2011 golden notes mercantile law

7/27/2019 2011 Golden Notes Mercantile Law

1/279

MERCANTILELAW

GOLDENNOTES2011UNIVERSITYOFSANTOTOMAS

FACULTYOF

CIVIL

LAW

MANILA


2/279

AcademicYear20112012CIVILLAWSTUDENTCOUNCIL

LesterJohnA.Lomeda PresidentWilfredoT.Bonilla,Jr. VicePresident

RaissaS.Saipudin SecretaryBernadetteFaustineC.Balao Treasurer

MarcMikhaeleJ.Santos AuditorVictorLorenzoL.Villanuea PublicRelationsOfficer

TEAM:BAROPS2011

DianeCamillaR.Borja ChairpersonCarloArtemusV.Diaz ViceChairpersonMaryGraceL.Javier Secretary

RonnRobbyD.Rosales LogisticsCommitteeHeadMarkArthurM.Catabona Asst.LogisticsCommitteeHead

AngeliP.

Albaa

Finance

Committee

Head

VicenteO.PlatonIII HotelAccommodationsHeadKimverlyA.Ong Asst.HotelAccommodationsHead

The UST GOLDEN NOTES is a student-edited work of the Universityof Santo Tomas, Faculty of Civil Law. It is updated annually.Communications regarding the NOTES should be addressed to theAcademics Committee of the Team: Bar-Ops.

ADDRESS: Team Bar-OpsAcademics CommitteeFaculty of Civil LawUniversity of Santo TomasEspaa, Manila 1008

TEL. NO.: (02) 731-4027(02) 4061611 loc. 8578


3/279

2011ACADEMICSCOMMITTEELesterJayAlanE.FloresII Chairperson

KarenJoyG.Sabugo ViceChairforAcademicsJohnHenryC.Mendoza ViceChairforAcademics

JeanelleC.Lee ViceChairforAdministrationandFinanceTheenaC.Martinez ViceChairforLayoutandDesign

EarlLouieM.Masacayan ViceChairforLayoutandDesign

MERCANTILELAWCOMMITTEE

EarlLouieM.Masacayan MercantileLawCommitteeHeadKimverlyA.Ong Asst.MercantileLawCommitteeHead

JoannaMayD.G.Peada Asst.MercantileLawCommitteeHeadMa.ElisaJonalynA.Barquez Member

Angeli

R.

Carpio

Member

AntonetteT.Comia MemberAlbanRobertLorenzoF.DeAlban Member

JoebenT.DeJesus MemberChrisJarkAceM.Mao MemberAnnaMarieP.Obieta MemberRubyAnneB.Pascua Member

FlorAngelaT.Sabaupan MemberGianFrancesNicoleC.Vilches Member

ADVISER

Atty.AmadoE.Tayag
http://penafrancia.net/http://penafrancia.net/http://penafrancia.net/http://penafrancia.net/


4/279

FACULTYOFCIVILLAW

UNIVERSITYOFSANTOTOMAS

AcademicYear20112012

ACADEMICOFFICIALS

Atty.NILOT.DIVINADean

Rev.Fr.ISIDROC.ABAO,O.P.Regent

Atty.MARIANJOANNEK.COPUA

FacultySecretary

Atty.ELGINMICHAELC.PEREZLegalCounsel

USTChiefJusticeRobertoConcepcionLegalAidClinic

JudgePHILIPA.AGUINALDOSWDBCoordinator

LENYG.GADIANA,RGCGuidanceCounselor


5/279

Ourdeepestappreciationtoour

Mentors&Inspiration

DeanNiloT.Divina

DeanAmadoL.Dimayuga

JudgeNoli

C.

Diaz

Atty.IrvinJosephM.Fabella

Atty.JacintoD.Jimenez

Atty.AlbertR.Palacios

Atty.GabrielT.Robeniol

Atty.RodolfoP.Soriano

Atty.AmadoT.Tayag

For activating our magnets of curiosity, knowledge and

wisdom and helping us understand the intricate

sphere of Mercantile Law.

AcademicsCommittee2011


6/279

D I S C L A I M E RTheriskofuse,nonuseandmisuseof

thismaterialshallbebornesolely

bytheuser.


7/279

TABLE OF CONTENTS

SYLLABUS FOR 2011 BAR EXAMINATIONSMERCANTILE LAW

November 13, 2011(Second Sunday, Afternoon)

A.Letters

of

Credit...

1

I.Definition/Concept. 1

II.Governinglaws.. 1

III.Natureofletterofcredit. 1

IV.Partiestoaletterofcredit... 2

A.Rightsandobligations ofparties.. 2

V.BasicPrinciplesofletterofcredit.... 4

A.Doctrineofindependence.... 4

B.Fraudexceptionprinciple.. 4

C.Doctrineofstrictcompliance... 4

B.WarehouseReceiptsLaw...5

I.NatureandFunctionsofaWarehouseReceipt... 5

A.Towhomdelivered 6

B.Kinds. 6

c.Distinction

between

aNegotiable

Instrument

and

aNegotiable

Warehouse

Receipt....

7

D.Rightsofaholderofanegotiablewarehousereceiptasagainstatransfereeofanon

negotiablewarehousereceipt........ 7

II.DutiesofaWarehouseman... 8

III.Warehousemans Lien 10

C.TrustReceiptsLaw12

I.Definition/Concept ofaTrustReceiptTransaction 12

A.Loan/securityfeature. 12

B.Ownershipofthegoods,documentsandinstrumentsunderatrustreceipt 12

II.RightsoftheEntruster.. 12

A.Validityofthesecurityinterestasagainstthecreditorsoftheentrustee/innocentpurchasers

forvalue. 13

III.ObligationsandLiabilityoftheEntrustee 13

A.

Payment/Delivery

of

proceeds

of

sale

or

disposition

of

goods,

documents

or

instruments

13

B.Returnofgoods,documentsorinstrumentsincaseofsale 13

C.Liabilityforlossofgoods,documentsorinstruments. 14

D.Penalsanctionifoffenderisacorporation 14

IV.Remediesavailable. 14

D.NegotiableInstrumentsLaw 16I.FormsandInterpretation 16

A.RequisitesofNegotiability. 16

B.Kindsofnegotiableinstrument.. 16

II.Completionanddelivery.. 16

A.Insertionofdate. 16

B.Completionofblanks. 17

C.Incompletebutdeliveredinstruments.... 17

D.Incompleteandundeliveredinstruments 18

E.Complete

but

undelivered

instruments

18

F. CompleteandDeliveredinstruments.........................................................................................19

III.Rulesofinterpretation.. 19

IV.Signature 19

A.Signingintradename 20

B.Signatureofagent 20

C.Indorsementbyminororcorporation 20

D.Forgery 20

V.Consideration 23

VI.Accomodation party 24

VII.Negotiation 25


8/279

TABLE OF CONTENTS

A.Distinguishedfromassignment. 25

B.Modesofnegotiation 26

VIII.RightsoftheHolder 28

A.HolderinDueCourse. 28

B.DefensesagainsttheHolder. 30

IX.LiabilitiesofParties.. 31

A.Maker... 31

B.

Drawer..

32

C.Acceptor.. 32

D.Indorser 32

E.Warranties. 34

X.PresentmentforPayment.. 34

A.Necessityofpresentmentforpayment 34

B.Partiestowhompresentmentforpaymentshouldbemade 35

C.Dispensationwithpresentmentforpayment 36

D.Dishonorbynonpayment. 36

XI.NoticeofDishonor 36

A.Partiestobenotified. 36

B.Partieswhomaygivenoticeofdishonour. 37

C.Effectofnotice 37

D.Formofnotice 37

E.Waiver. 37

F.Dispensation

with

notice

38

G.Effectoffailuretogivenotice 38

XII.DischargeofNegotiableInstrument 39

A.Dischargeofnegotiableinstrument 39

B.Dischargeofpartiessecondarilyliable 39

C.Rightofpartywhodischargedinstrument 40

D.Renunciationbyholder 40

XIII.Materialalteration 40

A.Concept 40

B.Effectofmaterialalteration. 41

XIV.Acceptance 41

A.Definition 41

B.Manner 41

C.Timeforacceptance 42

D.Rulesgoverningacceptance. 42

XV.Presentment

for

Acceptance

42

A.Time/place/mannerofpresentment 43

B.Effectoffailuretomakepresentment 43

C.Dishonorbynonacceptance 43

XVI.PromissoryNotes 44

XVII.Checks 44

A.Definition 44

B.Kinds 44

C.Presentmentforpayment 45

(1)time.. 45

(2)effectofdelay 45

E.InsuranceCode46

I.ConceptofInsurance 46

II.ElementsofanInsuranceContract 46

III.Characteristics/NatureofInsuranceContracts 46

IV.Classes 47

A.Marine.. 47

B.Fire 57

C.Casualty 58

D.Suretyship.. 60

E.Life 61

f.CompulsoryMotorVehicleLiabilityInsurance 62

V.InsurableInterest.. 64

A.InLife/Health 65


9/279

TABLE OF CONTENTS

B.InProperty 66

C.DoubleInsuranceandOverInsurance... 67

D.MultipleorSeveralInterestsonSameProperty...... 69

VI.PerfectionoftheContractofInsurance..... 69

A.OfferandAcceptance/Consensuality.69 (1)Delayinacceptance.... 70

(2)DeliveryofPolicy...... 70

B.

Premium

Payment.....

70

C.NonDefaultOptionsinLifeInsurance..... 72

D.ReinstatementofaLapsedPolicyofLifeInsurance.... 73

E.RefundofPremiums.. 74

VI.RescissionofInsuranceContracts.... 74

A.Concealment... 74

B.Misrepresentation/Omissions.. 76

C.BreachofWarranties......................................................................... 78

VIII.ClaimsSettlementandSubrogation... 80

A.NoticeandProofofLoss. 80

B.GuidelinesonClaimsSettlement.. 81

(1)UnfairClaimsSettlement;Sanctions 81

(2)PrescriptionofAction.... 82

(3)Subrogation.. 82

F.Transportation

Law..84

I.CommonCarriers 84

A.DiligenceRequiredofCommonCarriers 84

B.LiabilitiesofCommonCarriers 84

II.Vigilanceovergoods.. 85

A.ExemptingCauses 85

(1)RequirementofAbsenceofNegligence 87

(2)AbsenceofDelay 87

(3)Duediligencetopreventorlessentheloss 87

B.Contributorynegligence.. 87

C.Durationofliability 87

(1)Deliveryofgoodstocommoncarrier 87

(2)Actualorconstructivedelivery. 88

(3)Temporaryunloadingorstorage. 88

D.Stipulationforlimitationofliability. 88

(1)Void

stipulations.

