CHAPTER 10 CHECKS CHECK Bill of exchange payable on demand drawn on a bank.

. Used between banks and bankers and their customers, and are designed to facilitate banking operations Essence is to be payable on demand, because the contract between the banker and the customer is that the money is needed on demand. Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check. Sec. 186. Within what time a check must be presented. - A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. Sec. 189. When check operates as an assignment. - A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check. I. KINDS: a. Ordinary check b. Crossed check c. Certified check d. Memorandum check e. Managers check or cashiers check

A. CASHIERS AND MANAGERS CHECKS

CASHIERS: Bill of exchange drawn by a bank upon itself, and is accepted by its issuance. MANAGERS: same nature, although instead of being signed by the cashier, it is the manager who signs the same for the bank. Drawn by a banks manager upon the bank itself. Bank both the drawer and drawee of cashiers check. Cashiers check: banks own and check and may be treated as a promissory note with the bank as the maker. CHECK becomes PRIMARY obligation of the bank which issues it and CONSTITUTES a written promise to pay UPON DEMAND. One case, SC: purchaser of the check as the drawer thereof. Managers check: stands on the same footing as a certified check which is deemed to have been ACCEPTED BY THE BANK By drawing the instrument, it admits the existence of the payee and his then capacity to indorse and engages that on due presentment, the instrument will be accepted, or paid or both accdg to its tenor

a. Distinguished from draft

b. Cannot payable bearer

be to

Not the equivalent of bank draft DRAFT BOE payable on demand An open letter of request form and an order by one person on another to pay a sum of money therein mentioned to a third person on demand or at a future time Demand draft is NOT of the same category as a cashiers check which should come within the purview of the law - BSP disallows the issuance of managers, cashiers or certified

BILL OF EXCHANGE Does not operate as an assignment of funds in the hands of the drawee who is NOT liable on the instrument until he accepts it Sec127 Cashiers check issued by a bank, however is not an ordinary draft. Primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. Cashiers check accepted in advance by the acts of its issuance checks that are PAYABLE TO BEARER.

CIRCULAR NO. 259 Additional anti-money laundering rules and regulations for banks SEC 1: issuance of cashiers managers certified checks payable to cash, bearer or fictitious payee or numbered account. IF: person purchasing is NOT a regular client issuing bank shall require the purchaser to PRESENT his/her proof of residence + drivers license + passport, employment id or other photo identification card. Shall be maintained by the bank Violation: Fine 30K

CIRCULAR NO. 291 MB authorize the issuance of C or M checks in BLANK or PAYABLE TO CASH EXCEPT: bearer or numbered account from CN 259, subj to the following conditions: a. each check shall not exceed 10K b. buyer of the check is properly identified c. register if said checks shall be maintained in the ff. minimum information: i. Date issued ii. Amount iii. Name of buyer iv. Date paid v. IF: aggregate, same person, within 30 days amounts to AT LEAST 50K purpose should be stated. d. Bank which issue as well as those which as accepts as deposit said checks issued in blank or payable to cash, bearer or numbered account shall take such measures as may be necessary make sure that said instrument not used in furtherance of a money laundering activity. e. Deposit subject to same requirements, applicable to cash deposits f. Transactions reported to the BSP, if there is reasonable ground to suspect that said transactions are being used to launder funds.

B. CERTIFIED CHECKS

One drawn by a depositor upon funds to his credit in a bank which a proper officer at the bank certifies will be paid when duly presented for payment ANALOGOUS TO: certificate of deposit of a certifying bank Certification is similar to acceptance but different in the sense that: i. Certification at the instance of the holder discharges while there is no discharge in an ordinary acceptance ii. Certification, the bank debits the drawers account at the time of certification and sets aside funds out of the drawers control (as though the money had been paid by the bank to the holder and redeposited in his own credit)

Certified funds represented by the check are transferred from credit of the maker to that of the payee or holder latter becomes the depositor of the drawee bank Certification = Acceptance Implies that the check is drawn upon sufficient funds in the hands of the drawee, be applied whenever the check is presented for payment Understanding that the check is GOOD, and continue good Binding on the bank as its notes in circulation WHEN THE HOLDER PROCURES THE CHECK TO BE CERTIFIED, THE CHECK OPERATES AS AN ASSIGNMENT OF A PART OF THE FUNDS TO THE CREDITORS. Even if: drawer does not have deposit in the drawee bank CERTIFICATION legally obligates the drawee to honor the check IF: HDC immaterial if there is deposit or none DRAWEE BANK who certified a check through MISTAKE or FRAUD can revoke its certification if: The rights of third parties are not affected AND Payee has not changed his position in reliance of the certification

Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance and admits: (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and (b) The existence of the payee and his then capacity to indorse. Sec. 132. Acceptance; how made, by and so forth. - The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money.

NOTHING PRECLUDES ITS ACCEPTANCE Bank may accept if it chooses Induced by convenience, exigencies of business, and desire to oblige customer CALLED: Certifying of check Holder can present it only for payment

PURPOSE: impart strength and credit to the paper by obtaining an acknowledgment from the certifying bank that the drawer has funds therein sufficient to cover the check. WHEN A CHECK IS CERTIFIED, IT CEASES TO POSSESS THE CHARACTER OR TO PERFORM THE FUNCTIONS OF A CHECK AND REPRESENTS SO MUCH MONEY ON DEPOSIT, PAYABLE TO THE HOLDER ON DEMAND. Becomes basis of credit easy mode of passing money from hand to hand and answers the purpose of money Takes it with the same readiness and sense of security that he would take notes of the bank Certifying bank intended these consequences and it is liable accordingly Bank incurs greater risk in certifying a check than in giving a cert of deposit EVIDENCED BY: mark: good certified accepted written upon the check by the banker or bank officer HOLDER: No, I will not take the money, you may certify the check and retain the money for me until this check is presented THE LAW WILL NOT PERMIT THIS. When due it must be presented NOT ALLOWED: The money to be left with the bank for the accommodation of the holder without discharging the drawer. It is the fault of the holder if he declines to receive the pay. Sec. 187. Certification of check; effect of. - Where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance. Sec. 189. When check operates as an assignment. - A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check. a. Certification procured by the holder Sec. 188. Effect where the holder of check procures it to be certified. - Where the holder of a check procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon. C. CROSSED CHECK i. THEORY for such release: by requesting such certification instead of payment, enters into a new contract with the bank and one not within the contemplation of the drawer or a prior indorser Drawer and prior indorsers are expecting that the check will be PRESENTED FOR PAYMENT ONLY & NOT TO BE CERTIFIED BY THE BANK Crossing a check is done by WRITING TWO PARALLEL LINES DIAGONALLY ON THE LEFT TOP PORTION OF THE CHECL (//) Crossing is special where the name of a bank or business institution is written BETWEEN THE PARALLEL LINES Which means: drawee should pay ONLY with the intervention of that company

ii.

