ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page 1 of 8

WAREHOUSE RECEIPTS LAW Scope: all warehouses, whether public or private, bonded or not Application: applies to warehouse receipts issued by a warehouseman as defined in Sec. 58(a), while the Civil Code, to other cases where receipts are not issued by a warehouseman. The Issue of Warehouse Receipts Who may issue a. only a warehouseman, BUT a duly authorized officer or agent of a warehouseman may do so; b. warehouseman - a person lawfully engaged in the business of storing goods for profit; c. receipts not issued by a warehouseman although in the form of warehouse receipts are not warehouse receipts Form and Content: need not be in particular form, but certain essential terms must be present: PLOCSARD 1. Location of warehouse -because the warehouseman may have other warehouses 2. Date of issue and receipt - indicates prima facie the date when the contract of deposit is perfected and when the storage charges shall begin 3. Consecutive number of receipt - to identify each receipt with the goods for which it was issued 4. Person to whom goods are deliverable - determines the person or persons who shall prima facie be entitled lawfully to the possession of the goods deposited 5. Rate of storage charges - consideration for the contract from the view of the warehouseman 6. Description of goods or packages - for identification

7. Signature of warehouseman - best evidence of the fact that the warehouseman has received the goods and has bound himself to assume all obligations in connection therewith 8. Warehousemans ownership of or interest in the goods - purpose is to prevent abuses in the past when warehouseman issued receipt on their goods 9. Statement of advances made and liabilities incurred (if present) - purpose is to preserve the lien of the warehouseman over the goods stores or the proceeds thereof in his hands NOTE: Effect of omission of any of the essential terms: a. validity and negotiability of receipt is NOT affected b. warehouseman will be liable for damages c. the contract will be converted top an ordinary deposit What terms may be inserted? ANY other terms or condition EXCEPT: a. those contrary to this Act (e.g. exemption from liability for misdelivery in Sec. 10, not giving statutory notice in case of sale of goods in Sec. 33 and 34) b. an exemption from liability and negligence c. those contrary to law, morals, good customs, public order or public policy Definitions a. negotiable receipt - receipt in which it is stated that the goods received will be delivered to the

Adviser: Dean Cynthia Roxas-Del Castiillo; Heads: Celeste Marie R. Cruz and Christine S. Trinidad; Understudies: Myra Mangente and Eleanor Umali

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bearer or to the order of any person named in such receipt b. non-negotiable receipt - receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person NOTE: 1. a provision in a negotiable receipt that it is non-negotiable is VOID 2. a negotiable warehouse receipt is not a negotiable instrument in the same sense as in the NIL. Duplicate receipts (applies ONLY) to negotiable warehouse receipts. - Whenever more than one negotiable receipt is issued for the same goods, the word DUPLICATE shall be placed on the face of the receipt except the one 1st issued. - Effect: the warehouseman shall be liable for damages for failing to do this to any one who purchased the subsequent receipt (1) for value, and (2) supposing it to be an original; even though the purchase be after delivery of the goods by the warehouseman to the holder of the original receipt. Failure to make non-negotiable (applies only to nonnegotiable warehouse receipts) a. A non-negotiable receipt must contain the word: non-negotiable b. Effect: Failure to do so will make a holder who (1) purchased for value AND (2) supposing it to be negotiable, may at his option treat it as negotiable

Construction of warehouse receipts: Liberal construction of the law in favor of bona fide holders. This has no application to actions against any party other than a warehouseman. Obligation and Rights of a Warehouseman upon their Receipts Principal obligations of a warehouseman 1. To take care of the goods, and be liable for failure to exercise care (BUT he is not liable for loss or injury which could not have been avoided, unless there is a stipulation to the contrary); 2. To deliver the goods to the holder of the receipt or the depositor upon DEMAND accompanied with: a. an offer to satisfy the warehousemans lienbecause a warehouseman may refuse delivery until his lien is satisfied b. an offer to surrender the receipt- for the protection of the warehouseman and to avoid criminal liability; this is subject to waiver c. an offer to sign when the goods are delivered, an acknowledgment that they have been delivered BUT a warehouseman may still REFUSE delivery on the grounds of some lawful excuse like: a. Sec. 10 1. he has been requested by the person lawfully entitled to the goods not to make delivery; 2. he has information that the delivery about to be made was to one not lawfully entitled to the goods;

