanner provided in respect to debtors, of the like proceedings shall be had andtaken as are provided in the case of debtors: Provided, That in case the articles of association or by-laws of any corporation the or sociedad anonima provide amethod for such proceedings, such method shall be followed. All the provisionsof this Act which apply to the debtor, or set forth his duties, examination, andliabilities, or prescribe penalties, or relate to fraudulent conveyances, payments, and assignments, apply to each and every officer of any corporation or sociedad anonima in relation to the same matters concerning the corporation. Whenever any corporation is declared insolvent, its property and assets shall be distributed to the creditors; due at but no discharge shall be granted to any corporation. The provisions of this Act shall not apply to corporations engaged principally in the banking business, or to any other corporation as to which there is any special provision of law for its liquidation in case of insolvency.

A Partnership may be declared insolvent by a petition of the partners or any oneof them or three or more creditors who can also petition for insolvency.Note: A partnership may declared insolvent

* When: during the continuation of the partnership business or after its dissolution and before the final settlement thereof* By Whom:


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In case of Voluntary Insolvency: either on the petition of the partners, or anyof them,In case of Involuntary Insolvency: or on the petition of 3 or more creditors ofthe partnershipIn case of a corporation, by a majority of the directors upon petition of the creditors. Unlike other debtors, a corporation is not given a discharge because it has limited liabilitymeaning the liability is limited to the subscription of t

he stocks and assets of the corporation.

Who may petition for the declaration of Insolvency of a corporation:Sec. 52: The petition may be filed by any officer duly authorized by the vote ofthe board of directors or trustees at a meeting especially called for that purpose, or by the assent in writing of the majority of the directors, or trustees,as the case may be.

Effect when corporation declared insolvent:Whenever any corporation is declared insolvent, its property and assets shall bedistributed to the creditors, but no DISCHARGE shall be granted to any corporation. (sec. 52)

*Dischargeis the formal and judicial release of an insolvent debtor from his debts with the exception of those expressly reserved by law.

There is an advantage for a creditor in filing a case for insolvency against a corporation.For example, a corporation is favoring one creditor as against the other creditors because that creditor is a good friend of a corporation, so that nothing leftfor the other corporation. They may file a petition for insolvency so that in the distribution assets they would share in the remaining assets of the corporation, if any. We have to file claims and those claims would be litigated just like collection case. Otherwise those claims are barred by prescription and cannot be entertained. If you have a creditor who files the claims but in turn owesthe corporation, there would be compensation. Therefore only the excess of the

amount due to him [the creditor] would be filed as a claim against the corporation. But no set-off should be allowed if the claim should be transferred tohim before the filing of the petition within 30 days.In the case of the mortgagee or the pledgee, the normal practice is for him to file a motion asking that he be excluded from the proceedings because he has a lead [mortgage-collateral] already and he intends to pursue his lead. If the mortgage is not enough to satisfy his claim, then he can still file a claim for deficiency. (Note that the mortgagee can only claim for deficiency if he elects tobe excluded from the insolvency proceeding.)If the proceeds of the sale of the property exceeds the amount of the claim, like in a sale of P10M and sold for P8m. The amount of P2M surplus will be turnedover to the assignee to be distributed to the creditors in accordance with therules of concurrence and preference of credit.If someone and other creditor has been given a new preference, as in substantially paid, it cannot prove the claim unless he surrenders the property for paymentgiven to him and that gave him preference three months from the time the debtor was declared insolvent but not later than one year, he should file a petitionto be discharge. After that he can make a fresh start without being hampered byunpaid debts. If he fails to file that motion, he should not be discharged, forthat he will file a motion to be discharged.

SECTION 64. Discharge. At any time after the expiration of three months fromthe adjudication of insolvency, but not later than one year from such adjudication, unless the property of the insolvent has not been converted unto money, thedebtor may apply to the court for a discharge from his debts, and the court sha

ll thereupon order notice to be given to all creditors who have proved their debts to appear on a day appointed for that purpose and show cause why a dischargeshould not be granted to the debtor; said notice shall be given by registered ma


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il and by publication 28 at least once a week, for six weeks, in a newspaper published in the province or city, or, if there be none, in a newspaper which, in the opinion of the judge, will best give notice to the creditors of the said insolvent: Provided, That if no debts have been proven, such notice shall not be required.

