Commercial Law: The Warehouse Receipts Law (Act No. 2137, as amended)

Commercial Law:

The Warehouse Receipts Law (Act No. 2137, as amended)

Introduction

Scope of the law

The Warehouse Receipts Law is a full and complete treatise on the subject.
It covers all warehouses, whether public or private, bonded or not.
Thus, it has been held to be applicable to warehousemen licensed under Act No. 3893 (as amended by R.A. No. 247.), known as the General Bonded Warehouse Act, of special application to those engaged in the business of receiving commodities (e.g., palay and rice) for storage.

When Civil Code applicable

Act No. 2137

It applies to warehouse receipts issued by a warehouse man as defined in Section 58(a) of the Act,

Civil Code

It applies to other cases where the receipts are not issued by a warehouse man as defined in said section.

Purposes of the law

The law has been enacted:

To regulate the status, rights, and liabilities of the parties in a warehousing contract;
To protect those who, in good faith and for value, acquire negotiable warehouse receipts by negotiation;
To render the title to, and right of possession of, property stored in warehouses more easily convertible;
To facilitate the use of warehouse receipts as documents of title; and
In order to accomplish these, to place a much greater responsibility on the warehouseman.

Chapter 1. — The Issue of Warehouse Receipts

SECTION 1.
Persons who may issue receipts. —

Warehouse receipts may be issued by any warehouseman.

Who may issue warehouse receipt

A warehouseman is a person lawfully engaged in the business of storing goods for profit.

Under Section 1, only a warehouseman may issue warehouse receipts.
Hence, receipts not issued by a warehouseman are not warehouse receipts although in the form of warehouse receipt.

But a duly authorized officer or agent of a warehouseman may validly issue a warehouse receipt.

Meaning of warehouse

The law does not define what “warehouse” is.
As used, however, in the Act, warehouse means the building or place where goods are deposited and stored for profit.

Sec. 2.
Form of receipts; essential terms. —
Ware house receipts need not be in any particular form but every such receipt must embody within its written or printed terms:

(a) The location of the warehouse where the goods are stored

(b) The date of issue of the receipt;

(d) A statement whether the goods received will be delivered to the bearer, to a specified person or to a specified person or his order;

(e) The rate of storage charges;

(f) A description of the goods or of the packages containing them;

(g) The signature of the warehouseman which may be made by his authorized agent;

(h) If the receipt is issued for goods of which the warehouseman is owner, either solely or jointly or in common with others, the fact of such ownership; and

(i) A statement of the amount of advances made and of liabilities incurred for which the warehouseman claims as lien. If the precise amount of such advances made or of such liabilities incurred is, at the same time of the issue of the receipt, unknown to the warehouseman or to his agent who issues it, a statement of the fact that advances have been made or liabilities incurred and the purpose thereof is sufficient.

A warehouseman shall be liable to any person injured thereby for all damages caused by the omission from a negotiable receipt of any of the terms herein required.

Definition and nature of warehouse receipt.

The Act does not also define a warehouse receipt.

It has been defined as a written acknowledgment by a warehouseman that he has received and holds certain goods therein described in store for the person to whom it is issued.
It has also been defi ned as a simple written contract between the owner of the goods and the warehouseman to pay the compensation for that service.

A warehouse receipt is included in “document of title to goods” as used by the Civil Code in its provisions relating to sales.
A warehouse receipt is a bilateral contract.

It imports that goods are in the hands of a warehouseman and is a symbolical representation of the property itself.

A warehouse receipt is not a negotiable instrument within the meaning of the Negotiable Instruments Law in the technical sense that a bill of exchange or promissory note is negotiable, even though the Warehouse Receipts Act declares it negotiable.

Negotiability is provided for by the Act.

Form and contents of the receipt

Although the Act does not require or specify any particular form for warehouse receipts, it has provided for certain essential terms which must be embodied in every warehouse receipt.
Together with their importance, they are enumerated below: LDC-PRD-SOS

Location of warehouse.

This requirement is for the benefit of the holders of warehouse receipts to enable them to determine where the goods are deposited especially when the warehouseman has more than one warehouse located in different places.

Date of issue of receipt.

Although a warehouse receipt is not essential to create a contract of storage (which is one of deposit and is perfected at the time of delivery of the goods deposited, Art. 1316, Civil Code.), the date of issue appearing therein, indicates prima facie the date when the contract of deposit is perfected and when the storage charges shall begin to run against the depositor.

Consecutive number of receipt.

The purpose of this requirement is to identify each receipt with the goods for which it was issued. T
There is no express requirement as to when the consecutive numbering shall begin.
Thus, a warehouseman may issue a receipt numbered 99 although it is not, in fact, the ninety ninth receipt issued by such warehouseman.

Person to whom goods are deliverable.

This requirement determines the person or persons who shall prima facie be entitled lawfully to the possession of the goods deposited.
Thus, if by the terms of the receipt the goods are to be delivered to order or to bearer, then it is a negotiable warehouse receipt.
The requirement, however, does not determine the negotiability of the receipt because notwithstanding the failure to use words of negotiability, the receipt may still be considered negotiable. This can be inferred from the last paragraph of the section.

Rate of storage charges.

This states the consideration for the contract from the view of the warehouseman.
In the absence of express agreement, the law presumes that the depositor shall pay the customary or reasonable compensation for the services of the warehouseman.

Description of goods or packages.

The general object of giving a description of the goods in the receipt is for identification so that the identical property delivered to the warehouseman may be delivered back by him upon the return of the warehouse receipt.
A warehouseman cannot be supposed to know the contents of each package or box of merchandise which was delivered to him, and so packed as to cover and conceal the real nature of the goods delivered.
All he can be fairly charged with asserting by the mere acknowledgment of the receipt of merchandise thus described is that the package or box in which it is contained bears the same outward appearance as does the package or box in which merchandise of the character described is usually carried and that there is nothing unusual in the marks, appearance, signs or character of the package or box from that in which goods of the character described are usually transported, and that he believes them to be as described. However, the mere fact that the goods deposited are incorrectly described does not make ineffective the receipt when the identity of the goods is fully established by the evidence.
In such case, its indorsement and delivery shall constitute a sufficient transfer of the title to the goods.

Signature of warehouseman.

The warehouseman’s signature furnishes the best evidence of the fact that the warehouseman has received the goods described in the receipt and has bound himself to assume all obligations in connection therewith.

Warehouseman’s ownership of or interest in goods.

The purpose behind the provision is to prevent abuses which in the past had arisen from warehousemen issuing receipts on their goods.
It seems wise that where they issue negotiable receipts in this way, the document should carry notice of the fact on its face.
Under Section 53, the omission to state his ownership of the goods in the receipt issued by him, may render the warehouseman criminally liable.

Statement of advances made and liabilities incurred.

The purpose of this requirement is to preserve the lien of the warehouseman over the goods stored or the proceeds thereof in his hands.
Of course, where the warehouseman does not make any advance or does not incur any liability, there would be nothing to state on the receipt concerning advances or liabilities.

Effect of omission of any of essential terms

The terms prescribed in Section 2 are required for the protection of the depositor and those succeeding to his right. VDND

Validity of receipt not affected.

The omission of any of the requirements will not affect the validity of the warehouse receipt.

Warehouseman liable for damages.

It will only render the warehouseman liable for damages to those injured by his omission.

Negotiability of receipt not affected.

Neither is the negotiability affected.
Section 2 does not deal with negotiability of warehouse receipts.
Note that the last paragraph of Section 2 refers expressly to “omission from a negotiable receipt of any of the terms herein required” and not from a receipt which would otherwise be negotiable.

Contract converted to ordinary deposit.

The issuance of a warehouse receipt in the form provided by the law is merely permissive and directory and not mandatory in the sense that if the requirements are not observed, then the goods delivered for storage become ordinary deposits.

SEC. 3. Form of receipts. —

What terms may be inserted. —

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

(a) Be contrary to the provisions of this Act;

(b) In any wise impair his obligation to exercise that degree of care in the safekeeping of the goods entrusted to him which a reasonably careful man would exercise in regard to similar goods of his own.

Terms that cannot be included in a warehouse receipt.

Under Section 3, the warehouseman is given the power to insert additional terms or conditions in receipts issued by him subject to the two limitations stated in subsections (a) and (b).
Of course, in addition to those limitations, the stipulations in the receipt must not be contrary to law, morals, good customs, public order, or public policy. (Art. 1306, Civil Code.)

Exemption from liability for misdelivery.

Under Subsection (a), a warehouseman is not authorized to insert any term exempting him from liability for misdelivery of goods because such would be against Section 10 of the Act or for not giving statutory notice in case of sale of goods because such would be contrary to Sections 33 and 34

Exemption from liability for negligence.

