Commerce – is the exchange of goods, productions, or property of any kind. It is intercourse by way of trade traffic between different peoples or states and the citizens or inhabitants thereof, including not only the purchase, sale, and exchange of commodities, but also the instrumentalities and agencies by which it is promoted and the means and appliances by which it is carried on, and transportation of persons as well as goods. (Black’s Law Dictionary)

- It is that branch of human activity, the purpose of which is to bring products to the consumer by means of exchanges or operations which tend to supply and extend to him, habitually, with intent to gain, at the proper time and place and in good quality and quantity.

Commercial law – is a phrase used to designate the whole body of substantive jurisprudence applicable to the rights, intercourse, and relations of persons engaged in commerce, trade, or mercantile pursuits. (Black’s Law Dictionary)

- It is that branch of private law which regulates the juridical relations arising from commercial

Acts of commerce / Commercial Transactions – are those contained in the Code of Commerce and all others of analogous character

They are governed by the (1) Code of Commerce, (2) by commercial usages observed in each place, and (3) by the rules of civil law (in that preference)

Sources of Commercial laws1. Principal –

a. Statute lawb. Agreementsc. custom and d. court decisions

2. Auxiliary - a. Natural lawb. Scientific lawc. Foreign statutory law and judicial decisionsd. Opinions of authorities

Portions of the Code of Commerce still in force1. Merchants, Books of Merchants and General

Provisions on Contracts (1-63)2. Joint Account Associations (239-243)3. Commercial Barter (346)4. Transfers of Non-negotiable Credits (347-348)5. Commercial Contracts of Overland Transportations

(349-379)6. Letters of Credit (567-572)7. Maritime Commerce (573-869)

Provisions in the Code of Commerce which have been repealed by the New Civil Code

1. Sales2. Partnership3. Agency4. Loan5. Deposit and 6. Guaranty

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A. MERCHANTS AND COMMERCIAL TRANSATIONS(Code of Commerce Articles 1-63)

Who are merchants?1. Those who having capacity to engage in commerce, habitually devote themselves thereto.2. Commercial or Industrial associations organized in accordance with the Code of Commerce.

What are the Classes of Merchants?1. Foreign Merchants2. Filipino Merchants3. Commercial and Industrial companies created in accordance with the Code of Commerce and by special lawsForeign Merchants 1) Engaging in Commerce

Foreigners and companies created abroad may engage in commerce in the Philippines subject to (1) the laws of their country with respect to capacity to contract and to the (2) provisions of the Code of Commerce as regards the creation of their establishment in foreign territory, mercantile operations and the jurisdiction of the courts of the Philippines (3) Corporation Code and other laws- There is a need to obtain license from the SEC- However, the Board of Investment may impose requirements other that those set by the Corporation Code (172S490)

2) Investing in the PhilippinesUnder the Foreign Investments Act of 1991, foreigners are allowed to invest up to 100% of the capital needs of the firm

However, they are still prohibited from investing in industries covered by the negative list which includes:a. Those provided in the Constitution and other

Philippine lawsb. Defense related industriesc. Those with health and moral implicationsd. Those with needing capital of not more that

$500,000e. Industries in areas already adequately covered

Essential Requisites to be considered a Merchant1. Legal capacity2. Habitually engaged in commerce

The legal presumption of habitually engaging in commerce shall exist from the time the person who intends to engage therein gives announcement, by means of circulars, newspapers, handbills, poster exhibited to the public, or by other means whatsoever of an establishment, the purpose of which is to conduct commercial transaction

Persons disqualified to be merchants1. Absolutely disqualified

a. Persons serving penalty of civil interdictionb. Insolventsc. Those absolutely disqualified by special laws

2. Relatively disqualifieda. judicial and prosecuting officials in active serviceb. administrative, economic and military chiefsc. government collection agents and custodian of

fundsd. stock and commercial brokerse. those who by special laws cannot trade in

specified territories

Commercial Contract – is an agreement between two or more merchants or non-merchants binding themselves to give to do something in commercial transactions

Contracts of Correspondence – is a contract entered into by correspondence like letters, telegrams, by messengers, etc. but not including those made by phone or through agents

When is a mercantile contract by correspondence perfected?Under the Code of Commerce – it is perfected from the moment the offeree accepts the offer, even before knowledge of said acceptance by the offeror

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NOTE: However, under the Civil Code, it is only perfected from the time the offeror has knowledge of the offeror’s acceptance. The contract is presumed to have been entered into the place where the offer was made.

This code of commerce rule is applicable to all commercial contracts except in deposit, guaranty, sale, loan, agency, and partnership where the Civil Code rule as to the perfection is applicable

Rules to be observed in respect to commercial contracts1. Governing law – Commercial contracts shall be

governed by the Code of Commerce; in default of such provisions, by the commercial usages observed in each place; and in the absence of both, by the general rules of civil law

2. Formalities and exceptions - Commercial contracts shall be valid and create an obligation and cause of action in suits, whatever may be the form or in whatever language they may be executed, the class to which they correspond, and the amount involved, PROVIDED their existence is proves by some means established by the civil law EXCEPT

a. Contracts which must be in form necessary for their validity as provided by the Code of Commerce or special law, or by the foreign law where it is executed, although not required by Philippine law

3. Unlawful Agreements – These cannot serve as the basis of any obligation or cause of action even they involve commercial transactions

4. Contracts through correspondence – Contracts through entered into through correspondence shall be perfected from the time an answer is made accepting the proposition or the conditions by which the latter may be modified.

5. Availment of indemnification clause – the aggrieved party may take legal steps to demand (1) fulfillment of the contract or (2) the indemnity as provided in the contract.