Crossing is general where the words written between two parallel lines are AND CO or FOR PAYEES ACCOUNT ONLY

a. laws

Applicable No provision in the NIL

1. Code of Commerce ARTICLE 541. The (a) maker or (b) any legal holder of a check shall be entitled to indicate therein that it be paid to a certain banker or institution, which he shall do by writing across the face the name of said banker or institution, or only the words "and company." The payment made to a person other than banker or institution shall not exempt the person on whom it is drawn, if the payment was not correctly made. 2. Bills of Exchange Act of 1882 ARTICLE 76 General and special crossings defined. (1) Where a cheque bears across its face an addition of (a) The words and company or any abbreviation thereof between two parallel transverse lines, either with or without the words not negotiable; or (b) Two parallel transverse lines simply, either with or without the words not negotiable; that addition constitutes a crossing, and the cheque is crossed generally. (2) Where a cheque bears across its face an addition of the name of a banker, either with or without the words not negotiable, that addition constitutes a crossing, and the cheque is crossed specially and to that banker. ARTICLE 77 Crossing by drawer or after issue. (1) A cheque may be crossed generally or specially by the drawer. (2) Where a cheque is uncrossed, the holder may cross it generally or specially. (3) Where a cheque is crossed generally the holder may cross it specially. (4) Where a cheque is crossed generally or specially, the holder may add the words not negotiable. (5) Where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially to another banker for collection. (6) Where an uncrossed cheque, or a cheque crossed generally, is sent to a banker for collection, he may cross it specially to himself. b. EFFECTS OF CROSSING Effect: MODE OF PAYMENT

Sec 72 Presentment for payment to be sufficient must be made by the HOLDER or by SOME OTHER PERSON AUTHORIZE TO RECEIVE PAYMENT on his behalf. Who the holder or authorized person depends on the instruction stated on the face of the crossed check. GENERAL - written the words and Co. or none at all, drawee should encash the same but merely to accept for deposit

SPECIAL - name of the a bank or business institution, drawee should pay only with the intervention of that bank or company -

Negotiability of the check is NOT affected by it being crossed, whether generally or specially. It may legally be negotiated from one person to another AS LONG AS the one who encashes the check with the drawee bank is ANOTHER BANK or if it specially crossed bank mentioned between the parallel lines.

Issuing a crossed check IMPOSES NO OBLIGATION on the drawee not to honor such a check. More of a warning to the holder that the check cannot be presented to the drawee for payment in cash. CAN ONLY BE DEPOSITED WITH THE PAYEES BANK (present it for payment against the drawee bank) CANNOT BE PRESENTED FOR PAYMENT: but it can only be deposited and the drawee bank may only pay to another bank in the payees or indorers account. EFFECTS OF CROSSING CHECKS: [SC] i. Not encashed, only deposited ii. Negotiated only once to one who has an account with the bank AND iii. Act of crossing serves as a WARNING TO THE HOLDER that the check has been issued for a definite purpose so that he must INQUIRE FIRST if he has received the check pursuant to that purpose. Put the holder on inquiry and ascertain the holders title to the check or nature of possession FAILURE TO DO SO guilty of gross negligence amounting to legal absence of good faith EFFECT: not a holder in due course Article 78 Crossing a material part of cheque. A crossing authorised by this Act is a material part of the cheque; it shall not be lawful for any person to obliterate or, except as authorised by this Act, to add to or alter the crossing. Article 79 Duties of banker as to crossed cheques. (1) Where a cheque is crossed specially to more than one banker except when crossed to an agent for collection being a banker, the banker on whom it is drawn shall refuse payment thereof. (2) Where the banker on whom a cheque is drawn which is so crossed nevertheless pays the same, or pays a cheque crossed generally otherwise than to a banker, or if crossed specially otherwise than to the banker to whom it is crossed, or his agent for collection being a banker, he is liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid. Provided that where a cheque is presented for payment which does not at the time of presentment appear to be crossed, or to have had a crossing which has been obliterated, or to have been added to or altered otherwise than as authorised by this Act, the banker paying the cheque in good faith and without negligence shall not be responsible or incur any liability, nor shall the payment be questioned by reason of the cheque having been crossed, or of the crossing having been obliterated or having been added to or altered otherwise than as authorised by this Act, and of payment having been made otherwise than to a banker or to the banker to whom the cheque is or was crossed, or to his agent for collection being a banker, as the case may be.

c. Other provisions of BEA of 1882 on Crossed Checks

Article 80 Protection to banker and drawer where cheque is crossed. Where the banker, on whom a crossed cheque is drawn, in good faith and without negligence pays it, if crossed generally, to a banker, and if crossed specially, to the banker to whom it is crossed, or his agent for collection being a banker, the banker paying the cheque, and, if the cheque has come into the hands of the payee, the drawer, shall respectively be entitled to the same rights and be placed in the same position as if payment of the cheque had been made to the true owner thereof. Article 81 Effect of crossing on holder. Where a person takes a crossed cheque which bears on it the words not negotiable, he shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had. Article 82 Protection to Collecting Banker Where a banker in GF and WITHOUT negligence receives payment for a customer of a cheque crossed general or specially to himself, and the customer has no tile or a defective title thereto, the banker shall not incur any liability to the true owner of the cheque by reason only of having received such payment Memorandum Check form of an ordinary check with the word: (written across its face) Memorandum Memo Mem Signifying that the maker or drawer engages to pay the bona fide holder ABSOLUTELY, without any condition concerning its presentment. Check is evidence of debt against the drawer AND ALTHOUGH it may not be intended to be presented, has the same effect as an ordinary check, and if passed to a third person, will be valid in his hands like any other check.

