THE WAREHOUSE RECEIPTS LAW ( ACT No.

2137)
Feb 05, 1912

WAREHOUSEMAN – a person lawfully engaged in the business of storing goods for profit.
- One who receives and stores goods of another for( storage) and for compensation
( collects fees in connection thereof
- - the fact that the deposits were made free of charge does not detract from liability of
the law. ( esp if warehouseman induced the depositor to deposit his palay free of
charge to promote his business and attract other depositor. ( Gonzales v Go tiong, 104
Phil 492
-
Correlated laws: 706-718 Code of Commerce ( Bill of Lading), Arts 1507-1520 of Civil Code
( Docs of Title), Art. 1636 of Civil Code

WHO MAY ISSUE WAREHOUSE RECEIPT?

> Only a warehouseman may issue warehouse receipts
 
FORM OF RECEIPTS( no particular form) ; ESSENTIAL TERMS ( sec 2)
1.   The location of the warehouse where the goods are stored
2.   The date of issue of the receipt  
3.   Consecutive number of the receipt
4.   A statement whether the goods received  will be  delivered to the bearer, to a specified person
or to a specified person or his order
5.   The rate of storage charges
6.   A  description  of  the  goods  or  of  the  packages  containing them
7.   The  signature  of  the  warehouseman  which  may  be  made by his authorized agent
8.   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
9.   A  statement  of  the  amount  of  advances  made  and  of liabilities  incurred  for  which  the 
warehouseman  claims  as lien.  If the precise amount for 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
 
 
DILIGENCE REQUIRED: ORDINARY DILIGENCE
- to exercise  that  degree  of  care  in  the  safekeeping  of  the goods  entrusted  to 
him  which  a  reasonably  careful  man would exercise with regard to similar goods
of his own
- a stipulation exempting warehouseman from liability arising from his own negligence
or that of his employees is void, but he mat limit his liability to an agreed value of the
goods in the event of loss.
 
NON-NEGOTIABLE WAREHOUSE RECEIPT
> Receipt in which it is stated that the goods received will be delivered to the depositor or to any
specified person  
-must have a stamped on its face the word “non-negotiable”
 
NEGOTIABLE WAREHOUSE RECEIPT
> 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
> No provision shall be inserted in a negotiable receipt that it is non-negotiable.  Such provision
if inserted shall be void.
 
DUPLICATE RECEIPTS MUST BE MARKED
> When  more  than  one  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  held  liable  for  damages  for failure to do so to anyone who
purchased the subsequent receipt  for  value  supposing  it  to  be  original,  even  though the 
purchaser  be  after  the  delivery  of  the  goods  by  the warehouseman to the holder of the
original receipt
  
PRINCIPAL OBLIGATIONS OF THE WAREHOUSEMAN

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

2.   To  deliver  them  to  the  holder  of  the  receipt  or  the depositor  upon demand
accompanied by:
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
c.    A  readiness  and  willingness  to  sign,  when  the goods  are  delivered,  an 
acknowledgement  that they  have  been  delivered,  if  such  signature  is requested by the
warehouseman
 
EXCEPT: if there a lawful excuse for refusing to deliver
 
TO WHOM WILL THE GOODS BE DELIVERED:

1.   Person lawfully entitled to the possession of the goods, or his agent
2.   Person who either himself entitled to delivery by the terms of the non-negotiable receipt
issued for the goods, or who has  written  authority  from  the  person  so  entitled  either
endorsed upon the receipt or written on another paper
3.   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
 
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, he shall be  liable  for  conversion/estafa  to  all having a right of property or
possession in the goods if he delivered the goods otherwise than as authorized
> And though he delivered the goods as authorized he shall be so liable if prior to such delivery
he had either—
o     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
o     Had  information  that  the  delivery  about  to  be made  was  to  one  not  lawfully 
entitled  to  the possession of the goods 
 
WHAT IS CONVERSION?
> 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 
 
NEGOTIABLE  RECEIPTS  MUST  BE  CANCELLED  OR  MARKED WHEN   GOODS  
DELIVERED   OR   WHEN   PART   OF   IT   IS DELIVERED.      FAILURE   TO   DO   SO  
WILL   MAKE   THE WAREHOUSEMAN LIABLE—
> The warehouseman is 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
 