6. Standard Compliance – It shall be executed and complied with in good faith according to the terms in which they are drafted, without evading the honesty, proper and usual meaning of written and spoken words with arbitrary interpretations, nor limiting the effects which are naturally derived from the manner in which the contracting parties may have explained their wishes and contracted their obligations

7. Commencement date of effects of default – a. In contracts in which a day is fixed for their

compliance by will of the parties or by law, on the day following the one they fall due

b. In contracts in which no such day is fixed, (1)from the day on which the creditor legally makes demand upon the debtor or (2) notifies him of the protest of losses and damages made against him before a justice, notary or other public official authorized to admit the same

Joint Account Partnership or Joint Partnership– is a business arrangement whereby two or more persons interested themselves in the business of another making contribution thereto and participating in the results of the business.-- A joint account is a transaction of merchants where other merchants agree to contribute the amount of capital agreed upon, and participating in the favorable and unfavorable results thereof in the proportion they may determine (UP law center)

It may be formed without any formality and may be privately contracted orally or in writing

Features 1. Only one ostensible member – others are silent2. No common name3. Only the ostensible partner can sue and be sued

4. No common fund

Joint Account – Case x-ref (Heirs of Tan Eng Kee vs. CA 341S740)

Joint account/ joint adventure

Commercial Partnership

Common nameNone – it is in the

name of the ostensible partner

Yes

Common fund None YesJuridical

personality None Yes

Capacity to sue and be sued

Only in the name of the ostensible

partner

It may under the partnership name

Liability of partners to 3rd persons

Only the ostensible partner All general partners

Liquidation Made by the ostensible partner

May be entrusted to a partner/s

Transaction involved

Often limited to one transaction

Continuing business of various

transactions

Management By the ostensible partner alone

All partners participate unless

there is a managing partner

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B. LETTERS OF CREDIT(Code of Commerce Articles 567-572)

What is a letter of Credit? -- It is a letter issued by one merchant to another for the purpose of attending to a commercial transaction (Code of Commerce)

--It is an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in credit Through a letter of credit, the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. (Prudential Bank vs. IAC GR no 74886 December 8, 1992)

-- A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. To break the impasse, the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the letter of credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit. The buyer and the seller agree on what documents are to be presented for payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer. Once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents or documents of title. To get paid, the seller executes a draft and presents it

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together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform to what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers the documents of title over the goods, while the buyer acquires the said documents and control over the goods only after reimbursing the bank. (Bank of America vs. CA GR no. 105395 December 10, 1993)

What is the nature of letters of credit?-It is an accessory contract.

What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and the required shipping documents are presented to it. In turn, this arrangement assures the seller of prompt payment, independent of any breach of the main sales contract. (Ibid)

What are the essential conditions of a letter of credit?1. That it be issued in favor of a definite person and not

to order2. That it be limited to a fixed and specified amount or to

one or more undeterminable amounts but within the maximum limits of which has to be stated exactly.

3. Duration : 6mos if used in the Philippines or: 1 year if used abroadUnless the parties provide for a different period

Is a letter of Credit a negotiable instrument? No, it is not a negotiable instrument because it does not have all the requisites of negotiability.

When does a letter of credit become void?It becomes void in fact and in law when it is not used within the period agreed upon or within the duration aforementioned as provided by law.

Who are the parties? There are at least 3(a) the buyer-- who procures the letter of credit and obliges

himself to reimburse the issuing bank upon receipt of the documents of title;

(b) the bank-- issuing the letter of credit, which undertakes to pay the seller upon receipt of the draft and proper documents of titles and to surrender the documents to the buyer upon reimbursement; and

(c) The seller-- who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment. (Ibid)

The number of the parties, not infrequently and almost invariably in international trade practice, may be increased. Thus, the services of an advising (notifying) bank may be utilized to convey to the seller the existence of the credit; or, of a confirming bank which will lend credence to the letter of credit issued by a lesser known issuing bank; or, of a paying bank which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing bank to claim payment, the buyer may approach another bank, termed the negotiating bank, to have the draft discounted. (Ibid)

How are the parties’ respective relationship governed?1. Bank and Importer/applicant – Their relationship is

governed by the terms of the application and agreement for the issuance of letters of credit

2. Bank and Exporter/beneficiary – Their relationship is governed by the terms of the letter of credit issued by the bank

3. Applicant and Beneficiary – Their relationship is governed by the contract of sale

What is the Independence principle in a letter of credit transaction?"independence principle" means the bank determines compliance with the letter of credit only by examining the shipping documents presented; it is precluded from determining whether the main contract is actually accomplished or not. (Bank of America supra) In the operation of a letter of credit, the involved banks deal only with documents and not on goods described in those documents. (Ibid, BPI vs. De Reny GR no. l-24821 October 16, 1970)

Standby letter of credit (SLC) - is a bank-issued option on a loan under the terms of which, the BENEFICIARY has the right to “take down the loan” if the ACCOUNT PARTY (party requesting for the issuance of SLC) fails to meets its commitment, in which case the ISSUING BANK disburses a specified sum to the beneficiary and books an equivalent loan to its customer, account party.

Are SLCs primary or accessory contracts?In Insular Bank of Asia and America vs. IAC November 17, .1988, The Supreme Court held that while SLC are a security arrangement as they secure obligation of the borrowers to the lender, they are not converted thereby into contracts of guaranty. That would make them ulra-vires acts, [as the banks are not allowed under sec 745 of the General Banking Act to enter into a contract of guaranty or suretyship except in certain instances] rather than a letter of credit which is within the powers of a bank. SLCs are primary obligations and not accessory contracts.

Types of letters of credit1. Irrevocable – It obligates the issuing bank to honor

drafts drawn in compliance with the credit and can neither be cancelled nor modified without the consent of all parties, including the beneficiary.

2. Revocable – it can be cancelled or amended at any time before payment; it is intended to serve as a means of arranging payment but not as a guarantee of payment

3. Confirmed – A letter of credit issued by one bank can be confirmed by another, in which case both banks are obligated to honor drafts drawn in compliance with the credit

4. Unconfirmed – the obligation is only of the issuing bank.

5. Revolving – one that is valid for several transactions over a given period of time

6. Non-revolving – one that is valid for one transaction only.

7. Cumulative – it is a revolving letter of credit in which case the undrawn amount amounts is carried over to future periods.

8. Non-cumulative - it is a revolving letter of credit in which case any amount not used by the beneficiary during the specified period may not be drawn against a later period

Draft / Bill of Exchange – is an order written by the exporter/seller (maker/drawer/originator of the draft) instructing an importer/buyer (drawee) or its agent to pay a specified amount of money at a specified time.

Parties to a Draft1. Maker / drawer or originator – person initiating the draft2. Drawee – to whom the draft is addressed

a. If addressed to buyer – Trade draftb. If addressed to a bank – Bank draft (drawn

according to the terms of letters of credit)

Types of drafts / bill of exchange1. Sight – one which is payable on presentation to the

drawee; the latter pays or dishonor the draft.