SECTION 65. Invalid discharge. No discharge shall be granted, or if granted

shall be valid,(1) if the debtor shall have sworn falsely in his affidavit annexed to his petition, schedule, or inventory, or upon any examination in the course of the proceedings in insolvency, in relation to any material fact concerning his estate or his debts or to any other material fact; or(2) if he has concealed any part of his estate or effects, or any books or writing relating thereto; or(3) if he has been guilty of fraud or willful neglect in the care or custody ofhis property or in the delivery to the assignee of the property belonging to himat the time of the presentation of his petition and inventory, excepting such property as he is permitted to retain under the provisions of this Act; or(4) if, within one month before the commencement of such proceedings, he has pro

cured his real estate, goods, moneys, or chattels to be attached or seized on execution; or(5) if he has destroyed, mutilated, altered, or falsified any of his books, documents, papers, writings, or securities, or has made, or been privy to the makingof, any false or fraudulent entry in any book of account or other document withintent to defraud his creditors; or(6) if he has given any fraudulent preference, contrary to the provisions of this Act, or has made any fraudulent payment, gift, transfer, conveyance, or assignment of any part of his property, or has admitted a false or fictitious debt against his estate; or(7) if, having knowledge that any person has proven such false or fictitious debt, he has not disclosed the same to his assignee within one month after such knowledge; or

(8) if, being a merchant or tradesman, he has not kept proper books of accountin Arabic numerals and in accordance with the provisions of the Code of Commerce; or(9) if he, or any other person on his account, or in his behalf, has influencedthe action of any creditor, at any stage of the proceedings, by any pecuniary consideration or obligation; or(10) if he has, in contemplation of becoming insolvent, made any pledge, payment, transfer, assignment, or conveyance of any part of his property, directly or indirectly, absolutely or conditionally, for the purpose of preferring any creditor or person having a claim against him, or who is, or may be, under liability for him, or for the purpose of preventing the property from coming into the handsof the assignee, or of being distributed under this Act in satisfaction of hisdebts; or(11) if he has been convicted of any misdemeanor under this Act, or has been guilty of fraud contrary to the true intent of this Act; or(12) in case of voluntary insolvency, has received the benefit of this or any other Act of insolvency or bankruptcy within six years next preceding his application for discharge; or(13) if insolvency proceedings in which he could have applied for a discharge are pending by or against him in the Court of First Instance of any other province or city in the Philippine Islands. Before any discharge is granted, the debtorshall take and subscribe an oath to the effect that he has not done, suffered,or been privy to any act, matter, or thing specified in this Act as grounds forwithholding such discharge or as invalidating such discharge, if granted.

SECTION 68. Debts not released under this Act No tax or assessment due the Insular Government or any provincial or municipal government, whether proved ornot as provided for in this Act, shall be discharged. Nor shall any debt created


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by the fraud or embezzlement of the debtor, or by his defalcation as a public officer or while acting in a fiduciary capacity, be discharged under this Act, but the debt may be proved, and the dividend thereon shall be a payment on accountof said debt. No discharge solvent granted under this Act shall release, discharge, or affect any person liable for the same debt, for or with the debtor, either as partner, joint contractor, indorser, surety, or otherwise.

SECTION 69. Effect of discharge under this Act A discharge, duly granted under this Act, shall, with the exceptions aforesaid, release the debtor from all claims, debts, liabilities, and demands set forth in his schedule, or which wereor might have been proved against his estate in insolvency, and may be pleaded by a simple averment that on the day of its date such discharge was granted to him, setting forth the same in full, and the same shall be a complete bar to all suits brought on any such debts, claims, liabilities, or demands, and the certificate shall be prima facie evidence in favor of such fact and of the regularity of such discharge: Provided, however, That any creditor whose debt was proved orprovable against the estate in insolvency who shall see fit to contest the validity of such discharge on the ground that it was fraudulently obtained and who has discovered the facts constituting the fraud subsequent to the discharge, may,

at any time within one year after the date thereof, apply to the court which granted it to set it aside and annul the same.

If they committed fraud, discharge will not be granted, like he conceal some ofhis assets or made undue preference to some creditors and if a creditor discovers fraud, e.g., 1 yr. From the time of discharge was granted within which to havea discharge set aside.There are certain debts which are not discharged.(Justice Vitug, Chairman) Whatare these claims? First, taxes due the National government of any provincial /municipal government. Secondly, debts created by fraud, embezzlement, defalcationas a public officer or while acting in a fiduciary capacity. The former one involves taxes with the government, the latter involves a public officer in a confidential or fiduciary capacity.