EFFECT OF ALTERATION ON LIABILITY OF WAREHOUSEMAN ( Sec. 13)
1.   immaterial Alteration—liable  according to its original tenor
2.   authorized Alteration—  liable  according  to  the terms of the receipt as altered
3.   unauthorized alteration but w/o fraudulent intent/innocently made—the warehouseman is
liable on the altered receipt according to its original tenor
4.   Material  alteration  fraudulently  made—warehouseman  is liable  according  to  the 
original  tenor  of  the  receipt  to  a purchaser of the receipt for value without notice, but will
exempt im from any other liability to  the  alterer  and  subsequent  purchasers  with  notice

NOTA BENE:  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 endorsement of the depositor has been
forged.

e.g.
W issued a negotiable WR to A or order for goods deposited w/ W. X stole the WR and
negotiated it to B ( buyer in good faith and for value)by forging A’s signature. If W delivered the
goods to A without asking for the surrender of the goods, will he be liable to B?

ANSWER: NO. A this/forgery does not transfer title/ the right to the possession of the
goods to a purchaser even if in good faith and for value, ( Nemo dat qud non habet) although W
is obligated under the law to demand the surrender of the NWR for its cancellation.

 
LOST OR DESTROYED RECEIPTS
> The  court  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 order of the court shall not relieve the warehouseman from  liability  to  a  person  to 
whom  the  negotiable  receipt has been or shall be negotiated for value without notice of the
proceedings or of the delivery of the goods (order of court not relieve the WM to a person not
notified of the proceedings)
 
LIABILITY OF WAREHOUSEMAN AS TO DUPLICATE—HE WARRANTS
1.   That  the  duplicate  is  an  accurate  copy  of  the  original receipt
2.   Such original receipt is uncancelled at the date of the issue of the duplicate
 
WAREHOUSEMAN CANNOT SET UP TITLE IN HIMSELF
> 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—
o     Directly  or  indirectly  from  a  transfer  made  by  the depositor at the time of the deposit
for storage or subsequent thereto
o     From the warehouseman’s lien
 
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
e.g.
A,B AND C are all claiming title and possession over the goods deposited to W. what
should he do?
Answer: He shld ascertain the validity of the adverse claim or to bring legal proceedings
to compel all complaints to interplead w/n reasonable time. ( sec 18). W 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 .

LIABILITY  OF  WAREHOUSEMAN  FOR  NON-EXISTENCE  OR MISDESCRIPTION OF

GOODS
> As a 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 holder of  a warehouse receipt, the warehouseman   is   estopped  
whether   the   receipt   is negotiable or not, to deny that he has received the goods described in it
-W is liable for damages caused by non-existence of gods or failure of goods to correspond w/
the decription therein the receipt at the time of issue ( unless goods are in packages and there is
just a statement that they contain the goods.
 
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  is  reasonably  careful  owner  would  exercise  over similar
goods of his own.
> The warehouseman isn’t liable for any loss or injury to the goods,  which  couldn’t  have  been 
avoided  by  the  exercise of  such  care
 
COMMINGLING OF DEPOSITED GOODS
> As a general rule, a warehouseman may not mingle goods belonging to depositors
> In case of fungible goods, the warehouseman may mingle them with the goods of the same
kind and grade provided that he authorized by agreement or custom. 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.
> Commingling    is    intended    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
 
ATTACHMENT OR LEVY OF A NEGOTIABLE RECEIPT
> The  warehouseman  has  the  direct  obligation  to  hold possession  of  the  goods  for  the 
original  owner  or  to the person to whom the negotiable receipt of title has been duly
negotiated. 
> While  in  possession  of  the warehouseman,  the  goods cannot  be  attached  or  levied  upon 
under  an  execution unless—
o     The WR is first surrendered
o     Its negotiation is enjoined
o     The WR is impounded by the court 
> This  shall  not  apply  if  the  person  depositing  is  not  the owner of the goods or one who
has no right to convey title to the goods binding upon the owner.  
> Neither  shall  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
 