89

(2)Limitation ofliabilitytofixedamount. 89

(3)Limitation ofliabilityinabsenceofdeclarationofgreatervalue.. 89

E.Liabilityforbaggageofpassengers. 89

(1)Checkedinbaggage. 89

(2)Baggageinpossessionofpassengers 89

III.SafetyofPassengers 90

A.Voidstipulations 90

B.Durationofliability 90

(1)WaitingforcarrierorBoardingofcarrier 90

(2)Arrivalatdestination 90

C.Liabilityforactsofothers 91

(1)Employees 91

(2)Otherpassengersandstrangers.. 91

D.Extentofliabilityfordamages 92

IV.BillofLading 93

A.Threefoldcharacter 93

B.Deliveryofgoods..................................................................................................................... 93

(1)Periodfordelivery 93

(2)Deliverywithoutsurrenderofbilloflading 94

(3)Refusalofconsigneetotakedelivery 94

C.Periodforfilingclaims 94

D.Periodforfilingactions 94

V.MaritimeCommerce. 95

A.CharterParties.. 95


10/279

TABLE OF CONTENTS

(1)Bareboat/DemiseCharter 95

(1)TimeCharter..................... 95

(3)Voyage/Trip Charter. 95

B.LiabilityofShipownersandShippingAgents 96

(1)Liabilityforactsofcaptain.. 96

(2)Exceptionstolimitedliability... 98

C.AccidentsandDamagesinMaritimeCommerce 99

(1)

General

Average.

99

(2)Collisions.. 100

D.CarriageofGoodsbySeaAct 102

(1)Application. 102

(2)NoticeofLossorDamage 102

(3)PeriodofPrescription 102

(4)Limitationofliability 103

VI.PublicServiceAct 103

A.DefinitionofPublicUtility 103

B.Necessityforcertificateofpublicconvenience 104

(1)Requisites. 104

(a)Citizenship 104

(b)Promotionofpublicinterests 104

(c)Financialcapability 104

(2)Prioroperatorrule 105

(a)Meaning

105

(b)Exceptions 105

(c)Ruinouscompetition 105

C.Fixingofrate 105

(1)Rateofreturn 105

(2)Exclusionofincometaxasexpense 106

D.Unlawfularrangements 106

(1)Boundarysystem 106

(2)Kabitsystem. 106E.Approvalofsale,encumbranceorleaseofproperty 107

VII.TheWarsawConvention 107

A.Applicability 107

B.Limitationofliability 107

(1)Liabilitytopassengers. 107

(2)Liabilityforcheckedbaggage 107

(3)Liability

for

hand

carried

baggage

108

C.WillfulMisconduct 108

G.CorporationLaw 109

I.TheCorporationCode 109

A.Corporation,defined 110

B.Classificationofcorporations.. 110

C.Nationalityofcorporations 112

(1)Controltest 112

(2)Grandfatherrule. 112

D.Corporatejuridicalpersonality 112

(1)Doctrineofseparatejuridicalpersonality 112

(a)Liabilityfortortandcrimes 113

(b)Recoveryofdamages.. 113

(2)Doctrineofpiercingthecorporateveil 113

(a)Groundsforapplicationofdoctrine 114

(b)Testindeterminingapplicability 114

E.Capitalstructure 114

(1)Numberandqualificationsofincorporators 115

(2)Minimumcapitalstockandsubscriptionrequirements.. 115

(3)Corporateterm 115

(4)Classificationofshares 116

F.Incorporationandorganization.. 119

(1)Promoter. 119

(a)Liabilityofpromoter 119


11/279

TABLE OF CONTENTS

(b)Liabilityofcorporationforpromoterscontracts. 119

(2)Subscriptioncontract.. 119

(3)Preincorporationsubscriptionagreements.. 119

(4)Considerationforstocks 120

(5)ArticlesofIncorporation 120

(a)Contents 121

(b)Nonamendableitems 121

(6)

Corporate

name

limitations

on

use

of

corporate

name..

122

(7)RegistrationandissuanceofCertificateofIncorporation. 123

(8)Electionofdirectorsortrustees.. 123

(9)AdoptionofByLaws... 124

(a)Requisitesofvalidbylaws 124

(b)Bindingeffects 124

(c)Amendments. 125

G.Corporatepowers 126

(1)Generalpowers,theoryofgeneralcapacity 126

(2)Specificpowers,theoryofspecificcapacity 127

(a)Powertoextendorshortencorporateterm 127

(b)Powertoincreaseordecreasecapitalstockorincur,create,increase

bondedindebtedness 127

(c)Powertodenypreemptiverights 129

(d)Powertosellordisposeofcorporateassets 130

(e)Power

to

acquire

own

shares

130

(f)Powertoinvestcorporatefundsinanothercorporationorbusiness 131

(g)Powertodeclaredividends 131

(h)Powertoenterintomanagementcontract 133

(i)Ultraviresacts 133i.Applicabilityofultraviresdoctrine.. 133ii.Consequences ofultraviresacts.. 134

(j)Doctrineofindividualityofsubscription 134

(k)Doctrineofequalityofshares. 134

(l)Trustfunddoctrine.. 134

(3)Howexercised.. 134

(a)Bytheshareholders. 134

(b)BytheBoardofDirectors.. 135

(c)BytheOfficers.. 135

H.Stockholdersandmembers.. 135

(1)Fundamental

rights

of

astockholder

135

(2)Participationinmanagement 135

(a)Proxy 135

(b)Votingtrust. 136

(c)Caseswhenstockholdersactionisrequired. 138

i.Byamajorityvote 138

ii.Byatwothirdsvote 138

iii.Bycumulativevoting... 138

(3)Proprietaryrights 138

(a)Righttodividends.. 138

(b)Rightofappraisal..... 138

(c)Righttoinspect.. 139

(d)Preemptive right.... 139

(e)Righttovote.. 139

(4)Remedialrights.. 139

(a)Individualsuit 140

(b)Representativesuit.. 140

(c)Derivativesuit 130

(5)Obligationofastockholder 140

(6)Meetings 141

(a)Regularorspecial. 141

i.Whenandwhere 141

ii.Notice 141

(b)Whocallsthemeetings 141

(c)Quorum 141


12/279

TABLE OF CONTENTS

(d)Minutesofmeetings... 141

I.Boardofdirectorsandtrustees 142

(1)Repositoryofcorporatepowers 142

(2)Tenure,qualificationsanddisqualificationsofdirectors 143

(3)Elections 143

(a)Cumulativevoting 143

(b)Quorum 143

(4)

Removal

144

(5)Fillingofvacancies 144

(6)Compensation 144

(7)Disloyalty 145

(8)Businessjudgmentrule 145

(9)Solidaryliabilitiesfordamages 145

(10)Liabilityforwateredstocks 146

(11)Personalliabilities 146

(12)Responsibility forcrimes 146

(13)Specialfactdoctrine. 146

(14)Insideinformation. 147

(15)Contracts.. 147

(a)Byselfdealingdirectorswiththecorporation. 147

(b)Betweencorporationswithinterlockingdirectors............................... 147

(16)Executivecommittee... 147

(a)Creation

147

(b)Limitationsonitspowers 148

(17)Meetings.. 148

(a)Regularorspecial.. 148

i.Whenandwhere... 148

ii.Notice 148

(b)Whopresides 148

(c)Quorum. 148

(d)Ruleonabstention 149

J.Capitalaffairs 149

(1)Certificateofstock 149

(A)Natureofthecertificate 149

(B)Uncertificatedshares 149

(c)Negotiability.. 150

i.Requirementsforvalidtransferofstocks. 150

(D)Issuance..

151

i.Fullpayment 151

ii.Paymentprorata 151

(E)Stockandtransferbook 151

i.Contents 151

ii.Whomaymakevalidentries 152

(F)Lostordestroyedcertificates 152

(G)Situsofthesharesofstock 153

(2)Wateredstocks 153

(A)Definition 153

(B)Liabilityofdirectorsforwateredstocks 154

(C)Trustfunddoctrineforliabilityforwateredstocks 154

(3)Paymentofbalanceofsubscription.. 154

(A)Callbyboardofdirectors. 154

(B)Noticerequirement.. 155

(4)Saleofdelinquentshares 155

(A)Effectofdelinquency 156

(B)Callbyresolutionoftheboardofdirectors 156

(C)Noticeofsale.. 156

(D)Auctionsale 156

(5)Alienationofshares.. 157

(A)Allowablerestrictionsonthesaleofshares 157

(B)Saleofpartiallypaidshares 157

(C)Saleofaportionofsharesnotfullypaid. 158

(D)Saleofallofsharesnotfullypaid. 158


13/279

TABLE OF CONTENTS

(E)Saleoffullypaidshares. 158

(F)Requisitesofavalidtransfer.. 158

(G)Involuntarydealings 158

K.Dissolution andliquidation.. 158

(1)Modesofdissolution 158

(A)Voluntary 158

i.Wherenocreditorsareaffected. 158

ii.