*Debts not discharged1. Taxes and assessments due the Government, whether national or local2. Any debt created by the fraud or embezzlement of the debtor;3. Any debt created by the defalcation of the debtor as a public officer or while acting in a fiduciary capacity;4. Debt of any person liable for the same debt, for or with the insolvent debtor, either as partner, joint contractor, indorser, surety or otherwise5. Debts of a corporation6. claim for support7. discharged debt but revived by a subsequent new promise to pay8. debts which have not been duly scheduled in time for proof and allowance, unless the creditors had notice or actual knowledge of the insolvency proceedings,are not discharged as to such creditors;9. claims for unliquidated damages arising out of pure tort;10. claims of secured creditors11. claims not in existence or not mature at the time of discharge12. claims that are contingent at the time of discharge

FRAUDULENT PREFERENCES (Sec. 70)* If any debtor, being insolvent, or in contemplation of insolvency,* within thirty days before the filing of a petition by or against him,* with a view to giving a preference to any creditor or person having a claim against him or who is under any liability for him,o procures any part of his property to be attached, sequestered, or seized on ex

ecution,o or makes any payment, pledge, mortgage, assignment, transfer, sale, or conveyance of any part of his property, either directly or indirectly, absolutely or c


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onditionally, to anyone,o the person receiving such payment, pledge, mortgage, assignment, transfer, sale, or conveyance, or to be benefited thereby, or by such attachment or seizure,* having reasonable cause to believe that such debtor is insolvent, and that such attachment, sequestration, seizure, payment, pledge, mortgage, conveyance, transfer, sale, or assignment is made with a view to prevent his property from coming to his assignee in insolvency,

* or to prevent the same from being distributed ratably among his creditors, orto defeat the object of, or in any way hinder, impede, or delay the operation ofor to evade any of the provisions of this Act,? such attachment, sequestration, seizure, payment, pledge, mortgage, transfer,sale, assignment, or conveyance is void,? and the assignee, or the receiver, may recover the property, or the value thereof, as assets of such insolvent debtor.? If such payment, pledge, mortgage, conveyance, sale, assignment, or transfer is not made in the usual and ordinary course of business of the debtor, or if such seizure is made under a judgment which the debtor has confessed or offered toallow, that fact shall be prima facie evidence of fraud.* Any payment, pledge, mortgage, conveyance, sale, assignment, or transfer of pr

operty of whatever character made by the insolvent within one month before the filing of a petition in insolvency by or against him, except for a valuable pecuniary consideration made in good faith, shall be void.* All assignments, transfers, conveyances, mortgages, or encumbrances of real estate shall be deemed, under this section, to have been made at the time the instrument conveying or affecting such realty was filed for record in the office ofthe register of deeds of the province or city where the same is situated.If the payment is not made in the usual course of business or attachment is madeunder a confession of judgment, that will be considered prima facie evidence of fraud. The fact that it was not in the ordinary course of business or the attachment is made by confession of judgment, any payment, transfer or property, pledge, mortgage made in one month before the quotation except for a valuable pecuniary consideration made in good faith shall be void. Note that the mortgages,

conveyance of property made within one month are not absolutely void. If they were made in good faith and for value, the conveyance will still be valid.

Fraudulent preferenceis committed when the debtor procures any part of his property to be attached, sequestered, or seized on execution or makes any payment, pledge, mortgage, assignment, transfer, sale or conveyance of any part of his property, whether directly or indirectly, absolutely or conditionally, to any one under the following circumstances:1. The debtor is insolvent or in contemplation of insolvency;2. The transaction in question is made within 30 days before the filing of a petition by or against the debtor;3. It is made with a view to giving preference to any creditor or person havinga claim against him;4. and the person receiving a benefit thereby has reasonable cause to believe5. that the transfer is made with a view to prevent his property from coming tohis assignee in insolvency or to prevent the same from being distributed ratablyamong his creditors or to defeat the object of or any way hinder the operationof or evade the provisions of the Insolvency Law. (sec. 70)

When Presumption of Fraud exists.If such payment, pledge, mortgage, assignment, transfer, sale or conveyance is not made in the usual and ordinary course of business of the debtor, or if such seizure is made under a judgment which the debtor has confessed or offered to allow, that fact shall be prima facie evidence of fraud.*Jack said that if it is made in good faith and for valueit is a valid conveyance

.

Meaning of transferunder Insolvency Law includes the sale and every other and dif


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ves of warehouse facilities (Sec. 8);(3)To keep a complete record of all commodities received by him, of the receiptsissued therefor, of the withdrawals, of the liquidation, and of all receipts returned to and canceled by him (Sec. 9).

What are the rights of a person injured by the breach by the warehouseman of anyof his obligations under the law?

