WAREHOUSE RECEIPTS LAW(ACT 2137 AS AMENDED)

I. NATURE AND FUNCTIONS OF A WAREHOUSE RECEIPT

Q: What is a warehouse receipt?

A: A written acknowledgment by the warehouseman that he has received and holds certain goods therein described in his warehouse for the person to whom the document is issued. The warehouse receipt has two‐fold functions, that is, it is a contract and a receipt. (Telengtan Bros. & Sons v. CA, G.R. No. L‐110581, Sept 21, 1994)

Q: Who is a warehouseman?

A: A person, natural or juridical, lawfully engaged in the business of storing of goods for profit. (Sec. 58, WRL)

Q: What is a warehouse?

A: The building or place where goods are deposited and stored for profit.

Q: Who may issue warehouse receipt? A: 1. A warehouseman, whether public or private, bonded or not. (Sec. 1) 2. A person authorized by a warehouseman.

Q: What is the form of a warehouse receipt and what are its essential terms?

A: It need not be in particular form but must embody within its written or printed terms:

1. The location of the warehouse 2. The date of the issue 3. The consecutive number of the receipt 4. A statement whether the goods received will be delivered to bearer, to a specified person or to a

specified person or his order 5. Fees 6. A description of the goods 7. The signature of the warehouseman 8. If the receipt is issued for goods of which the warehouseman is the owner, either solely or jointly

or in common with others, the fact of such ownership; and 9. A statement of the amount of advances made and of liabilities incurred for which the

warehouseman claims a lien. (Sec. 2)

1

Q: What are the effects of omission of any of the essential terms?

A:

1. A warehouseman shall be liable to any person injured thereby for all damages caused by the omission

2. Validity of receipt not affected 3. Negotiability of receipts not affected 4. Contract is converted to ordinary deposit. (Gonzales v. Go Fiong & Luzon Surety Co., G.R. No.

91776, Aug. 30, 1958)

Q: What is the effect when the goods deposited are incorrectly described?

A: It does not make the receipt ineffective when 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. L‐21005, Dec. 20, 1924)

GR: Warehouseman shall be liable for damages for non‐existence or misdescription of goods at the time of its issue.

XPN: When the goods are described based on:

1. Series or labels upon them 2. Statement that the goods are of certain kind.

Q: What terms may and may not be inserted?

A: A warehouseman may insert in a receipt issued by him any other terms and conditions provided that such terms and conditions shall not be:

1. Contrary to the Warehouse Receipts Law. (Sec. 3) 2. Terms reducing the required diligence of the warehouseman. (Ibid.)3. Contrary to law, morals, good customs, public order or public policy. 4. Those exempting the warehouseman from liability for misdelivery or for not giving statutory notice

in case of sale of goods. 5. Those exempting the warehouseman from liability for negligence.

A.TO WHOM DELIVERED

Q: To whom should the goods be delivered?

A:

1. To the person lawfully entitled to the possession of the goods, or his agent; 2. To the person entitled to delivery under a non‐negotiable instrument or with written authority; or 3. To the lawful order of a negotiable receipt. (person in possession of a negotiable receipt) (Sec. 9)

2

Q: What is a negotiable warehouse receipt?

A: It is a receipt in which it states that the goods received will be delivered to the bearer or to the order of any person named in such receipt (Sec. 5). It is negotiated by either delivery or indorsement plus delivery.

Note: No provision shall be inserted in a negotiable receipt that it is non‐negotiable. Such provision, if inserted, shall be void. A negotiable warehouse receipt cannot be converted into non‐negotiable. (Sec. 5)

Q: Who may negotiate?

A:

1. The owner thereof; or 2. Any person to whom the possession or custody of the receipt has been entrusted by the owner, if, by

the terms of the receipt, the goods are deliverable to the order of the person to whom the possession or custody of receipt has been entrusted or in such form that it may be negotiated by delivery. (Sec. 40)

Q: What happens if the indorsement is necessary but the negotiable receipt was only delivered?

A: 1. The transferee acquires title against the transferor 2. There is no direct obligation of the warehouseman; and 3. The transferee can compel the transferor to complete the negotiation by indorsing the instrument.

Negotiation takes effect as of the time when the indorsement is actually made.

Q: In case the signature of an owner of a negotiable receipt was forged and the forger who now holds the negotiable receipt was able to withdraw the goods from the warehouseman. What are the rights of the owner of the negotiable receipt?

A: If under the terms of the negotiable warehouse receipt, the goods are deliverable to the depositor or to his order, the owner of the said negotiable receipt may proceed against the warehouseman and/or the holder. Without the valid indorsement of the owner to the holder or in blank, the warehouseman is liable to the owner for conversion in the misdelivery. If, however, by the terms of the negotiable warehouse receipt, the goods are deliverable to bearer (either because it is so expressed in the warehouse receipt or because of a blank indorsement by a person to whose order the goods are deliverable) the owner may only proceed against the holder. The warehouseman is not liable for conversion where the goods are delivered to a person in possession of a bearer negotiable instrument.