Where

creditors

are

affected

159

iii.Byshorteningofcorporateterm. 159

(B)Involuntary. 159

i.Byexpirationofcorporateterm 159

ii.Failuretoorganizeandcommencebusinesswithin2years

fromincorporation 159

iii.Legislative dissolution 159

iv.Dissolution bytheSECongroundsunderexistinglaws159

(2)Methodsofliquidation.. 160

(a)Bythecorporationitself.. 160

(b)Conveyance toatrusteewithina3yearperiod.. 160

(c)Bymanagementcommitteeorrehabilitationreceiver 161

(d)Liquidationafterthreeyears 161

l.Othercorporations 161

(1)Closecorporations 161

(A)Characteristics

of

aclose

corporation

162

(B)Validityofrestrictionsontransferofshares 162

(C)Issuanceortransferofstockinbreachofqualifyingconditions.. 162

(D)Whenboardmeetingisunnecessaryorimproperlyheld..162

(E)Preemptiveright 163

(F)Amendmentofarticlesofincorporation 163

(G)Deadlocks 163

(2)Nonstockcorporations. 163

(A)Definition 163

(B)Purposes 163

(C)Treatmentofprofits 164

(D)Distributionofassetsupondissolution. 164

(3)Religiouscorporations 164

(A)Corporationsole 164

i.Nationality 164

ii.Religious

societies

165

(4)Foreigncorporations 166

(A)Basesofauthorityoverforeigncorporations 166

i.Consent 166

ii.Doctrineof"doingbusiness"(relatetodefinitionunderthe

ForeignInvestmentsAct,RA7042) 166

(B)Necessityofalicensetodobusiness 168

i.Requisitesforissuanceofalicense.. 168

ii.Residentagent.. 169

(C)Personalitytosue. 169

(D)Suabilityofforeigncorporations 169

(E)Instanceswhenunlicensedforeigncorporationsmaybeallowedtosue

Isolatedtransactions 170

(F)Groundsforrevocation oflicense 170

M.Mergerandconsolidation.. 170

(1)Definition andconcept 170

(2)Constituentv.consolidatedcorporation 170

(3)Planofmergerorconsolidation.. 171

(4)Articlesofmergerorconsolidation.. 171

(5)Procedure. 171

(6)Effectivity. 172

(7)Limitations.. 172

(8)Effects.... 172

H.SecuritiesRegulationCode(RA8799)173


14/279

TABLE OF CONTENTS

I.Statepolicy(purpose).. 173

II.PowersandfunctionsoftheSEC. 173

A.Regulatory 173

B.Adjudicative. 173

III.Securitiesrequiredtoberegistered. 174

A.Exemptsecurities 174

B.Exempttransactions. 175

IV.

Procedure

for

registration

of

securities

175

V.Prohibitionsonfraud,manipulationandinsidertrading 178

A.Manipulationofsecurityprices.. 178

B.Shortsales.. 178

C.Fraudulenttransactions 178

D.Insidertrading 178

VI.Protectionofinvestors.. 179

A.Tenderofferrule 179

B.Rulesonproxysolicitation. 180

C.Disclosure rule. 181

VII.Civilliability. 181

I.BankingLaws.184

I.TheNewCentralBankAct(RA7653). 184

A.Statepolicies. 184

B.Creation

of

the

Bangko

Sentral

ng

Pilipinas

(BSP)..

184

C.Responsibility andprimaryobjective.. 184

D.MonetaryBoard Powersandfunctions 185

E.HowtheBSPhandlesbanksindistress 185

(1)Conservatorship 185

(2)Closure 186

(3)Receivership 186

(4)Liquidation.. 187

F.HowtheBSPhandlesexchangecrisis.. 188

(1)Legaltenderpower 188

(2)Rateofexchange. 188

II.LawonSecrecyofBankDeposits(RA1405,asamended) 189

A.Purpose 189

B.Prohibitedacts 189

C.Depositscovered.. 189

D.Exceptions.

190

E.Garnishmentofdeposits,includingforeigndeposits.. 191

F.Penaltiesforviolation 191

III.GeneralBankingAct(RA8791). 192

A.Definition andclassificationofbanks 192

B.Distinctionofbanksfromquasibanksandtrustentities. 192

C.Bankpowersandliabilities 193

(1)Corporatepowers. 193

(2)Bankingandincidentalpowers. 194

D.Diligencerequiredofbanks relevantjurisprudence. 194

E.Natureofbankfundsandbankdeposits.. 195

F.Stipulationoninterests. 196

G.Grantofloansandsecurityrequirements.. 197

(1)Ratioofnetworthtototalriskassets 197

(2)Singleborrowerslimit 197

(3)Restrictions onbankexposuretoDOSRI(directors,officers,stockholdersand

theirrelatedinterests) 198

H.Penaltiesforviolations 198

(1)Fine,imprisonment 198

(2)Suspensionorremovalofdirectororofficer 199

(3)Dissolution ofbank 199

IV.PhilippineDepositInsuranceCorporationAct 199

A.Basicpolicy 199

B.Conceptofinsureddeposits 199

C.Liabilitytodepositors. 199


15/279

TABLE OF CONTENTS

(1)DepositliabilitiesrequiredtobeinsuredwithPDIC..... 199

(2)Commencementofliability. 200

(3)Depositaccountsnotentitledtopayment 200

(4)Extentofliability. 200

(5)Determinationofinsureddeposits. 200

(6)Calculationofliability. 201

(a)Perdepositor,percapacityrule.... 200

(b)

Joint

accounts..

201

(c)Modeofpayment.. 201

(d)Effectofpaymentofinsureddeposit 201

(e)PaymentsofinsureddepositsaspreferredcreditunderArt.2244,

CivilCode 201

(f)Failuretosettleclaimofinsureddepositor 202

(g)Failureofdepositortoclaiminsureddeposits 202

i.Examinationofbanksanddepositaccounts.. 202

ii.Prohibition againstsplittingofdeposits 203

iii.ProhibitionagainstissuancesofTROs,etc. 203

J.IntellectualPropertyLaw(excludingImplementingRulesandRegulations)204

I.IntellectualPropertyRightsingeneral 204

A.Intellectualpropertyrights 204

b.Differencesbetweencopyrights,trademarksandpatent 204

C.Technology

transfer

arrangements..

204

II.Patents.. 204

A.Patentableinventions.. 205

B.Nonpatentableinventions 206

C.Ownershipofapatent 207

(1)Righttoapatent 207

(2)Firsttofilerule 207

(3)InventionscreatedpursuanttoaCommission 208

(4)Rightofpriority 208

D.Groundsforcancellationofapatent 209

E.Remedyofthetrueandactualinventor.. 209

F.Rightsconferredbyapatent 210

G.Limitationsofpatentrights 210

(1)Prioruser.. 210

(2)Usebythegovernment.. 210

H.Patent

infringement..

211

(1)Testsinpatentinfringement. 211

(a)Literalinfringement.. 211

(b)Doctrineofequivalents. 211

(2)Civilandcriminalaction. 212

(3)Prescriptiveperiod. 212

(4)Defensesinactionforinfringement. 213

I.Licensing 213

(1)Voluntary 213

(2)Compulsory... 213

J.Assignmentandtransmissionofrights.. 214

III.Trademarks.. 215

A.Definitionsofmarks,collectivemarks,tradenames 215

B.Acquisitionofownershipofmark. 216

C.Acquisitionofownershipoftradename 216

D.Nonregistrablemarks 217

E.Prioruseofmarkasarequirement 217

F.Teststodetermineconfusingsimilaritybetweenmarks.... 218

(1)Dominancytest 218

(2)Holistictest 218

G.Wellknownmarks 219

H.Rightsconferredbyregistration 219

I.Usebythirdpartiesofnames,etc.similartoregisteredmark....... 219

J.Infringementandremedies 219

(1)Trademarkinfringement. 219


16/279

TABLE OF CONTENTS

(2)Damages. 220

(3)RequirementofNotice.. 220

K.Unfaircompetition.. 221

L.Tradenamesorbusinessnames 222

M.Collectivemarks. 222

N.Criminalpenaltiesforinfringement,unfaircompetition, falsedesignationoforigin,and

falsedescriptionormisrepresentation 223

IV.

Copyrights.

223

A.Basicprinciples,Secs.172.2,175,and181 224

B.Copyrightableworks 224

(1)Originalworks. 224

(2)Derivativeworks. 224

C.Noncopyrightableworks... 225

D.Rightsofcopyrightowner. 226

E.Rulesonownershipofcopyright.. 229

F.Limitationsoncopyright. 231

(1)Doctrineoffairuse 233

(2)Copyrightinfringement.. 234

(a)Remedies.. 235

(b)Criminalpenalties 235

K.SpecialLaws.236

I.The

Chattel

Mortgage

Law

(Act

1508

in

rel.

to

Arts.

1484,

1485,

2140

and

2141

of

the

Civil

Code)

236

A.Essentialrequisites 236

B.Formalrequisites.. 236

C.Registration,whenandwhere. 236

D.Afteracquiredproperty.. 236

E.Afterincurredobligation. 236

F.Rightofjuniormortgagee 237

G.Foreclosureprocedure 237

H.Redemption. 237

I.Claimfordeficiency 237

(1)Generalrule 237

(2)Exception.. 237

(3)Article1484. 237

II.RealEstateMortgageLaw(Act3135,asamendedbyRA4118).. 238

A.Coverage. 238

B.Remedies

available

to

mortgagee

upon

default

of

the

mortgagor.

238

C.Needforspecialpowerofattorney. 238

D.Authoritytoforecloseextrajudicially. 238

E.Procedure.. 239

(1)Wheretofile. 239

(2)Wheretosell.... 239

(3)Postingrequirement... 239

(4)Publicationrequirement.. 239

(a)Sufficiencyofnewspaperpublication.. 239

(b)Needforrepublicationincaseofpostponement. 240

(c)Personalnoticetothemortgagorwhenandwhennotneeded.240

F.Possessionbypurchaserofforeclosedproperty. 240

G.Remedyofdebtorifforeclosureisnotproper. 240

H.Redemption.. 240

(1)Whomayredeem 240

(2)AmountofRedemptionprice. 240

(3)Periodforredemption. 240

(4)Effectofpendencyofactionforannulmentofsale 241

I.Writofpossession. 241

(1)Ministerialdutyofthecourt 241

(2)Enforcementagainstthirdparties 241

(3)Pendencyofactionforannulmentofsale 241

J.Annulmentofsale. 241

III.TruthinLendingAct(RA3765) 242

A.Purpose. 242


17/279

TABLE OF CONTENTS

B.Obligationofcreditorstopersontowhomcreditisextended. 242

C.Coveredandexcludedtransactions. 242

D.Consequencesofnoncompliance withobligation.. 242

IV.AntiMoneyLaunderingLaw(RA9160,asamendedbyRA9194) .243

A.Policyofthelaw. 243

B.Coveredinstitutions 243

C.Obligationsofcoveredinstitutions.. 243

D.

Covered

transactions.