Under Subsection (b), the warehouseman cannot insert any term which would relieve him from liability for his own negligence, such as “For account and at the risk of the depositor.”
The warehouseman is required by law “to exercise that degree of care in the safekeeping of the goods entrusted to him which a reasonable careful man would exercise in regard to similar goods of his own.”

SEC. 4.
Definition of non-negotiable receipt. —

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

SEC. 5.

Definition of negotiable receipt. —

A receipt in which it is stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt is a negotiable receipt. No provision shall be inserted in a negotiable receipt that it is non-negotiable. Such provision, if inserted, shall be void.

Meaning of “negotiable” under the Act.

The word “negotiable” is not used in the sense in which it is applied to bills of exchange or promissory notes but only as indicating that in the passage of warehouse receipts through the channels of commerce, the law regards the property which they describe as following them and gives to their regular transfer by indorsement the effect of manual delivery of the things specified in them.
A warehouse receipt is in no sense a negotiable instrument because it does not comply with Section 1(b) of Act No. 2031 (Negotiable Instruments Law) which requires an unconditional promise or order to pay a sum certain in money.

Article 1507 of the Civil Code is the same as Section 5 above except for the use of “document of title” instead of “receipt” and for paragraph 2 of Section 5 which is not contained in Article 1507 but in a more extended form in Article 1510.

SEC. 6.

Duplicate receipts must be so marked. —

When more than one negotiable receipt is issued for the same goods, the word “duplicate” shall be plainly placed upon the face of every such receipt, except the first one issued. A warehouseman shall be liable for all damages caused by his failure to do so to any one 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. 7.

Failure to mark “not negotiable.” —

A nonnegotiable receipt shall have plainly placed upon its face by the warehouseman issuing it “non-negotiable,” or “not negotiable.” In case of the warehouseman’s failure to do so, a holder of the receipt who purchased it for value supposing it to be negotiable, may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable. This section shall not apply, however, to letters, memoranda, or written acknowledgment of an informal character.

Application of Sections 6 and 7.

Section 6

refers only to negotiable receipts.

Section 7

applies only to non-negotiable receipts. (see Sec. 52, for criminal liability of warehouseman.)

Effect of failure to mark “negotiable” or “non-negotiable.”

The word “negotiable” usually is written or printed on the face of a negotiable warehouse receipt and the failure to so mark it does not render it non-negotiable if it contains words of negotiability.
In the case of non-negotiable receipts, the law imposes upon the warehouseman the duty to mark them “non-negotiable” or “not negotiable” otherwise they shall be considered negotiable provided the holder of such unmarked receipt purchased it for value supposing it to be negotiable.

Negotiability of warehouse receipts enlarged.

Secs. 6-7 Section 7 enlarges the negotiability of warehouse receipts.
It appears to give any warehouse receipt not marked “non negotiable” or “not negotiable” practically the same effect as a receipt which, by its terms, is negotiable provided the holder of such unmarked receipt acquired it for value supposing it to be negotiable.
This statement is, perhaps, too broad but it certainly applies as against the unsecured creditors of the depositor.

Construction of warehouse receipts.

As instruments of credit, warehouse receipts play an important role in modern commerce and the present day tendency is towards a liberal construction of the law in favor of the bona fide holders of such receipts.
The rule, however, has no application to actions against any party to the transactions other than a warehouseman.

Thus, the purchaser of a non-negotiable receipt not marked “non negotiable” or “not negotiable” from one who had stolen or found it cannot interpose the defense against the owner of the goods that the receipt is negotiable and has given him title to the goods, the warehouseman not being a party to the action.

Chapter 2. — Obligation and Rights of Warehousemen Upon Their Receipts

SEC. 8.

Obligation of warehouseman to deliver. —

A warehouseman, in the absence of some lawful excuse provided by this Act, is bound to deliver the goods upon a demand made either by the holder of a receipt for the goods or by the depositor; if such demand is accompanied with:

(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; and

(c) A readiness and willingness to sign, when the goods are delivered, an acknowledgment that they have been delivered, if such signature is requested by the ware houseman. In case the warehouseman refuses or fails to deliver the goods in compliance with a demand by the holder or depositor so accompanied, the burden shall be upon the warehouseman to establish the existence of a lawful ex cuse for such refusal.

Who may issue warehouse receipt

A warehouseman is essentially a depositary with respect to the goods received and stored by him in his warehouse. The following are the principal obligations of the warehouseman:

to take care of the goods entrusted to his safekeeping (Sec. 21.); and
to deliver them to the holder of the receipt or the depositor provided the conditions under Section 8 are fulfilled.

Necessity of demand.

Generally speaking, a demand should be made on the warehouseman in order that the duty to deliver the goods will arise.

But where demand is evidently useless as when the warehouseman has rendered it beyond his power to deliver the goods (see Art. 1169[3], Civil Code.), demand is dispensed with.

Offer to satisfy warehouseman’s lien.

A warehouseman having a lien valid against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied.

He loses his lien upon the goods by surrendering possession thereof.

The offer to satisfy the warehouseman’s lien is, therefore, required before the warehouseman is bound to deliver or return the goods.

When, however, an offer is vain or useless, a formal tender is not required.

Offer to surrender and sign negotiable receipt.

The offer to surrender the receipt is required for the protection of the warehouseman since the receipt represents the goods described therein. (see Sec. 11.)

Furthermore, the warehouseman will be criminally liable if he delivers the goods without obtaining possession of such receipt.
The warehouseman’s right to require production of the receipt as a condition precedent to delivery is subject to waiver, as where he refuses to deliver on grounds other than its non-production.

If the receipt is negotiable, the demand for the delivery of the goods must be accompanied by an offer to surrender the receipt properly indorsed.
If the receipt issued is not negotiable, any person lawfully entitled to the possession of the goods (e.g., one with written authority from the owner) may be entitled to delivery without surrender of the receipt.

Lawful excuses for refusal to deliver goods.

Even if the demand is accompanied by the three conditions provided in Section 8, a warehouseman may still refuse delivery of goods covered by a warehouse receipt on some lawful excuses provided in the Act. (see Secs. 10, 16, 18, 21, 31, 36.)
But the existence of a lawful excuse for such refusal is an affi rmative defense which the warehouseman must prove. (Sec. 8, par. 2.)
The fact that the warehouseman has a claim for unpaid storage on certain property of the person seeking delivery does not justify him in refusing delivery of other property on which he has no such claim.

SEC. 9.

Justification of warehouseman in delivering. —

A warehouseman is justified in delivering the goods, subject to the provisions of the three following sections, to one who is:

(a) The person lawfully entitled to the possession of the goods, or his agent;

(b) A person who is either himself entitled to delivery by the terms of a non-negotiable receipt issued for the goods, or who has written authority from the person so entitled either indorsed upon the receipt or written upon another paper; or

(c) A person in possession of a negotiable receipt by the terms of which the goods are deliverable to him or order, or to bearer, or which has been indorsed to him or in blank by the person to whom delivery was promised by the terms of the receipt or by his mediate or immediate indorser.

Person to whom goods must be delivered.

The warehouseman is justified in delivering the goods and, therefore, will not be liable for misdelivery, to any person specified in Section 9.

Person lawfully entitled to possession of goods or his agent.

Under subsection (a), the warehouseman is justified in delivering the goods to the:

to person to whom a competent court has ordered the delivery of the goods, or
to an attaching creditor, or
to the purchaser in case of sale of the goods by the warehouseman to enforce his lien or where the goods are perishable or hazardous.

Person entitled to delivery under a non-negotiable receipt or with written authority. —

Under subsection (b), an authority is sufficient as the section does not provide that the warehouseman is justified in making delivery only on the written authority of the party entitled to possession; and to give it that meaning would open the door to fraud by enabling an unscrupulous owner to repudiate his express verbal authorization and thereby reap the fruits of his own wrong.
Moreover, such construction would be giving the provision the effect of a rule of evidence or statute of frauds under which the authority of the owner could not be proved except by writing.

Person in possession of a negotiable receipt.

Under subsection (c), the warehouseman is liable for misdelivery to a mere possessor of a negotiable receipt by the terms of which the goods covered by it are deliverable to the order of another, not being an indorsee thereof.
In a case where the warehouseman delivered the goods to one who acquired custody of the same through the use of falsified delivery permit, it was held that the warehouseman cannot sue for the value of the goods unless he had been sued by the depositor or the consignee who are the real parties in interest, not the warehouseman.
The warehouseman is not the owner of the goods.
He would have a course of action had the depositor or consignee sued him for damages or for recovery of the goods.

