CREDIT TRANSACTIONS
states that the goods are to be delivered
WAREHOUSE RECEIPTS LAW
 Document of title to goods - includes: BD-QWO
a. Bill of lading;
b. Dock warrant;
c. Quedan; or
d. Warehouse receipt or order for delivery of goods;
or
e. Other document
- used in the ordinary course of business in the sale or
transfer of goods, as proof or of possession or control of
the goods, 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 UPAT.
 Common Types:
1. BILL OF LADING - document that serves as
evidence of receipt of goods for shipment issued by
a common carrier;
2. WAREHOUSE RECEIPT - document of title which
is issued by a warehouseman.
 Warehouseman - a person lawfully engaged
in the business of storing goods for profit.
3. QUEDAN - warehouse receipt that covers sugar.
4. DOCK WARRANT - 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 a recognition of his title to the
goods.
 3 FUNCTIONS OF DOCUMENTS OF TITLE: ETC
1. Evidence of receipt of goods.
2. Transferable document that carries with it control
over the goods - it is used to pass title to the
goods. It can be a negotiable document of title.
3. Contract - the underlying contract may be contract
of carriage (bill of lading) or deposit (warehouse
receipt).
 When are WAREHOUSE RECEIPTS NEGOTIABLE?
 A RECEIPT in which it is stated that the goods
received will be delivered:
a. To the bearer; or
b. To the order of any person named in such
receipt;
is NEGOTIABLE.
 No provision shall be inserted in a negotiable
receipt that it is non-negotiable. Such provision, if
inserted, shall be VOID.
 When negotiation is by DELIVERY ONLY -
Where, by the terms of the receipt, the
warehouseman undertakes to deliver the goods to:
a. the BEARER;
b. the ORDER OF A SPECIFIED PERSON, and
such person or a subsequent indorsee of the
receipt has indorsed it in blank or to
bearer.
 A bearer document of title is not always a
bearer document in the sense that a
special indorsement has the effect of
converting the bearer instrument into an
order instrument.
 Example: A negotiable document of title
to “A or bearer.” A delivered the
document to B, who in turn specially
indorsed the same to C. C cannot
negotiate the document by mere delivery
thereafter and indorsement is
necessary for its negotiation.
 When negotiation is by INDORSEMENT AND
DELIVERY:
 A warehouse receipt is an order document of
it states that the goods are to be delivered to
the order of a person named therein. It
can only be negotiated thru the indorsement
of the specified person so named.
 Effects: TNT
1. Transferee acquires title against the
transferor;
2. No direct obligation of the
warehouseman;
3. Transferee can compel transferor to
complete negotiation by indorsing the
instrument.
 Effect of negotiation of warehouse receipt: 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.
 If the goods were stolen by a person, and the latter
deposits such goods in a warehouse, the negotiation of a
warehouse receipt covering those goods does not
transfer the right of possession over the goods to the
transferee, the goods having been stolen from another.
 VENDOR’S LIEN - The transfer of title to the purchaser
for value is not affected by the rights of the vendor.
 But 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.
 The warehouseman cannot be obliged to deliver the
goods to an unpaid seller unless the receipt is first
validly surrendered for cancellation. This means
that the unpaid seller has validly reacquired the
receipt from the holder for value.
 The right of a pledgee cannot be defeated by the
unpaid seller.
 If the warehouseman failed to deliver the goods, the
indorser shall not be liable to the bona fide purchaser.
He does not guaranty the performance of the
obligation of the warehouseman as the case may
be.
 Warranties of transferor: GL-KR
1. That the receipt is Genuine;
2. That he has Legal right to negotiate or transfer it;
3. That he has no Knowledge of any fact which would
impair the validity or 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.
 When is warehouse receipt NON-NEGOTIABLE?
  If it states that the goods received will be delivered
to the depositor or to any other specified person.
 It shall have plainly placed upon its face by the
warehouseman issuing it “non-negotiable,” or “not
negotiable.”
 In case the warehouseman fails to do so, a
holder of the receipt who purchased it for
value supposing it to be negotiable may, at his
option, treat such receipt as imposing upon
the warehouseman the same liabilities he
would have incurred had the receipt been
negotiable.
 Rights of TRANSFEREE of NON-NEGOTIABLE
RECEIPT: TN
1. Right to the Title of the goods subject to the terms
of any agreement with the transferor;
2. Right to Notify the warehouseman of the transfer
to him of such receipt, and thereby to acquire the
direct obligation of the warehouseman to hold
possession of the goods for him according to the
terms of the receipt.