D. MEMORANDUM AND TRAVELERS CHECKS

TRAVELERS CHECK instruments purchased form banks, express companies, in various denominations, which can be used like cash upon second signature by the purchaser. Has the characteristics of a cashiers check of the issuer Requires the signature of the purchaser at the (a) time he buys it and also (b) at the time he uses it. Obtains the check from the bank and also at the time he delivers the same to the establishment that will be paid thereby

ADVANTAGE: (how purchased and used) i. Traveler purchases travelers check from local bank ii. Every bank in the US maintains an inventory of at least one of these issues iii. Traveler indicates the total dollar amount and denominations desired iv. Bank teller take these numbers and record on customers purchase receipt with purchasers name and address v. Purchaser/traveler signs and pays the bank for the total value plus commission vi. Traveler receives the list of check serial numbers (advised to carry separately from the checks) vii. Selling bank remits to the issuer the dollar total of travelers check sold BUT RETAINS all or almost all of the commission as PROFIT. viii. IF: Traveler desires to cash during trip he must COUNTERSIGN each check in the presence of the store, hotel or bank cashier ix. Cashier compares the SIGNATURE accurately with each other x. Cashier cashes the check xi. One who cased the check will deposit the check at its local bank and convert the dollar equivalent into local at the banks rate of exchange Seller bank: (ADVANTAGES) a. profit from commission AND b. float use the funds paid by the purchaser up to the time it is cashed by the traveler II. CHECKS AND ORDINARY BILLS OF EXCHANGE; DISITNGUISHED BOE Not necessarily drawn on deposit Death of drawer of BOE with knowledge of bank, DOES NOT REVOKE the authority of the banker to pay May be presented for payment WITHIN reasonable time AFTER its last negotiations if payable on demand Drawee may or may not be a bank Presentment for acceptance is necessary Maybe payable on demand or at a fixed determinable future time CHECKS Necessary that check is drawn on a deposit Death of the drawer of a check, with knowledge by the bank, REVOKES the authority of the banker to pay Presented WITHIN reasonable time AFTER its issue Always a bank NOT necessary Always payable on demand

III. RELATIONSHIP BETWEEN PAYEE, DRAWEE AND DRAWER Checks are drawn on bank accounts that are OPENED by drawer on drawee banks Drawer is a depositor of the drawee bank Relationship Debtor and creditor By virtue of the contract of deposit Banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank Bank bound to honor checks to the extent of the amount of his deposits IF: Banks fails even when the funds is sufficient entitles the drawer to substantial damages without any proof of actual damages Not liable if funds is insufficient Drawee bank liable to the drawer I case of wrongful dishonor of checks

Bank and depositor

Drawer and Drawee bank

Drawee and Payee Drawee bank NOT liable because to payee for lack of privity but it is liable to the drawer because the drawee bank BREACHED its contract Drawee not liable upon issuance of the check (189) Drawee not liable to payee because it is the drawer who issued the check for valuable consideration Payee cannot compel drawee to pay (no privity) Drawee incurs no liability until it accepts it

CASE: PAYEE MAY SUE DRAWEE BASED ON THE CHECK ITSELF UNDER ART 19: (Payee may sue for abuse of rights based on Tort) i. There is legal duty or right ii. Which is exercised in bad faith and iii. For the sole intent of prejudicing or injuring another Gross inaction on the part of the drawee on the instruction of the drawer as well as evident failure to inform payee of the reason for its continued inaction and non-payment

Payee and Drawer Contractual obligation Drawer normally issues checks in payment of an obligation to the payee

a. Effect of death of drawer

NOT NIL BUT BOE 1882 Authority of the drawee bank to honor a check drawn against it is said to be terminated by the death of the drawer Notice of the customers death REVOKES the bankers authority to pay. (Death and countermand of payment)

b. Liability of the drawee for wrongful dishonor of checks

(1) Recoverable damages

Actionable negligence WHEN? Drawee fails to transfer funds from the drawers savings account to his checking account insufficient to cover checks that were issued by the drawer Depositor made a deposit on his checking account BUT the bank teller credited the cash in another persons account by placing the wrong account number (bear the blame for not discovering the mistake of its teller, required to check and counter-check for possible errors) i. MORAL DAMAGES Under Art 2207 Wrongful dishonor may result in impeachment of the credit of the drawer Credit is IMPORTANT TO BUSINESSMEN Loss or impairment need to be recognized and compensated Asset and foundation of business Adverse reflection constitutes material loss CULPA CONTRACTUAL (deposits) Breach must be: wanton, reckless, malicious or bad faith, oppressive, abusive YARD STICK: Not palpably and scandalously excessive

ii. EXEMPLARY DAMAGES (2) cause Proximate PROOF: banks negligence and wrongful act or omission Court may apply: DOCTRINE OF THE LAST CLEAR CHANCE If the person sought to be made liable had the LAST FAIR CHANCE of avoiding the injury Supervening negligence Way of example and correction for the public good Bank effected with PUBLIC INTEREST Makes sworn profession of diligence and meticulousness in giving irreproachable service Highest, strictest degree of diligence

CASE: i. ii. iii. iv. v.

Depositor entrusted cash to his employees Failed to check his bank statement for a period of more than one year Employee was able to take the funds of depositor by making the bank validate additional blank or incomplete deposit slips Teller last clear opportunity to avert the injury incurred by its client self-imposed validation procedure Avoided if teller did not validate the blank deposit slips

IF: DAMAGE BY THE DRAWER ALONE bank not liable and it will be treated as damnunm abseque injuria Example: Bank closed the account by reason of the repeated improper and irregular handling of his account by the drawer Depositor filled up checkbook reacquisition slip without account number. New check book account number of another person with the same name Funds were really insufficient Contributory negligence of the drawer

(3) Mitigation liability

of

IV. COLLECTION OF CHECKS Holder may either: a. Proceed directly with drawee bank and present the same for payment OR b. Deposit in his account with his bank known as the depositary or collecting bank i. Depositary bank will make PROVISIONAL CREDIT to his account in the amount of the check ii. Clearing house association of banks or other payors for the purpose of settling accounts with each other on a daily basis iii. Each member of clearing house forwards all deposited checks drawn on the member and receives from the clearinghouse ALL CHECKS drawn on it iv. Once cleared finally credit is made in the payee-depositors account 1. Collecting bank liable if it allows withdrawal of deposit even if check has not yet been cleared

A. APPLICABLE RULES

NCBA _ SEC. 102. Interbank Settlement. The Bangko Sentral shall establish facilities for interbank clearing under such rules and regulations as the Monetary Board may prescribe: Provided, That the Bangko Sentral may charge administrative and other fees for the maintenance of such facilities. The deposit reserves maintained by the banks in the Bangko Sentral in accordance with the provisions of Section 94 of this Act shall serve as basis for the clearing of checks and the settlement of interbank balances, subject to such rules and regulations as the Monetary Board may issue with respect to such operations:

Provided, That any bank which incurs on overdrawing in its deposit account with the Bangko Sentral shall fully cover said overdraft, including interest thereon at a rate equivalent to one- tenth of one percent (1/10 of 1%) per day or the prevailing ninety- one-day treasury bill rate plus three percentage points, whichever is higher, not later than the next clearing day: Provided, further, That settlement of clearing balances shall not be effected for any account which continues to be overdrawn for five (5) consecutive banking days until such time as the overdrawing is fully covered or otherwise converted into an emergency loan or advance pursuant to the provisions of Section 84 of this Act: Provided, finally, That the appropriate clearing office shall be officially notified of banks with overdrawn balances. Banks with existing overdrafts with the Bangko Sentral as of the effectivity of this Act shall, within such period as may be prescribed by the Monetary Board, either convert the overdraft into an emergency loan or advance with a plan of payment, or settle such overdrafts, and that, upon failure to so comply herewith, the Bangko Sentral shall take such action against the bank as may be warranted under this Act.
Greater Greater Manila Are Integrated Regions DONE THROUGH PH Clearing House Corporation Manila MManila Angeles Cabanatuan Lucena batangas Tarlac Olongapo Laguna Cavite

B. RELATIONSHIP OF PARTIES

i. ii. iii. iv.

Check is sent to clearing house Collecting bank as depositors agent Receiving deposit, bank shall credit the amount in depositors account ONLY AFTER: drawee have paid the amount of the check and has been cleared. Last indorser suffers the loss duty to ascertain its genuineness Collecting bank required to place a STAMP ON THE CHECK that is sought to be cleared Bank not required to accept all checks negotiated to it Banks discretion Not accepted forged indorsement Bank accountable for checks deposited by its customers

a. Warranties -

(1) Warranties Collecting bank

of

Even without the stamp, collecting bank GUARANTEES to all prior indoresements and or lack of endorsement Collecting bank is an indorser (Deemed to have given warranties as General indorser) Sec 66 (a) That the instrument is genuine and in all respects what it purports to be; (b) That he has a good title to it; (c) That all prior parties had capacity to contract; (d) That the instrument is, at the time of his indorsement, valid and subsisting;

(2) Warranties of Payee-Depositor

Depositor also warrants the genuineness Collecting bank cannot be expected to know or ascertain the genuineness of ALL prior indoresements Sec 66, also Collecting bank can DEBIT from the account of the depositor the amount of the dishonored check that is previously paid IF: already close bank may debit another account of the depositor Collecting bank (/) reimbursement from payee

b. Duty of care Banking business: public interest Meticulous care Fiduciary nature of their relationship Highest degree of care COLLECTING BANK obligation to follow existing bank policies and pertinent rules or laws

c. Return of Items

scrutinize checks deposited determine genuineness and regualrity PCHC Sec 20 Should be refused by drawee bank (PCHC) a. Bears the forged or unauthorized signature of the drawer(s) b. Drawn against closed account c. Drawn against insufficient funds d. Payment thereof has been stopped e. It is post dated or stale-dated f. Cashiers managers treasurers check of the drawee which have been materially altered, returned to the PCHC not later than next regular return by the Sending bank shall be mandatory. FAILURE OF DRAWEE BANK to return within reglementary period deprive the bank of its right to return items thru PCHC Right of drawee bank to recover the amount shall REMAIN to be governed by the general principles of law when defect(s) are discovered after the reglementary period. 24 hour rule failure deemed negligence does not apply to check bearing forged indoresements and materially altered checks (covered by 21) [prescribed by law to file legal action] forged or material altered checks returned within 10 years (actions based upon written contract or obligation created by law) from the time right of action accrues.

Sec 21 SPECIAL RETUN ITEMS BEYOND THE REGLEMENTARY CLEARING PERIOD - Items which have been subj to MATERIAL ALTERATION or BEARING FORGED SIGNATURE when such endorsement is necessary for negotiation shall be retuned by direct presentation or demand to the presenting bank and NOT through the regular clearing house WITHIN the period prescribed by law for the filing of a legal action by the returning bank or branch, institution or entity against the bank or branch sending the same d. Uncollected deposits BSP disallow drawee banks from honoring checks on uncollected deposits

MANUAL OF REGULATIONS FOR BANKS PROVIDES:

Sec. X202 Temporary Overdrawings; Drawings Against Uncollected Deposits The following regulations shall govern temporary overdrawings and drawings against uncollected deposits (DAUDs). a. Temporary overdrawings. Temporary overdrawings against current account shall not be allowed, unless caused by normal bank charges and other fees incidental to handling such accounts. Banks which violate these regulations shall be subject to a fine of one-tenth of one percent (1/10 of 1%) per day of violation, computed on the basis of the amount of overdrawing or fines in amounts as may be determined by the Monetary Board, but not to exceed P30,000 a day for each violation, whichever is lower. Technical overdrawings arising from force posting in-clearing checks shall be debited by banks under Returned Checks and Other Cash Items Not in Process of Collection which is part of Other Assets in the Statement of Condition. Items to be lodged under this account shall consist only of in-clearing checks which may result in technical overdrawn accounts and shall be immediately reversed the following day. The checks lodged under Returned Checks, etc. shall either be returned or honored the following day before clearing. The items to be used as cover for the honored checks should only consist of any of the following: (1) (2) (3) (4) (5) (6) Cash Cashiers, Managers or Certified Checks Bank Drafts Postal Money Orders Treasury Warrants Duly funded On us Checks

(7) Fund transfers/credit memos within the same bank representing proceeds of loans granted under existing regulations. Peso demand deposit accounts maintained by foreign correspondent banks with commercial banks shall not be subject to the above-mentioned regulations: Provided, That: (a) The maintenance of non-resident correspondent banks peso checking accounts and overdrawings therefrom are covered by reciprocal arrangement; (b) Temporary overdrawings are covered within fifteen (15) days from the date overdrawings are incurred; and (c) Such accounts are credited only through foreign exchange inward remittance. b. Drawings against uncollected deposits. DAUDs shall be prohibited except when the drawings are made against uncollected deposits representing managers/cashiers/treasurers checks, treasury warrants, postal money orders and duly funded on us checks which may be permitted at the discretion of each bank.