243

E.Suspicioustransactions. 243

F.Whenismoneylaunderingcommitted.. 244

G.Unlawfulactivitiesorpredicatecrimes 244

H.AntiMoneyLaunderingCouncil(AMLC).. 244

I.Functions 245

J.Freezingofmonetaryinstrumentorproperty 245

K.Authoritytoinquireintobankdeposits. 245

V.ForeignInvestmentsAct(RA7042).. 246

A.Policyofthelaw. 246

B.Definition ofterms.. 246

(1)Foreigninvestment.. 246

(2)"Doingbusiness"inthePhilippines 246

(3)Exportenterprise 247

(4)Domesticmarketenterprise 247

C.Registration

of

Investment

of

Non

Philippine

Nationals.........................................................

248

D.Foreigninvestmentsinexportenterprises. 248

E.Foreigninvestmentsindomesticmarketenterprises. 248

F.ForeignInvestmentNegativeList.. 248

Appendices. 250

AppendixA:NegotiableWarehouseReceiptandNonNegotiableWarehouseReceipt. 250

AppendixB:Liabilitiesofthosesecondarilyliable........................................................................................ 251

AppendixC:MarineandLifeInsurance.........................................................................................................252

AppendixD:CorporationandPartnership....................................................................................................253

AppendixE:VoteRequirementforCorporateActs...................................................................................... 254

AppendixF:Conservatorship,ReceivershipandLiquidation........................................................................255

AppendixG:UniversalBank,CommercialBankandThriftBank...................................................................256

AppendixH:NationalizedandSeminationalizedBusinesses.......................................................................257

Index.............258

Bibliography......... 262


18/279

LETTERS OF CREDIT

ACADEMICSCHAIR:LESTERJAYALANE.FLORESII

VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA

VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE

VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ

1UNIVERSITY OF SANTO TOMAS

F a c u l t a d d e D e r e c h o C i v i l

LETTERSOFCREDIT

I. DEFINITION/CONCEPTQ:WhatisLetterofCredit(LC)?

A: It is any arrangement, however named or

described,whereby

abank

(issuing

bank),

acting

at the request and on the instructions of a

customer (applicant) or on its own behalf, binds

itselfto:

1. Pay to the order of, oraccept andpay

drafts drawn by a third party

(Beneficiary),or

2. Authorize another bank to pay or to

acceptandpaysuchdrafts,or

3. Authorizes another bank to negotiate,

againststipulateddocument(s),

Provided, the terms and conditions of the credit

are

complied

with.(Art.

2,

Uniform

Customs

&

PracticeforDocumentaryCredits.)

Note: They are in effect absolute undertakings to

pay the money advanced or for the amount for

which the credit is given on the faith of the

instrument.

Q:WhatisthedurationofLC?

A:

1. Upontheperiodfixedbytheparties;or

2. Ifnoneisfixed:

a. 6 months from its date if used in

thePhilippines;

b. 12 months if used abroad (Art

572,ibid).

Q:WhatarethekindsofLC?

A:

COMMERCIALLETTERS

OFCREDIT

STANDBYLETTERSOF

CREDIT

Involvecontractsofsale.Involvenonsale

transactions.

Payableupon

presentationby

the

sellerbeneficiaryof

documentsthatshowhe

hasperformedhis

contract.

Payableupon

certificationbythe

beneficiaryofthe

applicantsNON

performanceofthe

agreement.(Transfieldv.

LuzonHydroCorp.,G.R.

No.146717,Nov.22,

2004)

Q: Is irrevocable letter of credit and confirmed

letterofcreditsynonymous?

A: An irrevocable letter of credit is not

synonymous withaconfirmed letterofcredit. In

an irrevocable letter of credit, the issuing bank

may not, without the consent of the beneficiary

and

the

applicant,

revoke

its

undertaking

under

the letter, whereas, in a confirmed letter of

credit,thecorrespondentbankgivesanabsolute

assurancetothebeneficiarythatitwillundertake

the issuingbanksobligationas itsownaccording

to the terms and condition of the credit.

(PrudentialBankandTrustCompanyv. IAC,G.R.

No.74886,Dec.8,1992)

Q:Canacourtorderthereleasetotheapplicant

the proceeds of an irrevocable letter of credit

withouttheconsentofthebeneficiary?

A:No,suchorderviolates the irrevocablenature

ofthe

letter

of

credit.

The

terms

of

an

irrevocable

letter of credit cannot be changed without the

consentoftheparties,particularlythebeneficiary

thereof. (Phil.VirginiaTobaccoAdministrationv.

DeLosAngeles,G.R.No.L27829,Aug.19,1988)

II.GOVERNINGLAWQ: What is the law governing letter of credit

(LC)?

A: It is the Uniform Customs and Practice (UCP)

for documentary Credits for International

Chamber of Commerce governs the Letters of

credit(Metropolitan

Waterworks

vs.

Daway,

G.R.

No.160723,July21,2004).

Articles567to572of theCodeofCommerceon

Letters of Credit are obsolete. However, in the

absence of any provision in the Code of

Commerce, commercial transaction shall be

governed by the usages and customs generally

observed.(Sec.2,CodeofCommerce)

III. NATUREOFLETTEROFCREDITQ:WhatisthenatureandpurposeofLC?

A:

To

ensure

certainty

of

payment.

The

seller

is

assuredofpaymentbecausethebank intervenes

and makes the commitment to pay. This

addressesproblemsarisingfromsellersrefusalto

part with his goods before being paid and the

buyers refusal to part with his money before

acquiringthegoods,thus,facilitatingcommercial

transactions.


19/279

USTGOLDENNOTES2011

MERCANTILELAWTEAM:

ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;

ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,

ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,

RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES

2

Q:WhataretheessentialconditionsofLC?

A:

1. Issued infavorofadefinitepersonandnottoorder.

Note: The Uniform Commercial Practice for

DocumentaryCredits

allows

letters

of

credit

to

bepayabletoorder

2. Limited to a fixed or specified amount,ortooneormoreamounts,butwithamaximumstatedlimit.(Article568,Ibid)

Note:Ifanyoftheseessentialconditionsisnotpresent,theinstrumentismerelyconsideredasaletterofrecommendation.

Q: In case the buyer was not able to pay its

obligation under the letter of credit, can the

banktakepossessionoverthegoodscoveredby

thesaid

letter

of

credit?

A: No. The opening of a Letter of Credit did notvest ownership of the goods in the bank in theabsenceofa trustreceiptagreement.A letterofcredit is a mere financial device developed bymerchants as a convenient and relatively safemodeofdealingwiththesalesofgoodstosatisfythe seemingly irreconcilable interests of a seller,who refuses to part with his goods before he ispaid,andabuyer,whowants tohavecontrol ofthe goods before paying. (Transfield Philippines,Inc.v.LuzonHydroCorporation,G.R.No.146717,

Nov.22,2004)

IV.PARTIESTOALETTEROFCREDIT

Q: Who are the parties to a Letter of Credit

transaction?

A:

1. Applicant/Buyer/Importer procurestheletterofcredit,purchasesthegoodsand obliges himself to reimburse theissuing bank upon receipt of thedocumentstitle.

2. Issuing Bank One which, whether a

payingbank

or

not,

Issues

the

letter

of

credit and undertakes to pay the sellerupon receipt of the draft and properdocuments of title from the seller andto surrender them to the buyer uponreimbursement.

3. Beneficiary/Seller/Exporter In whosefavor the instrument is executed. Onewhodeliversthedocumentsoftitleand

draft to the issuing bank to recoverpayment.

The number of parties may be increased.Modern letters of credit usually involvebanktobank transactions. The followingadditionalpartiesmaybe:

1. Advising/notifying bank Thecorrespondent bank (agent) of theissuing bank through which it advisesthebeneficiaryoftheLC.

2. Confirming bank bank which, upontherequestofthebeneficiary,confirmstheLCissued.

3. Payingbankbankonwhichthedraftsare to be drawn, which may be theissuingbankoranotherbanknot inthecityofthebeneficiary.

4. Negotiating bank bank in the city ofthebeneficiarywhichbuysordiscountsthe drafts contemplated by the LC, ifsuch draft is to be drawn on theopening bank not in the city of thebeneficiary.

Q:WhatarethestagesofLC?

A:

1. Contractofsalebetweenthebuyerandseller

2. ApplicationforLCbythebuyerwiththe

bank

3. IssuanceofLCbythebank4. Shippingofgoodsbytheseller5. Execution of draft and tender of

documentsbytheseller6. Redemption of draft (payment) and

obtaining of documents by the issuingbank

7. Reimbursement to the bank andobtainingofdocumentsbythebuyer

A.RIGHTSANDOBLIGATIONSOFPARTIES

Q:Explainthethree(3)distinctbut intertwined

contractrelationships

that

are

indispensable

in

a

letterofcredittransaction.

A:

1. Between the applicant/buyer/importerandthebeneficiary/seller/exporterTheapplicant/buyer/importeristheonewhoprocures the letter of credit while thebeneficiary/seller/exporter is the one


20/279

LETTERS OF CREDIT

ACADEMICSCHAIR:LESTERJAYALANE.FLORESII





F a c u l t a d d e D e r e c h o C i v i l

who in compliance with the contract of

sale ships the goods to the buyer and

deliversthedocumentsoftitleanddraft

to the issuing bank to recover payment

for the goods. Their relationship is

governedbythecontractofsale.

2. Betweenthe

issuing

bank

and

the

beneficiary/seller/exporter The issuing

bank is theone that issues the letterof

credit and undertakes to pay the seller

upon receipt of the draft and proper

documents of title. On the other hand,

the beneficiary/seller/exporter

surrendersdocumentoftitletothebank

incompliance with the terms of the LC.

Their relationship is governed by the

termsoftheLC.

3. Between the issuing bank and the

applicant/buyer/importer The

applicant/buyer/importer

obliges

himself to reimburse the issuing bank

upon receipt of the documents of title.

Their relationship is governed by the

termsoftheapplicationfortheissuance

oftheletterofcreditbythebank.(2002

BarQuestion)

Q:Isanissuingbankaguarantor?

A: No, the concept of guarantee visavis the

conceptofirrevocableLCisinconsistentwitheach

other. LCs are primary obligations and not

security contracts and while they are security

arrangements,

they

are

not

converted

thereby

intocontractsofguaranty.(MWSSv.Hon.Daway,

G.R.No. 160732,June21,2004)

Q:Whenisthebankentitledtoreimbursement?