 Prior such notification, the title of the
transferee to the goods and the right to
acquire the obligation of the warehouseman
may be defeated by the levy of an
attachment or execution upon the
goods.
 Warehouseman’s DEFENSES for NON-DELIVERY:
AFRAID-LLF
1. Attached document of title by creditor;
2. Failure to satisfy bailee’s lien;
3. Receipt by bailee of 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;
4. Attachment or levy by creditor where document is
surrendered or its negotiation is enjoined, or
document is impounded;
5. Information that the delivery about to be made was
to one not lawfully entitled to the possession of the
goods;
6. Delivery to claimant with better right;
7. Loss or destruction of goods without the fault of
bailee;
8. Lack of willingness to sign acknowledgement;
9. Failure to surrender negotiable document of title.
 WAREHOUSEMAN’S LIEN - claims included: CCN
1. Charges for storage and preservation of goods;
2. Claims for money advanced, interest, insurance,
transportation, labor, weighing coopering, and
other chargees and expenses in relation to such
goods; and
3. Notice, advertisement of sale, and sale expenses,
where default had been made in satisfying the
warehouseman’s lien.
 If more than 1 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, require
all known claimants to INTERPLEAD.
 Attachment or Levy of the goods shall not prosper
unless the receipt be first surrendered to the
warehouseman or its negotiation enjoined.
GENERAL BONDED WAREHOUSE LAW
 Obligations of a warehouseman: LSBN-Fire
1. Liable to the amount double the market value of
goods, in case of damage to the goods because he
accepts goods in excess of the capacity of
warehouse;
2. Secure license from DTI;
3. File Bond equivalent to 33 1/3% of market value of
maximum quantity of goods to be received;
4. Not discriminate and mist open his warehouse to
the public;
5. Fire insurance.
 The law ONLY covers warehouses that accept
goods for: SMC
1. Storage;
2. Milling; and
3. Commingling;
- with the obligation (1) to return the same quantity or
(2) to pay their value.
LETTERS OF CREDIT
 Define: It is a an Engagement by a bank or other
person Made at the request of a customer that the
Issuer will honor drafts and other demands for payment
Upon compliance with the conditions specified in the
credit. EMIU
 It is a financial device developed by merchants as a
convenient and relatively safe mode of dealing with sales
of goods to satisfy the seemingly irreconcilable interests
of the seller, who refuses to part with his goods before
he is paid, and a buyer, who wants to have control of the
goods before paying.
 PROCESS:
1. Buyer contracts a bank to issue a letter of credit.
The issuing bank can authorize the seller to raw
drafts and engage to pay them upon their
presentment simultaneously with the tender of
documents required by the letter of credit.
2. The buyer and seller agree on what documents are
to be presented for payment, but ordinarily, they
are documents of title evidencing or attesting to the
shipment of the goods to the buyer.
3. Once the letter of credit is established, the seller
ships the goods to the buyer and in the process,
secures the required shipping documents and
documents of title.
4. To get paid, the seller executes a draft and
presents it together with the required documents to
the issuing bank.
5. The issuing bank redeems the draft and pays cash
to the seller if it finds that the documents submitted
by the seller conform with what the LC requires.
6. The transaction is completed when the buyer
reimburses the issuing bank and acquires the
documents of title over the goods, while the buyer
acquires the said documents and control over the
goods only after reimbursing the bank.
 Letters of credit shall be: IL
a. Issued in favor of a definite person and not to
order; and
b. Limited to a fixed and specified amount, or to one
 or more undetermined amount bit with maximum
limit stated exactly.
 3 PARTIES in a LETTER OF CREDIT TRANSACTION:
1. BUYER - procures the letter of credit and obliges
himself to reimburse the issuing bank upon receipt
of the documents of title.
2. ISSUING BANK - bank issuing the LC; undertakes
to: PS
a. Pay the seller upon receipt of the draft and
proper documents of titles; and
b. Surrender the documents to the buyer upon
reimbursement.
3. SELLER - one who, in compliance with the contract
of sale, Ships the goods to the buyer and Delivers
the documents of title and draft to the issuing bank
to recover payment SD.
 3 distinct and independent contracts involved in a
letter of credit: SBL
1. Contract of Sale between the buyer and the seller;
2. Contract of the Buyer with the issuing bank;
 Here, the bank agrees to issue the letter of
credit in favor of the seller subject to
reimbursement or payment by the buyer of
whatever is paid to the seller plus proper
consideration agreed upon by the parties.
