COMMERCIAL LAW REVIEW I

QUIZ NO. 2
1. A Warehouse Company received for safekeeping 1000 bags of rice from a merchant. To evidence
the transaction, the Warehouse Company issued a receipt expressly providing that the goods be
delivered to the order of said merchant. A month after, a creditor obtained udgment against the
said merchant for a sum of money. The sheriff proceeded to levy on the rice and directed the
Warehouse Company to deliver to him the deposited rice.
1 A. What advice !ill you give the Warehouse Company" #xplain
$. Assuming that a !eek prior to the levy, the receipt !as sold to a rice mill on the basis of !hich
it filed a claim !ith the sheriff. Would the rice mill have better rights to the rice than the creditor"
#xplain your ans!er.
2. A. When does the %eneral $onded Warehouse Act apply" And !hat are the obligations of the
!arehouseman in such la!"
&. ' stored hard!are materials in the bonded !arehouse of W, a licensed !arehouseman under the
%eneral $onded Warehouse (a! )Act &*+& as amended,. W issued the corresponding
!arehouse receipt in the form he ordinarily uses for such purpose in the course of his business.
All the essential terms re-uired under 'ection . of the Warehouse /eceipts (a! )Act .1&0 as
amended, are embodied in the form. 1n addition, the receipt issued to ' contains a stipulation that
W !ould not be responsible for the loss of all or any portion of the hard!are materials covered by
the receipt even if such loss is caused by the negligence of W or his representatives or
employees. ' endorsed and negotiated the !arehouse receipt to $, !ho demanded delivery of
the goods. W could not deliver because the goods !ere no!here to be found in his !arehouse.
2e claims he is not liable because of the free3from3liability clause stipulated in the receipt. 4o you
agree !ith W5s contention" #xplain.
6. 7n 4ecember 1, 1++8, $orro!er executed a chattel mortgage in favor of the $ank to secure a
loan of 9&:. 1n due time the loan !as paid. 7n 4ecember 1, 1++0, $orro!er obtained another
loan for 9.: !hich the $ank granted under the same security as that !hich secured the first
loan.
;or the second loan, $orro!er merely delivered a promissory note< no ne! chattel mortgage
agreement !as executed as the parties relied on a provision in the 1++8 chattel mortgage
agreement !hich included future debts as among the obligations secured by the mortgage. The
provision reads=
>1n case the :ortgagor executes subse-uent promissory note or notes either as a
rene!al, as an extension, or as a ne! loan, this mortgage shall also stand as security for
the payment of said promissory note or notes !ithout necessity of executing a ne!
contract and this mortgage shall have the same force and effect as if the said promissory
note or notes !ere existing on date hereof.?
As $orro!er failed to pay the second loan, the $ank proceeded to foreclose the Chattel
:ortgage.$orro!er sued the $ank claiming that the mortgage !as no longer in force. $orro!er
claimed that a fresh chattel mortgage should have been executed !hen the second loan !as
granted.
a, 4ecide the case and ratiocinate.
b, 'uppose the chattel mortgage !as not registered, !ould its validity and effectiveness
be impaired" #xplain.
@. A purchased from ' 1@0 cavans of palay on credit. A deposited the palay in W5s !arehouse. W
issued to A a negotiable !arehouse receipt in the name of A. Thereafter, A negotiated the receipt
to $ !ho purchased the said receipt for value and in good faith. 1, Who has a better right to the
deposit, ', the unpaid vendor or b, the purchaser of the receipt for value and in good faith" Why"
., When can the !arehouseman be obliged to deliver the palay to A"
8. /itA bought a ne! car on installments !hich provided for an acceleration clause in the event of
default. To secure payment of the unpaid installments, as and !hen due, he constituted t!o
chattel mortgages, i.e., one over his very old car and the other covering the ne! car that he had
ust bought as aforesaid, on installments. After /itA defaulted on three installments, the seller3
mortgagee foreclosed on the old car. The proceeds of the foreclosure !ere not enough to satisfy
the due obligation< hence, he similarly sought to foreclose on the ne! car. Would the seller3
mortgagee be legally ustified in foreclosing on this second chattel mortgage"
0. 4ebtor purchased a parcel of land from a realty company payable in five yearly installments.
Bnder the contract of sale, title to the lot !ould be transferred upon full payment of the purchase
price.
$ut even before full payment, debtor constructed a house on the lot. 'ometime thereafter, debtor
mortgaged the house to secure his obligation arising from the issuance of a bond needed in the
conduct of his business. The mortgage !as duly registered !ith the proper chattel mortgage
registry.
;ive years later after completing payment of the purchase price, debtor obtained title to the lot.
And even as the chattel mortgage on the house !as still subsisting, debtor mortgaged to a bank
the lot and improvement thereon to secure a loan. This real estate mortgage !as duly registered
and annotated at the back of the title.
4ue to business reverses, debtor failed to pay his creditors. The chattel mortgage !as foreclosed
!hen the debtor failed to reimburse the surety company for payments made on the bond. 1n the
foreclosure sale, the surety company !as a!arded the house as the highest bidder.
7nly after the foreclosure sale did the surety company learn of the real estate mortgage in favor
of the lending investor on the lot and the improvement thereon. 1mmediately, it filed a complaint
praying for the exclusion of the house from the real estate mortgage. 1t !as submitted that as the
chattel mortgage !as executed and registered ahead, it !as superior to the real estate mortgage.
7n the suggestion that a chattel mortgage on a house3 a real property3 !as a nullity, the surety
company countered that !hen the chattel mortgage !as executed, debtor !as not yet the o!ner
of the lot on !hich the house !as built. Accordingly, the house !as a personal property and a
proper subect of a chattel mortgage.
1 A. 4iscuss the validity of the position taken by the surety company.
. $. Who has a better claim to the house, the surety company or the lending investor" #xplain )
0 C. Would the position of the surety company be bolstered by the fact that it ac-uired title in a
0 foreclosure sale conducted by the 9rovincial 'heriff. #xplain
*. What are the rights of a buyer under the :aceda (a!" #xplain thoroughly.
+. What are the rights of a buyer under the /ecto (a!" #xplain thoroughly.