A: Once the issuing bank shall have paid the

beneficiaryafterthe latterscompliancewiththe

terms of the LC. Presentment for acceptance to

thecustomer/applicantisnotaconditionsinequa

non for reimbursement. (PrudentialBank v. IAC,

G.R.No.74886,Dec.8,1992)

Q:Whatistheconsequenceofpaymentuponan

expiredLC?

A: An issuing bank which paid the beneficiary of

an expired letter of credit can recover the

payment from the applicant which obtained the

goods from the beneficiary to prevent unjust

enrichment.(RodzssenSupplyCo.v.FarEastBank

andTrustCo,G.R.No.109087,May9,2001)

Q: Should the marginal deposit made by the

customer, in possession of the bank be first

deducted from the principal indebtedness

beforecomputingtheinterest?

A: Yes, since it is supposed to be returned upon

compliance with his obligation. Indeed, it would

be

onerous

to

compute

interest

and

other

charges on the face value of the letter of credit

which the issuing bank issued, without first

creditingorsettingoffthemarginaldepositwhich

theimporterpaidtoit.Requiringtheimporterto

pay the interest on the entire letter of credit

without deducting first his marginal deposit

wouldbeaclearcaseofunjustenrichmentbythe

bank.(Abadv.CA,G.R.42735,Jan.22,1990)

Q:Whataretheliabilitiesofcorrespondent

banks?

A:

ROLE LIABILITYNotifying/Advising

Servesasanagentof

theissuingbank;

Warrantstheapparent

(Appearanceto

unaidedsenses)

authenticityofthe

LetterofCredit.(Bank

ofAmericaNT&SAv.

CA,G.R.No. 105395,

Dec.10,1993)

Doesnotincurany

obligationmorethan

justnotifyingthe

seller/beneficiaryofthe

openingoftheLCafter

ithasdeterminedits

apparentauthority.

(BankofAmericaNT&

SAv.CA,G.R.No.

105395,Dec.10,1993)

Notliablefordamages

unlessthedocumenton

itsfaceismanifestly

fake.

Confirming

Lendscredencetothe

LCissuedbyalesser

knownbank.

Directobligation,asifit

istheonewhichissued

theLC.

Negotiating

Buysthesellersdraft

andlateronsellsthe

drafttotheissuing

bank.

Dependsonthestageof

negotiation,thus:

1.Beforenegotiation

Noliabilitywithrespect

totheseller.Merely

suggestsitswillingness

tonegotiate.

2.Afternegotiation A

contractualrelationship

willthenarise,making

thebankliable.

Paying

Mayeitherbethe

issuingbankorany

otherbankintheplace

ofthebeneficiary.

Directobligation.


21/279

USTGOLDENNOTES2011

4MERCANTILELAWTEAM:





V. BASICPRINCIPLESOFLETTEROFCREDIT

A.DOCTRINEOFINDEPENDENCE

Q:Whatistheindependenceprinciple?

A: The relationship of the buyer and the bank is

separateand

distinct

from

the

relationship

of

the

buyerandsellerinthemaincontract;thebankisnot required to investigate if the contractunderlying the LC has been fulfilled or notbecause in transactions involving LC, banks dealonly with documents and not goods (BPI v. DeReny Fabric Industries, Inc., L2481, Oct. 16,

1970).Ineffect,thebuyerhasnocourseofactionagainsttheissuingbank.

Q: What is the effect of the buyers failure to

procureanLCtothemaincontract?

A: The LC is independent from the contract of

sale.

Failure

of

the

buyer

to

open

the

Letter

of

Credit does not prevent the birth of the SalesContract. (RelianceCommodities, Inc. v.DaewooIndustrial Co. Ltd., G.R. No. 100831, Dec. 17,

1993) The opening of the LC is only a mode ofpayment. The LC is not an essential requisite tothecontractofsale.

Q:InacontractofloansecuredbyastandbyLC,

can the partial payments made on the loan be

added in computing the issuing banks liability

underitsownstandbyletterofcredit?

A: No, although these payments could result in

thereduction

of

the

actual

amount,

which,

could

ultimatelybecollectedfromtheissuingbank,thelatters separate undertaking under its letters ofcreditremain.This isbecausethe letterofcreditis an absolute and primary undertaking which isseparate and distinct from the contractunderlying it. (InsularBankofAsia&America v.IAC,Nov.17,1988)

B.FRAUDEXCEPTIONPRINCIPLE

Q: What is the exception to the independence

principle?

A:The

Fraud

exception

rule.

It

provides

that

the

untruthfulness of a certificate accompanying ademand for payment under a standby letter ofcredit may qualify as fraud sufficient to supportan injunction against payment. (Transfield v.LuzonHydro,G.R.No.146717,Nov.22,2004)

C.DOCTRINEOFSTRICTCOMPLIANCE

Q:Whatisthedoctrineofstrictcompliance?

A: The documents tendered by theseller/beneficiary must strictly conform to theterms of the letter of credit. The tender of

documentsmust

include

all

documents

required

by the letter. Thus, a correspondent bank whichdepartsfromwhathasbeenstipulatedundertheLCactsonitsownriskandmaynotthereafterbeable to recover from the buyer or the issuingbank,asthecasemaybe,themoneythuspaidtothebeneficiary.(FeatiBankandTrustCompanyv.CA,G.R.No.940209,Apr.30,1991)


22/279

WAREHOUSE RECEIPTS LAW

UNIVERSITY OF SANTO TOMAS

F a c u l t a d d e D e r e c h o C i v i l ACADEMICSCHAIR:LESTERJAYALANE.FLORESII




5

WAREHOUSERECEIPTSLAW

(ACT2137ASAMENDED)

I. NATUREANDFUNCTIONSOFAWAREHOUSERECEIPT

Q:Whatisawarehousereceipt?

A: A written acknowledgment by the

warehouseman that he has received and holds

certaingoodsthereindescribedinhiswarehouse

for the person towhom thedocument is issued.

The warehouse receipt has twofold functions,

that is, it is a contract and a receipt. (Telengtan

Bros.& Sons v. CA,G.R.No. L110581, Sept 21,

1994)

Q: Distinguish Warehouse Receipts Law from

DocumentsOfTitleunderCivilCode.

A:

WAREHOUSERECEIPTS

LAW

DOCUMENTSOF

TITLE

UNDERCIVILCODE

Warehousereceipts

issuedbywarehouses,

whetherpublicor

private,bondedornot.

Otherreceiptsof

documentsissuedin

bailmentcontractsother

thanwarehousereceipts

(CivilCode15071520)

Q:Whoisawarehouseman?

A:Aperson,naturalorjuridical,lawfullyengaged

inthebusinessofstoringofgoodsforprofit.(Sec.

58,WRL)

Q:What

is

awarehouse?

A: The building or place where goods are

depositedandstoredforprofit.

Q:Whomayissuewarehousereceipt?

A:

1. A warehouseman, whether public or

private,bondedornot.(Sec.1)

2. A person authorized by a

warehouseman.

Q:What istheformofawarehousereceiptand

whatare

its

essential

terms?

A: It need not be in particular form but must

embodywithinitswrittenorprintedterms:

1. Thelocationofthewarehouse

2. Thedateoftheissue

3. Theconsecutivenumberofthereceipt

4. A statement whether the goods

received will bedelivered to bearer, to

a specified person or to a specified

personorhisorder

5. Fees

6. Adescriptionofthegoods

7. Thesignatureofthewarehouseman

8. If the receipt is issued for goods of

whichthewarehouseman istheowner,

either

solely

orjointly

or

in

common

withothers,thefactofsuchownership;

and

9. Astatementoftheamountofadvances

made and of liabilities incurred for

whichthewarehousemanclaimsa lien.

(Sec.2)

Q:Whataretheeffectsofomissionofanyofthe

essentialterms?

A:

1. A warehouseman shall be liable to any

person injured thereby for all damages

causedby

the

omission

2. Validityofreceiptnotaffected

3. Negotiabilityofreceiptsnotaffected

4. Contract is converted to ordinary

deposit. (Gonzalesv.GoFiong&Luzon

Surety Co., G.R. No. 91776, Aug. 30,

1958)

Q:What istheeffectwhenthegoodsdeposited

areincorrectlydescribed?

A: Itdoesnotmake thereceipt ineffectivewhen

the identity of the goods is fully established by

evidence. Thus, the indorsement and delivery

shall

constitute

sufficient

transfer

of

the

title

of

the goods. (American Foreign Banking Corp. v.

Herridge,G.R.No.L21005,Dec.20,1924)

GR: Warehouseman shall be liable for

damages for nonexistence or

misdescription of goods at the time of its

issue.

XPN:Whenthegoodsaredescribedbased

on:

1.Seriesorlabelsuponthem

2.Statementthatthegoodsareofcertain

kind.

Q:Whattermsmayandmaynotbeinserted?

A:Awarehousemanmayinsertinareceiptissued

by him any other terms and conditions provided

thatsuchtermsandconditionsshallnotbe:

1. Contrary to the Warehouse Receipts

Law.(Sec.3)


23/279

USTGOLDENNOTES2011

MERCANTILELAWTEAM:





6

2. Terms reducing the required diligenceofthewarehouseman.(Ibid.)

3. Contraryto law,morals,goodcustoms,publicorderorpublicpolicy.

4. Those exempting the warehousemanfrom liability for misdelivery or for notgivingstatutorynoticeincaseofsaleof

goods.

5. Those exempting the warehousemanfromliabilityfornegligence.

A.TOWHOMDELIVERED

Q:Towhomshouldthegoodsbedelivered?

A:

1. To the person lawfully entitled to thepossessionofthegoods,orhisagent;

2. Tothepersonentitledtodeliveryundera nonnegotiable instrument or withwrittenauthority;or

3. To

the

lawful

order

of

a

negotiable

receipt. (person in possession of anegotiablereceipt)(Sec.9)

B.KINDS

Q:Whatarethekindsofwarehousereceipt?

A:

1. Negotiablewarehousereceipt2. Nonnegotiablewarehousereceipt

Q:Whatisanegotiablewarehousereceipt?

A:It

is

areceipt

in

which

it

states

that

the

goods

receivedwillbedeliveredtothebearerortotheorder of any person named in such receipt (Sec.5). It is negotiated by either delivery orindorsementplusdelivery.