3. The Letter of credit proper.
 Here, the bank obligates itself to pay the seller
or to the order of the seller after presentation
to the bank of tender documents stipulated
upon.
 INDEPENDENCE PRINCIPLE - the relationship of the
buyer and the bank is separate from the relationship
of the buyer and seller in the main contract; the bank
is not required to investigate if the contract underlying
the LC has been fulfilled or not because in transactions
involving LC, banks deal only with documents of title
and not goods. In effect, the buyer has no course of
action against the issuing bank.
 Exception: When there is FRAUD or FORGERY
in the underlying transaction or the tender
documents.
 DOCTRINE OF STRICT COMPLIANCE - the issuing
bank or the confirming bank, as the case may be, must
examine the TENDER DOCUMENTS and must make
sure that the terms and conditions of the LC are
strictly complied with.
 There is no discretion on the part of the bank to
waive any requirement.
 The tender documents must not only be complete
but they must, on their faces, be in compliance with
the terms of the Credit.
 Documents that are not stipulated as tender
documents will not be examined.
 KINDS OF LETTERS OF CREDIT: CRIBS
1. CONFIRMED LC - beneficiary stipulates that the
obligation of the opening bank shall also be made
the obligation of another bank to himself.
2. REVOLVING LC - provides for renewed credit to
become available as soon as the opening bank has
advised the negotiating or paying bank that the
drafts already drawn by the beneficiary have been
reimbursed to the opening bank by the buyer.
3. IRREVOCABLE LC - definite undertaking on the
part of issuing bank.
 Constitutes the engagement of that bank to
the beneficiary and bona fide holders of drafts
drawn and/or documents presented
thereunder, that the provisions for payment,
acceptance or negotiation contained in the
credit will be duly fulfilled, provided that all
the terms and conditions of the credit are
complied with.
4. BACK-TO-BACK LC - one with identical
documentary requirements and covering the same
merchandise as another letter of credit, except for a
difference of the price of the merchandise as shown
by the invoice and draft. The second LC can be
negotiated only after the first is negotiated.
5. STANDBY LC - security arrangement for the
performance of certain obligations.
 The beneficiary will prove that the obligor
failed to perform the secured obligation.
TRUST RECEIPTS LAW
 Loan and Security Feature: Under this set-up, a bank
extends a loan covered by the letter of credit, with the
trust receipt as a security for the loan. In other words,
the transaction involves a loan feature represented by
the letter of credit, and a security feature which is in
the covering trust receipt.
 Define: A trust receipt is a SECURITY AGREEMENT,
pursuant to which a bank acquires a security interest
in the goods.
 Security Interest - property interest in goods,
documents or instruments to secure performance of
some obligations (1) of the entrustee or (2) of
some third persons third persons, to the entrustor.
 It is a security transaction intended to aid financing
importers or dealers in a merchandise, by allowing
them to obtain delivery of goods under certain
covenants.
 Usually, the ENTRUSTER releases the goods to the
entrustee so that the latter may sell the goods.
However, the purpose is not limited to sale. The goods
may also be released for the following purposes: SML
1. Sale or procurement of their sale;
2. Manufacture or processing with the purpose of
ultimate sale;
3. Loading, unloading, shipment or transshipment
lust or otherwise dealing with them in a manner
preliminary or necessary to their sale.
 OBLIGATIONS of an ENTRUSTER:
 Release the possession of the goods to the
entrustee upon the latter’s execution of a trust
receipt.
 OBLIGATIONS of an ENTRUSTEE: BSR
1. Bind himself to hold the goods in trust for
entrustor;
2. Sell or dispose of goods and turn over to the
entrustor the amount still owing;
3. Return goods if unsold.
 REMEDIES of the entrustor if the goods are sold or
 disposed by entrustee, and the latter DID NOT
REMIT THE PROCEEDS: ES
1. File Estafa case against the entrustee; or
2. File a Separate case to collect the proceeds or the
money obligation secured by the trust receipt.
 REMEDIES of the entrustor if the goods are unsold
and are still with the entrustee: CTF
1. Cancel trust and take possession of goods,
documents or instruments subject of the trust;
2. Take possession of and sell the goods and apply
the proceeds of sale to expenses of:
a) Sale;
b) Retaking of goods; and
c) Indebtedness; and
3. File a case to collect indebtedness secured by trust
receipt.
 No agency relationship is established when the
entrustee executes the trust receipt. However, an
entrustee’s breach will make him liable for ESTAFA.