CREDITOR’S REMEDIES TO REACH NEGOTIABLE RECEIPTS
> A creditor whose debtor is the owner of 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  by  law  or  in  equity  in  regard 
to  property  which cannot  be  readily  be  attached  or  levied  upon  by  ordinary legal process
 
WHAT  CLAIMS  ARE  INCLUDED  IN  THE  WAREHOUSEMAN’S LIEN ( sec. 27)
1.   All  lawful  charges  for  storage  and  preservation  of  the goods
2.   All    lawful    claims    for    money    advanced—Interests, Insurance,  Transportation, 
Labor,  Weighing,  Cooperating and other charges and expenses in relation to the goods
3.   All  reasonable  charges   and  expenses   for  notice  and advertisements of sale
4.   Sale  of  goods  where  default  has  been  made  in  satisfying warehouseman’s lien 
NOTE: a w having a valid lien against a person demanding the goods may refuse to deliver the
goods to him until the lien is satisfied. ( Sec 32)
: W may avail of other remedies for the collection of all charges and advances against the
depositor

AGAINST WHAT PROPERTY THE LIEN MAY BE ENFORCED

1.   Against  all  goods,  whenever  deposited,  belonging  to  the person who is liable to the
debtor for the claims in regard to which the lien is asserted
2.   Against  all  goods  belonging  to  others  which  have  been deposited at any time by the
person who is liable as debtor for  claims  in  regard  to  which  the  lien  is  asserted  if  such
person  had  been  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
 
HOW WAREHOUSEMAN LOSES HIS LIEN ( sec. 29)
1.   By surrendering possession thereof
2.   By refusing to  deliver the goods  when a demand is  made with  which he is bound to
comply under the provisions of the law
 
LIEN WHERE RECEIPT NEGOTIABLE
> With  the  exception  of  the  charges  for  the  storage  or preservation  of  goods  for  which  a 
negotiable  receipt  has been  issued,  the  lien  exists  only  for  the  other  charges expressly 
enumerated  in  the  receipt  so  far  as  they  are written although the amount of the said charge
isn’t stated
 
 
SATISFACTION OF LIEN BY SALE
1.   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  mail 
addressed  to  the last known place of business or abode of the person to be notified.
2.   The notice shall contain—
a.    An  itemized  statement  of  the  claim,  showing  the sum  due  at  the  time  of  the  notice 
and  the  dates when it became due
b.   A brief description of the goods
c.    A demand that such amount of the claim as stated shall be paid on or before the day
mentioned, not less than 10 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 due course of post,
if the notice is sent by mail ( notice published once/wk for 2 consecutive wks in a newspaper
published in the place where sale is held or notice posted in 6 conspicuous places for at leat 10
days before the sale))
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
 
ENFORCEMENT OF WAREHOUSEMAN’S LIEN
1.   By refusing to deliver the goods until the lien is satisfied
2.   By  causing  the  extrajudicial  sale  of  the  property  and applying the proceeds to the value
of the lien
3.   By filing a  civil action for collection of the  unpaid charges or  by  way  of  counterclaim  in 
an  action  to  recover  the property from him
 
EFFECT OF SALE OF GOODS
1.   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.
2.   When   the   sale   was   made   without   the   publication requirement  and  before  the  time 
specified  by  law,  such sale  is  void  and  the  purchaser  of  the  goods  acquires  no title in
them.
 