Note:Noprovisionshallbe inserted inanegotiablereceipt that it is nonnegotiable. Such provision, ifinserted, shall be void. A negotiable warehousereceipt cannot be converted into nonnegotiable.(Sec.5)

Q:Whomaynegotiate?

A:

1. Theownerthereof;or2. Anypersontowhom thepossessionor

custody of the receipt has beenentrustedbytheowner,if,bythetermsofthereceipt,thegoodsaredeliverabletotheorderofthepersontowhomthepossession or custody of receipt hasbeen entrusted or in such form that itmaybenegotiatedbydelivery.(Sec.40)

Q:Whathappensiftheindorsementisnecessary

butthenegotiablereceiptwasonlydelivered?

A:

1. Thetransfereeacquirestitleagainstthetransferor

2. There is no direct obligation of the

warehouseman;and

3. The transferee can compel thetransferor to complete the negotiationby indorsing the instrument.Negotiation takes effect as of the timewhentheindorsementisactuallymade.

Q: In case the signature of an owner of a

negotiable receipt was forged and the forger

whonow holds thenegotiable receipt wasable

towithdrawthegoodsfromthewarehouseman.

What are the rights of the owner of the

negotiablereceipt?

A:

If

under

the

terms

of

the

negotiable

warehouse receipt, the goods are deliverable tothe depositor or to his order, the owner of thesaid negotiable receipt may proceed against thewarehouseman and/or the holder. Without thevalid indorsement of theowner to the holderorinblank,thewarehousemanisliabletotheownerforconversion inthemisdelivery.If,however,bythe terms of the negotiable warehouse receipt,the goods are deliverable to bearer (eitherbecause it is so expressed in the warehousereceipt or because of a blank indorsement by apersontowhoseorderthegoodsaredeliverable)the owner may only proceed against the holder.

The

warehouseman

is

not

liable

for

conversion

where the goods are delivered to a person inpossessionofabearernegotiableinstrument.

Q: What is the rule when more than one

negotiablereceiptisissuedforthesamegoods?

A: A warehouseman shall be liable for alldamagescausedbyhisfailuretodosotoanyonewho purchased the subsequentreceipt for valuesupposing it to be an original, even though thepurchasebeafterthedeliveryofthegoodsbythewarehouseman to the holder of the originalreceipt(Sec.6).

Note: The word duplicate shall be plainly placeduponthefaceofeverysuchreceipt,exceptthefirstoneissued.(Sec.6.

Q: What are the warranties on a warehouse

receipt?

A: A person who, for value, negotiates ortransfers a receipt by indorsement or delivery,


24/279







7

including one who assigns for value a claim

secured by a receipt, unless a contrary intention

appearswarrants:

1. Receiptisgenuine

2. Legalrighttonegotiateortransferit

3. No knowledge of defects that may

impair the validity or worth of the

receipt

4. That he has a right to transfer title to

the goods and that the goods are

merchantable or fit for a particular

purpose whenever such warranties

would have been to transfer without a

receipt of goods represented thereby.

(Sec.44)

Note: The indorsee does not guarantee that the

warehousemanwillcomplywithhisduties.(Sec.45)

Acreditorreceivingthewarehousereceiptgivenasa

collateralmakesnowarranty.(Sec.46)

Q:Whatisanonnegotiablewarehousereceipt?

A:It isareceipt inwhich itstatesthatthegoods

received delivered to the depositor or to any

otherspecifiedperson.(Sec.4)

Q:Whatisrequiredinanonnegotiablereceipt?

A: Itshallhaveplainlyplaceduponitsfacebythe

warehouseman issuing it nonnegotiable, or

notnegotiable.(Sec.7)

Note:Failuretomarknonnegotiableshallmakeit

negotiable

(if

the

holder

purchased

it

for

valuesupposingittobenegotiable).

Q:Howisittransferred?

A: A nonnegotiable warehouse receipt may be

transferred by its delivery to the transferee

accompanied bya deed of assignment, donation

orotherformoftransfer.

Q:Whatistheeffectofindorsement?

A: Even if the receipt is indorsed, the transferee

acquiresnoadditionalright(Sec.39)

C.DISTINCTIONBETWEENANEGOTIABLEINSTRUMENTANDANEGOTIABLE

WAREHOUSERECEIPT

Q: Distinguish negotiable instrument from a

negotiablewarehousereceipt.

A:

NEGOTIABLE

INSTRUMENT

NEGOTIABLE

WAREHOUSERECEIPT

Contains an

unconditional promise

topay asumcertain in

money.

Does not contain an

unconditional promise to

pay a sum certain in

money.

Thesubject

is

money.

The

subject

is

merchandise.

Thenegotiable

instrumentistheobject

ofvalue.

Thewarehousereceiptis

nottheobjectofvalue.

Intermediateparties

becomesecondarily

liable.

Intermediatepartiesare

notliableforthe

warehousemansfailure

todeliverthegoods.

D.RIGHTSOFAHOLDEROFANEGOTIABLE

WAREHOUSERECEIPTASAGAINSTA

TRANSFEREEOFANONNEGOTIABLE

WAREHOUSERECEIPT

Q: Distinguish the rights of a holder of a

negotiablewarehousereceiptfromtherightsof

a transferee of a nonnegotiable warehouse

receipt.

A:SeeAppendixA.

Q: Coco was issued by a warehouseman a

negotiable receipt for safekeeping by the latter

ofhisgoods.CanthejudgmentcreditorofCoco

levy by execution the goods covered by the

negotiablereceipt?

A:

The

goods

cannot,

while

in

the

possession

ofthe warehouseman, be attached by garnishment

or otherwise, or be levied upon under an

executionunless thereceiptbe first surrendered

to the warehouseman, or its negotiation

enjoined. The warehouseman cannot be

compelledtodelivertheactualpossessionofthe

goods until the receipt is surrendered to it or

impoundedbythecourt.

Q: Assuming that prior to the levy, the receipt

wassoldtoYoyoonthebasisofwhichhefileda

claim with the sheriff. Would Yoyo have better

rights to the goods than the creditor? Explain

youranswer.

A:Yes.Yoyo,asaholderforvalueofthereceipt,

hasabetterrighttothegoodsthanthecreditor.

It isYoyothatcansurrenderthereceiptwhich is

in its possession and can comply with the other

requirements which will oblige the

warehouseman to deliver the goods, namely, to

signareceiptforthedeliveryofthegoods,andto

paythewarehouseman'sliensandfeesandother


25/279

USTGOLDENNOTES2011

MERCANTILELAWTEAM:





8

charges.(1999BarQuestion)

Q: Bon took the goods of Angela without her

consent and deposited the same with a

warehouseman. The latter issued to Bon a

negotiablereceipt which she indorsed for value

to Ryan. Between Angela and Ryan, who has

betterright

over

the

goods?

Why?

A:Ryanhasbetterrighttothegoods.Thegoodsare covered by a negotiable warehouse receiptwhich was indorsed to Ryan for value. ThenegotiationtoRyanwasnot impairedbythefactthat Bon took the goods without the consent ofAngela, as Ryan had no notice of such fact.Moreover,Ryanisinpossessionofthewarehousereceipt and only he can surrender it to thewarehouseman.(Sec.8,WRL)

Q: What is the proper recourse of the

warehouseman if he is uncertain as to who is

entitledto

the

goods?

Explain.

A:Sincethere isaconflictingclaimofownershipor title, the warehouseman should file acomplaint in interpleader requiring Ryan andAngela to interplead. The matter involves a

judicialquestionastowhoseclaimisvalid.(2005BarQuestion)

Q:Whatistherulewhereawarehousereceiptis

transferredtosecurepaymentofa loanbyway

ofpledgeormortgage?

A: The pledgee or mortgagee does not

automaticallybecome

the

owner

of

the

goods

but

merely retains the right to keep and with theconsentoftheownertosellthemsoastosatisfythe obligation from the proceeds for the simplereasonthatthetransactionisnotasalebutonlyamortgage or pledge. Likewise, if the property islost without the fault or negligence of themortgageeorpledgee,thensaidgoodsaretoberegarded as lost on account of the real owner,mortgagor orpledgor. (PNBv.Sayo,Jr.,G.R.No.129198,July9,1998)

Q: Does the nonpayment by the original

depositors of the purchase price render the

furthernegotiation

of

the

receipt

invalid?

A: No, the negotiation of the warehouse receiptby the buyer of goods purchased from anddeposited to the warehouseman is valid even ifthe warehouseman who issued the negotiablewarehousereceiptwasnotpaidbythebuyer.Thevalidityofthenegotiationcannotbe impairedbythe fact that the owner/warehouseman was

deprivedofthepossessionofthesamebyfraud,mistakeor conversion. (PNBv.NoahsArkSugarRefinery,G.R.No.107243,Sept.1,1993)

II. DUTIESOFAWAREHOUSEMAN

Q: What are the obligations of a

warehouseman?

A:

1. To takecare of the goods entrusted tohissafekeeping

2. To deliver them to the holder of thereceipt or the depositor providedthere is demand by the depositoraccompaniedbyeither:a. An offer to satisfy the

warehousemanslienb. Anoffertosurrenderthereceipt,if

negotiable with such

indorsements

as

would

be

necessary for the negotiation ofthereceipts;or

c. A readiness and willingness tosign, when the goods aredelivered, an acknowledgementthatthey have been delivered, ifsuch signature isrequestedbythewarehouseman(Sec.8);and

3. To keep the goods separate from thegoods of other depositors, except ifauthorizedbyagreementorbycustom,fungible goods may be mingled with

other

goods

of

the

same

kind

and

grade.

Q: When is the need for a demand by the

depositornotnecessary?

A: When the warehouseman has rendered itbeyondhispowertodeliverthegoods.

Q: When is refusal to deliver by the

warehousemanjustified?

A:

1. If the warehousemans lien is notsatisfied

by

the

claimants.

(Sec.

31)

2. Where the goods have already beensoldtosatisfythewarehousemans lienor because of their perishable orhazardousnature.(Sec.34)

3. If the warehouse receipt is negotiatedbacktohim.


26/279







9

4. When the holder does not satisfy the

conditionsprescribedinSection8:

a. Nonsatisfaction of

warehousemanslien.

b. Failure to surrender warehouse

receipt.

c. Refusal

to

sign

the

acknowledgement receipt,

acknowledging the receipt of the

goodsfromthewarehouse.