SEC. 10.

Warehouseman’s liability for misdelivery. —

Where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the possession of them, the warehouseman shall be liable as for conversion to all having a right of property or possession in the goods if he delivered the goods otherwise than as authorized by subdivisions (b) and (c) of the preceding section, and though he delivered the goods as authorized by said subdivisions, he shall be so liable, if prior to such delivery he had either:

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

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

Warehouseman’s liability for misdelivery.

Liability similar to a bank paying a forged check.

The liability of a warehouseman for delivering to a person other than those specified in Section 9 is the same as that of a bank paying a forged check.
As the party liable for misdelivery, the duty rests upon the warehouseman of devising appropriate means by which deception can be avoided.
The depositor is not obliged to volunteer or offer any suggestion calculated to afford protection to the warehouseman.

Liability as for conversion.

Where the delivery is otherwise than as authorized by subsections (b) and (c) of Section 9, the liability of the warehouseman for misdelivery is as for conversion.
Conversion is unauthorized assumption and exercise of the right of ownership over goods belonging to another through the alteration of their condition or the exclusion of the owner’s right.
And even if the ware houseman delivers the goods to the persons entitled under sub sections (b) and (c) of Section 9, he may still be liable for conversion if prior to delivery:

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

SEC. 11.

Negotiable receipts must be cancelled when goods delivered. —

Except as provided in Section thirty six, where a warehouseman delivers goods for which he had issued a negotiable receipt, the negotiation of which would transfer the right to the possession of the goods, and fails to take up and cancel the receipt, he shall be liable to any one who purchases for value in good faith such receipt, for failure to deliver the goods to him, whether such purchaser acquired title to the receipt before or after the delivery of the goods by the warehouseman.

SEC. 12.

Negotiable receipts must be cancelled or marked when part of goods delivered. —

Except as provided in Section thirty-six, where a warehouseman delivers part of the goods for which he had issued a negotiable receipt and fails either to take up and cancel such receipt, or to place plainly upon it a statement of what goods or packages have been delivered, he shall be liable to any one who purchases for value in good faith such receipt, for failure to deliver all the goods specified in the receipt, whether such purchaser acquired title to the receipt before or after the delivery of any portion of the goods by the warehouseman.

Cancellation of receipts on delivery of goods.

The above provisions are not applicable to non-negotiable receipts because the warehouseman may make delivery without requiring their surrender and cancellation.

Section 11

the receipt must be cancelled

Section 12

the receipt must be either cancelled or marked as to the part of the goods delivered.

Note that under Section 11, the negotiable receipt must be one “the negotiation of which would transfer the right to the possession of the goods.”

So, the warehouseman who delivers the goods to the real owner without taking up and cancelling the receipt is not liable to the purchaser for value in good faith of such receipt from a thief for failure to deliver the goods to him as the thief has no title to the goods.

SEC. 13.

Altered receipts. —

The alteration of a receipt shall not excuse the warehouseman who issued it from any liability if such alteration was:

(a) Immaterial;

(b) Authorized; or

If the alteration was authorized, the warehouseman shall be liable according to the terms of the receipt as altered.

If the alteration was unauthorized but made without fraudulent intent, the warehouseman shall be liable according to the terms of the receipt as they were before alteration.

Material and fraudulent alteration of a receipt shall not excuse the warehouseman who issued it from liability to deliver, according to the terms of the receipt as originally issued, the goods for which it was issued but shall excuse him from any other liability to the person who made the alteration and to any person who took with notice of the alteration.

Any purchaser of the receipt for value without notice of the alteration shall acquire the same rights against the warehouseman which such purchaser would have acquired if the receipt had not been altered at the time of the purchase.

Effects of alteration on liability of warehouseman.

The liability of a warehouseman under a warehouse receipt which has been altered depends on the nature of the alteration as follows:

Alteration immaterial.

If the alteration is immaterial (the tenor of the receipt is not changed like the substitution of the real name of a party), whether fraudulent or not, authorized or not, the warehouseman is liable on the altered receipt according to its original tenor;

Alteration material.

If the alteration is material (the tenor of the receipt is changed like the erasure of the name of a party and the insertion of another), but authorized, the warehouseman is liable according to the terms of the receipt as altered;

Material alteration innocently made.

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

Material alteration fraudulently made.

If the alteration is material and fraudulently made, the warehouseman is liable according to the original tenor of the receipt to a purchaser of the receipt for value without notice, and even to the alterer and subsequent 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.
However, “it is difficult to conceive what liability the draftsman intended to excuse.”
Under this section, it is clear that even a fraudulent alteration cannot divest the title of the owner of stored goods and the warehouseman is, therefore, liable to return them to the owner.
But a bona fide holder acquires no right to the goods under a negotiable receipt which has been lost or stolen or to which the indorsement of the depositor has been forged.

SEC. 14.
Lost or destroyed receipts. —

Where a negotiable receipt has been lost or destroyed, a court of competent jurisdiction may order the delivery of the goods upon satisfactory proof of such loss or destruction and upon the giving of a bond with sufficient sureties to be approved by the court to protect the warehouseman from any liability or expense, which he or any person injured by such delivery may incur by reason of the original receipt remaining outstanding. The court may also in its discretion order the payment of the warehouseman’s reasonable costs and counsel fees.

The delivery of the goods under an order of the court as provided in this section, 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.

Liability of warehouseman in case of lost or destroyed receipts.

Sections 8 and 11.

The warehouseman is not liable for non-delivery without the surrender of the receipt.
Indeed, even if the receipt is claimed to have been lost or destroyed, it is essential that the court shall pass upon the question and make sure that the receipt is really lost or destroyed, before the goods are delivered or a new receipt is issued for the rights of possible innocent purchasers of the original receipt may be involved.

Section 14.

A competent court may order the delivery of the goods only

upon proof of the loss or destruction of the receipt; and
upon the giving of a bond with sufficient sureties to be approved by the court.

Note, however, that by virtue of the second paragraph, the warehouseman is still liable to a holder of the receipt for value without notice since the warehouseman can secure himself on the bond given.

SEC. 15.

Effect of duplicate receipts. —

A receipt upon the face of which the word “duplicate” is plainly placed is a representation and warranty by the warehouseman that such receipt is an accurate copy of an original receipt properly issued and uncancelled at the date of the issue of the duplicate, but shall impose upon him no other liability.

Liability of warehouseman as to duplicate.

When more than one negotiable receipt is issued for the same goods, the word “duplicate” must be plainly placed by the warehouseman upon the face of every such receipt, except the one first issued.
In such case, the warehouseman warrants

that the duplicate is an accurate copy of the original receipt; and
such original receipt is uncancelled at the date of the issue of the duplicate.

Except for breach of this warranty, the duplicate imposes no other liability upon the warehouseman.
It results that the warehouseman may not be compelled to deliver the goods by virtue of the duplicate only unless the procedure provided for in Section 14 is followed.

SEC. 16.

Warehouseman cannot set up title in himself. —

No title or right to the possession of the goods, on the part of the warehouseman, unless such title or right is derived directly or indirectly from a transfer made by the depositor at the time of or subsequent to the deposit for storage, or from the warehouseman’s lien, shall excuse the warehouseman from liability for refusing to deliver the goods according to the terms of the receipt.

Ownership not a defense for refusal to deliver.

The warehouseman cannot refuse to deliver the goods on the ground that he has acquired title or right to the possession of the same unless such title or right is derived

directly or indirectly from a transfer made by the depositor at the time of the deposit for storage or subsequent thereto; or
from the warehouseman’s lien.

Section 16 is based on the doctrine of estoppel.

SEC. 17.

Interpleader of adverse claimants. —

If more than one person claims the title or possession of the goods, the warehouseman may, either as a defense to an action brought against him for non-delivery of the goods, or as an original suit, whichever is appropriate, require all known claimants to interplead.

SEC. 18.

Warehouseman has reasonable time to determine validity of claims. —

If someone other than the depositor or person claiming under him has a claim to the title or possession of the goods, and the warehouseman has information of such claim, the warehouseman shall be excused from liability for refusing to deliver the goods, either to the depositor or person claiming under him or to the adverse claimant, until the warehouseman has had a reasonable time to ascertain the validity of the adverse claim or to bring legal proceedings to compel all claimants to interplead.

Duty of warehouseman where there are several claimants.

If there are several claimants to the goods, the warehouseman must determine within a reasonable time the validity of the conflicting claims, and deliver to the person whom he finds is entitled to the possession of the goods.
However, he is not excused from liability in case he makes a mistake.
For his own protection, the warehouseman must bring a complaint in interpleader and require the different claimants to litigate among themselves.