Q: What is the rule when more than one negotiable receipt is issued for the same goods?

A: A warehouseman shall be liable for all damages caused by his failure to do so to anyone who purchased the subsequent receipt for value supposing it to be an original, even though the purchase be after the delivery of the goods by the warehouseman to the holder of the original receipt (Sec. 6).

3

Note: The word “duplicate” shall be plainly placed upon the face of every such receipt, except the first one issued. (Sec. 6)Q: What are the warranties on a warehouse receipt?

A: A person who, for value, negotiates or transfers a receipt by indorsement or delivery, including one who assigns for value a claim secured by a receipt, unless a contrary intention appears warrants:

1. Receipt is genuine 2. Legal right to negotiate or transfer it 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 warehouseman will comply with his duties. (Sec. 45)A creditor receiving the warehouse receipt given as a collateral makes no warranty. (Sec. 46)

Q: What is a non‐negotiable warehouse receipt?

A: It is a receipt in which it states that the goods received delivered to the depositor or to any other specified person. (Sec. 4)

Q: What is required in a non‐negotiable receipt?

A: It shall have plainly placed upon its face by the warehouseman issuing it “non‐negotiable,” or “not negotiable.” (Sec. 7)

Note: Failure to mark “non‐negotiable” shall make it negotiable (if the holder purchased it for value supposing it to be negotiable).

Q: How is it transferred?

A: A non‐negotiable warehouse receipt may be transferred by its delivery to the transferee accompanied by a deed of assignment, donation or other form of transfer.

Q: What is the effect of indorsement?

A: Even if the receipt is indorsed, the transferee acquires no additional right (Sec. 39)

C. DISTINCTION BETWEEN A NEGOTIABLE INSTRUMENT AND A NEGOTIABLE WAREHOUSE RECEIPT

4

Q: Distinguish negotiable instrument from a negotiable warehouse receipt.NEGOTIABLE INSTRUMENT NEGOTIABLE WAREHOUSE

RECEIPT Contains an unconditional promise to pay a sum certain in money.

Does not contain an unconditional promise to pay a sum certain in money.

The subject is money. The subject is merchandise. The negotiable instrument is the object of value. The warehouse receipt is not the object of

value. Intermediate parties become secondarily liable. Intermediate parties are not liable for the

warehouse man’s failure to deliver the goods.

D. RIGHTS OF A HOLDER OF A NEGOTIABLE WAREHOUSE RECEIPT AS AGAINST A TRANSFEREE OF A NON‐NEGOTIABLE WAREHOUSE RECEIPT

Q: Distinguish the rights of a holder of a negotiable warehouse receipt from the rights of a transferee of a non‐negotiable warehouse receipt. A:

NEGOTIABLE WAREHOUSE RECEIPT NON‐NEGOTIABLE WAREHOUSE RECEIPT

May be acquired through negotiation May be acquired through transfer or assignment

Rights of the holder of the receipt: 1. If indorsed: a. Acquires title to the goods as the person negotiating. (Sec. 41) b. Acquires the direct obligation of the warehouseman to hold possession of the goods for him as if the warehouseman directly contracted with him. (Ibid.)

1. If not indorsed: He may compel indorsement; otherwise, he would acquire title as that of an assignee (Section 43).

Rights of transferee: 1. Acquires title to the goods subject to the terms of any agreement with the transferor. (Sec. 42) 2. Acquires the right to notify the warehouseman of the transfer and thereby acquires the direct obligation of the warehouseman to hold possession of the goods for him. (Sec. 42)

Note: Prior to notice, the title of the transferee may be defeated by the levy of an attachment or execution upon the goods by a creditor of the transferor or by a notification to the warehouseman by the transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor. (Sec. 42)

Defeats the lien of the seller of the goods covered thereby. (Sec. 49)

Acquires the title as that of his transferor.

Good covered cannot be garnished, attached or levied Pending notification to the

5

on execution by execution, unless: 1. Receipt is surrendered. 2. Its negotiation is enjoined by the court. 3. The goods are impounded by the court. (Sec. 25)

Note: This shall not apply 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.

warehouseman, goods can be. Reason: Absent such notice, both the warehouseman and the sheriff have a right to assume that the goods are still owned by the person whose name appears in the receipt.

Protects the purchaser in good faith and for value. The assignee only steps into the shoes of the assignor.

Q: Coco was issued by a warehouseman a negotiable receipt for safekeeping by the latter of his goods. Can the judgment creditor of Coco levy by execution the goods covered by the negotiable receipt?