 The ENTRUSTEE cannot mortgage the property not
because he is not the owner, but because he does not
have free disposal of the property to be mortgaged.
 Loss of the property that served as SECURITY does
not extinguish the obligation. The entrustee will then
bear the loss of the goods or property.
BULK SALES LAW
 When is sale considered in BULK? ASA
1. Sale is of All or substantially all of the business or
trade;
2. Sale, transfer, mortgage or disposition other than in
the ordinary course of trade and the regular
prosecution of the business;
3. Sale is of All or substantially all of the fixtures and
equipment used in business.
 Purpose of the law: PREVENT DEFRAUDING of
creditors by the secret sale or disposal in bulk of all or
substantially all of a merchant’s stock of goods.
 FORMALITIES required by BSL: SFIN
1. Sworn statement of vendor/mortgagor must
accompany the sale in bulk, listing the names and
addresses of, and amounts owing to, creditors;
2. Furnish the buyer with the sworn statement;
3. Inventory of stock to be sold is required to be
prepared by seller;
4. Seller required to Notify creditors of projected sale
at least 10 days before such sale.
 FORMALITIES need not be complied with in the
following cases: JOWS
1. Sale by virtue of a Judicial order;
2. Sale made in the Ordinary course of business;
3. Written waiver from all the creditors must be
written;
4. Those Sold by assignee in insolvency or those
beyond the right of creditors.
 EFFECTS of VIOLATION of BSL: VHL
1. Void as to creditors;
2. Purchaser Holds property in trust for seller;
3. Purchaser is Liable to seller’s creditors for
properties forming part of bulk, and already
disposed by him.
MORTGAGE
 Requisites COMMON to REAL ESTATE MORTGAGE,
CHATTEL MORTGAGE, and PLEDGE: CAF
1. Mortgage must be Constituted to secure the
fulfillment of a principal obligation.
2. Absolute ownership by the mortgagor of the thing
mortgaged.
3. Free disposal of mortgagor of the property.
 FEATURES OF MORTGAGE:
1. Mortgage cannot exist without a valid principal
obligation.
2. Consideration for principal obligation is
consideration for the mortgage.
3. Third person who is not a party to the principal
obligation may mortgage his property to secure the
obligation of the debtor. It is not required that he
benefited from the principal contract.
4. The mortgage is indivisible. Even if only part of the
debt remains unpaid, all the things are liable for
such balance.
5. Mortgage secures only the amount stated in the
mortgage deed which may be less than the amount
of the principal obligation.
REAL ESTATE MORTGAGE
 Subject:
1. Immovable properties;
2. Real right over such immovable;
3. Buildings - can be separately mortgaged.
 Registration: Real estate mortgage must be registered
with ROD where subject property is located in order to
affect third persons. However, an unregistered mortgage
is valid between the parties.
 A mortgagee will be considered IN GOOD FAITH if he
relies on the face of the Torrens title. A mortgagee
without notice will not be affected by the claim of third
persons.
 Exception: BANKS cannot merely rely on the title.
By the nature of their functions, banks are required
to go beyond the title because they are required to
exercise the highest degree of diligence.
 Mortgage constitutes an ENCUMBRANCE on the real
property. The right of the mortgagee is a RIGHT IN
REM. The registered mortgage follows the property even
if there is a change in ownership.
 The parties may stipulate that after-acquired
properties are automatically included in the mortgage.
 Mortgage must be limited to the amount mentioned
in the mortgage.
 Exception: The deed of real estate mortgage may
expressly provide that it may secure future
advancements.
 3 Common Types of FORCED SALES Arising From
Failure to Pay Mortgage: EJO
1. Extrajudicial foreclosure - governed by Act No
3135;
2. Judicial foreclosure - governed by Rule 68;
3. Ordinary execution sale - governed by Rule 39; this
is a result of a personal action for collection of debt
or specific performance.
 If the mortgagee opts to foreclose the real
estate mortgage, he thereby waives the action
for collection of the debt and vice versa.

 EXTRAJUDICIAL FORECLOSURE
 It is available only if there is an EXPRESS
AUTHORITY (Special Power) in the real estate
mortgage authorizing such sale.
 Initiated by filing a PETITION with the
EXECUTIVE JUDGE thru the CLERK OF COURT
who is also the Ex Officio Sheriff of the city or
province where the property is located.
 Only one filing fee regardless of the number of
properties to be foreclosed. However, the venue of
the extrajudicial foreclosure proceedings is the
place where each of the mortgaged property is
located.