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2. Time / Usance – one which allows a delay in payment from the time the draft is accepted

a. If drawn on and accepted by a bank – Banker’s acceptance

b. If drawn on and accepted by a business firm – Trade Acceptance

The time period of a draft is referred to as its tenor or usance

3. Clean – it is an order to pay unaccompanied by any other documents

4. Documentary – one which requires various shipping documents to be attached to the draft.

C. BULK SALES LAW(Act No. 3952)

What is sale and transfer in bulk?1. Sale in bulk is any sale, transfer, mortgage or

assignment of a stock of goods, wares, materials, provisions or merchandise otherwise than the in the ordinary course of trade and the regular prosecution of the business of the vendor, mortgagor, transferor or assignor or

2. Sale, transfer, mortgage or assignment of all or substantially all of the business or trade theretofore conducted by the above mentioned persons

3. Sale, transfer, mortgage or assignment of all or substantially all of the fixtures and equipment theretofore conducted by the business the vendor, mortgagor, transferor or assignor

To what sale or transfer in bulk would the law not be applicable?

1. It shall not be applied when there is written waiver of the provision of the Bulk Sales Law from his creditors as shown by verified statements,

2. A sale made by executors, administrators, receivers, assignees in insolvency, or public officers, acting under judicial process.

What are the duties of a person selling, mortgaging, transferring or assigning any stock of goods, wares, merchandise, provisions or materials in bulk? (General Scheme)

1. To deliver to such vendee, mortgagee, or agent a written statement, sworn to substantially,

a. the names and addresses of all creditors to whom said vendor or mortgagor may be indebted,

b. together with the amount of indebtedness due or owing , or to become due or owing to said creditors.

2. At least ten days before the sale transfer… of the goods… to make a full detailed inventory thereof and to preserve the same showing the quantity.

3. The seller… shall notify every creditor whose name and addresses is set forth in the verified statement of the vendor… at least ten days before transferring possession thereof of the price, terms condition of the sale, transfer, mortgage, or assignment.

4. The sworn statement containing the names and addresses of all the creditors shall be registered in the Bureau of Commerce.

5. To apply the purchase or mortgage money to the pro rata payment of the bona fide of the creditors of the vendor or mortgagor

What is the effect of obtaining a waiver of the Bulk Sales Law by the creditors?

The buyer, mortgagee can be protected from future claims of creditors of the seller, transferor, or assignor

What is the purpose of the law?The purpose of the law is to prevent secret and fraudulent sales or conveyances of goods in bulk and thereby, protect the creditors of the seller.

What is the effect of failure to comply with the general scheme of the Bulk Sales Law? The sale shall be void; it can be nullified by the creditors of the seller. The buyer merely becomes a trustee of such goods in behalf of the creditors, without prejudice to the right of the buyer to be reimbursed for the amount it paid and to any action he may have against the seller. If the buyer already has disposed of the goods, the buyer shall be made liable for the value of those disposed by him forming part of the bulk.

What are the offenses punishable under the Bulk Sales Law?

1. Failure to deliver to the vendee, mortgagee or to his agent or representative the sworn statement provided for, (Sale, mortgage or transfer is fraudulent and void)

2. Failure to apply the purchase or mortgage money of the said property to the pro rata payment of the bona fide claim or claims of the creditors.

3. It shall be unlawful for any person firm or corporation as owner of any stock of goods, wares… to transfer title to the same without consideration or for a nominal consideration only.

Any person violating the provision of the Act shall be punished by imprisonment not less the six months, nor more than five years, or fined in sum not exceeding five thousand pesos, or both such imprisonment and fine, in the discretion of the court.

D. WAREHOUSE RECEIPT LAW(Act no. 2137)

Definition of terms:1. Warehouseman – person lawfully engaged in the

business of storing goods for profit2. Warehouse – the building or place where goods are

deposited and stored for profit3. Warehouse receipts – a written acknowledgement by

a warehouseman that he has received and holds certain goods therein described in store for the person to whom it is issued; a written contract between the owner of the goods and the warehouseman to pay the compensation for that service

4. Non-negotiable receipts – a receipt in which it is stated that the goods received will be delivered to the depositor, or to any other specified person

5. Negotiable receipts – a receipt in which it is stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt

Points to consider:1. Section 1 of the law provides that only a

warehouseman may issue warehouse receipts, those not issued by a warehouseman are not warehouse receipts.

2. Warehouse receipts are not negotiable instruments under the Negotiable Instruments Law

3. No provision shall be inserted in a negotiable receipt that it is non-negotiable. Such provision if inserted, shall be void.

4. The warehouse receipt is negotiable under this act, meaning that in the passage of the warehouse

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receipts through the channels of commerce, the law regards the property which they describe as following them and gives to their regular transfer by endorsement the effect of manual delivery of the things specified in them.

Is a warehouse receipt a negotiable instrument within the meaning of the Negotiable Instruments Law?A warehouse receipt, even if negotiable, is not negotiable instrument within the meaning of the Negotiable Instruments Law, for the following reasons

Negotiable Instruments Warehouse Receipt The subject is money The subject is merchandiseThe instrument itself is the object of value

The goods are the object of value

Intermediate parties become secondarily liable

Intermediate partied are not liable for the warehouseman’s failure to deliver the goods.

What are the contents of the receipt?1. Location of the warehouse where goods are stored2. Date of issue of the receipt3. Consecutive number of the receipts4. Statements whether the goods received will be delivered to

the bearer, to a specified person, or to a specified person or his order

5. Rate of storage charges6. Description of the goods or of the packages containing

them7. Signature of the warehouseman which may be made by his

authorized agent8. Warehouseman’s ownership of or interest in the goods9. Statement of advances made and liabilities incurred

These are required for the protection of the depositor and those succeeding to his rights. If the warehouseman omits any of the required information and injury is caused thereby to a person, the warehouseman shall be liable to the said person for all damages caused by such omission.

What form should the receipts be?Generally, the warehouse receipt is not required to be in any particular form. However it should contain the above cited contents.

May a warehouseman insert other conditions in the receipt?The warehouseman may insert any other terms and conditions PROVIDED it shall not;

1) be contrary to the provisions of this Act and2) in any wise, impair his obligations to exercise that

degree of care in the safekeeping of the goods entrusted to him

Note: A warehouseman cannot provide in the warehouse receipt that the risk of loss of the goods for fire or theft shall be for the account of the depositor as that would be contrary to his obligation to keep the goods safe.