Such person is entitled to sue on the warehousemans bond in his own name in any court of competent jurisdiction to recover the damages he may have sustained by such breach.In case the bond given is not sufficient to respond for the full market value ofthe commodity received by such warehouseman, the injured party may go after thewarehousemans property or assets. (Sec. 7)

What offenses are punishable under the General Bonded Warehouse Act?

OffensesEngaging in the business without license(Sec. 3, 11)

If licensed, receiving a quantity of commodity greater than that specified in ones application and license (Sec. 12)

Conniving or combining with any warehouseman not licensed under the Act, with the purpose of evading the provisions of Sec. 3 of theAct (i.e., the licensing requirement) (Sec. 13)

Using the word bonded either partly or wholly as trade name or business name of any entity owning, maintaining or operating a warehouse that is neither:

PenaltyImprisonment > 1 month, or Fine < P 5,000.00, or both

Fine of 2x the market value of the commodity received in excess of authorized quantityImprisonment < 1 month, or Fine < P 200.00, or bothImprisonment < 5 years, or Fine < P 5,000.00, or both

A. licensed under the Act;B. established under Chapter 39, Art. XIII Sec. 1302 and 1304 of the Admin Codeof 1917 as amended;as well as naming, designating or advertisingsuch warehouse (Sec. 3, as amended by RA 247)

Who are not covered?Cooperative marketing associations of commodity producers organized under Act 3425 (Cooperative Marketing Law), provided that they do not receive, for storage,commodity from non-members in a quantity greater than of the total quantity of commodity received from members, at any time. (Sec. 15)

Gonzales v. Go TiongFacts: GT operated a bonded warehouse and accepted deliveries of palay among which were several sacks belonging to RG. The issues which GT issued were ordinary receipts, not the warehouse receipts defined by the Warehouse Receipts Act.One day, the warehouse burned, together with its contents of palay, which included RGs sacks. RG sued on GTs bond with Luzon Surety to recover his loss. GT andLuzon Surety opposed this, saying among others that: (1) RGs claim was covered by the Civil Code and not the Bonded Warehouse Law since the receipts were ordina

ry receipts and not the warehouse receipts prescribed by the Warehouse ReceiptsAct; (2) The deposits of palay by RG were gratuitous, and therefore the destruction of the goods by fire extinguished GTs obligation. During the trial, it was


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found that GT had been accepting deposits in excess of the limit permitted underhis license.Ruling: GT and Luzon Surety are liable to RG for the destruction of thegoods under the Warehouse Receipts Act. Any deposit made with a bonded warehouseman is necessarily governed by the General Bonded Warehouse Act. The kind ornature of the receipts issued for the deposits is not very material, much less decisive. The issuance of warehouse receipts in the provided by Sec. 1 of the Wa

rehouse Receipts Act is merely permissive and directory, and not obligatory. [Note: Under the General Bonded Warehouse Act, the term receipt means any receipt issued by a warehouseman for commodity delivered to him. (Sec. 2)]The defense that the palay was destroyed by fire and thus loss of the thing exempts the obligor in a contract of deposit from depositing the goods is not availing here. The fact that GT exceeded the limit of his authorized deposit militates against his defense of non-liability.The surety cannot avoid liability from the mere failure of GT to issue the prescribed warehouse receipt. Such defense is not available in an action on the bond.

Limjoco v. Director of Commerce

Facts: Mr. & Mrs. L owned a rice mill (kiskisan

) and were engaged in thebusiness of milling palay. Such kiskisan was licensed under the General Bonded W

arehouse Act. However, when Mr. L died and Mrs. L took over the management, shedid not renew her license, claiming that her business does not fall within thepurview of such Act inasmuch as Mrs. L did not charge anything for keeping the palay (it was merely a favor done for the customers). She likewise alleged thather camalig was neither adequate nor suitable for storage.When Mrs. L refused to renew her license despite the ruling of the Director of Commerce that her rice milling business falls within the Act, the Director fileda petition for declaratory relief with the CFI.Ruling:Sec.2 of the General Bonded Warehouse Act is too clear to permit of any exercisein construction or semantics. It is enough that the palay be delivered to Mrs.

L, even if only for milling, for the Act to apply.The alleged inadequacy of the construction for storage insofar as the safety ofthe palay is concerned is not a valid reason to remove it from the operation ofthe statute. Otherwise, the very fact of non-compliance with the legal requirements in this respect would be its own excuse from the liabilities imposed.