Adviser: Dean Cynthia Roxas-Del Castiillo; Heads: Celeste Marie R. Cruz and Christine S. Trinidad; Understudies: Myra Mangente and Eleanor Umali

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b. Sec. 16: He has acquired title to the goods which was derived from 1. transfer made by the depositor at the time of the deposit for storage or subsequent thereto 2. the warehousemans lien c. Sec. 18: If there are several claimants to the goods d. Sec. 21: If the goods were lost and he had no fault e. Sec. 36: He has already lawfully sold the goods Persons to whom the goods must be delivered 1. Persons lawfully entitled to the possession of the goods or its agent 2. Persons entitled to deliver under: a. a non-negotiable receipt; or b. with written authority 3. person in possession of a negotiable receipt (which was lawfully negotiated) NOTE: a warehouseman does NOT have a cause of action against a person to whom he misdelivered the thing UNLESS the depositor sues him. Acts for which a warehouseman is liable (1) Failure to stamp duplicate on copies of a negotiable receipt (Sec. 6 and 15) When more than one negotiable receipts are issued for the same goods, the word duplicate must be plainly placed by the warehouseman upon the face of every

such receipt except the 1st. In such case, the warehouseman warrants: a. that the duplicate is an accurate copy of the original receipt b. such original receipt is uncancelled at the date of the issue of the duplicate NOTE: The duplicate imposes no other liability upon the warehouseman. (2) Failure to place non-negotiable on a nonnegotiable receipt (Sec. 7) (3) Misdelivery of the goods (Sec. 10) a. To one not lawfully entitled to possession - Liable for conversion (unauthorized assumption and exercise of the right of ownership over goods belonging to another through alteration or the exclusion of the owners right) b. To a person entitled to delivery under a nonnegotiable receipt or written authorization OR person in possession of a negotiable receipt - Still liable for conversion if: 1. prior to delivery, he had been requested NOT to make such delivery 2. he had received notice of the adverse claim or title of a 3rd person (4) Failure to effect cancellation of a negotiable receipt upon delivery of the goods (Sec. 11) - This is applicable ONLY to negotiable receipts but NOT to a situation where there was a valid sale in accordance with Sec. 36 a. When the goods are delivered already: Failure to cancel will make him liable to any one who purchased for value in good faith such receipt b. When only some of the goods were delivered: Failure to cancel or to state plainly in the receipt

Adviser: Dean Cynthia Roxas-Del Castiillo; Heads: Celeste Marie R. Cruz and Christine S. Trinidad; Understudies: Myra Mangente and Eleanor Umali

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that some goods were delivered will make him liable to any one who purchased for value in good faith such receipt (5) Issuing receipt for non-existing goods or misdescribed goods (Sec. 20): GR: a warehouseman is under obligation to deliver the identical property stored with him and if he fails to do so he is liable. Exception: if the description consists merely of marks or labels upon the goods or upon the packages containing them, etc., the warehouseman is NOT liable even if the goods are not of the kind as indicated in the marks or labels (6) In case of lost or destroyed receipts (Sec. 14) Remember that a warehouseman must deliver to the one who has the receipt but if such was lost, a competent court may order the delivery of the goods only: a. upon proof of the loss or destruction of the receipt; AND b. upon giving of a bond with sufficient securities NOTE: the warehouseman is still liable to a holder of the receipt for value without notice since the warehouseman can secure himself in the bond given. (7) Failure to take care of the goods (Sec. 12) (8) Failure to give notice in case of sales of goods to satisfy his lien (Sec. 33) or because the goods are perishable and hazardous (Sec. 34)