In such case, the warehouseman will be relieved from liability in delivering the goods to the person whom the court finds to have a better right.

Liability of warehouseman to rightful claimant.

Where a warehouseman does not compel interpleader in a case requiring it, he is liable for refusal to deliver to the rightful claimant, and where he neither interpleads nor investigates, he will, after lapse of a reasonable time, be held guilty of conversion as of the date of original demand for the goods.

The question of what constitutes a reasonable time is one of fact for determination in accordance with the circumstances of the particular case.

Section 18 does not apply to cases where the warehouseman himself makes a claim to the goods.

SEC. 19.

Adverse title is no defense except as above provided. —

Except as provided in the two preceding sections and in sections nine and thirty-six, no right or title of a third person shall be a defense to an action brought by the depositor or person claiming under him against the warehouseman for failure to deliver the goods according to the terms of the receipt.

Adverse title of third person not a defense for refusal to deliver.

The warehouseman cannot set up title in himself as an excuse for his failure or refusal to deliver the goods.
Neither can the warehouseman, as a depositary for hire, set up an adverse title in another as an excuse for his failure to deliver property to his bailor on demand.
The exceptions to the above rule are the cases provided for in Sections 9, 17, 18, and 36.

SEC. 20.

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

A warehouseman shall be liable to the holder of a receipt for damages caused by the non-existence of the goods or by the failure of the goods to correspond with the description thereof in the receipt at the time of its issue. If, however, the goods are described in a receipt merely by a statement of marks or labels upon them, or upon packages containing them or by a statement that the goods are said to be goods of a certain kind, or that the packages containing the goods are said to contain goods of a certain kind, or by words of like import, such statements, if true, shall not make liable the warehouse man issuing the receipt, although the goods are not of the kind which the marks or labels upon them indicate, or of the kind they were said to be by the depositor.

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

General Rule:

The warehouseman is under obligation to deliver the identical property stored with him and if he fails to do so, he is liable directly to the owner.
As against a bona fide purchaser of a warehouseman receipt, the warehouseman is estopped, whether the receipt is negotiable or not, to deny that he has received the goods described in it.

Exception:

But if the description consists merely of marks or labels upon the goods or upon the packages containing them, etc., the warehouseman is not liable even if the goods are not of the kind as indicated in the marks or labels.

“Anyone at all familiar with the business of a warehouseman knows that he could not transact business if he were required to examine the contents of each package, barrel or box of merchandise which was delivered to him and so packed as to cover and conceal the real nature of the goods delivered.”

SEC. 21.

Liability for care of goods. —

A warehouseman shall be liable for any loss or injury to the goods caused by his failure to exercise such care in regard to them as a reasonably careful owner of similar goods would exercise, but he shall not be liable, in the absence of an agreement to the contrary, for any loss or injury to the goods which could not have been avoided by the exercise of such care.

Liability of warehouseman for loss due to lack of care.

The warehouseman is required to exercise ordinary or reasonable care in the custody of the goods, that is, the care a reasonably careful owner would exercise over similar goods of his own.

Such care is also known as “the diligence of a good father of a family.”

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

Of course, what constitutes ordinary or reasonable care depends upon the circumstances such as the character and value of the property and the character and location of the warehouse.

While the warehouseman may limit his liability to an agreed value of the property received in case of loss, he cannot, however, stipulate with the depositor that he would not be responsible for any loss even if caused by his negligence. Such stipulation is void under Section 3.

SEC. 22.
Goods must be kept separate. —

Except as provided in the following section, a warehouseman shall keep the goods so far separate from goods of other depositors and from other goods of the same depositor for which a separate receipt has been issued, as to permit at all times the identification and redelivery of the goods deposited.

SEC. 23.

Fungible goods may be commingled if warehouseman authorized. —

If authorized by agreement or by custom, a warehouseman may mingle fungible goods with other goods of the same kind and grade. In such case, the various depositors of the mingled goods shall own the entire mass in common and each depositor shall be entitled to such portion thereof as the amount deposited by him bears to the whole.

SEC. 24.

Liability of warehouseman to depositors of commingled goods. —

The warehouseman shall be severally liable to each depositor for the care and redelivery of his share of such mass to the same extent and under the same circumstances as if the goods had been kept separate.

Commingling of deposited goods.

General Rule:

A warehouseman may not mingle goods belonging to depositors.

Exception:

In the case of fungible goods, like rice, sugar, etc., the warehouseman may mingle them with the goods of the same kind and grade provided that he is authorized by agreement or custom.
In that case, the different owners become co-owners of the whole mass.

Sections 22 and 23 are intended for the benefit of the holders of the receipts and not for the benefit of the warehouseman.

It would, indeed, be strange if the warehouseman could escape his liability to the owner of the goods by the simple process of commingling them without authorization.
Under the Civil Code, “unless there is stipulation to the contrary, the depositary may commingle grain or other articles of the same kind and quality.”

SEC. 25.

Attachment or levy upon goods for which a negotiable receipt has been issued. —

If goods are delivered to a warehouseman by the owner or by a person whose act in conveying the title to them to a purchaser in good faith for value would bind the owner, and a negotiable receipt is issued for them, they cannot thereafter, 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 shall in no case be compelled to deliver up the actual possession of the goods until the receipt is surrendered to him or impounded by the court.

Attachment or levy of negotiable receipt.

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

the document be first surrendered; or
its negotiation is enjoined; or
the document is impounded by the court.

Delivery of goods covered by an outstanding negotiable receipt.

The warehouseman cannot be compelled to deliver up the possession of the goods until the receipt is surrendered to him or impounded by the court.
This prohibition is for the protection of the warehouseman since he could be made liable to a subsequent purchaser for value in good faith. (

Where depositor not owner.

The provisions of Section 25 do not apply if the person depositing is not the owner of the goods (like a thief) or one who has no right to convey title to the goods binding upon the owner.
Neither does it apply to actions for recovery or manual delivery of goods by the real owner nor to cases where the attachment is made before the issuance of the negotiable receipt of title.
The rights acquired by attaching creditors cannot be defeated by the issuance of a negotiable receipt of title thereafter.

SEC. 26.

Creditor’s remedies to reach negotiable receipts. —

A creditor whose debtor is the owner of a negotiable receipt shall be entitled to such aid from courts of appropriate jurisdiction, by injunction and otherwise, in attaching such receipt or in satisfying the claim by means thereof as is allowed at law or in equity in these Islands in regard to property which cannot readily be attached or levied upon by ordinary legal process.

Remedies of creditor or owner of negotiable receipt.

Here, what is attached by the creditor is the negotiable receipt in the debtor’s possession and not the goods covered by such receipt.
Inasmuch as the goods themselves in the warehouseman’s possession cannot readily be attached or levied upon by ordinary legal process, as limited by the preceding article, this article expressly gives the court full power to aid by injunction and otherwise a creditor seeking to get a negotiable receipt covering such goods.

SEC. 27.

What claims are included in the warehouseman’s lien. —

Subject to the provisions of Section thirty, a warehouseman shall have a lien on goods deposited or on the proceeds thereof in his hands, for all lawful charges for storage and preservation of the goods; also for all lawful claims for money advanced, interest, insurance, transportation, labor, weighing, cooperating and other charges and expenses in relation to such goods, also for all reasonable 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.

Extent of warehouseman’s lien.

The warehouseman’s lien over the goods deposited with him is his security, just like a pledge or mortgage, for the payment of the charges, money advanced, and other expenses enumerated in Section 27.
The lien exists for the benefit of warehouseman as defined in Section 58, and not a casual bailee, and even though the receipt is negotiable.
Section 30 prescribes the extent of lien when the receipt is negotiable.

SEC. 28.

Against what property the lien may be enforced. —

Subject to the provisions of Section thirty, a warehouseman’s lien may be enforced:

(a) Against all goods, whenever deposited, belonging to the person who is liable as debtor for the claims in regard to which the lien is asserted; and

(b) Against all goods belonging to others which have been deposited at any time by the person who is liable as debtor for the claims in regard to which the lien is asserted if such person had been so entrusted with the possession of the goods that a pledge of the same by him at the time of the deposit to one who took the goods in good faith for value would have been valid.

Goods subject to lien.

Goods belonging to depositor or his principal.

Under Section 28, the warehouseman may enforce his lien (a) against the goods of the depositor who is liable to the warehouseman as debtor whenever such goods are deposited; and (b) against goods of other persons stored by the depositor who is liable to the warehouseman as debtor with authority to make a valid pledge.
The evident purpose of the law in the second case is to give the warehouseman a lien for charges against the goods of persons who are primarily liable for the charge incurred, and who by their agreement create the relation of debtor and creditor. (67 C.J. 550.)