WAREHOUSE RECEIPTS LAW (Act No. 2137)The Warehouse Receipts Act prescribes the mutual rights and duties of a warehouseman, who issues warehouse receipts, and his depositor, and covers all warehouses, whether bonded or not. This is to be distinguished from the General Bonded Warehouse Law, which on the other hand, regulates and supervises only those warehouses which put up a bond.

I. WarehouseA warehouse is a building where goods are deposited and stored for profit.

II. Warehouse receipt (also known as quedan)* A warehouse receipt is a written acknowledgment by a warehouseman that he hasreceived the goods described therein and holds the same for the person to whom it is issued or as the latter may order.* It is a contract between the owner of the goods or the person authorized by the owner to transfer ownership or possession over the goods, on one hand, and thewarehouseman, on the other hand, for the latter to store the goods and the former to pay the compensation for that service.

* A warehouse receipt need not be in any particular form. However, it must contain certain essential elements:(1) Location of warehouse (Note: This is for the purpose of legal action.)


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(2) Date of issue of receipt(3) Consecutive number of receipt(4) A statement whether the goods received will be delivered to the bearer, specified person, or to specified person or his order (to whom delivered)(5) Rate of storage charges(6) Description of goods and packages(7) Signature of warehouseman

(8) Fact of warehousemans ownership or interest in goods, if any(9) Statement of amount of advances made and of liabilities incurred for which warehouseman claims as lien (Sec. 3)

What is the effect of failure to include any of the essential terms?A warehouseman shall be liable to any person injured thereby for all damages caused by the omission. (Sec. 3)There are certain terms that cannot be inserted in a warehouse receipt:(1)Those contrary to the provisions of the Act;(2) Those that would impair a warehousemans obligation to exercise that degree of care in the safekeeping of the goods entrusted to him. Thus, a warehouseman c

annot stipulate that the owner will bear the loss of the goods.Note: that it is the holder of the goods who determines whether a warehouse receipt is negotiable or non-negotiable.* Also note that warehouse receipts can only be issued by a warehouseman, or byhis authorized representative. (Sec. 1)

Marks to be made on a warehouse receipt(1) A non-negotiable receipt must be clearly marked as such. Otherwise, the holder of the receipt, who purchased it for value and who supposed it to be negotiable, may treat it as negotiable. (sec. 7)(2) Duplicate receipts must be so marked. Otherwise, the warehouseman is liablefor all damages suffered by a holder believing the same to be the original. (sec. 6)

Warranties of a warehouseman as to duplicate receiptsWhen a warehouseman issues duplicate receipts, he warrants that:(1) The duplicate is an accurate copy of the original receipt.(2) Such original receipt has not been cancelled at the date of the issue of theduplicate (Sec. 15)

What is the effect of alteration of a receipt on the liability of the warehouseman? (Sec. 13)(1) If the alteration is IMMATERIAL (the tenor of the receipt is not changed), whether fraudulent or not, authorized or not, the warehouseman is liable on the altered receipt according to the original tenor.(2) If the alteration is MATERIAL but AUTHORIZED, he is liable according to theterms of the altered receipt.(3) If the alteration is MATERIAL, UNAUTHORIZED but INNOCENTLY MADE (that is, without fraudulent intent), he is liable on the altered receipt according to the original tenor.(4) If the alteration is MATERIAL AND FRAUDULENTLY MADE, he is liable:(a) To the purchaser of the receipt for value and without notice of the alteration according to the tenor of the original receipt(b) To the alterer according to the terms of the original receipt(c) To subsequent purchasers with notice of the alteration according to the terms of the original receipt.What are the effects of misdescription of goods? (Sec. 20)

(1) A warehouseman is under the obligation to deliver the identical property stored with him and if he fails to do so, he is liable directly to the owner.(2) As against a bona fide purchaser of a warehouse receipt, the warehouseman is


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estopped from denying that he received the goods described in the receipt.(3) BUT if the description consists merely or marks or label upon the goods or upon the packages containing them, the warehouseman is not liable even if the goods are not of the kind as indicated in the marks or labels

NEGOTIABLENON-NEGOTIABLEDefinitionWarehouse receipt deliverable to bearer or to order of a person specified therein.Warehouse receipt deliverable to a specified person.Manner of transferNegotiated either by delivery or indorsementMay be transferred by its delivery to the transferee accompanied by a deed of as

signment, donation, or other form of transfer. It cannot be negotiated. (Sec. 39)Effect of error in designation of receipt as negotiable / non-negotiableIf the words non-negotiable are inserted, the insertion is void, and the receipt remains negotiable.If the receipt is not stamped with the words non-negotiable, the holder may treatthe receipt as negotiable. (Sec. 7)