V. STOPPING PAYMENT CHECK: mere order on a bank to pay the money from the drawers account. SUBJ TO: revocation by the drawer at ANY TIME BEFORE IT IS ACCEPTED BASED ON THE RULE: issuance of a check is NOT an assignment of funds by the drawee. o IF: bank pays a check after it has been NOTIFIED to stop payment, it pays on its own responsibility and will NOT be permitted to charge the account. DRAWER: may countermand payment if he has a VALID DEFENSE against the holder of the check. IF: Countermanding is proper (eg. Payee failed to deliver goods) IF: Countermanding was not valid drawee is still contractually obligated to DISHONOR the check on the basis of the STOP PAYMENT ORDER IF: He has no valid defense drawer remains liable and he is NOT released from the legal obligation that he contracted.

IRON CLAD RULE (Republic v. PNB) Expression which PROHIBITS the countermanding of payment of certified checks Cashiers checks are in the nature of accepted or certified checks and that payment thereon CANNOT be countermanded by the payee QUALIFICATION (Mesina c. IAC) Holder must be HDC before the stop payment order may NOT be successfully invoked against him Stop payment order can defeat the right of a holder who is NOT HDC Holder of a cashiers check WHO IS NOT a holder in due course CANNOT enforce payment against issuing bank which dishonors the same IF: obtained through fraud form issuing bank bank would have the right to refuse payment of the check upon presentment o Bank was aware of the facts surrounding the loss of the check in question o Holder refused to say how and why it was passed to him (defect of title)

VI. CRIMES INVOLVING CHECKS CRIMES ESTAFA

Art. 315. Swindling (estafa) . Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: 2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud: d) By post-dating a check, or issuing a check in payment of an obligation when the offender therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check has been dishonored for lack of insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act. ELEMENTS: i. ii. iii.

Offender postdated or issued a check in payment of an obligation contracted at the time the check was issued Postdating or issuing a check was done when the offender had no funds in the bank or his funds were not sufficient Deceit or damage to the payee

NEGOTIABLE ORDER WITH WITHDRAWAL (NOW) NOW: check for purposes of applying Art 315 Drawer may be prosecuted for estafa if the instrument involved is NOW NOW is a check: interest-bearing deposit accounts that combine the payable on demand feature of checks and the investment feature of savings accounts Payable only to specific person (not valid when made payable to bearer to cash or another person) NOT similar to crossed checks CROSSED CHECKS NOW - may still be payable to bearer or order - can never be payable to bearer or order - negotiable under NIL - MRB s definition can never be negotiable - can have all requisites under Sec 1 - Restriction does not relate to the requirements of negotiability but only to mode of presentment - 2 parallel lines means that they may not be encashed but only deposited - can be negotiated (transferee is a holder) - cannot be negotiated BOUNCING CHECKS LAW Prevent: proliferation of worthless checks in the mainstream of daily business and to avert undermining the banking system and damage upon trade and commerce. MALUM PROHIBITUM: issuance of unfunded check is punishable issuance of worthless check 2 WAYS: i.

BP 22

making or drawing and issuing a check to apply on account or for value knowing at the time of issuance that the check is insufficiently funded ELEMENTS: a. Making, drawing and issuance of any check to apply for account or for value b. Knowledge that he does not have sufficient funds c. Subsequent dishonor for insufficiency of funds or drawer without any valid cause ordered the bank to stop payment

ii.

having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep sufficient funds therein or credit with said bank to cover the full amount of the check when presented to the drawee bank within period of 90 day

There must be WRITTEN NOTICE OF DISHONOR to the accused

IMPLEMENT PROVISIONS OF BP 22 Sec. X203 Checks Without Sufficient Funds. To complement the provisions of Batas Pambansa Blg. 22, (An Act Penalizing the Making or Drawing and Issuance of a Check Without Sufficient Funds or Credit), the following regulations shall govern: a. The drawee bank shall stamp, write or print on a dishonored check or on a paper attached thereto the date the check is presented for payment and the reason for the refusal to pay the same to the holder thereof. b. Where the reason for the dishonor of a check is stamped, written or printed on a paper attached to the checks, the drawee bank shall indicate the pertinent details, such as the names of the drawer, the payee and the drawee bank, the date and amount of the check, the check number and the date of dishonor. c. The drawee bank shall use only the remark or notation Drawn Against Insufficient Funds, No Funds, or Insufficient Funds stamped, written, or printed on, or attached to the check dishonored or returned byreason of insufficiency of funds or credit. d. Notwithstanding receipt of an order to stop payment, the drawee bank shall likewise stamp, write, or print on, or attach to the check any of the remarks or notations mentioned in Item c hereof indicating that there were no sufficient funds in or credit with such bank for the payment in full of such check, if such be the fact. The bank shall also indicate receipt of a stop payment order. e. A check and other clearing item (COCI) dishonored by reason of insufficiency of funds or credit shall be returned by the drawee bank to the negotiating bank not later than the next clearing for returned COCII A COCI dishonored by reason of insufficiency of funds or credit which was not coursed through the clearing system shall be returned by the drawee bank to the holder or the negotiating bank, as the case may be, not later than the business day following the date the COCI is presented for payment with the drawee bank. The negotiating bank shall, in turn, return a COCI dishonored by reason of insufficiency of funds or credit to the holder not later than the business day following its receipt of the dishonored COCI from the drawee bank. CHECK KNITTING KNITTING wrongful practice of taking advantage of the float, the time that elapses between the deposit of the check in one bank and its collection at another. Depositary bank will honor the check even if it has not yet been cleared Depositary bank will HONOR the check even if not yet cleared. Anticipation of DISHONOR: conspirators will replace the original check with another worthless check.

PRCEDURE whereby checks written on accounts in separate banks are used to generate short-term purchasing power through the use of the banks credit. Article 315(b) RPC, Estafa with unfaithfulness or abuse of confidence by misappropriating or converting to the prejudice of another, money received by the offender in trust or under an obligation involving the duty to return the same

PART II OTHER COMMERCIAL DOCUMENTS INTRODUCTION Commerce exchange of goods, productions or property of any kind; the buying, selling and exchange of articles. Tools used in commerce 11: Documents of title 12: Letters of credit

Exchange of goods governed by the provisions on the CONTRACT OF SALE Article 1458: contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent.

a. b.

c.