A: The goods cannot, while in the possession of the warehouseman, be attached by garnishment or otherwise, or be levied upon under an execution unless the receipt be first surrendered to the warehouseman, or its negotiation enjoined. The warehouseman cannot be compelled to deliver the actual possession of the goods until the receipt is surrendered to it or impounded by the court.

Q: Assuming that prior to the levy, the receipt was sold to Yoyo on the basis of which he filed a claim with the sheriff. Would Yoyo have better rights to the goods than the creditor? Explain your answer.

A: Yes. Yoyo, as a holder for value of the receipt, has a better right to the goods than the creditor. It is Yoyo that can surrender the receipt which is in its possession and can comply with the other requirements which will oblige the warehouseman to deliver the goods, namely, to sign a receipt for the delivery of the goods, and to pay the warehouseman's liens and fees and othercharges. (1999 Bar Question)

Q: Bon took the goods of Angela without her consent and deposited the same with a warehouseman. The latter issued to Bon a negotiable receipt which she indorsed for value to Ryan. Between Angela and Ryan, who has better right over the goods? Why?

A: Ryan has better right to the goods. The goods are covered by a negotiable warehouse receipt which was indorsed to Ryan for value. The negotiation to Ryan was not impaired by the fact that Bon took the goods without the consent of Angela, as Ryan had no notice of such fact. Moreover, Ryan is in possession of the warehouse receipt and only he can surrender it to the warehouseman. (Sec. 8, WRL)

Q: What is the proper recourse of the warehouseman if he is uncertain as to who is entitled to the goods? Explain.

A: Since there is a conflicting claim of ownership or title, the warehouseman should file a complaint in interpleader requiring Ryan and Angela to interplead. The matter involves a judicial question as to whose claim is valid. (2005 Bar Question)

6

Q: What is the rule where a warehouse receipt is transferred to secure payment of a loan by way of pledge or mortgage?

A: The pledgee or mortgagee does not automatically become the owner of the goods but merely retains the right to keep and with the consent of the owner to sell them so as to satisfy the obligation from the proceeds for the simple reason that the transaction is not a sale but only a mortgage or pledge. Likewise, if the property is lost without the fault or negligence of the mortgagee or pledgee, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor. (PNB v. Sayo, Jr., G.R. No. 129198, July 9, 1998)

Q: Does the non‐payment by the original depositors of the purchase price render the further negotiation of the receipt invalid?

A: No, the negotiation of the warehouse receipt by the buyer of goods purchased from and deposited to the warehouseman is valid even if the warehouseman who issued the negotiable warehouse receipt was not paid by the buyer. The validity of the negotiation cannot be impaired by the fact that the owner/warehouseman was deprived of the possession of the same by fraud, mistake or conversion. (PNB v. Noah’s Ark Sugar Refinery, G.R. No. 107243, Sept. 1, 1993)

II. DUTIES OF A WAREHOUSEMAN

Q: What are the obligations of a warehouseman?

A:

1. To take care of the goods entrusted to his safekeeping

2. To deliver them to the holder of the receipt or the depositor provided there is demand by the depositor accompanied by either:

a. An offer to satisfy the warehouseman’s lien b. An offer to surrender the receipt, if negotiable with such indorsements as would be necessary

for the negotiation of the receipts ; or c. A readiness and willingness to sign, when the goods are delivered, an acknowledgement that

they have been delivered, if such signature is requested by the warehouseman (Sec. 8); and d. To keep the goods separate from the goods of other depositors, except if authorized by

agreement or by custom, fungible goods may be mingled with other goods of the same kind and grade.

Q: When is the need for a demand by the depositor not necessary?

A: When the warehouseman has rendered it beyond his power to deliver the goods.

7

Q: When is refusal to deliver by the warehouseman justified?

A:

1. If the warehouseman’s lien is not satisfied by the claimants. (Sec. 31)

2. Where the goods have already been sold to satisfy the warehouseman’s lien or because of their perishable or hazardous nature. (Sec. 34)

3. If the warehouse receipt is negotiated back to him.

4. When the holder does not satisfy the conditions prescribed in Section 8:

a. Non‐satisfaction of warehouseman’s lien. b. Failure to surrender warehouse receipt. c. Refusal to sign the acknowledgement receipt, acknowledging the receipt of the goods from the

warehouse. 5. The failure was not due to any fault on the part of the warehouseman:

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 one not lawfully entitled.

(Ibid.) c. If several persons claim the goods. (Sec. 17) d. If the warehouseman needs reasonable time to ascertain the validity of the claim if someone

other than the depositor claims title to the goods. (Sec. 18) e. If the goods are lost, despite ordinary care by the warehouseman.

Q: What if the receipts are lost or destroyed?