What is the degree of care required of a warehouseman in the safekeeping of goods entrusted to him?The warehouseman is required to exercise that degree of care which a reasonably careful man would exercise in regard to similar goods of his own.

What kinds of receipt may a warehouseman issue?1. Non-negotiable receipt – one which provides that the

goods will be delivered to the depositor or to any other specified person

This may not be transferred by negotiation but may be assigned

2. Negotiable receipt – one which that the goods will be delivered to the bearer or to the order of any person named in the receipt.

“Deliver to Jen or bearer…” – simple delivery “Deliver to Jen or order…” – special endorsement

(in blank, to bearer or, to a specified person) and delivery.

Non-negotiable mark – a non-negotiable receipt shall have plainly placed upon its face by the warehouseman issuing it as “non-negotiable” or “not negotiable”. Failure to do so, the holder of the receipt believing it to be negotiable may, at his option, treat it as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable.Could a negotiable receipt be converted into a non-negotiable one?A negotiable receipt cannot be converted into a non-negotiable one such as by inserting a provision in the receipt stating that it is non-negotiable. Such a provision shall be void.

Duplicate receipts – when more than one negotiable receipt is issued for the same goods, the word “duplicate” shall be plainly placed upon the face of every such receipt EXCEPT THE ONE FIRST ISSUED.

What are the warranties if the term “Duplicate” is indicated in the receipt?Sec 15 provides that if the term “duplicate’ is indicated in the receipts it warrants the ff:

a. That the duplicate is an accurate copy of the original receipt; and

b. Such original receipt is uncancelled at the date of the issue of the duplicate

Obligation of the warehouseman to deliver goods delivered with him A warehouseman is bound to deliver the goods upon a demand made either by;

1. The person lawfully entitled to the possession of the goods or his agent (e.g. buyer in an auction sale, donee of the goods)

2. A person who is entitled to delivery by the terms of the non-negotiable receipt or who has written authority from the person so entitled either indorsed or written upon another paper

3. Person in possession of a negotiable receiptPROVIDED such demand is accompanied by:

1. an offer to satisfy the warehouseman’s lien2. an offer to surrender the receipt, if negotiable with such

endorsements as would be necessary for negotiation of the receipts

3. a readiness and willingness to sign, when the goods are delivered, an acknowledgment that the goods had been delivered.

Refusal or failure to deliver – the burden shall be upon the warehouseman to establish the existence of a lawful excuse for the refusal.

“Ownership is not a defense for the refusal to deliver goods”Doctrine of Estoppel - The warehouseman cannot refuse to deliver the goods on the ground that he has acquired title or right to the possession of the same unless such title or right is derived:

1. Directly or indirectly from a transfer made by the depositor at the time of the deposit for storage or subsequent thereto;

2. From the warehouseman’s lien. (Sec.16)Neither can the warehouseman, as a depositary for hire, set up an adverse title in another as an excuse for his failure to deliver the property to his bailor on demand. (Sec.19)

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COMMERCIAL LAW COMMITTEE Chief: Marlon S. Corpuz Assistant Chief: Maria Lourdes L. Comtiag Members: Jennylene T. Isip, Beverly T. Manzano, Voltaire B. Garcia, Marlon P. Bacuno, Kathryn G. Bolinas, Gresil G. Santos, Lotta B. Obado, Venus G. Dugayon

LIABILITIES OF A WAREHOUSEMAN1. Liability of warehouseman for misdelivery

a. A warehouseman would be liable for misdelivery or conversion if he delivers the goods to one who is not in fact lawfully entitled to the possession of the goods

Conversion – is unauthorized assumption and exercise of the right of ownership over goods belonging to another through the alteration of their condition or the exclusion of the owner’s right.

b. He would also be liable for misdelivery even if he delivers to a person holding a non-negotiable receipt or a negotiable receipt if prior to such delivery he had either:

1. Been requested, by or on behalf of the person lawfully entitled to a right or property or possession in the goods, not to make such delivery; or

2. Had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods

When may a warehouseman legally refuse delivery of goods1. If he had been requested, by or on behalf of the person

lawfully entitled to a right or property or possession in the goods, not to make such delivery to anyone

2. If he had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods

3. If several persons claim the goods4. If the warehouse lien is not yet been satisfied5. If the goods were loss by fortuitous event except when

guaranteed liability of loss (e.g. fire, flood etc) without his fault prior to demand for delivery and refusal

6. Where the goods have already been lawfully sold to third persons to satisfy a warehouseman’s lien or have been lawfully sold or disposed because of their perishable or hazardous nature

What steps could a warehouseman take to protect him from misdelivery?1. He could

ascertain the validity of the adverse claim or to bring legal proceedings to compel claimants to interplead (sec 17)

2. He may require the claimants to interplead (sec 18)

Will a warehouseman be liable if he fails to cancel a negotiable receipt of which goods or part of the goods was delivered which is subsequently endorsed to another person? Where a warehouseman delivers goods or part of the goods for which he had issued a negotiable receipts and fails to take up and cancel the receipt , or to place plainly upon it a statement of what goods or packages have been delivered, he shall be liable to any one who purchases for value in good faith such receipt, for failure to deliver the goods specified in the receipt, whether such purchaser acquired title to the receipt before or after the delivery of the goods by the warehouseman.

2. Liability of warehouseman for alteration of receipts Effect of alteration on the liability of the warehouseman - the liability would depend on the nature of the alteration

1. If the alteration is immaterial, that is the tenor of the receipt is not changed, whether fraudulent or not, authorized or not, the warehouseman is liable on the altered receipt according t its original tenor

2. If the alteration is material, that is the tenor of the receipt is changed, but authorized, the warehouseman is liable according to the terms of the receipt as altered.

3. If the alteration is material but innocently made though unauthorized, the warehouseman is liable on the altered receipt according to its original tenor; and

4. If the alteration is material and fraudulently made, the warehouseman is liable according to the

original tenor of the receipt to a purchaser of the receipt for value without notice and even to the alterer and subsequent purchases with notice.