ACTS FOR WHICH WAREHOUSEMAN IS LIABLE
1.   Failure to stamp duplicate on copies of negotiable receipt
2.   Failure  to  place  non-negotiable  or  not  negotiable  on  the not negotiable receipt
3.   Misdelivery of the goods
4.   Failure  to  effect  cancellation  of  a  negotiable  receipt  upon delivery of the goods 
5.   Issuing  receipt  for  non-existing  goods  or  misdescribed goods
6.   Failure to take care of the goods
7.   Failure to give notice in case of sale of goods to satisfy the lien or because the goods are
perishable or hazardous
 
NEGOTIATION AND TRANSFER OF RECEIPTS

NEGOTIATION OF NEGOTIABLE RECEIPT

A. BY DELIVERY:
1.   Where  by  the  terms  of  the  receipt,  the  warehouseman undertakes to deliver the goods to
the bearer
2.   Where  by  the  terms  of  the  receipt,  the  warehouseman 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

NOTE: A bearer WR is not always a bearer document in the sense that a special indorsement has
the effect fo converting the bearer instrument into an order instrument.
e.g. A delivered a bearer WR to B. upon receipt thereof, B specially indorsed it to C. to
negotiate the instrument further, C has to indorse it to effect negotiation.
 
B. BY INDORSEMENT ( the goods are to be delivered to the order of the person named therein)
1.   If  indorsed  in  blank  or  to  bearer,  the  document  becomes negotiable by delivery
2.   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 isn’t sufficient. 

EFFECTS OF NEGOTIATION OF WR
 - it has the effect of manual delivery so as to constitute the transferee the owner of the
goods. Negotiation carries with it both the title to and possession of the property.
( Phil Trust Co. vs National Bank, 42 Phil 413, 1922)
 
a) acquires title to the goods
b) direct obligation of W to hold possession of the goods for him accdg to the terms
of the receipt as if the W had contracted directly with him.
E.G.
1) A deposited 1000 cavans of rice in the warehouse of W who issued a NWR payable to
A or bearer. A entrusted the receipt to his secretary X, who in turn delivered the receipt to C, a
purchaser in good faith and for value, in exchange foe money which he used to pay off his debt.

Who has better title to the goods? C has better title. The WR is a bearer receipt hence
whoever is in possession of it has title over the property covered by the receipt. The W has direct
obligation to hold the goods for the bearer.

# If the WR is deliverable to “ order of A”, indorsement is necessary to acquire the direct

obligation of the W. C would nt be shielded from the transfer committed in breach of faith.

. 2) A stole goods from B and deposited them with W for w/c a NWR was issued. A
negotiated it to C, a purchaser for value and in good faith. W, upon being informed of the theft
and upon demand, delivered the goods to B w/o asking for the surrender of the receipt. Is W
liable to C?
Answer. NO. The W would only be liable for his failure to deliver the goods to C if the
negotiation would transfer the right to possession of the goods. The nego by A to C did not
transfer such rt of posseesion the goods having been stolen by A. C acquired no title from A.

3) A deposited certain goods with W for which a NWR deliverable to bearer was issued.
The receipt was stolen by B who delivered it to C who is a purchaser for value and in good faith.
Is the W liable to C?
- YES, C is a bonafide transferee protected under secs 40 and 47 of WRL.

NOTE: if the receipt is an order instrument, it wld be necessary for B to forge the
signature of A in order to completely negotiate the instrument. Hence, the transfer wld be
inoperative as it is based on a forged indorsement.

TRANSFER OF NON-NEGOTIABLE RECEIPT

> A non-negotiable receipt of title cannot be negotiated.
> Nevertheless, it can be transferred or assigned by delivery
> The assignee  or transferee  only acquires the rights of the transferor or assignor
 
ADVANTAGES OF A NEGOTIABLE WAREHOUSE RECEIPT
1.   It protects a purchaser for value and in good faith
2.   The  goods  covered by the receipt cannot be garnished  or levied  upon  under  execution 
unless  it  is  surrendered,  or impounded, or its negotiation enjoined
3.   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
4.   The  goods  it  covers  aren’t  subject  to  seller’s  lien  or stoppage in transitu
 
WHO MAY NEGOTIATE A RECEIPT
1.   By the owner thereof
2.   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 possession or  custody  of the receipt  has  been entrusted, 
or  if  at the
same time  of such entrusting, the receipt is in such form that it may be negotiated by delivery
 