Letters of credit compliance with both obligations of the seller and the buyer Documents of title used as tools to ensure payment even prior delivery i. Control over the hoods is in effect retained through documents of title even if the seller has actually parted with physical possession of the goods 1. Even if physical possession is with 3rd person (warehouseman or carrier) Trust receipts resorted by the banks to ensure that they will be reimbursed by the importer or applicant if they pay the seller by virtue of the Letters of Credit

CHAPTER 11 DOCUMENTS OF TITLE I. CONCEPT Document of title to goods includes: Bill of lading Dock warrant Quedan Warehouse receipt or order for delivery of goods Any other document used in the ordinary course of business in the sale of transfer of goods o As proof of possession or control of the goods or authorizing or purporting to authorize the possessor of the document to transfer or receive either by indorsement or by delivery, goods represented by such document. Goods all chattels personal but not things in action or money of legal tender in the Philippines. (Include: fruits or crops) Referred to in the civil code: a. Bill of lading document that serves as evidence of receipt of goods for shipment issued by a common carrier. b. Warehouse receipt document of title which is issued by a warehouseman. Under the said law, the term warehouseman is defined as a person lawfully engaged in the business of storing goods for profit. c. Quedan warehouse receipt that covers sugar d. Dock Warrant a warrant given by dock-owners to the owner of merchandise imported and warehoused on the dock, upon the faith of the bills of lading, as recognition of his title to the goods. II. FEATURES AND FUNCTIONS Documents are issued in connection with certain contracts that are evidenced thereby. CONTRACT OF DEPOSIT: quedan and warehouse receipt CONTRACT OF CARRIAGE: Bill of lading 3 Fold functions: a. Contract between the carrier and shipper are stipulated b. Evidence of receipt of goods c. Operate as transferable documents of title of goods Most important: facilitate the exchange of goods ACCOMPLISHED: making the documents of title control access to the goods described in the document. IF: This is issued the indorsee or bearer controls the goods because the warehouseman or carrier will not deliver the goods unless the document is surrendered. If at sea incapable of physical delivery Indorsement and delivery of bill of lading operates as a symbolic delivery of the cargo It is a key which in the hands of a rightful owner is intended to unlock the door of the warehouseman

III. GOVERNING LAW Civil Code Articles 1507 to 1520 Warehouse Receipts Law Code of Commerce (insofar as it is not in conflict with the provisions of the New Civil Code) IV. NEGOTIABILITY

A. REQUIREMENT

a. Presence of words of negotiability Art. 1507. A document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or to the order of any person named in such document is a negotiable document of title. SECTION 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. b. IF: There was a stamp of NON-NEGOTIABLE document remains to be negotiable.

Art. 1510. If a document of title which contains an undertaking by a carrier, warehouseman or other bailee to deliver the goods to bearer, to a specified person or order of a specified person or which contains words of like import, has placed upon it the words "not negotiable," "nonnegotiable" or the like, such document may nevertheless be negotiated by the holder and is a negotiable document of title within the meaning of this Title. Warehouse Receipt insertion of the word non-negotiable would render it void. DOT: bearer - may be by delivery OR order indorsement coupled with delivery

c. Other formalities (if it lacks some of which it would still be construed in order for receipts to better serve their purpose) SECTION 2. Form of receipts; essential terms. Warehouse 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 the issue of the receipt, (c) The consecutive number 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 a lien. If the precise amount of such advances made or of such liabilities incurred is, at the time of the issue of, 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. SECTION 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 safe-keeping of the goods entrusted to him which is reasonably careful man would exercise in regard to similar goods of his own a. BEARER DOCUMENT Art. 1508. A negotiable document of title may be negotiated by delivery: (1) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to the bearer; or (2) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to the order of a specified person, and such person or a subsequent endorsee of the document has indorsed it in blank or to the bearer. Where by the terms of a negotiable document same to himself or to negotiated only by the a negotiable document of title the goods are deliverable to bearer or where of title has been indorsed in blank or to bearer, any holder may indorse the any specified person, and in such case the document shall thereafter be endorsement of such endorsee.

B. HOW NEGOTIATED

Art. 1511. A document of title 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 donee. A non-negotiable document cannot be negotiated and the endorsement of such a document gives the transferee no additional right. same with WRL

a.1. If there is a special indorsement Dissimilar with negotiable instruments with respect to the effect of special indorsement NIL: once a bearer always a bearer, remain to be so even if a special indorsement is made thereon. DOCUMENT OF TITLE: once specially indorsed, cannot be negotiated by mere delivery. Bearer is converted into an order document. b. ORDER DOCUMENT if goods are to be delivered to the order of a person named therein. Can only be negotiated through indorsement of the specified person named. Art. 1509. A negotiable document of title may be negotiated by the endorsement of the person to whose order the goods are by the terms of the document deliverable. Such endorsement may be in blank, to bearer or to a specified person. If indorsed to a specified person, it may be again negotiated by the endorsement of such person in blank, to bearer or to another specified person. Subsequent negotiations may be made in like manner. b.1. Incomplete negotiation absence of indorsement in a transfer of an order document of title does not by itself invalidate the transfer.

- If there is an intent to transfer and there is NO VALID CLAIM or DEFENSE on the part of the party to the documents, OWNERSHIP over the goods may also be acquired by the transferee. b.2. Transferee may compel the transferor to complete the negotiation process. Art. 1515. Where a negotiable document of title is transferred for value by delivery, and the endorsement of the transferor is essential for negotiation, the transferee acquires a right against the transferor to compel him to endorse the document unless a contrary intention appears. The negotiation shall take effect as of the time when the endorsement is actually made. ADVERSE EFFECT: if there was an intention to negotiate BUT possession is retained by the transferor. Security holder must see to it that negotiation is complete with delivery of the instrument. Can be defeated by a purchaser in good faith without notice

C. EFFECTS OF NEGOTIATION

SECTION 48. Subsequent negotiation. Where a person having sold, mortgaged, or pledged goods which are in warehouse and for which a negotiable receipt has been issued, or having sold, mortgaged, or pledged the negotiable receipt representing such goods, continues in possession 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 subsequent negotiation. a. Transfer of title Passage of the document of title through channels of commerce, the law regards the property which the document describes as following them. Negotiation has the effect of MANUAL DELIVERY (constitute transferee the owner of the goods) Civil code: ownership is acquired by the vendee from the moment it is delivered to him. Negotiating the instrument same with transfer of ownership

Art. 1513. A person to whom a negotiable document of title has been duly negotiated acquires thereby: (1) Such title to the goods as the person negotiating the document 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 person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in good faith for value; and (2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directly with him. Goods follow the document of title No additional rights are conferred over the goods to the transferee. Effect is NOT the same as negotiable instruments where a HDC may acquire title to the exclusion of the person who is legally entitled to the instrument ONLY THE TITLE OF THE TRASNFEROR IS ACQUIRED BY THE TRANSFEREE If the person who deposited the goods is NOT legally entitled to the goods no such title will also be acquired by the transferee of the document of title even if the is a holder for value.