3. Liability of warehouseman for lost or destroyed receiptsIf the receipt is claimed to have been lost or destroyed, it is essential that the court shall pass upon the question and make sure that the receipt is really lost or destroyed before the goods are delivered or a new receipt is issued.Sec14 provides that a competent court may order the delivery of the goods only

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

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

4. Liability of warehouseman as to duplicateWhere more than 1 negotiable receipt is issued for the same goods, the word “duplicate” must be plainly placed by the warehouseman upon the face of every such receipt, except the one first issued

What is the effect of failure to place the word “Duplicate” in a duplicate receipt?

Failure to do so will make the warehouseman liable for all the damages to anyone who purchased such receipt believing it to be an original, even if the purchase be after the delivery of the goods by the warehouseman to the holder of the original receipt. (Sec 6)

He shall be guilty of a crime punishable of a crime punishable by fine or imprisonment, or both, if he issues a duplicate or additional negotiable receipt for goods knowing that a former negotiable receipt for the same goods or any part of then is outstanding or and uncancelled, without plainly placing upon the face of the receipt the word duplicate.

Exception: In the case of a lost or destroyed receipt after proceedings

5. Liability of warehouseman to rightful claimantDuty of the warehouseman where there are several claimants

INTERPLEADER – this is a remedy given to the warehouseman in case there is more than one person who claims title or possession of the goods either as a defense to an action brought against him for non-delivery or as an original suit; this would require the different claimants to litigate among themselves.

Sec18 provides that if someone other than the depositor or person claiming has a claim to the title or possession of the goods, the warehouseman shall be excused from liability for refusing to deliver the goods until he has a reasonable time to ascertain the validity of the adverse claim or bring legal proceedings to compel claimants to interplead.

6. Liability of warehouseman for non-existence or misdescription of goods

General Rule: the warehouseman is under obligation to deliver the identical property stored with him and if he fails to do so, he is liable directly to the owner or holder of a receipt for damages.Exception: if the description consists merely of marks or labels 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.

7. Liability of the warehouseman for loss due to lack of careGeneral rule: The warehouseman is required to exercise ordinary or reasonable care in the custody of goods, that is, the care a reasonably careful owner would exercise over similar goods of his own. This is the “diligence of a good father of a family”

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Exception: But in the absence of any agreement to the contrary, the warehouseman is not liable for any loss or injury to the goods which could not have been avoided by the exercise of such care.

8. Liability of warehouseman to depositors of commingled goodsCommingling of deposited goods

General Rule: a warehouseman shall keep the goods so far separate from goods of other depositors, and from other goods of the same depositor for which a separate receipt has been issued.Purpose: to permit at all times the identification and redelivery of the goods depositedException:

(1) If authorized by agreement or by custom, (2) Or if the goods are fungible goods with other goods of the same kind and grade.

In this case, the various depositors of the mingled goods shall own the entire mass in common and each depositor shall be entitled to such portion as the amount deposited by him bears to the whole.

The warehouseman shall be severally liable to each depositor for the care 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.

9. Failure to mark a receipt intended to be non-negotiable as “non-negotiable”

Effect: the holder of the receipt believing it to be negotiable may, at his option, treat it as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable.Note: The “holder” referred herein cannot be the original holder because, as the depositor, he is presumed to know whether he is getting a negotiable or a non0negotiable receipt.

10. Failure to take up and cancel a negotiable receipt when goods are delivered. OR Failure to take up and cancel a negotiable receipt or to place upon it a statement of what goods have been delivered, when the goods are partly delivered

The warehouseman shall be liable for failure to deliver the goods to any one who purchases for value in good faith such receipt whether the purchaser acquired title to the receipt before or after delivery of the goods by the warehouseman. He shall also be guilty in such case of crime punishable by fine or imprisonment.Exception:

1. Where the goods have been lawfully sold to satisfy a warehouseman’s lien

2. the goods have been lawfully sold or disposed of because of their perishable or hazardous nature.

11. Issuing receipts for goods not received by him or are not under his actual control at the time of issuance of the receipt

12. Issuing receipts for the warehouseman’s goods which do not state that factA warehouseman shall be guilty of a crime punishable by fine or imprisonment, or by both, if he issues a negotiable receipt for the same goods deposited with or held by him of which he knows he is the owner, solely or jointly or in common with others, if he fails to state such ownership in the receipt

13. For delivery of goods without obtaining negotiable receipt or knowing that a negotiable receipt is outstanding and uncancelled.

Exception: 1. Where the goods have been lawfully sold to satisfy

a warehouseman’s lien or2. The goods have been lawfully sold or disposed of

because of their perishable or hazardous nature or

3. In case of lost or destroyed receipt after proceedings

NOTES: Attachment or levy of negotiable receiptsThe warehouseman has the direct obligation to hold possession of the goods for the original owner or for the person to whom the negotiable receipt of title has been duly negotiated.(Sec 41) While in possession of such, the goods cannot be attached or levied upon under an execution unless:

a. The document be first surrendered; orb. The negotiation is enjoined;c. The document is impounded by the court.

The prohibition is for the protection of the warehouseman since he could be made liable to a subsequent purchaser for value in good faith.

This provision of Sec 25 does not apply to the following:a. If the person depositing is not the owner of the goods

or one who has no right to convey title to the goods binding upon the owner;

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

c. Cases where the attachment is made before the issuance of the negotiable receipt of title

BUT IN SEC 26, it provides that: a creditor whose debtor is the owner of a negotiable receipt CAN ATTACH THE NEGOTIABLE RECEIPT IN THE DEBTOR’s POSSESSION and NOT the goods covered by such receipt. This provision expressly gives the court full power to aid by injunction and otherwise a creditor seeking to get a negotiable receipt covering such goods.

Does the warehouseman have a lien over the goods on deposit with him?The warehouseman has a lien on goods deposited or on the proceeds thereof in his hands for:

a. All lawful charges for storage and preservation of the goods

b. All lawful claims for money advanced, interest, insurance, transportation, labor, weighing, cooperating and other charges or expenses in relation to the goods

c. All reasonable charges and expenses for notice and advertisements of sale, and

d. Sale of goods where default has been made in satisfying the warehousing lien.

The warehouseman’s lien over the goods deposited with him is his security for the payment of the charge, money advanced and other expenses.

The warehouseman’s lien can be enforced against:a. The goods of the depositor who is liable to the

warehouseman as debtor whenever such goods are deposited; and

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

Purpose of the law: to give the warehouseman a lien for charges against goods of persons who are primarily liable for the charge incurred, and who by their agreement create the relation of debtor and creditor.