Goods stored in fraud of true owner’s rights.

There is nothing in the Act giving a warehouseman a lien on goods belonging to another and stored by a stranger in fraud of the true owner’s rights. If such were the effect of the Act, then a warehouseman could become a legalized receiver of stolen goods at least to the extent of the charges.

SEC. 29.

How the lien may be lost. —

A warehouseman loses his lien upon goods:

(a) By surrendering possession thereof; or

(b) By refusing to deliver the goods when a demand is made with which he is bound to comply under the provisions of this Act.

Loss and waiver of lien upon goods.

By surrendering possession of goods.

Under subsection (a), a warehouseman loses his lien upon goods by voluntarily surrendering the possession thereof without requiring payment of his lien.
It will be presumed that the lien has been waived or abandoned where the warehouseman permits a depositor to remove the goods but not where the property is taken without the warehouseman’s consent or by force or under a legal process, as by a replevin suit.
Involuntarily parting with possession of goods ordinarily does not result in loss of his lien by a warehouseman.
A warehouseman who has released his lien by the surrender of the goods may not thereafter claim a lien on other goods of the same depositor for unpaid charges on the goods surrendered if the goods were delivered to him under different bailments (covered by separate receipts).

But he has a lien on retained goods for charges on surrendered goods where all goods were received under one and in the same bailment.

By wrongfully refusing to deliver goods.

Under subsection (b), the warehouseman also loses his lien by refusing to deliver the goods where the holder of the receipt offers to comply with the requirements of Section 8.
The loss of the warehouseman’s lien, however, does not necessarily mean the extinguishment of the depositor’s obligation to pay the warehousing fees and charges which continues to be a personal liability.
In case the warehouse receipt has been pledged as security, the depositor-pledgor, as owner, not the pledgee, continues to be liable.
The pledgee does not become the owner of the goods covered by the receipt nor can he appropriate the goods to himself.
The fact that the receipt was delivered and endorsed in blank to the pledgee does not alter the situation, the purpose of such indorsement being merely to transfer juridical possession of the goods to the pledgee and to forestall any possible disposition thereof on the part of the pledgor.

Valid reasons for refusing to deliver goods.

Where a valid demand by the lawful holder of a warehouse receipt for the delivery of goods is refused by the warehouseman despite the absence of a lawful excuse provided by the law itself, the warehouseman’s lien is thereafter concommitantly lost as to what the law deems a valid demand.
Section 8 enumerates what must accompany a demand while as regards the reasons which a warehouseman may invoke to legally refuse to effect delivery of the goods covered by the receipt, these are:

that the holder of the receipt does not satisfy the conditions prescribed in Section 8;
that the warehouseman has legal title in himself on the goods, such title or right being derived directly or indirectly from a transfer made by the depositor at the time of or subsequent to the deposit for storage, or from the warehouseman’s lien;
that the warehouseman has legally set up the title or right of third persons as lawful defense for nondelivery of the goods as follows:

Where the warehouseman has been requested by or on behalf of the person lawfully entitled to a right of property of or possession in the goods, not to make such delivery, in which case, the warehouseman may, either as a defense to an action brought against him for nondelivery of the goods, or as an original suit, whichever is appropriate, require all known claimants to interplead;
Where the warehouseman had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods, in which case, the warehouseman shall be excused from liability for refusing to deliver the goods, either to the depositor or person claiming under him or to the adverse claimant, until the warehouseman has had a reasonable time to ascertain the validity of the adverse claims or to bring legal proceedings to compel all claimants to interplead; and
Where the goods have already been lawfully sold to third persons to satisfy a warehouseman’s lien, or have been lawfully sold or disposed of because of their perishable or hazardous nature;

that the warehouseman having a lien valid against the person demanding the goods refuses to deliver the goods to him until the lien is satisfied; and
that the failure was not due to any fault on the part of the warehouseman, as by showing that, prior to demand for delivery and refusal, the goods were stolen or destroyed by fire, flood, etc., without any negligence on his part, unless he has contracted so as to be liable in such case, or that the goods have been taken by the mistake of a third person without the knowledge or implied assent of the warehouseman, or some other justifiable ground for non-delivery.

SEC. 30.

Negotiable receipt must state charges for which the lien is claimed. —

If a negotiable receipt is issued for goods, the warehouseman shall have no lien thereon, except for charges for storage of those goods subsequent to the date of the receipt, unless the receipt expressly enumerates other charges for which a lien is claimed. In such case, there shall be lien for the charges enumerated so far as they are within the terms of Section twenty-seven although the amount of the charges so enumerated is not stated in the receipt.

Lien where receipt negotiable.

With the exception of the charges for storage and preservation of goods for which a negotiable receipt has been issued, the lien exists only for the other charges expressly enumerated in the receipt so far as they are written within the terms of Section 27 although the amount of the said charges is not stated.
As to claims not specified in the receipt, the warehouseman shares pro rata with the other creditors of the depositor the balance of the proceeds of the sale for the satisfaction of said claims after deducting the charges for storage.

SEC. 31.

Warehouseman need not deliver until lien is satisfied. —

A warehouseman having a lien valid against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied.

SEC. 32.

Warehouseman’s lien does not preclude other remedies. —

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

SEC. 33.

Satisfaction of lien by sale. —

A warehouseman’s lien for a claim which has become due may be satisfied as follows:

The warehouseman shall give a written notice to the person on whose account the goods are held, and to any other person known by the warehouseman to claim an interest in the goods. Such notice shall be given by delivery in person or by registered letter addressed to the last known place of business or abode of the person to be notified. The notice shall contain:

(a) An itemized statement of the warehouseman’s claim, showing the sum due at the time of the notice and the date or dates when it became due;

(b) A brief description of the goods against which the lien exists;

(c) A demand that the amount of the claim as stated in the notice, of such further claim as shall accrue, shall be paid on or before a day mentioned, not less than ten days from the delivery of the notice if it is personally delivered, or from the time when the notice shall reach its destination, according to the due course of post, if the notice is sent by mail; and

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

In accordance with the terms of a notice so given, a sale of the goods by auction may be had to satisfy any valid claim of the warehouseman for which he has a lien on the goods. The sale shall be had in the place where the lien was acquired, or, if such place is manifestly unsuitable for the purpose, at the nearest suitable place. After the time for the payment of the claim specified in the notice of the depositor has elapsed, an advertisement of the sale, describing the goods to be sold, and stating the name of the owner or person on whose account the goods are held, and the time and place of the sale, shall be published once a week for two consecutive weeks in a newspaper published in the place where such sale is to be held. The sale shall not be held less than fifteen days from the time of the first publication. If there is no newspaper published in such place, the advertisement shall be posted at least ten days before such sale in not less than six conspicuous places therein.

From the proceeds of such sale, the warehouseman shall satisfy his lien, including the reasonable charges of notice, advertisement, and sale. The balance, if any, of such proceeds shall be held by the warehouseman, and delivered on demand to the person to whom he would have been bound to deliver or justified in delivering the goods.

At any time before the goods are so sold, any person claiming a right of property or possession therein may pay the warehouseman the amount necessary to satisfy his lien and to pay the reasonable expenses and liabilities incurred in serving notices and advertising and preparing for the sale up to the time of such payment. The warehouseman shall deliver the goods to the person making payment if he is a person entitled, under the provision of this Act, to the possession of the goods on payment of charges thereon. Otherwise, the warehouseman shall retain possession of the goods according to the terms of the original contract of deposit.

SEC. 34.

Perishable and hazardous goods. —

If goods are of a perishable nature, or by keeping will deteriorate greatly in value, or by their odor, leakage, inflammability or explosive nature, will be liable to injure other property, the warehouseman may give such notice to the owner, or to the person in whose name the goods are stored, as is reasonable and possible under the circumstances, to satisfy the lien upon such goods, and to remove them from the warehouse, and in the event of the failure of such persons to satisfy the lien and to remove the goods within the time so specified, the warehouseman may sell the goods at public or private sale without advertising. If the warehouseman, after a reasonable effort, is unable to sell such goods, he may dispose of them in any lawful manner, and shall incur no liability by reason thereof.

The proceeds of any sale made under the terms of this section shall be disposed of in the same way as the proceeds of sales made under the terms of the preceding section.

SEC. 35.

Other methods of enforcing lien. —

The remedy for enforcing of a lien herein provided does not preclude any other remedies allowed by law for the enforcement of a lien against personal property nor bar the right to recover so much of the warehouseman’s claim as shall not be paid by the proceeds of the sale of the property.