RIGHTS   OF   PERSON   TO   WHOM   RECEIPT   HAS   BEEN NEGOTIATED
1.   The  title  of  the  person  negotiating  the  receipt  over  the goods covered by the receipt
2.   The title of the person to whose order by the terms of the receipt the goods were to be
delivered over such goods
3.   The   direct   obligation   of   the   warehouseman   to   hold possession of the goods for  him, 
as if the  warehouseman directly contracted with him
 
RIGHTS   OF  TRANSFERR OF NON-NEGOTIABLE RECEIPT
1. Title to the goods as against the transferor
2.   The  right  to  notify  the  warehouseman  of  the  transfer thereof
3.   The  right  thereafter  to  acquire  the  obligation  of  the warehouseman to hold the
goods for him
 
NOTE: Prior to notification, the title of the transferee to the goods and the rt to acquire the
obligation of the W may be defeated by the levy or attachement or execution uponthe goods
by a creditor of the transferor or by a notification to the W by the transferor or a subsequent
purchaser from the transferor of a subsequent sale of the goods by the transferor.

e.g. On Jan 1, 1990, A delivered 1000 cavans to W warehouse and issued a NNWR. On Jan
15, 1990, A transferred for value the receipt to B. Meanwhile, C obtained a judgment against
A for unpaid debt. A writ of execution followed and the goods were levied. What should the
W do?
Answer: The W must honor the writ. The NNWR does not confer upon the transferee the
direct obligation of the W. prior to the notice to the W, the right of the transferee may be
defeated by a writ validly issued by a comptent court.

RULE WHERE RECEIPT IS 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
> Reason for the rule: negotiation becomes complete only at the time of indorsement
 
WARRANTIES ON SALE OF RECEIPT
1. That the receipt 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 of the worth of
the receipt
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 receipt of the
goods represented thereby

 
INDORSER, NOT A GUARANTOR
> The  indorsement  of  a  receipt  doesn’t  make  the  indorser liable for  any failure  on the part
of the warehouseman  or previous  indorser  of  the  receipt  to  fulfill  their  respective
obligations

e.g. A deposited to W 1000 cavans of rice. A sells and indorse the NWR to B. if W refused to
deliver the goods to B, will A B liable?
Answer: NO. He does not warrant that the W will perform his obligation

How about if the rice is unfit for consumption?

Answer: A is liable bec he warrants that the goods are fit for the particular purpose
intended.
 
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
> In other words, the holder of a security who in good faith accepts payment of a debt from a
person doesn’t warrant thereby  the  genuineness  of  the  receipt  nor  the  quality  or quantity of
the goods therein described
 
WHEN  NEGOTIATION  NOT  IMPAIRED  BY  FRAUD,  DURESS, MISTAKE
> The validity of the negotiation of a receipt isn’t 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 to a person
to whom the receipt is  subsequently  negotiated  paid  value  therefor,  without notice of the
breach of duty, fraud, mistake or duress.
 
EFFECT OF SUBSEQUENT NEGOTIATION BY SELLER, ETC.
> The purchaser, mortgagee, or pledgee of goods for which a negotiable  receipt  has  been 
issued,  or  of  the  negotiable receipt itself, has the duty 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 subsequent
negotiation
> The subsequent purchaser must have taken the receipt in  good faith and for value in order to
acquire a better right 
 
INDORSEE’S RIGHT SUPERIOR TO VENDOR’S LIEN
> An  innocent  holder  of  a  negotiable  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
> Warehouseman  isn’t  obliged  to  deliver  or  justified  in delivering the goods to an unpaid
seller unless the receipt is first surrendered for cancellation

e.g. A purchased from B 1000 cavans of rice on credit. A deposited the rice with W and a NWR
was issued. A negotiated the receipt to C, a purchaser in good faith and for value.

a) Who has a better right? C. under sec 49, where a NWR has been issued for goods, no
seller’s lien or right of stoppage in transit shall dfeat the rts of any purchaser for value
in good faith to whom such receipt ha been negotiated.
b) When can the W be obliged to deliver the goods to the unpaid seller?
-when he has validly surrendered the receipt for cancellation. This means the unpaid
seller has validly acquired the receipt from the holder for value.