 NOTICE AND PUBLICATION - In extrajudicial
foreclosure, the following are required: PoPu
1. Posting of notices of sale in 3 public places;
2. Publication of notice of sale in a newspaper of
general circulation.
 Non-compliance of which will render the sale
null and void.
 It is not necessary that notice is posted in the
mortgaged property, so long as it is posted in
3 public places.
 If original date of sale stated in the notice is
transferred to another date, another posting
and publication of the notice of sale for the
new date is necessary; otherwise the sale will
be considered invalid.
 Personal notice to mortgagor-debtor not
necessary.
 Certificate of Posting is dispensable.
 The fact that the mortgaged property is sold at an
amount less than its actual market value is not a
ground to invalidate the foreclosure sale so
long as the price is not shocking to the conscience.
 Mortgagee-creditor can recover the deficiency
if the price of the sale is not sufficient to pay
for the entire debt or obligation.
 Mortgagor shall remain in possession of the real
property even after foreclosure. However, the
winning bidder or purchaser may file a petition
in court for a writ of possession to obtain
possession of the property, even before the
expiration of the redemption period.
 REDEMPTION: Debtor-mortgagor can redeem the
property within 1 year from the date the
certificate of sale is registered with the ROD.
 If the mortgagee is a BANK, the same rule
applies, but only for NATURAL PERSONS.
 If the mortgagor is a JURIDICAL PERSON,
it can redeem the property within 3 months
from foreclosure but not later than the
registration of the certificate of sale.
 Redemption price under Act 3135 -
purchase price plus interest of 1% per month
and taxes.
 If the mortgagee is the bank -
redemption price is the whole obligation
secured by the mortgage.
 There must be tender of the whole
redemption price plus interest in order to
validly exercise the right off redemption.
However, tender using a CHECK is sufficient.
 CHATTEL MORTGAGE
 It is an Accessory contract by virtue of which
Personal property is recorded in the Chattel
Mortgage Register as Security for the performance
of an obligation APS.
 It covers personal or movable properties, including
shares of stocks and interest in business.
 Chattel mortgage on SHARES OF STOCKS need
not be registered in the stock and transfer book.
 It shall be deemed to cover only the property
described therein and not like or substitute property
thereafter acquired.
 It can cover only obligations existing at the time the
mortgage is constituted. It cannot cover after-
incurred obligations.
 It must be registered in the Chattel Mortgage
Register of the ROD where the mortgagor
resides or if he resides without the Philippines, in
the place where the property is situated.
 If the place of residence and the place where
the property is situated are different, they
must be registered in the registers of both
province or city.
 AFFIDAVIT IN GOOD FAITH - subscribed
statement in a contract of chattel mortgage wherein
the parties severally swear that:
1. The mortgage is made for the purpose of
securing the obligation specified in the
conditions thereof, and for no other purpose;
and
2. The same is a just and valid obligation and not
one entered into for the purpose of fraud.
 The AGF gives the mortgage a preferred
status, that it, it enjoys preference of the
claim of third persons.
 RIGHT OF REDEMPTION - there is no right of
redemption after the foreclosure sale.
 Foreclosure will not prevent the mortgagee from
recovery any DEFICIENCY that may result after
applying the proceeds of the foreclosure sale to the
obligation.
 Exception: When the transaction secured is a
sale of personal property on installment basis
under Art. 1484 of the NCC, otherwise known
as the Recto Law.
RECTO LAW
 In the Contract of Sale of Personal Property on
Installment Basis, the vendor may exercise any of the
following remedies: ECF
1. Exact fulfillment of the obligaiton, should the
vendee fail to pay;
2. Cancel the sale, should the vendee’s failure to pay
 cover 2 or more installments; and
3. Foreclose the chattel mortgage.

 This applies only to sale of personal property

installments, hence, it does not apply to a simple loan.
 However, the law applies to contracts that are in
substance, sale of personal property in installments,
like financial lease or financial leasing.

 The remedies are ALTERNATIVE, not cumulative -- the

exercise of one bars the exercise of another, unless it
was not actually fully exercised.

 Foreclosure of chattel mortgage on the things sold shall

BAR RECOVERY OF ANY DEFICIENCY.
 However, if there is a real estate mortgage over
another property, the foreclosure thereof will not
bar recovery of any deficiency because he is in
effect availing of the remedy of exacting fulfillment
of the obligation rather than foreclosure of
mortgage.