a.1. Vendors Lien transfer of title to the purchaser for value is not affected by the rights of the vendor. SECTION 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 notification 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. No sellers lien or right of stoppage in transit shall defeat the rights of any purchaser for value in good faith to whom receipt has been negotiated (whether prior or subsequent to the notification to the warehouseman) Unpaid seller must validly acquire first the receipt from the holder for value.

b. Pledge of receipt transfer of rights occur even if the transferee is a mere pledgee PURCHASE: includes to take as mortgage or pledge, mortgagee and pledgee Pledgee: same footing as a vendee EXCEPT: former is under the obligation of surrendering his title upon the payment of the debt secured SC: ownership over the goods is not transferred to the pledgee of the receipt (they may only have the property sold and then satisfy the obligation from the proceeds of the sale) Pactum commisorio law requires forclosure in order to allow a transfer of title of the goods given by way of security Pledgee cannot appropriate the thing for himself Art. 1512. A negotiable document of title may be negotiated: (1) By the owner therefor; or (2) By any person to whom the possession or custody of the document has been entrusted by the owner, if, by the terms of the document the bailee issuing the document undertakes to deliver the goods to the order of the person to whom the possession or custody of the document has been entrusted, or if at the time of such entrusting the document is in such form that it may be negotiated by delivery. Legitimate transferee thereof or a person who appears to have been authorized to transfer the instrument Person to whom the document has been negotiated either by delivery or delivery coupled with indorsement. IF: not the real owner but an agent he can only negotiate the document if he is in CUSTODY or POSSESSION of the document in such as form he is allowed under the law. -

D. WHO MAY NEGOTIATE

(AGENT) On the face of the document must be capable of being negotiated by SUCH PERSON, WHEN? (apparent authority) i. goods are to be delivered to the order of the agent OR ii. document may be negotiated by mere delivery

a. Negotiation by FRAUD, MISTAKE, OR DURESS SECTION 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 or 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. even if a person who is NOT legally entitled to negotiate the instrument may TRANSFER TITLE to a bonda fide purchaser. If negotiation was in breach of trust: transferee will acquire rights over the instrument if transferee acquired it for value and without notice of fraud or duress IF: person who negotiated the document through fraud is INCAPABLE OF NEGOTIATING the document there is no negotiation and 47 is inapplicable. 47: refers to validity of negotiation Only if it is a bearer document IF: it is a document to the order of 3rd person or principal person in custody CANNOT negotiate. He will have to forge the signature of the third person as the case may be.

b. LOSS AND THEFT 1518. 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 or 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. E. WARRANTIES Not exaclt the same with Sec 47 of WRL 1518 specifically mention LOSS, THEFT and ACCIDENT. 47 silent on the matter 47: not to vest ownership over the goods to the bona fide purchaser from a thief or from a finder of lost document while 1518 gives preference to the bona fide purchaser from such persons If the bailee FAILED to deliver the goods, indorser or one who negotiates for value shall NOT be liable to the bona fide purchaser. Indorser does not guarantee the performance of the obligation of bailee or carrier.

Art. 1517. The endorsement of a document of title shall not make the endorser liable for any failure on the part of the bailee who issued the document or previous endorsers thereof to fulfill their respective obligations. HOWEVER: Transferor who negotiated the instrument is LIABLE FOR BREACH OF WARRANTIES: Art. 1516. A person who for value negotiates or transfers a document of title by endorsement or delivery, including one who assigns for value a claim secured by a document of title unless a contrary intention appears, warrants: (1) That the document is genuine; (2) That he has a legal right to negotiate or transfer it; (3) That he has knowledge of no fact which would impair the validity or worth of the document; and (4) 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 document of title the goods represented thereby. CONSEQUENTLY: transferor may be held liable if the document of title that he negotiated was fake or if he stole the instrument o negotiated with breach of faith. (IF PRESENT ARE INCONSISTENT WITH WARRANTIES)

SECURITY HOLDER Sec 46 WRL: SECTION 46. No warranty implied from accepting payment of a debt. A mortgagee, pledgee, or holder for security of a 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. - Mortgagee does not give warranty with respect to the quality and quantity of goods covered by the document.

V. NON-NEGOTIABLE RECEIPTS Document of title, particularly WR non-negotiable receipt if it states that: GOODS RECEIVED WILL BE DELIVERED TO THE DEPOSITOR OR TO ANY OTHER SPECIFIED PERSON.

SECTION 7. Failure to mark "non-negotiable." A non-negotiable 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 so to do, 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. EFFECT:

Art. 1511. A document of title 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 donee. A non-negotiable document cannot be negotiated and the endorsement of such a document gives the transferee no additional right. SAME EFFECT: SECTION 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 donee. A non-negotiable receipt can not be negotiated, and the indorsement of such a receipt gives the transferee no additional right. THUS: -

A transferee of a non-negotiable receipt merely steps into the shoes of the transferor but his right may be defeated by other persons who by law are given superior rights. Transferee 0f a non-negotiable document does not acquire a direct obligation of the warehouseman. What he acquires is the right to notify the warehouseman.

Art. 1514. A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as against the transferor, the title to the goods, subject to the terms of any agreement with the transferor. If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document. Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the transfer of a subsequent sale of the goods by the transferor. VI. DELIVERY OF GOODS Primary obligation of the bailee if he issued a document of title is to SURRENDER THE GOODS covered thereon to the person entitled to their delivery under the terms of the document. IF: he fails to deliver without valid ground he will be liable for conversion.

CONVERSION will also result if there was misdelivery. Plus damages, if the goods were lost due to his negligence. OBLIGATION TO DELIVER IS OWED TO THE FF. PERSONS: SECTION 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. IF: delivery not made to persons name in Sec 9 of WRL, Bailee may be held liable for CONVERSION. Above-named person will only be able to obtain delivery of the goods from the bailee if they will COMPLY WITH THE OBLIGATIONS SPECIFIED IN SEC 8 OF WRL:

SECTION 8. Obligation of warehousemen 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 receipt; 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 warehouseman. 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 excuse for such refusal. DUTY WHEN DELIVERING THE GOODS Primary feature of documents of title: control the title and possession of the goods covered thereby likewise requires its retrieval in case the goods are already delivered to the purchaser of the document. Bailee has the obligation to CANCEL the document lest it will again re-enter the channels of trade and it may then also fall in the hands of another purchaser for value who may have NO NOTICE of the prior delivery of the document. SECTION 11. Negotiable receipt 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. SECTION 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.