5. Thefailurewasnotduetoanyfaulton

thepartofthewarehouseman:

a. Upon request by or on behalf of

the person lawfully entitled. (Sec.

10)

b. If he had information that the

delivery about to be made was to

onenotlawfullyentitled.(Ibid.)

c. Ifseveralpersonsclaimthegoods.

(Sec.17)

d. If the warehouseman needs

reasonable time to ascertain the

validity of the claim if someone

other than the depositor claims

titletothegoods.(Sec.18)

e. If the goods are lost, despite

ordinary care by the

warehouseman.

Q:Whatifthereceiptsarelostordestroyed?

A: A court of competentjurisdiction may order

thedeliveryofthegoodsonly:

a. Upon satisfactory proof of the loss or

destructionofthereceipt;and

b. Upon the giving of a bond with

sufficient sureties to be approved by

thecourt.(Sec.14)

Note: The delivery of the goods under an order of

the court shall not relieve the warehouseman from

liabilitytoapersontowhomthenegotiablereceipt

has been or shall be negotiated for value without

notice of the proceedings or of the delivery of the

goods.(Sec.14)

Q:

When

does

the

duty

to

insure

the

goods

arise?

A:

1. Wherethelawprovides

2. Where it was an inducement for the

depositortoenterintothecontract;

3. Establishedpractice;or

4. Where the warehouse receipt contains

arepresentationtothateffect.

Q:Whatisconversion?

A:Anunathorizedassumptionandexerciseofthe

right of ownership over goods belonging to

anotherthrough thealterationof theircondition

or the exclusion of the owners right. (Bouviers

LawDictionary)

Q: What are the instances where a

warehousemanisliableforconversion?

A:

1. Where the delivery is made to person

otherthanthoseauthorized

2. Evenifdeliveredtopersonsentitled,he

maystillbeliableforconversionifprior

todelivery:

a. He had been requested not to

makesuchdelivery;or

b. He

had

received

notice

of

the

adverse claim or title of a third

person.

Q:Givetheeffectsofalterationofthereceipton

theliabilityofthewarehouseman.

A:

1. Alteration immaterial whether

fraudulent or not, whether authorized

or not, the warehouseman is liable

on the altered receipt according to its

originaltenor

2. Authorizedmaterial

alteration

the

warehouseman is liable according to

thetermsofthereceiptasaltered

3. Material alteration innocently made

the warehouseman is liable on the

altered receipt according to its original

receipt

4. Material alteration fraudulently made

warehouseman isliable according to

the original tenor of the receipt to a

purchaser of the receipt for value

withoutnotice,andevento the alterer

and

subsequent

purchasers

with

noticeexcept that as regards to

the last two, thewarehousemans

liability is limitedonlytodeliveryashe

isexcusedfromanyliability


27/279

USTGOLDENNOTES2011

MERCANTILELAWTEAM:





10

Q: What are the instances where a

warehousemaniscriminallyliableforhisacts?

A:

1. Issuance of receipts for goods notreceived.(Sec.50)

2. Issuance of receipt containing false

statement.(Sec.

51)

3. Issuance of duplicate negotiablewarehousereceiptnotmarkedassuch.(Sec.52)

4. Issuance of a negotiable warehousereceiptofwhichheisanownerwithoutstatingsuchfactofownership.(Sec.53)

5. Delivery of goods without obtainingnegotiablewarehousereceipt.(Sec.54)

6. Negotiation of receipt for mortgagedgoods.(Sec.55)

7. Issuance of warehouse receipts forgoodnotreceived.(Sec.50)

8. Comminglingofgoods.(Sec.24)

Q: What are the other acts for which

warehousemanisliable?

A:

1. Failure to stamp duplicate on copiesofnegotiablereceipt.(Sec.6)

2. Failure to place nonnegotiable ornotnegotiable on a nonnegotiablereceipt.(Sec.7)

3. Misdeliveryofgoods.(Sec.10)4. Failure to effect cancellation of a

negotiable receipt upon delivery of thegoods.(Sec.11)

5. Issuingreceipt

for

non

existing

goods

or

misdescribedgoods.(Sec.20)6. Failure to take care of the goods. (Sec.

21)

7. Failure to give notice in case of sale ofgoodstosatisfylien(Sec.33)orbecausethe goodsare perishableor hazardous.(Sec.34)

III. WAREHOUSEMANSLIEN

Q:Whatiscoveredbythewarehousemanslien

over the goods deposited or on the proceeds

thereof?

A:

1. Chargesforstorageandpreservationofthegoods(insuranceandothersmaybeincludedaslongasitisstipulated)

2. Money advanced, interest, insurance,transportation, labor, weighing,

coopering and other charges andexpensesinrelationtosuchgoods

3. Charges and expenses for notice, andadvertisements of sale, and for sale ofthe goods where default had beenmade insatisfyingthewarehousemans

lien.(Sec.

27)

Q: What are the remedies available to a

warehouseman to enforce his warehousemans

lien?

A:

1. By refusing to deliver the goods untilthelienissatisfied

2. By causing the extrajudicial sale of theproperty and applying the proceeds ofthevalueofthelien

Note:Where

the

sale

was

made

without

the publication required and before thetimeprovidedbylaw,suchsaleisvoidandthe purchases of the goods acquires notitletothem.

3. By filing a civil action for collection ofthe unpaid charges or by way ofcounterclaiminanactiontorecovertheproperty from him or such otherremedies allowed by law for theenforcement of a lien against personalproperty or to a creditor against hisdebtor, for the collection from the

depositor

of

all

the

charges

which

the

depositorhasboundhimselftopay.

Q: Against whose goods may the lien be

enforced?

A:

1. Goods belonging to the person who isliableasdebtor;and

2. Goods belonging to others which havebeen deposited at any time by thedebtor with authority to make a validpledge.(Sec.28)

Q:Howmaythewarehousemanlosehislien?

A:

1. Bysurrenderingpossessionthereof,or

2. Byrefusingtodeliverthegoodswhenademandismadewithwhichheisboundtocomply.(Sec.29)


28/279







Note:Whereanegotiablereceiptisissued,with the

exception of the charges for the storage or

preservation of goods for which a negotiable

receipt hasbeen issued,the lien exists only for

otherchargesexpressly enumerated in the receipt

so far as they arewrittenalthoughtheamountof

thesaidchargeisntstated.

Lossof liendoesnotmeanthatthewarehouseman

doesnothaveanyotherremedy.


29/279

USTGOLDENNOTES2011

MERCANTILELAWTEAM:





12

TRUSTRECEIPTSLAW(P.D.115)

I. DEFINITION/CONCEPTOFATRUSTRECEIPT

TRANSACTION

Q:Whatisatrustreceipttransaction?

A:It

is

any

transaction

between

the

entruster

and

entrustee:

1. Whereby the entruster who owns orholdsabsolutetitleorsecurityinterestsover certain specified goods,documents or instrument, releases thesame to the possession of entrusteeupon the latters execution of a TRagreement.

2. Whereintheentrusteebindshimselftohold the designated goods in trust fortheentrusterand,incaseofdefault,to

sell

such

goods,

documents

or

instrument with the obligation to turnover to the entruster the proceeds totheextentoftheamountowingtoitorto turn over the goods, documents orinstrumentitselfifnotsold.(Sec.4,P.D.115)

Q:Whatisatrustreceipt(TR)?

A:ItisthewrittenorprinteddocumentsignedbytheentrusteeinfavoroftheentrustercontainingtermsandconditionssubstantiallycomplyingwiththeprovisionsofPD115.

Q:WhatarethetwoviewsregardingTR?

A:

1. Asacommercialdocument(Sec.4,P.D.115)

2. As a commercial transaction It is aseparate and independent securitytransaction intendedtoaid infinancingimportersandretaildealerswhodonothavesufficient funds. (Nacuv.CA,G.R.No.108638,Mar.11,1994)

Q:Are

LC

and

TR

negotiable

instruments?

A: Letters of credit and trust receipts are notnegotiable instrument, but drafts issued inconnection with letters of credit are negotiableinstruments. Hence, while the presumption ofconsideration under the negotiable instrumentlaw may not necessarily be applicable to trustreceipts and letters of credit, the presumption

that the drafts drawn in connection with theletters of credit have sufficient considerationapplies.(Leev.CA,G.R.No.117913,Feb.1,2002)

A.LOAN/SECURITYFEATURE

Q: What is the loan and security feature of the

trustreceipt

transaction?

A: A trust receipt arrangement is endowed withits own distinctive features and characteristics.Underthatsetup,abankextendsaloancoveredbytheLetterofCredit,withthetrustreceiptasasecurity for the loan. In other words, thetransaction involves a loan feature representedby the letter of credit, and a security featurewhich is in the covering trust receipt. A trustreceipt, therefore, is a security agreement,pursuant to which a bank acquires a "securityinterest"inthegoods.Itsecuresanindebtednessand there can be no such thing as securityinterest that secures no obligation. (Sps.Vintolavs. Insular Bank of Asia and America, G.R. No.

73271,May29,1987)

B.OWNERSHIPOFTHEGOODS,DOCUMENTS,

ANDINSTRUMENTSUNDERATRUSTRECEIPT

Q:Whoistheownerofthearticlessubjectofthe

TR?

A:Theentrustee.Atrustreceipthastwofeatures,the loan and security features. The loan isbrought about by the fact that the entruster

financed

the

importation

or

purchase

of

the

goodsunderTR.Untilandunlessthisloanispaid,theobligation topaysubsists. If the entrustee ismade to appear as the owner, it was but anartificialexpedient,moreoflegalfictionthanfact,for if it were really so, it could dispose of thegoods in any manner that it wants, which itcannotdo.Toconsidertheentrusteeasthetrueowner from the inception of the transactionwould be to disregard the loan feature thereof.(Rosario Textile Mills Corp. v. Home Bankers

Savings and Trust Company, G.R. No. 137232.

June29,2005)

II.RIGHTSOFTHEENTRUSTER

Q:Whoisanentruster?

A: A lender, financer or creditor. Person holdingtitle over the goods documents or instruments(GDI) subject of a trust receipt transaction;releasespossessionof thegoodsuponexecutionoftrustreceipt.(Sec.3[c])


30/279

TRUST RECEIPTS LAW






13

Q:Whataretherightsoftheentruster?