How could the lien be lost? a. By surrendering possession of goods – a

warehouseman loses his lien upon the goods by voluntary surrendering the possession without requiring payment of the lien, it will be presumed that the lien has been waived or abandoned where the warehouseman permits a depositor to remove the goods BUT NOT where the property is taken without warehouseman’s consent or by force

b. By wrongfully refusing to deliver goods when demand is made with which he is bound to comply under provisions of Sec8

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Satisfaction of lien by salea. Procedure: (Sec33)

1. The warehouseman shall give a WRITTEN NOTICE to the person on whose account the goods were held or to any person who has a claim or interest in the goods. The notice shall be given either by delivery in person or by registered mail to the last known place of business or abode. The notice shall contain the following:

a. An itemized statement of the warehouseman’s claim, the sum due and the date(s) when it became due.

b. A brief description of the goods against which the lien exists.

c. A demand that the amount of the claim shall be paid on or before a day mentioned (not less than 10 days from the delivery of the notice if personally delivered or from the time when the notice should reach its destination if the notice is sent by mail)

d. A statement that unless the claim is paid within the time specified, the goods will be advertised for sale and sold by auction at a specified time and place.

2. In accordance with the terms of the notice, a sale of the goods by auction may be had to satisfy any valid claim of the warehouseman for which he has a lien over the goods.

3. After the time for payment ahs elapsed, an advertisement of the sale, describing the goods to be sold and stating the name of the owner or person on whose account the goods has been held and the time and place of the sale.

4. The ad shall be published once a week for two consecutive weeks in a newspaper published in the place where the sale shall be held. It can be in the place where the lien was acquired or if such place is manifestly unsuitable, at the nearest suitable place.

b. If there is no newspaper published in such place, the advertisement shall be posted at least 10 days before such sale in not less than six (6) conspicuous places therein.

5. The sale shall be held not less than 15 days from the time of the first publication.

6. From the proceeds of the sale the warehouseman shall satisfy his lien including the reasonable charges of notice, advertisement and sale.

7. The balance, if any, shall be held by the warehouseman, and delivered on demand to the person to whom he would have been bound to deliver the goods.

At anytime before the goods are sold, ANY PERSON CLAIMING A RIGHT OF POSSESSION on the goods MAY PAY THE WAREHOUSEMAN THE AMOUNT NECESSARY:

1. To satisfy his lien and 2. to pay the reasonable expenses and liabilities

incurred in serving notices, advertisements and preparing for the sale up to time of payment.

If the same is satisfied, the warehouseman shall deliver the goods to the person making payment. Otherwise, the warehouseman shall retain possession of the goods according to the terms of the original contract of deposit.

In summary the remedies available to warehouseman to enforce his lien are the following:

1. Refusing to deliver the goods until the lien is satisfied;2. Causing the extrajudicial sale of the property and

applying the proceeds to the value of the lien; and3. Filing a civil action for the unpaid charges or by way of

counterclaim in an action to recover the property from him.

Whether a warehouseman has or has not lien upon the goods, he is entitled to all remedies allowed by law to a creditor against his debtor, for the collection from the depositor of all the charges and advances which the depositor has expressly or impliedly contracted with the warehouseman to pay. (Sec 32)

Perishable and Hazardous goods – are goods which by keeping will deteriorate greatly in value, or by odor, leakage, inflammability or explosive nature and will make warehouseman liable in case it will injure other property.

In cases of perishable and hazardous goods, the warehouseman may give NOTICE to the owner, or to the person in whose name the goods are stored, to satisfy the lien upon such goods and to remove them from the warehouse. Failure to do so may entitle the warehouseman to sell the goods at public or private sale without advertisements. In case he was unable to sell, he may dispose of them in any lawful manner, and shall incur no liability by reason thereof.

What is the effect of the sale of goods to satisfy the warehouseman’s lien on account of the good’s perishable or hazardous nature?The warehouseman shall not thereafter be liable for failure to deliver the goods to the depositor or owner of the goods even if such receipt be negotiable.

Negotiation and Transfer of Receipts

How are negotiable receipts negotiated? (Sec37)A negotiable receipt may be negotiated by delivery where, by the terms of the receipt,

a. The warehouseman undertakes to deliver the goods to the bearer;

b. The warehouseman undertakes to deliver the goods to the order of a specified person, and such person or a subsequent endorsee of the receipt has indorsed it in blank or to bearer

Under this circumstance, any holder may indorse the same to himself, or to any other specified person, and in such case the receipt shall thereafter be negotiated only by the endorsement by such endorsee.

Negotiation of a negotiable receipt by endorsementIt may be negotiated only by the endorsement of such person:

a. If indorsed in blank or to bearer, the document becomes negotiable by delivery

b. If indorsed to a specified person, it may be again negotiated by the endorsement of such person in blank, to bearer or to another specified person. Delivery alone is not sufficient.

Person who negotiate a receipt (Sec 40)a. The owner thereof; orb. By any person to whom the possession or custody of

the receipt is entrusted by the owner

Can a non-negotiable receipt be transferred?A non-negotiable receipt of title cannot be negotiated. Nevertheless, it can be transferred or assigned by delivery to a purchaser or donee. Even if the receipt is indorsed, the transferee acquires no additional right.

What are the advantages of a negotiable receipt from a non-negotiable receipt?

1. It protects a purchaser for value and in good faith2. The goods covered by the receipt cannot be garnished

or levied upon under execution unless it is surrendered, impounded or its negotiation enjoined;

3. In case of negotiation, the holder acquires the direct obligation of the warehouseman to hold possession of the goods for him without notice to such warehouseman.

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COMMERCIAL LAW COMMITTEE Chief: Marlon S. Corpuz Assistant Chief: Maria Lourdes L. Comtiag Members: Jennylene T. Isip, Beverly T. Manzano, Voltaire B. Garcia, Marlon P. Bacuno, Kathryn G. Bolinas, Gresil G. Santos, Lotta B. Obado, Venus G. Dugayon

4. The goods it covers are not subject to seller lien or stoppage in transitu

What are the rights of a person to whom a negotiable receipt has been negotiated? (Sec41) The rights acquired by such person are the following:

a. The title of the person negotiating the receipt over the goods covered by the receipt;

b. The title of the person (depositor or owner) to whose order by the terms of the receipt the goods were to be delivered over such goods; and

c. The direct obligation of the warehouseman to hold possession of the goods for him, as if the warehouseman directly contracted with him.