SECTION 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 uncanceled at the date of the issue of the duplicate, but shall impose upon him no other liability. LOSS or DESTRUCTION of the receipt does not authorize the warehouseman to deliver the goods. Warehouseman cannot determine for himself the fact of loss COURT OF COMPETENT JURISDICTION can determine the fact of loss. IF: warehouseman delivers the goods under the mistaken belief that the document was lost is NOT relieved from liability if it was in fact lost. Court may order the delivery of the goods upon satisfactory proof of such loss or destruction and upon giving of a bond with sufficient sureties to be approved by the court to protect the warehouseman from any liability or expense or which any person injured by such delivery may incur by reason of the original receipt remaining outstanding. Court may also order the payment of the warehousemans reasonable costs and counsel fees. Even if goods were released because of the COURT warehouseman is still not free from liability. o (Sec 14): liability to a person to whom the negotiable receipt has been or shall be negotiated for value without the notice of the proceedings or of the delivery of the goods o Recourse of the warehouseman if it is made liable is to enforce the bond required by the court or to run after the person who obtained the release of goods.

ADVERSE CLAIM OF WAREHOUSEMAN Obligation of warehouseman cannot be defeated by the latters invocation of right over the goods Warehouseman cannot set up title in himself over the goods

SECTION 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. 2 EXCEPTIONS UNDER SEC 16: a. Warehousemans 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 b. Right is based on the warehousemans lien i. Can refuse to deliver the goods to the purchaser if the goods were duly indorsed to the warehouseman as a purchaser for the goods and the warehousemans indorsement was forged after the order document of title was stolen from him. VII. DEFENSES FOR NON-DELIVERY OR MISDELIVERY WRL warehouseman has certain defenses for non-delivery and misdelivery of goods. THUS, WAREHOUSEMAN IS NOT LIABLE IN THE FF. CASES: 1. Loss of destruction of the goods without the fault of the bailee 2. Failure to satisfy the Bailees Lien 3. Failure to surrender the negotiable document of title 4. Lack of willingness to sign acknowledgement 5. Receipt by the bailee of a request by or on behalf of the person lawfully entitled to a right of property or possession in the goods, not to make such delivery. 6. Bailee has information that the delivery about to be made was to one not lawfully entitled to the possession of the goods. 7. Delivery to a claimant with better right 8. Attachment or levy of the goods by a creditor where the document is surrendered or its negotiation is enjoined or the document of title is attached by a creditor. 9. Where the document of title is attached by a creditor REASONS WHICH A WAREHOUSEMAN MAY INVOKE TO LEGALLY REFUSE TO EFFECT DELIVERY OF THE GOODS COVERED BY THE DOCUMENT OF TITLE ARE: 1. That the holder of the receipt does not satisfy the conditions prescribed in Sec 8 of the Act. 2. 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 warehousemans lien 3. That the warehouseman ahs legally set up the title or right of third persons as lawful defense for non-delivery of goods as follows: a. 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 non-delivery of the goods, or as an original suit, whichever is appropriate, require all known claimants to interplead. b. Where warehouseman had information that the delivery to be made was to one not lawfully entitled to the possession of the goods, the warehouseman shall e excused from liability for refusing to deliver the goods c. Where goods have already been lawfully sold to third person to satisfy the warehousemans lien or have been lawfully sold of disposed of because of their perishable or hazardous nature 4. That the warehouseman having a lien valid against the person demanding the goods refused to deliver the goods to him until the lien is satisfied 5. Failure was not due to any fault on the part of the warehouseman (prior demand for delivery and refusal, the goods were stolen or destroyed without negligence on his part) UNLESS, he has contracted so as to be liable in such case, or that the goods have been taken by mistake of a third person without the knowledge or implied assent of the warehouseman, or some other justifiable ground for non-delivery.

A. WAREHOUSEMANS LIEN

a. Charges that are included: Warehouseman can refuse to deliver the goods if the holder does not offer to satisfy the warehousemans lien Presence of a lien does not preclude the use of other remedies He is entitled to all remedies allowed by law to a creditor against a debtor for the collection from the depositor of all charges and advances which the depositor has expressly or impliedly contracted with the warehouseman to pay

SECTION 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, coopering 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. Necessary that the charges that are present at the time of the issuance of the receipt must be so stated in the receipt with the amounts thereof specified. IF: existing charges are not stated, warehouseman shall have no lien thereon He shall have a lien only for charged for STORAGE OF GOODS subsequent to the date of the receipt UNLESS the receipt expressly enumerated other charges for which a lien is claimed

b. Properties that are subject to lien SECTION 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 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. c. Loss of lien - Where a valid demand by the lawful holder of the quedans for the delivery of the goods is refused by the warehouseman, despite the absence of a lawful excuse provided by the stature itself, the warehousemans lien is thereafter concomitantly lost. SECTION 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. d. Satisfaction of lien SECTION 33. Satisfaction of lien by sale. A warehouseman's lien for a claim which has become due may be satisfied as follows: (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 becomes 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, (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 of the claim specified in the notice to the depositor has elapsed, and 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 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 the possession of the goods according to the terms of the original contract of deposit. SECTION 34. Perishable and hazardous goods. If goods are of a perishable nature, or by keeping will deteriorate greatly in value, or, by their order, 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 names 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 person to satisfy the lien and to receive 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.

SECTION 35. Other methods of enforcing lien. The remedy for enforcing 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. SECTION 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 Not by itself a ground for refusal to deliver the goods. Alteration of receipt shall NOT EXCUSE the warehouseman who issued it from any liability if such alteration was: (1) Immaterial; (2) Authorized warehouseman shall be liable according to the terms of the receipt as altered. (3) Made without fraudulent intent (unauthorized) liable according to the terms before alteration IF: Material and fraudulent alteration warehouseman NOT EXCUSED from liability to deliver according to the terms ORIGINALLY issued. Excuse him from any other liability to the person who made the alteration and to any person who took without 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.

B. ALTERATION

C. ADVERSE CLAIMANT

SECTION 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. SECTION 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 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 claimants to interplead SECTION 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. SECTION 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 can not 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 Pq6gS. SECTION 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 can not readily be attached or levied upon by ordinary legal process.

D. ATTACHMENT OR LEVY

VIII. DUTY OF CARE SECTION 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 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. SECTION 20. Liability 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 purport, such statements, if true, shall not make liable the warehouseman 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. SECTION 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. SECTION 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. SECTION 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