A:

1. To receive the proceeds from the sale

of the goods, documents, or

instruments to the extent of the

amountowingtohim

2. To the returnof thegoods,documents

orinstruments(GDI)incaseofnonsale

and enforcement of all other rights

conferredtohiminthetrustreceipt

3. May cancel the trust and take

possession of the goods, upon default

or failure of the entrustee to comply

withanyofthetermsandconditionsof

thetrustreceipt.(Sec.7,P.D.115)

A.VALIDITYOFTHESECURITYINTERESTAS

AGAINSTTHECREDITORSOFTHE

ENTRUSTEE/INNOCENTPURCHASERS

FOR

VALUE

Q:Asbetweentheentrusterandthecreditorsof

the entrustee, who has a better right over the

goods?

A: The entruster. His 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

durationofthetrustreceiptagreement.(Sec.12,

P.D.115)

Q: Who can defeat the rights of the entruster

overthegoods?

A:Apurchaser in good faith.He acquiresgoods,

documents or instruments free from the

entruster'ssecurityinterest.(Sec.11,P.D.115)

III.OBLIGATIONSANDLIABILITYOFTHE

ENTRUSTEE

Q:Whoisanentrustee?

A:Aborrower,buyer,importerordebtor.Person

to

whom

the

goods

are

delivered

for

sale

or

processing in trust, with the obligation to return

the proceeds of sale of the goods or the goods

themselvestotheentruster.(Sec.3[b])

Q:Whataretheobligationsandliabilititesofthe

entrustee?

A:

1. To hold good, documents and

instruments (GDI) in trust for the

entrusterandtodisposeofthemstrictly

inaccordancewiththetermsofTR;

2. Toreceive theproceedsof thesale for

theentrusterandtoturnoverthesame

to the entruster to the extent of

amountowing

to

the

entruster;

3. To insure GDI against loss from fire,

theft,pilferageorothercasualties.

4. To keep GDI or the proceeds thereof,

whether in money or whatever form,

separate and capable of identification

aspropertyoftheentruster;

5. To return GDI to the entruster in case

theycouldnotbesoldorupondemand

oftheentruster;and

6. To

observe

all

other

conditions

of

the

trustreceipts.(Sec.9,P.D.115)

A.PAYMENT/DELIVERYOFPROCEEDSOFSALEORDISPOSITIONOFGOODS,DOCUMENTSOR

INSTRUMENTS

Q: What is the order in the application of

proceedsortheTRtransactions?

A:

1. Expensesofthesale

2. Expensesderivedfromstoringthegoods

3. Principalobligation

Q:Istheentrusteeliableforthedeficiency?

A: Yes, but any excess shall likewise belong to

him.(Sec.7,P.D.115)

B.RETURNOFGOODS,DOCUMENTSORINSTRUMENTSINCASEOFNONSALE

Q:Whatistheobligationoftheentrusteeincase

the goods, documents or instruments were not

sold?

A: The entrustee should return the goods,

documents,or

instruments

to

the

entrustor.

(Sec.

4,P.D.115)


31/279

USTGOLDENNOTES2011

MERCANTILELAWTEAM:





14

C.LIABILITYFORLOSSOFGOODS,DOCUMENTS

ORINSTRUMENTS

Q: Who shall bear the loss of goods which are

thesubjectofTR?

A: The entrustee. Loss of goods, documents or

instruments

which

are

the

subject

of

a

TR,

pendingtheirdisposition,irrespectiveofwhetherornotitwasduetothefaultornegligenceoftheentrustee, shall not extinguish his obligation totheentrusterforthevaluethereof.(Sec.10,P.D.115)

D.PENALSANCTIONIFOFFENDERISA

CORPORATION

Q: What acts or omissions are penalized under

theTRLaw?

A:

The

TR

Law

declares

the

failure

to

turn

over

goodsorproceedsrealizedfromsalethereof,asacriminal offense under Art. 315(l)(b) of RPC(estafa). The law is violated whenever theentrusteeorpersontowhomtrustreceiptswereissued fails to: (a) return the goods covered bythe trust receipts; or (b) return the proceeds ofthe sale of said goods. (Metropolitan Bank v.Tonda,G.R.No.134436,Aug.16,2000)

Q: Does P.D. 115 violate the prohibition in the

Constitution against imprisonment for non

paymentofadebt?

A:

No.

What

is

being

punished

is

the

dishonesty

andabuseofconfidenceinthehandlingofmoneyorgoodstotheprejudiceofanotherregardlessofwhetherthelatteristheownerornot.Itdoesnotseektoenforcepaymentofthe loan.Thus,therecan be no violation of a right againstimprisonmentfornonpaymentofadebt.(Peoplev.Nitafan,G.R.No.81559,Apr6,1992)

Q: Is lack of intent to defraud a bar to the

prosecutionoftheseactsoromissions?

A:No.Themerefailuretoaccountorreturngivesrise to the crime which is malum prohibitum.

There

is

no

requirement

to

prove

intent

todefraud (Ching v. Secretary of Justice, G.R. No.

164317, Feb. 6, 2006; Colinares v. CA, G.R. No.

90828,Sept.5,2000;Ongv.CA,G.R.No.119858,

Apr.29,2003)(2006BarQuestion)

Q:Whatistheeffectofinsufficiencyofproofof

deliveryofgoods?

A: Estafa cannot lie. (Ramos v. CA, G.R. No. L399225,Aug.21,1987)

Q:Whatwillhappentothecriminalactionifthe

entrusteecomplied

with

his

obligation

under

the

TRagreement?

A:

1. If compliance occurred before thecriminal charge there is no criminalliability.

2. Ifcomplianceoccurredafterthechargeeven before conviction the criminalactionwillnotbeextinguished.

Q: What is the penal sanction if offender is a

corporation?

A: The Trust Receipts Law recognizes theimpossibility of imposing the penalty ofimprisonment on a corporation. Hence, if theentrustee is a corporation, the law makes theofficers or employees or other personsresponsible for the offense liable to suffer thepenalty of imprisonment. The reason is obvious,corporations, partnerships, associations andother juridical entities cannot be put to jail.Hence, the criminal liability falls on the humanagent responsible for the violation of the TrustReceiptsLaw.(Ongvs.CA,G.R.No.119858,April29,2003)

IV.REMEDIESAVAILABLE

Q:Intheeventofdefaultbytheentrusteeonhis

obligationunderthetrustreceiptagreement, is

it absolutely necessary for the entruster to

cancel the trust and take possession of the

goodstobeabletoenforcehisrightthereunder?

A:Thelawusestheword"may"ingrantingtotheentruster the right to cancel the trust and takepossession of the goods. Consequently, theentrusteehasthediscretiontoavailofsuchrightor seek any alternative action, such as a thirdparty

claim

or

a

separate

civil

action

which

it

deemsbesttoprotect itsright,atanytimeupondefaultorfailureoftheentrusteetocomplywithany of the terms and conditions of the trustagreement.(SouthCityHomes,Inc.v.BAFinanceCorporation,G.R.No.135462,Dec.7,2001)


32/279

TRUST RECEIPTS LAW






Q: Can the repossession of the goods by the

entrusterbeconsideredaspayment?

A:No,paymentwouldlegallyresultonlyafterthe

entruster has foreclosed on the securities, sold

thesameandappliedtheproceedsthereoftothe

entrusteesobligation.Sincethetrustreceipt isa

mere

security

arrangement,

the

repossession

by

the entruster cannot be considered payment of

the loan/advances given to the entrustee under

the letter of credit/trust receipt. (PNBv.Pineda,

G.R.No.46658,May13,1991)

Q. Earl failed to comply with his undertaking

underthetrustreceiptheissuedinfavorofABC

bank.Thebankfiledbothcriminalandcivilcases

against Earl. The court proceeded with the civil

caseindependentlyfromthecriminalcase.Isthe

court correct in proceeding independently

althoughacriminalcaseisalsoinstituted?

A:Yes,

the

complaint

against

Earl

was

based

on

the failure of the latter to comply with his

obligationasspelledoutintheTR.

Thisbreachof

obligation is separate and distinct from any

criminal liability for "misuse and/or

misappropriation of goods or proceeds realized

fromthesaleofgoods,documentsorinstruments

released under trust receipts", punishable under

Section13oftheTrustReceiptsLaw.Beingbased

onanobligationexcontractuandnotexdelicto,

thecivilactionmayproceedindependentlyofthe

criminal proceedings instituted against

petitioners regardless of the result of the latter.

(Sarmientov.CA,G.R.No.122502,Dec.27,2002)

Q. What is the effect of novation of a trust

agreement?

A. Where the entruster and entrustee entered

into anagreementwhichprovides forconditions

incompatible with the trust receipt agreement,

the obligation under the trust receipt is

extinguished. Hence, the breach in the

subsequent agreement does not give rise to a

criminal liability under P.D. 115 but only civil

liability.(PhilippineBankv.Ong,G.R.No.133176,

Aug.8,2002)

Q:

What

are

the

defenses

to

negate

criminal

liabilityoftheentrustee?

A:

1. Compliancewiththetermsofthe trust

receipteitherbypayment,returnofthe

proceedsorreturnofthegoods.

2. The transaction does not fall under PD

115. (Colinares v.CA,G.R.No.90828,

Sept. 5, 2000, Consolidated v. CA,G.R.

No.114286,Apr.19,2001)

Note:Inthesecases,theexecutionofaTR

was made after the goods covered by it

had

been

purchased,

making

the

buyer

the owner thereof. The transaction does

not involve a trust receipt but a simple

loaneventhoughthepartiesdenominate

thetransactionasoneofatrustreceipt.

3. Nonreceipt of the goods or where

proofofdeliveryofgoodscoveredbya

trust receipt to the accused is

insufficient. (Ramos v. CA, G.R. No. L

399225,Aug.21,1987)

4. Cancellation of the trust receipt

agreement and taking into possession

ofthe

goods

by

the

entruster.

Note:Mererepossessionofthegoodswill

extinguishcriminalliability.

5. Compromise by parties before filing of

information in court. (Ong v. CA, G.R.

No.119858,Apr.29,2003)

6. Novation before the filing of the

criminalcomplaint.

7. Loss of goods without fault of the

entrustee.

8. Consignment.

Q:Candeposits inasavingsaccountop