Moreover, the warehouse-man will be liable for damages suffered by a holder of such receipt who purchases it for value supposing it to be negotiable. Such holder may treat, at his option, such receipt as imposing upon the warehouseman thesame liabilities he would have incurred had the receipt been negotiable.Rights acquired by indorsee / transfereeIndorsee acquires the direct obligation of the warehouseman to hold possession of the goods for him as if the warehouseman had contracted directly with him. (Sec. 41)Transferee acquires the title of the goods subject to the terms of any agreementwith the transferor. He also acquires the right to inform the warehouseman of

such transfer, and thereafter acquires the obligation of the warehouseman to hold possess-ion of the goods for him. (Sec. 42)To whom goods are to be deliveredA person in possession of the receipt, the terms of which the goods are delivered:(a) To him or order;(b) To bearer;

(c) Indorsed to him;(d) Indorsed in blank by the person to whom delivery was promised (S.9)

A person entitled to delivery by the terms of the receipt, or one to whom he hasgiven written authorizationEffect on attachment / execution upon the goodsThe goods cannot be attached or levied upon unless the receipt is first surrendered to the warehouseman or the negotiation enjoined.Prior to notification of the warehouseman by the transferor or transferee, the warehouseman is not bound to the transferee whose right may be defeated by the creditor of the transferor or by a non-notification to such warehouseman of the su

bsequent sale of the goods (sec. 42)

Differentiate a negotiable instrument under the NIL and a negotiable warehouse receipt.NEGOTIABLE INSTRUMENTNEGOTIABLE WAREHOUSE RECEIPTSubjectMoneyMerchandiseObject of valueInstrument itselfThe goods which are the subject of the receiptLiability of intermediate partiesSecondary. Indorsement of the instrument is a contract where the indorser warrants that he will pay the instrument if party primarily liable fails to do so.Indorser had no liability in the event that the warehouseman fails to deliver the goods.What if it is stolen?An indorsee, if he is a holder in due course, may obtain a title better than that of the person who indorsed the instrument to him.There is no such thing as a holder in due course here. The indorsee only obtainssuch title as the person negotiating had over the goods.Effect of deliberate alterationInstrument is null and void.The receipt is valid but may only be enforced according to its original tenor.Original bearer instrumentWill always remain so payable regardless of how it has been indorsed.A special indorsement converts the receipt to one deliverable to order, and thusrequires indorsement and delivery for further negotiation.III. WarehousemanA warehouseman is a person lawfully engaged in the business of storing goods forprofit. (Sec. 58)

What are the obligations of a warehouseman?1.He has the duty to deliver the goods upon demand made by the holder of the receipt or by the depositor.2.He has to exercise such care in regard the goods as a reasonable careful ownerof similar goods would exercise. (Sec. 21)

3. He has to keep the goods separate from the goods of other depositors.

A. Delivery


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In the absence of some lawful excuse provided by the Act, a warehouseman is bound to deliver the goods upon a demand made either by: (1) the holder of a receipt for the goods, or (2) the depositor, provided that such demand is accompaniedby:1.an offer to satisfy the warehousemans lien;2.an offer to surrender the receipt if it is negotiable; and3.a readiness and willingness to sign an acknowledgment, when the goods are deli

vered, that they have been delivered if such is requested by the warehouseman.(Sec. 8)

A warehouseman is justified in delivering the goods to:A. the person lawfully entitled to the possession of the goods, or to his agent.These include:

1.Person to whom a competent court has ordered the delivery of the goodsWhere a negotiable instrument has been lost or destroyed, the court may order delivery to a person upon satisfactory proof of such loss or destruction and uponproper posting of a bond to protect the warehouseman from any liability or expense which he may incur by reason of the original receipt remaining outstanding (Sec.14)

2An attaching creditorA creditor whose debtor is the owner of a negotiable receipt can resort to the courts to have such receipt attached. (Sec. 26) It must be noted, however, that the goods covered by the receipt cannot be attached or levied upon under anexecution UNLESS:a. the negotiable receipt is first surrendered to the warehouseman; orb. its negotiation is enjoined; orc. the receipt is impounded by the court (Sec. 25)3.The purchaser in case of sale of the goods by the warehouseman to enforce hislien (Sec. 33)4.The purchaser when perishable or hazardous goods are sold at a private or public sale (Sec.34)

a. the person who is himself entitled to delivery of the goods by the terms of anon-negotiable receipt or who has been authorized to take delivery of the goodsby the person entitled to such delivery, which authority is endorsed upon the receipt or written on another paper;b. the person in possession of a negotiable receipt by the terms of which the goods are deliverable to him or order, or to bearer, or which has been endorsed tohim or in blank by the person to whom delivery was promised by the terms of thereceipt by his immediate indorsee. (Sec. 9)If the warehouseman refuses or fails to deliver the goods in compliance with theholder or depositors demand, he has the burden of proving that he had a lawful excuse for such refusal or failure. (Sec. 8) Such lawful excuses include the following:==> The warehouseman has acquired title or right to the possession of the goods,either:

(a) through a direct or indirect transfer made by the depositor at the time of deposit for storage or subsequent thereto; or

(b) from the warehousemans lien.==> When several persons claim the goods. In this case, the warehouseman has 2options:(a) He can refuse to deliver the goods to any one of them until he has had reasonable time to ascertain the validity of the various claims (Sec. 18);(b) He can require all claimants to interplead, either as a defense to an action brought against him for non-delivery of the goods, or as an original suit, whichever is appropriate. Note that a warehouseman can resort to an action for impleader only when the title to the goods is in issue.

==> The goods to be delivered have been lost. This is of course without prejudice to liabilities which the warehouseman may incur due to such loss.==> The warehousemans lien has not yet been satisfied (Sec. 31);


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ction to recover property from him (Sec. 35)Note: that the warehousemans lien does not preclude other remedies. Whether or not a warehouseman has a lien upon the goods, he is entitled to all remedies allowed by a law to a creditor against a debtor for the collection from the depositor of all charges and advances which the depositor has expressly or impliedly contracted with the warehouseman to pay. (Sec. 32)

What happens if there is proper delivery or partial delivery but the warehouseman fails to cancel the receipt or record such partial delivery on the receipt?* If goods covered by a negotiable warehouse receipt are delivered by a warehouseman but he fails to take and cancel the receipt, then he is still liable to onewho purchases the receipt for value and in good faith.* If he makes partial delivery of the goods but fails to record the partial delivery on the receipt, then he may still be held liable for the entire receipt toone who purchases it for value and in good faith.

B. Care of the GoodsGeneral rule: A warehouseman is required to exercise such degree of care which areasonably careful owner would exercise over similar goods of his own. He shall

be liable for any loss or injury to the goods caused by his failure to exercisesuch care. (Sec. 21)Exception: He shall not be liable for any loss or injury which could not have been avoided by the exercise of such care. (Sec. 21)Exception to the Exception: He may limit his liability to an agreed value of theproperty received in case of loss. However, he cannot stipulate that he will not be responsible for any loss caused by his negligence.

C. Non-Commingling of GoodsGeneral Rule: A warehouseman may not commingle goods belonging to different depositors or belonging to the same depositor but for which separate receipts have been issued (sec. 22). This is to facilitate the identification and redelivery ofthe goods deposited.

Exception: A warehouseman may commingle fungible goods of the same kind and grade provided he is authorized by agreement or custom. (sec. 23) In such a case, the various depositors of the mingled goods shall own the entire mass in common,and each depositor shall be entitled to such portion thereof as the amount whichhe deposited bears to the whole mass.Note: that the warehouseman shall be severally liable to each depositor for thecare and redelivery of his share of such mass to the same extent and under the same circumstances as if the goods had been kept separate. (Sec. 24)

IV. Negotiation And Transfer Of Receipts

Who may negotiate a negotiable receipt?(1) The owner of the receipt; or(2) The person to whom possession of the receipt was entrusted by the owner, provided that either:(a) by the terms of the receipt, the warehouseman undertakes to deliver the goods to the order of the person to whom the possession or custody of the receipt has been entrusted; or(b) at the time of entrustment of the receipt, it is in such form that it may be negotiated by delivery. (Sec. 40)

How is a receipt deliverable to order negotiated?1. By indorsement in blank, thereby making it deliverable to bearer; or2. By special indorsement which would require further indorsements for further negotiations.

In both cases, indorsements must be coupled with delivery.

How is a receipt deliverable to bearer negotiated?


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There is no need to indorse for negotiation. Physical delivery of the instrumentwill suffice. However, if the instrument is indorsed specially, the bearer character of the receipt is destroyed and for further negotiation, there will be need for indorsements.

What are the warranties made by a person negotiating or transferring a warehousereceipt?