SEC. 36.

Effect of sale. —

After goods have been lawfully sold to satisfy a warehouseman’s lien, or have been lawfully sold or disposed of because of their perishable or hazardous nature, the warehouseman shall not thereafter be liable for failure to deliver the goods to the depositor, or owner of the goods, or to a holder of the receipt given for the goods when they were deposited, even if such receipt be negotiable.

Enforcement of warehouseman’s lien.

The remedies available to a warehouseman for enforcing his lien are as follows:

By refusing to deliver the goods until the lien is satisfied;
By causing the extrajudicial sale of the property and applying the proceeds to the value of the lien; and
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.

A warehouseman is entitled to all the remedies allowed by law to a creditor against his debtor for the collection from the depositor of all charges which the depositor is obliged to pay, including remedies allowed by law for the enforcement of a lien against personal property and recovery of any deficiency in case it exists after sale of the property.

Effect of sale of goods.

In case of sale of goods, the warehouseman is not liable for nondelivery even if the receipt given for the goods when they were deposited be negotiated.

This rule necessarily qualifies the right of a purchaser of a negotiable receipt.

Where the sale was made without the publication required and before the time specified by the law, such sale is void and the purchaser of the goods acquires no title in them.

Acts for which warehouseman is liable.

The following are acts for which a warehouseman may be held liable:

Failure to stamp “duplicate” on copies of a negotiable receipt (Sec. 6.);
Failure to place “non-negotiable” or “not negotiable” on a non-negotiable receipt (Sec. 7.);
Misdelivery of the goods (Sec. 10.);
Failure to effect cancellation of a negotiable receipt upon delivery of the goods (Sec. 11.);
Issuing receipt for non-existing goods or misdescribed goods (Sec. 20.);
Failure to take care of the goods (Sec. 21.); and
Failure to give notice in case of sale of goods to satisfy his lien (Sec. 33.) or because the goods are perishable or hazardous. (Sec. 34.)

Chapter 3

Negotiation and Transfer of Receipts

SEC. 37.

Negotiation of negotiable receipt by delivery. —

A negotiable receipt may be negotiated by delivery:

(a) Where, by the terms of the receipt, the warehouse man undertakes to deliver the goods to the bearer; or

(b) Where, by the terms of the receipt, the warehouse man undertakes to deliver the goods to the order of a specified person, and such person or a subsequent indorsee of the receipt has indorsed it in blank or to bearer.

Where, by the terms of a negotiable receipt, the goods are deliverable to bearer or where a negotiable receipt has been indorsed in blank or to bearer, any holder may indorse the same to himself or to any other specifi ed person, and in such case the receipt shall thereafter be negotiated only by the indorsement by such indorsee.

Negotiation of negotiable receipt.

The manner of transferring negotiable warehouse receipt by negotiation is the same as in the negotiation of promissory notes and bills of exchange under the Negotiable Instruments Law.

A negotiable warehouse receipt is negotiable by delivery if the goods are:

deliverable to the bearer or
when it is indorsed in blank or
to the bearer by the person to whose order the goods are deliverable or
by a subsequent indorsee.

An indorsement is in blank when the holder merely signs his name at the back of the receipt without specifying to whom the goods are to be delivered.

If the receipt is specially indorsed, it becomes an order receipt and negotiation can only be effected by the indorsement of the indorsee.

A special indorsement specifies the person to whom or to whose order, the goods are to be delivered.

SEC. 38.

Negotiation of negotiable receipt by indorsement. —

A negotiable receipt may be negotiated by the in dorsement of the person to whose order the goods are, by the terms of the receipt, deliverable. Such indorsement may be in blank, to bearer, or to a specified person. If indorsed to a specified person, it may be again negotiated by the indorsement of such person in blank, to bearer or to another specifi ed person. Subsequent negotiation may be made in like manner.

Negotiation of negotiable receipt by indorsement.

A negotiable document of title by the terms of which the goods are deliverable to a person specified therein may be negotiated only by the indorsement of such person.

If indorsed in blank or to bearer, the document becomes negotiable by delivery.
If indorsed to a specified person, it may be again negotiated by the indorsement of such person:

in blank,
to bearer or to
another specified person.

Delivery alone is not sufficient.

SEC. 39.

Transfer of receipt. —

A receipt which is not in such form that it can be negotiated by delivery may be transferred by the holder by delivery to a purchaser or do nee. A non-negotiable receipt can not be negotiated, and the indorsement of such a receipt gives the transferee no additional right.

Transfer of non-negotiable receipt.

The rights of a person to whom an order receipt has been transferred by delivery without indorsement are stated in Sections 42 (par. 1.) and 43.
A non-negotiable receipt of title cannot be negotiated.
Nevertheless, it can be transferred or assigned by delivery.

In such case, the transferee or assignee acquires only the rights stated in Section 42.
Even if the receipt is indorsed, the transferee acquires no additional right. (see Art. 1511 of the Civil Code which is substantially the same as Sec. 39.)

Advantages of a negotiable warehouse receipt.

Some of the advantages of a negotiable warehouse receipt over one which is non-negotiable are the following:

It protects a purchaser for value and in good faith;
The goods covered by the receipt cannot be garnished or levied upon under execution unless it is surrendered, or impounded, or its negotiation enjoined;
In case of negotiation, the holder acquires the direct obligation of the warehouseman to hold possession of the goods for him without notice to such warehouseman; and
The goods it covers are not subject to seller’s lien or stoppage in transitu.

SEC. 40.

Who may negotiate a receipt. —

A negotiable receipt may be negotiated:

(a) By the owner thereof; or

(b) By 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 warehouseman undertakes to deliver the goods to the order of the person to whom the pos session or custody of the receipt has been entrusted, or if, at the time of such entrusting, the receipt is in such form that it may be negotiated by delivery.

Persons who negotiate a receipt.

It will be noticed that the provision does not give a power to negotiate warehouse receipts equal to that allowed by law in the case of bills of exchange and promissory notes inasmuch as neither a thief nor a finder is within the terms of the section.
However, if the owner of the goods permits another to have the possession or custody of negotiable receipts running to the order of the latter or to be bearer, it is representation of title upon which bona fide purchasers for value are entitled to rely despite breaches of trust or violations of agreement on the part of the apparent owner.

As between two innocent persons, the loss must fall upon him whose misplaced confidence made the loss possible.

SEC. 41.

Rights of person to whom a receipt has been negotiated. —

A person to whom a negotiable receipt has been duly negotiated acquires thereby:

(a) Such title to the goods as the person negotiating the receipt to him had or had ability to convey to a purchaser in good faith for value, and also such title to the goods as the depositor or person to whose order the goods were to be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith for value; and

(b) The direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt as fully as if the warehouseman had contracted directly with him.

Rights of person to whom receipt has been negotiated.

This section specifies the rights of a person to whom a negotiable warehouse receipt has been duly negotiated, either by delivery, in the case of a receipt to bearer, or by indorsement and delivery, in the case of a receipt to order.
The rights acquired by such person are:

The title of the person negotiating the receipt over the goods covered by the receipt;
The title of the person (depositor or owner) to whose order by the terms of the receipt the goods were to be delivered, over such goods; and
The direct obligation of the warehouseman to hold possession of the goods for him, as if the warehouseman directly contracted with him.

One who purchases, therefore, a negotiable receipt issued to a thief acquires no right over the goods as the thief has no right to transfer notwithstanding that such purchaser is innocent.
But the purchaser acquires a good title where the owner, by his conduct, is estopped from asserting his title.

SEC. 42.

Rights of person to whom receipt has been transferred. —

A person to whom a receipt has been transferred but not negotiated, acquires thereby, as against the transferor, the title of the goods subject to the terms of any agreement with the transferor.

If the receipt is non-negotiable, such person also acquires the right to notify the warehouseman of the transfer to him of such receipt, and thereby to acquire the direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt.

Prior to the notification of the warehouseman by the transferor or transferee of a non-negotiable receipt, the title of the transferee to the goods and the right to acquire the obligation of the warehouseman may be defeated by the levy of an attachment or execution upon the goods by the creditor of the transferor, or by a notifi cation to the warehouseman by the transferor or a subsequent purchas er from the transferor of a subsequent sale of the goods by the transferor.

Rights of person to whom receipt has been transferred.

This section refers to the rights of a person to whom a negotiable warehouse receipt (not duly negotiated) has been transferred (par. 1.) or of the transferee of a non-negotiable document. (pars. 2 and 3.)
The rights of such person are:

The title to the goods as against the transferor;
The right to notify the warehouseman of the transfer thereof; and
The right, thereafter, to acquire the obligation of the warehouseman to hold the goods for him.