What are the rights of a person to whom a non-negotiable receipt has been transferred? (Sec42) The rights acquired by such person are the following:

a. The title to the goods as against the transferor;b. The right to notify the warehouseman of the transfer

thereof; andc. The right, thereafter, to acquire the obligation of the

warehouseman to hold the goods for him. The right of the transferee is not absolute as it

is subject to the terms of any agreement with the transferor. He merely steps into the shoes of the transferor.

What are the rights of a transferee of a negotiable receipt delivered without endorsement?(Sec43) The rights acquired by such person are the following:

a. The right to the goods as against the transferor; andb. The right to compel the transferor to indorse the

receipt The negotiation shall take effect as of the time

when the endorsement is actually made. The endorsement of a receipt shall not make

the endorser liable for any failure on the part of the warehouseman or previous endorsers of the receipt to fulfill their respective obligations. (Sec45)

What are the warranties on sale of receipt?a. That the receipt is genuine; b. That he has a legal right to negotiate or transfer it;c. That he has the knowledge of no fact which would

impair the validity or worth of the receipt; andd. That he has a right to transfer the title to the goods

and that the goods are merchantable or fit for a particular purpose, whenever such warranties would have been implied, if the contract of the parties had been without receipt the goods represented thereby

A holder for security of a receipt who in good faith accepts payment of the debt from a person DOES NOT thereby warrant the genuineness of the receipt nor the quality or quantity of the goods therein described. (Sec46)

If a) there was a breach of duty on the part of the person making the negotiation; or b) the owner of the receipt was induced by fraud, mistake or duress to entrust the possession or custody of receipt to such person, the validity of the negotiation is NOT IMPAIRED if the person to whom the receipt was negotiated, or a person to whom the receipt was subsequently negotiated PAID VALUE THEREFOR, WITHOUT NOTICE OF THE BREACH OF DUTY OR FRAUD, MISTAKE OR DURESS.

Effect of subsequent negotiation by seller of a receipt There is a duty upon the purchaser, mortgagee, or pledgee of goods for which a negotiable receipt has been issued, to require the negotiation of the receipt to him otherwise, his failure will have the same effect as an express authorization on his part to

the seller, mortgagor or pledgor in possession of such receipt to make any subsequent negotiation.

Negotiation defeats vendor’s lienWhere a negotiable receipt has been issued for the goods:

a. No seller’s lien or right of stoppage in transitu shall defeat the rights of any purchaser for value in good faith to whom such receipt has been negotiated whether it be prior or subsequent to the notification to the warehouseman who issued such receipt;

b. The warehouseman shall not be obliged to deliver or justified in delivering the goods to an unpaid seller unless the receipt is first surrendered for cancellation.

CHAPTER IV Criminal Offenses1. Warehouseman, or any officer, agent or servant of the warehouseman, issues or aids in issuing a receipt knowing that the goods have not actually been received or are not under his actual control at the time of issuing of such receipt. LIABILITY: Imprisonment not exceeding 5 yrs or by a fine not exceeding P10, 000.00, or by both.

2. Warehouseman, or any officer, agent or servant of warehouseman, fraudulently issues or aids in fraudulently issuing a receipt for goods knowing that it contains any false statements.LIABILITY: Imprisonment not exceeding 1 yr, or by a fine not exceeding P2,000.00, or by both.

3. Warehouseman, or any officer, agent or servant of warehouseman, issues or aids in issuing a duplicate or additional negotiable receipt for goods knowing that a former negotiable receipt for the same goods is outstanding and uncancelled, without plainly placing “duplicate” (except in case of loss or destroyed receipts)LIABILITY: Imprisonment not exceeding 5 yrs, or by a fine not exceeding P10,000.00, or by both.

4. If there are goods deposited or held by the warehouseman as an owner, either solely or jointly with others, and that warehouseman, or any officer, agent or his servant, knowing such ownership, issues or aids in issuing a negotiable receipt not stating such ownership.LIABILITY: Imprisonment not exceeding 1 yr, or by a fine not exceeding P2,000.00, or by both.

5. Warehouseman, or any officer, agent or servant of warehouseman, delivers goods out of the possession of such warehouseman , knowing that a negotiable receipt is outstanding and uncancelled, without obtaining the possession of such receipt at or before the time of deliveryLIABILITY: Imprisonment not exceeding 1 yr, or a fine not exceeding P2,000.00, or by both.

6. Any person who deposits goods to which he has no title, or upon which there is a lien or mortgage, and who takes, for such goods a negotiable receipt which he afterwards negotiates for value without disclosing his want of title or existence of the lien or mortgage.LIABILITY: Imprisonment not exceeding 1 yr, or by a fine not exceeding P2,000.00, or by both.

GENERAL BONDED WAREHOUSE ACT(ACT NO 3893 as amended by RA 247)

What is the purpose of the law and how is such purpose sought to be achieved?The purpose of the law is to protect depositors by giving then recourse in case of the insolvency of the warehouseman against the bond filed by him.To achieve this purpose, any person who wants to engage in the business of receiving commodities for storage is required by

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the Act to first secure a license therefore from the Department of Trade and Industry.

What is a warehouseman?A warehouseman is a person engaged in the business of receiving commodity for storage. (Compare it in the Warehouse Receipt Act)

What is included in the phrase “the business of receiving commodity for storage”(aka Deposit)?It includes entering into any contract or transaction wherein-

1. The warehouseman is obligated to return the very same commodity delivered to him or to pay its value

2. The commodity delivered is to be milled for the owner thereof

3. The commodity delivered is commingled with the commodity belonging to other persons, and the warehouseman is obligated to return commodity of the same kind or to pay its value

What commodities may be stored in a bonded warehouse?Generally, these commodities could be any raw, processed, manufactured or finished product or by-product, goods, article, or merchandise, either domestic or of foreign production or origin, which may be traded or dealt in openly and legally.Thus, prohibited substances, the possession of which is prohibited by law, may not be validly received for storage in a bonded warehouse.

Describe the bond required to be put by the warehouseman.

1. The bond may either be cash or property bond or bond issued by a duly authorized bonding company

2. The amount of the bond must not be less than 33 1/3 % of the market value of the maximum quantity of the commodity to be received by the warehouseman.