NOTE: THE RIGHT OF THE PLEDGEE cannot also be defeated by an unpaid

seller.
 
HOW  DO  YOU  ATTACH  OR  IMPOSE  A  LIEN  OVER  GOODS COVERED BY A
WAREHOUSE RECEIPT? 
If it is not negotiable, the court would issue a writ of attachment.  If it is negotiable, the court 
should  require  the  surrender  of  the  receipt  and  restrict further negotiations. 

W DEFENSES FOR NON-DELIVERY OR MISDELIVERY:

1. loss or destruction of goods w/o the fault of bailee
2. failure to satisfy the bailee’s lien
3. failure to surrender the negotiable doc of title
4. lack of willingness to sign acknowledgment
5. receipt by the W 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 delivery ( sec 10)
6. the W has information that the delivery about to be made was one not lawfully entitled to
the possession of the goods ( sec 10)
7. delivery to a claimant w/ better right
8. attachment or levy of the goods by a creditor where the doc is surrendered or its
negotiation is enjoined or the doc is impounded ( sec 25)
9. where the doc of title is attached by a creditor. ( sec 26)

WR CONSTITUTED AS EQUITABLE MORTGAGE

GEN RULE: the proper negotiation or assignment of a WR carries w/ it the transfer of title over
the commodities covered.
Exception: when a NWR is indorsed and delivered as a collateral for loan w/c wld then be a
species of security referred to as equitable mortgage.
CASES:
In conclusion, we hold that where a warehouse receipt or quedan is transferred
or endorsed to a creditor only to secure the payment of a loan or debt, the transferee or
endorsee does not automatically become the owner of the goods covered by the
warehouse receipt or quedan 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, and that if the property covered by the quedans or warehouse
receipts is lost without the fault or negligence of the mortgagee or pledgee or the
transferee or endorsee of the warehouse receipt or quedan, then said goods are to be
regarded as lost on account of the real owner, mortgagor or pledgor. ( Martirez v PNB,
93 Phil. 765, 770-771 [1953]. See also Philippine National Bank v. Atendido, 94 Phil. 254, 258 [1954]; and
Warner, Barnes, & Co. Ltd. v. Flores, 1 SCRA 881, 885-886 [1961].)
The indorsement and delivery of the warehouse receipts (quedans) by Ramos and
Zoleta to petitioner was not to convey title to or ownership of the goods but to secure
(by way of pledge) the loans granted to Ramos and Zoleta by petitioner. The
indorsement of the warehouse receipts (quedans), to perfect the pledge, 1[39] merely
constituted a symbolical or constructive delivery of the possession of the thing thus
encumbered.2[40]
The creditor, in a contract of real security, like pledge, cannot appropriate without
foreclosure the things given by way of pledge.3[41] Any stipulation to the contrary,
termed pactum commissorio, is null and void.4[42] The law requires foreclosure in order
to allow a transfer of title of the good given by way of security from its pledgor, 5[43] and
before any such foreclosure, the pledgor, not the pledgee, is the owner of the goods. In
Philippine National Bank v. Atendido,6[44] we said:
The delivery of the palay being merely by way of security, it follows that by the nature of
the transaction its ownership remains with the pledgor subject only to foreclosure in
case of non-fulfillment of the obligation. By this we mean that if the obligation is not paid
upon maturity the most that the pledgee can do is to sell the property and apply the
proceeds to the payment of the obligation and to return the balance, if any, to the
pledgor (Art. 1872, Old Civil Code [Art. 2112, New Civil Code]). This is the essence of
this contract, for, according to law, a pledgee cannot become the owner of, nor
appropriate to himself, the thing given in pledge (Article 1859, Old Civil Code [Art. 2088,
New Civil Code]) The fact that the warehouse receipt covering palay was delivered,
endorsed in blank, to the bank does not alter the situation, the purpose of such
endorsement being merely to transfer the juridical possession of the property to the
pledgees and to forestall any possible disposition thereof on the part of the pledgor.
This is true notwithstanding the provisions of the Warehouse Receipt Law.
1

2READ : PNB vs SAYO JR., GR 129918, July 9. 1998