1. The receipt is genuine.2. He has a legal right to negotiate or transfer it.3. He has no knowledge of any fact which would impair the validity or worth of the receipt.4. He has a right to transfer the title to the goods and that the goods are merchantable. (Sec. 44)* Note that the indorsement of a receipt does not make the indorser liable for any failure on the part of the warehouseman or previous indorsers of the receiptto fulfill their respective obligations. (Sec. 45)

What rights are acquired by person to whom a negotiable receipt has been duly negotiated?

Such person acquires:(1) title of the person negotiating the receipt over the goods covered by the receipt;(2) such title of the person (depositor or owner) to whose order the goods wereto be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith for value;(3) the direct obligation of warehouseman to hold possession of the goods for him, as if the warehouseman had directly contracted with him. (Sec. 41)

What rights are acquired by a person to whom a negotiable receipt has been merely transferred, not indorsed?(1) The right to the goods as against the transferor;(2) The right to compel the transferor to indorse the receipt, unless the intent

ion of the parties is that the receipt should be merely transferred.Note: Negotiation shall take effect as of the time when indorsement is actually made.

Pledge, sale or chattel mortgage of negotiable receipt* A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts payment of the debt from a person does not warrant the genuineness of thereceipt nor the quality or the quantity of the goods therein described. (Sec. 46)* It is the duty of the purchaser, mortgagee or pledgee of goods for which a negotiable receipt has been issued to require the negotiation of the receipt to him. His failure to do so will have the same effect as an express authorization onhis part to the seller, mortgagor or pledgor to make any subsequent negotiation.(sec. 48) The subsequent purchaser must have the receipt in good faith and forvalue.* Where the negotiation of a negotiable receipt was attended by breach of duty,fraud, mistake or duress, the person to whom the receipt was negotiated or a person subsequent thereto who paid value for the receipt and who had no notice of the breach of duty, fraud, mistake or duress acquires title to the goods. In short, negotiation is valid despite having been made in breach of trust. (sec.47)

Does negotiation of a warehouse receipt defeat the lien of the vendor of the goods covered thereby?


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Yes. Where a negotiable receipt has been issued for goods, no vendors 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. This is regardless of whether or not such negotiation was prior or subsequent to the notification to thewarehouseman who issued such receipt of the vendors claim to a lien or right ofstoppage in transitu. The warehouseman shall not be obliged to deliver or be justified in delivering the goods to an unpaid unless the receipt is first surrend

ered for cancellation. (Sec. 49)Thus, to protect themselves, creditors of debtors owning warehouse receipts mayobtain a writ of preliminary injunction and serve the same on the depositor before he has a chance to negotiate the receipt. Once enjoined, there will no longerbe a danger that a 3rd person will be prejudiced. Thus, the goods may be attached or levied upon. The vendors lien or the right of stoppage in transit may alsobe exercised. (Sec. 26)

Note the differences between negotiable and non-negotiable receipts. (Refer totable above.)May non-negotiable receipts be negotiated?Obviously not. Even if such receipt are indorsed, the transferee acquires no add

itional right. However, non-negotiable receipts may be transferred or assignedby delivery.

In these cases, who has the better right to the goods?(1) Judgment creditor v. holderGoods should be given to the holder who has the capacity to comply with the requirements of Section 8, namely: indorse and deliver the receipt of which he is the holder, pay the fees or liens of the warehouseman, and sign a receipt for thedelivery of the goods.(2) Unpaid seller v. holderThe unpaid seller may get back the goods IF the warehouse receipt is still withthe buyer. However, if the receipt has already been indorsed and delivered to aholder who paid value therefor in good faith, the latter has a better right ove

r the unpaid seller.(3) Lessor / Landlord v. holderHolder can recover goods as he can comply with the requirements of Sec. 8.(4) Owner (alleged) v. holderIn this case, the warehouseman should not deliver the goods to either of the twoas the title of ownership over the goods is in question. The safe course of action for the warehouseman to take is to file a complaint for interpleader to compel both claimants to litigate against each other for the goods. Otherwise, if the warehouseman decides on his own, he runs the risk of being held liable twicefor the goods.

V. What offenses are punishable under the Warehouse Receipts Act?Offense Who are liable Penalty

* Issuance or assistance in issuance Warehouseman, Imprisonment < 5yearsfor which such receipt is issued or servantor bothhave not been actually received by the warehouseman or are not under his actualcontrol at the time of issuance (Sec. 50* Issuance or assistance in issuance Warehouseman, Imprisonment < 1yearof a receipt knowing that it contains or his officer, agent, or fine< P 2,000.00any false statement (Sec. 51) or servant or both* Issuance or assistance in issuance Warehouseman, Imprisonment

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