3. It shall be conditioned as to respond for the market value of the commodity actually delivered and received at any time by the warehouseman in case the latter is unable to return the commodity or to pay its value.

What are the duties of a bonded warehouseman?1. To insure the commodity received for storage against

fire2. To receive for storage any commodity of the kind

customarily stored by him in the warehouse, so far as his license or the capacity of the warehouse will permit, without making any discrimination between persons desiring to avail themselves of warehouse facilities

3. To keep complete record of all commodities received by him, of the receipts issued therefore, of the withdrawals, of the liquidation, and of all receipts returned to and canceled by him.

What are the rights of a person injured by the breach by the warehouseman of any of his obligation under the act?He may sue on the bond put up by the warehouseman to recover the damages he may have sustained on account of such breach. In case the bond given is not sufficient to cover the full market value of the commodity stored, he may sue on any property or assets of the warehouseman not exempt by law form attachment and execution.

What are the offenses penalized under the act?1. Engaging in the business of receiving commodities for

storage without the proper license2. Receiving a quantity of commodity greater that that

specified in the license of the warehouseman3. Conniving or entering into a combination with an

unlicensed warehouseman for the purpose of avoiding compliance with the requirement of obtaining a license before engaging in the business of receiving commodities for storage

TRUST RECEIPTS LAW(PD 115)

Definition of Terms:1. Entrustee – person having or taking possession of goods, documents or instruments under a trust receipt transaction, and any successor-in-interest of such person for the purpose(s) specified in the trust receipt agreement.2. Entruster – person holding title over the goods, documents, or instruments subject of a trust receipt transaction and any successor-in-interest of such person.3. Trust Receipt – written or printed document signed by the entrustee in favor of the entruster containing terms and conditions substantially complying with the provision of the decree.4. Security Interest – a property interest in goods, documents or instruments to secure performance of some obligation of the entrustee or of some third person

Trust Receipt Transaction – any transaction by and between an entruster and entrustee, whereby the entruster, who owns or holds absolute title over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter’s execution and delivery to the entruster of a “trust receipt”.

What are the duties of the entrustee In the trust receipt?The entrustee binds himself

1) to hold the designated goods, documents or instruments in trust for the entruster;

2) to sell or dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof and

3) to turn over to the entruster the goods, documents or instruments if they are unsold or not disposed of in accordance with the terms and conditions specified in the trust receipt.

OTHER PURPOSES:1. In the case of goods or documents

a. To sell the goods or procure their sale;b. To manufacture or process the goods with the

purpose of ultimate sale (here the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt) or

c. To load, unload, ship or transship or otherwise deal with them in a manner preliminarily or necessary to their sale

2. In the case of instrumentsa. To sell or procure their sale or exchange; orb. To deliver them to a principal; orc. To effect the consummation of some transaction

involving delivery to a depository or register; ord. To effect their presentation, collection or renewal

In what form must a Trust Receipt be issued?A trust receipt need not be in any particular form, BUT every such receipt must substantially contain the following:

1. A description of the goods, documents or instruments subject of the trust receipt;

2. The total invoice value of the goods and the amount of the draft to be paid by the entrustee;

3. An undertaking or a commitment of the entrustee to:a. Hold in trust for the entrustee the goods,

documents or instruments therein described;b. Dispose of them in the manner provided for in the

trust receipt; andc. Turn over the proceeds of the sale to the

entruster to the extent of the amount owing to the entruster or as appears in the trust receipt or return the same in the event of non-sale within a specified period.

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The trust receipt may contain other terms and conditions agreed upon by the parties provided that such shall not be contrary to the provisions of this law, any existing laws, public policy or morals, public order or good customs.

In what currency should a trust receipt may be denominated?The trust receipt may be in the (1)Philippine currency or (2) any foreign currency acceptable and eligible as part of international reserves of the Philippines. In case of trust receipts denominated in foreign currency, payment shall be made in its equivalent in Philippine currency computed at the prevailing exchange rate on the date the proceeds of the sale are turned over to the entruster.

What are the rights of an entrusterThe entruster shall be entitled to the following:

1. Proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee

2. Return of the goods, documents or instruments in case of non-sale and

3. Enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this decree.

4. May cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt; or

5. On or after default, give notice to the entrustee of the intention to sell, and may, not less than 5 days after serving or sending of such notice, sell the goods at a public or private sale, and the entruster may, at a public sale, become a purchaser.

Notice of the sale shall be deemed sufficiently given if in writing, and either personally served on the entrustee or sent by post-paid ordinary mail to the entrustee’s last known address.

The proceeds of such sale, whether public or private, shall be applied to the following:

b. Payment of the expenses thereof;c. Payment of the expenses of re-taking,

keeping and storing of goods, documents or instruments;

d. Satisfaction of the entrustee’s indebtedness to the entruster.

The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency.

The entruster holding a security interest shall not, merely by virtue of such interest or having given the entrustee liberty of sale or other disposition of the goods, documents or instruments under the terms of the trust receipt transaction, be responsible as principal or as vendor under any sale or contract to sell made by the entrustee.

The entruster’s security interest in goods, documents or instruments pursuant to the written terms of a trust receipt shall be valid as against all creditors of the entrustee for the duration of the trust receipt agreement

What are the obligations of the entrustee?The entrustee shall:

1. Hold the goods, documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt;

2. Receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the entruster or as appears in the trust receipt;

3. Insure the goods for their total value against loss from fire, theft, pilferage or other casualties;

4. Keep said goods or proceeds thereof whether in money or whatever form, separate and capable of identification as property of entruster;

5. Return the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and

6. Observe all other terms and conditions of the trust receipt not contrary to the provisions of this decree.

Liability of entrustee for LOSSThe risk of loss shall be BORNE BY THE ENTRUSTEE. Loss pending their disposition, irrespective of whether or not it was due to the fault or negligence of the entrustee, shall not extinguish his obligation to the entruster for the value thereof

Right of purchaser for value and in good faithAny purchaser of goods, documents or instruments, who buys such for value and in good faith from the entrustee, acquires said goods, documents or instruments free from the entruster’s security interest.

Criminal LiabilityESTAFA – if there is failure on the part of the entrustee to turn over the proceeds of the sale or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt.If a corporation, partnership, association or other juridical entities commit the violation; the penalty shall be imposed upon the directors, officers, employees or other officials responsible for the offense.

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