Effects of ALTERED RECEIPTS a. Alteration immaterial: whether fraudulent or not, authorized or not, the warehouseman is liable on the altered receipt according to its original tenor; b. Alteration material: but it was authorized, the warehouseman is liable according to the terms of the receipts as altered; c. Material alteration innocently made: though unauthorized, the warehouseman is liable on the altered receipt according to its original term; d. Material alteration fraudulently made: warehouseman is liable according to the original tenor to a: 1. purchaser of the receipt for value without notice; and 2. to the alterer and subsequent purchasers with notice ( BUT his liability is limited only to delivery as he is excused from any other liability) * Even a fraudulent alteration cannot divest the title of the owner of stored goods and the warehouseman is liable to return them to the owner. BUT a bona fide holder acquires no right to the goods under a negotiable receipt which has been stolen or lost or which the indorsement has been forged. With Regard to Ownership a. Ownership is not a defense for refusal to deliver The warehouseman cannot refuse to deliver the goods on the ground that he has acquired title or right to the possession of it unless such is derived: 1. directly or indirectly from a transfer made by the depositor at the time of

Adviser: Dean Cynthia Roxas-Del Castiillo; Heads: Celeste Marie R. Cruz and Christine S. Trinidad; Understudies: Myra Mangente and Eleanor Umali

ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page 5 of 8

the deposit for storage or subsequent thereto; 2. from the warehousemans lien b. Adverse title of a 3rd person is not a defense for refusal to deliver by a warehouseman to his bailor on demand EXCEPT: 1. To persons to whom the goods must be delivered (Sec. 9) 2. To the person who wins in the interpleader case (Sec. 17) 3. To the person he finds to be entitled to the possession after investigation (Sec. 18) 4. To the buyer in case there was a valid sale of the goods (Sec. 36) Duty of warehouseman when there are several claimants The warehouseman may either: a. Investigate and determine within a reasonable time the validity of the claims, and deliver to the person whom he finds is entitled to the possession of the goods Effect: He is NOT excused from liability in case he makes a mistake b. He may bring a complaint in interpleader Effect: a) he will be relieved from liability in delivering the goods to the person whom the court finds to have better right; b) he is liable for refusal to deliver to the rightful claimant when it is required to have an interpleader; c. He may not do (a) and (b) Effect: He will be liable after a lapse of a reasonable time, of conversion as of the date of the original demand for the goods.

NOTE: This does NOT apply to cases where the warehouseman himself makes a claim to the goods. Commingling of deposited goods GR: A warehouseman may not mingle goods belonging to different depositors. Exception: In case of fungible goods of the same kind and grade provided: a. he is authorized by agreement b. he is authorized by custom Effects: a. each depositor shall own the entire mass in common and entitled to his portion b. warehouseman is severally liable to each depositor for the care and redelivery of their portion as if the goods had been kept separate Attachment or levy or negotiable receipts A warehouseman has the obligation to hold the goods for the owner or for the person to whom the negotiable receipt has been duly negotiated. Therefore, the goods cannot be attached or levied upon under an execution UNLESS: a. the document be first surrendered; or b. the negotiation is enjoined, or c. the document is impounded by the court The warehouseman cannot be compelled to deliver the goods until: a. the receipt is surrendered to him; b. it is impounded by the court NOTE: This provision does NOT apply if the person depositing is NOT the owner of the goods or one who has

Adviser: Dean Cynthia Roxas-Del Castiillo; Heads: Celeste Marie R. Cruz and Christine S. Trinidad; Understudies: Myra Mangente and Eleanor Umali

ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page 6 of 8

not the right to convey title to the goods binding upon the owner. Remedy of creditor whose debtor owns a negotiable receipt Attachment of the negotiable receipt (NOT the goods) NOTE: the goods themselves cannot readily be attached or levied upon by ordinary legal process Extent of warehousemans lien a. lawful charges for 1. storage, and 2. preservation of the goods b. lawful claims for 1. money advanced 2. labor 3. interest 4. weighing 5. insurance 6. cooperating 7. transportation c. other charges and expenses in relation to such goods d. reasonable charges and expenses for notice and advertisements of sale e. sale of the goods where defaults has been made in satisfying the lien Extent of the lien when a negotiable receipt has been issued a. charges for storage and preservation of the goods b. other charges expressly enumerated (from b, c, d and e above) although the amount is NOT stated NOTE: For claims not specified, the warehouseman shares pro rata with the other creditors of the depositor the