The right of the transferee is not absolute as it is subject to the terms of any agreement with the transferor.
He merely steps into the shoes of the transferor.

Attachment of goods covered by receipt.

Receipt non-negotiable.

The transfer of a non-negotiable document of title does not affect the delivery of the goods covered by it.
Accordingly, before notification, the warehouseman is not bound to the transferee whose right may be defeated by a levy of an attachment or execution upon the goods by the creditor of the transferor or by a notification to such warehouseman of the subsequent sale of the goods.

Receipt negotiable.

If the receipt is negotiable, the goods cannot be attached or be levied under an execution unless the receipt be first surrendered to the warehouseman or its negotiation enjoined.

SEC. 43.

Transfer of negotiable receipt without indorsement. —

Where a negotiable receipt is transferred for value by delivery, and the indorsement of the transferor is essential for negotiation, the transferee acquires a right against the transferor to compel him to indorse the receipt, unless a contrary intention appears. The negotiation shall take effect as of the time when the indorsement is actually made.

Rights of transferee of a negotiable receipt.

This section specifies the rights of a person to whom an order receipt, which may not properly be negotiated by mere delivery, has been delivered, without indorsement. They are:

The right to the goods as against the transferor; and
The right to compel the transferor to indorse the receipt.

If the intention of the parties is that the receipt should be merely transferred, the transferee has no right to require the transferor to indorse the receipt.

Rule where receipt subsequently indorsed.

For the purpose of determining whether the transferee is a purchaser for value in good faith without notice, the negotiation shall take effect as of the time when the indorsement is actually made, not at the time the receipt is delivered.

The reason for the rule is because the negotiation becomes complete only at the time of indorsement.

So if by that time the purchaser already had notice that the title of the seller was defective, he cannot be considered a purchaser in good faith though he had no such notice when he bought the receipt.

Ownership of goods covered by receipt negotiated or transferred.

Indorsee or transferee.

For purposes of facilitating com mercial transactions, the indorsee or transferee or a warehouse receipt should be regarded as the owner of the goods covered by it. In other words, as regard the indorser or transferor even if he were the owner of the goods, he may not take possession and dispose of the goods without the consent of the indorsee or transferee of the warehouse receipt, and as regards third persons, the holder of a warehouse receipt is the owner of the goods covered by it.

Indorser or transferor.

Where a warehouse receipt is indorsed or transferred to a creditor only to secure the payment of become the owner of the goods covered by the warehouse receipt but he 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 of the sale, this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge. Therefore, if the property covered by the warehouse receipt is lost without the fault of the mortgagee or pledgee or the indorsee or transferee of the warehouse receipt, the said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor.

Innocent third persons.

Where, however, the rights of innocent third persons are involved, the indorsee-pledgee of a warehouse receipt is considered the owner of the goods covered by it whenever necessary for their protection.

SEC. 44.

Warranties on sale of receipt. —

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:

(a) That the receipt is genuine;

(b) That he has a legal right to negotiate or transfer it;

(d) That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose, whenever such warranties would have been implied, if the contract of the parties had been to transfer without a receipt of the goods represented thereby.

Warranties on sale of receipt.

This section treats of the warranties or liabilities of a person negotiating or transferring a receipt. They are similar to that of a person negotiating an instrument by delivery or by a qualifi ed indorsement under the Negotiable Instruments Law. (see Sec. 65, NIL.)

The liability is limited only to a violation of the four warranties set forth in Section 44.
Thus, a person negotiating or transferring a receipt could be held liable as when, for example, the receipt was a forgery, or he had stolen it, or he had knowledge that the receipt was invalid for want of consideration, or that the goods have been damaged.

One who assigns for value a claim secured by a receipt of title is also liable for the violation of any of the four warranties enumerated unless a contrary intention appears.
It is the duty of every indorsee to know that all previous indorsements are genuine, otherwise, he will not acquire a valid title to the instrument.

Under the Negotiable Instruments Law, the last indorser warrants that all previous indorsements are genuine

SEC. 45.

Indorser not a guarantor. —

The indorsement of a receipt shall not make the indorser liable for any fail ure on the part of the warehouseman or previous indors ers of the receipt to fulfill their respective obligations.

Liability of person negotiating or transferring receipt.

The indorsement of negotiable instrument has a double effect.

It is at the same time a conveyance of the instrument and a contract of the indorser with the indorsee that on certain conditions the indorser will pay the instrument if the party primarily liable fails to do so.

The indorsement of a warehouse receipt amounts merely to a conveyance by the indorser, not a contract of guaranty.

Accordingly, an indorser of a receipt shall not be liable to the holder if, for example, the warehouseman fails to deliver the goods because they were lost due to his fault or negligence.

SEC. 46.

No warranty implied from accepting payment of a debt. —

A mortgagee, pledgee or holder for security of receipt who, in good faith, demands or receives payment of the debt for which such receipt is security, whether from a party to a draft drawn for such debt or from any other person, shall not, by so doing, be deemed to represent or to warrant the genuineness of such receipt or the quantity or quality of the goods therein described.

Liability of mortgagee, pledgee or holder for security.

Under this section, a holder for security of a receipt who in good faith accepts payment of the debt from a person does not thereby warrant the genuineness of the receipt nor the quality or quantity of the goods therein described.
Thus, if C receives from D a warehouse receipt as security for D’s debt and C delivers it to T who pays him for D, C, assuming he acts in good faith, is not liable to T in case T cannot obtain possession of the goods because they do not exist or because the receipt is not genuine.

SEC. 47.

When negotiation not impaired by fraud, mistake or duress. —

The validity of the negotiation of a receipt is not impaired by the fact that such negotiation was a breach of duty on the part of the person making the negotiation, or by the fact that the owner of the receipt was induced by fraud, mistake, or duress to entrust the possession or custody of the receipt to such person, if the person to whom the receipt was negotiated, or a person to whom the receipt was subsequently negotiated paid value therefor, without notice of the breach of duty, or fraud, mistake or duress.

Validity of negotiation as against real owner.

Receipt acquired from owner’s agent.

As against the real owner, a bona fi de purchaser of a negotiable warehouse receipt acquires title to the goods where he purchases from the owner’s agent, within the actual or apparent scope of his authority; but not where the transfer is made by one other than the owner without any ostensible authority to issue or negotiate the receipt.

Lost or stolen receipt.

Where the receipt has been lost or stolen, a bona fide transferee thereof from the thief or finder acquires no title as against the real owner of the receipt, unless the latter, by indorsing the receipt in blank and leaving it with his agent, put it in the power of such agent to steal and negotiate it.
It will be observed that one who takes by trespass or a fi nder is not included within the description of those who may negotiate.

SEC. 48.

Subsequent negotiation. —

Where a person having sold, mortgaged, or pledged goods which are in a warehouse and for which a negotiable receipt has been issued, or having sold, mortgaged, or pledged the negoti ble receipt representing such goods, continues in posses sion of the negotiable receipt, the subsequent negotiation thereof by the person under any sale, or other disposition thereof to any person receiving the same in good faith, for value and without notice of the previous sale, mortgage or pledge, shall have the same effect as if the first purchaser of the goods or receipt had expressly authorized the sub sequent negotiation.

Effect of subsequent negotiation by seller, etc.

This section imposes a duty upon the purchaser, mortgagee, or pledgee of goods for which a negotiable receipt has been issued, or of the negotiable receipt itself, to require the negotiation of the receipt to him otherwise, his failure will have the same effect as an express authorization on his part to the seller, mortgagor or pledgor in possession of such receipt to make any subsequent negotiation.
The subsequent purchaser, however, must have taken the receipt in good faith and for value in order to acquire a better right.

SEC. 49.

Negotiation defeats vendor’s lien. —

Where a negotiable receipt has been issued for goods, no seller’s lien or right of stoppage in transitu shall defeat the rights of any purchaser for value in good faith to whom such receipt has been negotiated, whether such negotiation be prior or subsequent to the notifi cation to the warehouseman who issued such receipt of the seller’s claim to a lien or right of stoppage in transitu. Nor shall the warehouseman be obliged to deliver or justified in delivering the goods to an unpaid seller unless the receipt is first surrendered for cancellation.

Indorsee’s right superior to vendor’s lien.

Under this section, an innocent holder of a negotiable warehouse receipt has a better right to the goods for which the receipt is given than the vendor who has a vendor’s lien upon such goods.
So, the warehouseman is not obliged to deliver or justifi ed in delivering the goods to an unpaid seller unless the receipt is fi rst surrendered for cancellation.
The term “purchaser,” as used in Section 49, includes mortgagee and pledgee.