A: A court of competent jurisdiction may order the delivery of the goods only: a. Upon satisfactory proof of the loss or destruction of the receipt; and b. Upon the giving of a bond with sufficient sureties to be approved by the court. (Sec. 14)

Note: The delivery of the goods under an order of the court shall not relieve the warehouseman from liability to a person to whom the negotiable receipt has been or shall be negotiated for value without notice of the proceedings or of the delivery of the goods. (Sec. 14)

Q: When does the duty to insure the goods arise?

A: 1. Where the law provides 2. Where it was an inducement for the depositor to enter into the contract; 3. Established practice; or 4. Where the warehouse receipt contains a representation to that effect. 5.

8

Q: What is conversion?

A: An unathorized 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. (Bouvier’s Law Dictionary)

Q: What are the instances where a warehouseman is liable for conversion?

A: 1. Where the delivery is made to person other than those authorized 2. Even if delivered to persons entitled, he may still be liable for conversion if prior to delivery:

a. He had been requested not to make such delivery; or b. He had received notice of the adverse claim or title of a third person.

Q: Give the effects of alteration of the receipt on the liability of the warehouseman.

A:

1. Alteration immaterial – whether fraudulent or not, whether authorized or not, the warehouseman is liable on the altered receipt according to its original tenor

2. Authorized material alteration – the warehouseman is liable according to the terms of the receipt as altered

3. Material alteration innocently made – the warehouseman is liable on the altered receipt according to its original receipt

4. Material alteration fraudulently made – 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 purchasers with notice except that as regards to the last two, the warehouseman’s liability is limited only to delivery as he is excused from any liability

Q: What are the instances where a warehouseman is criminally liable for his acts?

A: 1. Issuance of receipts for goods not received. (Sec. 50) 2. Issuance of receipt containing false statement. (Sec. 51) 3. Issuance of duplicate negotiable warehouse receipt not marked as such. (Sec. 52) 4. Issuance of a negotiable warehouse receipt of which he is an owner without stating such fact of

ownership. (Sec. 53) 5. Delivery of goods without obtaining negotiable warehouse receipt. (Sec. 54) 6. Negotiation of receipt for mortgaged goods. (Sec. 55) 7. Issuance of warehouse receipts for good not received. (Sec. 50) 8. Commingling of goods. (Sec. 24)

9

Q: What are the other acts for which warehouseman is liable?

A: 1. Failure to stamp “duplicate” on copies of negotiable receipt. (Sec.6) 2. Failure to place “non‐negotiable” or “not‐negotiable” on a non‐negotiable receipt. (Sec. 7) 3. Misdelivery of goods.(Sec. 10) 4. Failure to effect cancellation of a negotiable receipt upon delivery of the goods. (Sec. 11) 5. Issuing receipt for non‐existing goods or misdescribed goods. (Sec.20) 6. Failure to take care of the goods. (Sec. 21) 7. Failure to give notice in case of sale of goods to satisfy lien (Sec. 33) or because the goods are

perishable or hazardous. (Sec. 34)

III. WAREHOUSEMAN’S LIEN

Q: What is covered by the warehouseman’s lien over the goods deposited or on the proceeds thereof?

A:

1. Charges for storage and preservation of the goods (insurance and others may be included as long as it is stipulated)

2. Money advanced, interest, insurance, transportation, labor, weighing, coopering and other charges and expenses in relation to such goods

3. Charges and expenses for notice, and advertisements of sale, and for sale of the goods where default had been made in satisfying the warehouseman’s lien. (Sec. 27)

Q: What are the remedies available to a warehouseman to enforce his warehouseman’s lien?

A:

1. By refusing to deliver the goods until the lien is satisfied

2. By causing the extrajudicial sale of the property and applying the proceeds of the value of the lien

Note: Where the sale was made without the publication required and before the time provided by law, such sale is void and the purchases of the goods acquires no title to them.

3. By filing a civil action for collection of the unpaid charges or by way of counterclaim in an action to recover the property from him or such other remedies allowed by law for the enforcement of a lien against personal property or to a creditor against his debtor, for the collection from the depositor of all the charges which the depositor has bound himself to pay.

10

Q: Against whose goods may the lien be enforced?

A: 1. Goods belonging to the person who is liable as debtor; and2. Goods belonging to others which have been deposited at any time by the debtor with authority to

make a valid pledge. (Sec. 28)

Q: How may the warehouseman lose his lien?

A:

1. By surrendering possession thereof, or

2. By refusing to deliver the goods when a demand is made with which he is bound to comply. (Sec. 29)

Note: Where a negotiable receipt is issued, with the exception of the charges for the storage or preservation of goods for which a negotiable receipt has been issued, the lien exists only for other charges expressly enumerated in the receipt so far as they are written although the amount of the said charge isn’t stated.

3. Loss of lien does not mean that the warehouseman does not have any other remedy.

11