balance of the proceeds of the sale for the satisfaction of the claims. Goods subject to lien a. goods of the depositor who is liable to the warehouseman as debtor wherever such goods are deposited; b. goods of other persons stored by the depositor who is liable to the warehouseman as debtor with authority to make a valid pledge NOTE: A warehouseman has NO lien on goods belonging to another and stored by a stranger in fraud of the true owners right. The lien may be lost through: a. voluntarily surrendering possession of goods constitutes a waiver or abandonment A warehouseman may NOT claim a lien on other goods of the same depositor for unpaid charges on the goods surrendered if the goods were delivered to him under different receipts. b. wrongfully refusing to deliver the goods to a person who holds the receipt or the depositor upon DEMAND accompanied with: 1. an offer to satisfy the warehousemans lien (because a warehouseman may refuse delivery until his lien is satisfied) 2. an offer to surrender the receipt a. for the protection of the warehouseman and to avoid criminal liability b. this is subject to waiver

Adviser: Dean Cynthia Roxas-Del Castiillo; Heads: Celeste Marie R. Cruz and Christine S. Trinidad; Understudies: Myra Mangente and Eleanor Umali

ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page 7 of 8

3. an offer to sign when the goods are delivered, an acknowledgment that they have been delivered Remedies for a warehouseman 1. Even if without lien, all remedies allowed by law to a creditor against his debtor for collection of charges; 2. By refusing to deliver the goods until his lien is satisfied; 3. All remedies allowed by law for the enforcement of a lien against personal property and recovery of any deficiency in case it exists after the sale of the property; 4. By causing the extrajudicial sale of the property and applying the proceeds to the value of the lien PROCESS: A. Written notice to the person on whose account the goods are held or to persons who claim an interest in the goods containing: a. itemized statement of warehousemans lien showing the sum due and when it became due b. brief description of the goods c. a demand that a claim be paid on or before a day mentioned, not less than 10 days from: 1. delivery of notice if personally delivered 2. time when notice should reach its destination if sent by mail d. statement that if the claim is not paid, the goods will be advertised for sale and then sold at a specified time and place B. After the time for payment of the claim if the notice has elapsed, the sale will be advertised stating: a. a description of the goods to be sold b. the name of the owner or person on whose account the goods were held

c. time and place of the sale C. Publication: a. if there is a newspaper published in the place of sale: once a week for 2 consecutive weeks and the sale not held less than 15 days from the time of the 1st publication b. if there is no newspaper: posted at least 10 days before the sale in not less than 6 conspicuous places in the place of sale D. Sale itself in: a. place where the lien was acquired b. if such place is manifestly unsuitable for the purpose, at the nearest suitable place E. From the proceeds of the sale: a. the warehouseman shall satisfy his lien b. including the reasonable charges of notice, advertisement and sale c. the balance shall be held by the warehouseman and delivered on demand to the person to whom he should deliver it F. Any time before the goods are sold, any person may pay the warehouseman for his lien and the other expenses. The warehouseman shall deliver the goods to that person if he is entitled under this Act, to the possession of the goods on payment of the charges. Otherwise, the warehouseman shall retain ownership of the goods. 5. With regard to perishable and hazardous goods Warehouseman will give notice to owner or person in whose name the goods are stored: a. to satisfy his lien b. to remove the goods c. failure to do a &b will give the warehouseman authority to sell the goods without advertising

Adviser: Dean Cynthia Roxas-Del Castiillo; Heads: Celeste Marie R. Cruz and Christine S. Trinidad; Understudies: Myra Mangente and Eleanor Umali

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d. if sale is not possible, he may dispose of the goods in any lawful manner without liability * Proceeds of the sale shall be disposed of in accordance with the PROCESS in the sale of the goods. 6. Effects of sale a. warehouseman is NOT liable for non-delivery even if the receipt was given for the goods when they were deposited be negotiated b. when the sale was made without the publication required and before the time specified by law, such sale is void and the purchaser of the goods acquires no title in them Negotiation and Transfer of Receipts Negotiable receipts negotiable by delivery 1. if the goods are deliverable to the bearer; or 2. when indorsed in blank; or 3. person to whose order the goods are delivered or by a subsequent indorsee indorsed it to bearer

Adviser: Dean Cynthia Roxas-Del Castiillo; Heads: Celeste Marie R. Cruz and Christine S. Trinidad; Understudies: Myra Mangente and Eleanor Umali