Chapter 4

Criminal Offenses

SEC. 50.

Issue of receipt for goods not received. —

A warehouseman, or any offi cer, agent, or servant of a warehouseman, who issues or aids in issuing a receipt knowing that the goods for which such receipt issued have not been actually received by such warehouseman, or are not under his actual control at the time of issuing such receipt, shall be guilty of a crime, and upon conviction shall be punished for each offense by imprisonment not exceeding five years, or by a fine not exceeding ten thousand pesos, or by both.

Possession of goods by warehouseman.

Under Section 50, it is made an offense to issue a receipt unless the property is actually in storage. In accordance with the definition of warehouseman, generally, warehouse receipts are issued for the goods or merchandise of others stored with the warehouseman.
But it is essential to the validity of a warehouse receipt that the goods or merchandise, for which the receipt is issued, shall be in the warehouseman’s possession, that is, stored in his warehouse, under his care and control at the time the receipt is issued, and a receipt is a nullity as to goods described therein which are not in existence, or not in the warehouse, when the receipt is given.

SEC. 51.

Issue of receipt containing false statement. —

A warehouseman, or any offi cer, agent or servant of a warehouseman, who fraudulently issues or aids in fraudulently issuing a receipt for goods knowing that it contains any false statement, shall be guilty of a crime, and upon conviction, shall be punished for each offense by imprisonment not exceeding one year, or by a fine not exceeding two thousand pesos, or by both.

SEC. 52.

Issue of duplicate receipt not so marked. —

A warehouseman or any officer, agent, or servant of a warehouseman, who issues or aids in issuing a duplicate or additional negotiable receipt for goods knowing that a for mer negotiable receipt for the same goods or any part of them is outstanding and uncancelled, without plainly plac ing upon the face thereof the word “Duplicate” except in the case of a lost or destroyed receipt after proceedings as provided for in Section fourteen, shall be guilty of a crime, and upon conviction shall be punished for each offense by imprisonment not exceeding fi ve years, or by a fi ne not exceeding ten thousand pesos, or by both.

SEC. 53.

Issue for warehouseman’s goods of receipt which does not state that fact. —

Where they are depos ited with or held by a warehouseman goods of which he is owner, either solely or jointly or in common with oth ers, such warehouseman, or any of his offi cers, agents, or servants who, knowing this ownership, issues or aids in issuing a negotiable receipt for such goods does not state such ownership, shall be guilty of a crime, and upon conviction, shall be punished for each offense by impris onment not exceeding one year, or by a fi ne not exceeding two thousand pesos, or by both.

SEC. 54.

Delivery of goods without obtaining negotiable receipt. —

A warehouseman, or any offi cer, agent, or servant of a warehouseman, who delivers goods out of the possession of such warehouseman, knowing that a nego tiable receipt the negotiation of which would transfer the right to the possession of such goods is outstanding and uncancelled, without obtaining the possession of such re ceipt at or before the time of such delivery, shall, except in the cases provided for in Sections fourteen and thirty-six, be found guilty of a crime, and upon conviction shall be punished for each offense by imprisonment not exceeding one year, or by a fi ne not exceeding two thousand pesos, or by both.

SEC. 55.

Negotiation of receipt for mortgaged goods. —

Any person who deposits goods to which he has no title, or upon which there is a lien or mortgage, and who takes, for such goods a negotiable receipt which he after wards negotiates for value with intent to deceive and with out disclosing his want of title or the existence of the lien or mortgage, shall be guilty of a crime, and upon convic tion, shall be punished for each offense by imprisonment not exceeding one year, or by a fi ne not exceeding two thousand pesos, or by both

Offenses criminally punishable by the Act.

Sections 50, 51, 52, 53, 54, and 55 enumerate offenses which are criminally punishable under the Act.

Ingredients of offense punished by Section 54.

The offense punished under Section 54 consists of the following ingredients:

There is delivery of goods out of the possession of the warehouseman, by the warehouseman himself or by any offi cer, agent, or servant of the warehouseman;
The person who causes the delivery has knowledge that a negotiable receipt for the goods, which would transfer the right to the possession thereof, is outstanding and uncancelled; and
The person causing the delivery does so without obtaining possession of the receipt at or before the time of delivery.

Nature of criminal responsibility under Section 54.

Violation by the warehouseman himself. —

Under Section 54, may a warehouseman be held criminally liable, irrespective of whether he is a warehouseman in name only, and irrespective of whether the duties of a warehouseman are actually performed by somebody else?

No, if the accused had nothing to do with the withdrawal of goods in question.

Violation by some other person. —

A reading of Section 54 shows that persons other than the warehouseman may be held liable for violations thereof.
The disjunctive use of the word “or” in the phrase “A warehouseman or any other officer, agent, or servant of a warehouseman,” imparts an alternative sense.
The criminal responsibility punished by the law is individual, not attributive, so that the warehouseman should not be punished even for violations which some other officer, agent, or servant of the warehouseman may have committed.
It is fundamental in criminal law that unless conspiracy be shown, no one should be made to suffer for offenses committed by another.

Possibility that right to goods sold has been transferred to a third person.

In order that a warehouseman may be punished under Section 54, for having delivered goods from his warehouse to a person other than the one entitled thereto according to the corresponding securities, it is not necessary that the right of possession to such stored goods has been transferred to a third person.
It is sufficient that such right could have been transferred to said third person in the course of his transactions with the depositor in whose name the receipt of the stored goods was issued.

Chapter 5

Interpretation

SEC. 56. Case not provided for in Act. — Any case not provided for in this Act shall be governed by the provisions of existing legislation, or in default thereof, by the rule of the law merchant.

History and meaning of law merchant.

The law merchant (or the custom of merchants) from which developed the rules of bills and notes, sales of goods, partnerships, guaranty, insurance, and agency, originated in the unwritten customs of merchants in different commercial countries.
It consisted of usages of trade in different departments of commerce proved in court and ratified by legal decisions, upon the assumption that persons entering upon transactions in different departments of trade dealt with each other on the footing of any custom or usage generally prevailing in those departments, so that the usage, is “engrafted upon or incorporated with’’ the law and accordingly binding on the courts.

From the thirteenth century, maritime and commercial cases were determined in accordance with the customs of merchants and by merchant courts. It was not until the eighteenth century that merchants were encouraged, if not compelled, to try their causes in the common law courts.

The usage adopted by the courts is the origin of the so-called “law merchant” as to negotiable instruments.

The law merchant in the United States followed closely that of England.

With the tremendous extension of commerce and its instrumentalities during the last quarter of the nineteenth century, the imperative need of uniformity in the law of negotiable instruments found expression in the Negotiable Instruments Law of 1897, which has been adopted by every state in the Union, the last being Georgia in 1924.

SEC. 57.

Name of Act. —

This Act may be cited as the Warehouse Receipts Act.

SEC. 58.

Definitions. —

(a) In this Act, unless the content or subject matter otherwise requires:

“Action” includes counterclaim, set-off, and suits in equity as provided by law in these Islands. “Delivery” means voluntary transfer of possession from one person to another.

“Fungible goods” means goods of which any unit is, from its nature or by mercantile custom, treated as the equivalent of any other unit.

“Goods” means chattels or merchandise in storage, or which has been or is about to be stored.

“Holder” of a receipt means a person who has both actual possession of such receipts and a right of property therein.

“Order” means an order by indorsement on the receipt.

“Owner” does not include mortgagee.

“Person” includes a corporation or partnership or two or more persons having a joint or common interest.

To “purchase” includes to take as mortgage or as pledge.

“Purchaser” includes mortgagee and pledgee.

“Receipt” means a warehouse receipt.

“Value” is any consideration sufficient to support simple contract.

An antecedent or pre-existing obligation, whether for money or not, constitutes value where a receipt is taken either in satisfaction thereof or as security thereof.

“Warehouseman” means a person lawfully engaged in the business of storing goods for profit.

(b) A thing is done “in good faith” within the meaning of this Act when it is in fact done honestly, whether it be done negligently or not.

SEC. 59.

Application of Act. —

The provisions of this Act do not apply to receipts made and delivered prior to the taking effect hereof.

SEC. 60.

Repeals. —

All acts and laws and parts thereof inconsistent with this Act are hereby repealed.

SEC. 61.

Time when Act takes effect. —

This Act shall take effect ninety days after its publication in the Official Gazette of the Philippines shall have been completed.

ENACTED: February 5, 1912

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Commercial Law: The Warehouse Receipts Law (Act No. 2137, as amended)

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